Following notices from our joint venture partners, BHP and Anglo American, offering to sell their entire shares in the Cerrejón mine in Colombia, Glencore has reached agreement with each of them on substantially the same terms to acquire their respective 33.3% interests.
The transaction has an economic effective date of 31 December 2020, with an aggregate purchase consideration of c. US$588M then being subject to purchase price adjustments calculated at closing. Based on expected operating performance and current forward coal prices, assuming a closing during H1 2022, we anticipate the cash generated by the operation to reduce the effective aggregate cash consideration to approximately US$230M, making the estimated investment payback period less than 2 years from closing.
The transactions are subject to various regulatory approvals and are inter-conditional on each other.
Glencore carefully considered how best to respond to the sale notices in a manner which reflects our commitment to achieve the goals of the Paris Agreement and acknowledging our obligation to act as a responsible steward of assets.
Based on our long-term relationship with Cerrejón and knowledge of the asset, we strongly believe that acquiring full ownership is the right decision and the progressive expiry of the current mining concessions by 2034 is in line with our commitment to a responsible managed decline of our coal portfolio. Production volumes are expected to decline materially from 2030.
The alternative is one or more new JV partners acquiring these shares and compromising the sustainable operating philosophy of Cerrejón, and extending production beyond the current mining concessions.
Equally, a disposal of Glencore’s current stake in the mine would not be consistent with our stated commitment to a responsible managed decline of our coal portfolio, nor would it result in a genuine reduction of absolute greenhouse gas emissions.
We have reviewed the impact of owning 100% of Cerrejón and are confident our climate commitments will not be compromised by this partner buy-out. We have further reviewed our planned fossil fuel production profile and are now able to commit to more aggressive total emission reduction targets as follows:
- we will increase our medium-term absolute total emissions reduction target (Scope 1+2+3) from 40% to 50% by 2035 on 2019 levels1; and
- we will introduce a new short-term reduction target of 15% by 2026 on 2019 levels.
Our focus remains on our total emissions footprint, including our scope 3 emissions, which is critical in order to achieve the goals of the Paris Agreement.
Glencore will continue to prioritise capital allocation towards commodities essential for the transition to a low carbon economy.
Ivan Glasenberg, CEO of Glencore, said: “Glencore has been involved with Cerrejón for more than 20 years. We know the asset well and believe that we are the most responsible steward for Cerrejón at this stage of its lifecycle.
“Disposing of fossil fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions.
“We are confident we can manage the decline of our fossil fuel portfolio in a responsible manner that is also consistent with meeting the goals of the Paris Agreement, as demonstrated by our strengthened total emission reduction targets.”
Cerrejón is an open-pit coal-export mining operation in Colombia. The company plays an important role in the Colombian economy and in the region of La Guajira, where it operates a mine, railroad and port facilities.
The gross assets of Cerrejón are US$2.968 billion. The loss attributable to Cerrejón in the year ended 31 December 2020 was US$226 million.
Glencore is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 60 responsibly sourced commodities that advance everyday life. The Group's operations comprise around 150 mining and metallurgical sites and oil production assets.
With a strong footprint in over 35 countries in both established and emerging regions for natural resources, Glencore's industrial activities are supported by a global network of more than 30 marketing offices. Glencore's customers are industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. We also provide financing, logistics and other services to producers and consumers of commodities. Glencore's companies employ around 135,000 people, including contractors.
Glencore is proud to be a member of the Voluntary Principles on Security and Human Rights and the International Council on Mining and Metals. We are an active participant in the Extractive Industries Transparency Initiative. Our ambition is to be a net zero total emissions company by 2050.
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