MELBOURNE, Australia—Glencore PLC could further prune its coal
output to help reduce the market glut that has helped drive the
commodity's prices to multiyear lows.
In a rare public presentation, Glencore's Australia-based head
of global coal assets, Peter Freyberg, insisted coal was "a very,
very important part" of the company, and that executives were
considering options to acquire new assets or tie up with other
producers with an eye to the long-term.
When Glencore closed its purchase of fellow miner Xstrata PLC
two years ago, Chief Executive Ivan Glasenberg said the blockbuster
deal was "a big play on coal." Since then, coal prices have fallen
sharply, while Glencore's market value has dropped close to its
lowest level since it floated in London and Hong Kong in 2011.
Both thermal coal, burned to generate electricity, and coking
coal, used to make steel, are languishing due to oversupply caused
by too many new projects coming on stream amid slowing demand,
particularly from China. Glencore is the world's biggest
thermal-coal exporter, and also produces coking coal.
Glencore's mining activities have been underperforming other
parts of its business, such as its marketing division, reflecting
its considerable exposure to falling coal prices. Glencore's
industrial operations, which include its mines, reported a 17% fall
in earnings before interest and taxes in 2014.
Glencore has taken steps, such as spending cuts, to firm up its
balance sheet as its commodity assets shrink in value.
On Thursday, Mr. Freyberg said market conditions were tough, but
he said he was optimistic for the long term. China's appetite for
coal may be waning, but demand from countries such as India is on
the rise, he said.
"We are seeing demand growth. Sometimes it all doesn't happen as
quickly as you'd like, but it is there," he told reporters at an
industry event. "So the investment that Glencore made in acquiring
Xstrata, and the fact that it ... has got longer in coal, is still
considered a good investment."
Mr. Freyberg declined to answer questions on whether the
resources company is still interested in a tie-up with Rio Tinto
PLC, one of the world's biggest producers of iron ore, and also a
miner of coal. Rio Tinto last summer rejected an informal approach
from Glencore that would have combined two of the world's biggest
mining companies. Under U.K. law, Glencore could have approached
Rio again from April.
"We are open to value-adding opportunities when they present
[themselves]," he said, referring to any future acquisitions.
Glencore intends to reduce its Australian output by roughly 15%
this year. Mr. Freyberg said it was the "responsible" decision to
prune output at a time of oversupply in the global market, and that
Glencore was positioning itself to weather a sustained fall in
prices.
"We have cut across our business what we felt was right at that
point in time," Mr. Freyberg said.
Earlier Thursday, Peabody Energy Corp. announced it would pare
coking coal production at one of its Australian mines, saying it
aimed to reduce costs and preserve its best quality coal for a time
when market demand had improved.
Other producers including Canada's Teck Resources have also
recently announced cutbacks.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
Access Investor Kit for Rio Tinto Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000RIO1
Subscribe to WSJ: http://online.wsj.com?mod=djnwires