A sign is seen outside the headquarters of Glencore International Plc in Baar, Switzerland. Photo: VCG

Diversified miner Glencore will become the sole owner of the Cerrejon thermal coal mine in Colombia by buying out partners BHP and Anglo American, boosting its coal assets at a time when others are looking to exit the sector.

Glencore said on Monday it expects to pay $230 million for the combined 66 percent stake owned by BHP Group and Anglo when the deal is completed in the first half of 2022. It sees production volumes at the mine declining materially by 2030.

Mining companies have been reviewing their ownership of thermal coal assets as they transition out of polluting fossil fuels to meet emissions targets and shift toward sustainable investments.

However, the global demand for coal is expected to jump 4.5 percent in 2021, after a record pandemic-led drop last year. 

An increase in coal-fired power generation in Asia, where many countries including China are still building new capacity, accounts for three-quarters of the rebound, the International Energy Agency (IEA) said recently.

Over the past 12 months, coal has outperformed other commodities including oil, copper and iron ore. 

The price of thermal coal futures on the Zhengzhou Commodity Exchange in China hit an all-time high of 944.20 yuan ($146.19) per ton on May 12, having increased by around 160 percent from a two-year low in mid-April 2020.

Net-zero emissions

Glencore said owning 100 percent of Cerrejon would not compromise its climate commitments. It plans to become a net-zero emissions company by 2050 and has set a goal of managing the depletion of its coal mines by the mid-2040s, rather than selling them.

"The 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," Glencore said in a statement.

The company wants to increase its medium-term absolute total emissions reduction target to 50 percent from 40 percent by 2035 compared with 2019 levels, and it said it will introduce a new short-term reduction target of 15 percent by 2026.

"For this to be achieved we would presume that this will mean lower production than previously from its existing portfolio," RBC Capital Markets analysts said in a note.

BHP, the world's largest listed miner, is looking to reduce operational greenhouse gas (GHG) emissions by at least 30 percent by 2030 compared with 2020, while Anglo American wants to reduce GHG emissions by 30 percent by 2030 compared with 2016 and achieve net zero by 2040.

BHP is also looking to offload its coal assets in Australia, while Anglo spun off its coal portfolio in South Africa recently.

Cerrejon, where current mining concessions are due to expire in 2034, is an integrated mining and transportation complex in Colombia's La Guajira province, in the northeastern part of the country, which includes an open-pit mine, a 150-kilometer railway line and a Caribbean port.

"This is good news for Colombia because with this transaction ... Glencore is demonstrating the investor confidence that exists in Colombia's mining sector, and also guarantees investment and employment in the province of La Guajira," Colombia's Mines and Energy Minister Diego Mesa told Reuters in a video message.

Production at Cerrejon reached 25.8 million tons in 2019, before falling to 12.4 million tons in 2020, due to the pandemic and a three-month strike that paralyzed operations.