GLNCY Glencore Plc (PK)

By Scott Patterson and Oliver Griffin 

LONDON -- Glencore PLC, one of the world's biggest coal producers, said it is capping output of the fossil fuel as it faces growing pressure from investors over climate change.

The move marks a major reversal for a company that has invested billions of dollars in recent years to unearth more of the commodity and sell it in parts of the world where demand is surging. Even when its rivals had backed away from the fossil fuel, Glencore continued to double down, last year scooping up Australian assets from Rio Tinto PLC for $1.7 billion.

The Anglo-Swiss commodity trader said Wednesday it plans to limit its annual coal production at 150 million metric tons, toward the higher end its target this year, as it moves to align itself with evolving views on global warming. Last year, it produced 130 million metric tons of coal.

Among the world's biggest cheerleaders for coal in recent years is Glencore Chief Executive Ivan Glasenberg.

Mr. Glasenberg took control of the firm's world-wide coal business in 1990 and spearheaded its dominant position in coal mining, snapping up operations in Colombia, South Africa and Australia. After Glencore completed its purchase of mining behemoth Xtrata PLC in 2013, the largest mining deal ever, Mr. Glasenberg said the deal was "a big play" on coal.

Coal prices collapsed soon after, however, leaving investors wondering if Mr. Glasenberg, seen as one of the mining industry's most astute deal makers, had made a mistake. But prices more recently have surged, making coal among Glencore's most profitable commodities.

Mr. Glasenberg doesn't expect that to change soon.

"The coal market is extremely strong," he said on an August earnings call. "It's all holding well for coal going forward." On Wednesday, the CEO said he expects demand for thermal coal in Southeast Asia and elsewhere to remain robust.

The world's corporate giants are under growing pressure to shift away from fossil fuels that are blamed for contributing to climate change. Investor groups are pushing companies to invest in cleaner fuels.

Glencore's decision to limit coal production is exactly the kind of step investors have encouraged companies to make in order to avoid potentially more damaging impacts as the world moves to lower-carbon energy forms, said Anne Simpson, director of board governance and strategy at the California Public Employees' Retirement System. Ms. Simpson has played a central role in climate-related discussions with global companies.

"We want to make the shift from coal deliberate and strategic rather than waiting for the chaos of a market transition without any guardrails, " she said.

Glencore is the latest company to agree to the investor demands, but many more are likely to follow as companies prepare for their annual meetings of shareholders in the coming months. Royal Dutch Shell PLC, Europe's largest oil-and-gas company, agreed in December to set targets to reduce the emissions from the use of its products, the first giant energy company to agree to such a step.

Among the world's largest Western oil companies, Shell is moving most aggressively to a future focused on natural gas, a strategy that has smoothed the path for its strident climate goals, since natural gas accounts for far lower emissions than crude and related products. None have taken steps to limit oil production, but BP PLC, Exxon Mobil Corp., Chevron Corp. and France's Total SA have all set various goals to reduce certain kinds of emissions.

BP has committed to reduce greenhouse-gas emissions from its operations, and Chevron has moved to lower methane emissions and flaring. Both companies have tied the goals to compensation for employees. Total has made numerous investments in alternative sources of energy, along with Shell.

Exxon has also supported methane reduction and has given its financial backing to a U.S. lobbying effort to enact a carbon tax. BP, Shell and Total all support the measure.

BHP Group Ltd., a big producer of metallurgical coal used in steelmaking, last year left the coal industry's lobbying group, the World Coal Association, due to differences over their approach to climate change. Glencore and Anglo American PLC, another big coal producer, remain members of the association. Anglo several years ago said it planned to sharply reduce its coal assets but reversed course after coal prices surged.

Despite mounting concerns about coal, it remains the world's largest source of electricity, according to the International Energy Agency. Countries in Asia and Africa are expected to increase their use of coal to expand power generation through 2040, the U.S. Energy Information Administration has said.

Glencore also Wednesday launched a $2 billion share-buyback program that is set to run until the end of 2019. The company's share price was trading 1.6% higher in the London afternoon.

Wednesday's announcement represents "peak coal" for Glencore, said the Australasian Centre for Corporate Responsibility, a nonprofit that supports ethical investments. It is "an extraordinary about-face," said Dan Gocher, the ACCR's director of climate and environment.

Glencore had long been a holdout on coal. The company has said its thermal coal was a cheap source of power-plant fuel for emerging economies. Mr. Glasenberg has said strong demand for low-cost energy in Southeast Asia, combined with underinvestment in new coal assets, would drive prices higher for years to come.

Glencore on Wednesday also reported a 41% decline in net profit to $3.41 billion for 2018 after booking impairments at two of its mines.

Revenue for the year rose 6.9% to $219.75 billion, Glencore said. Adjusted earnings before interest, taxes, depreciation and amortization -- which strips out one-off items -- rose to $15.77 billion, from $14.55 billion in 2017. A consensus estimate from 20 analysts compiled by Vuma projected adjusted Ebitda of $16.14 billion for the full year.

Glencore also said it would cut copper production at its Mutanda operation in Congo to about 100,000 metric tons from its recent average of about 200,000 tons a year as it explores new mining methods. The Wall Street Journal reported on Tuesday that Glencore would cut production at Mutanda. The move will have little effect on cobalt production, the company said.

The company said it expects production levels across all of its commodities in 2019 to be higher than last year.

--Neanda Salvaterra and Bradley Olson contributed to this article.

Write to Scott Patterson at scott.patterson@wsj.com

(END) Dow Jones Newswires

February 20, 2019 14:30 ET (19:30 GMT)

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