LONDON—Glencore PLC added to its growing portfolio of coal assets with a $1.7 billion investment in a pair of Australian producers—part of a bet by the mining giant that demand for coal in Southeast Asia will remain strong, even as competitors shy away from the stuff.
The Swiss mining and trading giant said it acquired Rio Tinto PLC’s 82% interest in the Hail Creek coal mine and adjacent coal resources, as well as its 71.2% interest in the Valeria coal resource. The deal follows Glencore’s purchase last year of a 49% stake in Rio Tinto’s Hunter Valley coal operations in Australia, which sit adjacent to Glencore’s coal facilities, for $1.1 billion.
While some big integrated mining giants such as Rio Tinto have been backing away from coal, Glencore, led by former coal trader Ivan Glasenberg, has been doubling down in a gamble that Southeast Asian countries continue to rely on it as a cheap fuel for power plants.
Hail Creek produces metallurgical coal, largely used in steel construction, as well as thermal coal for power generation. Valeria primarily produces thermal coal.
The backlash against coal among some mining companies is driven in part by concerns over its role as a fuel blamed for contributing to climate change. Regulatory scrutiny and a push toward alternative-energy sources, such as solar and wind, could leave large chunks of coal assets stranded in the ground. BHP Billiton Ltd., the world’s largest mining company, in December said it is reconsidering its membership in the World Coal Association and U.S. Chamber of Commerce over disagreements on climate policy.
Mr. Glasenberg, meanwhile, is ramping up his company’s exposure to coal, hoping to take advantage of solid demand and weak investments in new coal assets. Three years ago, Glencore’s share price was suffering after a big decline in coal prices. But a rally last year in coal, as well as other important commodities to Glencore, such as copper, cobalt and nickel, have buoyed its stock, which is up more than 400% since a gut-wrenching downward spiral pummeled its shares in 2015.
“Thermal coal, once again, this is powering Asian growth and urbanization,” Mr. Glasenberg said on a December conference call. “We see in Southeast Asia and Asia, the demand is increasing.” Coal is a commodity “where there’s been under investment over the years,” with lackluster expansion in Western countries, he said.
Glencore could boost its Australian coal assets even more. The remaining 18% of Hail Creek is owned by Nippon Steel Australia Pty Ltd, Marubeni Coal Pty Ltd., and Sumisho Coal Development Pty Ltd. Each has the right to sell its share to Glencore, which could result in an additional payment of $340 million, Glencore said.
During the 2017 financial year, Rio Tinto’s attributable pretax profit from Hail Creek was $357 million, Glencore said. Rio Tinto said it expects the deal to be completed in the second half of 2018, adding that the proceeds will be used for general corporate purchases.