Wandoan coal project scuppered
The Swiss company unveiled the target during an investor day in Europe late on Tuesday, and promised to achieve the goal by 2014.
Glencore mines coal, zinc, lead, nickel and copper in Australia, and its most bearish sentiments on Tuesday were reserved for the thermal coal sector, which has been struggling under low prices and high costs in this country.
"Current price levels are unsustainable in the medium term with close to 30 per cent of seaborne thermal production being cash cost negative," the company said.
The pessimism will see the Wandoan project - a greenfield thermal coal development in Queensland - frozen or divested, after it was listed as one of seven Australian coal prospects that are now "on hold".
The $7 billion project had been going through feasibility studies, but its future has appeared clouded ever since an associated export terminal was axed in May.
"Greenfield projects are disproportionately risky," the company said. "Glencore prefers brownfield (expansion of existing mines) and bolt-on mergers and acquisitions."
Glencore said it had reduced its workforce by 11 per cent and improved productivity by 21 per cent at its Australian coal mines over the past year.
Cutbacks have also hit the Australian copper division, with the company's Brisbane office being shut down recently.
Glencore also has exposure to Australian agriculture through its subsidiary Viterra, and expressed optimism that next month's grain harvests in South Australia could achieve records.
Frequently Asked Questions about this Article…
Glencore Xstrata told investors it aims to achieve US$2 billion (about A$2.16 billion) of synergies across its merged global portfolio, targeting that cost saving by 2014. For everyday investors, that signals a push to cut costs and improve returns across the business after the merger.
Glencore said it would freeze or divest some projects it views as risky, and the Wandoan greenfield thermal coal development in Queensland was listed among seven Australian coal prospects now “on hold.” The project, valued at about A$7 billion and in feasibility studies, has seen its future clouded — especially after an associated export terminal was axed in May.
Glencore described thermal coal as struggling because of low prices and high costs; it warned current price levels are unsustainable in the medium term and said close to 30% of seaborne thermal production is cash-cost negative. That environment can make new coal investments riskier and weigh on returns for existing producers.
Glencore prefers brownfield projects (expansions of existing mines) and bolt-on mergers and acquisitions, saying greenfield projects are disproportionately risky. For investors, this preference suggests the company will focus capital on lower-risk, potentially quicker-return opportunities rather than large new developments.
Over the past year Glencore said it reduced its Australian coal workforce by about 11% and improved productivity by about 21% at its Australian coal mines. Those cuts and efficiency measures are part of the company’s drive to lower costs amid weak coal markets.
Cutbacks also hit the Australian copper division: the company recently shut down its Brisbane office. That indicates Glencore is reducing overheads beyond coal as it reshapes its Australian operations.
An associated export terminal for the Wandoan project was axed in May, and that decision has clouded the project’s future. Without export infrastructure, bringing a large thermal coal project like Wandoan to market becomes much harder and more costly.
Yes. Glencore has exposure to Australian agriculture through its subsidiary Viterra. The company expressed optimism that upcoming grain harvests in South Australia could potentially reach record levels, which would be positive for that part of the business.
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