Critics of the company-wide closure, which led to the removal of about 5 million tonnes of thermal coal from an over-supplied world market, have been quick to call the closures a flop because the coal price has continued to fall.
What everyone, including senior management at Glencore, wanted to see was an increase in the price or, at worst, an end to the three-year slide.
Unfortunately that did not happen with the price of thermal coal shipped out of Newcastle falling by around 9% in the period after the mining suspension was announced.
In mid-November, when the plan was revealed thermal coal was selling for $US67 a tonne. It slipped to $US63/t by the time the closures came into effect in mid-December, and is now around $US61/t.
On those numbers alone it is hard to argue that the exercise was a success. All that Glencore can say is that it might have been worse if it had dumped an extra 5Mt of coal onto the market, and perhaps that is what management will say.
However, there is something else that Glencore will be saying over the next few months: “We tried.”
It might not sound like much but Glencore is able to claim credit for doing something the rest of the coal mining industry could do if it was serious about boosting the coal price.
In those two little words (“we tried”) Glencore is able to portray itself as the investor’s friend, prepared to take a risk, and perhaps take a hit on its profit-and-loss account, to see if removing some coal from the market has a beneficial impact on price.
That the experiment failed is nothing for Glencore management to feel embarrassed about, and like other great failures over time it is possible to see the coal mining pause as a step in a much more interesting situation – the stalking of Rio Tinto.
What Glencore really wanted was for its gesture to be seen as an act of leadership that the rest of the mining industry should follow as a way of rebalancing supply and demand, not just of coal but also of other over-supplied commodities such as iron ore.
The risk to Glencore from its solo attempt to boost the coal price was never that great. Either it would succeed, in which case it really would be seen as the world’s resource-sector leader, or it would be see as a company determined to do the right thing by investors, albeit at its own cost.
Failure means that Glencore now has to push a little harder in its long-term plan of securing control of Rio Tinto, a hunt that will become more exciting over the next few weeks, before exploding into action in April.
At the heart of the Glencore versus Rio Tinto battle is a competition between two companies with radically different management styles, and a totally different approach to project investment and production targets.
Rio Tinto prides itself on discovering, developing and investing in so-called “tier one” mining assets, an objective that can sometimes prove elusive given the Alcan aluminium and Mozambique coal fiascos that cost shareholders more than $US40 billion.
Glencore prefers buying cheap (tier two and three assets) running them hard, undertaking minimal exploration, and buying discoveries made by others.
The jury is out on which is the best approach, but it will soon be asked to deliver a verdict because Glencore is always an aggressive player in corporate games and while Rio Tinto might have the “nicer” management team, nice rarely wins in business.
Glencore’s three week coal-mining holiday will provide ammunition for Rio Tinto to say that it is a better business manager that does not rely on headline seeking stunts.
The retort from Glencore will be that it tried something different with the sole objective being to boost shareholder returns and while it might have failed with coal it sent a powerful signal about future intentions.
If The Hog was sitting on a jury called to judge the situation he would rate Glencore a loser from its coal action simply because it did not work, but he would withhold judgment on whether it will affect the stalking of Rio Tinto thanks to the “we tried” argument.
