By Dmitry Zhdannikov and Clara Denina
LONDON, Oct 27 (Reuters) - For investors seeking to burnishsustainable portfolios, coal mines are an anathema.
That sits well with top global miner and trader Glencore , whose purchase of a major coal mine in Colombia willgenerate a bonus of hundreds of millions of dollars before thedeal has even been completed.
The miner bought the 66% shares in the Cerrejon thermal coalmine it didn't yet control from rivals BHP Groupand Anglo American in June this year for anaggregate $588 million.
The deal was welcomed by BHP's and Anglo's shareholders as amajor divestment of coal assets to meet emissions targets andshift towards sustainable energy.
The agreement they signed had, however, an unusual clause:Glencore would take over cashflows from the mine from 2021.
At the time of the deal, the Swiss-based miner said itanticipated the cash generated by the mine might reduce thepurchase price to $230 million. But the red-hot market for thermal coal has made thatassumption conservative after prices for the most pollutingfossil fuel soared on the back of Chinese power shortages and aEuropean gas squeeze, said insiders and analysts.
One insider said that Glencore will get a "fat cheque" fromrevenues when the deal closes by the end of June 2022.
Broker Liberum estimates Cerrejon will generate $1 billionin EBITDA (earnings before interest, taxes, depreciation andamortization) cash flow in the second half of 2021 alone.
"Exiting Cerrejon is part of our long-term strategicdecision to focus on future facing commodities. There is nochange to that view, irrespective of near-term thermal coalprices," a BHP spokesperson said.
Glencore, which already controlled a third of Cerrejon
before the transaction, declined to comment.
"Our agreement to sell our minority shareholding in Cerrej??nmarks the final step in our responsible transition away fromthermal coal operations as we continue to position our portfoliofirmly towards supplying a wide range of future-enabling metalsand minerals to our customers," Anglo American said in anemailed statement.
BHP and Anglo sold or spun off most of their coal assets,while Glencore has taken a divergent path and set a goal ofmanaging the depletion of its coal mines by the mid-2040s,rather than selling them.
"Given the speed at which the deal is paying for itself,Glencore's policy to run down their coal portfolio is provingfar better than a spin-off or a sale," said analyst Ben Davis atLiberum.
Davis said he based his calculations on European coal pricesfor delivery into Rotterdam minus the freight from Colombia.Coal prices soared to $280 per tonne in the second half of 2021from as low as $57 last year. Davis expects coal prices toaverage $140 in the first half of 2022. At an average production level of 24 million tonnes a yearand per tonne production costs of $45, a banking source familiarwith the deal put Cerrejon's EBITDA cash flow at $1.1 billion inthe second half 2021.
If the deal closes as expected in the first half of 2022,Glencore would have enjoyed some 18 months of full cashflowsfrom Cerrejon.
A top 30 shareholder at Glencore said some investors werewarming to the idea of holding stocks in coal companies thatpledge to run down mines responsibly without making them someoneelse's problem.
"At the end of the day, selling a mine doesn't make itsoutput disappear ... The trouble for some investors is that theysimply cannot hold stocks that have a coal exposure," said theshareholder who asked not to be named.
(Editing by David Evans)