(Bloomberg) -- Glencore Plc, the world’s biggest coal exporter, defended its decision to hedge future coal production, saying a $395 million loss it recorded on the trade isn’t a bet gone bad.
On a call with analysts, Chief Financial Officer Steve Kalmin described the trade as “sensible” and a “corporate risk-management” decision to lock in prices for coal. The charge wasn’t a “big deal,” according to Ivan Glasenberg, who heads the commodities company.
The loss, which hasn’t been realized yet, stings for Glencore because Glasenberg, revered in the industry for his commodity expertise, once headed the coal unit and cut his teeth trading the fuel. Glencore sank as much as 5.2 percent in London after disclosing the charge and reporting its lowest profit since going public in 2011.
Glencore produced 59 million metric tons of coal in the first half of the year from mines in Australia, Colombia and South Africa. It locked in future prices for about 55 million tons of production during the second quarter, Kalmin said on Wednesday.
The European coal price jumped from $42.50 a ton to $55.50 a ton in the second quarter, according to broker data compiled by Bloomberg.
The coal division is headed by Glencore veteran Tor Peterson, who has been with the company since 1992 and owned almost 3 percent of the company at the initial public offering five years ago.
The expense is an accounting “mismatch” between the fair value of coal derivative positions used as a hedge, Glencore said in a statement. The forward sales are expected to be settled before the end of June next year.
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