Glencore profits tumble 66% as commodity prices collapse

The world's biggest commodity trader was forced to roll out a rescue strategy that included selling $2.5bn of stock and slashing spending.

Jesse Riseborough,David Stringer
Wednesday 24 August 2016 12:02
Glencore is recovering from $5 billion losses caused by weak commodity prices
Glencore is recovering from $5 billion losses caused by weak commodity prices

Glencore, the miner and commodity trader run by billionaire Ivan Glasenberg, reported a 66 per cent drop in first-half profit on lower raw-materials prices.

Net income excluding some items in the six months to June 30 fell to $300m from a year earlier, the Baar, Switzerland-based company said in a statement on Wednesday. That compares with a $318m average estimate of 16 analysts compiled by Vuma Consensus and posted to the mining company’s website. Net debt declined to $23.6bn.

Last year’s collapse in commodities and Glencore shares forced the firm to roll out a rescue strategy that included scrapping its dividend, selling $2.5bn of stock, disposing of assets and slashing spending.

The shares have doubled this year as Glasenberg checked off targets on the plan designed to almost halve borrowings to as low as $16.5bn by year-end. Glencore earlier today announced a $670m deal to sell future output from an Australian gold and copper mine.

“The mining sector is still in divestment mode, it’s still trying to get balance sheets in order,” Colin Hamilton, an analyst with Macquarie Group in London, said in an interview with Bloomberg Television. “They are doing much more work to repair their balance sheet, I would say, than many of their peers.”

Glencore closed up 3 per cent at 189.8 pence in London on Tuesday, giving the company a market value of about $36bn. It’s this year’s third-best performer in the FTSE 100.

Dividend Return?

The company didn’t pay a dividend after scrapping the payout last year. Chief Financial Officer Steve Kalmin said today that its “pretty likely” it will return to a full-year dividend. The company paid an interim dividend of 6 cents a share last August.

Glencore’s plan to trim debt has been helped by completing the sale of almost 50 per cent of its agriculture business for just over $3.1bn in the first half. Two copper mines, an Australian coal rail unit and a Kazakhstan gold mine have also been put up for sale.

Glencore agreed an A$880m deal to sell future output from an Australian mine to Evolution Mining Ltd., the country’s second-largest gold producer, it said earlier today. Evolution will receive the equivalent of 100 per cent of future gold output, 30 per cent of copper and silver production and a 30 per cent interest in the Ernest Henry operation in Queensland state.

Trading Unit

The commodity slump means Glencore now generates most of its cash from trading as its mines and smelters around the world struggle to make a profit. Last year, the company reported a $292m loss at its mining division.

Adjusted first-half earnings before interest and tax from the trading unit totaled $1.22bn. Glencore forecasts full-year adjusted Ebit from the division at $2.4bn to $2.7bn this year.

Its three major London-listed peers, BHP Billiton, Rio Tinto Group and Anglo American, have reported earnings in the past month that reflected the dire state of the mining industry. Profit was the worst ever for BHP, the biggest miner, and the poorest for Rio in more than a decade.

While average first-half commodity prices were lower than a year earlier, miners have benefited from a rebound following production cuts. Zinc and coal, in which Glencore is a dominant producer in, have rallied 43 per cent and 34 per cent this year, respectively. BHP Chief Executive Officer Andrew Mackenzie said last week that it’s possible the freefall in commodity prices may be over. Glasenberg said in March he thought commodity prices had bottomed.

“After a difficult start to the year, the more constructive tone of markets in recent months has helped support the pricing of many of our key commodities,” Glasenberg said in the statement. “While we are highly cash generative at current spot prices, we remain mindful that underlying markets continue to be volatile. We are alert to and have a high degree of proven flexibility in adapting to changing market conditions.”

Glencore has cut zinc, copper and coal production over the past 12 months as it adopts a more disciplined approach during periods of low prices. Output of zinc fell 33 per cent year-on-year in the second quarter, while coal dipped 12 per cent and copper 3 per cent.


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