Glencore’s strong first-half positions it for top-end marketing earnings
Mining News Pro - Diversified mining and marketing company Glencore has delivered an overall strong first-half operating performance amid the unprecedented challenges presented by Covid-19.
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“This reflects both the ability and dedication of our teams to adapt to these difficult conditions,” said Glencore CEO Ivan Glasenberg.

“It looks like Glencore marketing has had an exceptional first half,” UBS global research analysts stated in a ‘buy’ note on the company.

“We also see potential for Glencore to positively surprise with its first-half results on August 6,” the analysts added.

In a release to Mining Weekly on the company’s production, Glasenberg said that as a responsible operator, the London- and Johannesburg-listed company’s top priority has been to protect the health and safety of its people and the communities that host its businesses.

“Although some of our industrial operations were temporarily suspended in line with national and regional guidance, or where our risk assessment determined a suspension was appropriate, the majority of our assets continued to operate relatively normally.

“I’m particularly pleased to report a strong operational performance at Katanga, with its ramp-up on track to achieve design capacity by the end of the year,” he added.

Glencore’s marketing business has also delivered robust counter-cyclical earnings.

“A very strong first-half performance allows us to now raise our full year 2020 earnings before interest and tax (Ebit) expectations to the top end of our $2.2-billion to $3.2-billion guidance range.

“In the near-term, we remain alert to the continuing challenges that Covid-19 presents. While we expect our operating cash flow to remain solid, we are ready to adapt to changing market conditions.

“While the majority of our assets continued to operate through the second quarter with minimal disruption, certain operations were temporarily suspended, on account of mandatory governmental lockdown provisions, or otherwise where a risk assessment determined such action appropriate,” Glasenberg said.

First-half marketing performance was “very strong”, with full-year Ebit expectations now raised to the top end of its long-term $2.2-billion to $3.2-billion range.

Contributing towards first-half Ebit was a sizeable increase in carried inventory – ‘carry trades’ – transactions/quantities (although the overall dollar value of inventories was somewhat lower than December last year, owing to lower commodity prices, and also a build in net working capital, on account of the varying terms of trade in respective business units.

“In particular, our oil department, which in recent years has managed its receivables portfolio days on hand to around 20 days and accounts payable around 45 days, saw a significant reduction in its net payables position – payables less receivables – via the sharp reduction in oil prices, as well as lower sales volumes due to weaker product demand in H1 2020."

Together with the initial cash margining required to give effect to the additional ‘carry trades’, this has led to a net-debt increase as at June 30.

First-half production points included:

-attributable ferrochrome production of 466 000 t being 333 000 t or 42% lower than the corresponding period of last year, mainly reflecting the South African national Covid lockdown during March and April. Smelting operations partly resumed on May 1, with further capacity expected to be restarted towards the end of the third quarter;
-own-sourced copper production of 588 100 tonnes being 74,900 t or 11% lower than production in last year’s corresponding period, owing mainly to Mutanda being
-on care-and-maintenance, expected lower grades at Antapaccay, and the short-term impact of Antamina’s Covid-related demobilisation and remobilisation, partly offset by stronger milling throughput at Collahuasi;
-own-sourced zinc production of 550 100 t being in line with last year, reflecting stronger grades at the Canadian mines and the various temporary Covid-related suspensions at Antamina and other South American operations;
-own sourced nickel production of 55 200 t being in line with last year, reflecting a strong period of operations at Murrin offsetting the delayed delivery of matte from the Sudbury smelter to the Nikkelverk refinery;
-coal production of 58.1-million tonnes being 10.1-million tonnes or 15%)lower than last year, mainly reflecting Covid-related asset suspensions in Colombia; and
-entitlement interest production of 2.6-million barrels being 0.4 million barrels or 17% higher than last year on new wells drilled in Equatorial Guinea and Cameroon, which helped to offset the Covid-related suspension of the Chad assets.

Operational updating included:

-Mopani notifying the Zambian government of its intention to place the mining operations on care-and-maintenance to preserve value and maintain the option to deliver its various growth projects when conditions further improve. Mopani was notified by the relevant authorities that its proposal was rejected. Mopani has appealed this decision. Mining operations will continue pending the outcome of the appeal and Mopani continues to engage with the relevant authorities;
-the outlook for Prodeco’s business remains challenging owing to ongoing weakness in the Atlantic coal market, exacerbated by the impact of Covid-19. Prodeco is in the process of optimising its mine plans to account for the current market environment. This process requires consultation and approval by a number of external parties. An application has been made to the authorities for Prodeco to remain on care-and-maintenance, which will help preserve the value of the assets and the option to implement the revised --plans when the appropriate approvals have been obtained and market conditions have improved;
-owing to Covid-19-related disruptions to international mobility, transportation and supply chains, the Chad oil fields were placed on care-and-maintenance in April. These disruptions and prevailing market conditions are being monitored to determine when some restart of operations would be appropriate; and

The ferroalloys business has for some time experienced a structurally worsening competitive environment across the South African ferrochrome industry, including via substantial electricity price increases. In January, a consultation process was initiated on the future of the Rustenburg smelter, and in June, a further process commenced across the entire business, to seek a more competitive operating cost structure. This is an ongoing process with all alternatives being considered, Glencore reported.


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