Glencore holds back on dividend, accelerates net debt reduction

Instead the London- and Johannesburg-listed diversified mining and marketing company stated in its half-year report that it would be prioritising the acceleration of net debt reduction to within its target range of $16-billion, which was currently expected to occur by the end of 2020.

“Every aspect of life in 2020 has been impacted by the Covid-19 crisis. Our teams have adapted to these difficult conditions and we’re pleased to announce an overall strong financial performance from our various businesses, reflecting the countercyclical earnings power from our large scale marketing activities, combined with a cash generative industrial asset base, which quickly adapted to the changed environment,” Glasenberg stated in a release to Mining Weekly.

Marketing delivered record half-yearly adjusted earnings before interest and tax (Ebit) of $2-billion, allowing the company to raise full-year guidance to the top end of its long-term range of $2.2-billion to $3.2-billion.

“There were consistently good contributions across the board, however oil in particular was able to capitalise on the presence of exceptional market conditions during the half,” Glasenberg reported.

While Glencore’s industrial activities faced numerous challenges, they were, for the most part, able to continue operating relatively normally.

Unit costs were broadly stable – pre by-product credits – while capital expenditure (capex) is reported to be under close control.

In the current economic environment, difficult decisions and actions, Glasenberg said, had been considered for moving certain assets into extended care and maintenance to rebalance markets with oversupply risk and preserve the resources for a better market environment.

Impairments of $3.2-billion, net of non-controlling interests and tax, were recognised.

Over the longer term, the company’s diversified commodity portfolio, positions it well to play a key role in the next upward economic cycle, benefiting in particular from the commodities required for the transition to a low-carbon economy.

“We remain focussed on creating sustainable long-term value for all stakeholders,” Glasenberg stated.

In addition to the half-year marketing adjusted Ebit of $2.0-billion (H1 2019: $1-billion) reflecting oil benefiting from the volatile and structurally supportive marketing environment, metals also contributed significantly, reflecting the relatively quick economic recovery in China.

Half-year industrial adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) were $2.6-billion, impaired net loss attributable to equity holders was $2.6-billion and net debt of $19.7-billion included $0.9-billion of marketing-related lease liabilities.

Metals were down 16% at $2.2-billion and energy down 65% at $0.7-billion on disproportionately impacted lower coal prices.

First-half unit costs for copper 109¢/lb, zinc 28¢/lb (64¢/lb ex-gold), nickel (ex Koniambo) 230¢/lb and thermal coal $46/t.

Half-year Industrial capex was $1.8-billion, down on last year’s $2.3-billion for the corresponding period, and full-year expected capex is around $4-billion.