Glencore plans fresh RM8b buyback as trading profit disappoints

Mining giant also pledges to cap coal production in response to investor pressure on climate change


LONDON • Glencore plc reported its weakest trading profit in five years and missed analysts’ earnings estimates, even as the mining giant promised to increase its rewards to shareholders after a tough year.

The disappointing performance in the trading unit is a blow for Glencore, which has always said its traders can make money in any kind of market. The company touts the unit as a differentiator from other big miners, cushioning the ups and downs of the commodities cycle.

Still, Glencore’s shares rose with other miners in London after it announced a new US$2 billion (RM8.14 billion) buyback programme and said it plans to return another US$1 billion after selling non-core assets over the course of this year. The commodities giant also pledged to cap coal production in response to investor pressure for action on climate change.

Glencore rose 0.8% as of 9:05am yesterday in London, as the FTSE 350 Mining Index gained 1.1%.

Glencore is coming off a tough year that included news of a US corruption probe and being caught up in the fallout from US sanctions on Russia.

The company’s shares have underperformed rivals and the latest buyback follows US$2 bi l l ion of repurchases announced last year.

CEO Ivan Glasenberg told investors last year that the company was focused on cutting debt and returning money to shareholders, with little of interest on the acquisition front. The CEO echoed those sentiments yesterday, saying there’s not much to do with Glencore’s cash other than buying back shares.

“Glencore remains in a strong financial position, but the sell-off in its shares relative to peers clearly leaves it feeling a little defensive,” BMO Capital Markets analyst Edward Sterck said in a note.

“The share buyback reinforces this perspective and does seem like the most sensible option.”

Glencore’s trading earnings before interest and taxes (Ebit) dropped to US$2.4 billion, down 17% from a year earlier, missing the company’s forecasts from just two months ago. The trading’s Ebit is the lowest since 2013.

Glencore pointed to cobalt and alumina trades for the drop, but the marketing profit was weaker in many of its other key commodities, including a 25% drop in energy trading. Glencore is the world’s largest cobalt trader.

Glencore’s challenges in the Democratic Republic of Congo have also continued to pile up.

The company took a US$600 million writedown on its Mutanda mine in the country and will halve copper production at the operation this year, producing just 100,000 tonnes.

The company has been laying off workers at the site as it considers a plan to stop mining oxide ores. However, the decision comes after the country implemented a new mining code that raises taxes and royalties and as cobalt prices fall sharply.

Glasenberg said the company’s limits on coal production will tighten the market, which bodes well for prices. There’s very little new coal supply coming, but demand is still growing, the CEO said on a call after earnings.

More details from Glencore’s report:

• Full-year adjusted Ebitda of US$15.77 billion missed the average estimate of US$16.23 billion.
• Forecast for trading profit in 2019 was maintained at toward the middle of its US$2.2 billion to US$3.2 billion longterm range.
• Net debt rose to US$14.7 billion from US$10.2 billion at the end of 2017. — Bloomberg