Massive Losses Force Glencore To Slash Dividends
Miner and commodities trader giant Glencore (LON: GLEN) posted a $2.6 billion loss for the first half of the year and scrapped its dividend, as the coronavirus pandemic dented global demand and lowered prices and production at its mining division.
Despite the virus impact, the Swiss firm managed to remain
profitable on an operating basis. Glencore posted $1.5 billion in adjusted
earnings before interest and taxes, but booked $3.2 million in impairment
charges.
The company said it was putting balance sheet strength ahead
of shareholder returns, as net debt climbed 12% to $19.7 billion at the end of
June.
The increase in borrowings came as Glencore tapped its
credit lines to take advantage of falling oil prices in March and April — it
bought cheap crude and sold it on the futures market for a profit. As a result,
its marketing business performed especially well, with full-year earnings
expected to come in at the top end of its $2.2-$3.2 billion range, after
hitting $2 billion in the first half.
Chief executive Ivan Glasenberg said the board had concluded
it would be “inappropriate to make a distribution to shareholders in 2020.”
Instead, the firm will focus on debt reduction after pouring money into the oil
trading business to cash in on volatile price swings.
Christopher LaFemina, an analyst at Jefferies, said the
decision to cancel the dividend was disappointing in light of the strong
performance from the company’s trading arm.
“We believe Glencore has missed an opportunity to send a
strong message to the market about its dividend policy being robust through the
cycle,” he said.
BMO’s Edward Sterck said the bank expected the trading
division’s oil position profit to be booked largely in the second half of the
year. “It has clearly unwound some of the positions in H1 whilst still (looking
at net debt combined with disclosures) retaining significant exposure,” he
wrote in a note to investors.
The mining and metals expert added the move could lead to a
beat in expectations for the second half of the year, but noted the market was
“not given enough disclosure” to forecast with confidence.
No change in succession plans
Glasenberg, who has led Glencore since 2002, added that
covid-19 had not changed the timing of succession plans, but declined to give
further details.
The executive, who is the company’s second-biggest
shareholder with a 9% stake, according to Refinitiv Eikon data, said in 2018
that he would step down in three to five years. At the time, he added the firm
had begun training a small group of front runners to take over the post.
“As we said before covid… once the old guard is changed then
I will move on,” Glasenberg said on Thursday, adding that the head of coal
trading, Tor Peterson, was still due to leave. Long-time Glencore executive
Daniel Mate, who led its zinc business, left last month.
Glencore has been transitioning to a new generation of
management over the past couple of years, appointing new division heads to
cover marketing and assets for coal, ferroalloys, copper and oil.
Uncertain outlook
The Swiss giant mined 588,100 tonnes of copper in the first
half of the year, 11% less than during the same period of 2019.
The company said global mine supply would likely keep
hurting because of COVID-19 and new projects will experience delays. Aging
equipment and declining ore grades are also likely to crimp global supply,
Glencore said.
A rebound in demand, led by Chinese factories, would likely
continue, “supported by significant economic stimulus measures being undertaken
globally,” it said.
Glencore noted that the two key areas of cobalt demand,
lithium-ion batteries for mobile phones and electric vehicles (EVs), looked
“promising.”
“The growing momentum evident across the [EV] sector,
together with a recovery in mobile-phone demand, points to higher future cobalt
demand,” Glencore said.
On zinc, the company said it was still too early to tell
what the metal’s supply balance would look like this year, with the scale of
the pandemic’s effect on supply and demand still unknown.
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