Glencore Combats Profit Plunge With Buyback Boost

Glencore suffered a sharp drop in pre-tax profits in the first six months of trading this year as the boom in commodity prices finally eased.

The Swiss mining giant attributed the downturn to the normalisation of wholesale costs, after bumper trading following Russia’s invasion of Ukraine which saw energy prices climb to record highs.

In particularly lower coal pricing combined with inflationary impacts on production have eaten into the company’s profits.

Energy buyers turned to coal when gas prices soared in a bid for cheaper supplies, a shift which highly benefitted Glencore.

The FTSE 100 company has posted a more than 50 per cent decline in earnings year-on-year, which plummeted from $18.9bn to $9.4bn, with revenues steeply falling 20 per cent from $134.4bn to $107.4bn.

To appease shareholders, Glencore’s chief executive Gary Nagle has confirmed further shareholder buybacks, with “top-up” returns of $2.2bn, meaning investors have now pocketed $9.3bn this year.

He still considered both the marketing and industrials divisions to be success stories within the business, collectively responsible for $8.4bn in cash generated by operating activities.

This is despite industrials suffering a 51 per cent decline to $7.4bn in pre-tax profits and marketing declining 52 per cent to $1.8bn.

Nagle, said: “The strength of our diversified business model across industrial and marketing, focusing on metals and energy, has again proved itself adept in a range of market conditions.

The company’s net debts have soared from $75m to $1.5bn, following a hefty $2.5bn in capital expenditure and a total tax bill of $2.7bn to Australia and Colombia.

This outlay was chiefly spent on purchasing the balance of the Mara copper project in Argentina for $1.25bn and acquiring a minority stake in Alunorte, a massive alumina refinery in Brazil.

These purchases will bolster Glencore’s plan to shift operations towards future facing minerals and metals as it scrambles to reach net zero over the next three decades.

Glencore commits to going green

The company has reaffirmed its commitment to the group’s key climate target – and will look to convince investors of its environmental plans, after receiving pushback from 30 per cent of shareholders, mostly over concerns its intermediate targets were not stringent enough.

Glencore has made three merger bids for Canadian metals and mining group Teck Resources this year, which have been knocked back by the company’s board with shareholders unconvinced about the risk in increasing their coal assets.

Nagle said: “As the world moves towards a low-carbon economy, we remain focused on supporting the energy needs of today whilst investing in our transition metals portfolio.

“We look to the future confident that we have the right pathway to succeed in a net-zero economy and create sustainable long-term value for all stakeholders, while operating in a responsible and ethical manner across all aspects of our business.”

Shares in the company were down 3.3 per cent this morning following the results, with Glencore trading at 441.8p per share.

Olly Anibaba, analyst at Third Bridge argued the downturn in profits reflected the reality that its bumper earnings last year were a “one-off event” last year that was “unlikely to be replicated” due to coal’s decline in prices.

“Glencore is facing significant challenges as it seeks to increase the supply of key materials, such as copper, cobalt, and nickel, primarily due to the technical complexities involved in discovering these resources, and mining in a sustainable manner. Additionally, they are wrestling with issues related to cost inflation pressures and declining ore grades in mining activities,” he said.

Nevertheless, Jefferies has maintained its buy stance at a target price of 456.7p per share, while recognising overall profit fell “short of expectations.”

By Nicholas Earl via CityAM 

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