GLENCORE guided to slightly lower production across most of its commodities for the 2017 financial year, but analysts continued to back the company with one saying its share would re-rate next year.
In its second quarter production report published today, the Swiss headquartered mining and trading group said it was running at 47% of guidance for the year and consequently expected to produce 5% less zinc at 1.13 million tonnes (Mt), 4% less nickel and ferrochrome (120,000 tonnes and 1.65Mt respectively).
At 132Mt, coal production would be 2% lower than guided for the year while copper production would be 2% lower at some 1.33Mt mainly due to weather issues in the first quarter in Peru and the Democratic Republic of Congo (DRC), pit wall issues at Alumbrera as it approaches end of life, and lower grades at Antapaccay. Lead production would be 285,000 tonnes, down 5%.
There was no change to underlying 2017 marketing earnings before interest and taxation guidance which remained at $2.3bn to $2.6bn, although Glencore now included all GlenAgri industrial profits within its marketing division taking guidance to $2.4bn to $2.7bn.
Shares in the company were marginally down 0.5% on the Johannesburg Stock Exchange, but over 12 months they were 57% higher following a restructuring, promise to resume the dividend and an improvement in commodity prices.
UBS said it had a buy on Glencore shares as its valuation was “attractive”. It offered leverage to commodities with more attractive fundamentals such as copper and zinc and would deliver material volume growth from latent capacity. “We expect the share to re-rate as it steps up share returns in 2018,” the bank said today in a note.
“We continue to argue that perceptions of inferior asset quality versus peers are hard to justify with amongst other things the lowest coal and copper cash costs of the diversifieds,” said Barclays in a note. “Glencore remains our sector top pick” it added.
Glencore’s first half earnings would be held back as it worked through the tail-end of a coal hedging contract undertaken in the second quarter of 2016 financial year just as prices for the fuel improved. Volumes were also weighted towards the second half of the year, said UBS. The group reports its financial numbers on August 10.
The group has tended to be among the most dynamic in terms of continued restructuring and corporate action despite having failed to pull off two transactions since June in the potential merger of its agribusiness with Bunge, a US group, and a decision to bail out of a bidding war for Rio Tinto’s Coal & Allied coal assets in Australia.
However, in March it sold 51% of its petroleum storage and logistics business to HNA for $775m as well as two small African zinc assets to Trevali for $400m. Bloomberg News recently reported it was planning to sell a portfolio of royalty assets worth $300m and the Tahoor metallurgical coal mine for $380m. In the first quarter, its ownership in the DRC’s Katanga & Mutanda copper/cobalt mines was increased for $950m.
