Glencore to chase net debt down to $18bn

Ivan Glasenberg, CEO, Glencore.

[miningmx.com] – GLENCORE sought be deliver further comfort to punch drunk investors today announcing plans to make further cuts to its capital expenditure budget and net debt which it would reduce to $18bn or $19bn by end-2016.

Shares in the Swiss headquartered company are down about two-thirds in 2015 as metal prices continue to deteriorate amid over-supply of certain metals and evidence that the Chinese economic growth was continuing to slow down.

Glencore CEO, Ivan Glasenberg, unveiled plans to increase debt reduction to $13bn compared to the $10.2bn target announced in September. Some $8.7bn in reductions had already been achieved or locked-in. The new net debt target was therefore $18bn to $19bn compared to the low $20s billion.

“Glencore is well placed to continue to be cash generative in the current environment –
and at even lower prices. We retain a high degree of flexibility and will continue to review the need to act further as required,” said Glasenberg in a statement.

The announcement added some much needed pep to Glencore’s shares which were about 5% higher in mid-morning trade in Johannesburg. The company is valued at about R280bn.

The company’s mining [industrial] division would cut its capital expenditure budget to $5.7bn for the 2015 financial year and to $3.8bn for the 2016 financial year down from $6bn and $5bn previously budgeted respectively.

As a result of the in-roads made into cutting debt, liquidity had increased to more than $14bn, the group said.

For the 2016 financial year, Glencore estimated earnings before interest, tax, depreciation and amortisation of about $7.7bn at current commodity prices. More than $2bn of free cash flow would be generated at spot prices, it said.

Short trading took about 30% of Glencore’s share in a day during September after a report by Investec Securities captured then current fears that Glencore’s balance sheet was heavily strained.