Glasenberg renews call for lossmakers to shut

Ivan Glasenberg, CEO, Glencore

[miningmx.com] – GLENCORE CEO, Ivan Glasenberg, returned to a favourite theme in questions during the firm’s investor update today saying he “… did not understand” why rival miners kept loss-making assets open.

He also raised the prospect that his company would “walk away” from its 49% stake in the Koniambo nickel mine in New Caledonia.

“We inherited the asset [Koniambo] and we have struggled with it since,” said Glasenberg of the nickel operation that was first established by Xstrata, the company with which Glencore merged in 2013.

“But we are not married to it. If the furnace does not work we will walk away from it. We will not burn cash. This is not Glencore’s style and we won’t do it,” he said.

The budget for Koniambo has risen from an initial $3.8bn to more than $6bn and it has been hampered by cost overruns and disappointing production figures.

“About 60% of the nickel market is cash negative and yet operations stay open,” said Glasenberg. “We don’t understand it; we won’t wait for the markets to turn to justify operations,” he added.

As recently as early October, Glasenberg called on companies to close loss-making production but he lit the touchpaper with most effect at the BMO Capital Markets conference in Florida during 2013 in which he said mining firms had “screwed up”.

“The big guys really screwed up,” he said. “We’ve always been wanting to keep building and keep putting the cash which we generate into new assets.

“That’s what we’ve got to stop doing as a mining industry. We’ve got to learn about demand and supply,” he said.

Glencore said it was generating $2bn in cash flow at current prices for metals although there were a couple of assets that were losing money including a US-based alumina business and Minara Resources, the wholly-owned Glencore firm that operates the Murrin Murrin cobalt-nickel mine in western Australia. “We are looking at this and we could potentially put it on care and maintenance,” he said.

Glasenberg also said that the possible sale of a minority stake in its agribusiness – possibly to private equity or a sovereign wealth fund among other bidders – could take net debt below the re-scoped target of $18bn.

He virtually dismissed the possibility of buying assets, however; not until the company’s balance sheet had been returned to lower levels, pledging that the $28bn net debt of earlier this year would be something “we never do again”.

The market welcomed the update from Glencore the shares of which, as of midday in Johannesburg, were some 12.5% higher.

“In the current price environment the company will need to show continual delivery against this plan but this update is better than expected, sufficiently detailed and provides a clear debt reduction pathway and timeline,” said Credit Suisse in a note.

“Unlike Anglo’s rabbit in the head lights presentation of their prospects against low commodity prices, Glencore has put forward a more considered plan which sees them making money against current spot prices and positioning themselves should prices go lower,” said SP Angel.

“This should give comfort to investors that there is still capacity to generate profits against the current backdrop,” it said.