[miningmx.com] — COMMODITIES group Glencore International said third-quarter activity in its closely watched marketing arm was “solid” despite slowing global growth, as it posted a jump in metals output and announced it had become an oil producer.
Thursday’s update – which contained only a line on trading activities – came as a relief to some investors who had fretted the miner and trader could caution the market after turbulence at rival Noble Group, which posted its first quarterly loss in over a decade.
Production at Glencore’s key operations was in line or marginally ahead of analyst expectations, with copper up 40 percent over the nine months, zinc up 19% and coal 18% higher. Gold came in below some forecasts.
“Despite the financial market uncertainty and some weather and equipment-driven disruptions, Glencore’s overall healthy operational and financial performance has continued through Q3 2011,” the company said. “Within our marketing operations, trading remains solid.”
While miners have said for months that underlying demand has held up in the face of economic turbulence, that tone has been changing. BHP Billiton said on Thursday that customers were starting to face tougher credit conditions and volatility was weighing on sentiment.
Glencore, however, signalled its marketing arm was holding up and said balance sheet flexibility – key to its trading operations and acquisition ambitions – would improve as its spending programme peaked.
Glencore shares, which have dropped almost a quarter in value since listing at 530 pence in May, were up as much as 4% before paring gains to trade up 1.2% at 1345 GMT, beating a 2.4% drop in the sector.
“Glencore has lagged in the last week on fears that Marketing would replicate Noble’s trading,” Liberum analysts said in a note, pointing to Glencore’s absence from carbon trading, an area that proved particularly painful for Noble.
“High volatility in the quarter means Marketing’s performance is difficult to forecast, particularly in oil, but we take the stance that ‘No news is good news’.”
Others did not share that view.
“If they haven’t got anything positive to say, they may have decided not to say it. It was a good set of results, but the outlook may not be quite as good as they (imply),” analyst Cailey Barker at Numis Securities said.
“I don’t think anyone has visibility into next year.”
Glencore did not provide full profit figures. It will announce full-year results on March 5.
POTENTIAL CATALYST
Glencore, the world’s largest diversified commodities trader, is also a major miner. Its own coal production rose 18% compared with the first nine months of last year, while its Prodeco operations jumped 69% in the quarter.
It has emerged this quarter as an oil producer, announcing first oil from its Aseng field in Equatorial Guinea, ahead of initial plans that had forecast the start of 2012. The first tanker of oil was expected to be offloaded in December.
Glencore is one of the world’s largest oil traders, with daily sales volumes representing 3% of the world’s daily oil consumption, but had not yet produced its own oil.
On base metals over the first nine months, zinc production rose 19%, copper 40% and gold, including gold equivalents, was up 45%.
In copper – where Glencore is closing in on production levels of rivals like Rio Tinto – Congo unit Katanga Mining had already announced the approval of an expansion funded by $636m of loans from Glencore.
The group included results from its other major Congo operation, Mutanda, for the first time, with production jumping to 46,140 tonnes over the nine months from 10,400 a year ago.
In gold, production at Kazakh unit Kazzinc was dented by expected commissioning issues which will result in 2011 output of around 450,000 ounces, below a 625,000 ounce forecast provided by experts in Glencore’s listing docment.
Glencore also said it was still awaiting approval from the government of Kazakhstan for its plan to increase its stake in Kazzinc to 93% from 50.7%.
Glencore, which listed in part to gain firepower for larger acquisitions, has been seen as a potential catalyst for the return of large-scale deals to the sector, not least with a long-expected takeover of Xstrata.
The company has been trying to gain control of South African coal miner Optimum and has also bought out minority investors in Minara Resources.
The lock-up on Glencore’s issuance of shares expires on Nov. 24 – along with clauses that had tied in cornerstone investors – allowing the trader to consider larger deals.
Releasing cornerstone investors like Abu Dhabi’s Aabar Investments and Fidelity will increase the free float to almost 17% and potentially boost the company’s index weighting. Cornerstone investors subscribed to more than $3bn of shares at the time of the May float.
