GLENCORE delivered as widely expected for the six months ended June 30 declaring a $500m dividend after hauling in net debt a further $1.6bn to $13.9bn.
Net debt is now roughly half of the level two years ago when shareholders expressed their concern regarding Glencore’s balance sheet – a situation that precipitated a run on the group’s shares. The company lost 30% of its value in September 2015 as short traders pounced on its vulnerability.
Since then, shares in the company have increased more than 200% reflecting the recovery of its balance sheet and the general improvement in the world economy which was described by CEO, Ivan Glasenberg, today as “… the best global economic growth momentum seen in recent years”.
Adjusted earnings before interest, tax, depreciation and amortisation and earnings before interest and tax increased 68% and 334% respectively over the half-year period.
Paul Gait, an analyst for Bernstein, applauded the performance, especially the group’s $4bn capital expenditure guidance over the next three to five years. “The inclusion of an explicit timeframe here we believe is a positive for Glencore and the industry,” he said in a note.
“The company again explicitly mentions ‘no large greenfields’, and although this should not come as a surprise, we believe that this continues to help “de-risk” the capital allocation for future years, even at higher commodity prices,” he said.
There was some disappointment, however, that Glencore did not top up its dividend given strong payouts from its peer group in Rio Tinto and Anglo American. “A disappointing set of results,” said Goldman Sachs. Glencore guided to a full-year dividend payment of $2.5bn although Goldman Sachs said that “… remains to be seen”.
In a presentation today, Glasenberg said the outlook for the commodity market was strong. “We haven’t seen a supply reaction from the producers,” he said after commenting that synchronised world economic growth had produced the best conditions seen over the last six years. “Supply growth is limited; the companies don’t have much greenfields projects and there’s limited potential for brownfields production. This bodes well for the commodity markets,” he said.
The roll out of electric vehicle production was a long-term plus for commodity demand, especially in copper, nickel and cobalt – commodities to which Glencore was particularly exposed. “If you believe in 30% electric vehicles by 2030, about 26 million vehicles, then that would require – just for batteries and not the charging points – a further 1.2 million tonnes (Mt) of nickel compared to current annual production of 2.1Mt,” he said.
The copper requirement for 26 million electric vehicles by 2030 would be two million tonnes while the impact on the cobalt market would be even more fundamental with demand for 260,000 tonnes generated compared to current production of 100,000 tonnes. “We will have to find another way to make batteries as we don’t have enough cobalt to supply the market,” said Glasenberg in an presentation to analysts.
