Glencore’s M&A push could signal the end to generous cash returns

GROWTH was “back on the table” for the world’s mining diversified sector which could signal the end of outsized capital returns, said Bank of America.

Commenting in a report on Glencore’s bid for control of MARA, a copper/gold brownfields project in Argentina, the bank said: “For choice, we think that growth is back on the table for Big Miners which suggests that capital returns, from here, might disappoint (some) in the market”.

Glencore has departed from its conservative approach to growth since the appointment of Gary Nagle as CEO in 2022. In December, it identified its first greenfields project in years – the $5.6bn El Pachon which has 1.5 million tons in copper resources. Glencoe has also bid for Canada’s Teck Resources as well as offering to buy Teck’s coking coal business.

Bank of America analysts said some investors “have begun to ask questions on capital returns i.e. will capital return continue to surprise up”.

Given that Teck has rejected Glencore’s overtures so far, Bank of America said the Swiss miner and trading firm may have surplus cash. “Key question: does management see fit to distribute surplus capital based on its previously disclosed framework ‘keep its power dry’, or split the difference?”

Glencore announced on July 31 it would pay $475m in cash to buy 56.25% in MARA representing shares it doesn’t already own. The seller, Pan American, bought the asset as part of the purchase of Yamana Gold last year for which Gold Fields bid $6.7bn.

In addition to the cash payment, Glencore has also granted Pan American a 0.75% net smelter return as part of the deal consideration.

Deutsche Bank analysts noted that Glencore had not provided guidance on shareholder returns in its second quarter production update last month “which will depend on the treatment of the proposed acquisition of Teck’s coal business” for $8.2bn in cash.

“At this stage, we assume this is treated as a pro-forma adjustment and there is no top up to the interim dividend of $2.55bn and ongoing buy back plan,” Deutsche Bank said. If the offer is not treated as an adjustment the top up dividend could be between $4bn and $8bn.