Glencore Reports Narrower Loss, Cuts Debt -- 4th Update
August 24 2016 - 12:43PM
Dow Jones News
By Scott Patterson and Alex MacDonald
LONDON -- A rebound in commodity prices and slashed costs
weren't enough to pull Glencore PLC's earnings out of the red in
the first half of the year.
The world's third-largest diversified miner by market value
reported a $369 million net loss in the six months to end-June
compared with a $676 million net loss in the same period last
year.
In Glencore's first half-year report since it embarked on a
sweeping plan to repair its balance sheet, the company said it is
on track to continue reducing debt through a combination of asset
sales, cost cuts and a bounce in commodity prices.
"We have made considerable progress toward achieving our goals,"
Glencore Chief Executive Ivan Glasenberg said Wednesday.
Glencore launched the plan last year when investors were worried
about the company's then nearly $30 billion in net debt. The shares
fell sharply, dropping almost 30% in one day. Glencore's shares
have since rebounded, more than doubling so far this year, driven
by the rally in commodity prices and its progress in slashing debt.
The stock fell 4.4% in morning trading in London.
The company is on track to reinstate its dividend, which it
suspended last year as part of its debt-cutting plan, some time in
2017, Glencore's CEO said.
Mr. Glasenberg, once one of the mining industry's most voracious
deal-makers, said the company doesn't have plans to acquire new
assets soon. Some investors have said they want the company to keep
cutting debt and reinstate the dividend before snapping up new
mines.
"There is nothing we're really looking at right now," Mr.
Glasenberg said.
Mr. Glasenberg remained confident that the market for the
commodities his company mines and sells will continue to improve,
helped by demand in China and elsewhere. Prices for zinc and coal
are up 43% and roughly a third respectively this year, driven by
production cuts and Beijing's measures to stimulate the Chinese
economy.
"We see demand looking not bad around the world," Mr. Glasenberg
said on a conference call with reporters. "Demand in China is still
pretty good."
Glencore's results were weighed down by a $395 million loss
related to coal trades that suffered as prices rebounded.
Glencore was seeking to lock in prices in the second quarter of
2016 to pay down debt ahead of potential coal-price declines later
in the year, the company said. Instead, coal prices kept
rising.
If that continues, the trades will continue to bleed, said
Jefferies analyst Chris LaFemina in a note. These "poorly timed
coal hedges have ironically limited Glencore's leverage to the
ongoing recovery in coal prices," he wrote.
Mr. Glasenberg said one disappointment this year has been a
relatively flat price for copper, one of the company's biggest
earnings drivers. He said the market is unnecessarily worried about
a "big wall of supply" expected to come into the market in the
coming years.
"We don't see it," he said. "Inventory levels aren't indicating
that copper should be at these levels."
Glencore's first-half revenue fell 6% to $69.4 billion, largely
because of lower commodity prices in addition to lower copper,
zinc, coal and oil production in the first half compared with the
same period a year before. The company had cut production at some
of its coal, zinc and copper mines in response to low prices and an
oversupply of the commodities.
Glencore said it has largely achieved a major plank of its
debt-reduction plan, agreeing to $3.9 billion in asset sales so far
this year. It has a target of between $4 billion and $5 billion in
such sales.
In the latest move, Glencore said late Tuesday it struck a deal
to sell a stream of future gold production and other metals from an
Australian mine to Evolution Mining Ltd. for $670 million. The deal
comes on top of a pair of other so-called streaming deals for gold
and silver for a combined $1.4 billion.
The proceeds will be used to pay down net debt, which is now on
track to fall to a revised $16.5 billion to $17.5 billion by
year-end, down from a previous target of between $17 billion to $18
billion.
Net debt was $23.6 billion as of June end, down from $25.9
billion at the end of December.
Write to Scott Patterson at scott.patterson@wsj.com and Alex
MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
August 24, 2016 12:28 ET (16:28 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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