EARNINGS

Glencore sells assets, cut spending to reduce debt

Mining and trading company also trimming production as sharp drop in commodity prices adds pressure to lowering US$30 billion burden

PUBLISHED : Wednesday, 04 November, 2015, 11:49pm
UPDATED : Wednesday, 04 November, 2015, 11:49pm

Mining and trading company Glencore said on Wednesday it was on track to reduce debt, thanks to asset sales, while deepening cuts in copper output to support flagging prices.

The company has come under pressure from investors and rating agencies to cut its net debt of US$30 billion, one of the highest in the industry, as prices for its key products copper and coal sank to six-year lows in August.

Glencore has pledged to cut its net debt to US$20 billion by the end of next year to regain the trust of investors after its shares tumbled to record lows this year.

It said yesterday it was targeting net debt of US$25 billion by the end of this year as it implemented a debt-reduction plan involving asset sales, cutting capital expenditure, suspending dividend payments and raising US$2.5 billion of new equity capital. The share sale was completed in September.

Glencore said its liquidity rose to US$13.8 billion at the end of September from US$10.5 billion in June. It repaid three bonds amounting to US$1.95 billion and bought back US$400 million of bonds.

"This was as good a denouement to the end of a very volatile quarter as one could realistically expect," Barclays analysts said in a note.

Glencore said on Tuesday it had agreed to sell future silver output from its stake in the Antamina copper mine in Peru to Silver Wheaton Minerals for US$900 million in cash in a "streaming deal".

It said an additional transaction was in progress and it had started processes to sell a minority stake in its agriculture business as well as its Lomas Bayas copper operation in Chile and its Cobar copper mine in Australia.

Glencore shares, down 57 per cent this year, have recovered from record lows reached in September and were trading 5.32 per cent higher at 125.8 pence on Wednesday afternoon.

Glencore said its trading division, or what the company calls marketing, performed better over the third quarter, allowing it to maintain its full-year target of US$2.5 billion to US$2.6 billion in adjusted earnings for the division.

Glencore makes about a quarter of its earnings from commodities trading, which had previously allowed it to withstand a steep fall in oil and metal prices slightly better than pure-play miners.

But the division came under the spotlight after it generated lower-than-expected earnings in the first half and the company cut trading's full-year earnings forecast.

"The company has suffered a sharp drop in confidence, but we think concerns over marketing and industrial earnings are overdone," Credit Suisse analysts said in a note. "We expect marketing to remain a cash cow."

Goldman Sachs said weaker commodity prices remained a worry and that lower debt was unlikely to persuade some investors that Glencore had overcome problems regarding its balance sheet and credit ratings.

To support commodity prices, Glencore has also cut production of copper, coal and zinc.

The miner cut 500,000 tonnes of zinc production last month. In September, it suspended some copper production at its Katanga Mining unit in the Democratic Republic of Congo and at Mopani Copper Mines in Zambia, removing 400,000 tonnes of cathode from the market.

On Wednesday, it said it expected to cut 455,000 tonnes of copper output by the end of 2017.

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