Glencore on a roll as demand for metals kicks up a gear
Copper, nickel and cobalt drive miner’s performance
Glencore, a major mining, farming and commodity trading company, recorded a strong set of results for 2017 on the back of improved prices and trading conditions.
Glencore declared a $0.20 dividend for the year, paid out in equal parts in May and September this year, representing a $2.9-billion return to shareholders.
“The dividend surprised positively with 20c/share to be paid in 2018 versus our estimate of 14c,” Barclays said in a note.
It reduced its net debt by 31% to $10.7-billion largely on the back of increased inventories rather than cash, which decreased during the year.
Net attributable income was $5.8-billion from $1.4-billion the year before.“These strong results were fuelled by solid underlying global economic growth, which combined with overall industry capital discipline and generally muted production growth, resulted in commodity markets tightening over the year, with a corresponding increase in prices and premiums,” said CEO Ivan Glasenberg.
“Going forward, those commodities where primary market balances are in deficit or trending towards deficit, such as zinc, copper, nickel and thermal coal should see positive price divergence versus potentially oversupplied markets,” he said.
Market sentiment and commodity prices continued to improve during 2017 after the cyclical lows of 2016, he said, noting average price increases of 108% in cobalt, 38% in zinc, 34% in coal and 27% in copper year-on-year.
Glencore produces and markets more than 90 commodities, while it has 150 mines, metal processing sites, oil production assets and interests in agriculture.
“We continue to argue that perceptions of inferior asset quality versus peers are hard to justify with among other things the lowest coal and copper cash costs of the diversifieds,” Barclays said, referring to other large diversified mining companies.
Glasenberg pointed out said the commodities produced and sold by Glencore were “becoming less dependent on demand generated by infrastructure related investment in developing markets”.He singled out electric vehicles as an example of driving demand for copper, nickel and cobalt to make batteries. An independent study commissioned by Glencore noted that if electric vehicles made up a third of vehicle sales by 2030 then the market would need an extra four million tonnes of copper, one million tonnes of nickel; and 314,000 tonnes of cobalt.
“These potentially significant new demand sources offer compelling fundamentals, particularly when coupled with persistent supply challenges,” Glasenberg said.
“Our resource base is well positioned to supply into this likely energy and mobility evolution, particularly given our anticipated strong production growth in copper (25%) nickel (30%) and cobalt (133%) over the next three years,” he said.
Analysts said this exposure set it apart from other diversified mining companies.
“Glencore notes that it is well-positioned to capitalise on any large-scale adoption of electric vehicles and energy storage systems globally. Indeed, we see Glencore as almost uniquely positioned in this regard among our coverage,” Bernstein analysts said in a note.