ii view: Glencore charges up production of battery metals

This FTSE 100 miner has outperformed rivals over the last year and offers an attractive dividend yield. We assess prospects. 

Full-year 2022 production update

Chief executive Gary Nagle said:

"Overall, 2022 production volumes were in line with our revised guidance from October 2022, with final quarter sequential production increases delivered across most of our key commodities, including copper, zinc, nickel and coal. During the year, however, we saw a mixed overall production performance.”

ii round-up:

FTSE 100 miner Glencore (LSE:GLEN) today left estimates for 2023 production unchanged, with output over 2022 ranging from gains for metals used in battery production like cobalt and nickel, to a fall in copper. 

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Cobalt production rose 40% in 2022 compared to the year before, boosted by the fourth quarter restart of output at its Mutanda mine in the Democratic Republic of the Congo. Copper production fell 12%, hindered by asset sales and supply chain headwinds in Kazakhstan. 

Glencore shares were little changed in UK trading having come into this latest news up by more than a third over the last year. Rivals BHP Group Ltd (LSE:BHP) and Rio Tinto Registered Shares (LSE:RIO) are both up nearer a fifth over that time. The FTSE All World index has fallen by 10%.

Coal production at Glencore climbed 6% year-on-year, helped by an asset acquisition, but held back by wet weather in Colombia. 

Nickel production rose 5% versus 2021, aided by easier comparatives given required maintenance shutdowns during 2021, while ferrochrome output stayed flat. Both gold and silver production retreated by double-digits.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares, rating the miner a ‘top pick.’

Full-year 2022 results are scheduled for 15 February. 

ii view:

Glencore has operations in over 35 countries in both established and emerging regions for natural resources. It is both a producer and marketer of more than 60 different commodities. Its customers include industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. Its trading or marketing business adds additional diversity not seen at rivals. The marketing business can generate profits to help offset commodity price falls for its more traditional mining business. 

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For investors, economic uncertainty and fears about a global recession continue to overshadow potential commodity demand. Exposure to climate change fuels such as coal is worth remembering, while factors outside of management’s control such as the weather can hinder performance. 

More favourably, both diversity of commodities mined and in its operations given its marketing business, offer strengths not seen at rivals. A reopening of the Chinese economy following the pandemic may help counterbalance any weakening in Western demand, while the shares currently stand on a forecast dividend yield in the region of 8%. 

On balance, and with the consensus analyst estimate of fair value per share standing at over 600p per share, investors are likely for now to remain patient. 

Positives: 

• Diversity of commodities and operations
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Buy