ii view: Glencore profits fall

Miner Glencore saw profits fall and now it plans to close operations.

Half-year results

• Revenue down 1% to $127.2 billion
• Adjusted profit (EBITDA) down 32% to $5.6 billion
• Earnings per share down 89% to 2 cents 
• Net debt up 11% to $16.3 billion
• Previously announced base distribution of $0.20 per share

Chief executive Ivan Glasenberg: said: 

“Our performance in the first half reflected a challenging economic backdrop for our commodity mix, as well as operating and cost setbacks within our ramp-up/development assets. The rest of our business, however, remained strong and performed well. Excluding our African copper assets and Koniambo, our metals and coal industrial assets delivered robust Adjusted EBITDA mining margins of 39%.”

ii round-up:

Diversified natural resources company Glencore (LSE:GLEN) operates around 150 mining and metallurgical sites, oil production assets and agricultural facilities. Core commodities include copper, coal, cobalt, zinc, nickel and ferroalloys. 

Its customers include the automotive, steel, power generation, oil and food processing sectors. It also provides financing, logistics and other services to producers and consumers of commodities. 

The miner employs over 150,000 people including contractors. 

For a round-up of these half-year results, please click here.

ii view:

The mining industry is tough and often difficult for managements to navigate. Exploration success, operational issues, staff difficulties, the weather, not to mention trying to second guess the price direction of the commodity being extracted, can all impact financial performance. 

For Glencore specifically, a diverse portfolio of mined commodities offers some attraction. However, an investigation by the US Department of Justice over its business practices in the Democratic Republic of Congo overshadows, as do current challenges for its African copper and cobalt operations. 

For investors, the company’s ongoing share buyback programme provides some share price support. But current group uncertainties and exposure to a cooling Chinese economy do, we believe, underline caution. 

Positives: 

• Diverse portfolio of commodities
• Marketing activities offer business diversity
• A $2 billion buyback programme running until the end of 2019

Negatives:

• Ongoing investigation by the US Department of Justice
• Stopping cobalt production at its Mutanda mine
• Net debt of $16.3 billion is at the upper end of management’s target range

The average rating of stock market analysts:

Buy