ii view: Glencore profits halve but miner optimistic about 2024

Full-year results to 31 December

• Revenue down 15% to $217.8 billion
• Adjusted profit (EBITDA) down 50% to $17.1 billion
• Net income attributable to shareholders down 75% to $4.3 billion
• Earnings down 74% to $0.34 per share
• Dividend of $0.13 per share, compared to a total of $0.44 per share in 2022

Chief executive Gary Nagle said:

“Against the backdrop of a rebalancing and normalisation of international energy trade flows, our Marketing and Industrial segments posted a lower, albeit healthy, earnings performance in 2023.

“For 2024, basis 2023 cash flows, we are recommending to shareholders a $0.13 per share (c.$1.6 billion) base cash distribution, comprising $1 billion from Marketing cash flows and 25% ($0.6 billion) of Industrial attributable cash flows.”

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ii round-up:

Diversified miner Glencore (LSE:GLEN) today detailed mixed full year 2023 results, with management guidance for copper production marginally shy of City forecasts. 

Lower energy prices following the spike just after Russia’s invasion of Ukraine contributed to a halving of adjusted annual profit to $17.1 billion, with a dividend of $0.13 per share missing hopes for $0.17.

Shares in the FTSE 100 company fell 4% in UK trading having come into this latest news down by more than a fifth over the last year. That’s similar to falls for major iron ore miners Rio Tinto Registered Shares (LSE:RIO) and BHP Group Ltd (LSE:BHP), and in contrast to a 3% gain for copper miner Antofagasta (LSE:ANTO).  

Glencore has operations in over 35 countries and is both a producer and trader of more than 60 different commodities.

Adjusted profits for its mining, or industrial division fell 52% to $13.2 billion, hindered by lower commodity prices including those for coal, cobalt, nickel and zinc. Trading, or marketing related profits dropped 46% to $3.5 billion, with reduced volatility and a more stable market for energy related commodities taking related profits down 67% to $1.7 billion.

Accompanying management outlook comments flagged expectations for “global economic growth to bottom out in 2024, with expected interest rate cuts and corresponding restocking likely to bring improved demand conditions later in the year.”  

Glencore’s net debt rose to $4.9 billion at year-end compared to almost no debt in late 2022, although its net debt-to-adjusted profit (EBITDA) ratio is a robust 0.29 times. 

The dividend of $0.13 per share will be paid in two equal payments in June and September. A first-quarter production update is scheduled for 30 April. 

ii view:

Started in 1974, commodities like copper, coal, zinc, nickel, cobalt and ferroalloys are now big profit generators for its mining division. For its trading division, oil, liquified natural gas (LNG) and agricultural products are among key commodities of interest. Geographically, Asia accounts for its biggest slug of sales at 44%, followed by Europe at 29%, the Americas 20%, Africa 5%, and Oceania the balance of 2%. 

In late 2023, Glencore did a $9 billion deal with fellow Canadian metals and coal miner Teck Resources Ltd Class B (Sub Voting) (NYSE:TECK). Glencore now hopes to merge its own coal business with that of Teck’s and then eventually demerge the combined coal business as a separate company.  

For investors, the uncertain global economic outlook, particularly for big commodity buyer China, continues to overshadow the business. Production of fossil fuel coal given its considered part in climate change may also deter some potential investors. Previous corruption allegations and legal settlements potentially add to ethical concerns, while exposure to political instability in countries of operation such as Colombia, the Democratic Republic of the Congo and Kazakhstan also warrant consideration. 

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On the upside, an agreed deal with Teck Resources of Canada should eventually see its coal operations separated out, leaving investors a clearer choice as to whether to invest in coal or not. Diversity of both commodities mined and operations, plus its marketing business give it strengths not seen at rivals. China is implementing measures to try and boost its economy, while exposure to energy transition metals such as cobalt and zinc used in batteries is not to be overlooked.   

For now, there is clearly room for caution, at least in the near term, given the negative reaction to these results and poor performance leading up to them. However, both the expected separation of its fossil fuel business, potential for economic recovery in China and a consensus analyst fair value estimate of over 500p per share, arguably make Glencore one to consider for the longer term.

Positives: 

• Diversity of commodities and operations
• Robust balance sheet

Negatives:

• Uncertain economic outlook
• The weather can hinder performance

The average rating of stock market analysts:

Buy