ii view: Glencore reinstates the dividend

An experienced CEO is stepping down, but there's good news for income seekers. 

Full-year results to 31 December

Chief executive Ivan Glasenberg: said: 

"The Covid-19 pandemic is an extraordinary challenge that continues to impact many aspects of day-to-day life. Against this backdrop, the strength of our 2020 underlying performance is a credit to our highly skilled and dedicated employees, and also reflects our unique business model and ability to quickly adapt to changing market conditions and customer needs.

"Glencore has been transforming the global commodities industry for nearly half a century, growing from a trader of ferrous and non-ferrous metals, minerals and crude oil, into one of the world's largest natural resource companies. Today, the business and its portfolio of commodities is uniquely positioned for the needs of the future. It is ready to support the transition to a low-carbon economy and realise its ambition of net-zero by 2050. We remain focussed on creating sustainable long-term value for all stakeholders while operating in a responsible manner across all aspects of our business"

ii round-up:

Mining and commodity trader Glencore (LSE:GLEN) today reinstated its dividend payment as rising commodity prices helped it reduce debt.

It declared a payment of 12 US cents per share as targeted group debt fell by 10% to $15.8 billion. Buoyed by a rebound in the price of oil from the first half, strength in commodity prices and a ramping-up of production at its African copper Congo operations.

Glencore shares rose by more than 3% in UK trading, leaving them up around 170% since pandemic lows late March. Shares for rivals BHP (LSE:BHP) and Rio Tinto (LSE:RIO) have both doubled over the same time frame. 

China, the world’s second largest economy and a major user of commodities, recently reported GDP, or economic growth of 6.5% for the final quarter of 2020. Government stimulus packages and hopes for the rollout of vaccines over 2021 have helped commodities such as copper and iron ore gain by more than 80% since the height of the coronavirus crisis. 

Glencore has around 150 mining and oil production assets in over 35 countries. It is both a producer and marketer of more than 60 different commodities. Core commodities include copper, zinc, coal and nickel. It is also a global trader of oil and agricultural products.

Unchanged adjusted full-year profit of $11.6 billion beat City estimates for a fall nearer to $10.5 billion. The decline in group debt to $15.8 billion also exceeded forecasts, with management now targeting a decline to below the middle of its $10 billion to $16 billion range come the end of 2021. 

Double-digit profit gains for both its marketing and energy businesses were counterbalanced by exposure to falling coal prices. The reinstatement of the dividend follows its withdrawal back at the half-year results as debt rose close to $20 billion. Management flagged possible "special 2021 shareholder distributions" at its interim results in August. 

Like many companies over the last year or so, Glencore has also adopted climate change targets, including an ambition to be net carbon zero by 2050. The results marked the last for highly experienced chief executive Ivan Glasenberg who leaves the company "during the first half of 2021". 

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 attraction. It also has the added diversification of a commodities trading business which rivals do not. This trading, or marketing business, can, as it has done this time around, generate profits to help offset asset price falls for its more traditional mining business. 

For investors, exposure to fuels such as coal, a key cause of climate change, offers some caution. So do previous investigations regarding group business practices by both US and Swiss authorities. But today’s resumption of the dividend payment is clearly a positive for a sector often looked towards for its income generating ability. Exposure to finite commodities in a world of central bank money printing offers its own attraction, while expectations for a continued retreat in debt should assist shareholder returns moving forward. In all, Glencore’s diversity is outweighing virus challenges.

Positives: 

• Diverse portfolio of commodities
• Marketing activities offer business diversity

Negatives:

• Environmental policy requirements may require changing operational needs 
• Stepping down of the highly experience chief executive 

The average rating of stock market analysts:

Buy