Interactive Investor

ii view: Glencore uptrend continues after latest report

Shares for this diversified miner have outperformed rivals over the last year. Buy, sell, or hold?

2nd February 2022 15:39

Keith Bowman from interactive investor

Shares for this diversified miner have outperformed rivals over the last year. Buy, sell, or hold?

Full-year production update 

  • Copper down 5%, Coal down 3%, Zinc down 4%,
  • Cobalt up 14%, Nickel down 7%

Chief executive Gary Nagle said: 

"We completed the Cerrejon acquisition and Ernest Henry disposal in January, such transactions being consistent with our continued strategy to simplify and align our portfolio with the materials needed for the energy transition and the responsible decline of our coal business."

ii round-up:

Diversified miner Glencore (LSE:GLEN) today detailed broadly in line production output for the full year 2021 against what it summarised as a ‘challenging’ operating environment. 

The ongoing global pandemic provided its biggest operational hinderance, with the company battling to maintain production given the importance of its products to issues such as decarbonisation, energy supply and industrial output. 

Glencore shares rose by just over 1% in UK trading, leaving them up over 60% over the last year. Shares for copper and silver miners Antofagasta (LSE:ANTO) and Fresnillo (LSE:FRES) are down by 10% and 36% respectively over that time. The FTSE All Share index is up 15%. 

Cobalt production at Glencore, used in electric vehicle (EV) batteries, rose 14% to 31.3 kilo tonnes (kt) from 2020’s 27.4 kt. Nickel production, also used in EV batteries retreated by 7% to 102.3 kt. 

Glencore has operations in over 35 countries across established and emerging regions for natural resources. It is both a producer and marketer of more than 60 different commodities.

Against a still Covid hindered global economy, copper production fell 5% over 2021 to 1,195 kt. Production of coal, now considered a high carbon climate warming fuel, retreated by 3%. 

Production guidance for 2022 remained unchanged from that offered in December. 

Full-year results to the end of December are scheduled for 15 February. 

ii view:

Founded in the 1970’s as a trading company, today Glencore employs over 130,000 people. Its customers are 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. 

For investors, exposure to climate change offenders such as coal offers some caution. As with rivals, many factors outside of management’s control such as the weather can also impact performance. Pandemic and economic outlook uncertainty also warrant consideration. 

But exposure to a wide range of commodities offers diversity that many other miners don't have. Strong cashflows from pandemic recovering commodity prices previously helped it to reduce net debt, with carefully managed capital expenditure aiding increased shareholder returns. Glencore shares also now sit on an estimated future dividend yield of around 4%. In all, given diverse commodity exposure, including to metals used in electric vehicle battery production, and an estimated consensus analyst fair value price of 447p per share, Glencore shares look to remain worthy of ongoing investor support. 

Positives: 

  • Diversity of commodities and operations
  • Focus on shareholder returns

Negatives:

  • Loss of highly experienced chief executive Ivan Glasenberg
  • Uncertain Covid clouded outlook

The average rating of stock market analysts:

Buy

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