Interactive Investor

ii view: Glencore’s gem of a business shows its worth again

17th June 2022 12:03

Keith Bowman from interactive investor

A diverse basket of commodities and sat on a highly attractive estimated future dividend yield. Buy, sell, or hold?

Trading update

ii round-up:

Miner Glencore (LSE:GLEN) today flagged both record prices for its energy coal business and successful navigation of extraordinary global challenges by its trading, or marketing business. 

An unprecedented dislocation in energy markets over the year to date given the war in Ukraine, resulted in an upgrade to its expected full-year coal price. At the same time, first-half adjusted earnings for its marketing division, a real gem of a business, are now forecast to exceed $3.2 billion. 

Glencore shares rose by more than 2% in UK trading having gained by close to a quarter coming into today’s unscheduled update. Shares for rivals BHP Group (LSE:BHP) and Rio Tinto (LSE:RIO) are both up around a tenth over that time. The FTSE All World index is down around 22% in 2022. 

Glencore, whose previous full-year coal related price achieved guidance was $32.8 per tonne, now expects a range of approximately $82 to 86 per tonne for the first half of 2022. However, that also raises government royalties, which when taken with higher input costs including diesel, explosives, logistics and electricity, results in an expected average unit cost for the period to between $75 and $78 per tonne.

The expected first half adjusted profit for its trading business of $3.2 billion is at the top end of management’s long-term through-the-cycle estimate, although it currently expects more normal conditions in the second half. 

Broker Morgan Stanley believes that Glencore is well placed to return at least $8 billion of capital to shareholders at its first-half results on 4 August.  

ii view:

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

For investors, global economic outlook uncertainty and the still ongoing pandemic for big commodity user China, head any list of concerns. Exposure to fossil fuels such as coal is also worth remembering, as are factors outside of management’s control such as the weather, which can hinder performance. Finally, although now under fresh management, a tarnished reputation, given required legal settlements with national governments, also lingers. 

On the upside, both diversity of commodities mined and in its operations, given its marketing business, offer strengths not seen at rivals. The marketing business is again demonstrating its worth in this latest update. Elevated commodity prices also underpin group cashflows, with the shares now sat on a forward dividend yield of over 10%. In all, and with the consensus analyst estimate of fair value per share standing at just over 600p per share, room for longer term optimism looks to persist. 


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


  • Uncertain economic outlook
  • Previous loss of highly experienced chief executive Ivan Glasenberg

The average rating of stock market analysts:


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