Glencore: Remain Invested for Gains

Glencore (GLCNF) recently announced adjusted EBITDA for the first half of 2015 of $4.6 billion, down 29% compared to the last year and primarily due to the ongoing weaker global commodity pricing environment and subdued demand in the major markets such as China.

The demand for key metals nickel and aluminum remained depressed owing to the weaker markets in China which also negatively impacted the country’s stainless steel industry in the beginning of the fiscal year 2015. Coal had also witnessed challenging markets globally and the impact furthered by lowering of the coal imports by China.

As such, Glencore is suffering from the ongoing weaker global commodity pricing situation and the weak commodity demand from the world’s largest consumer, China which is expected to be a huge setback for the company’s margins.

What next for Glencore?

Coal is observed to be the second major source of non-renewable energy in demand after oil with seaborne thermal coal demand forecasted to grow at an increasing rate over the years and in a long-term.

Looking ahead, there is expected to be year-over-year and long-term expanding demand for thermal coal across Southeast Asia and India with carbon being a major portion of the social, political and regulatory framework which is required to be matched with the international energy needs.
Going forward, Glencore is successfully acknowledging this energy reality by maximizing the utilization of coal and adopting a minimal cost method to curtail emissions coupled with prioritizing key investments in greater efficiency and small emission advanced technology for non-renewable resources.

The global demand for coal is believed to be robust and expanding with the ever-increasing energy requirements which are expected to drive long-term profitability for the company and empower it to strongly emerge from the current weaker global commodity pricing scenario.

Importantly, Glencore has recently declared an interim dividend for distribution for the fiscal year 2015 of 6 cents per ordinary share payable on 29 September 2015 as of Friday 11 September 2015.

Focusing on key projects

Glencore has uniquely engaged over 400 stakeholders for the Bulga Life Extension Coal Project (NSW) from the local area and community and it’s keenly aligned with the shareholder’s interests. The key commodities mining and marketing major is estimated to be highly diversified by geography and commodity compared to its peers. Moreover, the company is driven by global commodities supply, demand and deep market intelligence which are forecasted to deliver significant and sustainable shareholder returns over a longer term.

The key commodities mining and marketing company is estimated to be significantly focused on exploring the highly profitable areas while optimizing its operations to minimize costs and grow high-quality production to support its cash position for delivering on its commitment to offer improved shareholder returns.

Glencore has strategically lowered the production of zinc metal by 500,000 tonne per annum across its core operations in Kazakhstan, South America and Australia in order to preserve the highly-valuable resource to be sold at full price once the global commodity pricing environment recovers completely.  Additionally, Glencore has suspended the production of cobalt and copper for the next 18 months to upgrade the key processes at Katanga and commission the innovative leach facility to notably enhance both operational unit costs and key copper recoveries.

Further, Glencore has planned the sale of its completely-owned Lomas Bayas copper mine in Chile and Cobar copper mine in Australia, driven by several spontaneous expressions of interest for the two mines from many prospective bidders.

Moving ahead, Glencore is proactively dealing with the current weaker global commodity demand and pricing environment by curtailing its productions and uniquely selling the non-strategic assets to drive healthy cash flows amid poor global operating conditions for supporting its core operations.


Hence, Glencore is taking a number of positive steps that will allow it to improve its financial performance in the long run. So, despite the weakness in recent quarters, investors should remain positive about Glencore.
Published on Nov 10, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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