Glencore narrows loss, cuts debt

The mining giant has tipped commodity prices are past their bottom, as it narrowed losses and cut debt.

Glencore’s first-half revenue fell 6 per cent on year to $US69.4bn. Picture: Valerian Mazataud/Bloomberg.

Commodities and mining group Glencore PLC reported a narrower first-half net loss and signaled that it is on track to significantly reduce its net debt by selling unwanted assets to weather the recent commodities turmoil.

The world’s third-largest diversified miner by market value said on Wednesday that its net loss narrowed to $US369 million net in the six months ended June 30, helped by cost reductions, from a $US676 million net loss in the same period a year before.

Glencore’s chief Executive Ivan Glasenberg said the worst of the recent slump in commodities prices is over.

“During the first half of 2016, the commodities’ complex ended its five year period of price underperformance, despite concerns persisting about the global economy and China in particular,” Mr Glasenberg said.

“While we are highly cash generative at current spot prices, we remain mindful that underlying markets continue to be volatile,” he said.

Glencore’s first-half revenue fell 6 per cent on year to $US69.4 billion due to broadly lower commodity prices as well as lower copper, zinc, coal and oil production in the first half compared with the same period a year before.

The company’ shares have more than doubled so far this year, buoyed by a surge in commodity prices that caught analysts off guard. Production cutbacks, particularly in zinc, and sturdy demand in China, the world’s largest consumer of many commodities, after Beijing’s recent economic stimulus, have contributed to improved prices.

The Switzerland-based company said it has largely achieved its assets disposal target of between $US4 billion and $US5 billion, having agreed to $US3.9 billion in asset sales so far. The proceeds will be used to pay down net debt, which is now on track to fall to a revised $US16.5 billion to $US17.5 billion by year-end, down from a previous target of between $US17 billion to $US18 billion.

Net debt was $US23.6 billion as of June end, down from $US25.9 billion at December-end.

Glencore that its trading division, one of the company’s key earnings drivers, is on track for adjusted earnings before interest and taxes of $US2.4 billion to $US2.7 billion this year after reporting adjusted Ebit of $US1.2 billion in the first half, up 14 per cent from the same period last year. The division last year missed expectations, raising concerns that about how much Glencore could rely on the business to compensate for reduced profit from its mining operations when commodity prices are weak.

UBS analyst Myles Allsop said the first half results were “encouraging with fast deleveraging increasing potential for [a] dividend in March 2017.”

Glencore had suspended its final dividend payment last year and this year’s interim dividend in an effort to reduce its net debt.

Earlier on Wednesday, Glencore said it had struck a fresh deal aimed at cutting its debt pile: Selling future output of gold and other metals from an Australian mine to another producer for $880 million ($US670 million).

Glencore said it has agreed to sell a 30 per cent economic stake in the Ernest Henry mine in northwest Queensland to Australian gold company Evolution Mining Ltd that will entitle Evolution to all future gold production from the site and some of the silver and copper output.

- Dow Jones newswires