Glencore profits dive 69pc, buffeted by marketing, agriculture

Chief executive Ivan Glasenberg praised the “resilient” marketing business for keeping Glencore in the black

“Have we bottomed? I think so,” says Glencore’s Ivan Glasenberg.

Glencore’s marketing and agricultural operations have shielded group earnings from the worst of last year’s commodity price meltdown.

But after taking into account smashed earnings from its mining operations, it was not enough to stop a 69 per cent plunge in annual profit from $US4.28 billion to $US1.34bn ($1.86bn).

The result was slightly ahead of expectations and was before impairment charges on nickel and oil assets and foreign exchange adjustments that took the bottom line to a loss of $US4.96bn, from a profit of $US2.3bn in 2014.

Chief executive Ivan Glasenberg said the company’s “highly resilient’’ marketing business meant Glencore continued to be “comfortably cash generative at current and even lower commodity prices”.

He said the annual profit was a robust performance in difficult market conditions. Glencore shares were savaged last year on debt concerns.

But a debt reduction program in which asset sales was the main kicker saw the market more relaxed about Glencore’s exposure to the commodities bust by the end of the year.

The shares have climbed 47 per cent since the start of the year and were trading at 134 pence in London last night. But with its market capitalisation now sitting at about $37bn, it remains well shy of its mining boom peak.

“Have we bottomed? I think so,” Mr Glasenberg said, in upbeat remarks that run counter to some other mining executives, who have said they continue to expect more pain in 2016.

Mr Glasenberg said Glencore was confident it could achieve another $US4bn-$US5bn in asset sales by the end of the calendar year.

That could include the group’s Cobar copper mine in NSW which, along with the Lomas Bayas copper mine in Chile, could be sold in the June quarter after bids are finalised.

Glencore’s net debt fell from more than $US30bn to $US25.9bn by the end of 2015, and the company wants to see it reduced to $US17bn-$US18bn by the end of this year.

Mr Glasenberg said he was optimistic that 2016 wouldn’t be a repeat of 2015. He cited solid demand for Glencore’s products worldwide and sharp spending cutbacks among large mining companies, including his own.

Glencore has cut spending and production at its coal, copper and zinc mines. The copper cuts have taken about 300,000 tonnes of annualised production out of the market, Mr Glasenberg said.

The spending cuts are expected to reduce the supply of metals that have outpaced demand in recent years, an imbalance that sent prices for metals such as copper down 25 per cent in 2015.

“You’re not going to get new excess supply coming on the market,” Mr Glasenberg said.

Another reason for his optimism: solid sales to China, where worries about an economic slowdown in the world’s biggest consumer of industrial metals have weighed on prices.

“We continue to see good orders into China,” including sales of copper, one of Glencore’s most important commodities, he said.

Glencore’s profit dive follows on from Rio Tinto’s full-year result, announced on February 11, which was down 51 per cent at $US4.54bn, and BHP’s interim result, released on February 23, which saw its earnings collapse from $US4.89bn to $US412m.

Rio boss Sam Walsh said at the time that the continued deterioration in the macro environment had generated widespread market uncertainty.

BHP boss Andrew Mackenzie said that while the company was prepared for lower prices across its commodities, it believed the “period of weaker prices and higher volatility will be prolonged”.

Glencore’s marketing operations posted earnings before interest and tax of $US2.5bn, down 12 per cent on 2014.

“The business’s enhanced cyclical resilience and defensiveness helped to offer the impact of lower commodity prices.” it said.’

The mining/industrial operations generated an EBIT loss of $US292m compared with a positive $US3.9bn in 2014.

At its Australian operations, Glencore reported losses at the EBIT level at is zinc and nickel operations, and a small profit at its copper operations.

It has made production adjustments in its zinc business and the future of its Murrin Murrin nickel operation in Australia remains in balance given nickel prices have fallen further in the new year.

Glencore reported losses at its coking coal operations in Australia but a profit at the EBIT level of $US44m at its much bigger thermal coal business.