Glencore turns half-year profit

GLENCORE returned to profit in the first half of 2014, citing marketing growth, production expansion and synergies related to its acquisition of Xstrata last year.

Justin Niessner

Net income was $US1.7 billion ($A1.8 billion) for the half, compared to a $9.4 billion loss reported for the year-ago period, when a $7.6 billion goodwill impairment dented the newly merged entity.

Adjusted earnings before interest, tax, depreciation and amortisation increased 8% year-on-year to $6.5 billion for the half, while funds from operations gained 15% to $4.9 billion.

The growth in operational cashflows coincided with a 13% year-on-year lift for the period in copper production to 741,000 tonnes, primarily driven by improved performance at the company’s African operations.

Most of the company’s other mineral commodities, however, reflected price pressures with declines in output, although Glencore chief executive Ivan Glasenberg stressed that a rebound was foreseeable.

“The declines in commodity prices, ubiquitous since 2010, have not reflected weak demand but rather excessive supply growth in all commodities,” he said.

“In some commodities, such as nickel and zinc, not only will supply growth decline but supply is likely to decrease in absolute terms.

“Since the start of the year, the price of nickel and zinc has risen by 35% and 10% respectively. We believe that these moves point the way for other commodities, with the probable exception being iron ore, where supply growth is not expected to peak until 2017.”

Zinc was last trading at about $2356 per tonne, while nickel and iron ore were valued at $18,867/t and $92.30/t, respectively.

Glencore’s net debt for the half was $37.6 billion, but the company reported a substantial improvement to its position when adjusting for major transactions since the end of the six-month period.

Adjusted net debt was down 9% to $32.6 billion when factoring the $6.5 billion sale of the Las Bambas copper project in Peru to a consortium led MMG and the $1.6 billion acquisition of oil and gas company Caracal Energy.

The company emphasised the Las Bambas divestment, in particular, as improving its balance sheet and accelerating a move into a free cashflow position.

It marked a 3% year-on-year improvement in the value of its total assets during the period at $158.8 billion.

“Glencore continued to make decisive progress in delivering on the potential created by the Xstrata acquisition over the first half of 2014,” Glasenberg said.

“We remain the most diversified natural resources company by activity, commodity and geography, providing us with a stable operating platform as well as a high degree of optionality to underlying prices and bolt-on or brownfield development opportunities.

“We look to the future with optimism based on our strong starting point and our culture of entrepreneurialism.”