Glencore removes $ 2.6 billion dividend after half-year profit decline

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Glencore decided not to pay a proposed dividend of $ 2.6 billion after reporting lower half-year profits due to falling commodity prices and the impact of the coronavirus pandemic.

The Switzerland-based mining and commodities trader said Thursday it was focusing on strengthening its balance sheet, as net debt rose 12% to $ 19.7 billion at the end of June.

Ivan Glasenberg, chief executive of Glencore, said the board concluded that it would be “inappropriate to make a distribution to shareholders in 2020”, and that it would prioritize debt reduction instead. He said the board would consider whether to resume dividend payments next year when there is greater visibility into “where everything is.”

“Let’s see how the market works, how Covid affects the supply and demand for raw materials,” he said on a media call Thursday. “As you can see, we will generate free cash flow of $ 4.1 billion [this year] based on current prices. The debt will go down, ”he added.

In the six months ending in June, Glencore reported a net loss of $ 2.6 billion for the period after taking $ 3.2 billion in depreciation charges, including a $ 1 billion impact on the value of its struggling Colombian coal assets. Incomes fell 34 percent to $ 70 billion, mainly due to lower commodity prices.

The increase in borrowing came as Glencore tapped its lines of credit to take advantage of falling oil prices in March and April to buy barrels of cheap crude and sell them on the futures market at a profit. As a result, the “marketing”, or business arm of Glencore, reported record earnings before interest, which doubled to $ 2 billion.

This helped to offset the poor performance of its mining business, where profits fell 42% due to the sharp drop in prices for thermal coal – one of Glencore’s key products – and lower production in due to lockdowns and coronavirus-related disruptions in South Africa and South America. .

Overall, Glencore reported adjusted earnings before interest, depreciation and amortization – the measure most closely watched by analysts and investors – of $ 4.8 billion in the six months ending in June, down from 13% compared to the same period a year ago.

“Prices have recovered significantly since the first half of the year, which should help strengthen the mining unit going forward,” said Tyler Broda, analyst at RBC Capital Markets. Glencore shares fell 3.4% to 189p on Thursday.

Mr Glasenberg said he expected net debt to be in the company’s target range of $ 10 billion to $ 16 billion by the end of the year, as the big oil swaps hit. slack and higher metal prices will help the company generate more cash. Glencore is targeting a minimum net debt reduction of $ 2.8 billion in the second half of the year.

On the succession, Mr Glasenberg, who has run the company since 2002, said Covid-19 could impact the timing of his impending retirement – but not in any significant way.

Glencore has transitioned to a new generation of management over the past two years and recently announced the departure of Daniel Maté, its main zinc trader. That leaves only two executives since it went public in London in 2011: Mr Glasenberg and Tor Peterson, the head of coal trading.

“The last of the old guard is Tor and that [his departure] will happen while we are ready for a replacement, ”Mr. Glasenberg said. “And like I said, once the old guard changes, I will continue. We haven’t said the exact dates yet, but we are working through the process. ”

The pioneers to replace Mr. Glasenberg are Gary Nagle, head of coal assets, Kenny Ives, his main nickel trader, and Nico Paraskevas, who leads the copper marketing.

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