Glencore Plc (GLEN)’s billionaire Chief Executive Officer Ivan Glasenberg underscored his belief in the longevity of the global commodities boom by beating his biggest rivals in handing out surplus cash to investors.
Glencore, the third-largest miner by market value, today announced a $1 billion share buyback after first-half profit gained 8 percent on higher production. Investors in BHP Billiton Ltd. (BHP) sent the stock down the most in more than three years in London yesterday after the world’s biggest mining company chose to retain cash because of weaker commodity prices.
Global mining investors have been demanding greater returns following a period marked by failed acquisitions and spending on mine expansions that flooded metals markets. After a decade of explosive price gains fueled by Chinese demand, often defined as the commodities supercycle, mining companies are contending with slower growth by spurning mergers and cutting costs.
“The supercycle ain’t over, China is still buying, demand for commodities hasn’t tapered off, it’s even higher than it’s ever been,” Glasenberg said today in an interview. “The demand is pretty good. We’ll grow. We may do acquisitions where you’re not creating more supply in the market.”
The stock gained 0.4 percent to 360.5 pence in London today. It’s up 18 percent this year giving it a market value of about $80 billion.
Glencore, about 25 percent owned by management, reported an 11 percent increase in its dividend to 6 cents a share. Glasenberg reaped a $173 million dividend for 2012 and a $182 million payout for last year.
Adjusted net income rose to $2.01 billion from a restated $1.9 billion a year earlier, Baar, Switzerland-based Glencore said today in a statement. That compares with the $1.93 billion average estimate of seven analysts compiled by Bloomberg.
“The mining companies should start generating cash and using the cash to give back to shareholders,” Glasenberg said. “We really think like shareholders because we are shareholders.”
Other big miners are also targeting shareholder payouts. Barrick Gold Corp. (ABX) says it’s now focusing on returns rather than production volumes. Earlier this month, Rio Tinto Group raised its dividend and said it’s on its way to becoming a “cash machine” as a cost-cutting drive starts to bear fruit.
BHP has been expected to announce a buyback yesterday of as much as $3 billion, Citigroup Inc said. CEO Andrew Mackenzie said the company was reticent to buy back stock following commodity price declines and a weak outlook.
“The announcement of a buyback is refreshing, and will be welcomed by financial markets given yesterday’s disappointment by BHP Billiton,” BMO Capital Markets analyst Tony Robson said today in a note to clients. The “proposed payout is a relatively nominal sum and indicates the company is retaining most of the Las Bambas proceeds for future acquisitions, which should add to growth.”
It will be completed by the end of March and is part of an ongoing program to purchase shares, Glencore said. It comes after the completion of the sale of the Las Bambas copper mine in Peru this month. The company also bought back $639 million of its convertible bonds in the first half.
It “underlines the group’s confidence that it can keep improving cash flows even in the current lower commodity price environment,” Morgan Stanley analyst Menno Sanderse wrote in a report today.
The mining industry’s decade-long $616 billion investment spree was followed by asset writedowns and management clear-outs.
It would be foolish for CEOs of the biggest companies to revert to the “damaging strategies of the last cycle,” BlackRock’s Evy Hambro, who manages the $8 billion World Mining Fund, said in e-mailed comments earlier this month.
Glencore completed the $29 billion takeover of Xstrata in May last year to add coal, copper, zinc and nickel mines to its trading empire. The transaction is expected to generate cost savings of as much as $2.4 billion this year, Glencore said in March.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore.
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