Glencore Will Double Dividend, Restart Zinc as Metals RallyBy
‘Marketing is highly cash generative across the cycle’
Glencore expects to restart production at Lady Loretta mine
Glencore Plc promised to double its dividend, restart some zinc production and boost spending as the world’s largest commodity trader reaps rewards from soaring metals prices.
The slate of news from Glencore’s investor presentation on Tuesday shows the mining company is firing on all cylinders, with profitable zinc, cobalt and copper mines around the world. The growth has been aided by a powerful trading business that’s on track for its second-best year.
“Marketing is highly cash generative across the cycle,” the company said in a statement, adding that it’s “able and willing to grow our business” with acquisitions focused on existing commodities.
Glencore shares slipped 1 percent to 347.65 pence as of 4:03 p.m. in London.
Glencore will pay shareholders at least $2 billion in 2018, the company said. The dividend will be split into two payments, and could be increased during the half-year results.
On a conference call with investors, Chief Executive Officer Ivan Glasenberg said he would be “very surprised” if dividends aren’t higher next year in the absence of more acquisitions.
Still, Glencore’s dividend remains low compared with other mining majors, such as Rio Tinto Group and BHP Billiton Ltd. The focus on payouts comes at a time when investors are pressuring miners to reward investors with cash, rather than dive into big deals.
Excess cash will be paid as dividends, but Glencore is also "open for business" when it comes to acquisitions, which makes the company different than the other miners, said Chief Financial Officer Steve Kalmin.
Glencore, the world’s top zinc miner, plans to increase production to take advantage of prices near a decade high. Overall production will drop slightly in 2018 and gradually increase through 2020, the presentation showed.
Traders were closely watching Glencore’s statements in zinc and the company was widely anticipated to restart some production after shuttering mines two years ago, when the market was depressed.
Phased production will begin at the Lady Loretta mine in Australia during the first half of 2018, with 100,000 tons in 2018 and an additional 60,000 tons in 2019, the company said.
The news initially sparked declines in zinc prices, but the metal later rose as the production wasn’t as much as some analysts expected.
Lady Loretta only represents about a third of the production that Glencore suspended two years ago. In August, Glasenberg said the company had about 500,000 metric tons of zinc capacity that would be restarted at “the right point in the cycle.”
The company also raised its estimate for spending, citing new investments such as its copper project in the Democratic Republic of Congo and an oil drilling program in Chad. Capex will increase by an average of $500 million to $4.5 billion a year from 2018 to 2020.
Glasenberg said markets have been tight across metals, coal and oil, and trading profits came from all divisions.
Earnings before interest and taxes for its trading division will be around $2.8 billion for 2017, at the top end of a previously announced range. Every trading unit performed better this year, but the figures are about the same as 2016, due to the partial sale of the agriculture division, Kalmin said.
"It’s been a year where they’ve all performed well, hit their numbers, if not exceeded," Glasenberg said on a conference call.
The company has long positioned its trading division to investors as a key difference between it and other mining majors, which tend to market less of their own production. The business deals in almost 100 raw materials including oil and agricultural products.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.