Glencore slashes dividend but pledges rebuild

Glencore (GLEN) is refuelling its cash generation engine, at least if Gary Nagle’s acquisition and demgerger plan is successful. The company has slashed its dividend to pay back debt taken on for the acquisition of new metallurgical coal mines from Canadian miner Teck Resources (CA:TECK.B), while earnings tumbled due to lower coal prices last year.

The 2024 dividend will be 13¢ (10.3p), a 70 per cent drop on last year. Including the $4bn buyback programme from 2023, this year's return for shareholders is just 16 per cent of last year's. 

Adjusted Ebitda for 2023 was $17.1bn, down 50 per cent on 2022, largely due to weaker coal prices and lower trading profits, which fell 43 per cent to $3.9bn. Coal earnings dropped 55 per cent to $8.5bn. 

Glencore was also more exposed than other major miners to metals that did not see price improvements last year; zinc, lead, cobalt and nickel. The nickel business was a particular drag on earnings in 2023, with a negative 2 per cent Ebitda margin. Glencore has also suspended production at its Koniambo nickel mine in New Caledonia and shifted investment more to copper. 

Net debt minus commodity inventories was just under $5bn, the new cap. This meant management stuck to its target of $1bn plus 25 per cent of mining free cash flow for its payout, leading to the hefty cut. 

Chief executive Gary Nagle said the portfolio reshuffle would bring a “long-life, low-cost” set of mines into the company. Nagle also made the case for thermal coal mines. "When you’ve got a demand for [coal] power and the supply response is not there, it’s got to be bullish for fossil fuel prices going forward," he said. "The value of these mines, and the margin these mines generate, will be material to our business." The plan is still to split Glencore into a coal company and metals and trading company within two years of the Teck deal closing.

Glencore's profit levels are still historically high, with adjusted Ebitda well ahead of the $11.6bn seen in 2019 and 2020, but investors have come to expect more. Metals prices should support a rebound this year, however, and this is likely to bring dividends back up again in 2025 and 2026. Hold.