Glencore brings back dividend on earnings strength

The end of the Ivan Glasenberg era has come with a return to dividends for Glencore (GLEN) shareholders. Glasenberg, who has run the mining and trading giant for almost two decades, confirmed that he would soon just be a major shareholder. 

The renewed dividend, to be paid out in two tranches in May and September, is 12¢ (9p) a share. Glencore paused the payout last year as net debt climbed to almost $20bn. Now, net debt has dropped to $15.8bn, inside the $10bn-$16bn target range. 

The quick recovery was possible because of the rise in base metals prices and strong trading earnings in the energy and metals sectors. Overall adjusted cash profits for 2020 were flat on the year before at $11.6bn.

The mining division was hit by much weaker coal prices, although better copper, nickel and cobalt prices kept the segment’s year-on-year adjusted cash profit decline to 13 per cent. Meanwhile, the trading division contributed $3.3bn in adjusted cash profits, $1bn more than in 2019. 

Glencore’s reported numbers were less positive because of $6.4bn in impairments, the largest of which was a $1bn charge on the sale announcement of the Mopani copper operations in Zambia. Glencore has agreed to sell the mine and smelter to the Zambian government, although the company has to lend the financially-challenged country the $1.5bn asking price. 

Glasenberg, who owns 9 per cent of Glencore, said further shareholder payouts could come later in the year. He also said economic conditions could be right for another mining supercycle, like the 2000s, when Chinese demand was well ahead of what the world’s iron ore and copper mines could provide. 

“The supply response is going to be harder than before,” he said, referring to the pipeline for new mining projects now compared with 15 years ago. Copper, in particular, has seen a decline in major new deposits that can be mined profitably. He said it was unlikely his successor Gary Nagle would be able to buy greenfield projects for good prices, although he underlined Glencore’s brownfield capacity, where existing mines are expanded. 

Glencore currently has the Mutanda copper and cobalt mine in the Democratic Republic of Congo on care and maintenance, and is working on a new mine plan. 

In his first remarks at a results presentation, incoming chief executive Gary Nagle focused on Glencore’s climate ambitions. The company wants to hit net zero carbon emissions by 2050, including scope 3 emissions from customers. It will do this primarily through the winding-down of its coal mines.

Nagle said he had been “deeply involved” in designing the climate change policy. He did note the upcoming shareholder advisory vote on the net zero plan, however.

“If there is a demand to do something different by shareholders, we’ll [listen to that],” he said. 

Glencore has bounced back quickly from its dividend cancellation and debt spike last year. Hold at 292p. 

Last IC View: Hold, 239p, 4 Dec 2020