DRC tax risk for Glencore

Meanwhile, a 3 per cent increase in the marketing division’s adjusted operating income was largely down to the trading of metals and minerals, and tightening conditions in (you guessed it) the copper, cobalt and zinc markets. That more than offset the drop in agricultural products earnings, where margin pressure was compounded by the sale of a 50 per cent stake in the division.

All told, this produced a very strong set of results. Group level adjusted operating profit more than doubled to $8.6bn (£6.1bn), gearing fell sharply, and $2.9bn of planned dividends puts Glencore’s yield in the same league as the large miners from which Glencore seeks to differentiate itself.

There’s a dark side to all of this. Safeguarding 146,000 employees and contractors is never an easy task, and a declining recordable injury frequency rate is of course a positive. But the nine deaths which occurred at Glencore’s operations in 2017 – down seven year on year, occurring without a multiple-fatality incident, and so labelled “progress” – is a reminder of a lamentable history of safety.

Unlike 2016, when seven workers died when an open pit wall collapsed, none of last year’s fatalities occurred in the Democratic Republic of Congo (DRC). But Glencore’s operations there come with high risks, geological or otherwise.

Currently, the group’s assets include $470m of DRC-originated deferred tax credits, which Glencore hopes can be claimed against profits at the recently restarted Katanga copper-cobalt complex. But parliamentary approval of a new mining code has thrown existing tax stability agreements into doubt. If the bill is given the presidential seal, Glencore could be forced to write off some or all the $633m of total unrecognised tax-effected of losses – more than last year’s entire group impairment. Additional proposals to introduce a 'super profits tax' and the identification of cobalt as a strategic mineral could place further strain on one of Glencore’s chief sources of political risk.

On average, analysts believe adjusted pre-tax profit and EPS can improve this financial year, to $8.7bn and 44.5¢, respectively (from $7bn and 38.3¢ in 2017).