JOHANNESBURG (miningweekly.com) – Analysts on Thursday okayed last year’s production performance of diversified mining and marketing company Glencore, which on Thursday reported lower 2017 production for many commodities owing to the impact of disposals, maintenance work and weather.
Barclays analysts Amos Fletcher, Ian Rossouw and Kennedy Nyangoni described the London- and Johannesburg-listed company’s production reports for the 12 months to December 31 and the fourth quarter (Q4) as “reasonable”, while Bernstein analysts Paul Gait, Jonathan Absolon and Catherine Tubb said the results did not materially change their “outperform” view of the stock.
BMO Capital Markets described production decreases as “immaterial” when measured by a yearly yardstick and the Financial Times of London highlighted Glencore’s strong upcoming cobalt production potential in the light of the ramp-up of the group’s Katanga mine in the Democratic Republic of Congo (DRC).
Glencore reported 8%-lower own-sourced 2017 copper output on end-of-life production declines at the Alumbrera copper/gold mine in Argentina, lower throughput at Mutanda in the DRC and smelter maintenance at Mount Isa in Australia.
However, Q4 production was 20% up on Q3 at 363 200 t, reflecting the resolution of temporary impacts.
Own-sourced 2017 zinc production of 1 090 200 t was in line with 2016, with the step-up in Antamina zinc/copper production in Peru offset by the disposals of the African mines to Trevali Mining, and lower production at Mount Isa.
Own-sourced 2017 nickel production was 5% down at 109 100 t, partly offset by a strengthening operational performance at the Koniambo nickel mine in New Caledonia, where full-year production was 29% higher than in 2016, as efforts continue to improve plant performance.
Attributable ferrochrome production of 1 531 000 t was in line with 2016 and coal production of 121-million tonnes was 3% down on industrial action and adverse weather events.
Glencore's oil entitlement interest of 5.1-million barrels was 19% lower than in 2016, reflecting expected reductions in a period of inactive field development in a low price environment.
Drilling in Chad recommenced with a single-rig campaign in the second half of last year, which is expected to offset natural field declines in Equatorial Guinea.
Glencore's resources and reserves report discloses that Sudbury mines increased nickel reserves by 14-million tonnes of ore, or 48%, mainly on the addition of the Onaping Depth deposit.
Kazzinc in Kazakhstan added eight-million tonnes, or 9%, of zinc ore, including conversion of the Dolinnoe mine from resource.
Katanga added 13-million tonnes, or 10%, of copper ore, mainly on the Kamoto Interim Tailings Dam project, which is currently reclaiming metal previously discharged to tailings.
Glencore is guiding increased copper production of 1 465 000 t for 2018 and lower coal production owing to the expected sale of Tahmoor mine in Australia and the change in equity ownership of the Wonderfontein coal mine in South Africa from control to an equity interest of 43.7%.
Gait, Absolon and Tubb said that, in the year to date, Glencore had delivered the best earnings momentum of its peer group on the back of 7%-higher thermal coal, zinc, nickel and cobalt earnings, and added that the company’s base metals-centric commodity mix and growth potential were well suited to current macro conditions and the nascent electric vehicle revolution.
They calculated the company as generating strong 10% free cash flow yields and trading at compelling relative valuation metrics.