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Glencore shoots lights out, mulls dividend top-up, reaffirms South Africa

2nd March 2018

By: Martin Creamer

Creamer Media Editor

     

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Diversified mining and marketing company Glencore shot the lights out with a superlative set of 2017 results that coincided with a leap in its share price in Johannesburg, the reaffirmation of South Africa as an even more positive investment destination and the mulling of a dividend ‘top-up’ later in the year.

The benefit of higher commodity prices and cost containment pushed up mining margins within the London- and Johannesburg-listed company’s metals and energy operations, increasing cash flow from operations to $11.6- billion on net debt of $10.7- billion.

“Glencore surprises positively on dividend,” said Goldman Sachs Metals & Mining in a note.

“Mission accomplished, as net debt hits lower end of target,” Bernstein analyst Paul Gait commented.

“Expect the stock to outperform its peers,” Goldman Sachs equity research added.

Barclays analysts Ian Rossouw, Amos Fletcher and Kennedy Nyangoni headlined their commentary “Top pick Glencore – beat and raise”.

Last year was the company’s strongest on record, Glencore CEO Ivan Glasenberg said at the results presentation conference call, during which he remarked, in response to analyst questioning, that Cyril Ramaphosa coming in as President should be good for South Africa.

“Unfortunately, it’s going to affect costs, because the rand has got stronger, so it’s a win-loss on each, but it’s good for the country and bodes well for the country going forward,” he responded during the conference call in which Creamer Media’s Mining Weekly participated.

“We still continue to believe South Africa will be okay as an investment opportunity. We thought so under the old regime and we’re happy to continue investing in South Africa. “We’re more confident about the future with the new President, but we’ve never pulled back out of South Africa. “We continue to have big investments there, with our coal and our ferroalloys,’ he said.

A $2.9-billion dividend will be paid as the company looks to the future with confidence.

Top-Up

“Clearly, there’s an opportunity, come interim results of August, to look at a top-up of the dividend distribution of 20c a share we’ve come up with, given our financial strength and how we see the world at the moment,” Glencore CFO Steven Kalmin said.

The company is convinced that its positioning in ‘Tier 1’ commodities and ‘Tier 1’ assets will continue to create compelling value for all stakeholders.

Adjusted earnings before interest and tax of $8.6-billion were 118% up; earnings before interest, taxation, depreciation and amortisation of $14.8-billion were 44% up; net income attributable to equity holders of $5.8-billion was 319% up and the company received 16c for every pound of zinc that it produced, thanks to co-product credits.

After flashing up a slide that showed guidance to be spot-on with performance, Kalmin reported core commodities like copper being up 30% during the year, zinc up 40%, cobalt 130%, aluminium 32% and nickel 28%.

“There was a very strong correlation between pricing and where we ended up the year,” Kalmin added.

“The company did $1.6-billion in acquisitions, taking up interests in Mutanda and Volcan, and continues to generate a lot of surplus capital relative to financial targets.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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