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Glencore positive on coal turnaround

1st March 2016

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – Diversified mining and marketing company Glencore, which plays a leading role in the global seaborne steam coal market, including being the major exporter of the mineral out of South Africa’s Richards Bay Coal Terminal (RBCT), spoke positively on Tuesday on the outlook for a coal turnaround.

“Coal is looking interesting. Supply has been cut. There’s a tightness in Richards Bay at the moment and I see even in February there were certain vessels waiting to load coal.

“A lot of changes. A lot of dynamics. A lot happening in the coal market,” Glencore CEO Ivan Glasenberg said in response to Creamer Media’s Mining Weekly Online during a media conference call.

Earlier, the head of the London-, Hong Kong- and Johannesburg-listed company had also made it clear in response to analysts that his company was giving consideration to acquiring the coal stake that Anglo American is selling in Cerrejon in Colombia, where Glencore is already a third shareholder.

“In my 32 years in the business, I’ve never seen a situation of no new coal mines being built anywhere in the world to supply seaborne coal,” Glasenberg commented, adding that the company believed that the supply of seaborne coal would decrease to around 870-million tonnes this year, down from the 900-million-tonnes level.

Coal exports from Indonesia were set to fall to 337-million tonnes this year, which would remove nearly 100-million tonnes out of the seaborne market.

Even though coal offtake by China would drop to around 100-million tonnes this year from about 140-million tonnes last year, imports into India had increased considerably.

“It won’t surprise me if 40-million tonnes of the expected export of 75-million tonnes from South Africa are imported by India,” he said, adding that demand from countries like South Korea and Malaysia was also on the rise, while even supply from the US looked like falling to around 10-million tonnes to 15-million tonnes from 44-million tonnes in the past.

ECONOMICAL COAL CLEANING

On the prospect for clean coal, Glasenberg said that the Japanese were burning coal in a much cleaner manner.

“They’ve developed new coal-fired power stations where they have done a good job in burning coal cleanly. I think that will continue in the future. The Indians will continue looking at that and seeing how they can burn coal in a cleaner manner.

“It will have a bit of a cost involved but then it is also costly for power stations that burn imported liquefied natural gas,” he added in response to Mining Weekly Online.

COAL INVESTMENT IN SOUTH AFRICA

Although Glencore would be disposing of certain infrastructure, Glasenberg made it clear that the company had no intention of disposing of any of its RBCT coal export allocation.

“The infrastructure we would sell is infrastructure in other parts of the world and infrastructure that we own ourselves, be it on the agriculture side or even on the coal side in Australia or areas like that,” he said.

While investment in new coal operations in South Africa would not take place “right now”, the company would view what was currently for sale.

“We would have problems on certain assets because we would have anti-trust problems in respect of Eskom so we would have to see where the coal is being sold. But we would look at various opportunities if they occur at the right price and time,” Glasenberg commented.

Most of the investment deferrals had been in Australia and to a lesser extent in Colombia.

“Today, given the rand, given cost structure and Optimum aside, the rest of the business – Goedgevonden, Tweefontein and the main South African complexes – are our highest margin operations at the moment. They’re performing very well. It’s more around Australia and Colombia that the general project deferral statement was made,” Glencore CFO Steven Kalmin said.

The company last year cut coal production by 15-million tonnes in the face of steep price falls.

FULL YEAR RESULTS

Glencore on Tuesday reported a net loss to equity holders of $4.9-billion for 2015, a year of focus on debt reduction, supply discipline and cost efficiencies.

The company recorded net exceptional charges to equity holders of $5.8-billion, related primarily to impairments, restructuring costs and net losses on disposals.

These were linked mainly to the company's oil operations, its Koniambo nickel project in New Caledonia and the recognition of a loss on the cessation of control of Optimum Coal in South Africa.

The company reported 32%-lower adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) of $8.7-billion on substantially weaker commodity prices that were partially offset by cost efficiencies and favourable producer country currencies.

Marketing Ebitda fell 11% to $2.7-billion, with challenging first-half metals marketing conditions being offset by a robust performance from oil marketing.

Industrial Ebitda fell 38% to $6-billion on lower prices in all key commodities and action to reduce supply, associated capital expenditures (capex) and operating costs within the company’s coal, zinc, copper and oil assets, aimed at preserving resource value for the longer term.

Glencore's underlying profit of $1.34-billion was up on analyst underlying profit consensus of $1.17-billion.

This year’s industrial capex has been cut by a further $300-million to $3.5-billion and a further $400-million of savings is being targeted this year.

Capital preservation and debt reduction measures in the period included asset sales of $1.6-billion, including $1.4-billion from precious metals streaming transactions.

The remaining asset sales processes are proceeding well, with agreement on the sale of a minority stake in the agricultural products business expected in the second quarter, when bids for the potential disposals of Cobar and/or Lomas Bayas are also expected to be finalised.

The company expressed confidence in its achieving $4-billion to $5-billion of asset disposals during the remainder of this year.

Net funding at year-end decreased by $8.5-billion to $41.2-billion, while net debt declined to $25.9-billion.

Net funding and net debt targets for the end of 2016 are now $32-billion to $33-billion and $17-billion to $18-billion respectively.

“Our balance sheet remains strong and flexible, supported by record committed available liquidity of $15.2-billion at year-end,” Kalmin said.

Mining analysts at BMO Capital described Glencore's earnings and divisional results as being "slightly better than expected", with marketing generating a solid second half to the year.

Mining analyst Sanford C. Bernstein described Glencore revenue as being broadly in line with expectations, with Ebitda slightly below the company's estimates but in line with consensus.

Bernstein added that the results showed that the marketing unit was significantly less sensitive to commodity prices than the industrial business.

With net debt cut to $25.9-billion in 2015 and this year’s debt target revised down to $17-billion to $18-billion, the analyst firm reiterated its “outperform” rating for Glencore.

Edited by Creamer Media Reporter

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