Upbeat diversified miner and marketer Glencore, which declared an 11% higher dividend for the six months to June 30 on the back of above-consensus half-year results, has put a $1-billion share buy-back programme under starter’s orders, which has evinced mining analyst adulation.

Glencore’s shares rose on both the LSE and the JSE soon after the company published its latest set of result last week, when the board of the London-, Hong Kong- and now also Johannesburg-listed Glencore declared an interim distribution of $0.06 a share, which is 11% up on the 2013 interim distribution.

The company, headed by South African-born CEO Ivan Glasenberg, has now returned more to the market than the $7.9-billion it raised at its initial public offering.

“Finally, someone is listening to shareholders,” Barclays mining analysts headlined, as JP Morgan Cazenove applauded Glencore’s mar-keting performance in metals and minerals and agriculture, which more than offset the com- pany’s disappointing energy earnings of $227- million before interest and tax, compared with agriculture’s $473-million.

“Key is the share buy-back commitment and Glencore is the first of the diversifieds to make such a firm commitment,” said Investec Securities in a note.

“The announcement of a buy-back is refreshing,” BMO Capital Markets analysts commented.

“Glencore proved with its dividend and buy-back announcement that shareholders are high priority,” said Jefferies mining analysts.

Morgan Stanley, which calculated that the half-year results were 3% above consensus, described the interim dividend as encouraging and the buy-back as a strength signal, while Citi said it was likely to be welcomed by the market.

Liberum Capital, however, described Glencore’s net income of $2.01-billion – compared with consensus of $1.95-billion – as “small”, and used the same adjective to describe the buy-back, which it put at 1.3% of current market capitalisation.

Liberum added that, while the buy-back announcement might appease some – against the background of BHP Billiton’s share falling the day before on the absence of an expected buy-back announcement – its diminutive size might disappoint others.

On suggestions that the $1-billion buy-back was inadequate, Glasenberg said it actually totalled $1.7-billion as the company had last month bought back nearly $700-million of its convertible bond.

Taken with an increased dividend, the amount returned to shareholders was more like $2-billion.

After doing acquisitions and brownfield expansions, the company was still left with cash and the share buy-back was seen as good value for the shareholders.

“We are very happy for the company to kick out cash and create value for its shareholders”, Glasenberg added.

Expansionary capital expenditure (capex) commitments would come to an end in 2015, after which there would be only sustaining capex of some $3.5-billion to $4-billion a year and, even if commodity prices weakened, Glencore would continue to generate cash.

“If we keep generating cash and we don’t have other acquisitions or brownfield expansions, we’ll continue doing share buy-backs. This is not the last and we intend to keep doing it in the future as long as we’re generating cash and the funds are available,” Glasenberg said.

Glencore CFO Steven Kalmin added that, given the daily liquidity of share sales in the market, even a R1-billion share buy-back programme would take up to March next year to complete.

It was likely that the programme would con-tinue when the company announced its full-year results early next year, with ongoing share buy-back underpinning earnings-per-share accretion and price-earnings multiples.

Glencore’s owner-management team benefited from share buy-backs, which reduced the number of shares in issue and increased the proportion of shares held by individual members.

“They were happy just to increase their stake in the company,” Glasenberg explained during a media conference that was dominated by share-buy-back questions.

On holding the bought-back shares in treasury rather than cancelling them, Kalmin said both practices increased the proportion of ownership of all shareholders but the treasury option would prove cheaper and more efficient should the company one day reissue the shares for acquisitions or employee compensation.

He added that it was more common than not for companies to keep the bought-back shares in treasury until it was perceived that overaccu-mulation had occurred.

“You can use those shares for acquisitions or you can cancel them and just reissue new equity in the future, which has the same effect,” Kalmin explained.

Glencore’s half-year results were buoyed by market growth, overall production expansion and synergies from the acquisitions of Xstrata and agriculture subsidiary Viterra.

Earnings before interest, taxes, depreciation and amortisation of $6.5-billion were up 8% and operational cash flow generation up 15% on the same period in 2013.

Net debt was $37.6-billion and there is more than $9-billion of available liquidity.

Glencore remains the most diversified natural resources company by activity, commodity and geography and is optimistic about the future, against the background of demand for its com-modities being many times stronger than during the supercycle era and prices generally firming in the six months to June 30, led by nickel.

Glasenberg cited achieving nameplate capacity production at the recently expanded Mutanda copper mine, in the Democratic Republic of Congo, and strong low-cost growth in Australian thermal coal production as particular half-year highlights.

He said he expected the supply of nickel and zinc, whose prices have risen by 35% and 10% respectively, to decrease in absolute terms and other commodities to lift, with the probable exception being iron-ore, where supply growth was not expected to peak until 2017.

Glencore expects an effective tax rate in the range of 20% to 25% in 2014.

Copper Outlook

Glencore said that tight cathode market con-ditions were a key feature of the first half with supply disruptions and continued demand strength generating a deficit that was supported by a reduction in exchange stocks to levels last seen in late 2008.

Despite this, copper prices fell 8% to average $6 916/t, partly under the unfounded influence of a flood of metal from the unwinding of Chinese collateralised financing deals.

The actual outcome was quite the opposite, with cumulative Chinese net imports of refined cathode surging almost 50% higher period-on- period.