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Glencore shares rise on solid results as company bids to lift JSE trading profile

4th March 2014

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – The shares of London-, Hong Kong- and now also Johannesburg-listed GlencoreXstrata – which on Tuesday encouraged more South African investors to buy its stock – rose 2.3% on the local bourse after the company’s dividend declaration breached a 2012 high and the marketing and mining company’s trading resilience buoyed it through the weak commodity price storm.

The share price rose to R60.99 a share on the JSE before settling at R60.24 as the company spoke of driving its South African listing to full local indexation status.

“We would like to see more investors from South Africa buying the stock. It hasn’t got to the levels that we would like.

“There’s a certain amount of volume but we haven’t got the right shareholding that we would have expected from South Africa at this stage. We have not yet reached our targeted 5%,” GlencoreXstrata’s South African-born CEO Ivan Glasenberg said in response to Mining Weekly Online.

GlencoreXstrata CFO Steve Kalmin added that the targeted 5% would deliver Glencore into the local indexes.

“That was very much set as the goal. We can get there. There is clearly the investment appetite and the knowledge, and it’s going to get there,” Kalmin added to Mining Weekly Online, adding that it would be achieved either by the company accelerating the factors under its control or as a result of the gradual week-to-week build-up that was already under way.

On the day the company listed on the JSE in November, nearly 52-million shares changed hands in more than 8 000 transactions as the R732-billion-valued global diversified natural resources trader and miner with more ships at its disposal than the Royal Navy took up position as the JSE’s third-largest share, closing on R53.87 a share.

The next day another six-million shares changed hands in the same price range, but while fund managers require exposure to indexed companies, they are not required to buy the shares of nonindexed companies, which results in insufficient liquidity.

GlencoreXstrata, which operates in 17 African countries and is South Africa’s biggest exporter of coal and ferrochrome, has oil assets in Equatorial Guinea, Cameroon and Chad; copper in Zambia and the Democratic Republic of Congo; and zinc in Burkino Faso and Namibia.

Its integration facilitates the capture of value at every stage of the supply chain.

In its first set of full-year results since its merger with Xstrata, the combined entity reported adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of $13.1-billion, up on the $12.3-billion forecast.

"Our marketing division once again delivered a strong overall performance, while the modest year-on-year decline in our industrial asset performance inevitably reflected the weaker commodity price environment in 2013,” Glasenberg said.

Mining Ebitda fell 4% to $10.5-billion within the lower commodity price environment that was alleviated by higher production, improved cost management and merger-linked synergies.

The board has recommended a final distribution of $0.111 a share, taking the full-year total to $0.165 a share, up 4.8% on 2012 and reflecting continued confidence in prospects.

Glencore's dividend yield of 3.2% lagged the 3.9% yield of BHP Billiton and Rio Tinto, London mining analyst company Liberum noted, adding that the company’s attraction lay in offering more exposure to copper than its diversified peers.

Glencore marketing did well across the board, London investment bank SP Angel said in a note.

"The dividend increase is a positive, indicating management's intention to return cash when possible," said Investec Securities.

The company is currently moving towards the lowest quartile on the cost curve and is entering a period of low capital expenditure.

The outlook for its key copper, zinc, nickel and coal commodities is positive and there is a commitment to return excess capital to shareholders from managers who are also owners.

Production growth was sturdy in 2013, with copper output rising 26% to 1.5-million tons overall and African copper output rising 43% as both Mutanda and Katanga each reached capacity of 200 000 t/y at year-end. Copper production growth at Collahuasi was 58%.

Ferrochrome production in South Africa rose 32% to 1.2-million tons on higher smelters and furnace utilisation and the successful commissioning of the Tswelopele pelletising plant.

Coal output rose 4% to 138.1-million tons on expansions at Prodeco and in Australian thermal coal.

Oil production began at the Alen oilfield, in Equatorial Guinea and the Badila oilfield, in Chad.

The full benefit of the merger, which has already largely delivered sustainable yearly synergies of $2.4-billion, is expected in 2014, with the $0.3-billion implementation costs mostly incurred in 2013.

Net debt increased to $35.8-billion as completion of development projects, including McArthur River, African copper and the pre-commissioning of Koniambo, nears and capital expenditure enters a steeply declining trajectory.

Operating cash flow generation was slightly ahead of 2012 at $10.4-billion.

Edited by Creamer Media Reporter

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