ii view: Glencore issues mixed update

First-quarter production update to 31 March

• Coal production down 1% year-over-year to 26.6 million tonnes (mt)
• Copper production down 2% to 239.7 kilo tonnes

Guidance:

• Full-year production estimates left unchanged
• Now expects adjusted profit at its marketing business of $3-$3.5 billion, at the upper end of its long-term average of $2.2-$3.2 billion 

ii round-up:

Mining giant Glencore (LSE:GLEN) today detailed marginally disappointing production numbers but raised full-year profit expectations for its marketing or trading division given the likelihood of higher interest rates for longer. 

Coal production, accounting for just over a third of adjusted mining profits, fell 1% year-over-year to 26.6 million tonnes (mt), hindered by Australian operational issues and below City forecasts for 27.7 mt. However, full-year adjusted profits for marketing is now expected to come in at $3-$3.5 billion, at the top end of its $2.2-$3.2 billion long-term average. 

Shares in the FTSE 100 company fell 1% in UK trading but are up 27% in the past two months and little changed year-to-date. That’s compares to a 39% gain for rival Anglo American (LSE:AAL) in 2024 following a takeover bid from BHP Group Ltd (LSE:BHP). Rio Tinto Registered Shares (LSE:RIO) shares are down 6% this year while the FTSE 100 index itself has gained almost 6%. 

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Glencore has operations in over 35 countries and is both a producer and trader of more than 60 different commodities.

Copper production, generating around 40% of adjusted profits, declined by 2% from the year ago quarter to 239.7 kilo tonnes, largely due to an operational sale, but in line with City forecasts. 

Zinc output remained flat at 205.6 kt, missing estimates for an approximate 10% gain due to flash floods in Australia. Cobalt production fell by just over a third to 6.6 kt given planned lower output due to reduced market prices.

Full-year production guidance across its commodities was left unchanged, with modest second-half volume increases likely for cobalt, nickel, and zinc. 

ii view:

Started in 1974, Glencore today employs over 150,000 people. Profit at its industrial or mining business dominate but with profits for marketing accounting for around a fifth of overall group profit. Geographically, Asia generates its biggest slug of sales at 44%, followed by Europe at 29%, the Americas 20%, Africa 5%, and Oceania the balance of 2%. 

In late 2023, Glencore agreed a $9 billion deal with fellow Canadian metals and coal miner Teck Resources Ltd Class B (Sub Voting) (NYSE:TECK). Glencore now hopes to merge its own coal business with that of Teck’s and then eventually demerge the combined coal business as a separate company.  

For investors, the uncertain global economic outlook, particularly for big commodity buyer China, continues to overshadow the industry. Production of fossil fuel coal given its part in climate change may deter some potential investors. Previous corruption allegations and legal settlements add to ethical concerns, while exposure to political instability in countries of operation such as Colombia, the Democratic Republic of the Congo and Kazakhstan also warrant consideration. 

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More favourably, an agreed deal with Teck Resources could eventually see its coal operations separated out, leaving investors a clearer choice as to whether to invest in coal or not. Diversity of both commodities mined and operations given its marketing business, mean Glencore has strengths not seen at rivals. China is implementing measures to try and boost its economy, while exposure to energy transition metals such as cobalt and zinc used in batteries is not to be overlooked.   

For now, and despite ongoing risks, the expected separating out of its fossil fuel coal business and hopes for a global economic recovery are likely to see long-term fans of this mining giant remain patient. 

Positives: 

• Diversity of commodities and operations
• Robust balance sheet

Negatives:

• Uncertain economic outlook
• The weather can hinder performance

The average rating of stock market analysts:

Buy