ii view: Glencore optimistic about annual production

A diverse business offering an attractive forecast dividend yield. We assess prospects. 

First-half production update to 30 June

• Coal production fell 2% to 54.2 million tonnes
• Copper production fell 4% year-over-year to 488,000 tonnes
• Zinc fell 10% to 434,700 tonnes
• Cobalt rose 5% to 21,700 tonnes

Chief executive Gary Nagle said:

"We are pleased to report a solid first-half production performance from our underlying base business, where our key copper, coal and zinc assets performed in line with expectations and previously communicated guidance.

“Our full year production guidance remains unchanged from earlier guidance. Second half volume weightings in copper, zinc and nickel reflect higher expected production volumes from Collahuasi, Kazzinc, Mount Isa and INO.”

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ii round-up:

Mining giant Glencore (LSE:GLEN) today detailed first-half production volumes marginally shy of City forecasts, but kept its estimates for the full year and a second-half improvement unchanged. 

Coal production, accounting for just over a third of adjusted profits, retreated 2% to 54.2 million tonnes, while copper output, responsible for around of a quarter of overall profit, dropped 4% to 488,000 tonnes. 

Shares in the FTSE 100 company fell 1% in UK trading having come into this latest news down nearly 15% year-to-date. That’s similar to fellow diversified miner Rio Tinto Registered Shares (LSE:RIO) and in contrast to a 1% gain for the FTSE 100 index itself in 2023.

Glencore has operations in over 35 countries and is both a producer and trader of more than 60 different commodities. Cobalt production, used in electric vehicle batteries, rose 5% year-over-year to 21,700 tonnes given higher output at its Republic of Congo Katanga mine.  

Despite reduced commodity price volatility in 2023, Glencore also reiterated its expectations for profits at its marketing trading division to come in at around $3.5 billion to 4 billion. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the update.

ii view:

Started in 1974, its 2013 merger with miner Xstrata promoted Glencore to one of the world's largest commodity producers. Its products include copper, coal, nickel, lead, ferrochrome, gold, and silver, while it is also a global trader of oil and agricultural products. Customers include industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. Its trading, or marketing business adds additional diversity not seen at rivals such as Anglo American (LSE:AAL) or BHP Group Ltd (LSE:BHP). The marketing business can generate profits to help offset commodity price falls at its more traditional mining business.

For investors, economic growth for big commodity buyer China has disappointed following its relatively recent exit from the pandemic, and production of coal may deter some potential investors concerned about climate change. Previous corruption allegations and legal settlements potentially 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, its attempt to buy Teck Resources Ltd Class B (Sub Voting) (NYSE:TECK) of Canada could eventually see its coal operations separated out, leaving investors with a clearer choice as to whether to invest in coal or not. Diversity of both commodities mined and operations given its marketing business, generate strengths not seen at rivals, while exposure to energy transition metals such as zinc and cobalt is not to be ignored.   

For now, and while ethical concerns and exposure to economic outlook uncertainty cannot be ignored, a forecast dividend yield over 7% and consensus analyst estimate at over 560p per share, are likely to keep mining stock fans interested. 

Positives: 

• Diversity of commodities and operations
• Focus on shareholder returns

Negatives:

• Uncertain economic outlook
• The weather can hinder performance

The average rating of stock market analysts:

Strong buy