Glencore holds off on special dividend as it focuses on M&A

GLENCORE has dashed hopes of a special dividend in the first half of the year, opting to stockpile cash ahead of more potential acquisitions.

The Switzerland-based miner and commodity trader comfortably hit City expectations in the six months to June 30, generating pre-tax profits of $2.45bn (£1.88bn) – a vast improvement on the $369m loss it made in the same period last year.

Revenues climbed 31pc to $100bn as it rode the wave of higher commodity prices, particularly in coal, copper and zinc. Earnings from its large trading and shipping division – closely watched by analysts – hit $1.37bn.

Free cash flow for the year – the amount it should have left over after expenditures – will be a sizeable $7.1bn if prices hold firm.

Earlier this year, Ivan Glasenberg, chief executive of the FTSE 100 giant, hinted at the prospect of a bumper special dividend to reward investors after they backed the company through a sharp downturn in prices in 2015. A figure as high as $20bn was floated.

But the mining group will instead stick to its previous commitment to pay $1bn in dividends this year, before shifting to a more generous payout policy in 2018.

“Dividends are $1bn – that’s what we said we were going to do,” said Steve Kalmin, chief financial officer. “We didn’t want to muddle things up … there was no need to confuse that.”

Glencore’s prudence on dividends is a further sign it wants to draw a line under the excesses of the past. The company was brought to its knees in September 2015 when a downturn in commodity prices forced it to raise $10bn to shore up its balance sheet.

Since then, it has worked to keep a lid on its debt, which fell by $1.6bn in the first half of the year to stand at $13.9bn as of June 30. By contrast, two years ago it was closer to $30bn after a period of high spending.

Mr Glasenberg said Glencore would continue to pursue “opportunistic” mergers and acquisitions, potentially seeking partners on projects.

The miner is keen to buy agricultural assets in North America, particularly infrastructure such as ports. “We’re always looking at things, we’ve been pretty active in M&A, but it has got to clear the hurdle rates [we have],” he said.

Glencore is particularly enthusiastic about the rise in electric vehicles, which are expected to boost demand for commodities used in batteries, such as cobalt and copper – two metals in which the miner has a strong presence.

“The commodities you’ve got to like are the ones where there’s no supply growth,” Mr Glasenberg said, citing cobalt and copper. He added that Glencore would only build new mines of its own as a last resort: “We’ll look at M&A first and foremost.”

Analysts at Jefferies said Glencore “slightly disappointed by not announcing a capital return in addition to the previously guided dividend”.

However they added: “The Glencore turnaround since late 2015 has been remarkable and is still under appreciated, in our view.”

The shares closed down 2.5pc at 331.45p.