RECORD LOW AFTER LOSS
Glencore’s Glasenberg still confident about commodity demand from China
DIVERSIFIED mining giant Glencore’s shares yesterday fell to a record low, following news that the group had sustained a loss in the first half of the year due to the plunge in commodity prices.
Glencore shares fell yesterday by 7.51 percent on the JSE to R32.65 after earlier touching R32.30, which was the company’s lowest level since it listed locally on November 13, 2013. The group is a Switzerland-headquartered natural resource company, which operates in three segments, including metals and minerals, energy and agricultural products.
Revenue fell by 25 percent to $85.7 billion (R1.10 trillion) while the group reported a loss for the year’s first half ended on June of $817 million, compared with a profit of $1.78bn in the same six months last year. The group said first-half adjusted earnings before interest, tax, depreciation and amortisation fell 29 percent to $4.6bn, while earnings from its marketing division fell 27 percent to $1.2bn.
“Glencore’s high exposure to copper, whose prices are at their lowest since 2009, is a weakness. Also, the lower projected earnings of the company’s trading arm, which is supposed to help the firm buck the commodities cycle, highlight the limits of its business model in this low-price environment,” said Sebastien Marlier, commodities analyst at the Economist Intelligence Unit.
The price of copper, Glen- core’s largest earner, is at sixyear lows weighed down by a slowdown in China, one of the world’s biggest consumers of metals and other raw materials. Glencore also said it would cut capital spending again next year to $5bn from a previous forecast of $6.6bn.
Trimmed
Capital spending plans for 2015 were trimmed last week to $6bn from a $6.5bn to $6.8bn range announced in February. A 6c a share interim dividend was declared, the company said. The half year loss is a reflection of the tough operating environment in mining as producers struggle to endure the low commodity price environment.
The steady decline in China’s economic growth rate has seen it its demand for commodities cool.
Speaking to journalists during a conference call yesterday Ivan Glasenberg, Glencore’s chief executive and a billionaire, said that the share price was down following a rally on Tuesday compared to its peers.
He added that despite the negative outlook for China, the demand from that country for bulk commodities was not bad.
Glencore on Tuesday announced plans to shut its Eland Mine platinum mine near Brits, which employs 900 people. Earlier this month Mineral Resources Minister Ngoako Ramatlhodi suspended the licence of its subsidiary, Optimum Coal in Mpumalanga, over his concerns about the manner in which the mine was retrenching its employees.
Ramatlhodi later made a u-turn and lifted the suspension, which is welcome, given that the mine is in business rescue and its unsustainable financial hardship as a result of its coal supply agreement with Eskom.
The company said yesterday that directors of Optimum are of the view that if the supply agreement with Eskom can be renegotiated, there is a reasonable prospect of rescuing.
In June, Glencore unbundled its stake in Lonmin, the world’s third largest platinum producer. – Additional reporting by Reuters