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Johannesburg - Glencore [JSE:GLN], the commodity trader and miner headed by billionaire Ivan Glasenberg, reported a 69% slump in profit as prices for metals and oil tumbled.
Adjusted net income slid to $1.34bn from $4.29bn a year earlier, the Baar, Switzerland-based company said in a statement on Tuesday. That beat the $1.17bn average of 15 analyst estimates compiled by Bloomberg.
Profits from the world’s biggest mining companies are evaporating as prices for copper, nickel, zinc and iron ore plunge because of gluts and slowing demand from China, the biggest customer. To weather the commodities collapse, Glencore is trying to save money and unveiled a plan last year to lower debt as much as 40% to $18bn by scrapping its dividend, cutting costs and selling assets and new shares.
“Financial market sentiment weakened considerably during the course of 2015 amid concerns over slowing economic growth,” chief executive officer Glasenberg said in the statement. “The commodity sector was particularly adversely affected by a succession of disappointing China macroeconomic data, declining oil prices, and the strong US dollar. As a result, sector focus quickly switched from cash distribution to balance sheet concerns and cash preservation.”
Miners hit
BHP Billiton [JSE:BIL], Rio Tinto Group and Vale SA have all reported plunging profits and cut dividends this year, at the same time painting a gloomy picture for a near-term recovery in metals, with most still in oversupply. A measure of six metals traded in London tumbled 24% last year, the most since the global financial crisis of 2008. Oil plummeted 30% after dropping 46% a year before.
The commodities slump means Glencore now generates most of its cash from trading as its mines and smelters around the globe struggle for profitability.
Adjusted earnings before interest and tax from the trading division was $2.46bn, compared with the company’s forecast of $2.5bn and $2.79bn in the previous year. Earnings from the mining unit swung to a loss of $292m from a profit $3.9bn in 2014.
Glencore reduced net debt to $25.9bn from $30.5bn, missing its target of about $25bn. The company is still working to sell as much as $4bn of assets, including a stake in its agricultural division as it seeks to cut net debt to as low as $18bn by the end of this year.
Glencore shares have jumped 47% this year as the company worked to shore up its balance sheet and won a vote of confidence from lenders when it refinanced a $8.45bn revolving credit facility last month. The stock is still down 55% in the past year.
As the stock recovered, David Herro, chief investment officer of Harris Associates, has added to his holdings. The investor now controls more of Glencore than CEO Glasenberg with an 8.5% stake, up from the 5.1% declared in a regulatory filing in September.
The stock advanced 3.9% to close at 133.25 pence in London on Monday, the highest since September 16. Glencore shares were trading at R29.30 on the JSE at 10:30, 2.05% up.
