“The company stuck to its forecast for the trading division to make an operating profit (EBIT) this year of $2.5 billion to $2.6 billion, adding: “(we) remain confident of our long-term guidance range of $2.7 billion to $3.7 billion”.
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Chief Glencore executive Ivan Glasenberg said the company still retains strong liquidity, positive operational free cash flow and modest near-term maturities. The drastic move offers a grim view of commodity prices that undermines the investment case for the sector. This may not be enough to reassure those investors who are wary of a deepening of the China hard landing, but this looks like a serious and well-structured effort to stem the share price decline, which we think is likely to be favourably received by the market.
It could be a fatal blow for Glencore’s designs on rival Rio Tinto, which it wanted to take out through an all-scrip “merger of equals”.
“Concerns regarding the group’s balance sheet have weighed heavily on the share price in recent weeks”.
That represents a hefty chunk of Glencore’s $29.5bn net debt, which has caused concern among investors and a recent warning from ratings agency Standard and Poor that its outlook is now negative. South African gold producer Lonmin has said it would cut 6,000 workers over the next two years, while BHP Billiton has eliminated hundreds of jobs linked to Olympic Dam, its giant copper, gold and uranium mine in South Australia. On Monday, the company announced a strategy to reduce debt much more quickly.
At that time, Mr Glasenberg disclosed that the company’s net income had fallen to $882m, less than half the $2.01bn of a year earlier.
As part of the further cost saving measures announced yesterday Glencore has put its mining operations at Katanga in the Democratic Republic of Congo and Mopani in Zambia under review.
Glencore PLC on Monday outlined plans to improve its financial position, including a USD2.5 billion capital raising plan and multiple capital preservation and debt reduction measures it will take, worth up to a combined USD10.2 billion in cost savings.
Company officials didn’t say exactly how the stock sale would be structured. Glasenberg said that the senior partners did not want to see their stakes diluted.
Through its official press release, Glencore has declared that 78% of the proposed equity issuance are underwritten by Citi and Morgan Stanley, while the residual 22% has been committed by the company’s senior management.
Glencore confirms that it is in discussions regarding a number of strategic transactions which will generate proceeds for the Group.
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The fresh approach was triggered by the almost-universal bearishness on commodity prices that investors expressed in talks, surprising Glencore’s management, a person familiar with the matter said, asking not to be identified because the meetings were private. “It may be too much, ” he said, saying if commodities prices recover, the company could restore its dividend, for instance.
