JOHANNESBURG, Dec 10 (Reuters) – Glencore (Xetra: A1JAGV – news) has increased its debt reduction target and deepened its capital spending cuts, stepping up its response to lower commodity prices and boosting its battered shares by 12 percent on Thursday. The company also underscored that it remains focused on preserving its investment grade rating, and reassured that further cuts and deferrals and asset sales are on the table, should commodity prices fall further. It’s now targeting debt of $18 billion to 19 billion by then, down from the low $20 billion range that had been previously sought.
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The London-listed company’s net debt peaked at around $30 billion, one of the highest in the industry, and prices for its key products copper and coal have been languishing at multi-year lows.
Credit Suisse analysts said in a note: “In the current price environment the company will need to show continual delivery against this plan but this update is better than expected, sufficiently detailed and provides a clear debt reduction pathway and timeline”.
The companies shares, which have been hammered in recent months, surged 10.9 percent to 92.15 by midsession in London. Spending is seen falling to $3.8 billion in 2016 from a previous estimate of $5 billion.
Glencore is up 11% in mid-morning trading after announcing further reductions to its debt target, while Old Mutual’s shares have dropped following a downgrade to the stock.
Chief executive Ivan Glasenberg said: “In September, we announced a number of measures to reduce our debt”.
In a sign that it expects a price slump to continue for a prolonged period, Glencore said its “marketing” division, also called its trading arm, is now forecast to generate between $2.4 billion and $2.7 billion in adjusted earnings before interest and taxes in 2016 due to lower working capital levels and reduced copper, zinc, lead and coal volumes.
Last month, Glencore said it had started the sales process for two of its copper mines in Australia and Chile.
Ahead of Thursday’s statement, Glencore’s shares had fallen 72% since the beginning of the year, making it the second- worst performer out of the U.K.’s blue-chip FTSE 100 mining index this year, following Anglo American PLC.
Peter Stephens of The Motley Fool UK argued that at least in the short term, shares “could continue their rise as more investors buy in to an improved outlook for the business”.
Glencore’s trading division will make underlying profits of $2.5 billion in 2015, at the low end of previous guidance of between $2.5 billion to $2.6 billion.
Meanwhile, its trading division is on track to generate adjusted EBIT of $2.5 billion this year, at the bottom end of its previously revised guidance of between $2.5 billion and $2.6 billion.
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He said the company’s success depends on whether commodity prices fall further.
