London - Commodities group Glencore became the first of the large miners to honour promises to return cash to shareholders, announcing a share buyback programme of up to $1 billion (R10.7 billion) as it reported forecast-beating first-half profit.
Diversified mining companies have vowed to control their spending and reward shareholders more after being criticised for years of squandering money on risky projects that resulted in multibillion-dollar writedowns as metals prices started to fall.
However, rival BHP Billiton failed to deliver when it held fire on an expected buyback announcement on Tuesday, while Rio Tinto signalled that a share buyback could come when it reports full-year results in February.
Expectation of Glencore making good on its promise was heightened with this month's completion of the sale of Glencore's Peruvian copper project Las Bambas to a Chinese consortium for $6.5 billion after tax, either through a buyback or special dividend.
Glencore, which completed a record-breaking acquisition of rival Xstrata a little more than a year ago, is the world's largest producer of zinc, used to galvanise steel, and one of the top miners and traders of copper and nickel.
However, it was the balance-sheet improvement from the Las Bambas sale that allowed it to accelerate the return of capital to shareholders.
“We said that with the sale of Las Bambas we would return extra cash to shareholders,” chief executive Ivan Glasenberg said.
“Our focus is on expansion that can generate profit, on a tidy, neat balance sheet and any excess cash we will give back to shareholders.”
After posting an 8 percent rise in first-half core profit, Glencore said that buyback will be carried out by the end of next March and any shares purchased will be held as treasury shares.
Set against a market capitalisation of almost $80 billion, a $1 billion buyout is about half the size of the reward expected by some analysts, though Investec's Marc Elliott praised the company for its prudence.
“It would have been brave to make a more material return to shareholders before the year-end and with uncertain market conditions,” the analyst said.
“This is a very sensible way to do it. It spreads out return to shareholders over a prolonged period and it doesn't put a lot of strain on their balance sheet.”
The London-listed company, which differentiates itself with its large trading division in addition to the mining operations, posted earnings before interest, tax, depreciation and amortisation of $6.5 billion, helped by a strong performance from the trading arm.
That topped a company-supplied analysts' consensus of $6.3 billion.
The company also declared an interim dividend of $0.06 per share, an 11 percent increase on its 2013 interim payout.
Shares in Glencore were virtually flat at 11:37 SA time, against a 0.1 percent fall in the wider mining sector. - Reuters