Glencore cuts spending

The logo of commodities trader and mining group Glencore.

The logo of commodities trader and mining group Glencore.

Published Aug 13, 2015


Johannesburg - Glencore is set to trim its capital expenditure from its anticipated level of between R63.7 billion and R 66.6 billion to R58.8 billion.

The dual-listed company made this disclosure in its half-year production update, but did not explain why it would expend less, apart from cutting back on its Chad operations.

Miners around the globe have been battling against falling commodity prices, a trend that is set to lead to around 12 00 job losses in SA.

Glencore is a global diversified natural resource companies and a major producer and marketer of more than 90 commodities. Its operations comprise of over 150 mining and metallurgical sites, oil production assets and agricultural facilities.

The company, listed in London and Johannesburg, is currently involved in a dispute with Eskom. It has claimed Eskom has not paid it enough for the coal it supplies to the power utility via its Optimum mine, while Eskom has argued its coal is inferior and the mine must pay it R2 billion in penalties.

Glencore is disputing the charge and has also put Optimum under business rescue, arguing Eskom’s contract with it has led to cash flow problems.

In a trading update issued on Thursday, Glencore says its own-sourced coal production was 68.7 million tons, down 4% year-on-year, mostly because of the “market-driven decision to cut back production”.

The listed company also says its own-sourced copper production was down 3% to 730 900 tons, reflecting anticipated grade changes at Alumbrera and Antamina and planned maintenance activities at Collahuasi. These issues were largely offset by period-on-period growth from African copper, it says.

Its zinc production was up 12% to 730 300 tons, thanks to the ramp-up of the expansion projects in Australia.

Glencore adds its nickel production was 48 900 tons, which is consistant with its year ago numbers. It adds, after the metal leak at Koniambo in late December 2014, remedial work continues to progress in line with expectations.

“A claim amounting to approximately $235 million has currently been lodged under available insurance policies.”

Ferrochrome production gained 16% to 756 000 tons thanks to its Lion 2 expansion project, which has now reached fully ramped up stage.

Its oil entitlement production was up 68% to 5.3 million barrels, reflecting increased production from Badila and Mangara in Chad, and Glencore’s higher ownership interest in these fields following the Caracal acquisition.

However, it notes after the sharp decline in oil prices in late 2014, which continued into this year - dropping the price of brent crude oil below $50 a barrel - “significant amendments were made to Chad’s work programme, with the objective of preserving value for the long-term, while reducing cash outlays in the near term”.

Glencore has non-operated interests in the Mangara and Badila oil fields in the Doba basin of Chad, which commenced production in 2013. These fields marked a new phase of oil production and export via the Chad-Cameroon pipeline, and it has been busy with a multi-rig drilling campaign to test new prospects and appraise existing oil discoveries in the same area.

However, the company has now reduced the number of drilling rigs in operation significantly and rethought its expenditure on the project. It will also impair the value of those oil operations by some $790 million in its interim accounts.


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