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Wednesday, August 10, 2022

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Glencore’s bet on coal pays off as it posts bumper interims

Glencore flags tightening financial conditions and a deteriorating macroeconomic environment presented some uncertainty for commodity markets through the second half of the year. File photo

Glencore flags tightening financial conditions and a deteriorating macroeconomic environment presented some uncertainty for commodity markets through the second half of the year. File photo

Published Aug 5, 2022

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Commodity giant Glencore’s bet on coal has paid off handsomely after it yesterday declared a total of $8.5 billion (R142bn) dividend to its shareholders after its first-half earnings almost doubled, boosted by buoyant coal prices.

In its half-year report for 2022, Glencore said there were plans for a special dividend of $0.11 per share, amounting to $1.45bn, alongside a new $3bn share-buyback programme, which was announced in February.

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Glencore’s chief executive, Gary Nagle, said, “Notwithstanding what has been a very complex environment for our markets, our operations, and the world in general, we are pleased to report an exceptional financial performance for Glencore over the period.

“Global macroeconomic and geopolitical events during the half created extraordinary energy market dislocation, volatility, risk, and supply disruption, resulting in record pricing for many coal and gas companies," he said.

Adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda) more than doubled to $18.9bn, a $10.3bn increase year-on-year, a 119 percent increase.

The group’s marketing division earnings before tax and interest more than doubled to $3.7bn.

“Allied to the record Ebidta, our net working capital significantly increased during the period, with some $5 billion invested into marketing, primarily energy, is in line with the materially higher oil, gas, and coal prices, and their elevated volatilities," it said.

The diversified miner said significant cash was generated, which reduced net debt to $2.3bn.

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Looking ahead, Nagle said tightening financial conditions and a deteriorating macroeconomic environment presented some uncertainty for commodity markets through the second half of the year. However, with few short-term solutions to rebalance global energy markets, coal and LNG prices look set to remain elevated during this period, particularly given the current challenge of securing the sufficient and reliable energy supply for the Northern hemisphere winter ahead.

“For metals, the outlook is more complex, balancing supply risks, amid labour, water and energy shortages, supply chain disruptions, growing sovereign risk uncertainty and rising costs, against likely weakening end-use markets ex-China. There are some recent signs of China recovering from its Q2 trough, which could help to offset potentially weaker conditions in other key consuming markets,” Nagle said.

He said the combined strength of Glencore's diversified business model across metals and energy industries and marketing positions had proved itself adept in all market conditions, which should allow the firm to both successfully navigate the shorter-term challenges that might arise, as well as meet the resource needs of the future.

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Glencore's share price increased by 2.26 percent on the JSE on yesterday at R93.07. The shares have increased by 111.16 percent in the past three years.

BUSINESS REPORT

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