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Glencore reports significant delivery in reducing debt

Keith Bowman | 10 December 2015 | A A A
Glencore reports significant delivery in reducing debt

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Glencore plc Ord USD0.01

Sell: 301.60 | Buy: 301.70 | Change -1.20 (-0.40%)
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Glencore, whose operations comprise of over 150 mining and metallurgical sites, oil production assets and agricultural facilities, today provided investors with an update.

The Chief Executive commented: "In September, we announced a number of measures to reduce our debt. Today we show significant delivery on those commitments, with $8.7 billion achieved to date, and are able to announce an increase in our net debt reduction target measures by almost $3 billion to $13 billion. Glencore is well placed to continue to be cash generative in the current environment - and at even lower prices. We retain a high degree of flexibility and will continue to review the need to act further as required." The share price rose by over 10% in early UK stock market trading.

Highlights include:

Positive free cash flow

  • More than $2 billion of free cash flow at spot prices; Glencore will remain comfortably free cash flow positive at materially lower price levels
  • Estimated 2016 earnings before interest, tax, depreciation and amortization (EBITDA) of c.$7.7 billion at current commodity prices

Strong and increasing liquidity

  • Current liquidity increased to more than $14 billion and will be further enhanced as the debt reduction plan measures are delivered
  • Debt reduction/capital preservation measures increased to $13 billion (previous target of $10.2 billion) with $8.7 billion already achieved/locked-in
  • New net debt target of $18 to19 billion by the end of 2016 (previous target of low $20s billion)

Industrial asset cash positioning significantly enhanced

  • Further reduction in capex: $5.7 billion for 2015E and $3.8 billion in 2016E, down from $6 billion and $5 billion respectively
  • Production cuts have reduced overall supply and cash outlay; resources preserved for an improved future margin environment

Marketing remains a unique, low risk defensive earnings driver

  • Despite significantly lower commodity prices, Marketing adjusted Earnings Before Interest and Tax (EBIT) for 2015E of c.$2.5 billion; underpinned by continued strength in oil and stronger contributions from Agriculture and Metals during the second half
  • 2016E marketing EBIT guidance of $2.4 to 2.7 billion reflects lower working capital levels and reduced copper, zinc, lead and coal volumes

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.