Giant miner Glencore makes a U-turn

Commodities trading and mining giant Glencore has bowed to shareholder calls to fortify the group against the slump in raw-materials prices. It plans to cut its debt by $10.2bn, a third of the total, by selling assets and raising $2.5bn of new equity. It is also suspending dividend payments and halting operations at two African mines. The company, led by CEO Ivan Glasenberg, had proposed a much more modest debt reduction plan last month, after it reported a 56% fall in profits at its half-year results. The shares have fallen by around 50% this year.

What the commentators said

During the commodities boom, Glencore “was hailed by some as an economic power rivalling nation states”, said Jonathan Guthrie in the Financial Times. Its leaders became billionaires when it floated in 2011. Now the downturn has “shattered [its] aura of invincibility” and shareholders have been rattled enough to force Glasenberg to change his approach. “This is definitely the first time you get the impression that shareholders are the most important voice in the room,” said Ben Davis of Liberum Capital.

No wonder they’re upset, said Jim Armitage in the Evening Standard. Glasenberg has “made multiple misjudgements” since 2011. This is just the latest. Others include missing the impending commodities crash when he spent $46bn buying Xstrata and kept investing “in minerals the world no longer wants to buy”. Don’t forget last year’s share buybacks, added Graham Ruddick in The Guardian. Given that Glencore makes some of its money from trading, that was a “spectacularly bad advertisement for its abilities”.

Glasenberg has agreed to his shareholders’ demands, but he still thinks they’re unnecessary, said Marcus Leroux and Robin Pagnamenta in The Times. He expects China to pick up at the end of the year, and this week insisted that the Glencore balance sheet “would have been able to withstand whatever China could throw at it”. Yet as Lex pointed out in the FT, even if all of this week’s plans come off, net debt will still be twice earnings – double the figure at Glencore’s main rivals. If commodities prices remain depressed, the group may have to resort to further measures.

disfi.com