Monday, July 13, 2020

Glencore to Pay $1 bln Dividend in 2017

Posted by December 1, 2016

Commodities trader and miner Glencore (GLCNF) said on Thursday it would pay $1 billion in dividends in 2017 and more the following year while keeping its investment grade credit rating, which remains its top priority.

Glencore a year ago was one of the miners hardest hit by a commodity price crash and has been one of the biggest gainers as the markets have recovered this year.

A year on, it has exceeded its disposal target with asset sales of $6.3 billion and is on track to cut debt to $16.5 billion to $17.5 billion, it said.

It also gave detail on earlier promises to reinstate a dividend in 2017, saying it would pay out $1 billion next year.

From 2018, it would introduce a new distribution policy, including a fixed dividend of $1 billion funded from marketing cash flow.

A variable distribution equal to at least 25 percent of free cash flow from the mining, or industrial, sector could add roughly another $1 billion, depending on performance and commodity prices.

"We have delivered on our commitments and done so in a way that has preserved the long-term earnings capability of the group," CEO Ivan Glasenberg said in a statement.

Analysts largely agreed, although Liberum was cautious, saying the dividend news was roughly in line with expectations and some investors may have wanted it to be reinstated earlier.

In early trade, the share price rose around 2 percent, although it later eased in line with the overall market.

Glencore differs from other mining groups in the size of its marketing division, which it says is more resilient during commodity downturns and good at generating cash.

After the lessons of 2015, however, it said it aimed to achieve a net debt to EBITDA (earnings before interest tax, depreciation and amortisation) ratio of a maximum of 2:1 rather than 3:1 as in the past as it seeks strong investment grade credit ratings.

At the height of last year's commodity rout, Moody's (MCO) downgraded Glencore down to Baa3, at the lower end of investment grade.

Glasenberg said the group's main commodities - copper, zinc, nickel and coal - had positive demand outlooks and no major sources of new supply were foreseen, implying continued price strength.

The company said it had got over an ill-timed coal hedge that missed the gains of this year's coal price surge.

In August, Glencore said its decision to sell forward 55 million tonnes of coal - representing about half of its 2016 and 2017 production capacity - equated to lost profits of almost $400 million.

It said on Thursday, the hedge would be limited to around 11 million tonnes by the end of the year and the lost profits on that volume would just under $200 million based on current prices.

Markets have also been watching for the restart of zinc capacity Glencore has idled, which has helped to drive a nearly 80 percent rally in zinc prices this year.

Glasenberg said on Thursday, capacity would stay shut until market conditions meant the extra supply would not push the market lower.

(By Barbara Lewis and Sanjeeban Sarkar)

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