EXTRA: Glencore Ups Marketing Target But Mining Guidance Cut Again

LONDON (Alliance News) - Glencore PLC provided investors with a mixed update on Monday as it ...

Alliance News 30 October, 2017 | 11:35AM
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LONDON (Alliance News) - Glencore PLC provided investors with a mixed update on Monday as it enters the final quarter of the year, raising its earnings guidance for its Marketing division for a second time while lowering production guidance for nearly all of its commodities once again.

Having made steep cuts to guidance for the majority of its commodities at the midway point through 2017, Glencore on Monday further reduced its expectations for annual output in 2017 for copper, zinc, lead, ferrochrome and coal. Only its target for nickel was left untouched on Monday, while no guidance has been provided for its oil unit that is battling against severe field declines.

At the start of 2017, Glencore's original production guidance for the year forecast that output of everything but copper and oil would rise when compared to 2016, but following the downgrades made throughout the year the multi-commodity giant is now expecting only zinc and ferrochrome output to rise on an annual basis, with lead production to fall and coal and nickel production to stay broadly flat.

Although the initial forecast was for copper output to fall in 2017, guidance has been cut twice since, and annual output this year is to be even lower than first guided.

When the first material cuts were made to production guidance in its interim results, Glencore cited a number of factors. While zinc targets were altered to take into account the agreed sale of the Rosh Pinah and Perkoa mines, other targets were reduced because of maintenance delays, mine plan changes, heavy rain, and some production issues.

In the year-to-date, copper production fell 11% year-on-year to 946,500 tonnes due to the Ernest Henry minority sale in the fourth quarter of 2016, combined with smelter maintenance at Mount Isa in the third quarter of 2017, reduced throughput at Mutanda, end of mine-life production declines at Alumbrera and the timing of lower copper grades at Antapaccay.

Following the 25,000 tonne reduction to copper guidance at the midway point, Glencore on Monday lowered its target by another 20,000 tonnes to 1.3 million tonnes because of the power interruption at Mopani mine and the associated reduction in sulphuric acid deliveries to Mutanda.

That means annual production will be well below the 1.4 million tonnes of copper produced in 2016.

Nickel production in the first nine months fell 2% to 80,700 tonnes, reflecting maintenance at the INO and Murrin projects and a higher proportion of third-party feeds in INO's metallurgical mix.

Nickel guidance for the full year was left unchanged at 111,000 tonnes to 119,000 tonnes compared to the 115,000 tonnes produced in 2016. However, that target was cut by 5,000 tonnes in the middle of 2017 after various maintenance delays in the first half of the year.

Ferrochrome output was flat year-on-year at 1.1 million tonnes, but guidance for the the whole of 2017 was lowered by 35,000 tonnes to a midway point of 1.6 million tonnes, having already been slashed by 65,000 tonnes earlier this year because of "additional market-driven maintenance days". In 2016, Glencore produced 1.5 million tonnes of ferrochrome in total.

Coal output of 91 million tonnes in the first three quarters was in line with the previous year as expected increases from productivity improvements and Glencore's higher equity share in certain mines were offset by the impact of industrial action in New South Wales and unusually heavy rainfall in Colombia.

Guidance for coal over the full year was lowered the most on Monday, by 8 million tonnes to a midway point of 124 million tonnes, due to the impact of industrial action in Australia and weather-related incidents in Colombia. That builds on the 3 million cut to guidance made earlier this year, also because of rain in Colombia and other mine revisions.

In 2016, full-year output of coal amounted to 125 million tonnes.

Oil production in the first nine months of 2017 plunged to 3.9 million barrels, down 36% year-on-year, as Glencore's fields continue to see natural declines. Drilling restarted in Chad in the second half of 2017, and the trend is "expected to improve as the results from the single-rig drilling campaign start to be realised", the company said.

With its oil operations battling declines, Glencore has not provided guidance for the full year.

On a more positive note, Glencore said it expects it Marketing unit, which trades its own commodities and third-party materials around the world, to produce annual earnings before interest and tax of around USD2.60 billion to USD2.80 billion, "reflecting a strong third quarter performance".

That is the third earnings target set for the division this year - improved twice - having been originally set at a range of USD2.30 billion to USD2.60 billion before being raised to USD2.40 billion to USD2.70 billion.

In 2016, the Marketing unit delivered Ebit of USD2.35 billion, or USD2.46 billion on an adjusted basis.

In August, Glencore reported its interim financial results for the first six months of 2017, during which better commodity prices helped push up revenue to USD100.28 billion from USD69.42 billion the year before, with the reduction in costs across the group also helping to significantly improve margins.

That resulted in Glencore turning to a pretax profit of USD2.86 billion in the first half from a USD698.0 million loss the year before. Net profit attributable to shareholders was USD2.45 billion, turning from a USD369.0 million loss.

Glencore shares were up 0.1% on Monday at 367.70 pence, almost one-third higher than at the beginning of 2017.

By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance

Copyright 2017 Alliance News Limited. All Rights Reserved.

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Security Name Price Change (%) Morningstar
Glencore PLC 311.65 GBX -1.61
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