4th May 2016 11:15
LONDON (Alliance News) - Glencore PLC shares fell on Wednesday after production of the majority of its commodities fell during the first quarter due to planned cuts, but said its full-year guidance remains intact apart from its oil unit which has made a slight reduction to its target.
Glencore shares were trading down 5.1% to 142.15 pence per share on Wednesday, one of the worst performers in the FTSE 100, but the stock has seen its shares rise 58% since the start of the year after moving its focus onto reducing its debt pile.
Glencore made proactive production cuts in 2015 in response to declines in commodity prices and excessive supply in some markets, leading to year-on-year reductions in production of copper, zinc, lead, coal and oil in the first quarter of 2016.
However, with those production falls expected, shareholders will be more focused on the fact guidance numbers for the full year remain intact across all of its mineral businesses, with the oil division taking a small hit.
The oil unit has reduced its full year guidance by 3.5% to 8.2 million barrels of oil from its original guidance of 8.5 million barrels. This reduction will be caused by Glencore scaling back its efforts by drilling less wells than anticipated, which in turn should lower expenditure.
If Glencore produces the new 8.2 million barrel target this year, production in 2016 will be around 23% lower from the 10.6 million barrels produced in 2015, which in turn had risen 44% from 2014.
Importantly, the oil division only contributes only a small proportion of Glencore's overall earnings before interest, tax, depreciation and amortisation.
Copper remains one of Glencore's largest earnings drivers despite ongoing pressure on prices. Production from Glencore's own sources was 4.0% lower in the quarter at 335,000 tonnes following suspensions at its mines in Africa, partly offset by increased production in South America.
Copper production for the full year is still expected to be around 1.4 million tonnes - which would represent a 6.7% year-on-year fall from 2015.
Coal production in the period was 17% lower year-on-year in the first quarter at 29.7 million tonnes after the loss of production from Optimum Coal from August 2015 and due to some mining restrictions in Colombia.
Production for the full year should be in the region of 130.0 million tonnes.
Zinc production was down 28% in the first quarter compared to a year earlier at 257,100 tonnes after reductions in production from operations in Australia, Peru and Kazakhstan, but remains on track to produce 1.1 million tonnes for the full year as the company looks set to produce 27% less zinc this year than in 2015.
Nickel production was one of the only segments to see production rise in the quarter, experiencing a 16% year-on-year lift to 27,600 tonnes as the division targets production of 116,000 tonnes this year, which would represent a 21% rise from what was produced in 2015.
Agricultural Products, in which Glencore has recently sold a substantial stake, saw crushed volumes rise by 89% in the period due to improved macro-economic conditions in Argentina and the contribution from the acquisition of the Becancour plant in Canada and the Warden plant in the US that were completed in 2015.
More importantly, the marketing division that sells and trades Glencore's production as well as third-party material is also still expected to deliver USD2.40 billion to USD2.70 billion of earnings before interest and tax in 2016, which would demonstrate a resilient part of Glencore's business if it can maintain that range of earnings despite lower commodity prices.
Glencore did not provide any update on potential asset sales following media reports that the company was looking to sell the Vasilkovskoye project in Kazakhstan for up to USD2.00 billion, with Chinese miners expected to lead the charge.
The Financial Times reported Tuesday that Glencore was looking to sell its largest gold mine after being approached by several suitors.
Glencore has already listed a number of assets it may offload in order to reduce debt. Glencore is aiming to get net debt below USD18.00 billion by the end of the year and below USD15.00 billion at 2017-end from the USD25.88 billion reported at the end of 2015.
Glencore is targeting USD4.0 billion to USD5.0 billion in asset sales this year and needs to raise between USD1.50 to USD2.50 billion more from asset sales in order to hit that target.
The largest deal already agreed and contributing to that asset disposal target is the sale of a 40% stake in its agricultural business for USD2.50 billion.
The company has already confirmed that it has received bids for the two copper mines it is looking to sell, Lomas Bayas in Chile and Cobar in Australia, and a deal is expected to be revealed during this current quarter - but no update was provided by the company on Wednesday.
Analysts have previously said the Vasolkovskoye gold mine and the company's rail assets in Australia could also be sold off, supporting the potential sale reported by the FT on Tuesday.
By Joshua Warner; [email protected]; @JoshAlliance
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