3rd Nov 2016 12:37
LONDON (Alliance News) - Glencore PLC is continuing to preserve resources by curtailing production in preparation for better market conditions that will offer higher commodity prices, tightening full year targets while further reducing guidance for oil production on Thursday.
Glencore shares were trading down 2.4% to 240.95 pence per share on Thursday afternoon, falling from the 2016 high of 255.0p on the first day of November but still trading 2.7 times higher than at the end of 2015.
The natural resource trader has continued to react to the environment and has narrowed production expectations for most commodities in 2016, but its target for oil was reduced again following cuts to guidance at the midway point of the year.
Glencore has even stopped drilling for new sources of oil, preferring to leave it in the ground for the future upturn in prices, but that has resulted in steep declines in production as existing fields continue to dry up.
Nickel will be the only major commodity in the portfolio to see production rise this year compared to 2015, extraction of copper, zinc and coal will all be lower year-on-year and oil will experience the largest drop.
Glencore started the year expecting to pump out between 7.9 million to 8.5 million barrels of oil by the end of 2016, reducing that range at the halfway point of 2016 to 7.7 million to 8.3 million barrels as it cutback on refurbishing wells in Chad.
The expectation now is for full year production to be between 7.3 million to 7.5 million barrels of oil, up to 30% less than the 10.6 million barrels produced in 2015.
Glencore has pumped out 25% less oil so far this year than it had at the same time last year, with year-to-date production at 6.0 million barrels. Based on guidance, fourth quarter production will be lower than the average quarterly rate seen so far. It will need to produce 1.3 million barrels to hit the bottom end of its range and 1.5 million to hit the top.
Nickel production was a fifth higher in the first nine months of 2016 at 82,400 tonnes. Notably, production has risen as a result of the benefit from the improved Sudbury smelter following maintenance work carried out in 2015, rather than a reaction to markets this year.
Over the whole of 2016, production should be around 23% higher than 2015, targeting between 112,000 to 120,000 tonnes. That would require 29,600 tonnes to be produced in the final quarter to hit the bottom end or 37,600 tonnes for the top - both higher than the average quarterly run rate so far this year.
Glencore edged its full year target for copper upward at the end of the first half after some of its mines delivered better-than-expected performances, and guidance was tightened to 1.40 to 1.44 million tonnes on Wednesday, on track to come in about 5.0% lower than 2015.
Copper production in the first nine months added up to 1.06 million tonnes, 6.0% lower than the previous year and also on track to meet the full year target.
Zinc production was 30% lower in the first nine months than it was last year, totalling 789,200 tonnes, as it cutback on output across the entire division, mainly focused in Peru and Australia. Full year production will be about 23% lower than last year, targeting 1.1 million tonnes.
Glencore extracted 11% less coal in the first nine months of 2016 than it did at the same point last year, producing 91.9 million tonnes. Guidance was edged down 5.0 million tonnes at the halfway point due to weather disruptions in Colombia and reduced output from operations in South Africa. It has since divested from Optimum Coal, further lowering production rates.
Guidance for the whole of 2016 was maintained at 122.0 million to 128.0 million tonnes, on track to be 3.0% to 8.0% lower than last year.
The Marketing division that forms the centre of Glencore, trading the commodities produced alongside material from fellow mining firms around the world, is expected to deliver earnings before interest and tax of about USD2.50 billion to USD2.70 billion in 2016 - tighter than the original guidance at the end of 2015 of USD2.40 billion to USD2.70 billion.
Glencore will need to hit the very top of that earnings range to match earnings from the division last year. However, the unit benefited from a number of assets that have since been sold off or where exposure has been reduced, such as Glencore's agricultural unit.
Like all of its London-listed peers, Glencore is streamlining its portfolio by divesting from numerous assets, also generating the funds needed to reduce debt so it can shore up its balance sheet after years of sinking further into the red following the takeover of Anglo-Swiss mining firm Xstrata back in 2013.
Glencore all but reached its debt reduction target last month after selling its coal haulage business in the New South Wales Hunter Valley of Australia for a total of AUD1.14 billion, higher than expected. That pushed total asset sales up to USD4.77 billion, already within the full year range of USD4.00 to USD5.00 billion.
By Joshua Warner; [email protected]; @JoshAlliance
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