13th Aug 2015 09:12
LONDON (Alliance News) - Glencore PLC Thursday said it will book a large impairment related to its assets in Chad in light of the decline in oil prices and slashed its capital expenditure budget for the rest of 2015 as it reported a mixed set of production results in the first half of the year.
The FTSE 100-listed multi-commodity miner said in light of the sharp decline in oil prices which caused it to amend its work programme in Chad, it will book a USD790 million impairment related to the assets, and restrict capital expenditure in the country. As a result, Glencore said the number of drilling rigs in operation in Chad will also "significantly" reduce.
The miner also cut its capital expenditure budget for the full year. In the first half of 2015, the miner spent USD3.0 billion in industrial capital expenditure, which is now expected to total USD6.0 billion for the full year, down from its previous guidance range of USD6.50 to USD6.80 billion.
In terms of its main production in the first half - results were mixed. Copper, lead, coal, gold and silver production all fell in the period with zinc and ferrochrome the only areas experiencing a lift.
The biggest rise however was in Glencore's oil entitlement, up 68% to 5.3 million barrels in the period reflecting increased production from Badila and Mangara in Chad, and Glencore's higher ownership interest in these fields following the Caracal acquisition.
Zinc production was up 12% year-on-year to 730,300 tonnes mainly relating to ramping up of the
Australian zinc assets which accelerated in mid-2014, whilst ferrochrome production was 16% higher at 756,000 tonnes after Lion 2 fully ramped up after starting production in the first half of 2014.
Glencore reported a 3% fall in copper production to 730,900 tonnes due to grade changes at Alumbrera in Argentina and Antamina in Peru and planned maintenance activities at the Collahuasi mine in Chile whilst coal production fell 4% to 68.7 million tonnes, primarily due to the market-driven decision to cut back production.
Lead production dropped 2% to 146,200 tonnes from 148,900 tonnes whilst gold production fell 10% to 411,000 ounces from 458,000 ounces and silver production was down 3% to 16.2 million ounces from 16.7 million ounces.
Earlier in August, Glencore said the directors of its Optimum Coal Holdings and Optimum Coal Mine have started business rescue proceedings in South Africa amid an ongoing dispute with local utility Eskom on the coal supply agreement between the two.
Glencore said Optimum has spent the past six months taking a number of steps to restructure its operations and cut costs, including downscaling its operations and reducing its production, but has continued to face financial difficulties due to the supply agreement it has in place with Eskom.
Optimum has a contract to supply 5.5 million tonnes of coal per year to Eskom, following an original deal signed back in 1993, which has resulted in Optimum supplying the coal for a price significantly less than the cost of production for a number of years.
Optimum has been in talks with Eskom over the course of the past few years to try to renegotiate the contract but, in June, Eskom said it was not willing to renegotiate the framework already in place and terminated the agreement, which had been used to conduct the negotiations between the two parties.
Glencore said that though fully aware of the financial situation facing Optimum, Eskom served notice in July to claim significant historical penalties from Optimum and to impose future penalties on the company. "Eskom is enforcing specifications in the supply agreement which Optimum is unable to meet on a sustainable basis and which were the subject of the recent renegotiation discussions," Glencore said.
On Thursday, the miner said it is " of the view that if the supply agreement with Eskom can be renegotiated, there is a reasonable prospect of rescuing Optimum."
Glencore shares were up 0.6% to 181.19 pence per share on Thursday morning. Shares in the company are down 13% this week as the company took a heavy hit from the move by China's central bank to devalue the yuan.
By Joshua Warner; [email protected]; @JoshAlliance
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