Sunday 25 September 2016

Glencore increases debt reduction target, deepens spending cuts

Published 10/12/2015 | 08:19

Glencore is the world's largest diversified commodities trader. Photo: Getty Images
Glencore is the world's largest diversified commodities trader. Photo: Getty Images

Mining and trading company Glencore on Thursday increased its net debt reduction target and deepened its capital spending cuts as it fights for survival in the face of low commodity prices.

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The London-listed company said it now targets net debt of $18bn (€16.4bn) to $19bn (€17.3bn) by the end of 2016, from a previous target of $20bn.

Glencore has come under pressure from investors and ratings agencies to cut its net debt of $30bn, one of the highest in the industry, as prices for its key products copper and coal sank to multi-year lows.

"Today we show significant delivery on those commitments, with $8.7bn achieved to date, and are able to announce an increase in our net debt reduction target measures," Chief Executive Ivan Glasenberg said in a statement.

"Glencore is well placed to continue to be cash generative in the current environment – and at even lower prices. We retain a high degree of flexibility and will continue to review the need to act further as required."

Swiss-based Glencore cut its capital expenditure for 2015 to $5.7bn from $6bn. The spending is seen falling to $3.8bn in 2016 from a previous estimate of $5bn.

Glencore's debt-reduction plan involves asset sales, reducing capital expenditure, suspending dividend payments and raising $2.5bn of new equity capital.

The share sale was completed in September.

The plan also involves reducing working capital and selling off some inventories.

Glencore said its trading division, or what the company calls marketing, will generate adjusted earnings of $2.5bn in 2015, coming in at the lower end of its guidance of $2.5bn to $2.6bn.

The company set a guidance of $2.4bn to $2.7bn for the division earnings in 2016, which it said it reflects lower working capital levels and reduced copper, zinc, lead and coal volumes.

Glencore makes about a quarter of its earnings from commodities trading, which had previously allowed it to withstand a steep fall in oil and metal prices slightly better than pure-play miners.

But the division came under the spotlight after it generated lower-than-expected earnings in the first half and the company cut trading's full-year earnings forecast.

Glencore said it estimated 2016 EBITDA of $7.7bn for the whole group at current prices.

Reuters

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