Glencore slashes dividend in effort to shrink debt

Natural resources producer Glencore has slashed its dividend after annual earnings halved because of the easing of turmoil in global commodity markets triggered by the war in Ukraine.

Glencore cut shareholder payouts to $1.6bn, from $7.1bn a year earlier, as the Swiss commodity trader focused on reducing debt while it finalised a $6.9bn acquisition of Teck Resource’s steelmaking coal division.

Adjusted earnings before interest, taxes, depreciation and amortisation fell 50 per cent to $17bn, as 2022’s bumper earnings from coal returned to more normal levels, while weak markets for cobalt, nickel and zinc also hit profitability. The group’s net debt of $4.9bn was more than analysts’ expectations of $4bn.

Glencore shares fell 2.4 per cent by late morning in London, trading at their lowest level in two years.

Glencore’s results highlight the fading boost from global commodity market dislocation and a surge in natural gas and coal prices, after western nations boycotted many Russian commodities in a move that benefited trading houses.

Chief executive Gary Nagle said in a statement that “commodity prices trended lower in 2023, feeling the impact of higher interest rates on consumer and industrial demand and more normalisation of energy markets from 2022’s extreme disruption”.

He added during a media call that the outlook for commodity prices was “bullish” because Chinese demand for metals was stronger than prices would suggest, because of its expansion in clean energy and the constrained supply of key resources.

While profits were still the third-best in Glencore’s history, the company cut top-up payouts for shareholders as it aimed to reduce net debt to $5bn, which will rise after the shareholder payouts and the purchase of the 77 per cent stake of Teck’s coal unit. The company also opted against issuing a new share buyback programme for the first time in recent years.

Nagle said that the company’s high level of cash generation “augers well for top-up returns to recommence in the future”.

Glencore suggested that completion of the Teck deal could come sooner than previously expected, by saying it was expected to close no later than the third quarter of this year.

The debt reduction plan aims to pave the way for the Swiss group to spin off a separate coal company in the second half of 2026, in what would be its most radical restructuring since buying mining group Xstrata more than a decade ago.

But he told analysts that “we will be led by shareholders” on whether the break-up plans should be pursued.

The nickel market has been a key area of focus for mining industry executives and politicians, as the flood of low-cost Indonesian supply has driven closures of unprofitable mines in other parts of the world.

Glencore has stopped funding and plans to sell its stake in the Koniambo nickel plant in New Caledonia.

Nagle said he still saw a big role in the market for non-Indonesian supply, despite forecasting a glut for years to come.