Glencore’s shares tumbled on Wednesday after it posted an earnings slump for last year due to lower commodity prices and slashed its payout to investors to fund a 77-per-cent stake in Teck Resources’ metallurgical coal business.
After two consecutive record earnings years, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to $17.1-billion from $34.1-billion a year earlier, in line with analysts’ consensus estimates.
London-listed Glencore’s shares were down 2.2 per cent at 1234 GMT having earlier dropped by more than 6 per cent.
The Swiss-based commodity giant’s payout of US$1.6-billion announced on Wednesday does not include a new buyback scheme, after the existing one ends this month, nor a special dividend.
To pay for the US$6.9-billion acquisition of Canadian miner Teck’s unit, Glencore has cut the dividend it will pay to shareholders to 13 cents per share this year compared with 34 cents last year.
The deal will add 20 million tons of annual steelmaking coal capacity to Glencore’s portfolio and it is expected to close by the third quarter this year, ahead of a planned spin-off of the commodity giant’s thermal and metallurgical coal business.
“Although there are no “top-up” returns at this point, the business is expected to be highly cash generative … which augers well for top-up returns to recommence in the future,” Glencore Chief Executive Gary Nagle said.
Mr. Nagle said that the company will continue to consult shareholders for their views on the spin-off once the acquisition is concluded.
“We expect the company to be positioned for large capital returns after that deal closes, and we expect Glencore shares to begin to outperform again as a result,” Jefferies analysts said.
Lower prices for battery materials nickel and cobalt due to a slowdown in the electric vehicle sector and for copper because of weakness in manufacturing globally, weighed on mining companies’ earnings last year.
As part of its growth plan, Glencore intends to increase copper production, betting on its two brownfield projects in Argentina.
“2027-2028 we’ll start deploying capital to those brownfield sites,” CFO Steven Kalmin said.
Copper is used in energy transition applications, including solar panels and electric vehicles.
Glencore earlier this month said it would sell its stake in loss-making Koniambo Nickel SAS (KNS) in New Caledonia, halting production at its processing plant for six months while a new investor is sought.
Nickel prices fell more than 40 per cent in the past year after production rose in Indonesia, which last year accounted for more than half of global mined supplies, forcing miners to including BHP to mothball assets, delay projects, reduce production.
“We don’t expect significant [nickel] price recoveries in the short to medium term … [but] we’ve seen many of our customers interested in buying non-Chinese produced or non-Indonesian nickel,” Mr. Nagle told reporters.