GLEN Glencore Plc

Profit surged last year, led by trading division; cash flows clear way for dividends, deals

By Scott Patterson 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 22, 2018).

Glencore PLC on Wednesday said it quadrupled its earnings in 2017, increased its dividend payout to investors and was on the lookout for deals -- fresh signs of strength in the global mining industry.

The Swiss commodity giant's financial results highlighted its dramatic turnaround from 2015, when it nearly collapsed under the weight of a copper-price crash and an investor revolt over its high net debt levels. Its unusual model -- an enormous mining operation coupled with the world's biggest commodity trading business -- posted the kind of strong profits long promised by Chief Executive Ivan Glasenberg.

Glencore said net income for 2017 rose to $5.8 billion from $1.4 billion the previous year. The gains were led by the trading division, where net income reached $3 billion for the first time since 2008. Glencore declared a dividend for 2018 of $2.9 billion, well ahead of expectations for a $2.2 billion dividend.

Its shares rose 5.2% to 404.55 pence ($5.66) Wednesday in London. They are substantially higher than in the fall of 2015, when investors sent the stock into a downward spiral and the firm launched an intense cost-cutting, asset-selling program that including eliminating its dividend.

One big sign of its improving finances: Glencore said it had lowered its net debt $10.7 billion by the end of 2017, down from $15.5 billion at the end of 2016. In 2015, its net debt was $29 billion -- then a key worry for investors.

Rising commodity prices have helped drive Glencore's comeback and that of the larger mining industry, with BHP Billiton Ltd and Rio Tinto PLC also posting solid earnings this month.

Over the past 12 months, copper prices have gained about 20%, coal has climbed about 12%, and cobalt has more than doubled. Those materials, as well as nickel and zinc, were among the biggest contributors to Glencore's profits.

Mr. Glasenberg, one of the mining industry's most aggressive deal makers, said booming cash flows give Glencore plenty of room to return more cash to investors or to mull acquisitions.

In 2017, Glencore snapped up a stake in an Australian coal operation for $1.1 billion, bought out a partner in two copper mines in the Democratic Republic of Congo for about $1 billion and boosted its stake in a Peruvian zinc operation for nearly $1 billion.

Mr. Glasenberg has said he's interested in expanding the firm's agricultural business in the U.S. and last year made an approach to grain trader and processor Bunge Ltd. Mr. Glasenberg said Glencore's agreement not to make a hostile bid toward Bunge had expired, but he gave no indication that a renewed approach was imminent.

"There's room to do transactions," Mr. Glasenberg said on a media call Wednesday. "If nothing becomes available, if we don't get things at the right price, we won't do it," he added.

Mr. Glasenberg faced questions from industry analysts on Wednesday about mounting pressure in the Democratic Republic of Congo, where the company has a dominant position in cobalt, a key ingredient in the lithium-ion batteries that power smartphones and electric vehicles.

Congo recently proposed a new mining code that would take a bigger slice of mining companies' profits. Additionally, Congo's state-run mining company, Gecamines -- a partner with Glencore in a copper mine there -- has alleged that foreign companies aren't paying their fair share to the government.

Mr. Glasenberg told analysts that Glencore could take the Congolese government to court if any new code upends established agreements. "Hopefully we won't have to go there," he said.

Glencore said results were somewhat offset by rising cost pressures. Chief Financial Officer Steve Kalmin told reporters Wednesday the company was seeing rising prices in diesel, coal, oil, steel and the price of explosives, among other things. "All these things are going up, " he said.

Write to Scott Patterson at scott.patterson@wsj.com

(END) Dow Jones Newswires

February 22, 2018 02:47 ET (07:47 GMT)

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