Glencore (LSE:GLEN) became one of the first major mining companies to suspend its dividends as a consequence of the current pandemic, a decision that was predictably viewed dimly by shareholders. Glencore shares had been trading at £1.96 in London on 5 August, but have since slid to £1.67 at time of writing.
Glencore had posted a net loss of $2.6 billion and net debt jumped 12% in the first six months of the year to $19.7 billion. The mining giant also said it was booking a $3.2 billion charge.
Let’s put that dividend suspension into context. Glencore has the benefit of many loyal shareholders. The stock price was down at £1.12 in the dog days of March, so the company is still well up on those lows. The big concern is going to be how badly hit the overall commodities industry has been.
Good showing from Glencore energy trading
Glencore has been propped up with profits in its energy trading business, but it is also spending a lot of capital to buy and store oil at a time when oil storage space is at a premium.
Data on Glencore released to The Armchair Trader last week by artificial intelligence specialist Irithmics indicated that investors in the stock are not going to be particularly responsive to news flow in the near term and that there is not much expectation of bad news in the pipeline from the company now that it has brushed past speculation over the dividend.
Irithmics also said there was little long or short term bias on the stock from institutional investors, who seem to be fence sitting at the moment. Here at The Armchair Trader we think it looks as if eyes will now be focused on the next dividend.
Mining operations start to shrug off pandemic
Outside of its oil business, Glencore had set lower full year guidance on the production of nickel and coal. CEO Ivan Glasenberg said that the company was raising full year 2020 EBIT expectations to the top end of the $2.2 to $3.2 billion guidance range. Copper production in the first half has been rated 11% lower than 1H 2019, largely due to Glencore’s Mutanda mine in the Congo being put on ‘care and maintenance’ and the demobilisation of Antamina in Peru.
Cobalt could become an interesting part of the overall Glencore story in 2020-21 as we anticipate something of a squeeze in this market going forward. Glencore is obviously aware of this too. It reported cobalt production down 33% 14,300 tons, but said mid-year guidance would be 28,000 tons.
What The Armchair Trader thinks
Glencore remains a good diversified commodities production and trading play. We are encouraged by the way the company has responded to the extreme travails in the oil market in 1H to make money out of this situation, in some very challenging circumstances for the global energy industry.
Many of Glencore’s mining operations continued unaffected during the 1H COVID-19 shutdown and those that were closed are starting to come back online, reflecting a trend across the global mining industry. For example, Glencore’s Raglan nickel mine in Quebec is now up and running again and the company said it expects many of its mining projects to make up for lost production.
Will Glencore be back on the dividend radar soon? The big concern remains how much debt Glencore is carrying, but combine its trading operations and with the return to normality for much of its mining portfolio, and we would expect to see Glencore in much better shape in six months.