LONDON: Glencore Plc built a war chest in the first half of the year, continuing to cut debt as the world’s largest commodities trading house prepares to ramp up acquisitions.
While profits improved during the first half, Glencore kept its dividend unchanged and used the extra cash to pay down borrowings. Net debt was US$13.9bil by June, down more than 60% from mid-2014 when the company was digesting its merger with Xstrata Ltd.
Glencore chief executive officer Ivan Glasenberg is a consummate deal-maker, having built a company worth US$60bil by buying natural resource assets including mines, oil fields and grain silos around the world, rather than building projects from scratch.
The company’s strong balance sheet provides “headroom for highly selective growth opportunities,” he said in a statement yesterday.
“These results indicate the strong position Glencore has built in the recent past and we expect the momentum to continue,” said Heath Jansen, a mining analyst at Citigroup Inc.
Glencore shares slipped 1.8% to 333.55 pence as of 8.56am in London.
Glasenberg, 60, said in February that the “time is right” to reward shareholders after difficult years in 2015 and 2016, when the company suspended dividends and sold shares to raise cash.
Glasenberg, the pugnacious South African CEO, now appears to be strengthening Glencore’s balance sheet first, a sign the company is looking at deals, rather than immediately returning more money to shareholders.
Some investors may be disappointed that Glencore left its dividend the same given the recent abundance of cash, wrote analysts at Morgan Stanley in an emailed report.
However, Steve Kalmin, the company’s head of finance, opened the door for higher payments next year. At current prices, Glencore could pay US$2.5bil in dividends in 2018, up from US$1bil in 2017, he said.
The company cut its preferred leverage ratio to 1.07, well below its target of 2, suggesting it has the ability to pursue acquisitions. The leverage ratio reached 3 in 2015 after commodities prices tanked.
Glencore has already inked some deals, including last month agreeing to pay US$1.1bil plus royalties for a large stake in an Australian coal mine. Earlier this year, its agriculture division approached Bunge Ltd to discuss a potential merger.
Speaking after the release of the results, Glasenberg said he would remain “opportunistic” on M&A, and reiterated his bet on agriculture, saying the company wanted to grow the business with its Canadian partners.
The commodities giant, alongside mining rivals Rio Tinto Group, Anglo American Plc and BHP Billiton Ltd, has emerged from a two-year crisis as metal prices, particularly copper and aluminum, recover sharply.
The Baar, Switzerland-based company announced the debt reduction after reporting profit that largely met expectations. It said adjusted earnings before interest, taxes, depreciation and amortisation rose to US$6.74biln, up 68% from US$4.02bil a year ago. — Bloomberg