Commodity giant Glencore says it cuts debt ahead of schedule

The Swiss-based company had already said it plans to sell a minority stake in the agricultural business, which trades commodities from wheat to cotton, to one or several strategic investors and has started talks with several possible buyers.

Glasenberg said the company had already cut debt by $8.7 billion and was well placed to continue to be cash generative in the current environment, and at even lower commodity prices.

The company said it has delivered on the bulk of those commitments, or $US8.7 billion to date, through asset sales, cost cuts and dividend suspension. It is now boosting its net debt reduction target measures by nearly $3 billion to $13 billion and has increased its targeted asset sales to a range of $3 billion to $4 billion-from $2 billion previously-with a view to selling more if needed.

Glencore has come under pressure from investors and credit ratings agencies to cut its net debt of $30 billion, one of the highest in the industry, as prices for its key products copper and coal languish at multi-year lows.

“In the current price environment the company will need to show continual delivery against this plan but this update is better than expected, sufficiently detailed and provides a clear debt reduction pathway and timeline”, Credit Suisse (LSE: 0QP5.L – news) analysts said in a note.

The companies shares, which have been hammered in recent months, surged 10.9 percent to 92.15 by midsession in London.

Glencore is up 11% in mid-morning trading after announcing further reductions to its debt target, while Old Mutual’s shares have dropped following a downgrade to the stock.

“In September, we announced a number of measures to reduce our debt”, Ivan Glasenberg, chief executive, said.

Highlights of the updated plan to stabilise the company’s books include new share sales and plans to spin off copper mines in Australia and Chile.

The price of copper, the company’s largest earnings driver, hit a more than six-year low last month and is down 27% so far this year at $4,854 a metric ton as of Thursday. It’s the second-worst performer in the U.K.’s benchmark stock index this year. Nevertheless, Mr. Glasenberg said the company had free cash flow of $2 billion and could generate cash even if copper prices fell to $3,500-a level even the most bearish analysts haven’t predicted. Spending is seen falling to $3.8 billion in 2016 from a previous estimate of $5 billion.

In a sign of the tough times ahead, the miner said it expects the trading division to generate another year of subpar profit.

Glencore also noted that it has more than $2bn of free cash flow at spot prices and will remain comfortably free cash flow positive at materially lower price levels. And while Glencore may be able to survive further falls in commodity prices, its profitability could decline.