Falling oil prices spark Glencore African writedown

Miner Glencore said it will cut its capital expenditure target for the year and book an impairment charge on the value of its assets in Chad as a result of falling oil prices, as it reported mixed first-half production.

The Baar, Switzerland-based trader and producer of commodities ranging from energy, base metals, and agricultural products said it has taken the impairment charge against its Chad oil assets after significantly reducing the number of drilling rigs in operation and cutting capital expenditure to preserve cash.

Glencore Plc, the mining and commodities company led by billionaire Ivan Glasenberg, expects to impair the value of its oil business in Chad by about $790 million because of the slump in the price of crude.

It has also changed the fields’ capital spending and production profiles as part of a drive to cut short-term cash outlays while preserving long-term value.

“The directors of Optimum are of the view that if the supply agreement with Eskom can be renegotiated, there is a reasonable prospect of rescuing Optimum”, the company said in a statement. It has claimed Eskom has not paid it enough for the coal it supplies to the power utility via its Optimum mine, while Eskom has argued its coal is inferior and the mine must pay it R2 billion in penalties.

However, the decision is also likely to sap commodities demand in the country, while encouraging exports which could further exacerbate an oversupplied global market.

In a trading update issued on Thursday, Glencore says its own-sourced coal production was 68.7 million tons, down 4% year-on-year, mostly because of the “market-driven decision to cut back production”.

Glencore, which has the biggest exposure to copper of the large diversified miners, said its own sourced copper production fell 3% to 730,900 tonnes in the first half of the year compared with the year-earlier period due to lower output from its operations in South America.

Significantly, the Swiss company said that full-year capex projections had been pulled back to about $6 billion, down from the previous estimate of $6.5 – 6.8 billion.

Zinc production was up 12% to 730,300 tonnes, mainly due to the ramp-up of the expansion projects in Australia, while nickel output was consistent with the first half of last year at 48,900 tonnes. The company’s shares had climbed 2.52 percent to 184.75p as of 08:07 BST, though it had yet to recover even half of yesterday’s losses.

Glencore will release its interim results on August 19.