Weak commodities market drives Glencore to first-half loss

JP Morgan analysts wrote last week that Glencore needs to cut its net debt by $16bn by the end of next year to preserve its credit rating.

Glencore took the big hit at its mining business largely because of weaker commodity prices, particularly copper, coal and oil which are trading near multiyear lows. That was part of the rationale for his blockbuster merger with mining giant Xstrata in 2013 after taking Glencore, then principally a trading company, public in 2011.

Glencore’s confidence was reflected in the company’s decision to distribute an interim dividend of $0.06 per share, in line with 2014’s H1 payout. It is this year’s worst performer on the FTSE 100 index.

“We remain by far the most diversified commodity producer and marketer and are well positioned to benefit from any improvement in pricing when it finally and inevitably materialises”, Mr Glasenberg said. It advanced 3.6% on Tuesday after Harris Associates LP increased it’s holding from about 1% to 4.5% and said Glencore is undervalued.

Commodity prices have retreated as China’s economy expands at the slowest pace in a quarter of a century. Falling prices for both materials have helped cut earnings for metals traders. Earnings before interest, taxes and exceptional from its industrial activities, which includes mines and farms, fell 84 per cent to $US341 million in the first half of the year from the same period a year before. That compares with the $1.28 billion average estimate of nine analysts surveyed by Bloomberg News. The company said “tough metals’ trading conditions” had pressured the division’s profitability, and as a effect, the full-year guidance for Marketing’s earnings was pared to $2.5-2.6 billion, down from $2.7-$3.7 billion.

Net debt declined by $982 million to $29.6 billion.

The $29-billion Oakmark global Fund that Herro runs owns a stake of about 1 percent in Glencore, which tumbled 43 percent this year as commodity prices slumped to a 13-year low.

The company said it had $10.5bn of undrawn credit and cash, giving it flexibility to support its balance sheet.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.