Glencore returns to profit

Glencore International has followed up its cuts to Australian coal production with a reduction in its industrial capital expenditure, despite returning to annual profitability.

The mining powerhouse booked a preliminary annual profit for the year to 31 December of US$2.3 billion (AUS$2.96 billion), which was a substantial rebound from the US$8.05 billion loss in 2013 chalked up largely from charges associated with the Xstrata merger.

Excluding one-off items, the Swiss-based company’s profit fell 9% to US$4.29 billion, while revenue came in at US$221.1 billion, down from US$232.7 billion in 2013.

Chief executive Ivan Glasenberg told investors the industrial capex spend would be reduced from previous guidance of $US7.9 billion to between $US6.5 billion and US$6.8 billion.

“While there remains the potential for future economic setbacks and no shortage of bearishness towards commodities in financial markets, physical demand for our raw materials remains healthy,” said Mr Glasenberg.

He added the company anticipates a tightening in supply markets to “materialise in our key commodities” as producers react to lower prices and deteriorating grades.

Total debt slid to US$30.5 billion from US$35.8 billion, while adjusted EBIT (earnings before interest and tax) was US$6.7 billion, below the US$6.9 billion some analysts had been expecting.

Mr Glasenberg said Glencore's trading arm, which the company calls "marketing" and is far bigger than at other mining companies, proved its usefulness last year. "Even with falling commodity prices we can still perform very well in the marketing business," Mr Glasenberg said in an interview. "This is a cash-generating machine."

The company said the slump in oil prices in the second half of the year helped drive trading volumes and profit higher. The shift, in which in future prices for oil became more expensive than current prices, led a number of energy firms to purchase oil at current prices on the cheap and strike sales agreements at higher prices in the future, locking in profits by doing so.

"Right now it's looking very well structured for oil trading," Mr Glasenberg told analysts.

Agricultural-products trading was also buoyant, with EBIT up steeply at US$856 million from US$192 million in 2013, helped by the Viterra grain-handling business.

Glencore took a hit in its mining business, reflecting its exposure to falling coal prices. Glencore's industrial operations, which includes its mines, reported a 17% fall in EBIT to US$524 million in 2014 from the previous year. Mr Glasenberg has said his company's blockbuster merger with Xstrata is "a big play on coal."

Last week, Glencore cut coal exports from its Australian mines by around 15% to stem the losses from the collapse in coal prices, which remain near five-and-a-half year lows.

"We will continue to review all our coal operations in the prevailing economic climate," the company said in a statement at the time.

Glencore made a takeover run at Australia's Rio Tinto last year, which was rebuffed. This followed discussions between the two companies about merging their coal operations in the Hunter Valley, but a deal was never struck.

Edited from source by Joe Green

Source: Business Spectator

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