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Diversified mining company Glencore has delivered on last year’s commitment to cut debt and structurally increase the strength of its balance sheet – and it has done so in a way that has preserved the group’s long-term earnings capability.
JP Morgan Cazenove analysts described the dividend restart as testament to a fixed balance sheet and Goldman Sachs global investment research team saw it as a positive development that investors were not expecting with Thursday’s presentation.
The $1-billion dividend declared translates into a dividend of $0.7 a share and a 2% dividend yield on Wednesday’s closing price.
Going forward, the dividend will be $1-billion on the back of marketing strength plus 25% of free cash flow generated by mining.
The London-, Hong Kong- and Johannesburg-listed diversified mining and marketing company said on Thursday that it is able to look forward with confidence on the back of its scalable, low-cost industrial operations and strong marketing business.
With its credit default swop position normalising and credit markets acknowledging the efficacy of its deleveraging programme, Glencore is now targeting a maximum, through-the-cycle net debt of not more than twice its earnings before interest, tax, depreciation and amortisation (Ebitda).
Headed by CEO Ivan Glasenberg, the company reports that it is on track to achieve net debt of not more than $17.5-billion by year-end, against the backdrop of divestments worth $6.3-billion beating original $2-billion guidance hands down.
Free cash flow generation, even at the first-quarter commodity price lows, was healthy owing to marketing’s resilience and asset diversification.
A free cash flow of $6.5-billion from an Ebitda of $14-billion is now expected on next year’s commodity prices, while this year’s marketing Ebit is nudging the $2.7-billion upper end of the guidance range, on improved second half market conditions.
A reinstated dividend of $1-billion will be paid in equal tranches in the first and second half of 2017 and the new dividend distribution policy to take effect from 2018 involves the fixed $1-billion base distribution, on marketing cash flow resilience, predictability and stability, topped up by a variable distribution representing a minimum payout of 25% of industrial free cash flow.
The company sees its large-scale low-cost supply positions in mid- and late-cycle commodities like copper, cobalt, nickel, zinc and thermal coal as possessing favourable long-term supply and demand fundamentals.
Its “substantial volumes of low-cost latent capacity” are also at the ready to restart once market conditions are right.
Glencore has completed the sale of its GRail business for A$1.14-billion to Genesee & Wyoming Australia.
It sold stakes totalling 49.99% in Glencore Agriculture to Canada Pension Plan Investment Board and British Columbia Investment Management Corporation for $3.124-billion in aggregate.
Glencore received A$880-million last month for the economic interest in the Ernest Henry copper-gold operation that it sold to Evolution and at relevant exchange rates, the proceeds from these transactions totalled $4.7-billion.
Earlier, Glencore concluded streaming deals with Antapaccay and Antamina.
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- [Editor:sunzhichao]
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