Glencore sets aside $1.5 billion for probes, reports record earnings

FILE PHOTO: The logo commodities trader Glencore is pictured in Baar
FILE PHOTO: The logo of commodities trader Glencore is pictured in front of the company’s headquarters in Baar, Switzerland, July 18, 2017. REUTERS/Arnd Wiegmann

February 15, 2022

By Clara Denina and Helen Reid

LONDON (Reuters) -Glencore will set aside $1.5 billion for probes into bribery and market manipulation, which it expects to resolve in 2022, it said on Tuesday, as it announced record earnings from booming raw materials prices.

It also promised a $4 billion payout to its investors.

The company, one of the world’s biggest miners and commodity traders, faces investigations in Brazil, Britain and the United States following corruption allegations relating to some of its operations in the Democratic Republic of Congo, Nigeria and Venezuela since 2018.

“We recognise there has been misconduct in this company historically. We’ve worked hard to correct that,” CEO Gary Nagle told reporters.

Glencore also faces separate corruption and bribery investigations by Swiss and Dutch authorities.

“Although the Swiss and Dutch investigations are expected to remain outstanding, we believe that with the main investigations quantified, this will likely de-risk the company from this ‘unknown known’ which has been an overhang for the company since 2018,” Tyler Broda at RBC Capital Markets said.

Shares in the company jumped 3.9% to 437 pence by 0909 GMT, making it one of the best performers in an index of its peers in London.

In preliminary 2021 results, Glencore said it cut net debt to $6 billion at the end of 2021 from $15.8 billion a year earlier.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 83% to a record $21.3 billion, compared with $11.6 billion a year earlier, in line with a consensus estimate of 15 analysts.

The results surpass a previous high in 2018, when Glencore had also been buoyed by a commodity rally.

The company, which owns more than 150 operating sites, is reviewing 27 assets, 14 of which are being sold, Nagle said, as refocuses its portfolio on what it termed “commodities of the future” needed for the transition to a greener economy.

Glencore mines battery metals copper, nickel, and cobalt.

Its strategy of depleting its coal mines by the mid-2040s rather than selling them or spinning them off reflects a different path from other diversified miners including BHP and Anglo American.

RUNNING DOWN COAL

Activist investor Bluebell Capital Partners, which last year urged the miner to separate its thermal coal business has, in a letter dated Jan. 24 and made public on Monday, proposed a new structure for Glencore that would allow the company to still maintain control of the spun-off unit.

Nagle on Tuesday said shareholders support the company’s strategy to instead run down its coal mines by the mid-2040s.

“Coal does play an important part in this business. In the discussions I’ve had with shareholders, they’re very supportive of our strategy, they’re very supportive of coal in this business,” he said.

Glencore’s biggest shareholders are Qatar Holding, a unit of the Gulf Arab state’s sovereign wealth fund, and ex-CEO Ivan Glasenberg with a combined 18.5%.

The $4 billion payout to shareholders announced on Tuesday compares with the $2.8 billion Glencore said last August it would return to them.

Prices of thermal coal, the most polluting fossil fuel, are close to all-time highs reached last year on expectations of scarce supplies caused by Chinese power shortages and a European gas squeeze.

Surging prices for fuel and other materials needed in mine processing, coupled with tightening labour markets, drove Glencore’s costs up in 2021.

Although prices of the metals Glencore produces have increased at a higher pace than the rate of inflation, costs still put pressure on supply.

The company put its zinc sulphide operation in Italy on care and maintenance until there is “a meaningful change in power market prices”.

“We are seeing some inflationary pressure across the business…so we’ve taken action at our smelters. We’ve cut back production at our smelters in Europe because of these high energy prices,” Nagle said.

Nagle said the company has no plans, at this stage, to bring that production back.

(Reporting by Clara Denina, Helen Reid, Shanima A in Bengaluru; editing by Sriraj Kalluvila, Jason Neely, Michael Urquhart and Barbara Lewis)

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