Tag Archives: glencore

There’s more to Glencore’s agri sell-off than meets the eye

This week, Mike van Dulken and Augustin Eden from Accendo Markets explain why Glencore is still keen on the agriculture sector despite selling off its business…

Deleveraging in the mining sector continues, with Glencore managing to offload 40 per cent of its agricultural business to Canada Pension Plan Investment Board (CPPIB). But Glencore’s situation is rather different from that of sector peer Anglo American, which we discussed a while back.

Glencore struggled through the latter part of 2015 with a massive debt burden, the result of huge over-investment just around the time when commodity prices began turning over, and its shares were part of a group that weighed heavily on the FTSE 100 index last year.

While we’ve seen action taken by the blue chip miner to reduce its debt load before now, the partial sale of its agricultural arm is an indication that there are indeed buyers for mining assets. Sure, the $2.5bn price tag fell short of analysts’ expectations, but it was bang on Glencore’s guidance and has put some much-needed funds into the coffers, which the company says it will use to… expand its agricultural assets. Wait a minute. Glencore is selling part of its agricultural business in order to buy other agricultural businesses? Mad as it sounds, that seems to be correct.

Glencore is currently – despite this deal – a major exporter of grains in Russia, Canada and Australia. It shifted around 44 million tonnes of the stuff in 2015 but saw profits cut in half by an oversupplied and stagnating market. So what Glencore may be engaged in here is a clever marketing ploy – those being somewhat of a speciality of the commodity trading giant. It clearly still sees value in agricultural commodities, otherwise it wouldn’t be looking at South America and Brazil (the world’s #1 soy bean exporter) for potential acquisitions in that sector, right?

The other market in which Glencore lacks a big footprint is the US, and understandably so – the strength of the dollar making US exports less competitive means it’s not a priority right now. But what about the outlook for US monetary policy? If the Fed continues to be dovish – stamping down the hawkish dissenters – then the outlook for the dollar would be bearish, which would strengthen the Canadian Dollar and make Canadian exports less competitive. While Glencore shouldn’t and probably isn’t making a call based on FX forecasts, isn’t it a little funny that it’s sold a 40 per cent stake in its agricultural business to the Canadian Pension Plan Investment Board?!

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Glencore’s update is better than expected, but miners are set for more pain

On a day like this, Glencore must still be plagued with shopper’s remorse over its badly timed acquisition of miner Xstrata back in 2013. The deal added masses of mining operations to the commodities trader’s business, which have struggled in the commodities price rout.

But the company, which is making grand efforts to reduce its staggering $30bn (£19.8bn) debt pile, today surprised the market with a more ambitious than expected plan to cut its borrowing and hopefully save its treasured investment grade credit rating.

It has increased its debt reduction measures to $13bn, up from $10.2bn, and has a new net debt target of $18-19bn by the end of 2016, an improvement from its previous target of low $20s bn.

It says it has $8.7bn of these cuts already locked in.

Safe to say, the market loved it. Glencore, which has seen its share price plunge by almost three quarters on the FTSE 100 index this year, gained 14 per cent by mid-morning trading.

“Glencore is well placed to continue to be cash generative in the current environment –
and at even lower prices,” said boss Ivan Glasenberg. “We retain a high degree of flexibility and will continue to review the need to act further as required.”

But will Glencore’s efforts be enough? With slowed growth in China and the eurozone severely denting demand, everyone can speculate but noone quite knows just how far commodities prices could fall. As Ivan suggests, there may be a need for Glencore to act further. I certainly do not think this will be the last of it. How can it be, when there is no end in sight to weak pricing?

As for the other miners, Anglo American made its own savage cuts earlier this week, shedding 85,000 staff, with all eyes on BHP Billiton to make the next move.

It seems likely that the latter will follow Glencore and Anglo and suspend its dividend as part of its cost cuts. The sector is hemorrhaging money and nothing seems quite big enough to stem the flow…