How probe in the US continues to stifle Glencore shares
Concerns over a potential investigation by US authorities continue to weigh on the Glencore share price, but the commodities giant says it hopes its growing cash flows will draw investors back and buoy the stock.
For the first half of the year, Glencore reported net income had increased 13% to $2.5bn and revenue grew 8% to $108.5bn, compared with the same period last year. Funds from operations were up 8% to $5.6bn.
Earnings per share also rose from $0.17 a share to $0.19. Net debt was down 16% to $9bn.
The share price was, however, flat and closed at R56 on the day. It was a long way from the R64 it traded at before the company notified the market in early July that it had been subpoenaed to provide documents to the US department of justice.
The probe was in relation to its business activity in the DRC and Venezuela, with respect to the US Foreign Corrupt Practices Act and money laundering statutes. Even at R64, the share was already trading at a 14% discount to its peers since January because of concerning news coming out of the DRC.
In a conference call with media, Glencore CEO Ivan Glasenberg said he could not comment on the adverse share price reaction to the news of the subpoena. The share price was "doing what it does", he said.
"Let’s see after these results … when people see the cash flow we are generating — hopefully that will take care of the share price," Glasenberg said.
Ben Davis, equity analyst at Liberum, noted that the consensus for Glencore’s earnings before income tax and amortisation (ebitda) was $8.5bn. "So it was bang in line and a pretty dull set of results considering the backdrop of investigations and DRC turmoil," Davis said.
"On a cash-flow basis, they are the cheapest of the diversifieds of the moment," said Gerbrand Smit, chief investment officer at NeFg Fund Management. "It looks like a decent entry point — certainly they are mining in the right areas. But the risks are with the investigation."
The results coincided too with an announcement overnight that US President Donald Trump would impose yet another round of tariffs on China. Glasenberg said Glencore had adopted a "wait and see" attitude to whether the tariffs would have an effect on commodity prices and trading.
US sanctions reinstated against Iran also prevented Glencore from taking Iranian products or selling into Iran.