Glencore. Picture: REUTERS
Glencore. Picture: REUTERS

Glencore’s profits nosedived 92% in the first half of 2019, as the mega-miner and world’s largest commodity trader was hit by low prices, operational setbacks and higher costs at its African copper operations.

The company’s performance is in stark contrast to that of its peers like Anglo American and BHP which are flourishing on the back of strong iron ore prices, a commodity which Glencore mining has no exposure to.

The Glencore share price dropped 2.19% on Wednesday, deepening a share price fall to 12.4% since the release of its quarterly production report on Wednesday last week.

In its results for the six months ended June 30, Glencore’s net income attributable to shareholders plummeted to $226m, a 92% drop from the $2.77bn reported in the first half of 2018.

Earnings a share dropped 89% from $0.19 a share to $0.02 a share.

Operating profits, which the company measures in terms of adjusted earnings before interest, tax, depreciation and amortisation (ebitda), also slid by 32%, dropping to $5.58bn from $8.18bn in the comparative period.

Glencore’s safety record also fared poorly, and in the year to date the company recorded 11 fatalities from eight incidents.

In a note, Credit Suisse analysts said the Africa copper division was “full of disappointment” and reported a loss in earnings of $319m, driven by both the low cobalt prices as well as a $321m increase in operating costs.

But Glencore’s key commodities fared poorly in the first six months of 2019. Compared with the first half of 2018, copper prices dropped 11%, zinc dropped 16%, lead was 20% lower, nickel dropped 11% and coal 14%.

Cobalt prices dropped 58% as the market came into oversupply during the period under review. This saw Glencore’s marketing department taking a $350m loss as a result. And on Wednesday, the company announced it would mothball its Mutanda copper operation in the Democratic Republic of Congo, “reflecting its reduced economic viability in the current market environment, primarily in response to low cobalt prices”.

Glencore CEO Ivan Glasenberg however said that, going forward, he expected the company’s diverse commodity portfolio will continue to play an important role in global growth and the transition to a low-carbon economy.

The company said it would continue with its $2bn share buyback programme which was announced in February.

Jefferies equity analysts Chris LaFemina and Patrick Hove, in a note, remarked that the share repurchases do not appear to be helping the Glencore share price.

“It is critically important for Glencore to start delivering operational improvements as the investment case is built on leverage to a recovery in commodity prices, cyclically resilient cash flow from its marketing business, and operational upside,” they said.

Credit Suisse analysts cautioned about the likelihood of continued negative operational news for Glencore in the near term, but even so see Glencore’s share price as highly attractive compared to its peers based on current guidance levels for production, and its longer-term valuation.

Ben Davis, a mining equity researcher at Liberum Capital, said that while the past 18 months have been far less kind to Glencore, its commodity basket is far closer to marginal cost than its iron ore-exposed peers. While “hardly the most attractive of investment cases”, it “could be close to a cyclical low”, he said.

steynl@businesslive.co.za