Important that Optimum Coal issue is resolved – Glencore


It was important that the Optimum Coal issue was resolved well so that the coal mining company could become operational once more, Glencore CEO Ivan Glasenberg said on Wednesday.
Responding to media questions after the mining and marketing company’s presentation of half-year (H1) results, Glasenberg said that Optimum’s business rescue practitioners working with Eskom needed to find a solution at Optimum.
The State electricity utility is claiming R2-billion in coal specification penalties from Optimum, whose directors have expressed the view that there is a reasonable prospect of rescuing Optimum if the supply agreement with Eskom can be renegotiated.
“It’s very important that this gets resolved well,” the head of the London-, Hong Kong- and Johannesburg-listed company said, adding that Eskom had made it categorically clear that it did not want to build coal mines itself, which meant that investment in South African coal mining needed to be encouraged.
While the diversified Glencore reported a 29% fall in H1 earnings to $4.6-billion on weaker commodity prices, its mining margin remained at a healthy 24%, compared with 30% in the corresponding period last year, and its energy margin at 28%, compared with a prior 29%.
The company proved that it can reduce debt and manage working capital. “It doesn’t rule us, we rule it,” Glasenberg commented.
Mining analysts comments took into account the tough current state of the commodities market. “Not a bad set of results in light of market conditions with numbers reasonably close to consensus,” Investec Securities said in a note.
“Glencore interim results have come in largely in line with recently downgraded consensus,” said Liberum Capital.
“While earnings were slightly below our estimate, the market is likely to focus on the impressive free cash flow generation over the period, leading to net debt reduction, which should alleviate some of the concerns related to its balance sheet,” BMO Research commented.
Glencore did not have to increase debt to pay for its latest interim dividend, which was kept at $0.6 a share and paid from cash flow. The marketing earnings before interest, taxes, depreciation and amortisation (Ebitda) were down 27% at $1.2-billion and industrial Ebitda down 29% at $3.4-billion. Better H2 contributions from metals and agriculture are expected to underpin full-year results.
While copper production from the company’s African operations grew in the period, overall copper production was down 3% to 730 900 t reflecting anticipated grade changes at Alumbrera and Antamina and planned maintenance activities at Collahuasi. Zinc production rose 12% to 730 300 t, on expansion project ramp-up in Australia. Coal production fell 4% to 68.7-million tonnes on a market-driven decision to cut production.
The sharp decline in oil prices led to capital expenditure (capex), production and operational drilling rig reduction in Chad, resulting in a $792-million impairment. Net debt decreased by $982-million to $29.6-billion on 21% lower net capex and a working capital release of $3.2-billion.
The balance sheet had $10.5-billion of committed available liquidity at June 30. The target industrial capex ceiling for full-year 2015 is now $6-billion, down from up to $6.8-billion previously communicated, but capex of no more than $5-billion is expected. The company has taken a range of actions to preserve its BBB credit rating and to enable it to continue to pay dividends. Glencore’s share price fell by 7.59% to R32.62 a share on the JSE at the close of business on Wednesday.
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