Glencore clarifies position on future of coal business in H1 report

Glencore plc (LON:GLEN) has announced its 2024 Half-Year Report.

Highlights

Glencore’s Chief Executive Officer, Gary Nagle, commented:

“We are pleased to report strong strategic achievements for the Group over the year to date. Our Industrial portfolio has been further streamlined with the sale of our Volcan stake and strengthened with the addition of a 77% interest in Elk Valley Resources (EVR). Our updated Climate Action Transition Plan (CATP) received more than 90% shareholder support at our 2024 AGM, the Swiss and Dutch government investigations have been resolved and our 2024 production guidance has been maintained and enhanced, with a skew to the second half of 2024.

“Critically, we have also clarified the immediate future of our coal and carbon steel materials business. Following completion of the acquisition of EVR in early July, we undertook an extensive consultation with shareholders and based on the outcome of that process and the Group’s own analysis, Glencore’s Board, considering both risk and opportunity scenarios, endorsed the retention, rather than demerger, of the coal and carbon steel materials business, as currently providing the optimal pathway for demonstrable and realisable value creation for Glencore shareholders.

“Some shareholders stated that this was a decision for the Board alone to make, but of the others, the overwhelming majority had a clear preference for retention. This was primarily on the basis that retention should enhance Glencore’s cash-generating capacity to fund opportunities in our transition metals portfolio, such as our copper growth project pipeline, as well as accelerate and optimise the return of excess cash flows to shareholders.

“Against the backdrop of lower average prices for many of our key commodities during the period, particularly thermal coal, our overall Group Adjusted EBITDA of $6.3 billion was 33% below the comparable prior year period, however Funds from Operations were up 9%, due to the timing of income tax payments . We reported a Net loss attributable to equity holders of $233 million, after recognising $1.7 billion of significant items, including c.$1.0 billion of impairment charges.

“Reflecting healthy cash generation and after funding $2.9 billion of net capital expenditure and $1.0 billion of shareholder returns, Net debt, including Marketing-related lease liabilities, finished the first half at $3.6 billion, down $1.3 billion compared to $4.9 billion at the end of 2023.

“From Net debt of $3.6 billion, accounting for Marketing-related lease liabilities of $1.0 billion, H2 cash outflows of $6.9 billion for the EVR acquisition and the $0.8 billion for the 2^nd tranche of the shareholder distribution due, all else being equal deleveraging of just $0.3 billion would be required to reach the reset c.$10 billion net debt cap under our framework for excess return top-up payments, compared to at least $5.3 billion of deleveraging that would have been required under the original demerger scenario.

“This relatively modest gap of $0.3 billion, together with the $1 billion Viterra cash disposal proceeds expected to be received over the next several months and noting the healthy current spot illustrative annualised free cash flow generation of c.$6.1 billion, augers well for potential top-up shareholder returns, above our base cash distribution, in February 2025.

“The strength of our diversified business model across marketing and industrial has proven itself adept in a range of market conditions, giving us a solid foundation to successfully navigate the near-term macroeconomic uncertainty. We continue to remain focused on operating safely, responsibly and ethically and creating sustainable long-term value for all our stakeholders.”

1 Refer to basis of presentation on page 6.

2 Refer to page 10.

3 Includes $952 million (2023: $705 million) of Marketing-related lease liabilities.

4 H1 2024 ratio based on last 12 months’ Adjusted EBITDA, refer to APMs section for reconciliation.

◊ Adjusted measures referred to as Alternative performance measures (APMs) which are not defined or specified under the requirements of International Financial Reporting Standards; refer to APMs section on page 70 for definitions and reconciliations and to note 3 of the condensed consolidated interim financial statements for reconciliation of Adjusted EBIT/EBITDA.

2024 HALF-YEAR FINANCIAL SCORECARD

•   $6.3 billion Adjusted EBITDA, down 33%, primarily reflecting the normalisation of energy markets from the severe disruptions and volatilities seen over 2022/23

•   Marketing Adjusted EBIT of $1.5 billion, down 16% period-on-period, tracking on an annualised basis at $3.0 billion. The lower energy contribution, reflecting prior period elevated volatilities, was partially offset by a strong metals performance in H1 2024

•   Industrial Assets Adjusted EBITDA of $4.5 billion, down 39%, primarily driven by a $2.7 billion lower contribution from our coal operations, owing to the substantial average period-over-period declines in key thermal coal pricing benchmarks

•   2024 full year (ex-EVR) production guidance has been maintained, with production expected to be second-half weighted. EVR steelmaking coal volumes now incorporated into H2 guidance

•   Net cash purchase and sale of PP&E: $2.9 billion, up 15%

•   Net income attributable to equity holders pre significant items: $1.5 billion; Net loss attributable to equity holders: $233 million

•   Adjusted EBITDA mining margins were 28% in our metals operations and 31% in our energy operations

BALANCE SHEET

•   Healthy H1 cash generation: after funding $2.9 billion of net capital expenditure and $1.0 billion of shareholder returns, Net debt finished the first half at $3.6 billion compared to $4.9 billion at the end of 2023

•   Net funding, including lease liabilities, decreased to $29.4 billion, aided by a $0.4 billion reduction in readily marketable inventories

•   Available committed liquidity of $16.6 billion; bond maturities maintained around a cap of $3 billion in any given year

•   Net debt/Adjusted EBITDA of 0.26x (c.0.75x proforma for EVR) provides significant financial headroom and strength

•   In June 2023, Glencore agreed to dispose of its interest in Viterra in a cash and shares transaction with Bunge. For its c.50% stake, Glencore will receive $1.0 billion in cash and c.$3.1 billion in Bunge stock (reflecting Bunge’s stock price at the date of announcement and also currently as of 5 August 2024). The merger, which remains subject to regulatory approvals, is expected to close within the next several months

•   Spot illustrative annualised free cash flow generation, including EVR, of c.$6.1 billion from Adjusted EBITDA of c.$17.3 billion

Glencore is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 60 commodities that advance everyday life. Through a network of assets, customers and suppliers that spans the globe, we produce, process, recycle, source, market and distribute the commodities that support decarbonisation while meeting the energy needs of today.