Glencore delivers a solid first-half production performance

Glencore plc (LON:GLEN) has announced its half-Year production report 2023.

Glencore Chief Executive Officer, Gary Nagle:

“We are pleased to report a solid first-half production performance from our underlying base business, where our key copper, coal and zinc assets performed in line with expectations and previously communicated guidance.

“Our full year production guidance remains unchanged from earlier guidance. Second half volume weightings in copper, zinc and nickel reflect higher expected production volumes from Collahuasi, Kazzinc, Mount Isa and INO.

“In our Marketing segment, progressively through 2023, the particularly elevated commodity market imbalances and volatility levels that prevailed through much of 2022, have largely normalised, which, while clearly impacting profitability, has allowed for the release of some of the investment made in non-RMI marketing working capital in 2022. We continue to expect a full year 2023 Adjusted EBIT outcome above the top end of our $2.2-3.2 billion p.a. long-term guidance range, likely in the $3.5-4.0 billion range.”

Production from own sources – Total¹

1. Controlled industrial assets and joint ventures only (excludes Volcan). Production is on a 100% basis, except as stated later in this report.

H1 production highlights

•       Own sourced copper production of 488,000 tonnes was 22,200 tonnes (4%) lower than H1 2022, consistent with our expectations around mining sequences at Collahuasi and Antamina, and lower copper by-products outside the Copper department. Own source copper sales volumes were some 11,000 tonnes lower due to timing of shipments.

•       Own sourced cobalt production of 21,700 tonnes was 1,000 tonnes (5%) higher than H1 2022, reflecting improved recoveries at Katanga.

•       Own sourced zinc production of 434,700 tonnes was 46,000 tonnes (10%) lower than H1 2022, mainly reflecting the 2022 disposals of South American zinc operations (18,700 tonnes) and the closure of Matagami (17,300 tonnes).

•       Own sourced nickel production of 46,400 tonnes was 11,400 tonnes (20%) lower than H1 2022, primarily reflecting higher INO third party production (versus own sourced), in large part necessitated by the strike at Raglan mine in 2022.

•       Attributable ferrochrome production of 717,000 tonnes was 69,000 tonnes (9%) below H1 2022 due to planned additional smelter offline days.

•       Coal production of 54.2 million tonnes was broadly in line with H1 2022.

•       Full year production guidance remains unchanged from that presented in Glencore’s Q1 2023 Production Report and December 2022 investor update.

H1 realised prices

Cobalt: Given recent overall sector cobalt hydroxide oversupply, hydroxide payabilities (on already materially lower cobalt metal prices, down c.25% at 30 June 2023 from 31 December 2022) declined to a historic low of close to 50% in May 2023 before recovering to mid-60% by the end of H1. The significantly lower period over period realised cobalt hydroxide prices, have therefore materially impacted earnings from our African copper operations, via significantly higher post by-product $/lb average unit costs

Coal: The average Newcastle coal (NEWC) settlement price for H1 2023 was $204.3/t. After applying a portfolio mix adjustment (component of our regular coal cash flow modelling guidance) of $43.6/t to reflect e.g. movements in the pricing of non-NEWC quality coals, coking coal margins and effect of JPU fixed-price contracts, an average thermal-equivalent realised price of c. $160.7/t can be applied across all coal sales volumes.

Production guidance

1 Excludes Volcan

Production guidance is unchanged from that presented in Glencore’s Q1 2023 Production Report and December 2022 investor update.

Key H1/H2 variations reflect:

•       Copper: 552kt H2 2023 guidance midpoint, up 64kt (13%) from H1 2023 actual production – mainly higher grades and throughput at Collahuasi as the mine reaches higher grade material, which, together with additional H2 volumes from Antapaccay and Lomas Bayas, offset the impact of no Cobar tonnage in H2, following its disposal in June 2023

•       Cobalt: 16kt, 6kt lower (27%) – reflects the weak current market conditions

•       Zinc: 515kt, up 80kt (18%) – Zhairem’s continued ramp-up and reduced weather challenges in Australia, also aiding copper production

•       Nickel: 65kt, up 19kt (41%) – circa 10kt from INO as the impact of last year’s Raglan strike is fully recovered; remaining 9kt from stronger Murrin and Koniambo contributions, basis H1 2023 maintenance and more recent production performances

•       Ferrochrome:  593kt, 124kt lower (17%) – winter season offline days/maintenance in South Africa

Other highlights

•       On 13 June, Glencore and its partner shareholders in Viterra Limited announced an agreement with Bunge Limited, whereby Bunge and Viterra would merge in a cash and stock transaction. Under the terms of the agreement, Glencore will receive $1.0 billion cash and approximately $3.1 billion in Bunge stock (at date of announcement) for its circa 50% stake in Viterra. The merger, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by Bunge shareholders, is expected to close in mid-2024.

•       On 16 June, Glencore sold its 100% share in Cobar Management Pty Ltd (CMPL) to Metals Acquisition Corp (MAC), with Glencore continuing to offtake the copper concentrate produced at CMPL. As part of the consideration, Glencore now holds 20.6% of the shares in MAC, which is accounted for under the equity method.

•       On 27 April, Glencore announced that it had agreed to acquire a 30% equity stake in Alunorte and a 45% equity stake in MRN from Hydro, with completion expected to occur in H2 2023.

To view the full report please click: https://www.glencore.com/.rest/api/v1/documents/static/26ae0436-7810-403e-b3b2-e069d77d1b36/GLEN_2023-H1_ProductionReport.pdf