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Higher prices save Glencore

It hasn’t been a great September quarter for Glencore (LN:GLEN) with the company producing less copper, zinc and thermal coal than expected and having to downgrade its guidance on the output misses.
Higher prices save Glencore Higher prices save Glencore Higher prices save Glencore Higher prices save Glencore Higher prices save Glencore

Heavy rainfall hit Glencore’s Colombian coal production

Staff reporter

The saving grace for the miner and trader came in the form of higher commodity prices over the period, which led it to up earnings expectations for its marketing division for the third time this year.

Strikes, rain, and power outages saw a circa-10% miss versus RBC Capital Markets' forecasts, analyst Tyler Broda said.

It was the two former issues that led to the company producing less thermal coal than analysts expected.

Glencore produced 30.2 million tonnes of coal in the September quarter, 14% below RBC's forecast and 2.9Mt shy of what the company produced in the same period a year ago.

The productivity improvements at its Australian mines and a higher equity share in certain operations were offset by industrial action in New South Wales and unusually heavy rainfall at its operations in Colombia, Glencore said.

In copper, Glencore produced 303,600t of the red metal, compared with 358,200t a year earlier. The drop reflected smelter maintenance at Mount Isa in Australia and reduced throughput at Mutanda in the Democratic Republic of Congo.

Zinc output of 256,600t was 9% down on the September quarter of 2016 and 12% less than RBC expected. This was, again, blamed on the issues at Mutanda and Mount Isa.

Nickel output rose to 29,500t in the three months to the end of September, but was still 5% less than RBC expected, while cobalt output was down by 1,200t at 7,100t.

These results led the company to downgrade its annual guidance for a number of its divisions.

This included a lowering of copper production to 1.295-1.325Mt, down from previous expectations of 1.305-1.355Mt, a drop in zinc output to 1.09-1.12Mt, from 1.105-1.155Mt, and a cut in coal to 121-127Mt, compared with previous guidance of 129-135Mt.
The company did end on a positive, though, saying its marketing division was expected to post EBIT of $2.6-2.8 billion for the year, up from the previous guidance of $2.4-2.7 billion. This revision reflected a strong performance in the September quarter, Glencore said.

RBC said: "We would expect consensus 2017 estimates to fall, however as we mark-to-market for Q3 (September quarter), benefits from another market EBIT upgrade and higher prices actually saw our forecasts rise."