Unlike its rivals such as Rio Tinto, BHP, Vale, and Anglo American, Glencore PLC won’t pay a dividend for 2020 after swing to a massive interim loss off the back of billions of dollars of asset impairments.
In deciding to drop its dividends, Glencore became the first major global mining company to omit paying its shareholders this year.
In contrast, Vale, the Brazilian iron ore and nickel giant, said last week that it will resume paying dividends this year after suspending payouts since late in 2019.
Vale said it would pay a dividend in September as required by its shareholder remuneration policy. The amount has yet to be revealed
Rio Tinto raised its interim dividend to $US2.5 billion due to strong iron ore prices. Anglo America has trimmed its payout to $US2.6 billion and we will know next week what BHP will pay as a final when it reports its full-year figures.
BHP has already paid an interim of 65 US cents a share, or $US3.3 billion in total.
Glencore is suffering from a lack of any direct exposure to iron ore mining and problems with its cobalt mine in The Congo where the company has other problems.
Glencore said that its outlook remains uncertain and it wouldn’t pay dividends for the current year.
“Notwithstanding our cash-generative business and secure liquidity positions, the board has concluded that it would be inappropriate to make a distribution to shareholders in 2020, instead prioritizing the acceleration of net debt reduction to within our target range (<$16 billion), currently expected to occur by the end of 2020,” the company said.
It paid $US2.6 billion in dividends in 2019 and the decision to drop the payout will hit the incomes of the senior management and board led by CEO Ivan Glasenberg.
The miner and commodity trader late last week revealed a net loss of $US2.6 billion for the six months to June 30 compared with a $US226 million profit a year earlier.
This was driven by impairments of $US3.2 billion as a result of lower commodity prices related to the uncertainty arising from the coronavirus pandemic.
The charges were mainly related to its oilfields in Chad, which shut down during the pandemic, its Colombian coal operations, Mopani copper mine in Zambia, and zinc mining in Peru. $US1 billion was cut from the value of its Colombian thermal coal mines.
Adjusted earnings before interest, taxes, depreciation, and amortisation fell to $US4.83 billion from $US5.58 billion.
CEO Glasenberg said the performance reflected the countercyclical earnings power from Glencore’s large-scale marketing activities.
“Marketing delivered a half-yearly record adjusted EBI performance of $2.0 billion, allowing us to raise full-year guidance to the top end of our long-term $2.2 [billion]-$3.2 billion range,” he said.
The company’s net debt has climbed by $2US billion to $US19.7 billion at June 30. Along with the impact of COCID-19 and the high uncertainty, the rise in debt seems to have contributed to the decision to cut spending and the decision to allow the company to build up its liquidity buffers.
The reality though is that Glencore has too much capital invested in thermal coal mining around the world, such as Australia where it is closing its mines for two weeks this month because of weak demand (from China) and a plunge in prices for steaming coal.
Glencore will suspend production at several coal mines across the Hunter Valley in NSW for at least two weeks as the coronavirus pandemic and hit demand for the commodity.
Glencore on Friday said the site and equipment shutdowns, which would coincide with September school holidays, were necessary in order to wind back output volumes and manage the severe impact on demand. Workers would be required to take annual leave over this time, it said.
Revenue from Glencore’s sales of Australian thermal coal – coal used to generate electricity – fell 23% lower in the past six months compared to the first half of 2019 due to lower demand and prices.
Glencore told investors late last week it would reduce Australian coal production by 7 million tonnes, or 8%, in response.
Glencore is the biggest thermal coal producer in the NSW Hunter Valley. During the previous downturn in the coal market in 2015 Glencore cut coal production by 15%.
Vale’s decision to resume dividends came after a big jump in second-quarter net profit to $US995 million. That was more than four times higher than $US239-million the March quarter, aided by higher iron ore prices and a devaluation of the Brazilian real currency.
Vale posted losses of $US133-million in second-quarter 2019 as it shut down mines due to security concerns following the January 25 mine dam wall collapse that killed 270 people.