Glencore has reaffirmed production guidance for most of its main commodities except for oil where it now expects to pump around 8.5m barrels of crude in 2016. At the time of the company’s investor day in December, the Swiss based company said its oil business would produce about 9.6m of oil this year
Glencore has a small but growing oil production business. Over the past year it has scaled back its drilling campaign in West Africa to preserve its reserves “for a more favourable pricing environment”, writes Neil Hume.
The new forecast was contained in a production report that did not contain any fresh information on Glencore’s financial performance or its debt reduction programme.
This is unlikely to surprise analysts because Glencore is due to file annual results in less than two weeks.
However, the report did show the impact of recent moves to mothball production. Last year. Glencore announce significant output cuts for two of its most important commodities, copper and zinc, in an effort to boost prices that have fallen to their lowest level since the financial crisis.
Copper production was down 3 per cent to 1.5m tonnes in 2015, while Glencore’s zinc output in the fourth quarter of 2015 was 20 per cent below the previous quarter.
For the year, Glencore’s copper output slightly exceed company guidance, zinc was in line as was coal – another of the company’s major commodities.
Overnight, Glencore raised a further $500m towards its debt reduction plan through the sale of future precious metals production to Canada’s Franco-Nevada.
The miner-cum-trader is seeking to reinforce its balance sheet as the industry, battered by the worst downturn in decades, prepares for prices to remain lower for longer.
The Swiss-based company has targeted $13bn in debt reduction target by the end of 2016 after its share price collapsed by 70 per cent last year.
It had already raised $8.7bn by suspending dividend payments, spending less, selling assets and a $2.5bn share offering. That has helped its share price, which has risen 3 per cent this year and 40 per cent since it struck an all-time low in late September.
Glencore is also looking to sell a stake in its agricultural business and is sifting through offers for two copper mines as its seeks to reduce its debt pile.
“Glencore has reported fourth quarter production on balance ahead of our estimates driven by copper and zinc,” said analysts at Credit Suisse. “Updated volume guidance for 2016 is left largely unchanged except for small reductions to oil and ferrochrome.”
On the latest streaming deal, Credit Suisse said Glencore was on the way to achieving its debt reduction target.
“If the company delivers on the targeted $3-$4bn in divestments net debt should fall to the company’s $18-19bn end 2016 target,” they said.