Glencore posted record profits of $18.9 billion as coal enjoyed a renaissance

Glencore’s earnings more than doubled to a record high in the first half of the year, cementing the group’s position as one of the biggest winners from the turmoil in goods markets unleashed by the war in Ukraine.

Strong performance in its coal business, which Glencore It stuck even as competitors backed away from the controversial fuel, which accounts for nearly half of the FTSE 100’s record $18.9 billion group profit.

Its profit for the first six months rose 119 percent from a year earlier, topping the previous record half-year and exceeding the $18.4 billion that analysts had expected.

As a result, Glencore has laid out plans to increase returns for investors, announcing a special dividend of $1.45 billion and a new $3 billion share buyback program, which brings total shareholder returns for the year to $8.5 billion.

The bumper earnings will add to the focus on the coal division, which generated $8.9 billion in profit, more than the entire company made in the first six months of last year.

Shares in Glencore rose 1.5 per cent in London on Thursday, taking its gains for the year to 20 per cent.

The payout increase will mean another payday for many of Glencore’s former executives, who remain among the company’s largest shareholders. Former CEO Evan Glasenberg still owns 9 percent of the company and is set to receive about $133 million in special distributions, according to Financial Times calculations.

Unlike many of its competitors, who have cut back on coal mining activities amid criticism of the fuel’s carbon emissions, Glencore remains one of the largest producers.

The Swiss-based group argues coal There will be a need during the energy transition in many parts of the world and it is better for the company to cut production for the next 30 years rather than liquidate.

“We are not a coal company, we are a transitional decarbonization company,” said CEO Gary Nagel, referring to Glencore mines for “future-facing minerals,” specifically copper, cobalt, nickel and zinc, which will be needed for the batteries, transmission networks and other infrastructure needed to build a low-carbon energy system. .

“In the meantime, as the world transforms, reliable base-load power is needed for the world, and we are delivering that through both our coal business . . . and our energy business.”

Chief Financial Officer Stephen Calmin said coal had its “day in the sun,” noting that the coal division made just $900 million in the first half of last year, and that he doesn’t expect such high fuel prices to persist.

Glencore’s marketing business, which sets the company apart from its purely mining peers, also beat out earnings of $3.7 billion, beating the $2.2 billion to $3.2 billion it had previously forecast for the full year.

Noting the volatility in commodity markets this year, Glencore said its working capital requirements increased by $8.7 billion, with $5 billion being invested in its marketing business to enable its traders to continue operating amid “materially high” oil, gas and coal. the prices.

Nagel said higher interest rates, high inflation and an economic slowdown are likely to cut profits in the second half of the year, though he argued that the outlook for long-term commodities remains positive.

“We think the Chinese recovery will come and it will be very strong,” he said. Another area that we cannot ignore is decarbonization. This is something that happens and is going to happen and that has to happen and has a great draw or great demand for increased use of goods, especially the goods that we have.”

The highest working capital requirements included the $300 million Glencore paid so far to resolve investigations in the US, UK and Brazil into several counts of bribery and market manipulation between 2007 and 2018. Sanctions amount to $1.5 billion.

Nagel, who has worked for Glencore since 2000, said Thursday that he had no knowledge of any misconduct or a “cash exchange desk” at the company’s headquarters in Switzerland, which prosecutors said was there to distribute the money for the bribery until 2016.

Analysts at Credit Suisse noted “strong results and prospects” for its marketing and shareholder dividends going forward. “Glencore highlights the increasing overall uncertainty in [the second half of the year]But the tone is a little more positive than what we’ve seen from other miners.

Glencore has forecast adjusted earnings for 2022 at more than $32 billion.