Glencore Hikes 2016 Earnings Estimate, Accelerates Debt Reduction despite Plunging Commodities

Continued confidence from Glencore

Glencore (GLNCY), the Anglo-Swiss metals trading and mining giant, has announced its earnings forecast for 2016, which includes plans to speed up its debt-reduction efforts. Glencore declared confidence about its potential profits in the coming year, even if commodity prices continue to plunge.

Glencore Hikes 2016 Earnings Estimate, Accelerates Debt Reduction despite Plunging Commodities

Glencore’s earnings estimate for 2016

On Thursday, December 10, Glencore declared that its EBITDA (earnings before interest, taxes, depreciation, amortization) should reach $7.7 billion in 2016—beating market expectations. According to Glencore, lower costs, in addition to gains from its trading arm, should make this earnings estimate possible to achieve.

Meanwhile, Glencore has estimated $2.4 billion–$2.7 billion in adjusted earnings from its trading wing in the coming year. This decline in commodity prices made Glencore’s equity value to decline by more than 70% since the beginning of 2015 as copper itself declined by more than 25%. The above graph shows the close correlation between Glencore’s equity prices on the NYSE (New York Stock Exchange) and the LME 3M Copper.

Change in debt reduction target

In addition to its earnings estimate for 2016, Glencore also announced a new debt reduction plan, replete with spending cuts. According to the new plan, Glencore will target a net debt of $18 billion–$19 billion by the end of 2016. This is better than its target of $20 billion announced in September 2015.

In 2015, Glencore’s net debt peaked at close to $30 billion—the highest among major miners. Its new debt-reduction measure will involve selling assets, reducing capital expenditure, and slashing dividend payments.

Falling commodities force miners to make cuts

The current decline in base metal prices has been forcing the major base metal mines to declare spending cuts, workforce layoffs, and production cuts. On December 8, mining giant Anglo American (AAUKY) declared its restructuring plans, and on December 9, Freeport-McMoRan (FCX) announced new production cuts and slashed its dividend. For further reading on recent announcements from major copper miners, check out Market Realist’s “Anglo American Plans to Sell Assets and Cut Jobs” and “Freeport Announced Dividend and Spending Cuts.”

In 2015, major base metal miners like Freeport-McMoRan (FCX) and Alcoa (AA) lost significant portions of their values. The base metal miners Power-Shares DB Base Metals Fund (DBB) and the SPDR S&P Metals & Mining ETF (XME) likewise declined by 27% and 50.5%, respectively, since the beginning of 2015.

Check out Market Realist’s Metals and Mining page for related in-depth analysis.