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How Glencore and TECK’s Capital Allocation Strategies Stack Up


Nov. 21 2017, Updated 7:33 a.m. ET

Capital allocation

Capital allocation is key for metal and mining companies given the industry’s capital-intensive nature. For the last couple of years, miners were focusing on capital conservation by cutting their capex and cutting dividends. However, the cycle has come full circle for mining companies, as rising commodity prices have provided them a lot of leg room for their capital allocation strategies.

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Cutting debt levels

Companies like Freeport-McMoRan (FCX) are still focused on cutting their debt levels. Freeport generated free cash flows of $875 million in 3Q17, which took its free cash flows in the first nine months of 2017 to ~ $2.0 billion. The company is using its organic cash flows to repay its debt and further shore up its balance sheet.

Glencore (GLEN-L) is pursuing an aggressive growth strategy. The company acquired coal mining assets earlier this year. Now, Glencore is looking at acquisitions to grow its agriculture products business. According to Reuters, citing Chris Mahoney, chief executive of Glencore Agriculture, “Glencore remained focused on acquisitions for growth, and saw scope for consolidation in the grain sector due to excess capacity.”

Teck Resources

Meanwhile, Teck Resources (TECK), the diversified Canadian mining company (EWC), is returning 578 million Canadian dollars to shareholders this year, which includes a mix of base dividends, supplement dividends, and share buybacks. This translates into a per-share yield of ~3.7% based on Teck Resources’ November 15 closing price. Teck Resources was quite conservative with its approach during the downturn and refrained from raising fresh equity like several other mining companies (SCCO).

In the next and final article, we’ll look at the key events that investors should follow this week.


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