Glencore posts record profit of $18.9bn as coal experiences renaissance

Glencore’s profits more than doubled to a record high in the first half of the year, cementing the group’s status as one of the biggest winners from the turmoil in commodity markets sparked by the war in Ukraine.

A strong performance from its coal business, which Glencore held on even as rivals pulled out of the controversial fuel, accounted for nearly half of the FTSE 100 group’s record $18.9 billion adjusted profit.

Its first six-month profit rose 119% from a year earlier, beating its previous half-year record and topping the $18.4 billion expected by analysts.

As a result, Glencore has outlined plans to boost returns for investors, announcing a $1.45 billion special dividend and a new $3 billion share buyback program that brings total shareholder return to the year to $8.5 billion.

Windfall earnings will increase focus on its coal division, which generated a profit of $8.9 billion, more than the entire company in the first six months of last year.

Shares of Glencore rose 1.5% in London on Thursday, taking their gain for the year to 20%.

The increased payout will mean another payday for several former Glencore executives, who remain among the company’s major shareholders. Former chief executive Ivan Glasenberg still owns 9% of the company and is expected to take about $133 million from the special dividend, according to Financial Times calculations.

Unlike many of its rivals, which have scaled back coal mining amid criticism over fuel-generated carbon emissions, Glencore remains one of the biggest producers.

The group, which is headquartered in Switzerland, says coal will be needed during the energy transition in many parts of the world and that it is better for the company to reduce production over the next 30 years than to divest.

“We’re not a coal company, we’re a low-carbon transition company,” chief executive Gary Nagle said, pointing to Glencore’s mines of “future-looking metals,” particularly copper, cobalt, nickel and zinc, which will be needed for batteries. , transmission networks and other infrastructure needed to build a low-carbon energy system.

“In the meantime, as the world evolves, reliable baseload power is needed for the world and we provide it through our coal business. . . and our energy trading business,” he added.

Coal was having “its day in the sun,” chief financial officer Steven Kalmin said, noting that the coal division generated just $900 million in the first half of last year and he didn’t expect that such high fuel prices continue.

Glencore’s marketing activity, which sets the company apart from its purely mining counterparts, also outperformed, generating profits of $3.7 billion, topping the $2.2 billion to $3.2 billion that it had previously planned to achieve over the full year.

In a sign of the volatility in the commodities markets this year, Glencore said its working capital requirement had increased by $8.7 billion, with $5 billion invested in its marketing activities to enable its traders to continue. to work in a “significantly higher” oil, gas and coal environment. prices.

Higher interest rates, higher inflation and an economic slowdown are expected to squeeze earnings in the second half, Nagle said, although he maintained that the long-term outlook for commodities remained positive.

“We think the Chinese recovery will come and be very strong,” he said. “The other area that we cannot ignore is decarbonization. It is something that is happening, will happen, and needs to happen and has a huge appeal or demand for increased use of commodities, especially the commodities that we have.

Higher working capital requirements included $300 million Glencore has paid so far to resolve investigations in the US, UK and Brazil into multiple counts of bribery and market manipulation between 2007 and 2018. Glencore pleaded guilty to the charges earlier this year and expects total penalties to reach $1.5 billion.

Nagle, who has worked at Glencore since 2000, said Thursday he had no knowledge of the misconduct or of a “cash desk” at the company’s Swiss headquarters, which prosecutors say existed to distribute fuel. money for corruption until 2016.

Credit Suisse analysts noted the “strong results and outlook” for marketing activities and future distributions to shareholders. “Glencore highlights elevated macroeconomic uncertainty in [the second half of the year]but the tone is slightly more positive than what we have seen from other miners,” the bank said.

Glencore forecasts adjusted profit for 2022 of more than $32 billion.