Glencore to Resume Dividend With $1 Billion Payout Next Year -- 3rd Update

By Scott Patterson 

LONDON--Swiss mining giant Glencore PLC, more than a year after it suspended its dividend amid questions about its solvency, said it planned to reinstate payouts to investors in 2017, another sign of how this year's sharp recovery in commodity prices is healing the wounds of the mining industry.

The move is part vindication for Glencore Chief Executive Ivan Glasenberg, whose aggressive investment strategy and reliance on debt fell under a shadow as commodity prices collapsed last year. In September 2015, the company said it planned to sell assets and suspend its dividend to halt the tailspin.

Despite its aggressive plans, Glencore's share price continued to plunge last year, on one day in late September falling nearly 30%.

But the stock started to rebound early this year, fueled by a sharp increase in coal and other commodity prices. A recent jump in copper, one of Glencore's most important commodities, also helped its recovery.

Glencore Chief Executive Ivan Glasenberg said the company, with lower debt, should be able to keep generating solid profits no matter which direction commodity prices go.

"We think we're in a very strong position," Mr. Glasenberg said on a conference call with analysts Thursday. "Our asset base is extremely strong, low cost and therefore even with falling commodity prices, we still generate significant amounts of cash."

Mr. Glasenberg, a renowned deal maker, also showed a renewed zeal for potential acquisitions. Some investors have said they didn't want the company to explore new deals until it renewed its dividend.

Glencore will be "opportunistic about what can look at to grow this company," he said.

Initial investor reaction to Glencore's announcement was warm, though the stock lost early gains to trade down around 1.3% in afternoon trading in London. The share price has risen threefold in value so far this year.

"This is a positive development as we believe investors weren't expecting a dividend reinstatement announcement [on Thursday]," Goldman Sachs Group Inc. said analyst Eugene King in a note to clients.

RBC Capital Markets analyst Tyler Broda said the reinstated dividend and completion of Glencore's deleveraging program are developments "few would have thought possible at the start of the year."

Glencore said it expects to distribute $1 billion to investors in 2017, paid in equal portions in the first and second half of the year. In 2018, the company will continue the $1 billion distribution and tack on a variable dividend representing a minimum payout of 25% of free cash flow from its industrial operations.

Glencore said it expected this year's earnings before interest and taxes for its trading operations to hit the upper end of its guided range of $2.5 billion to $2.7 billion, a sign that the company has benefited from volatile commodity markets this year.

The company also said it has completed its divestment program, with total proceeds of at $4.7 billion, putting it on track for $16.5 billion to $17.5 billion in net debt by end of 2016.

Raw-material prices plunged in 2015 amid signs that China's economic growth was slowing more sharply than expected, leading Mr. Glasenberg last year to lament that no one could predict what China's economy would do.

This year, China has moved to cut coal output, slashing the number of days miners need to show up at the coal mine. That has caused coal prices to soar, in turn providing a windfall to Glencore, the world's biggest provider of thermal coal, the kind used in power plants.

Mr. Glasenberg now seems to feel more confident in his ability to forecast China demand. On the call with analysts, the CEO said "demand for 2017 still looks very good in China, so we have no reason to be concerned about demand for these commodities."

Write to Scott Patterson at [e-mail]

(END) Dow Jones Newswires

December 01, 2016 10:20 ET (15:20 GMT)

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