Rescuing your mining empire from a debtor’s hell isn’t a competition. But if it was, Glencore is beating Anglo American firmly into second place. After Anglo announced it was stripping billions from its costs to shore up its balance sheet, Glencore upped the ante by increasing its own debt reduction target by an additional $3bn (£2bn).
Added to the extreme measures it announced in September, which involved an equity issuance and the sale of numerous assets, this means the firm now intends to have cut its net debt by an astonishing $13bn by the end of next year. Half of the extra will come from reduced capital expenditure, which is probably not a bad idea in a market characterised by oversupply.
The miners have suffered a serious hangover from their debt-fuelled expansion binge during the heady days of the commodities supercyle. Now that China’s lost its appetite for metals, prices have plummeted (copper is half as valuable as it was in 2011, for instance), leaving firms like Glencore heavily exposed. Even if its ambitious plans work, net debt will still be $18-19bn.
Boss Ivan Glasenberg was keen to reassure investors not only that the debt reduction plans were indeed working – with $8.7bn taken off so far – but also that the company can still be profitable even in an era of low prices.
‘Glencore is well placed to continue to be cash generative in the current environment - and at even lower prices. We retain a high degree of flexibility and will continue to review the need to act further as required,’ he said, pointing to an estimated 2016 EBITDA of $7.7bn at current prices. Of course, a company with $20-25bn in net debt and $145bn of assets probably would prefer to measure earnings before interest and depreciation rather than after, but that’s by the by.
Investors seemed happy with the news anyway. Glencore shares rose 11% to 92.2p in London by lunchtime, though that’s still 70% less than the price in May. It’ll clearly be a long road to get back where it was.