Glencore chief promises returns to investors

Glencore chief Ivan Glasenberg said the company was focusing on returning cash to investors instead of buying new assets just “for the sake of having a bigger company”.

Glasenberg made the comments at an investor briefing in London overnight.

“We are not going to hoard cash for the sake of hoarding cash or we’re not going to buy something for the sake of having a bigger company,” Glasenberg said.

 “We’re going to do what is best to do with that cash. If we can’t deploy it in our business at a return that makes sense we will give it back to shareholders.”

Glencore reiterated its distaste for greenfield projects and said the focus would remain on projects that offered valuable returns.

"The amount of capital that goes into these projects, you don't get the returns," Glasenberg said.

"Greenfield is something we are very scared [of] and you won't see us doing greenfields for a long time."

The company said it would aim to generate a 20-25 per cent return on equity from its mining activities and a 40-65 per cent for its trading activities. 

Not for the first time, Glasenberg took to schooling the major iron ore producers on supply and demand.

With the price of iron ore falling by nearly 50 per cent this year, Glasenberg noted: fortunately we don't produce iron ore.

“Capital misallocation, not a lack of demand, remains a key issue for the sector resulting in a clear need to differentiate by commodity,” Glasenberg said.

“We don’t want to oversupply and cannibalise our own business. If we do generate cash and we don’t find better ways to deploy it, we are owner-managers and we are happy to pay back some money to ourselves.”

Glasenberg also questioned if pushing more iron ore into an already oversupplied market was the right move by the likes of BHP Billiton and Rio Tinto.

“They are producers. They’ve decided to increase tonnes. It’s a big bet,” he said. “It doesn’t affect us fortunately because we don’t produce iron ore. Time will tell whether they got it right or wrong. Their logic – you’ve heard it – is they are lower cost producers and they will survive no matter what. But have they cut into their own margins? That’s the debate.”

In the face of languishing coal prices, Glencore decided to shut down its Australian coal mines for three weeks over Christmas this year in order to rein in about 5 million tonnes of output.

“Our ability to acknowledge and react accordingly to the supply-demand fundamentals across our markets has played a key role in enabling us to continue to deliver on our main objectives; the efficient deployment of capital to grow earnings, cashflow and dividend per share,” Glasenberg said.

Glasenberg said Glencore’s strength lied in the diverse commodities of its business.

The company has operations in oil, coal, wheat, copper, nickel and zinc as well as having a separate marketing business.

“We are a believer in having multiple commodities,” Glasenberg said.

“Really that is what has made this company great, having diversification and not just be focusing on three or four commodities.

“This has allowed us to maintain a strong set of earning over the years”.

Glencore has a market capitalistation of 41 billion pounds.

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