Glencore chief executive Ivan Glasenberg will come under pressure to clarify the company’s dividend policy on Thursday when he faces analysts and investors for a strategy update.
The miner-cum-trader suspended its dividend just over a year ago as part of a wide-ranging deleveraging plan that involved a $2.5bn share sale, cost cutting and divestments.
Boosted by a sharp rebound in commodity prices – and $4.7bn of asset sales during 2016 – Glencore’s debt reduction targets have largely been met and some analysts believe a dividend restart is imminent. The Swiss-based group is likely to end the year with net debt of around $17bn, down from $23.6bn in June.
Analysts say the company could declare a dividend for the second half of 2016 when it announces annual results in March or it may decide to wait until later in the year when there is more visibility on the outlook for volatile commodity markets. Either way Glencore is likely to adopt a dividend policy which links payments to the amount of cash it generates.
“We expect the company to adopt a policy based on underlying attributable free cashflow rather than earnings and assume a 40 per cent payout in 2017,” said Credit Suisse analyst Liam Fitzpatrick. “For the second half of 2016 we assume a lower payout of 20 per cent.”
Over the past year several of Glencore’s peers, including BHP Billiton and Rio Tinto, have abandoned so-called progressive policies – a pledge to maintain or increase dividends – and moved to payments linked to underlying earnings, which are more appropriate for highly cyclical industries like mining.
Aside from dividends, investors will also be keen to hear on Thursday Mr Glasenberg’s thoughts on capital expenditure, cost cutting and production.
In October 2015, Glencore suspended a third of its zinc output, or 500,000 tonnes of production, in a bold move to address falling prices.
Since then zinc, a metal used to rustproof steel in products from cars to building materials, has surged 75 per cent to a nine-year high of almost $3,000 a tonne. While Glencore could bring back some production, many traders believe it will wait until the refined zinc market starts to tighten before restarting mothballed capacity.
At the moment, there is little difficulty obtaining refined zinc, according to traders. This is in contrast to concentrate, dry feedstock used by smelters and refiners to produce the metal which is getting more difficult to obtain, particularly in China.
Mr Glasneberg is also likely to be questions about the company’s decision to hedge or sell forward, half of its annual thermal coal exports — about 55m tonnes of production — a move that has limited the company’s exposure to rising prices.
Shares in Glencore have risen 232 per cent this year and were trading at 282p on Tuesday.
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