Glencore will return an additional $4.45 billion to shareholders in dividends and share buybacks as first-half profit more than doubled to a record thanks to surging coal prices.
Glencore, the world’s top coal shipper, has been one of the biggest winners from the global energy crunch as demand for fossil fuel surges. The company’s sprawling trading business is also benefiting from the volatility and market dislocations across commodities following Russia’s invasion of Ukraine.
Glencore reported a first-half core profit of $18.9 billion, with coal earnings of $9.5 billion exceeding the entire company’s profit a year earlier. Prices for coal have soared to records this year as a global energy crisis boosts demand for fossil fuels worldwide.
Glencore’s bumper profits mark a sharp reversal from previous years when the company had lagged behind its biggest rivals, largely because it doesn’t mine any iron ore, a commodity that helped supercharge earnings for mega miners BHP Group and Rio Tinto Group.
Now, Glencore has the advantage after opting to stick with its coal business while other producers retreated from the dirtiest fuel.
Glencore’s trading unit also earned a bumper $3.7 billion in the first six months of the year, well above the top end of its guidance for the full year.
Yet those bumper trading profits came at a short-term cost – the company said it invested an extra $5 billion in the trading business, reducing its firepower for shareholder returns.
Glencore cautioned last week that the trading unit’s working capital needs had increased, as it becomes more expensive to ship commodities around the world, and exchanges and brokers require additional cash to place and maintain hedging trades.
Glencore said Thursday that it would top up its dividend by $1.45 billion and buy back a further $3 billion in its own stock. Forecasts for the shareholder returns had varied sharply ahead of the report, as analysts weighed expectations for bumper earnings against last week’s notice on working capital.
The company said it expects more normalized trading performance in the second half. Its long-term forecast range would put the trading business on track for about $5 billion of profit in 2022.
Glencore is the latest of the big diversified mining companies to report, following Rio Tinto and Anglo American Plc last week. Both companies reported lower profits and smaller dividends after prices for commodities such as iron ore and copper fell and costs rose sharply.
The company joined its bigger rivals warning of growing headwinds in demand for its key commodities but expects energy prices will stay high.
“Looking ahead, tightening financial conditions and a deteriorating macroeconomic environment presents some uncertainty for commodity markets through the second half of the year,” said Chief Executive Officer Gary Nagle. “However, with few short-term solutions to rebalance global energy markets, coal and LNG prices remain elevated during this period, particularly given the current challenge of securing sufficient and reliable energy supply for the Northern Hemisphere winter ahead.”