Proactive Investors - London-listed Swiss mining giant Glencore PLC (LON:GLEN) failed to impress in today’s interim earnings call, resulting in a lower year-end outlook from equities analysts at Deutsche Bank (ETR:DBKGn).
A sharp tumble in Glencore’s profitability was widely anticipated – the year-earlier comparisons benefited from a bumper contribution from the coal business in the early part of 2022 – but underlying earnings still managed to undershoot consensus.
Net debt was reported at US$1.5 billion, significantly above Deutsche Bank's estimate of $300 million. Despite this, Glencore demonstrated a commitment to high shareholder returns, announcing a top-up of $2.2 billion in addition to the interim dividend of US$2.8 billion.
Deutsche Bank has subsequently lowered its 2023 EBITDA forecast for Glencore by 2% to US$17.8 billion and increased its end-2023 net debt prediction by over US$2 billion to US$4 billion due to higher cash tax.
The bank has increased its unit cost guidance due to lower by-product prices and persistent inflation in the first half of the year, although costs are expected to decline significantly in the second half.
Revised guidance now stands at US$73 per tonne for coal, up from US$67, and 132 cents for copper, a substantial increase from the previous 91 cents.
Zinc and nickel have also seen increases, with the new guidance set at 35 cents and 850 cents respectively.
Regardless, Deutsche Bank still has a buy rating on Glencore stock, with a price target of 560p against a publication price of 456.7p.
Glencore’s contentious coal bid
Deutsche Bank also weighed in on Glencore’s bid to acquire Teck Resources Ltd (TSX:TECKa)’s EVR steelmaking coal business.
Glencore’s hostile bid for Teck, which would result in the demerger from Glencore of the combined coal-producing segment, has been consistently rebuffed by the £17 billion Canadian mining giant.
However, Deutsche Bank sees a missed opportunity in Teck’s refusal to play ball.
“Since the GLEN TECK merger proposal became public in April, we felt that an attractive middle ground would be the sale of EVR to Glencore, providing Teck with a clean exit from coal and allowing Glencore to split into CoalCo and MetalsCo,” said analysts.
“While the valuation of the coal assets in an eventual split will be contentious, we do believe a combination with EVR and a CoalCo listing in the US provides a route to unlocking value and a pathway for GLEN to trade up towards our target price of 560p.”