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The Glencore (LSE: GLEN) share price continues to see wild volatility swings. As a long-term shareholder I’ve remained firm. But is my conviction misplaced?
H1 results
Today (6 August) the miner reported a mixed set of results. Revenues were flat and adjusted earnings before income tax, depreciation and amortisation (EBITDA) came in 14% lower at $5.4bn. The primary driver for the fall was continued weak thermal and steelmaking coal prices as well as lower copper volumes.
Strong copper prices — a result of tariffs and a dislocation in prices between the London Metals Exchange and the New York COMEX — helped to soften the blow from weaker coal prices.
However, the business did suffer a number of (already disclosed) operational challenges at its various copper mines, resulting in lower volumes. But the miner remains confident that it will meet full-year production guidance.
Net debt increased 30% to $14.5bn and net debt-to-EBITDA increased to 1.08 times. But with an expected improvement in cash flows, as copper volumes recover in H2, I’m not unduly concerned. In addition, it’s expecting $500m efficiency cost savings will be met by the end of 2025, further enhancing the health of the balance sheet.
Mining, a ‘forgotten’ industry
When I zoom out to 30,000 feet and take a look at the overall health of the mining industry, it saddens me and worries me in equal measure.
Today, the mining industry has to a certain extent lost some relevance and value to stock markets. That’s reflected, among other things, by the extremely low price-to-earnings multiples attached to such businesses in comparison to other sectors, most noticeably technology.
Today, among all the talk of data centre expansion, renewable energy, robots, automation and electricity grid expansion, some investors may have forgotten one very important question: where are all the metals going to come from? For me, we’re putting the cart before the horse.
In short, mining comes first. That’s certainly what the Chinese government strategy is. It’s accumulating metals with no real thought of the cost. In a world where metals become of increasing strategic importance to nation states, I believe that a major renaissance of the mining industry is close at hand.
Coal
A few years back, while its peers were exiting thermal coal, Glencore made a bet that coal would remain a key commodity for several years to come. In 2022, this paid off handsomely as Newcastle thermal coal prices exploded. But that isn’t the case anymore.
Last year the miner made losses of $1.6bn. In H1 this year it has already racked up losses of $655m. A significant chunk of these losses was attributable to weak thermal and steelmaking coal prices. This continued weakness remains a key short-term risk for Glencore.
Personally, I expect thermal coal to remain a key commodity, particularly for developing nations. Growing populations need energy and coal provides the cheapest way of producing base-load electricity.
Steelmaking coal is a different kettle of fish. Last year the group acquired EVR coal assets. Today, most steel is still predominantly manufactured using coal.
Glencore is one of my riskier plays. But the more I research about the mining industry, the more I’m convinced of its centrality to a functioning, growing global economy. That’s why I continue to add to my position in the miner when finances allow.
