Mining giant Glencore makes good on pledge with $1 billion buyback – by Sivia Antonioli (Globe and Mail – August 20, 2014)

LONDON – (Reuters) – Commodities group Glencore (GLEN.L) became the first of the large miners to honor promises to return cash to shareholders, announcing a share buyback program of up to $1 billion as it reported forecast-beating first-half profit.

Diversified mining companies have vowed to control their spending and reward shareholders more after being criticized for years of squandering money on risky projects that resulted in multibillion-dollar writedowns as metals prices started to fall.

However, rival BHP Billiton (BHP.AX)(BLT.L) failed to deliver when it held fire on an expected buyback announcement on Tuesday, while Rio Tinto (RIO.L)(RIO.AX) signaled a share buyback could come when it reports full-year results in February.

Expectation of Glencore making good on its promise was heightened with this month’s completion of the sale of Glencore’s Peruvian copper project Las Bambas to a Chinese consortium for $6.5 billion after tax, either through a buyback or special dividend.

Glencore, which completed a record-breaking acquisition of rival Xstrata a little more than a year ago, is the world’s largest producer of zinc, used to galvanize steel, and one of the top miners and traders of copper and nickel.

However, while it has noted cost overruns at its Koniambo project in New Caledonia, it was the balance-sheet improvement from the Las Bambas sale that allowed it to accelerate the return of capital to shareholders.

“We said that with the sale of Las Bambas we would return extra cash to shareholders,” Chief Executive Ivan Glasenberg said. “Our focus is on expansion that can generate profit, on a tidy, neat balance sheet and any excess cash we will give back to shareholders.”


Set against a market capitalization of almost $80 billion, a $1 billion buyout is about half the size of the reward expected by some analysts, though Investec’s Marc Elliott praised the company for its prudence.

“It would have been brave to make a more material return to shareholders before the year-end and with uncertain market conditions,” the analyst said.

“This is a very sensible way to do it. It spreads out return to shareholders over a prolonged period and it doesn’t put a lot of strain on their balance sheet.”

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