Glencore Makes a $36 Billion Bet on Dirty Coal – by Chris Bryant (Bloomberg News – December 4, 2018)

CEO thinks shareholders are missing the picture on Glencore’s strong cash flow. If you’re happy with investing in coal, he may have a point.

Higher U.S. bond yields have made the payouts offered by most stocks look pretty underwhelming lately. Not so Glencore Plc, whose implied yield is startlingly high even though it’s throwing off cash like it’s going out of fashion.

The miner-cum-trader thinks it can generate $7.5 billion of free cash flow next year at current commodity prices. Absent a downturn in the economy, it’s conceivable that the company will return all of that to shareholders via dividends and buybacks, it said on Monday. Here’s the relevant slide:

The market shrugged at its largess, even erasing some of the gains Glencore had enjoyed from the easing of U.S.-China trade tensions. The shares have dropped more than 21 per cent this year and trade on less than 8 times estimated earnings.

Glencore’s cash flow projection indicates a whopping 14 percent yield – the amount investors get back as a percentage of the share price – should it indeed return all of the cash via dividends and buybacks. The company is poised to generate almost half its market value in cash in just three years, according to the Bloomberg consensus forecast. So why aren’t shareholders clamoring for a slice of the spoils?

Demand for Glencore’s commodities remains pretty robust and miners have been more reluctant to do the expansionary capital spending that got them into trouble in the past. Net debt has declined enough to let Glencore hand back heaps of cash to shareholders.

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