March 3, 2015 / 7:33 AM / 3 years ago

Trading cushions Glencore from commodity price plunge

LONDON (Reuters) - A 15 percent rise in earnings at Glencore’s (GLEN.L) trading division partially offset a hit last year from the slide in commodity prices, leaving the mining company’s core profit just two percent lower.

The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012. REUTERS/Arnd Wiegmann

Swiss-based Glencore makes about a quarter of its earnings from commodities trading, which differentiates it from mining rivals and has allowed it to withstand a steep fall in oil and metal prices slightly better than its peers.

Glencore posted 2014 adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $12.8 billion, in line with expectations. Earnings at its trading division rose to $3.0 while mining earnings fell 7 percent to $9.8 billion.

The company has also been helped by its relatively small exposure to iron ore, the first major commodity to start a violent downward spiral two years ago.

Still, the more widespread slide in oil and metals prices last year forced Glencore to take a $1.1 billion accounting hit, with about half stemming from a pause in the development of iron ore projects it inherited from Xstrata in 2013.

The rest of the charge was largely due to an oil exploration project in Cameroon and lower platinum prices.

Glencore is more heavily exposed to oil, coal and other metals such as copper, and they have caught up more recently with the trend set by iron ore. Glencore’s shares slumped to a record low in January after copper prices plunged.

PROBLEM CHILDREN

“We still believe we have exposure to the right commodities,” Chief Executive Ivan Glasenberg told Reuters. “We know there are a lot of traders and hedge funds shorting copper at the moment but we think this should not last.”

“Because of the resilience of the trading division our earnings are down only a little, much better than our peers in the industry,” he said in a telephone interview.

The company announced a full-year dividend of $0.18 per share, nine percent higher than the year before though also in line with expectations.

Some of the assets Glencore inherited from Xstrata after it took it over the rival mining company in 2013 have proved loss-making and difficult to manage.

Besides the iron projects, the Koniambo nickel mine in the South Pacific territory of New Caledonia has suffered technical setbacks while an inherited stake in platinum producer Lonmin has lost roughly half of its value since 2013.

Eager to get out of the platinum market, Glencore announced last month its intention to distribute its 23.9 percent stake in Lonmin (LMI.L) to shareholders.

“It has been known to the market we wanted to get rid of it. We didn’t get any serious bids,” Glasenberg said.

Analysts say Glencore now needs to improve its asset portfolio by buying large, lower costs assets so it can rival larger competitors. It has already made an ambitious first move with a takeover approach for larger rival Rio Tinto, the owner of the lowest-cost iron ore assets in the world.

Rio Tinto, however, rebuffed the offer.

Shares in Glencore were down 2.4 percent by 8.30 a.m. ET, worse than a 1 percent fall in the UK-listed mining sector .FTNMX1770.

Editing by David Clarke

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