GLNCY Glencore Plc (PK)

By Alex MacDonald 

LONDON-- Glencore PLC swung to a steep, half-year loss and disappointed investors over debt-reduction efforts, as it struggles with falling raw-material prices and lower profit from the trading business that was supposed to cushion against commodities-market weakness.

Investors, who have been fleeing the stock for months, bolted anew early Wednesday amid mounting concerns over Glencore's debt rating, crucial for keeping costs down at its massive trading operation. Shares fell more than 9% at one point in early London trading, before recovering slightly.

Wednesday's stock-market drop wiped $3 billion off Glencore's market value. The stock is down 46% so far this year. Glencore is now worth about $33 billion, down from about $61 billion at the start of the year.

Despite the stock-market weakness, Chief Executive Ivan Glasenberg said the company was still looking at opportunistic deal making.

But in a shift from the company's more-typical public swagger--in which Mr. Glasenberg has often suggested he was on the prowl for acquisitions--he said Wednesday in a brief interview with The Wall Street Journal that he wouldn't rule out a merger offer, or takeover bid, for the company. He said, however, he wasn't entertaining any.

"We are opportunistic," he said in the interview. "We have always said that we are a company that looks at opportunities. Good opportunities come that make economic sense, we will look at [them]," Mr. Glasenberg said. "I haven't seen anyone making a takeover of Glencore yet."

Last year, rival Rio Tinto PLC disclosed it had rejected an approach by Mr. Glasenberg over a possible merger of the two giants.

Glencore said Wednesday it had reduced its large debt load somewhat, and vowed to do everything it could to protect its investment-grade credit ratings. Mr. Glasenberg, in a conference call with analysts, said a modest rating cut was manageable. "Even if we drop one notch, it isn't a high cost to the company," he said on the call.

Glencore has a BBB credit rating from Standard & Poor's, the agency's second-lowest investment-grade rating. A drop below investment grade would jack up financing costs for its trading business.

The company said it lowered net debt by almost $1 billion to $29.6 billion, by reducing capital expenditure together with lower requirements for funding working capital at its trading business.

That didn't allay the fears of investors and analysts. "Net debt of $30 billion appears uncomfortably high," wrote analysts at investment bank VSA Capital, adding: "Far more drastic action is likely to be necessary to strengthen the balance sheet."

Mr. Glasenberg said Glencore plans to reduce net debt to $27 billion by the end of 2016, while maintaining its dividend-payment plans. Glencore on Wednesday kept its interim dividend at 6 cents a share.

The Baar, Switzerland-based company reported a net loss of $676 million in the six months to the end of June, compared with net profit of $1.72 billion in the same period last year. Revenue fell 25% to $85.71 billion.

Glencore's senior executives said they would continue to cut capital expenditures to trim debt. The company said previously it will spend $6 billion this year, compared with earlier plans of between $6.5 billion to $6.8 billion. On Wednesday, it also lowered next year's budget to no more than $5 billion, down from an earlier estimate of $6.6 billion. It also said it is aiming for another $400 million in cost cuts over the next 12 months.

Glencore's mining business has been hit by the same commodities-market turmoil hammering other big miners. Glencore's relatively diverse exposure to various metals was supposed to help protect it. But recently, commodities to which Glencore is heavily exposed, and which were supposed to hold up relatively well--for instance, copper--have also fallen sharply.

Earnings before interest, taxes and exceptional items from its industrial activities, which includes mines and farms, fell 84% to $341 million in the first half of the year from the same period a year before.

Mr. Glasenberg has said that the company's hybrid nature--a global diversified miner married up with one of the world's biggest commodities trading operations--should protect its performance from some of the ups and downs of the markets. That was part of the rationale for his blockbuster merger with mining giant Xstrata in 2013 after taking Glencore, then principally a trading company, public in 2011.

But on Wednesday, the company's trading division reported a 29% drop in first-half adjusted EBIT to $1.1 billion over the same period, lower than some analysts expected. Deutsche Bank, for instance, had been forecasting $1.2 billion in EBIT.

The company also lowered its forecast for full-year EBIT from its trading division to a range of $2.5 billion to $2.6 billion. Mr. Glasenberg had said as recently as March that the division would generate between $2.7 billion and $3.7 billion "no matter what commodity prices are doing."

Glencore blamed tough trading conditions, particularly in aluminum and nickel, as well as coal markets. A slowdown in Chinese economic growth caught the company by surprise, it said, restricting access to credit there and softening demand. All that squeezed trading profits.

The company's agricultural-trading division also suffered, due in part to Russia's unexpected imposition of a new Russian export tax in February. The only bright spot in trading was in energy, where volatility in the oil markets helped the company report a profit despite the slump in coal prices.

Write to Alex MacDonald at alex.macdonald@wsj.com

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(END) Dow Jones Newswires

August 19, 2015 08:08 ET (12:08 GMT)

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