GLNCY Glencore Plc (PK)

By Alex MacDonald 

LONDON--Commodities titan Glencore PLC warned Thursday that profit generated by its trading division, a key bulwark of its business, would be less-than-expected for the second straight year, signaling a further tough time head for miners as it accelerates its plan to cut debt.

The Switzerland-based trader and producer of commodities ranging from copper, to coal grains and oil said it is now aiming to reduce net debt to between $18 billion and $19 billion by the end of 2016 compared with a previous target of just above $20 billion.

In September the U.K.-listed miner announced in September $10 billion worth of measures aimed at reducing net debt by about a third to around $20 billion from $29.6 billion at the end of June. This followed investor concerns that the company could lose its investment grade credit rating status if commodity prices fell further or stayed low for longer given its heavy debt burden.

The company said it has delivered on the bulk of those commitments, or $8.7 billion to date, through asset sales, cost cuts and dividend suspension. It is now boosting its net debt reduction target measures by almost $3 billion to $13 billion.

"Glencore is well placed to continue to be cash generative in the current environment, and at even lower prices," said Chief Executive Ivan Glasenberg.

Glencore's shares have fallen 72% since the beginning of the year, making it the second-worst performer out of the U.K.'s blue chip FTSE 100 mining index this year following Anglo American PLC.

Shares in Glencore and other miners have been battered by a slump in commodity prices stemming from an economic slowdown in China, the world's largest consumer of raw materials, and a sudden ramp up of supplies following years of investment in mine expansion.

Glencore said it is still generating free cash flow of more than $2 billion at current spot prices and said it would further reduce capital expenditure this year and next. Meanwhile its trading division is on track to generate adjusted earnings before interest and taxes of $2.5 billion, at the bottom end of its previously revised guidance of between $2.5 billion and $2.6 billion.

In a sign of the tough times ahead, the miner said it expects the trading division to generate another year of subpar profit. The "marketing" division is now forecast to generate between $2.4 billion and $2.7 billion in adjusted Ebit next year due to lower working capital levels and reduced copper, zinc, lead and coal volume.

This stands in contrast Mr. Glasenberg's comments earlier this year that the trading division would make between $2.7 billion and $3.7 billion in annual profit "no matter what commodities are doing."

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

(END) Dow Jones Newswires

December 10, 2015 03:15 ET (08:15 GMT)

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