GLNCY Glencore Plc (PK)

By Alex MacDonald and Scott Patterson 

LONDON--Investors cheered an upbeat earnings forecast Thursday from battered Swiss mining giant Glencore PLC, which unveiled more cuts to its debt pile and said it could turn a profit even if commodity prices fell further.

Glencore's stock gained 7% late Thursday after surging 14% in early trading in London, another wild ride for a company whose share price has experienced dramatic swings in recent months as prices for copper and other commodities it digs up and sells have plunged.

A combination of lower costs and solid gains from its "marketing" division--also called its trading arm--will help Glencore generate earnings before interest, taxes, depreciation and amortization, or Ebitda, of $7.7 billion next year, the company said, topping some analyst expectations.

"This company is well set up for current prices," Glencore Chief Executive Ivan Glasenberg said on a conference call Thursday.

It was a rare bit of good news for a company whose share price has fallen more than 70% in 2015 as investors worried that its debt was too high and commodities prices too low for it to survive long. Its trading arm became a perceived liability as concerns grew that its access to cash would dry up if the company lost its investment-grade credit rating.

On Thursday, the trading arm seemed resilient. Glencore said trading will churn out between $2.4 billion and $2.7 billion in adjusted earnings before interest and taxes in 2016, as a result of lower working capital levels and reduced copper, zinc, lead and coal volumes following production cutbacks.

That was ahead of some analyst expectations; Credit Suisse had forecast the division to generate $2.35 billion next year.

Glencore, the world's fourth-largest mining company by market value, said it is now aiming to reduce its net debt even more than planned. By the end of 2016, the company said it will reduce net debt to between $18 billion and $19 billion compared with a previous target of just above $20 billion, announced in September.

Glencore has had net debt as high as $29.6 billion this year--a high level among the world's big miners.

The company said it has delivered on the bulk of its debt-reduction commitments, or $8.7 billion to date so far this year, 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 and has increased its targeted asset sales to a range of $3 billion to $4 billion--from $2 billion previously--with a view to selling more if needed.

The company has sold $1.1 billion in assets since September, and is working on selling a minority stake in its agricultural business, either to a strategic investor--its preferred option--or via an initial public offering, according to Chief Financial Officer Steve Kalmin. The company is also looking at further sales of precious metals, copper, and possibly even infrastructure, he said.

Glencore has been battered, along with other miners, 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.

The price of copper, the company's largest earnings driver, hit a more than six-year low last month and is down 27% so far this year at $4,854 a metric ton as of Thursday. Still, Mr. Glasenberg said the company had free cash flow of $2 billion and could generate cash even if copper prices fell to $3,500--a level even the most bearish analysts haven't predicted.

"We have many levers we can pull in this company," he said. "We will pull them when required."

Glencore said it is still generating positive cash flow at current spot prices at all of its assets, except for two that are fully operational. The company is currently deciding whether to close its loss-making Murrin Murrin nickel operations in Australia and its Sherwin alumina operations in the U.S. It is still trying to turn around its Koniambo nickel operations in New Calendonia but Mr. Glasenberg said the company has "no intention to...burn cash." Glencore also said it would further reduce capital expenditures this year and next.

Write to Alex MacDonald at alex.macdonald@wsj.com and Scott Patterson at scott.patterson@wsj.com

(END) Dow Jones Newswires

December 10, 2015 14:11 ET (19:11 GMT)

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