Glencore Plc is expected to generate free cash flow of around US$7.4 billion and EBITDA of nearly US$16.2 billion in 2018, CEO Ivan Glasenberg said during a Dec. 12 investor call, citing current spot commodity prices.
"Glencore continues to be unique because we are able and willing to grow our business," Glasenberg commented. "And we look at growth and we look at growth and try to ensure that we do get growth in cash flow terms."
"We react with putting capacity idle if we believe that the market is oversupplied, and the good example is what we did with zinc some time ago, where we believe the market is oversupplied and we close some of our zinc operations."
The mining giant is targeting an optimal net debt range of between US$10 billion and US$16 billion, and a net-debt-to-EBITDA ratio of less than 2x throughout the cycle.
Glencore will more than double dividends on a yearly basis in 2018 to at least US$2 billion considering consensus 2017 EBITDA of US$14.5 billion and group CapEx guidance of US$4.1 billion.
The dividend will be split into two payments, with CFO Steven Kalmin saying the company may also top up dividends when it releases the half-year results in August.
"We spoke about the dividend policy, which will take effect from 2018 respective of the 2017 cash flows. And that is comprised of US$1 billion base distribution from marketing, plus a minimum payout of 25% of the industrial free cash flow," Glasenberg said.
Speaking of acquisitions, Glasenberg said any M&A will be focused on existing commodities and geographies, similar to the bolt-on deals completed this year.
The company will be targeting opportunities that offer at least a 15% internal rate of return, prioritizing near-term paybacks for new capital deployed.
The executive said a number of changes in the Democratic Republic of the Congo's revised mining code could have a detrimental effect on ongoing mining projects as well as deferring much-needed foreign investments in the country.
"But the mining industry has met with relevant government representatives over the course of the last few months. And the concerns of mining industry have been raised. And we hope that the government or the DRC will sustain the process and engage in a consultative process with all of the mining companies without undermining the viability of mining in the country," Glasenberg said.
On the CapEx side, the company anticipates expansion CapEx averaging US$1.2 billion annually from 2017 through 2020, with sustaining CapEx expected to run around US$3.3 billion per year.
The expansion CapEx will cover optimizations at the Collahuasi copper mine in Chile and the Antamina copper mine in Peru, as well as acid plant improvements and cobalt debottlenecking at its Katanga Mining Ltd. subsidiary, which operates the Kamoto copper-cobalt joint venture in the DRC.
"Clearly with the scale of copper and cobalt within that particular operation, we fully expect it to be first quartile cash cost position as it reaches that full capacity. The acid plant that we mentioned, which we're commissioning during the course of 2019, very much de-risked supply chain logistics as well as reducing cost with a very healthy IRR, the US$270 million CapEx coming out of that," Kalmin added.
Katanga has restarted operations at Kamoto, with the first copper cathodes produced Dec. 11. Glencore also expects to restart production at the Lady Loretta zinc mine in Australia during the first half of 2018.
"From 2018 to 2019, we're looking at another 70,000 tonnes from a slight reduction in 2018," Kalmin noted. "That 70,000 reflects the full year of the Australian zinc restart effectively."
Glencore estimates that by 2030, the world will be producing about 107 million to 110 million vehicles, with 31.7 million of these expected to be electric vehicles.
The company also expects about 2.1 million electric vehicles to be produced per year by 2020, with demand estimated at 390,000 tonnes of copper, 85,000 tonnes of nickel and 24,000 tonnes of cobalt.
"So it's clear, electric vehicles are a disruptive force and the industry will have to be prepared to produce these commodities, which is required for the growth of electric vehicles, taking into account good storage, charging infrastructure, generation of grid structure, et cetera," Glasenberg noted.
By year 2030, Glencore estimates demand of about another 1.1 million tonnes of nickel, representing 56% of 2016 supply, and cobalt demand of about 314,000 tonnes, which is a 314% increase over the current cobalt supply of 100,000 tonnes.
