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Glencore pays out $4.45 billion as coal generates record profits

Glencore Plc will return another $4.45 billion to shareholders through dividends and share buybacks after first-half profit more than doubled to a record high on the back of soaring coal prices.

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(Bloomberg) – Glencore Plc will return another $4.45 billion to shareholders through dividends and share buybacks after first-half profit more than doubled to a record high on the back of soaring coal prices.

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Glencore, the world’s largest coal shipper, has been one of the biggest winners from the global energy crisis as demand for fossil fuels rises. The company’s sprawling business also benefited from dramatic price swings in markets, from metals to oil, following Russia’s invasion of Ukraine.

Glencore’s stellar profits and returns set it apart from its mining rivals, which have reported falling profits and reduced payouts as commodities like iron ore and copper slump.

The company has generally lagged the pack in recent years because it does not produce iron ore – a key profit driver for mega-miners BHP Group and Rio Tinto Group. Now Glencore has the edge after opting to stick with its coal business while other producers backed out of the dirtiest fuel.

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First-half base profit was $18.9 billion, including $9.5 billion from the coal-producing unit, more than the entire company a year earlier. Coal hit record highs this year as utilities curb imports from Russia due to war in Ukraine, reducing the amount of supply available, while soaring natural gas prices increase demand for coal. other energy sources.

The company joined its biggest rivals in warning of growing headwinds in demand for its key commodities, but said energy prices would remain high.

“With few near-term solutions to rebalancing global energy markets, coal and LNG prices are expected to remain high during this period, especially given the current challenge of ensuring sufficient and reliable energy supply. for the coming winter in the northern hemisphere,” said the general manager. Gary Nagle.

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Glencore’s business unit earned $3.7 billion in the first six months of the year, well above the upper bound of its full-year forecast as soaring prices and volatility create arbitrage opportunities.

Yet those windfall trading profits came at a short-term cost — the company said it invested an additional $5 billion in trading, reducing its firepower for shareholder returns. While soaring commodity prices have helped fuel record profits for trading houses, large daily swings have also become a liability, leading some smaller players to reduce their exposure.

Glencore is able to tap its large balance sheet and lines of credit, but the company warned last week that the business unit’s working capital needs had jumped as it becomes more expensive to finance the shipment of commodities, and exchanges and brokers need additional liquidity to place and maintain hedging transactions.

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The company posted an additional $2 billion in initial margin during the period, but is working on a plan to release $800 million by the end of the year, chief financial officer Steve Kalmin said.

Glencore announced on Thursday that it would increase its dividend by $1.45 billion and buy back another $3 billion in shares. Shareholder return forecasts had fluctuated wildly ahead of the report’s release, with analysts weighing windfall earnings expectations against last week’s working capital advice.

The company said it expects more normalized business performance in the second half. Based on its long-term forecast range, that would put the business activity on track for around $5 billion in profits in 2022.

While Russia’s invasion of Ukraine generated record profits, it also affected Glencore’s stakes in two of Russia’s largest companies, En+ Group International PJSC and Rosneft PJSC. Glencore said on Thursday it was writing down the value of those stakes to zero, taking a $1.3 billion write-down in the process.

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