Glencore trims copper guidance after mixed first half

Glencore reported a 15% fall in own-sourced copper production in its first half on Friday, to 510,200 tonnes, as it trimmed its copper production guidance for the rest of the year.

The FTSE 100 mining giant put the decline down to ongoing geotechnical constraints at Katanga, the basis change arising from the sale of Ernest Henry in January, mine sequencing at Collahuasi, and lower copper units produced within its zinc business.

Own-sourced zinc production slid 17% to 480,700 tonnes, due to a “progressive reduction” in the South American portfolio through disposals and closures, Covid-related absenteeism leading to lower development rates and sequence changes at Mount Isa, and “somewhat lower” Antamina production.

Glencore said own-sourced nickel production improved 21% to 57,800 tonnes, reflecting Koniambo operating both production lines in 2022, and stable operations at Murrin compared to maintenance in the base period.

Attributable ferrochrome production totalled 786,000 tonnes, up 2% year-on-year, as a result of consistent smelter performance.

Coal production reached 55.4 million tonnes, making for growth of 14%, which was primarily due to higher attributable production from Cerrejón, following the acquisition of the remaining two-thirds interest that Glencore did not already own in January.

On a like-for-like basis, overall group coal production declined by 0.5 million tonnes, or 1%.

Finally, entitlement interest oil production jumped 22% to 3.1 million barrels of oil equivalent, due to the start of the gas phase of the Alen project in Equatorial Guinea from March last year.

Looking ahead, Glencore trimmed its copper production guidance for the full year to 1.06 million tonnes, from a previous 1.11 million tonnes, blaming ongoing geotechnical constraints at Katanga's open pit and higher levels of acid-consuming ore, as well as the lower year-to-date run-rate at Mount Isa copper, largely due to Covid-related absenteeism.

It kept all other production guidance the same, but noted that the negative effect on volumes from recent flooding in New South Wales and the related delays in restoring mine production and logistics infrastructure had not yet been incorporated, pending final assessment.

“Overall production was mixed period-over-period, reflecting the Ernest Henry and Bolivia portfolio disposals, and geotechnical and processing challenges at Katanga, offset by improved cobalt, nickel and ferrochrome production levels and the additional contribution from Cerrejon, reflecting its full ownership from early January,” said chief executive officer Gary Nagle.

“Our full year production guidance remains unchanged with the exception of copper, where the ongoing geotechnical constraints relating to Katanga's open pit and continued management of higher levels of acid-consuming ore, largely account for the reduced guidance.

“We remain focused on the health and safety of our workforce; unfortunately we recorded the loss of one life at Glencore's managed operations during the first half of 2022.”

Nagle said the company believed that it “can and must” eliminate all fatalities, and would continue to drive the management of safety across the business to achieve that.

Glencore’s total recordable injury frequency rate of 2.3 incidents per million hours worked over the six months to June was 3% lower year-on-year, and 14% lower over two years.

“Our financial performance - both industrial and marketing - was very strong during the period, particularly on account of buoyant energy markets, which will be a feature in the release of next week's half-year report.

“Allied with the strong results, particularly in marketing and mostly energy related, our net working capital has significantly increased during the period, in line with materially higher oil, gas and coal prices, and their elevated market volatilities.

“These factors result in a timing mismatch between the net positive fair value of physical forward contracts, which are not margined, and related derivative hedging requirements, which are margined.”

Gary Nagle added that various commodity exchanges had also “significantly” increased their initial margining requirements.

At 0913 BST, shares in Glencore were up 2.25% at 459.45p.

Reporting by Josh White at Sharecast.com.