Glencore Further Slashes 2016 Capex, to Defer Expansions

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Researched by Industrial Info Resources (Sugar Land, Texas)--Global mining company Glencore plc (Baar Switzerland) plans to defer some of its expansion projects going forward and adopt a slower spending profile as it seeks to put its balance sheet in order. Glencore executives said Thursday the company has cut its capital expenditure guidance for 2016 to $3.8 billion from its previous estimate of $5 billion. Capital expenditures for this year are now estimated at $5.7 billion, down from the previous estimate of $6 billion. Industrial Info is tracking Glencore projects with a total investment value of $16.16 billion, with more than 69% of that amount earmarked for projects in Congo, Canada and Argentina.

Click the image at right to view a graph detailing Glencore project spending by country.

Construction kickoffs for 54 projects valued at $4.65 billion are expected in 2016, according to Industrial Info's database, but more than four-fifths of the total investment value is linked to projects that are in the planning phases, where plenty of factors could increase, decrease or totally eliminate the expected spending.

Glencore has been moving to substantially reduce its net debt, which is estimated at about $30 billion. As a result of further price weakness since September, company executives said they have accelerated its debt reduction plan.

Chief Executive Officer Ivan Glasenberg said the company is now targeting a debt of $18 billion to $19 billion by the end of 2016, down from the previous target in the "low $20s bn."

The company plans to defer expansion projects for its African copper operations, Zhairem operations in Kazakhstan and "certain coal operations." Even with the cuts, Chief Financial Officer Steven Kalmin said Glencore plans to spend $1 billion on expansions next year as part of its capital expenditures.

Lower sustaining capital expenditures reflect reductions at Glencore's copper operations in Argentina, Zambia and Democratic Republic of Congo; lead/zinc operations in Australia, Peru and Kazakhstan; and coal operations in Australia and South Africa.

Glencore estimated it will produce 1.39 kilotons of copper in 2016, reflecting a reduction of 320-370 kilotons from its original guidance. Zinc output next year is estimated at 1.09 kilotons, down 500-550 kilotons from its original guidance. Nickel production is now estimated to be 116 kilotons, up by 25 kilotons from 2015 due to higher smelter production in Canada, but down from the original 2016 guidance of 150-160 kilotons.

Glencore is also targeting $3 billion to $4 billion in asset sales. Among other things, it is seeking a minority partner for its Agriculture segment.

During the investor conference call, Glasenberg noted the nickel market remains depressed, with many producers "bleeding cash." He said he didn't understand why nickel producers have not shut down more operations as Glencore has done. "We are not a company that believes in putting tons on the market if tons are not required," he added.

One of the high-dollar Glencore projects being tracked by Industrial Info is the $3 billion El Pachon copper-molybdenum mine and concentrator in San Juan, Argentina. The proposed open pit operation would produce 400,000 tons per year of fine copper and molybdenum during a 30-year mine life. Construction is presently expected to start in first-quarter 2017, with completion in second-quarter 2018.

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