Glencore reports H1 2020 production was hit by Covid-related suspensions

H1 production highlights

  • Own sourced copper production of 588,100 tonnes was 74,900 tonnes (11%) lower than H1 2019, mainly reflecting Mutanda being on care and maintenance in the current period, expected lower grades at Antapaccay and the short-term impact of Antamina’s Covid-19 related demobilisation/remobilisation, partly offset by stronger milling throughput at Collahuasi.
  • Own sourced zinc production of 550,100 tonnes was in line with H1 2019, reflecting stronger grades at the Canadian mines and the various temporary Covid-19 related suspensions at Antamina and other South American operations.
  • Own sourced nickel production of 55,200 tonnes was in line with H1 2019, reflecting a strong period of operations at Murrin offsetting the delayed delivery of matte from the Sudbury smelter to the Nikkelverk refinery.
  • Attributable ferrochrome production of 466,000 tonnes was 333,000 tonnes (42%) lower than H1 2019, mainly reflecting the South African Covid-19 national lockdown during March/April. Smelting operations partly resumed on 1 May, with further capacity expected to be restarted towards the end of Q3.
  • Coal production of 58.1 million tonnes was 10.1 million tonnes (15%) lower than H1 2019, mainly reflecting the Covid-19 related asset suspensions in Colombia.
  • Entitlement interest production of 2.6 million barrels was 0.4 million barrels (17%) higher than H1 2019, due to new wells drilled in Equatorial Guinea and Cameroon, which helped to offset the Covid-19 related suspension of the Chad assets.

Production from own sources – Total1

     
  H1 2020H1 2019Change %
Copper  kt  588.1  663.0  (11 )
Cobalt  kt  14.3  21.3  (33 )
Zinc  kt  550.1  535.9  3
Lead  kt  127.9  147.5  (13 )
Nickel  kt  55.2  55.4   –
Gold  koz  385  423  (9 )
Silver  koz  14,185  15,490  (8 )
Ferrochrome  kt  466  799  (42 )
       
  Coal – coking  mt  3.7  4.3  (14 )
  Coal – semi-soft  mt  2.6  3.3  (21 )
  Coal – thermal  mt  51.8  60.6  (15 )
Coal  mt  58.1  68.2  (15 )
       
Oil (entitlement interest basis)  kbbl  2,612  2,240  17
     
  1. Controlled industrial assets and joint ventures only. Production is on a 100% basis, except as stated later in this report.

Glencore Chief Executive Officer, Ivan Glasenberg:

“Glencore has delivered an overall strong first-half operating performance amid the unprecedented challenges presented by Covid-19, reflecting both the ability and dedication of our teams to adapt to these difficult conditions. As a responsible operator, our top priority has been to protect the health and safety of our people and the communities that host our businesses.

“Although some of our industrial operations were temporarily suspended in line with national and regional guidance, or where our risk assessment determined a suspension was appropriate, the majority of our assets continued to operate relatively normally. I am particularly pleased to report a strong operational performance at Katanga, with its ramp-up on track to achieve design capacity by the end of the year.

“Our Marketing business has also risen to the challenge, delivering robust counter-cyclical earnings. A very strong first-half performance allows us to now raise our full year 2020 EBIT expectations to the top end of our $2.2-$3.2 billion guidance range.

“In the near-term, we remain alert to the continuing challenges that Covid-19 presents. While we expect our operating cash flow to remain solid, we are ready to adapt to changing market conditions.”

Covid-19 situation – update report

  • While the majority of our assets continued to operate through Q2 with minimal disruption, certain operations were temporarily suspended, on account of mandatory governmental lockdown provisions, or otherwise where a risk assessment determined such action appropriate. The curtailed operations have mostly restarted as follows:
JurisdictionAssetCommodityDate suspendedDate restartedComment
Canada (Quebec)RaglanNickelLate MarchLate AprilExpect to make up the majority of lost tonnes over the balance of 2020
Canada (Quebec)MatagamiZincLate MarchLate AprilProduction restarted in line with historical levels
ChadOilfieldsOilAprilCurrently on care and maintenanceSee “Operational update” below
ColombiaCerrejon JVCoalLate MarchEarly MayLimited restart in May. FY 2020 attributable production expected in the 6.5-7.0mt range (2019: 8.6mt)
ColombiaProdecoCoalLate MarchCurrently on care and maintenanceSee “Operational update” below
DRCKatangaCopper/cobaltn.an.a.No material production disruption; acid plant commissioning delayed to H2 2020
New CaledoniaKoniamboNickeln.a.n.a.Delays to planned maintenance from restrictions impacting availability of key maintenance teams. Will be operated as a single-line operation for the balance of 2020
PeruAntamina JVCopper/zincMid AprilLate MayOperations restarted with a reduced workforce; expect a phased ramp-up through H2
South AfricaFerroalloysChrome and vanadiumLate MarchEarly MaySee “Operational update” below
South AfricaSA CoalCoaln.a.n.a.Major complexes operated relatively normally throughout the SA lockdown
South AfricaAstron EnergyOil refiningLate MarchOperations suspendedPost delayed turnaround, refinery restart disrupted by an incident requiring major repair and remediation. Fuel marketing and distribution operations unaffected throughout, although underlying demand has been weaker
ZambiaMopaniCoppern.a.n.a.See “Operational update” below

Marketing update

  • Marketing performance in H1 2020 was very strong, with full year EBIT expectations now raised to the top end of our long-term $2.2-$3.2 billion range. Contributing towards H1 2020’s EBIT performance was a sizeable increase in carried inventory (“Carry Trades”) transactions / quantities (although the overall dollar value of inventories was somewhat lower than December 2019, due to lower commodity prices) and also a build in non-RMI net working capital on account of the varying terms of trade in our respective business units. In particular, our oil department, which in recent years has managed its receivables portfolio days on hand to around 20 days and accounts payable around 45 days, saw a significant reduction in its net payables position (payables less receivables) via the sharp reduction in oil prices, as well as lower sales volumes due to weaker product demand in H1 2020. Together with the initial cash margining required to give effect to the additional Carry Trades, this has led to an increase in our Net Debt as at 30 June 2020.

Operational update

  • Mopani notified the Zambian government of its intention to place the mining operations on care and maintenance to preserve value and maintain the option to deliver its various growth projects when conditions further improve. Mopani was notified by the relevant authorities that its proposal was rejected. Mopani has appealed this decision. Mining operations will continue pending the outcome of the appeal and Mopani continues to engage with the relevant authorities.
  • The outlook for Prodeco’s business remains challenging due to ongoing weakness in the Atlantic coal market, exacerbated by the impact of Covid-19. Prodeco is in the process of optimising its mine plans to account for the current market environment. This process requires consultation and approval by a number of external parties. An application has been made to the authorities for Prodeco to remain on care and maintenance, which will help preserve the value of the assets and the option to implement the revised plans when the appropriate approvals have been obtained and market conditions have improved.
  • Due to Covid-19 related disruptions to international mobility, transportation and supply chains, the Chad oil fields were placed on care and maintenance in April. These disruptions and prevailing market conditions are being monitored to determine when some restart of operations would be appropriate.
  • The Ferroalloys business has for some time experienced a structurally worsening competitive environment across the South African ferrochrome industry, including via substantial electricity price increases. In January 2020, a consultation process was initiated on the future of the Rustenburg smelter, and in June 2020, a further process commenced across the entire business, to seek a more competitive operating cost structure. This is an ongoing process with all alternatives being considered.

Production guidance and updated cost outlook

  • Full year 2020 production guidance, including accounting for the latest expected business interruptions due to Covid-19 noted above, is set out below, with further remarks on page 19.
            
    Q1Q2Actual
H1
  ROY Current guidance Previous
guidance
    2020202020202020 2020 2020
Copper  kt    293  295  588  667 ± 35   1,255 ± 35   1,255 ± 45
Cobalt  kt    6  8  14  14 ± 2   28 ± 2   28 ± 2
Zinc  kt    296  255  550  610 ± 30   1,160 ± 301  1,160 ± 30
Nickel  kt    28  27  55  59 ± 4   114 ± 4   122 ± 5
Ferrochrome  kt    388  78  466  534 ± 25 1,000 ± 25 1,000 ± 25
Coal  mt    32  26  58  56 ± 3   114 ± 3   132 ± 3
            

1     Excludes Volcan

  • Industrial Assets unit cost guidance updated for changes to production and current producer currency levels, energy costs and by-product pricing, is as follows:
             
     Actual
FY
 Previous
guidance
 Current guidance FYE 2020 split
    2019 20202020 H1H2
Copper  c/lb    148   105   1061  109  104
Zinc – excl. gold credit  c/lb   47   58   482  64  32
Zinc  c/lb    13   14   52  28  (20 )
Nickel – excl. Koniambo  c/lb   277   240   257   230  281
Nickel  c/lb    398   382   413   395  437
Coal  $/t    45   42   46   46  47
             

1     Copper unit cost guidance excludes costs associated with non-operating or significantly curtailed assets, including those on care and maintenance. In this regard, an estimated combined approximately $350 million of net operating costs is expected to be incurred in relation to Mopani, Mutanda, Alumbrera and Polymet in 2020.

2    Excludes Volcan.

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