Shareholders Glencore (GLEN.L) reaped a multi-billion dollar windfall on Thursday as the company's adherence to thermal coal mining at a time of soaring prices of the material generated record profits for the mining and commodity trading group.
Unlike rivals which bowed to investor pressure to exit fossil fuels, Glencore mines millions of tonnes of thermal coal, whose prices have reached record highs reflecting shortages during protracted COVID-related lockdowns and the war in Ukraine, and trades millions of barrels of crude oil a year.
The company said it would pay out an additional $4.5 billion, including a $1.45 billion special dividend worth 11 cents per share, and a $3 billion share buyback which it said was worth around 23 cents a share, taking 2022 payouts to $8.5 billion in total.
The company had in February announced a $4 billion payout including a dividend and a $550 million share buyback.
The London-listed company bucked the trend of the likes of Rio Tinto and Anglo American (AAL.L) that have slashed payouts after last year's bonanza, but warned about future returns on fears that slower growth or recession in key markets could dent commodity demand in the next few months.
Glencore, which plans to run down its thermal coal mines by the mid-2040s, produces more than 100 million tonnes a year at mines in Colombia, Australia and South Africa. It is Australia's biggest coal producer with 25 mines in New South Wales, Queensland and other parts of the country.
Glencore chief Gary Nagle told reporters that very strong coal prices had significantly boosted the group's earnings from its industrial operations, though he also noted it continued to see inflationary pressures which were a "consistent headwind".
"There are obviously headwinds: higher interest rates, higher inflation, economy slowdown, but mining and commodities is a long-term game and we look at where the world is going. We believe that China's recovery will come and there will be more stimulus," Nagle said.
The group's adjusted core earnings or EBITDA more than doubled to $18.92 billion in the six months through June, compared with $8.7 billion a year earlier and above analysts' expectations of $18.4 billion.
Its trading division's half-year adjusted operating profit reached $3.7 billion, far exceeding the top end of its long-term annual outlook range of $3.2 billion. It expects "normal market conditions to prevail in the second half of the year."
Surging prices for fuel and other materials needed in mine processing, coupled with tightening labour markets partly caused by COVID-19 absenteeism, drove Glencore's costs up and disrupted supply chains.
"Cost revisions are likely to partially offset some of the earnings upside for 2022," Citi analysts said. "That said, potential reversal of working capital in 2H and continuation of strong earnings should support expectations of cash return."
Glencore's net debt fell to $2.3 billion in the first half from $6 billion at the end of 2021.
The company in May agreed to pay around $1.5 billion to authorities in the United States, Brazil and Britain to resolve charges of price manipulation and bribery.It still faces investigations from Dutch and Swiss regulators.
Glencore's share price rose around 2% by 0916 GMT in London, outperforming the sector index.