Morning Note: Market News and an Update from Glencore.
Market News
The Federal Reserve’s Austan Goolsbee told CNBC there’s potential for more rate cuts this year if inflation continues to head toward target. Some Fed officials have suggested AI-driven productivity growth may raise the neutral rate. The 10-year Treasury yields 4.08%, while gold bounced to $4,920 an ounce. Investors are focused on the release later today of the minutes of the January Fed meeting.
Christine Lagarde is expected to leave the ECB before her eight-year term expires in October 2027, the FT reported, with the desire to depart before French presidential elections in April next year.
US equities edged higher last night – S&P 500 (+0.1%); Nasdaq (+0.1%) – while in Asia this morning, stocks rose in thin holiday trading: Nikkei 225 (+1.0%). The FTSE 100 is currently 0.6% higher at 10,621. BAE Systems is trading 2% higher following results which highlighted record sales and order backlog. The dividend was raised by 10%.
Japan will invest $36bn in US oil, gas and critical minerals projects — including a $33bn natural gas facility in Ohio – the first tranche of its $550bn multi-year pledge under the trade deal with Donald Trump.
UK CPI cooled to 3% in January from a year earlier, matching estimates. Sterling trades at $1.3560 and €1.1460.
Company News
Glencore has released full-year 2025 results slightly ahead of market expectations, driven by a strong second half performance. The company’s financial position remains robust and a $2bn (17c a share) dividend has been declared, which includes a $0.8bn top-up. The shares have been very volatile of late, driven by the on-off talks with Rio Tinto and the strong copper price. As a standalone company, we believe Glencore is well placed, with a strong position in copper and unique marketing business. The shares are up 3% in early trading.
Glencore is a vertically integrated commodities business, with a strong position in the production of copper, coal, nickel, zinc, cobalt, and precious metals, and a unique marketing business which markets and distributes commodities sourced from internal production and third-party producers to industrial consumers. The group’s strategy is to own large-scale, long-life, low-cost Tier 1 assets.
Following a period of portfolio simplification, the company has sold or shut 35 assets since 2021. In the meantime, it has undertaken selective M&A of assets in key/core commodities, including copper/alumina/bauxite and high-quality steelmaking coal. As part of this process, Glencore has uncovered opportunities to streamline its operating structure and identified at least $1bn of cost savings (against a 2024 baseline). These are expected to be fully delivered by the end of 2026, with more than half generated in 2025.
Glencore is a leading producer of critical minerals that are used in low-carbon and carbon-neutral technologies, such as electric vehicles and renewable energy, the outlook for which is underpinned by robust demand and persistent long-term supply challenges. Most notably, this includes copper. Last December, the company set out plans to expand its copper production from 0.85mt in 2025 to 1mt by 2028 and 1.6mt by 2035, making it one of the largest producers in the world. Growth will be driven by new mines, the expansion of existing mines, and the restart of dormant mines.
Given the company’s somewhat patchy production record in recent years, investor will be looking for signs of improved operational performance. It is therefore helpful that the copper expansion plans are derisked to some extent as the targets are not dependent on one mine or process and are often a bolt-on to existing infrastructure. The major greenfield project is El Pachón in Argentina, one of the world’s largest undeveloped resources which the company hopes will underpin its long-term growth.
Earlier in the month, the company announced the sale of a 40% stake in their Congolese copper and cobalt assets (Mutanda and KCC) to a US-backed consortium (Orion CMC) at an implied enterprise value of $9bn. Through this partnership, Glencore will be able to support the ambitions of the US government and private sector with the supply of two critical minerals, while derisking the political volatility associated with its African operations. The cash injection – estimated at over $3bn for Glencore's interest – also provides headroom for organic growth investment and shareholders returns. In addition, this morning, the company has announced the finalisation of the KCC land access package with Gécamines, unlocking life of mine extension, productivity and cost improvements, and the pathway to c.300kt pa of copper production.
Glencore is also the world’s leading seaborne energy (thermal) coal business, a top-tier steelmaking (coking) coal business, and has a rapidly growing LNG, power, gas, and carbon business. As a result, the company will play a strategic role in supporting the world’s energy needs of today and tomorrow. The company believes global population growth, increased urbanisation, a growing middle class, AI infrastructure growth, and the energy transition will all continue to drive long-term demand for thermal coal. For now, however, the company is balancing immediate energy security needs with a commitment to a net-zero trajectory by undertaking the responsible decline of its thermal coal operations.
Glencore’s 77% interest in Teck’s steelmaking coal business (EVR) complements existing production in Australia, Colombia, and South Africa. Following consultation with its shareholders, Glencore is retaining its coal and carbon steel materials business. The company believes the cash generative capacity of the business significantly enhances the quality of the overall portfolio, by commodity and geography, and broadens the company’s ability to fund the growth of its copper portfolio as well as accelerate shareholder returns. Management sees potential upside through synergies as the EVR assets are integrated into the portfolio.
Glencore and Rio Tinto recently announced the termination of merger talks. The key terms were Rio Tinto retaining both the Chairman and CEO roles and delivering a pro-forma ownership of the combined company which, in Glencore’s view, significantly undervalued its underlying relative value contribution to the combined group, even before consideration of a suitable acquisition control premium. The deal did not reflect Glencore’s view on long term, through the cycle relative value, including not adequately valuing its copper business, and its leading growth pipeline, and apportioning material synergy value potential. Although the merger would have generated a near-term capital gain for Glencore shareholders, we believe the decision to pull out of talks is a positive one given the strong long-term standalone investment case and the disruption a deal would have caused.
Now to today’s results which were achieved against the backdrop of volatile commodity prices, influenced by complex global and macroeconomic factors, including evolving US trade policies, elevated geopolitical tensions, and AI thematic investing and positioning.
Adjusted profit (EBITDA) was 6% lower at $13.5bn, slightly above the market forecast of $13.3bn. Underlying momentum was much stronger in the second half – $8.1bn versus $5.4bn in the first half, reflecting higher metals prices and improved production volumes, especially copper. The group’s cost and efficiency drive has identified $1bn of cost saving opportunities across more than 300 initiatives. A significant portion was realised in 2025 and the company remains on track to fully deliver on these by the end of 2026.
The Industrial assets’ EBITDA fell by 6% to $9.9bn, with the second half 65% higher than H1. The results primarily reflected lower energy and steelmaking coal prices, partially offset by stronger metals pricing, particularly in the second half, and a full-year contribution from EVR.
Production from own sources was copper (-11%), cobalt (-5%), zinc (+7%), nickel (-13%), gold (-18%), silver (+6%), steelmaking coal (+63%), and energy coal (-2%). We note that copper production in the second half was almost 50% above H1, primarily due to higher copper grades and recoveries. Production guidance for 2026 has been reiterated: copper (810kt-870kt); zinc (700kt-740kt), steelmaking coal (30-34mt), and energy coal (95-100mt).
Average prices for the group’s key commodities were mixed during the year: copper (+9%), Zinc (+3%), nickel (-10%), gold (+44%), silver (+43%), steelmaking coal (-22%), and energy coal (-23%). Clearly 2026 has got off to a flying start. Adjusted EBITDA mining margins were 30% in the metals operations, 19% in energy coal, and 36% in steelmaking coal.
Glencore’s Marketing business exploits arbitrage opportunities that continuously emerge as a result of different prices for the same commodities in different locations or time periods. It provides a good hedge against commodity price volatility and finances the $1bn base dividend (see below), although clearly there is always a risk of potential losses because of that volatility. During the year, the company raised its through-the-cycle long-term adjusted EBIT guidance range for the unit by 16% to $2.3bn-$3.5bn p.a. In 2025 adjusted EBIT fell by 8% to $2.9bn, as expected around the mid-point of its higher target range.
Funds from operations fell by 17% to $8.7bn. Net borrowing was little changed at $11.2bn, including $1.0bn of marketing lease liabilities This was driven by funding $6.9bn of capex, $940m of cash received from the Viterra transaction, $3.5bn of shareholder returns, and a $1.0bn increase in non-Readily marketable inventories (RMI) working capital. This leaves gearing at a very comfortable 0.83x net debt to EBITDA, providing significant financial headroom.
Looking forward, the company is looking to strike the “right balance” between its growth ambitions and returns to shareholders. Excluding the various copper growth projects, capex will average $6.5bn p.a. from 2026-2028. Depending on the level of additional capex for new developments, aggregate investment could be $23.4bn. However, the company has said that although its plans can be self-funded, it will look at opportunities to reduce financial and operational risk via passive or active minority stakes or a strategic partner.
The dividend policy is to pay a fixed $1bn base distribution from the Marketing business, reflecting the resilience, predictability, and stability of the unit’s cash flows, plus a minimum payout of 25% of the Industrial free cash flow. Following the decision to retain the coal and carbon steel materials business, the group’s net debt ceiling which shapes its shareholder returns framework is $10bn. When net debt falls below this level (after the base distribution), cash will be periodically returned to shareholders via special cash distributions and/or share buybacks.
Today the company has announced a $0.10 per share ($1.2bn) base cash distribution.
Following a merger with its Viterra business, Glencore owns 16.4% of Bunge, the diversified global agribusiness solutions company. The stake is worth $4.0bn at the current share price and is recognised as surplus capital, being warehoused for appropriate monetisation for Glencore shareholders at some point in the future. Underpinned by the value of these shares, the company is recommending a top-up cash distribution of $7c/share (c.$0.8bn), taking the aggregate cash distribution of $17c/share (c.$2bn), to be paid in two equal instalments. This was a touch below last year and equates to a 2.6% yield.
The company regularly updates its illustrative guide to its cash flow and profit at spot commodity prices. At present, annualised free cash flow generation would be $7.0bn (8% FCF yield) from adjusted EBITDA of $18.1bn.
Overall, while there is increased uncertainty around the impact of geopolitics in the near term, Glencore remains of the view that in certain commodities, the scale and pace of global mine project development will struggle to meet demand for the materials needed in the future. Glencore believes it is well placed to participate in bridging this gap, through the flexibility embedded in both its Marketing and Industrial businesses to respond to global needs.
We believe commodities and resource stocks are inexpensive when compared to financial assets and are relatively under-owned in investor portfolios. Furthermore, the mining sector has a long history of M&A and we doubt Glencore will be immune from future deal speculation.
