Morning Note: Market News and an Update on global mining company Glencore
Market News
Sterling and the gilt market suffered heavy falls yesterday amid political turmoil and growing uncertainty over UK fiscal leadership. The yield on the 10-year rose by 20 basis points at one point to 4.66% but has fallen back to 4.56% after Keir Starmer told the BBC that Rachel Reeves will stay on as UK chancellor “for many years to come,” as he sought to end speculation about her future.
A weak US jobs report later today may prompt the Fed to resume rate cuts later this month, with traders pricing in a 25% chance of a reduction in July. Non-farm Payrolls are expected to come in at 110k. Yesterday, ADP data highlighted the US private sector lost 33,000 jobs in June, badly missing expectations for a 100,000 increase. President Trump said Jerome Powell should resign “immediately” after FHFA head Bill Pulte urged Congress to investigate the Fed chair over his “deceptive” Senate testimony.
House Republican leaders struggled to find the final numbers to advance Donald Trump’s tax bill, holding key votes open for hours as the president and his allies worked to win them over. The US lifted export license requirements for chip design software sales in China and informed Siemens, Synopsys, and Cadence Design. Siemens restored full access to its tech for its Chinese customers.
US equities finished mostly higher last night – S&P 500 (+0.5%); Nasdaq (+0.9%) – setting a fresh record close. Shares of Nike and other apparel makers rose after President Trump said he had struck a trade deal with Vietnam that would impose a lower than initially expected tariff rate on many imports from the Southeast Asian country.
In Asia this morning, markets were mixed: Nikkei 225 (+0.1%); Hang Seng (-0.7%); Shanghai Composite (+0.2%). Japan escaped the bond market dangers with successful sale of 30-year debt. China’s services activity growth hit a 9-month low in June, Caixin PMI shows. Gold is firm and trades at $3,360 an ounce, while oil is $68 a barrel.
Source: Bloomberg
Company News
Glencore has announced that following the closure of the merger of Viterra with Bunge Global, the company intends to commence a share buyback programme of up to $1bn. Having been heavily oversold earlier in the year, the shares have rallied of late helped in part by a bounce in the copper and coal price.
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.
Glencore is a leading producer of metals 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. The IEA estimates that by 2050 the metals requirement for clean energy technologies will amount to 2.1x-3.4x more copper than in 2020, 10.8x-30.1x more nickel, and 9.9x-32.9x more cobalt. Given the industry’s supply constraints, the group is also increasing its investment in recycling and circularity.
In 2024, Glencore acquired a 77% interest in Teck’s steelmaking coal business (EVR) for $7bn – the remaining stake is owned by Nippon Steel (20%) and POSCO (3%). The assets complement Glencore’s existing thermal and steelmaking coal production located in Australia, Colombia, and South Africa. The company believes global population growth, increased urbanisation, and a growing middle class should continue to drive long-term demand for steel and the steelmaking coal required to produce it.
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 its strong portfolio of copper growth options as well as accelerate shareholder returns. Management sees potential upside through synergies as the EVR assets are integrated into the portfolio. The company will continue to oversee the responsible decline of its thermal coal operations.
Viterra is the group’s agricultural commodity trader, in which it had a 49.5% stake. In June 2023, the company announced the merger of Viterra and industry rival Bunge to create a diversified global agribusiness solutions company with significant synergy and re-rating potential. The new combination is well placed to meet increased global demand as well as the ongoing challenge of providing sustainable, traceable food and feed products to customers around the world.
The deal closed yesterday, following which Glencore received 32.8n shares in Bunge, representing 16.4% of the enlarged company, and $900m cash, subject to later adjustment under the merger terms. Reflecting Glencore’s capital allocation and leverage framework, by which its balance sheet is managed around a certain net debt threshold (see below), the company views these NYSE-listed Bunge shares as representing surplus capital. At the current share price, the shares have a current market value of $2.63bn and are subject to a 12-month lock-up period. Glencore intends to commence a share buyback programme, underpinned by the value of this shareholding, of up to $1bn, representing less than 40% of the current market value of the shares. The programme will commence on 7 July and complete by the time of the release of the group’s 2025 full-year results in February 2026.
Further detail on current trading across the group will be released with the production report on 30 July and the half-year results on 6 August.
At the last report in April, the company reiterated its full-year 2025 production except for a c.5% reduction to energy coal’s range to reflect the proactive decision to reduce Cerrejón volumes, in support of rebalancing this market. The company also noted that the copper business had a slow start to the year, with Q1 expected to be the lowest quarter, with a significantly stronger performance anticipated over the remainder of 2025.
Glencore’s marketing business exploits arbitrage opportunities that continuously emerge in commodity markets. 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. At the last report in April, the company disclosed that it expects full-year Marketing profit around the middle of the group’s long-term $2.2bn-$3.2bn p.a. guidance range. This year, financial markets, including commodities, have been highly volatile and unpredictable, responding rapidly to US tariff news flow and uncertainty. Such a backdrop may present opportunities for the Marketing business.
The results will also update on the group’s capital investment programme and strong financial position. Following the decision to retain the coal and carbon steel materials business, the group’s net debt ceiling which shapes its shareholder returns framework was reset at $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 as appropriate.
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 Industrial free cash flow.
At the time of the full-year result in February, the company announced $2.2bn ($0.182 per share) of shareholder returns for 2025, made up of a $0.10 per share ($1.2bn) base cash distribution, together with a ‘top-up’ buyback programme of $1.0bn ($0.082 per share) which was completed in June. Yesterday’s announcement adds a further $1bn to shareholder returns.
Overall, while there is increased uncertainty around the impact of geopolitics in the shorter-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.
Resource stocks and commodities are inexpensive when compared to financial assets and are relatively under-owned on investor portfolios. Furthermore, the mining sector, and in particular Glencore, has a long history of M&A and we expect further industry consolidation in the future. In 2024, Glencore weighted making a bid for Anglo American and a deal with Rio Tinto has also been rumoured in the past.
Source: Bloomberg
