The mining and commodities trading firm and owner of Canadian grain handler Viterra said it was targeting net debt of between $18 billion and $19 billion by the end of 2016, against a previous target of $20 billion (all figures US$).

CEO Ivan Glasenberg, a veteran of commodities trading who took the company public only four years ago, had to bow to shareholder pressure in September by agreeing to cut Glencore’s debts and protect its credit rating.

The London-listed company’s net debt peaked at around $30 billion, one of the highest in the industry, and prices for its key products copper and coal have been languishing at multi-year lows.

After been spurred into action less than three months ago, Glasenberg said on Thursday the company had accelerated its debt cutting after commodity prices tumbled further.

Glencore’s debt-reduction plan involves asset sales, reducing capital expenditure, suspending dividend payments and raising $2.5 billion of new equity capital.

The price of copper has since fallen nearly 11 per cent and hit a six-year low of $4,443.50 a tonne on Nov. 23.

Glencore had previously said the plan would allow it to withstand copper prices of $4,000 a tonne. A source close to the company said the revised plan would help Glencore cope with copper at below $4,000 a tonne, even at $3,500 a tonne.

Among the assets on offer, Glencore said Thursday it has a “broad spectrum of interested parties” considering a minority stake in its agriculture business, including private equity firms, pension funds, sovereign wealth funds, financial investors and “industry participants.”

The company also said Thursday it expects to have “indicative bids” for an ag business stake on the table by mid-month and to announce a deal sometime in the first half of 2016.

Miners dig deep

Glencore is not the only such company having to scale back radically after prices tumbled.

Mining rival Anglo American said this week it would sell more assets, suspend dividends until the end of 2016 and whittle its business down to three divisions to cope with severe falls in commodity prices.

Platinum producer Lonmin was also struggling, even after its shareholders approved its deeply discounted $400 million share issue to keep the company running.

Glasenberg said the company had already cut debt by $8.7 billion and was well placed to continue to be cash generative in the current environment, and at even lower commodity prices.

Swiss-based Glencore cut its capital expenditure for 2015 to $5.7 billion from $6 billion. Spending is seen falling to $3.8 billion in 2016 from a previous estimate of $5 billion.

“In the current price environment the company will need to show continual delivery against this plan but this update is better than expected, sufficiently detailed and provides a clear debt reduction pathway and timeline,” Credit Suisse analysts said in a note.

Glencore makes about a quarter of its earnings from commodities trading, which had previously allowed it to withstand a steep fall in oil and metal prices slightly better than pure-play miners.

The trading division will generate adjusted earnings of $2.5 billion in 2015, against previous guidance of $2.5 billion to $2.6 billion.

It set guidance of $2.4 billion to $2.7 billion for the division’s earnings in 2016, reflecting lower working capital and reduced copper, zinc, lead and coal volumes.

Glencore estimated group core earnings or EBITDA of $7.7 billion in 2016 at current prices.

Asset sales

Glencore shares, down 68 per cent this year, were up 12 per cent as of 6 a.m. CT.

Glencore also said it aimed to raise between $3 billion and $4 billion from assets sales, up from $2 billion previously. Along with the sale of a minority stake in the agriculture business, chief finance officer Steven Kalmin said Thursday a potential initial public offering for the business was also an option.

The company was also selling its Lomas Bayas copper operation in Chile and its Cobar copper mine in Australia, with initial bids for the three transactions expected by mid-December and deals seen done in the first half of 2016.

Australian, Asian and South American strategic and financial investors had shown interest in the copper mines, the company said.

Glencore was also looking at other asset disposals and more precious metals “streaming” deals, a type of alternative financing in the mining industry where funds are provided upfront to a miner in exchange for the sale of a fixed amount of future, usually by-product, production at a discounted price.

“There are all sort of bits and pieces that are being looked at within the portfolio, some infrastructure, some ships, some rail carts that are looking to potentially add up,” Kalmin told investors.

— Olivia Kumwenda-Mtambo reports for Reuters from Johannesburg. Additional reporting for Reuters by Dmitry Zhdannikov in London. Includes files from AGCanada.com Network staff.

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The London-listed company came under pressure to cut its net debt of US$30 billion, one of the largest in the industry, as prices for its key products, copper and coal, sank to more than six-year lows.

Despite the rout in commodity prices, Glencore had said only last month that its cashflow was “comfortable” to service the debt, return cash to shareholders and support growth.

The market did not share this view, especially after Swiss-based Glencore lowered its earnings forecast for its trading division, an unusual step given the company’s track record for winning bets on trends in raw material prices.

Glencore’s shares tumbled last week, leaving them down 59 per cent this year and adding to pressure on the team around CEO Ivan Glasenberg, architect of its transformation from low-profile trading house to global commodities giant.

Glencore said on Monday it would cut net debt by a third by the end of 2016. It will sell assets and raise $2.5 billion in a share sale, with its billionaire directors diverting part of their wealth back into the business (all figures US$).

The company proposed also to raise about $2 billion from the sale of assets, “including, but not limited to” the “minority participation of third-party strategic investors in certain of Glencore’s agriculture assets, including infrastructure.”

Glencore’s ag assets since late 2012 have included Canada’s biggest grain handler, Viterra — but the company didn’t specify Monday which of its worldwide ag assets would be on the table, saying “further announcements will be made in due course, at the appropriate time.”

The company’s shares before Monday had fallen almost 60 per cent this year to a record low, a worse performance than rival miners such as BHP Billiton and Rio Tinto .

In a sign of how pessimistic the market has become over the commodities outlook, most analysts praised Glencore’s decision to secure its balance sheet. Glasenberg said it followed “recent stakeholder engagement” — suggesting the share sale and other measures had been called for by shareholders.

“The move is entirely about preserving the group’s credit rating,” said an analyst at an institution holding Glencore stock. “Without a solid investment grade rating, the group’s marketing business could not participate effectively in its markets.”

Last week, credit rating agency Standard + Poor’s affirmed its long and short-term ratings on Glencore at BBB and A-2, but revised its outlook to negative from stable. It warned that it would lower its rating if Glencore were perceived as having a weaker commitment to defend the rating or if commodity prices fell further.

Under pressure

Glencore labours under a higher debt load than its mining peers in part because its trading unit uses borrowed money to take large positions that generate tight margins. Its net debt to EBITDA ratio of 4.5 times compares to a ratio of 1.4 times at BHP Billiton and 0.9 times at Rio Tinto, according to Thomson Reuters data.

Formerly just a commodities trader, Glencore surfed a boom in raw materials prices since the start of the 2000s driven by accelerating emerging economies to become a global mining giant. A 2011 flotation made multi-billionaires of several Glencore directors. In 2013, Glencore bought peer Xstrata for $41 billion.

Its biggest mining industry rivals have little trading presence and Glencore’s strength was seen to lie in a more diversified earnings stream.

So it surprised investors last month when it said first-half profit had slumped and tough market conditions were hurting its trading business. The company had previously said trading would meet earnings targets whatever happened to commodity prices.

Charles Stanley analyst Tom Gidley-Kitchin said Glencore’s reputation has taken a hit because they spent too much on expansion. He said it made some wrong trading calls and some poor investments such as Optimum Coal and Caracal Energy. But Glencore did not have the monopoly on bad decisions:

“They may not be good at running or developing production businesses — but look at BHP’s investment in shale, Rio Tinto’s investment in aluminum, Anglo’s investment in Minas Rio for much worse mistakes,” said Gidley-Kitchin.

Trading transparency

As it grappled with the downturn, cash generated by Glencore operations before working capital changes fell to $4 billion in the first half of 2015 from $5.6 billion a year earlier.

Glencore has already disposed of some non-core mining assets it inherited through its Xstrata takeover and has trimmed capital spending plans for this year and 2016. But analysts had expected more cost savings.

Glencore said 78 per cent of its proposed share issue was underwritten by Citi and Morgan Stanley, while its senior management have committed to take up the remaining 22 per cent.

“It could be a rights issue, a placement or other forms of potential equity raising. Post discussion with our shareholders, we will have a structure that makes sense and it will be priced accordingly,” chief financial officer Steve Kalmin told Reuters.

Glencore also said it had suspended dividends until further notice. It would not pay a final dividend for 2015, which would save about $1.6 billion, while around $800 million would be saved from the suspension of the 2016 interim dividend.

The company said it expected to save some $500 million to $1 billion from further cuts in capital spending by the end of 2016. It expects to reduce working capital by an additional $1.5 billion by the end of next June.

Glencore will also suspend some African copper production operations at its Katanga Mining unit in Democratic Republic of Congo and Mopani Copper Mines in Zambia for 18 months, removing 400,000 tonnes of cathode product from the market. Glasenberg said this move should have an effect on copper prices.

The company stuck to its forecast for the trading division to make an operating profit (EBIT) this year of $2.5 billion to $2.6 billion, adding: “(we) remain confident of our long-term guidance range of $2.7 billion to $3.7 billion”.

But there were calls for Glencore to reveal more of the workings of its powerful trading arm. It does not say how much trading profit comes from arbitrage, supply chain activities or directional bets and only discloses volumes marketed and overall profits, said Morningstar analyst David Wang.

“As such, we can’t distinguish what portion of the profits of the division are correlated with prices or the activities that should be less correlated with commodity prices,” he added.

— Olivia Kumwenda-Mtambo reports for Reuters from Johannesburg. Additional reporting for Reuters by Pratima Desai, Atul Prakash, Carolyn Cohn and Tom Bergin in London; writing by Olivia Kumwenda-Mtambo and Tom Pfeiffer. Includes files from AGCanada.com Network staff.

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Labour Minister Mildred Oliphant said the new salary, which has jumped to 105 rand a day (US$11.85) from as little as 69 rand, would come into effect on March 1 and would rise by inflation plus 1.5 per cent in subsequent years.

The wage review follows clashes in fruit-growing regions of the Western Cape province in December and January between police and striking farm workers demanding their daily pay be more than doubled to 150 rand.

Farm owners, most of whom are from South Africa’s white minority, say they cannot afford to pay their mostly black workers more because of the rising costs of fuel and electricity, adding that higher wages may put jobs at risk.

"The minimum wage has been pegged above the affordable level. This is going to have serious negative social economic impact in the agriculture sector," said Johannes Moller, president of industry group Agri SA.

Louis Meintjes, president of farmers group Tau SA, also said the basic salary was too high.

"This is a collective notice by the minister of labour to farm labourers and farmers that from March 1 a lot of people will be out of jobs," he said. "Farmers have no choice but to balance their income and expenditure."

Job losses could spark a repeat of the farm violence in which police were forced to use rubber bullets and stun grenades to disperse protesters blocking highways and torching vineyards and warehouses in the farming belt east of Cape Town.

Oliphant said the relationship between farm owners and workers, which in many cases has changed little in the 19 years since apartheid, had to improve.

"The relationship between farmers and farm workers is difficult and needs to be far better to achieve agricultural expansion, higher employment and better living conditions," she told a news conference in the capital, Pretoria.

The strike in the Western Cape came at the end of a wave of labour unrest that began in South Africa’s platinum mines in August and swept through the trucking and agriculture sectors, hitting growth and undermining the country’s investment reputation.

— Reporting for Reuters by Olivia Kumwenda in Pretoria; writing by Agnieszka Flak.

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