Glencore's debt reduction nears completion, plans to return $1bn to shareholders

Glencore’s plan to reduce its debt as commodity prices retreat is near completion as it finalised the sales of its agriculture and Australian rail businesses, while it plans to return $1bn to shareholders.

The Anglo-Swiss miner is seeking to maximise shareholder value and will distribute $1bn to be paid in equal tranches in the first and second half of 2017.

A new policy will come into effect from 2018, which will have a fixed $1bn base together with a minimum payout of 25% of industrial free cash flow.

Last year, the company enforced measures to reduce its debt and “structurally increase the flexibility and strength” of the balance sheet.

Chief executive Ivan Glasenberg said: “We have delivered on our commitments and done so in a way that has preserved the long-term earnings capability of the group. Glencore can look forward to the future with confidence, based on our scalable and low cost industrial operations and robust marketing business."

The FTSE 100 company is on track for net debt to be between $16.5 to $17.5bn by the end of the year.

Its divestment programme is nearly finished, with the company having made gains $6.3bn versus the original guidance of between £1bn to £2bn.

The Australian Grail business was sold to Genesse & Wyoming Australia for AU$1.41bn and stakes in Glencore Agriculture totalling 49.99% were sold to the Canada Pension Plan Investment Board and British Columbia Investment Management for $3.12bn.

It also sold a stake in the Ernest Henry copper and gold project to Evolution Mining in November for AU$880m. In total, the three disposals, in accordance with relevant exchange rates, come to $4.7bn.

Glencore is targeting a maximum of two times net debt and earnings before interest, tax, depreciation and amortisation (EBITDA) during the year.

The company said that even though commodity prices were low in the first quarter of 2016, its cash flow was “healthy”. For 2017 it has about $6.51 in cash on EBITDA of about $14bn, based on prices for next year.

Marketing earnings before interest and tax (EBIT) is expected to be towards the upper end of the $2.5 to $2.7bn originally anticipated.