Rising Profits Fuel Glencore’s $3 Billion Share Buyback

Commodity trading and mining giant Glencore shrugged off the drop in cobalt prices to record an 8% rise in core profits, due to excellent performance in trading other commodities. On top of that, the company announced a massive $3 billion share buyback initiative and needless to say; this will be a big boost for the company’s stock. Glencore’s stock had been a bit beaten down in the recent past, and the announcement of this program will come as a welcome development for investors.

Glencore’s core profit, that profits from mining operations, jumped to $15.77 billion in 2018 but that was still below the analysts’ consensus of $16.4 billion. The company’s stock has been beaten down over the past year for a verity of reasons, and perhaps the biggest reasons were the United States Department of Justice’s investigation into some of its operations. The DoJ asked the company to disclose documents related to its mining operations in Nigeria, Democratic Republic of Congo and Venezuela.

While that investigation created doubts, the fact that the company has invested heavily in unstable countries also gave investors pause. Subsequently, the stock underperformed. However, Glencore responded with a share buyback plan of $1 billion at the time, and it seems that the company is going to continue in the same vein, to restore investor confidence. The company is one of the biggest miners of cobalt along with China and in the years to come, the metal is going to be used more and more. Demand for batteries and a whole range of new electrical products will eventually raise the demand for cobalt. However, last year, there was a case of oversupply and the market eventually crashed. Steve Kalmin, the Chief Financial Officer at Glencore, stated that it was a temporary setback and went on to state that the company would need to be smarter about supply management in the future.

The company is heavily involved in cobalt mining, but the crash in its price by almost 70% did not make as much of an impact. Glencore’s earnings was a record, and excellent performances in other sectors offset the losses in cobalt mining. Following these announcements, an analyst at BMO Capital Markets spoke about the company’s strong position and classified the stock as ‘outperform.’ He said, “Glencore remains in a strong financial position, but the sell-off in its shares relative to peers leaves it feeling a little defensive. The share buyback reinforces this perspective and does seem like the most sensible option.”