Glencore launches $1 bln additional share buyback

6 years ago - Published in Commodities

Commodities trader and miner Glencore said on Tuesday it would repurchase more of its shares worth up to $1 billion, increasing the size of an existing buyback programme that followed a subpoena from U.S. authorities.

Glencore said in July it would buy back shares worth up to $1 billion in a programme of purchases running to the end of 2018. It has now extended the programme to the end of February 2019.

As of 24 September 2018, some 230,240,288 shares valued at $939.13m had been purchased under the existing programme, the company said in an announcement.

“The company will enter into an agreement with an investment bank to conduct the programme on its behalf and if required to make trading decisions concerning purchases under the Programme independently of the company,” it said.

The buy-backs are part of a trend among the world’s largest diversified miners to increase returns to shareholders, said Investec Securities. “With Rio Tinto having announced $7.1bn of buys backs this year and with BHP expected to apply at least part of the $10.5bn proceeds from its onshore US disposal towards buy backs of some form, we are potentially looking at close to $20bn of total buybacks so far this year,” it said in a note today.

“Unlike its peers, Glencore is doing this without disposing of assets, with windfall cash generation from the strong coal prices no doubt assisting,” it said.

Shares in Glencore have under-performed its peer group in the year-to-date. Despite the recent improvement in its valuation, the share is nonetheless 16% weaker since January which compares to gains for Anglo American (8%), Rio Tinto (3.4%) and BHP (9%). Glencore’s share price had already been hit by concerns about political risk in Democratic Republic of Congo, where it mines just over a quarter of the global output of cobalt, because of a mining code that was signed into law in June.
“This is a positive development in our view as the majority of the investors we had talked to were expecting an additional buy-back starting in 2019,” said Goldman Sachs.

The extension of the buy-back will not come as a massive surprise. RBC Capital Markets said in August that the group would impose some kind of return in order to bridge the disconnect between its highly cash generative performance and the share price. “The company is trading at a substantial discount to peers on a free cash yield basis with a strong balance sheet,” the bank said. “This should open up more compelling opportunities for buybacks into 2019 or other options to compress this valuation disconnect.”