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Glencore shares jump on debt reduction, spending cuts

JOHANNESBURG (Reuters) - Glencore GLEN.L has increased its debt reduction target and deepened its capital spending cuts, stepping up its response to lower commodity prices and boosting its battered shares by 12 percent on Thursday.

The mining and trading company said it was targeting net debt of between $18 billion (£11.8 billion) and $19 billion by the end of 2016, against a previous target of $20 billion.

Chief Executive 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 CMCU3 has since fallen nearly 11 percent 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.

The logo of commodities trader Glencore is pictured in front of the company's headquarters in Baar, Switzerland, September 30, 2015. REUTERS/Arnd Wiegmann

MINERS DIG DEEP

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

Mining rival Anglo American AAL.L 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 LMI.L 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 percent this year, were up 12 percent as of 1200 GMT.

Glencore also said it aimed to raise between $3 billion and $4 billion from assets sales, up from $2 billion previously. It was selling a minority stake in its agriculture business and Chief Finance Officer Steven Kalmin said on 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.

It said a broad spectrum of parties had shown interest in buying a stake in the agriculture business, while Australian, Asian and South American strategic and financial investors had shown interest in the copper mines.

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.

Additional reporting by Dmitry Zhdannikov in London; Editing by David Holmes and Keith Weir

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