FINANCIAL risks posed by the COVID-19 pandemic has prompted Glencore to postpone its 20 US cents per share cash distribution – equal to $2.6bn – for 2020.
The Swiss-headquartered mining and marketing firm said today it would defer the payment in order to strengthen its position until the effects of the pandemic had played themselves out. There were currently no risks of material production disruption owing to COVID-19, it said in a statement.
Glencore is the first of the major diversified mining companies to take such a step in respect of capital returns. So far, the likes of Anglo American, Rio Tinto and BHP have not commented on changes to dividends or disruption to other kinds of capital return. A decision on resuming the payout would be made later in the year, Glencore said.
Glencore also decided to refinance its revolving credit facilities (RCF) including extending the facilities by $200m.
The decision to defer the dividend was in order to protect plans to reduce net debt to between $14bn to $15bn which compares to $17bn in net debt as of December 31. It was chasing down a net debt to EBITDA target ratio of about 1x.
It described the action as “prudent … amid the current period of heightened uncertainty in order to enable us to more safely navigate this challenging environment”. Shares in Glencore had edged up 1.6% on the Johannesburg Stock Exchange shortly after the announcement was made public.
Commenting on the refinancing, Glencore said the new and extended facilities were for general corporate purposes and comprised a $9.975bn 12-month RCF with a 12-month term-out option at Glencore’s discretion, and a 12-month extension option, as well as a $4.65bn, five year RCF with a 12-month extension option.
“As well as prioritising the health and wellbeing of our people, their families and our communities, we are taking a cautious approach to protect our capital structure amid the current period of extreme uncertainty,” said Glencore chairman, Tony Haywood.
“We will review the opportunity for a distribution at our August results, when we will have an improved understanding of COVID-19’s impact on our business and its prospects.”
With the World Health Organisation cautioning China to show restraint post-lockdown, amid fears of a second wave of COVID-19 infections, the message from mining firms is that nationwide physical distancing measures adopted by governments could be extended beyond their initial terms.
Impala Platinum yesterday warned that it may not be able to pay employee wages were South Africa’s 21-day lockdown extended. Last week, AngloGold Ashanti said it was drawing down $1.4bn from credit facilities: half would be to repay bonds due, but $700m was prudent capital management given the progress of the COVID-19 pandemic.
