Tight markets for raw materials after Russia’s Ukraine invasion that handed mining firms bumper profits appear to be well and truly over – one look at Glencore’s (GLEN) half-year report tells us that.

The diversified mining and commodity trading company saw earnings coming in at around $9 billion, 15% below analyst consensus and a staggering 50% lower year-on-year. Glencore has also not been helped by a slower than expected post-Covid recovery in China – one of the world’s thirstiest consumers of resources.

SHARE BUYBACK LIGHT

Investors will note the impact in the capital returns column and in today’s near-4% share price fall, to 440p that is 20% down on this time last year.

A $2.2 billion top-up in shareholder capital returns brings the total to $9.3 billion in 2023, this was light of expectations.

‘Glencore has dialled back its generosity in terms of shareholder returns – though some of this is about keeping powder dry for a potential deal to acquire assets from Canada’s Teck Resources after a long-running pursuit,’ said AJ Bell investment director Russ Mould.

Adding to the uncertainty, Glencore did not provide any update on the proposed deal with Teck Resources. ‘The potential agreement offers an intriguing opportunity for Glencore to exit its controversial yet highly profitable coal operations,’ says Jamie Maddock, equity research analyst at Quilter Cheviot.

‘While understandable that it wasn’t explicitly mentioned it will likely be an area of focus on the investor results call with analysts aiming to discern any change in the direction and strategy of the company.

WHAT TO DO WITH COAL

The company’s interest in coal makes it stand out from a peer group which is increasingly looking to tie itself to the transition away from fossil fuels by supplying the materials required for a big expansion in renewables and electric vehicles.

Latest twist in takeover saga as Glencore makes its pitch for Teck’s steelmaking coal assets

‘In this context a potential plan to combine its own coal assets with Teck’s and spin this off as a separate entity might be warmly received by the market,’ said AJ Bell’s Mould.

So, while the numbers are substantial, shareholders are left with pressing questions. ‘The shadow of a fluctuating commodity market and a seemingly cautious approach to both capital returns and strategic partnerships could define the near-term outlook for Glencore,’ said Quilter Cheviot’s Maddock.

‘How the company navigates these challenges will be closely watched in the coming months.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (Tom Sieber) own shares in AJ Bell.

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