2015 Global Metals, Mining & Steel Conference Barcelona, 12 May 2015

Transcription

1 2015 Global Metals, Mining & Steel Conference Barcelona, 12 May 2015

2 Forward looking statements This document contains statements that are, or may be deemed to be, forward looking statements which are prospective in nature. These forward looking statements may be identified by the use of forward looking terminology, or the negative thereof such as plans, expects or does not expect, is expected, continues, assumes, is subject to, budget, scheduled, estimates, aims, forecasts, risks, intends, positioned, predicts, anticipates or does not anticipate, or believes, or variations of such words or comparable terminology and phrases or statements that certain actions, events or results may, could, should, shall, would, might or will be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements are not based on historical facts, but rather on current predictions, expectations, beliefs, opinions, plans, objectives, goals, intentions and projections about future events, results of operations, prospects, financial condition and discussions of strategy. By their nature, forward looking statements involve known and unknown risks and uncertainties, many of which are beyond Glencore s control. Forward looking statements are not guarantees of future performance and may and often do differ materially from actual results. Important factors that could cause these uncertainties include, but are not limited to, those discussed in the Principal Risks and Uncertainties in Glencore s Annual Report 20. Neither Glencore nor any of its associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statements in this document will actually occur. You are cautioned not to place undue reliance on these forward looking statements which only speak as of the date of this document. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Requirements of the Johannesburg Stock Exchange Limited), Glencore is not under any obligation and Glencore and its affiliates expressly disclaim any intention, obligation or undertaking to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of Glencore since the date of this document or that the information contained herein is correct as at any time subsequent to its date. No statement in this document is intended as a profit forecast or a profit estimate and no statement in this document should be interpreted to mean that earnings per Glencore share for the current or future financial years would necessarily match or exceed the historical published earnings per Glencore share. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities. The making of this document does not constitute a recommendation regarding any securities. 2

3 Summary The mining sector is suffering a crisis of confidence Oversupplying markets regardless of demand is damaging the credibility of the industry Worst performing sector over the last twelve months Commodity investment flows now $60bn below their 2012 peak Prices, equities and credit ratings all impacted Supply/Demand fundamentals matter Critical to understand the evolution of supply and demand Key emerging markets are maturing the demand cycle will transition away from early cycle towards medium and late cycle commodities as fixed asset investments are completed Not all commodities are equal differentiation is crucial Our key commodities are in deficit or transitioning towards deficit Glencore by far the most diversified resources company Unrivalled marketing business and geographic footprint Significant operational leverage when prices inevitably recover Leading positions and growth optionality in the right commodities Owner management team with a commitment to return excess capital - $9.3bn since IPO 3

4 Tintaya concentrator, Peru Where are we?

5 12 months ago the mining sector was looking more positive Management change across the majors was providing a more disciplined focus Mining sector underperformance was reducing Plans for significant capex cuts and shareholder distributions Source: Glencore presentation at 20 Global Metals, Mining & Steel Conference, Miami, May 20. 5

6 Today, the worst performing sector Last 12 months: indices, mining lagging the market Funds are flowing out of the sector ($bn) (1) 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% 5% Stoxx Global % Technology 9% Autos 6% Real Estate 1% Stoxx Europe Mining (17%) Basic Resources (17%) Oil & Gas (19%) HSBC Global Mining Cumulative commodity investment flows since Jan-15 Feb-15 Mar Last 12 months: prices (oversupply in bulk) Copper 16.3% 9.3% Al Zinc Last 12 months: major mining peers Peer 5 Glencore -1.5% Iron ore -41.9% Oil -36.7% Nickel -24.8% Thermal Coal -20.3% -5.4% Peer % Peer % Peer % Peer % -6.4% Source: Bloomberg, 6 May (1) Barclays, The Commodity Investor, 15 April

7 Today, the worst performing sector Significant reduction in earnings forecasts credit ratings and CDS (1) also impacted Peer Peer Peer 2 GLEN 100 Peer 1 Peer 2 Peer 3 GLEN forecast net income Peer May Jun Jul Aug Sep Oct Nov Dec Jan 15 Feb 15 Mar 15 Apr May Jun Jul Aug Sep Oct Nov Dec Jan 15 Feb 15 Mar 15 Apr 15 Source: Bloomberg, 6 May (1) 5 year CDS, 6 May 20=100 7

8 Demand favours base over bulks again in 2015 Global demand growth 10% 8% Annual average 2011 to F 6% 4% 2% 0% -2% Copper Zinc Aluminium Nickel Thermal Coal Iron Ore Oil Source: Glencore estimates, various broker reports, Wood Mackenzie. 8

9 but ignore demand and market balance at your peril This is rational, normal economics our iron ore strategy makes perfect commercial sense We have the opportunity to substantially increase our iron ore production through productivity and getting more out of the existing infrastructure If we don t supply it, somebody else will You tell me the logic of pouring iron ore into a depressed market. That is not commercially sound we are winning huge benefits for shareholders We re doing this because it makes sound economic sense I m not quite sure why anyone would want to be the last man standing in a low-price, low-return environment..the fundamentals have not changed. Prices don t dip down to tier one levels, it just doesn t happen. Source: Bloomberg; The Australian; Management Today. 9

10 Wheat crop in Bute, Australia Differentiation by commodity is crucial

11 Our key commodities Accounted for 95% of EBIT in 20 Market balances for many of our commodities are transitioning into deficit Cu Deficit Zn Deficit Ni Transitioning to deficit Coal Rebalancing Marketing Resilient Consensus surplus elusive so far, increasing downside risk to supply in 2015/16 An additional 3-3.5Mt of zinc supply needed over the next 5 years to balance the market Balanced 2015 and deficits thereafter; substantial from 2018 Some supply shutting and new investment delayed. Coal essential to meet energy demand Defensive earnings, less sensitive to falling prices. Benefits from own source production 36% 5% 7% 5% 42% Data: 20 Adjusted EBIT. 11

12 underpining the maturing growth of emerging economies Significant Glencore exposure to mid and late demand cycle commodities 100% 90% 80% Oil & Gas PGMs Diamonds Thermal Coal 70% 60% 50% 40% 30% 20% 10% 0% Copper Zinc Nickel Aluminium Lead Iron Ore Coking coal Manganese Peer 1 Peer 2 Peer 3 Peer 4 Early Cycle Mid Cycle Late Cycle Source: UBS, weighted by contribution to 2018F EBITDA 12

13 provides us with the right commodities mix 2018F weighted average commodity surplus / (deficit) Commodities in surplus as a % of demand weighted by EBITDA Peer 1 Peer 2 Peer 3 Peer 4 Commodities in deficit as a % of demand weighted by EBITDA Source: UBS, Glencore estimates, company reports, broker reports, 2018F surplus/(deficit) for each commodity calculated as a percentage of 2018F demand and applied to respective 2018F EBITDA. Peer 1: 10.0%, Peer 2: 9.3%, Peer 3 5.7%, Peer 4: 0.5%, Glencore: -3%. 13

14 Conclusions The mining sector is suffering a crisis of confidence Oversupplying markets regardless of demand is damaging the credibility of the industry Worst performing sector over the last twelve months Supply/Demand fundamentals matter Critical to understand the evolution of supply and demand Key emerging markets are maturing the demand cycle will transition away from early cycle towards medium and late cycle Not all commodities are equal differentiation is crucial Our key commodities are in deficit or transitioning towards deficit Glencore by far the most diversified resources company Unrivalled marketing business and geographic footprint Significant operational leverage when prices inevitably recover Leading positions and growth optionality in the right commodities Owner management team with a commitment to return excess capital - $9.3bn since IPO

15 VM Asturiana de Zinc, electrolysis plant, Spain Q&A

16 Alumbrera copper concentrator, Argentina Appendix

17 Sustainability and governance Safety Regrettably 16 fatalities in 20 (26 in 2013) Reduction on 2013 reflects SafeWork focus on safety leadership, culture and implementation of Fatal Hazard Protocols 118,000 employees completed SafeWork awareness Governance Consolidation of Board: A. Hayward, Chair; P. Grauer SID; Patrice Merrin, new NED Reviewed Code of Conduct and policies on bribery and corruption, human rights and position on carbon. Reissued in 2015 External Recognition and Memberships ICMM, UN Global Compact, EITI, PACI (Partnering Against Corruption Initiative World Economic Forum) Voluntary Principles on Security and Human Rights Mopani Copper awarded Company of the Year from Zambia for EITI reporting transparency LTIFR (1) 2009 to % reduction Note: (1) Lost time incidents (LTIs) are recorded when an employee or contractor is unable to work following an incident. In the past Glencore recorded LTIs which resulted in lost days from the next calendar day after the incident whilst Xstrata recorded LTIs which resulted in lost days from the next rostered day after the incident - therefore the combined LTI figure is not based on data of consistent definition (historically, prior to merger). From 20 Glencore records LTIs when an incident results in lost days from the first rostered day absent after the day of the injury. The day of the injury is not included. LTIFR is the total number of LTIs recorded per million working hours. LTIs do not include Restricted Work Injuries (RWI) and fatalities (fatalities were included up to 2013). Historic data has been restated to exclude fatalities and to reflect data collection improvements. 17

18 Growing risks to long-term copper supply Mined copper head grades at twice the reserve grade are not sustainable Mined copper head grade Reserve grade Forecast Source: Wood Mackenzie 18

19 Chinese GDP growth rate is falling Chinese GDP Growth y-o-y (percent) Source: World Bank national accounts data, and OECD National Accounts data files 19

20 Chinese yearly GDP Growth is much larger today in absolute terms Chinese GDP (current $bn) 10, vs 2013: $9.2tn x 7.4% = $680bn 7% 6% 5% 8,000 6,000 4, vs 2005: $2.3tn x 20.2% = $450bn 2, Source: Bloomberg 20