London - Glencore [JSE:GLN], the world’s biggest commodity trader, will reinstate its dividend next year and plans to pay out a minimum of $1bn annually following a rebound in commodity prices and a reduction in its debt.
A total of $1bn will be paid out next year in equal parts in the first and second half, the Baar, Switzerland-based company said in a statement on Thursday. From 2018, Glencore will pay $1bn annually as well as at least 25% of free-cash flow from its industrial division.
A rally in coal and zinc prices led Glencore shares to triple this year and bolstered profits, easing concern over its debt position. Just over a year ago, a rout in commodities forced the company to unveil a drastic debt-reduction plan involving a $2.5bn share sale, spending cuts, shuttered mines, asset disposals and canceled dividends.
Glencore last month hit its target for asset sales this year of $4bn to $5bn. It also plans to reduce net debt, which stood at about $30bn last year, to between $16.5bn and $17.5bn by December.
Earnings from its trading division this year will be at the upper end of its forecast range of $2.5bn to $2.7bn thanks to “supportive market conditions” in the second half.
The company forecast free-cash flow of about $6.5bn next year from earnings before interest, tax, depreciation and amortization of about $14bn.
Thermal coal has jumped more than 70% this year as a significant change in Chinese government policy governing working days at mines curbed production in the country, the world’s biggest producer.
Zinc touched the highest since 2007 this week after China’s top economic commission approved a $36bn plan on new rail links around Beijing, boosting demand for industrial raw materials.
Higher prices provide a path for the return of dividends, said analysts at UBS before today’s statement. They predicted Glencore may pay 5 cents a share when it reports full-year results in March.
Glencore hit a 16-month high on November 11 of 292 pence in London, more than double the price from last year’s share sale. The stock fell 0.7% to 279.3 pence yesterday, valuing the company at $50bn.