Glencore (LSE:GLEN, Financial), headquartered in Switzerland and one of the world’s largest mining firms and commodities traders, was the largest contributor for the quarter, returning 38%. The company’s first-quarter production was lower than a year earlier, specifically for copper, cobalt, coal and ferrochrome, though its zinc, nickel and oil output increased. Management reduced full-year production guidance across commodities due to operational disruption from the coronavirus and also postponed some investment work. However, in our assessment, the disruptive effects should not have a material impact on the company’s value. Furthermore, we were pleasantly surprised that overall cost guidance for 2020 fell while we had expected an increase. The combination of the company’s cost-cutting efforts, lower input prices (particularly diesel fuel) and beneficial currency exchange rates helped reduce the cost position across a number of Glencore’s operations. In addition, management decreased full-year capital expenditure guidance by $1-1.5 billion, which will support free cash flow generation in the current year. Finally, the company noted that its marketing segment has performed in line with the annual earnings guidance of $2.2-3.2 billion, despite significant volatility in commodities markets, particularly oil. Despite the share price increase during the quarter, we believe that Glencore remains an attractive investment.
From David Herro (Trades, Portfolio)'s Oakmark International Fund's second-quarter 2020 shareholder commentary.
