In our view, Glencore (LSE:GLEN, Financial) (Switzerland) delivered a solid fiscal-year 2021 earnings report due to significantly improved year-over-year financial metrics, driven by both the mining business, where higher prices supported strong profitability, and the marketing business, which benefited from rising prices, supply constraints and inventory drawdowns. Glencore’s free-cash-flow generation was quite robust and resulted in net debt of just $6 billion, which is a record low 0.3x EBITDA and well below the $10-$16 billion range targeted by the company. Back in mid-February, guidance already suggested significantly higher earnings and cash flow, compared to 2022, due to significantly higher commodity prices across the board. This has been further amplified by additional price surges for most of the commodities that Glencore mines, including copper, cobalt, zinc, nickel and thermal coal. As a result, Glencore should report a substantial amount of free cash flow and incremental shareholder returns for the year. We recently met with CEO Gary Nagle and CFO Steve Kalmin and discussed the massive impact the crisis in Ukraine is having on Glencore’s markets. In many cases, realized prices significantly exceed index prices due to very tight physical markets. Management reiterated its commitment to pay out all excess cash below $10 billion of net debt to shareholders and noted that the company now has 27 assets that are either in the process of being sold or are under consideration for sale. This is in addition to the nine assets already sold under the portfolio simplification. We appreciate Nagle’s focus on efficiency and returns, and we believe the company continues to trade at a large discount to our perception of its intrinsic value.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund first-quarter 2022 commentary.
