Bank of America Merrill Lyncha85b1c58-a7d2-4e27-b008... · 2019-11-27 · Bank of America Merrill Lynch 2019 Global Metals, Mining & Steel Conference Important notice concerning this

Bank of America Merrill Lynch2019 Global Metals, Mining & Steel Conference

Beyond China: can metals and mining transcend its biggest customer?


Important notice concerning this document including forward looking statementsThis 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 “outlook”, "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. 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 disclosed in Glencore’s 2018 Annual Report published in early March 2019.For example, our future revenues from our assets, projects or mines will be based, in part, on the market price of the commodity products produced, which may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include (without limitation) the ability to produce and transport products profitably, demand for our products, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, the effect of foreign currency exchange rates on market prices and operating costs, and actions by governmental authorities, such as changes in taxation or regulation, and political uncertainty.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. Except as required by applicable regulations or by law, 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 past performance cannot be relied on as a guide to future performance. 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 companies in which Glencore plc directly and indirectly has an interest are separate and distinct legal entities. In this document, “Glencore”, “Glencore group” and “Group” are used for convenience only where references are made to Glencore plc and its subsidiaries in general. These collective expressions are used for ease of reference only and do not imply any other relationship between the companies. Likewise, the words “we”, “us” and “our” are also used to refer collectively to members of the Group or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies.

1


2Conference themeBeyond China, can metals and mining transcend its biggest customer?

Yes, the metals and mining industry can transcend its biggest customer• China’s ascendency to become the world’s second largest economy has shaped our industry through

investment in supply to feed its manufacturing-led demand• Although it is transitioning to a more balanced economy, China is expected to remain a material

consumer of commodities

It’s all about demographics• Global population and living standards should continue to rise• Commodities are essential to the continued urbanisation and industrialisation of Africa and Asia

New energy materials • Commodities also underpin the electrification of mobility, a key contributor to de-carbonising

transport. More than 140M EVs are forecast on the road by 2030 and 620M by 2040(1)

• Significant new sources of material supply will be needed to feed this EV demand, as well as energy storage applications in power supply

Glencore is uniquely positioned• We are a major supplier of the materials that enable the energy and mobility transition• Our competitive, premium quality, high-energy thermal coal supports economic development in Asia

Source: (1) BNEF Long-Term Electric Vehicle Outlook 2018.

The story so far


4The story so far China today consumes around half of many of the world’s major commodities and was responsible for most of the demand growth so far this century

2019 Global Metals, Mining & Steel ConferenceBank of America Merrill Lynch

Global iron Ore

Source: Wood Mackenzie Q1 2019 Long-Term outlook, Copper, Zinc, Iron OreNotes: Chinese total iron ore demand has increased from 202Mt in 2000 to 1.2bn t in 2018. RoW iron ore demand has increased from 738Mtpa to 887Mtpa over same periodChinese total copper demand has increased from 1.85Mt in 2000 to 11.6Mt in 2018. RoW copper demand has declined from 13.3Mtpa to 12.0Mtpa over same periodChinese total zinc demand has increased from 1.35Mt in 2000 to 6.88Mt in 2018. RoW zinc demand has declined from 7.6Mtpa to 7.3Mtpa over same period

Copper Zinc

Iron ore demand growth since 2000 (Mtpa) Copper demand growth since 2000 (ktpa) Zinc demand growth since 2000 (ktpa)

0%

10%

20%

30%

40%

50%

60%

2000 2003 2006 2009 2012 2015 20180%

10%

20%

30%

40%

50%

60%

2000 2003 2006 2009 2012 2015 2018

-4000

-2000

0

2000

4000

6000

8000

10000

2000 2003 2006 2009 2012 2015 2018

China ROW

+9.7Mtpa

-1.4Mtpa-2000

0

2000

4000

6000

2000 2003 2006 2009 2012 2015 2018

China ROW

0%

10%

20%

30%

40%

50%

60%

2000 2003 2006 2009 2012 2015 2018

-500

0

500

1000

1500

2000 2003 2006 2009 2012 2015 2018

China ROW

58%China’s share of

2018 iron ore demand

+1 bn tpa

+150Mtpa

+5.5Mtpa

-0.3Mtpa


2018 copper demand


2018 zinc demand

This is first use demand –China then exports to RoW

5The story so far Our industry has made significant investments in supply to meet this growth …

2019 Global Metals, Mining & Steel ConferenceBank of America Merrill Lynch Source: (1) Citi. (2) Morgan Stanley Research, Wood Mackenzie, Glencore estimates

At the peak, we invested an additional $800+ billion(1) … … to grow supply since the turn of the century(2)

100

200

300

400

500

600

700

800

900

1000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

USD billion

Mining sector capital employed

Seaborne Iron Ore (bn tpa) Copper (Mtpa)

Zinc (Mtpa) Nickel (Mtpa)

14

16

18

20

22

24

2000 2006 2012 2018

+63%+9.1Mtpa

0.3

0.5

0.7

0.9

1.1

1.3

1.5

2000 2006 2012 2018

8

9

10

11

12

13

14

2000 2006 2012 20181.0

1.2

1.4

1.6

1.8

2.0

2.2

2000 2006 2012 2018

+247%+1.1bn tpa

+48%+4.3Mtpa

+97%+1.1Mtpa

6The story so far … and commodities have played a key role in China’s ascendency

2019 Global Metals, Mining & Steel ConferenceBank of America Merrill Lynch Source: Bloomberg, NBS, IMF, World Bank, Xinhuanet

China has created a manufacturing powerhouse … … that is now the world’s second largest economy

0

5

10

15

20

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

200

0

200

2

200

4

200

6

200

8

2010

2012

2014

2016

2018

0

10000

20000

30000

40000

50000

60000

70000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

200

020

02

200

420

06

200

820

1020

1220

1420

1620

18

$81.2 trillionfixed asset investment since 1981

USA

China

RMB billion GDP USD trillion in current $

$20.5 tr

$13.4 tr

7The story so farBut China’s manufacturing-heavy growth is now transitioning to consumer-led growth


Manufacturing is declining as a growth driver(1) …

Source: (1) Bloomberg, NBS. (2) The World Bank, OECD National Accounts, CIA World Fact Book.

… and the commodities China consumes will transition as services command a greater share of GDP(1)

40%

45%

50%

55%

60%

65%

70%

75%

80%

2004 2006 2008 2010 2012 2014 2016

China: 52%USA: 80%

UK: 79%France: 79%Japan: 68%

India: 62%

70% to 80% target for services share

of GDP

5%

10%

15%

20%

25%

30%

2004 2006 2008 2010 2012 2014 2016 2018

Change in fixed asset investment China services sector share of GDP

8The story so farLike the past, the future for our industry is tied to demographics - rising living standards and industrialisation/urbanisation of highly populous nations will remain key drivers of commodity demand


China is forecast to add a further 170M people to urban centers by 2030(1)

Source: (1) Urban China, towards efficient, inclusive and sustainable urbanization, World Bank and Development Research Center of the State Council, The Peoples Republic of China, NBS – 2018 population 1.395 billion. (2) United Nations Population Division, World Population Prospects: The 2017 Revision, median prediction interval

The world population is projected to grow by c.1.2bn people by 2030 and c.2.4bn people by 2050(2)

80

100

120

140

160

180

200

220

2015 2020 2025 2030 2035 2040 2045 2050

Africa: +1.3bn

Asia: +840M

15%

25%

35%

45%

55%

65%

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

2030F:70% (1bn)

Europe: -25M

Indexed population growth projections: 2015=100

Latin America: +147M

2018: 59.6% (c.830M people)

urban population c.170M more people expected

to live in urban centers by 2030

Per cent China urban population

Africa to become the fastest urbanisingcontinent

By 2050India: +350MNigeria: +229MDRC: +121MPakistan: +118MEthiopia: +91M

Key changes by 2050

9The power of demographicsLifting global living standards to Developed World levels by 2050 will require 2.5x the copper installed in the world today …


Existing copper in the economy(1)An additional 428Mt of copper is required for living standards equivalence by 2050(1)

Million tonnes copperInstalled copper stock (kg/capita)

61kg

26kg

0

10

20

30

40

50

60

70

Developed World Global Average

Source: (1) ESG: Beyond Ratings and scores – Fatalities, safety and artisanal mining. Assessing the social contribution of mining. Bernstein, 20 September 2018, population growth assumes global population of 9.8bn people by 2050

173Mt

601Mt

0

100

200

300

400

500

600

700

Current global stock Required global stock

+428Mt

+35kg

For developed world per capita equivalence

China’s ascendency has shaped our industry• We have significantly expanded supply of commodities to feed China’s rapid industrialisation• China will remain a major consumer of commodities for the foreseeable future - underpinned by

continued urbanisation, rising incomes and indirectly through the ambitious 65 country infrastructure plans of the One Belt, One Road initiative

The future need for the commodities we produce is likely to be similar to the past – it’s all about demographics• The global population and living standards should continue to rise• Continued urbanisation/industrialisation will underpin consumption of the early cycle commodities,

particularly in Africa, and later cycle commodities across Asia, to support the estimated additional 2.1 billion people in these regions by 2050

The pace and form of future commodity demand will be heavily influenced by the various transition pathways that seek to achieve the de-carbonisation goals of the Paris climate change agreement


The story so farOur industry can transcend China’s journey to a consumption led economy

10

The energy and mobility transition


12Electrification of transport relies on the large scale replacement of ICE with EVsThe mobility transition is a major new source of material demand: >140M EVs forecast on the road by 2030(1)


Copper: +3Mtpa by 2030

Source: (1) BNEF Long-Term Electric Vehicle Outlook 2018. (2) Glencore estimates, Wood Mackenzie, CRU, BNEF. Does not include the copper, nickel or cobalt required for other parts of the EV supply chain including charging infrastructure, energy storage systems, grid

Nickel: +1.3Mtpa by 2030 Cobalt: +263ktpa by 2030

0.2 0.3

1.1

3.0

2018 2020F 2025F 2030F

0.8% 1.3%

4.5%

12.6%

2018 2020F 2025F 2030F

0.06 0.11

0.40

1.30

2018 2020F 2025F 2030F

14 26

131

263

2018 2020F 2025F 2030F

3% 5%

18%

59%

2018 2020F 2025F 2030F

11% 21%

104%

209%

2018 2020 2025 2030

Contained copper in EVs (Mt)(2) Contained nickel in EVs (Mt)(2) Contained cobalt in EVs (kt)(2)

EV Cu demand as % of 2018 Cu supply

EV Ni demand as % of 2018 Ni supply

EV Co demand as % of 2018 Co supply

13Copper supply – meeting the EV challengeStructural deficits likely even with 100% of probable project pipeline

2019 Global Metals, Mining & Steel ConferenceBank of America Merrill Lynch Source: (1) Glencore estimates, Wood Mackenzie, CRU. Does not include the copper required for other parts of the EV supply chain including charging infrastructure,

energy storage systems, grid

Historical demand trends imply continued copper deficits(1)

0.3%0.6%

0.3%

-1.0%

0.4%

1.0%1.3%

-0.4%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2019 2020F 2025F 2030FBase production Base + 100% Probable projects

Mt copperFive year demand CAGR: 2.7% pa

Minimum copper demand needed for inventory draw(1)

17.0

19.0

21.0

23.0

25.0

27.0

29.0

31.0

33.0

35.0

2015 2020F 2025F 2030F

Base + 100% Probable projects Base production

Five yeardemand CAGR:

2.7% pa

• In 2025… EV demand is equivalent to half of new supply from all Probable projects (assuming 100% are built)

• By 2030… EV demand is equivalent to almost double total new supply from all Probable projects

14Nickel supply – meeting the EV challengeIndonesian nickel production growth unlikely to balance the market

2019 Global Metals, Mining & Steel ConferenceBank of America Merrill Lynch Source: (1) Glencore estimates, Sell-side consensus data, Bloomberg New Energy Finance, CRU. Does not include the nickel required for other parts of the EV supply

chain including charging infrastructure, energy storage systems

0

1000

2000

3000

4000

5000

2015 2020F 2025F 2030FSupply Demand

Historical demand trends imply continued nickel deficits(1)

Five year demand CAGR:

5.6% pa

• Assumes Indonesian ore ban is reinstated , causing Chinese NPI to decline.

• Assumes 100Ktpa additional Ni supply from HPAL and Indonesian NPI can be realised

-1.2%

3.4%2.8% 3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2019 2020F 2025F 2030F

kt nickel Five year demand CAGR: 5.6% pa

Minimum nickel demand needed for inventory draw(1)

• EV demand growth offsets all new forecast nickel supply growth through to 2030

15Cobalt supply – meeting the EV challengeNew sources of supply/thrifting will be needed to balance the market medium/longer term


0

50

100

150

200

250

300

350

400

450

2015 2018 2025F 2030F

Demand: non EV Demand: EV Supply

Sources: (1) Glencore estimates, Sell-side consensus data, Bloomberg New Energy Finance, CRU. Does not include the cobalt required for other parts of the EV supply chain including charging infrastructure, energy storage systems

kt cobalt

As EV demand accelerates, securing cobalt will be key(1)

DRCAfrica (ex DRC)Latin AmericaNorth AmericaOceaniaOther

Majority of future cobalt supply is located in the DRC

2018 Cobalt supply by region(1)

88% 81%50% 36%

12% 19%50% 64%

2018 2020F 2025F 2030F

Non EV EV

EV share of total cobalt demand(1)


The energy and mobility transitionGrowing mine supply is difficult

Easily accessible high-quality resources are limited/rapidly running out• Remaining resources are increasingly hard to mine and often complicated by

challenging locations, lower grades, more complex mineralogy, poor infrastructure and sub-scale size

Social licence to operate increasingly difficult• Growing sovereign risks around the world and changing stakeholder

expectations

Mining sector valuations• Increasing cost of capital likely to constrain supply growth

16

Glencore: uniquely positioned


18Glencore – uniquely positionedLeading portfolio of new energy battery metals, large / efficient global diversified commodity merchant and a major supplier of high quality seaborne coal to Asia


Downside$4.9bn

Upside$10bn

Attractive commodities and high margin assets…… generating strong and sustainable cashflows, and compelling returns for shareholders

• Major supplier of the materials that enable the energy and mobility transition

• Leading supplier of high quality high energy coal to Asia

• Our commodity fundamentals are almost all in good shape, inventories are low

• Our quality assets deliver high margins

• Our plausible scenarios deliver strong annual free cash flow through the cycle of $5-10bn

• Well capitalised assets within an optimised balance sheet

• >$5bn likely distributions / buybacks in 2019

• #4 FTSE 100 shareholder return yield in 2019(1)

Illustrative FCF through the cycle(2) …

Note: (1) See slide 23, Preliminary Results 2018 presentation. (2) See slide 40, Preliminary Results 2018 presentation.

Top 3 Copper

Top 3

Cobalt

Nickel

Top 3

Top 5 Top 3 Zinc

Seaborne Energy Coal

Production ranking

Q&A


Appendix



Capital allocation2019 framework

Distributions / buybacks

M&A +Other

Maintain strong

BBB/Baa

Equity cash flows

• Our capital allocation framework balances:◦ Preservation of an optimal capital structure◦ Attractive business reinvestment/growth opportunities◦ Shareholder distributions

• Today we are of the view that its difficult to find a better investment than buying back our own shares◦ Current dislocation between share price levels and the

prospects, strength and embedded optionality in our business

• 2019 equity cash flows will be prioritised for:◦ Buybacks - funded by cash generation◦ Net funding – focus on selective RMI reduction,

consistently targeting levels below $20bn◦ Net debt – maintain $10-$16bn guidance range

• 2019 distributions and shareholder returns◦ $2.75bn base distribution of 2018 cash flows (20c/share)(1)

◦ $2bn new buyback program to end of 2019, with top-up if/as market conditions support, including from$1bn non-core targeted asset disposals

21

Notes: (1) See slide 33 Preliminary Results 2018 Presentation for 2019 Recommended distribution calculation


Production guidanceQ1 2019 Update

2018A 2019F 2020F 2021F Δ 2018-2021F

Copper(2) kt 1453.7 1460 ± 30 1500 ± 35 1500 ± 35 +3%

Cobalt(2) kt 42.2 57 ± 4 63 ± 7 68 ± 7 +74%

Zinc(3) kt 1068.1 1195 ± 30 1335 ± 30 1395 ± 30 +28%

Nickel kt 123.8 128 ± 5 140 ± 5 138 ± 5 +10%

Ferrochrome kt 1580 1640 ± 25 1640 ± 30 1640 ± 30 +2%

Coal Mt 129.4 145 ± 3 145 ± 3 145 ± 3 +10%

Oil – entitlement interest Mbbl 4.6 5.5 ± 0.2 7.4 ± 0.2 13.0 ± 0.2 +183%

Group guidance – own source(1)

22

Notes: (1) As per Q1 2019 Production Report 30 April 2019. (2) Katanga Mining production guidance under review – see Q1 2019 Production Report for details (3) Excludes Volcan


Key underlying EBITDA sensitivities

Approximate estimated impact on FY2019 EBITDA given a change of: $M$100/t on copper price 140

$10/t on NEWC thermal coal price 480

$10/t on coking coal (HCC) price 60

$100/t on zinc price 130

$1/lb on realized cobalt price 100

$1000/t on nickel price 140

Australian (1c AUD/USD) operations 50

South African (1 USD/ZAR) operations 130

Canadian (1c USD/CAD) operations 10

Chile (10 USD/CLP) operations 10

23

Source: Glencore, as of 10 May 2019. (1) Assumes new $2+1bn buyback completed by year-end at average GBP2.81 share price and 1.30 GBP/USDBank of America Merrill Lynch2019 Global Metals, Mining & Steel Conference

Buyback updateShares eligible for distribution

$2bn buy back completed

Addditional $2+1bn buy back announced at FY’18 results• $2bn - program to run to year end• $1bn – available via targeted disposal proceeds

• $0.55bn bought back to 10 May 2019

Shares eligible for distribution as at 10 May 2019(thousand shares):

Shares eligible for distribution (million shares)

12800

13300

13800

14300

FY14 H115 FY15 H116 FY16 H117 FY17 H118 FY18 H119 FY'19

Issued share capital

Shares eligible for distribution – issued share

capital less treasury and trust shares

Issued share capital 14,586,200 Less Treasury shares (@ 15 Feb 2019) 802,658 Less Trust shares(2) 170,130Shares eligible for distributions 13,613,412

FY18: 13832

FY19: 12942 (1)

10 May 2019: 13613

24


Own source production2013-2018 History

14931546

1502

1426

1310

1454

2013 2014 2015 2016 2017 2018

Copper (kt)

12381295

14621523 1531 1580

2013 2014 2015 2016 2017 2018

20.6

23.4

19.7

17.2

18.7

17.3

2013 2014 2015 2016 2017 2018

Zinc (kt) Lead (kt) Nickel (kt) Cobalt (kt)

1399 13871445

1094 1090 1068

2013 2014 2015 2016 2017 2018

7.3

6.0 5.9

5.3

6.1

7.5

2013 2014 2015 2016 2017 2018

22.9 22.7

17.3

12.110.0 10.0

2013 2014 2015 2016 2017 2018

315308

298 295

273 273

2013 2014 2015 2016 2017 2018

4.5

3.5 3.6

4.24.0 3.9

2013 2014 2015 2016 2017 2018

18.619.5

17.6 17.3

14.6

11.7

2013 2014 2015 2016 2017 2018

98 10196

115109

124

2013 2014 2015 2016 2017 2018

48.1

54.652.4 52.5

49.1

59.4

2013 2014 2015 2016 2017 2018

11.011.2 11.1

10.7 10.6

10.2

2013 2014 2015 2016 2017 2018

19 2123

28 27

42

2013 2014 2015 2016 2017 2018

5.1 5.4

3.9

5.6

7.5

9.4

2013 2014 2015 2016 2017 2018

5.0

7.4

10.6

7.5

5.0 4.6

2013 2014 2015 2016 2017 2018

Ferrochrome (kt) Coking coal (Mt) Semi-soft coking coal (Mt) AUS export thermal coal (Mt) AUS domestic thermal coal (Mt)

SA export thermal coal (Mt) SA domestic thermal coal (Mt) Prodeco thermal coal (Mt) Cerrejon thermal coal (Mt) Oil entitlement interest (Mbbl)

25


Responsibly sourcing the commodities that underpin everyday life

It is our responsibility to not only deliver financial performance but also make a positive contribution to society and operate in a responsible and transparent manner

Our sustainability strategy1) Health: Become a leader in the protection and improvement of our people’s and

communities’ wellbeing2) Safety: Become a leader in workplace safety, eliminating fatalities and injuries3) Environment: Minimise any negative impact from our operations and apply the

precautionary principle in decision making4) Community and human rights: Foster sustainable growth and respect human

rights wherever we operate

26


2019 Distribution timetableIn respect of 2018 cash flows

First tranche of proposed distribution 2019

Applicable exchange rate reference date (Johannesburg Stock Exchange (JSE)) Close of business (UK) 11 April

Applicable exchange rate announced on the JSE 12 April

Last day to effect removal of shares cum distribution between Jersey and JSE registers at commencement of trade 12 April

Last time to trade on JSE to be recorded in the register for distribution 23 April

Ex-distribution date (JSE) 24 April

Ex-distribution date (Jersey) 25 April

Distribution record date for JSE Close of business (SA) 26 April

Distribution record date in Jersey Close of business (UK) 26 April

Deadline for return of currency elections form (Shareholders on Jersey Register only) 29 April

Removal of shares between the Jersey and JSE registers permissible from 29 April

Applicable exchange rate reference date (Jersey) 1 May

Annual General Meeting (shareholder vote to approve aggregate 2018 distribution) 9 May

H1 distribution payment date 23 May

27

Documents

Bank of America Merrill Lyncha85b1c58-a7d2-4e27-b008... · 2019-11-27 · Bank of America Merrill Lynch 2019 Global Metals, Mining & Steel Conference Important notice concerning this