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Glencore slashes zinc production and jobs Glencore slashes zinc production and jobs
(about 9 hours later)
Glencore, the embattled FTSE 100 miner and commodities trader, has said it will cut one third of its annual zinc output in an attempt to ride out weak commodities prices. Glencore, the embattled FTSE 100 miner and commodities trader, sparked the biggest rally in a decade in zinc prices on Friday after announcing it would cut one third of its annual production of the silver-grey industrial metal.
The company said it will cut 500,000 tonnes of zinc production, or around 4% of global supply, which will result in the loss of up to 1,600 jobs. Up to 1,600 jobs will be lost as a result of the move to cut 500,000 tonnes of zinc production, or about 4% of global supply. The company, the world’s largest miner of zinc ore, said at current prices it was better to keep its resources in the ground.
The move will affect about a third of the company’s annual zinc output, mostly from mines in Australia, where 535 jobs will be lost, as well as operations in South America and Kazakhstan. “Glencore believes that current prices do not correctly value the scarcity of our zinc resources,” the company said.
The price of zinc, mainly used to coat steel and in roofing, has fallen 30% since May to five-year lows. But it jumped 12% after the announcement to reach the highest level for two months and record the biggest one-day gain in 10 years. Other commodities, including lead and nickel, were propelled higher.
About a third of Glencore’s annual zinc output will be stopped, mostly from mines in Australia, where 535 jobs will be lost. Operations in South America and Kazakhstan will also be affected.
The zinc cuts come on top of an array of measures Glencore announced last month to help it slash its $30bn (£19bn) in net debt by a third, including lower copper production, suspension of its dividends and a sale of new shares.The zinc cuts come on top of an array of measures Glencore announced last month to help it slash its $30bn (£19bn) in net debt by a third, including lower copper production, suspension of its dividends and a sale of new shares.
Shares in the company slumped to a record low in August after tumbling prices for coal and metals linked to slowing Chinese demand hit first-half profits. Shares in the company have endured a rollercoaster ride, slumping to a record low last month of 68.62p but they have since recouped their losses and ended Friday 7% higher at 129p. At flotation in 2011, the shares were priced at 530p.
Related: Glencore: how did it go so wrong, again?Related: Glencore: how did it go so wrong, again?
The company, the world’s largest miner of zinc ore, said at current prices it was better to keep its resources in the ground. Zinc prices have fallen 30% since May to five-year lows. The cuts will reduce the company’s fourth quarter zinc production by 100,000 tonnes. It had previously expected to produce between 1.52m tonnes and 1.57m tonnes of the metal this year.
“Glencore believes that current prices do not correctly value the scarcity of our zinc resources,” a statement to the Hong Kong stock exchange said. “Glencore remains positive about the medium and long term outlook for zinc, lead and silver. However, we are taking a proactive approach to manage our production in response to current prices,” it said.
The cuts will reduce the company’s fourth quarter production by 100,000 tonnes. It had previously expected to produce between 1.52m tonnes and 1.57m tonnes of zinc this year. The majority of the job losses are expected to be in Peru. In Australia, operations at the Lady Loretta mine in Queensland will be temporarily suspended, while output will be reduced at the George Fisher mine in Queensland and McArthur River mine in the Northern Territory.
“Glencore remains positive about the medium and long term outlook for zinc, lead and silver, however we are taking a proactive approach to manage our production in response to current prices,” it said.
A Glencore spokesman in Australia declined to say how much the output cut would save in working capital or pay, or how long it expected the cuts to last. The majority of the job losses are expected to be in Peru. In Australia, operations at the Lady Loretta mine in Queensland will be temporarily suspended, while output will be reduced at the George Fisher mine in Queensland and McArthur River mine in the Northern Territory.
Shares in Glencore in London rose by 5.5% to 127.3p this morning. At flotation in 2011, the company’s shares were priced at 530p. Zinc prices surged 4% following the announcement.
“They have certainly come out on the front foot in shuttering capacity which is obviously a good first step,” said analyst Daniel Hynes of ANZ in Sydney. “We need to see these type of cuts by the wider market before the market will get confident that the metals market balance will tighten.”
Three month zinc on the London Metal Exchange (LME) jumped 4.1% to $1,736 a tonne. Shanghai zinc gained 2.3% to 14,140 yuan ($2,227) a tonne.
Shares in the firm have fluctuated wildly amid investor fears that sinking commodity prices will affect its ability to meet outstanding debt obligations.