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Glencore doubles down on debt reduction

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World Coal,

Glencore is to reduce its 2016 coal production by 22 – 27 million t compared to its original guidance, the company has said in an investor presentation. That comes on top of the 20 million t of managed production cuts in coal output this year.

The company’s coal production guidance for 2016 now stands at 127 – 133 million t. And that may not be the end of the cuts with the company saying it may implement further cuts if prices fall further.

The cuts to coal output form part of a swath of production cuts that will reduce the mining and trading giant’s copper, zinc, lead, nickel, ferrochrome and oil production. Glencore also said that it was increasing its debt reduction target to US$13 billion from US$10.2 billion by the end of 2016, having already achieved US$8.7 billion of savings.

As well as production, the company is taking an ax to its CAPEX, reducing it from US$11 billion to US$9.5 billion over 2015 and 2016 with cuts coming to coal projects in Australia and South Africa.

If successful, the company’s net debt would stand at US$18 – 19 billion by the end of 2016. This compares to a net debt of US$30.5 billion in December 2014.

Glencore’s share price has been one of the worst performers on the London Stock Exchange amid concerns over the size of the company’s debt and the prolonged weakness in commodity prices.

But while it was initially slow to respond to the more challenging environment – leading to a mini-crash in its share price in September – the moves taken since seemed to have reassured investors, as well as teaching the company a lesson.

“We want to have the balance sheet in a position where the ‘what ifs’ don’t affect us,” Glasenberg told investors, referring to the incident in September when hedge funds questioned whether Glencore’s equity would retain any value if the copper prices fell to under UD$4000 per tonne.

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