Glencore (LSE:GLEN) is a mining company that operates globally. It mostly specialises in the extraction of base metals, like nickel, iron ore, and copper. Recently, this firm has been benefiting from high metal prices, so should I buy shares? The current Glencore share price is 537p, up 64% in the past year. Let’s take a closer look.
Increased demand for metal
There are a number of reasons for rising metal prices over recent months. With increased market volatility, many investors have sought more solid investments in the commodity markets.
In addition, there has been a massive uptick in demand following the pandemic. As economies continue to reopen, more metal is required for construction, for instance.
Finally, the war in Ukraine has escalated fears over the supply of many base metals, particularly nickel.
The has all led to higher metal prices and, by extension, increased the value of what Glencore is mining and producing.
Unsurprisingly, this state of affairs has resulted in the company paying a total of £3bn back to shareholders through dividends and a share buyback scheme. This comes after an 84% rise in underlying earnings during 2021.
This is a strong indication that the business is in a healthy state. As a potential investor, I’m therefore attracted both by growth prospects and acquiring an income stream.
Glencore’s production during the three months to 31 March has been mixed. While nickel and cobalt production grew by 22% and 43%, respectively, copper and zinc fell by 14% and 15%.
This is primarily due to supply chain issues and worker absences. While these factors have affected production, and continue to do so, I view them as fundamentally short-term in nature. I think they could subside soon.
Shining financial results
In contrast, financial results show that the firm has been flourishing over the past year. Between 2020 and 2021, revenue increased from $142bn to $203bn.
In addition, the business swung from a 2020 pre-tax loss of $5bn to a pre-tax profit of $7.3bn in 2021.
While past performance is not necessarily indicative of future performance, it is encouraging to see such resilience after the pandemic.
Furthermore, the firm’s earnings per share (EPS) have grown from ¢34 to ¢52 between 2017 and 2021. By my calculation, this means Glencore has a compound annual EPS growth rate of 8.9%. This is both strong and consistent.
The recent sale of one of its Australian copper mines to Metals Acquisition Corp will also provide $1.1bn to bolster the company’s balance sheet.
Overall, Glencore is benefiting from higher metals prices and has recorded some impressive financial results. While there are still disruptions to production, I think the business will continue selling base metals into a very tight market. This can only be good news for Glencore and I will be buying shares soon.
