When I look back over the last five years, the Glencore (LSE: GLEN) share price has been on a huge roller coaster. Extraordinary market dislocation back in 2022 enabled it to deliver record profits and bumper returns. But since those dizzy highs, the stock has fallen over 40%. But now is not the time for me to panic and sell.
Enhanced shareholder returns
One fact that I have long liked about the business is its upfront dividend framework. Each year, it returns $1bn from its marketing operation and 25% of cash flows from its industrial sector to shareholders.
In 2025, it intends to pay out $1.2bn. Equivalent to $0.10 per share, that equates to a dividend yield of 2.5%. Nothing much to shout home about, one might say; but that figure is just the baseline.
Share buybacks
Another major contributor of shareholder returns this year will be buybacks. By August, Glencore will have bought back $1bn of its own shares. This will be funded from the sale of its agricultural business, Viterra.
However, that is not all. As part of the deal to sell Viterra, it will acquire 16% of the shares of the new owner, Bunge. It’s now actively looking into ways that it can accelerate returns to shareholders from this holding.
In total, over the past few years, it has bought back 10% of its entire stock. If the share price was flying high, then I might question this policy. Nothing could be further from the truth, though.
It has made it clear that as long as its share price remains depressed it will keep buying. This makes perfect sense to me.
It could use its free cash flow to go out and buy another mining company. But if it did that it would need to undertake due diligence as well as pay a premium for the miner’s assets. But with buybacks none of that matters. After all, it knows it assets better than anybody else.
Risks
One of the main reasons why a miner’s share price can fluctuate so wildly is because its profits are dictated by underlying commodity prices.
Coal, which continues to make up the vast majority of Glencore’s revenues, were extremely weak in 2024. Steelmaking coal prices fell 19% and energy coal fell 22%.
One issue that remains high on my radar is continued weakness in its smelting business. Record low treatment and refining charges for copper concentrates is leading to loss-making operations. It has already shut its Portovesme smelter. It is now actively looking at closing its smelters in South Africa.
Despite the undoubted short-term risks, I expect its share price to be trading significantly higher over the next decade and more. I remain absolutely convinced that a re-rate will come.
Copper is the metal that will transform the fortunes of Glencore. Demand for the red metal is predicted to surge over the next 20 years. Grid infrastructure, data centres, heat pumps, EVs. Copper is the common denominator. Without it, net zero and the AI revolution will be but a pipe dream.
The company is fron- running a re-rate by buying back its own stock, at rock bottom prices. And I am simply following its lead. That is why I recently bought some more of its shares for my Stocks and Shares ISA.
