Glencore’s 2024 numbers show why the share price fell sharply over the past 12 months (JSE: GLN)

Production volumes are down and so are key commodity prices

In the search for positives to share about 2024, Glencore kicks off their production report by noting the shareholder support that was achieved for retention of the coal business (genuinely an important thing) and the net overall addition to the mineral reserve base (also important of course). Alas, that’s where the positives largely end.

Glencore delivered production volumes within guidance ranges, but that doesn’t mean there was growth vs. the prior year. They had a number of issues in the first half of the year that were difficult to recovery from, so a valiant effort in the second half got them back within guidance but couldn’t achieve much more than that.

Copper production was down 4% on a like-for-like basis for the year and up 6% in the second half of the year vs. the first half. That momentum will hopefully continue into 2025.

Another metal worth touching on is nickel, where there are huge issues globally in terms of demand vs. supply. Glencore transitioned a major producing asset into care and maintenance in the first quarter of the year, which tells you a lot about the dynamics in that metal.

Steelmaking coal was the highlight, with production up 165% – but of course, that’s not on a like-for-like basis. This includes the acquisition of Elk Valley Resources in July 2024. Australian steelmaking coal production was flat year-on-year.

There are many more metals in the group and you can refer to the production report for all the details. I’ll move on now to commodity pricing, which was a problem in 2024. Copper was down 5%, zinc fell 1% and averages prices on steelmaking coal fell by a nasty 24.6%, just to name a few examples.

With the exception of copper, at least those metals saw a drop in estimated unit costs of production at Glencore, so that’s a partially mitigating factor.

The share price is down 20% over 12 months and a glance at these production metrics and commodity prices can quickly explain why.

Kore Potash remains confident in the Summit Consortium as potential funding partner (JSE: KP2)

Although they are the obvious solution, Kore Potash isn’t compelled to accept a Summit funding package

Kore Potash has released a review of the quarter ended December 2024. The all-important EPC contract for the Kola Project was signed in Brazzaville in November 2024, so the focus is now on putting together the money required for the project.

The fixed price contract is worth $1.93 billion. Much as the fixed price nature of the deal de-risks things for Kore Potash, that’s still a massive number to try raise. Kore Potash certainly has a lot of faith in the Summit Consortium coming through with a funding deal, not least of all because of a 10-year relationship and Summit’s track record in raising equity financing for Kore Potash in the early days of the project.

Interestingly, the memorandum of understanding with Summit envisages raising the funding via a mix of debt and royalty financing. The Republic of Congo would retain a 10% stake in Kola, with Kore Potash as the other 90%. Although such a structure might avoid a dilution in equity percentage ownership, royalty deals obviously give away a portion of the future economics in exchange for funding to get the project off the ground.

The Summit Consortium is expected to have full security over the Kola project as part of the funding package. Importantly though, Kore Potash isn’t obligated to accept a funding proposal from the Summit Consortium and could shop it around if the funding is too expensive or has other issues.

From a timing perspective, Summit is expected to provide a proposal by the end of February 2025. In the meantime, Kore Potash is sitting with $1.34 million in cash to keep things going.

The share price is up a ridiculous 285% in the past year. If they can get a suitable funding package done, that takes another layer of risk out of the story.

Sirius: a good example of how property groups manage their debt (JSE: SRE)

Debt can be raised at property level and/or at group level

Sirius Real Estate always seems to have a deal pipeline and a plan to get those deals done. When they aren’t raising equity capital on the market, they are tapping the bond market for debt. Recently, they raised €350 million through a corporate bond issuance that was five times oversubscribed! It matures in 2032 and is priced at 4%.

Now, the way we use the term “bond” in our day-to-day lives would make you think that this is like getting a loan for a house. A mortgage may be a type of bond, but not all bonds are mortgages. Bonds are simply debt instruments and they can be structured in a zillion different ways. For example, Sirius’ recent bond issuance was an unsecured structure, which means investors in those instruments are relying on the aggregate cash flows across the group rather than the cash from a particular property against which they hold that property as security.

Naturally, investors demand a higher return for unsecured debt, which is why it was priced at 4%. Where it makes sense to do so, it is cheaper for Sirius to raise debt against specific properties on a secured basis. They’ve now given us an example of this, with a 5-year loan at 3.264% as a refinancing of an existing asset in Saarbrücken. It’s only a €13 million bond and thus vastly smaller than the large bond issuance, which already tells you why the unsecured issuance was necessary, but it’s a great example of the different types of funding options available to property funds and how they can use these options to tweak the weighted average debt maturity and related funding cost.

Speaking of those metrics, Sirius’ weighted average debt maturity is 4.2 years (up from 3.5 years as at September 2024) and the average cost of debt is 2.6% (up from 2.1% as at September 2024). As rates have moved higher since much of the debt was raised in the pandemic, the weighted average cost naturally moves higher.

Nibbles:

• Director dealings:
  • You may recall seeing a number of large hedge transaction by Discovery (JSE: DSY) directors last year. No doubt linked to those trades and structures, Barry Swartzberg has terminated a security pledge arrangement related to shares worth a whopping R993 million. Not all balance sheets are created equal, that’s for sure!
  • An executive director of Richemont (JSE: CFR) sold shares worth over R33 million. These shares were linked to stock-based awards but the announcement doesn’t indicate whether this was the taxable portion.
  • It’s common in the property market to see directors put in place loan arrangements with the shares pledged as security. It works well because of the strong underlying dividend yield and the liquid nature of most companies in the sector. One such example is a director of Equites Property Fund (JSE: EQU), with a restructured loan that has been reduced slightly to R13.1 million and extended out to 2028.

• Orion Minerals (JSE: ORN) announced that conditions for its B-BBEE transaction have been fulfilled. This allows the New Okiep Mining Company to move into project financing stage, having had its feasibility study signed off by major partners. The next step is a definitive feasibility study (DFS), expected to be completed by the end of February. They are busy with much the same process at the Prieska Copper Zinc Mine, with that DFS expected to be released by the end of March.

• Sebata Holdings (JSE: SEB) has experienced a delay in finalising its financials for the six months to September 2024. They now expect to release them by the end of January.