Copper Expansion And Cost Savings Will Drive A Stronger Long Term Earnings Outlook

Catalysts

About Glencore

Glencore is a diversified natural resources group that produces and markets metals, energy products and related commodities worldwide.

What are the underlying business or industry changes driving this perspective?

• Significant second half copper production uplift, underpinned by ore access and mine sequencing rather than selective mining, positions the copper division to move toward a 1 million tonne profile by 2028. This supports higher EBITDA and cash flow from improved volumes and unit costs.
• Large scale, long life Argentinian copper growth options at MARA and El Pachon, combined with supportive policy initiatives such as RIGI, provide a pathway to roughly 1 million tonnes of additional copper equivalent capacity over time. This may materially enhance future revenue and earnings visibility.
• The marketing range has been reset higher to 2.3 billion to 3.5 billion dollars, driven by structurally tighter copper and zinc markets and increasing trade dislocations from tariffs. This signals a sustained uplift in higher return marketing EBIT and more resilient group margins.
• EVR’s multi decade, low cost Tier 1 steelmaking coal position, together with emerging supply discipline and rationalisation in China and the United States, may enhance pricing power and portfolio mix. This could lift met coal margins and support stronger industrial EBITDA through the cycle.
• Roughly 1 billion dollars of recurring annualised cost savings, heavily weighted to core copper, coal and zinc nickel assets, is expected to more than offset inflation and embed structurally lower operating costs. This may support higher net margins and incremental free cash flow from 2026 onward.

Assumptions

This narrative explores a more optimistic perspective on Glencore compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Glencore's revenue will grow by 6.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.9% today to 3.5% in 3 years time.
• The bullish analysts expect earnings to reach $9.8 billion (and earnings per share of $0.86) by about December 2028, up from $-2.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $6.2 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.4x on those 2028 earnings, up from -28.9x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 17.2x.
• The bullish analysts expect the number of shares outstanding to decline by 1.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Glencore’s earnings remain heavily exposed to volatile coal and steelmaking coal markets, and while management expects recent price weakness to reverse, prolonged oversupply or structurally lower demand from decarbonisation and Chinese steel export normalization could keep benchmark prices and quality premia depressed, limiting any recovery in revenue and constraining industrial EBITDA growth.
• The bullish case depends on a sharp second half copper volume uplift and a path back to 1 million tonnes by 2028. This requires flawless execution on mine sequencing, geotechnical remediation and land access at assets like KCC, Collahuasi and Antamina. Any delay, operational setback or inability to sustain nameplate throughput would undermine copper volumes, push up unit costs and cap the anticipated margin expansion and earnings growth.
• A key pillar of the narrative is roughly $1 billion of recurring cost savings by 2026, but these gains may be eroded over time by inflation in energy, consumables, contractors and royalties or by the need to reinstate resources if reliability suffers. This would blunt the intended structural reduction in operating costs and limit improvements in net margins and free cash flow.
• Long dated copper growth options in Argentina and Peru, such as MARA, El Pachon and Coroccohuayco, rely on favourable fiscal regimes, successful RIGI approvals and supportive commodity prices. Political risk, permitting delays or weaker long term copper demand could defer final investment decisions and lower project returns, reducing the future production base that underpins the higher revenue and earnings assumed for the late 2020s.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Glencore is £4.71, which represents up to two standard deviations above the consensus price target of £4.1. This valuation is based on what can be assumed as the expectations of Glencore's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.71, and the most bearish reporting a price target of just £3.17.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $278.3 billion, earnings will come to $9.8 billion, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of £3.8, the analyst price target of £4.71 is 19.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.