In an Oct. 26, 2018, research note, BMO Capital Markets analyst Edward Sterck reported that due to a "slightly light" Q3/18 for Glencore International Plc (GLEN:LSE), for it to meet the lower end of 2018 guidance will require "a 6% acceleration of output in Q4/18 versus Q3/18, which is certainly possible but suggests that going above the midpoint could be a challenge."
Sterck reviewed how key products of Glencore fared in terms of production during Q3/18. Cobalt, lead, and thermal and met coal did well. Cobalt beat BMO's forecast by 12%, driven by stronger-than-expected output at Katanga and Mutanda. Lead was a beat, too, by 3%. Thermal and met coal were in line and up 11% over Q2/18.
Nickel, copper and zinc were misses. Nickel was 18% lower than BMO's expectation, resulting from weaker-than-expected performance at Sudbury and Murrin Murrin. Copper missed by 4% mostly due to lower-than-anticipated output from Mopani and the Australian assets. Zinc was 3% less than the forecast due to slightly decreased production at Mount Isa and the North American mines.
Looking forward, Sterck noted, for Glencore to attain the midpoint of guidance, it needs to boost copper, zinc, nickel and coal production each, by 10%, 6%, 45% and 2%, respectively, in Q4/18.
Sterck concluded that overall, it appears the company could attain the midpoint of production guidance by year-end 2018 but likely would not surpass it. The midpoint level is a drop from Glencore's previous guidance, which was in the upper range, of US$2.2–3.2 billion, and BMO's projection of US$3 billion.
BMO has an Outperform rating and a £4.50 per share target price on Glencore. The miner's stock is trading today at around £3.18 per share.
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Disclosures from BMO Capital Markets, Glencore International, October 26, 2018
IMPORTANT DISCLOSURES
Analyst's Certification
We, David Gagliano and Edward Sterck, hereby certify that the views expressed in this report accurately reflect our personal views about the subject securities or issuers. We also certify that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Glencore within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Glencore within the past 12 months.
Disclosure 6A: Glencore is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services
Disclosure 9C: BMO Capital Markets makes a market in Glencore in Europe.
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