Glencore (Price: 365p | Target: 360p | Rec: Hold) A reasonable H1 production report.

Copper output of 741kt (Investec 741kt) was up 13% yoy as African Copper ramps up while zinc output of 650.4kt (Investec 636kt) was down 11% yoy due to the previously announced shutdowns of two mines.

Nickel was 49.1kt (Investec 48kt), down 8% yoy with certain mines on care and maintenance.

Coal production of 71.2kt (Investec 70kt) was up 5% yoy and oil output of 14.0mmbbl (Investec 14.15mmbbl) was up 41% yoy as output continues to build.

We have raised our target price following these results and retain our Hold. * We look forward to further improvements in H2, particularly in the Metals & Minerals division.

Expansions in African copper and Australian zinc operations are set to deliver higher volumes, supporting earnings growth, to take full-year group own production to our target of 1.57mt Cu and 1.51mt Zn, versus 1.5mt Cu and 1.4mt Zn in 2013 on a pro forma basis.

Nickel could be an exciting space for Glencore with the Indonesian unprocessed minerals ban likely to stay, which could well lead to a material escalation in nickel prices next year.

Key to Glencore will be progress at Koniambo and getting it ramped up toward 55ktpa by FY16E.

At our base case, nickel EBITDA is expected to rise from US$1,068m in FY14E to US$1,771m by FY16E; yet if nickel were to average US$25,000/t in FY16E, then divisional EBITDA could reach US$2.7bn. * Coal remains a weak spot in the portfolio with Glencore a major coal producer.

Pricing remains challenging with operational improvements taking place, offsetting disruptions and adjustments to the tough economic environment. * Our target price upgrade to 360p (from 319p) is largely a consequence of adjusting the P/E component forward six months, as well as integrating production results and our Q3 commodity basket.

The positive impact on our target price highlights forecast earnings growth.
To access the full note please click here Analyst: Marc Elliott +44 (0)20 7597 5189
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