ANNUAL REPORT 2016
Highlights 2016
Contents
Net income attributable
to equity holders
US$ million
Lost time injury
frequency rate
per million hours worked
1,379
2,308
1,379
(4,964)
1.40
1.60
1.34
1.40
Strategic
report
04 Chief Executive Officer’s review
06 Positioned for the future
08 Who we are
Our presence
10
12 Our business model
16 Our strategy
20 Sustainable development
30 Delivering on our commitments
on climate change
34 Key performance indicators
36 Principal risks and uncertainties
45 Financial review
52 Business review
– Metals and minerals
– Energy products
– Agricultural products
Governance
80 Chairman’s introduction
81 Directors and Officers
84 Corporate governance report
99 Directors’ remuneration report
109 Directors’ report
116 Independent Auditor’s Report
126 Consolidated statement of
income/(loss)
127 Consolidated statement of
comprehensive income/(loss)
128 Consolidated statement of
financial position
129 Consolidated statement of cash flows
131 Consolidated statement of changes
of equity
132 Notes to the financial statements
Additional
information
201 Glossary
206 Production by quarter –
Q4 2015 to Q4 2016
213 Resources and reserves
222 Shareholder information
IBC Forward looking statements
Further details on our sustainability approach and
performance can be found in our annual sustainability report
and on our website www.glencore.com/sustainability
2014
2015
2016
2014
2015
2016
Financial
statements
2014
2015
2016
2014
2015
2016
Adjusted EBITDA
US$ million
10,268
12,764
10,268
8,694
Adjusted EBIT
US$ million
3,930
6,706
3,930
2,172
%
60
50
40
30
20
10
0
Net funding
US$ million
32,619
49,758
41,245
32,619
Net debt/FFO to net debt
US$ million
15,526
30,532
25,889
15,526
2014
2015
2016
2014
2015
2016
FFO to net debt
Funds from operations
US$ million
Capital expenditure
US$ million
7,770
10,169
7,770
6,615
3,497
8,566
5,957
3,497
2014
2015
2016
2014
2015
2016
For full contents list please see under flap
+ 90
commodities
One of
the world’s
largest
diversified
natural
resource
companies
50
countries
155,000
people
Glencore Annual Report 2016
01
Strategic
report
“ Our financial performance
during 2016 reflects the
quality of our industrial
assets and the resilience of
our marketing business.”
IVAN GLASENBERG
Chief Executive Officer (see page 04)
04 Chief Executive Officer’s review
06 Positioned for the future
08 Who we are
Our presence
10
12 Our business model
16 Our strategy
20 Sustainable development
30 Delivering on our commitments on climate change
34 Key performance indicators
36 Principal risks and uncertainties
45 Financial review
52 Business review
– Metals and minerals
– Energy products
– Agricultural products
02
Glencore Annual Report 2016
Glencore Annual Report 2016
03
Strategic report
Chief Executive Officer’s review
Ivan Glasenberg, Chief Executive Officer
Creating long-term, sustainable returns
for shareholders
• Debt reduction programme completed: net funding
at $32.6 billion and net debt $15.5 billion by year end
• Strong free cash flow generation, underpinned by the
resilience of the marketing business and quality of
the industrial assets
• Capital allocation maximises value creation for
shareholders: a fixed $1 billion distribution that
reflects the resilience, predictability and stability of
cash flows from the marketing business
• The right commodity mix to meet the changing
needs of key maturing economies: leading, low-cost
supply positions in mid- and late-cycle commodities
and significant operational leverage to improving
fundamentals in key commodities, as well as
substantial volumes of low-cost latent capacity
04
Glencore Annual Report 2016
Improving market conditions
Despite an uncertain start to 2016,
commodities finally started reversing
five years of underperformance
compared to other asset classes.
In this environment, the mining sector
has been a significant outperformer,
with the SXPP basic resources
index up around 70% over the year,
compared to a 17% increase for
the FTSE 100 Index.
China’s willingness and ability to
reflate caught markets somewhat by
surprise, given widespread scepticism
over the sustainability of Chinese
demand for commodities. This was then
compounded by increasingly supportive
economic conditions in other regions.
Looking ahead, political events
across the globe have coincided with
the expectation of higher inflation
and with it, higher interest rates,
a backdrop, which is generally
influenced by and/or supportive of
higher commodity prices.
The increasing likelihood of various
regionally signalled fiscal economic
stimulus programmes should
also promote improved physical
demand for and positive sentiment
towards commodities.
Robust financial performance
Our robust financial performance
during 2016 (Adjusted EBITDA of
$10.3 billion, up 18% on 2015) reflects
the quality of our industrial asset
portfolio and the resilience of our large
scale diversified marketing business.
Marketing Adjusted EBIT was
$2.8 billion in 2016, 14% higher than
2015 and above the $2.7 billion top-end
of our Q4 2016 narrowed guidance
range, reflecting strong second half
contributions from all three business
segments. These activities continue to
generate a consistent, high cash return
on equity, underpinned by competitive
funding rates, a stable cost base and
low capex requirements.
Following the sale of a 50% interest
in Glencore Agriculture in late 2016,
our 2017 Marketing Adjusted EBIT
guidance range is $2.2 to $2.5 billion
Strategic report | Governance | Financial statements | Additional information
(up from $2.1 to $2.4 billion in our
December 2016 update), while also
reflecting such sale, our longer-term
guidance range has been lowered to
$2.2 to $3.2 billion.
Our various industrial teams
responded to the challenges of
low prices, delivering robust cost
structures and margins within our key
commodities. The industrial assets’
Adjusted EBITDA of $7.3 billion in
2016 was almost 22% higher than 2015,
reflecting improving commodity prices
in the latter part of the year, but mostly
the delivery of material cost reductions
and operational improvements.
Since 2009, over $38 billion has been
spent on our industrial assets, which
are now extremely well positioned,
with largely Tier 1 costs, scale,
diversification and optionality.
Debt reduction programme
delivered
The plan of action we initiated in
September 2015 to sensibly bring down
our financial leverage and strengthen
our balance sheet is now complete; at
the end of 2016, net funding and net
debt of $32.6 billion and $15.5 billion
respectively, were around or better
than target levels, with debt coverage
ratios already comfortably below our
recently reduced target levels.
This debt reduction was partly
achieved through a highly successful
divestment programme that
raised $6.2 billion since September
2015, including the following
2016 transactions:
• Antapaccay silver streaming
transaction, raising $500 million
• Sale of 50% of our agriculture
business for $3.1 billion
• Disposal of a 30% economic interest
plus gold stream in Ernest Henry,
delivering $670 million and
• Sale of our Hunter Valley coal
rail haulage business (GRail), for
$840 million.
The disposal programme underpinned
a $14.7 billion reduction in net funding
in just 18 months.
The success of our deleveraging
programme and capital structure/credit
repositioning is now well understood
and recognised by credit markets with
public funding spreads and default
swaps returning to ‘normalised’ levels.
As previously communicated, we are
now targeting maximum through the
cycle leverage of 2x Net debt/EBITDA
(previously <3x). This lower gearing
target is aimed at sustainably reducing
risk and providing greater flexibility
and stability in the future. We believe
our commitment to secure and
thereafter maintain a strong Baa/BBB
credit rating is well on track.
Capital allocation to maximise
value creation for shareholders
In December 2016, we announced
the reinstatement of shareholder
distributions, following a one-year
suspension period. Initially we will
return $1 billion to shareholders in 2017,
to be paid in equal tranches, following
the full-year and interim financial
results, subject to shareholders’ approval
at the Annual General Meeting.
As announced in December
2016, starting from 2018, our new
distribution policy, in respect of 2017
actual cash flow generation, will
comprise a fixed $1 billion component
and a variable element representing
a minimum pay-out of 25% of free
cash flow from our industrial assets.
The components will reflect prevailing
conditions and outlook at the time and
will be confirmed annually alongside
release of our full-year results.
The right commodity mix to meet
the needs of the future
We believe that not all commodities
are equal and, in general, we have the
right ones. Glencore’s diverse asset
portfolio, comprising low-cost positions
in mid- and late-cycle commodities,
such as copper, cobalt, nickel, zinc and
thermal coal, positively matches the
changing needs of current and future
commodity demand.
oil and zinc assets in 2015/2016 to
preserve value for the longer term and
assist in market rebalancing. We have
significant operational leverage to
improving fundamentals in our key
commodities with substantial volumes
of low-cost latent capacity that can be
restarted as and when appropriate.
We believe that our presence
throughout the commodity value chain
affords Glencore the unique position
to generate superior shareholder value
over the longer term.
Integrated approach to sustainability
It is with great sadness to report that
16 people died at our assets, from eight
incidents, during 2016. This loss of
life is unacceptable. We expend great
efforts and continuously strive towards
our goals of eliminating occupational
fatalities, injuries and occupational
diseases across the organisation. We are
committed to achieving strong health
and safety performances at all of our
assets through resolving local challenges
and transforming behaviour at all levels.
We recognise that we have stewardship
obligations across our business and a
duty to the local communities we work
with. During 2016, our sustainability team
rolled out revised water management and
health strategies and published a paper
setting out the potential impact of climate
change on our business.
Going forward
The last 18 months have been challenging
for Glencore. On a positive note, we have
demonstrated that Glencore is a strongly
cash generative business, even at low
points in the cycle, and is capable and
willing to react decisively and quickly as
circumstances require. Important lessons
have been learned and the actions taken
ensure that Glencore remains extremely
well positioned to create value for
all stakeholders.
We take a highly disciplined approach
towards supply, evidenced by curtailing
production at a number of coal, copper,
Ivan Glasenberg
Chief Executive Officer
Glencore Annual Report 2016
05
Strategic report
Positioned for the future
In response to some market concerns over our leverage, we
have positively repositioned our capital structure and
optimised our asset portfolio to maximise cash flows while
targeting a strong BBB/Baa investment grade balance sheet.
The progressive delivery of our various debt reduction
measures as well as higher commodity prices over the
period have supported an increase of over 200% in the
Glencore share price over 2016.
Our robust programme of actions, announced in September
2015, to reduce debt and address market concerns has
delivered a $14.0 billion reduction in Net debt and
$14.7 billion reduction in Net funding over the past
18 months.
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US¢
365.6
148.3p
7 September
$10.2 billion debt reduction
programme: announced
9 October
500,000 tonnes reduction of
contained zinc metal mine
production across operations
in Australia, South America
& Kazakhstan
$26
US¢
292.2
10 February
Streaming agreement with
Franco-Nevada Corporation
raising $500 million
24 April
Issued a 5-year
CHF 250 million bond
6 April
Announced sale of 40% stake
in our Agriculture business
to Canada Pension Plan
Investment Board for a
consideration of $2.5 billion
93.1p
3 November
Streaming agreement
reached with Silver Wheaton
Corp raising $900 million
17 February
Early refinancing of
$8.45 billion revolving
credit facility
2015
Sep
Oct
Nov
Dec
2016
Jan
Feb
Mar
Apr
Strengthening our balance sheet
During the second half of 2015, it became
apparent that financial markets were
concerned about Glencore’s debt levels and
our ability to sustain an investment grade
credit rating. Following dramatic
movements in our share price during
September, we rapidly put in place a
comprehensive programme of actions to
reduce our debt, restructure
underperforming assets and preserve the
value of our resources.
This programme culminated in a series of
actions which included:
• $2.5 billion share placement
• The suspension of 2015 final dividend
and 2016 interim dividend ($2.4 billion)
• Renewed focus on working
capital efficiency
• Asset divestment and streaming
proceeds of $6.3 billion
• Curtailment of the Katanga and Mopani
copper assets pending long-term
transformation via operational
upgrades
• Temporary suspension of around
500,000 tonnes of zinc mine capacity to
preserve the value of our resources in
the ground.
Preserving operational value
With our unique position at every stage of
the commodities value chain, from
extraction through to marketing and
logistics, our wide-reaching market
knowledge means we are well placed to
see physical commodity movements and to
understand their impacts on supply/
demand fundamentals. As such, we take a
highly disciplined approach to supply.
We recognise that when prices are low,
greater value can be generated by
curtailing production and preserving
reserves until conditions improve.
In September 2015, we announced the
suspension of production at our Katanga
and Mopani assets in Africa to implement
transformational upgrade projects that
will significantly lower the cost
of production.
A month later, we reduced zinc volumes
by around 500,000 tonnes of contained
zinc across our operations in Australia,
South America & Kazakhstan, preserving
the value of our reserves in the ground, at
a time of low zinc and lead prices, which
did not correctly value the scarce nature of
these resources. These latent tonnes will
be restarted when commodity price
conditions support value creation.
*Based on data from S&P GSCI Spot Index
06
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Dividend policy and reinvestment
In December 2016, we announced the reinstatement of
distributions to shareholders. Initially, Glencore will return
$1 billion to shareholders in two equal tranches in 2017.
This will be paid in May and September 2017.
component reflecting the resilience, predictability and
stability of marketing cash flows and a variable element,
representing a minimum payment of 25% of free cash flows
from our industrial assets.
In 2018, a new distribution policy will apply with respect to
2017 actual cash flows, subject to Board and shareholder
approval. This will compromise of a fixed $1 billion
US¢
370.1
20 October
Agreed to sell GRail coal
haulage business to Genesee
& Wyoming Australia for
$900 million
9 June
Announced sale of 9.99% stake in our Agriculture business to
British Columbia Investment Management Corporation for a
consideration of $625 million
152.85p
$24
6 September
Issued a 7-year Euro
1,000 million bond
24 August
Joint venture streaming agreement
reached with Evolution Mining
raising $670 million
US¢
399.2
277.35p
1 December
Sales of GRail and
interests in Glencore
Agriculture close
$16
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2017
Unlocking value through asset sales
A significant part of our debt reduction
programme was achieved through asset
divestments. This included the sale of
non-core gold and silver by-products at a
number of our copper mines as well as the
introduction of strategic partners into our
agriculture business through the sale of a
c.50% stake to Canada Pension Plan
Investment Board and British Columbia
Investment Management Corporation.
Cash flows from these assets were
monetised at a blended unlevered real
after tax IRR of around 5%.
We have strong supply positions in mid- to
late-cycle commodities, including copper,
cobalt, nickel, zinc and thermal coal, as
well as significant operational leverage to
improving fundamentals in our key
commodities with substantial volumes of
low-cost latent capacity that can restart
when we believe conditions are right.
The right combination of commodities to
feed the changing needs of maturing
economies, combined with our highly
resilient marking business underpins our
ability to generate healthy, long-run
sustainable returns for shareholders.
Creating long-run sustainable returns
Our proactive actions over the past
18 months have repositioned our capital
structure and demonstrated our
commitment to a strong BBB/Baa
investment grade rating. We now target
maximum through the cycle Net debt/
Adjusted EBITDA leverage of 2x – a
structure that engenders less risk for the
business, additional balance sheet
flexibility and overall greater stability of
distributions to shareholders.
Our business is well-capitalised, requiring
modest capital expenditure going
forwards. Over $38 billion has been spent
on the combined Glencore/Xstrata asset
base since 2009 and the heavy capital
expenditure programme is now largely
complete. A total capital expenditure of
around $4 billion per annum (including
around $3 billion of sustaining capital
expenditure) is now being guided to over
the next three to five years.
Glencore Annual Report 2016
07
Strategic report
Who we are
Highly diversified
Global footprint
+90commodities
90offices
3business segments
155,000people
Active at every
stage of the
commodity chain
to maximise value
High-quality,
low-cost assets
Strong
entrepreneurial
culture: employees
empowered to
make decisions
We are one of the world’s largest diversified,
vertically integrated producers, processors
and marketers of natural commodities.
We market and deliver physical commodities
sourced from our own production and third
party producers to our highly diversified
customer base that includes consumers from
the automotive, steel, power generation, oil
and food processing industries.
We are a global diversified natural
resource company, producing and
marketing more than 90 commodities.
We are uniquely diversified in terms
of commodity, geography and activity.
Together with our consumers and
suppliers, we benefit from having
scale and diversity at every stage of
the commodity chain, from extraction
to delivery. As both a producer and
marketer of commodities, we can
benefit from the full range of arbitrage
opportunities and value-added margin
present throughout our commodity
supply chains.
Our portfolio of industrial assets
comprises around 150 facilities: mining
and metallurgical, oil production
08
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Unique market insight
Breadth of scale
4,000
employees in marketing
50countries
40+years’ experience
150sites
Long-term
relationships with
broad base of
suppliers
and customers
Marketing
business less
correlated to
commodity prices
Maximum
flexibility and
economies
of scale
and agricultural. These mainly
high-quality, low-cost assets generate
cash even during periods of weakness
for particular commodities, industries,
customers or regions. Our industrial
asset base enhances the quality and
scale of our marketing activities,
offering our customers greater choice.
We have over 40 years of experience
in marketing commodities. This has
allowed us to develop and build
expertise in the commodities we
deal with, and to cultivate long-term
relationships with our broad,
international supplier and customer
base. Our marketing business tends to
be less correlated to commodity prices
than our industrial business, which
generally makes our earnings less
volatile than commodity businesses
based solely on production.
Our marketing business focuses on
maximising returns across our entire
supply chain, in addition to
minimising costs and maximising
operational efficiency.
We create value from: our economies
of scale; our extensive global third
party supply base; our logistics, risk
management and working capital
financing capabilities.
Our global presence underpins our
extensive market insight, business
optionality, large customer base, and
strong market position and penetration
for the commodities we handle.
Our strong entrepreneurial culture
has been central to our success.
This is underpinned by the fact that
management and employees own
around one-third of our shares,
aligning our workforce’s interests
with those of external shareholders
to a level that is unique among major
resource companies.
Glencore Annual Report 2016
09
Strategic report
Our presence
We are a global, diversified natural resources company. Our three
distinct business segments are aligned with management’s oversight
and ensure value is extracted at every point of the operating chain:
Copper, zinc & lead, nickel, ferroalloys, alumina & aluminium and iron ore production and marketing.
We have interests in industrial assets that include mining, smelting, refining and warehousing operations.
Metals &
minerals
Copper
1 Argentina
2 Australia
3 Canada
4 Chile
5 DRC
6 Peru
7 Philippines
8 Zambia
Alumbrera Mine
Cobar, Ernest Henry,
Mount Isa, Townsville
CCR, Horne
Altonorte, Collahuasi
Mine, Lomas Bayas Mine,
Punitaqui
Katanga, Mutanda
Zinc
9 Argentina
10 Australia
11 Bolivia
12 Burkina Faso
13 Canada
Antamina, Antapaccay
14 Europe
Aguilar
Mount Isa,
McArthur River
Sinchi Wayra
Perkoa
Brunswick Lead Smelter
General Smelting
Matagami, Kidd
Portovesme,
San Juan de Nieva,
Nordenham, Northfleet
Nickel
18 Australia
19 Canada
Murrin Murrin
Raglan Mine
Sudbury INO
20 Europe
21 New Caledonia Koniambo
Nikkelverk
Ferroalloys
22 Europe
Glencore
Manganese Group
23 South Africa
Chrome and Vanadium
Pasar
Mopani, Sable
For more information, see page 52
15 Kazakhstan
16 Namibia
17 Peru
Kazzinc
Rosh Pinah
Los Quenuales
19
32
13
3
38
25
17
6
31
11
36
4
1
37
9
29
Adjusted EBITDA 2016 (%) Revenue1 by region &
segment 2016 (%)
Non-current assets2 by
region & segment 2016 (%)
Metals & minerals
Agricultural products
Energy products
Americas
Asia
Europe
Africa
Oceania
1 Revenue by geographic destination is based on the country of incorporation of the sales counterparty. However,
this may not necessarily be the country of the counterparty’s ultimate parent and/or final destination of the product.
2 Non-current assets are non-current assets excluding other investments, advances and loans and deferred tax assets.
The percentage contributions are derived from the information included in note 2 of the financial statements.
10
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Diversity by geography:
Our operations around the world span a global network of
more than 90 offices located in over 50 countries, and
employ around 155,000 people, including contractors.
Diversity by product and activity:
We produce and market over 90 commodities; including
those from around 150 mining and metallurgical sites, oil
production assets and agricultural facilities.
Energy
products
Coal
24 Australia
Coal and oil industrial and marketing.
Our Energy products businesses include
coal mining and oil production operations
and investments in strategic handling, storage
and freight equipment and facilities.
Bulga, Clermont, Collinsville, Integra, Liddell,
Mangoola, Mount Owen, Oaky Creek, Newlands,
Ravensworth, Rolleston, Tahmoor, Ulan
25 Colombia
26 South Africa
Cerrejón, Prodeco
Goedgevonden, iMpunzi, Izimbiwa Coal,
Tweefontein
Oil
27 Chad
28
Equatorial
Guinea
Badila, Mangara
Block O and Block I
For more information, see page 66
Focused on grains, oils/oilseeds, cotton
and sugar. Glencore Agriculture is
supported by both controlled and
non-controlled storage, handling and
processing facilities in strategic locations.
Storage facilities, rice milling operations,
crushing plants, biodiesel plants
Storage facilities, farming operations,
port operations (Viterra)
Wheat milling operations, crushing plant,
sugarcane facility, storage facilities, port operations
Storage facilities/elevators, crushing plants,
port operations (Viterra)
Crushing plants, biodiesel plants, storage facilities,
farming operations, port operations
Storage facilities
Storage facilities
Storage facilities
Milling operations, storage facilities
Crushing plant, storage facilities
Agriculture
29 Argentina
30 Australia
31 Brazil
32 Canada
33 Europe
34 Kazakhstan
35 New Zealand
36 Paraguay
37 Uruguay
38 USA
For more information, see page 74
20
22
14
33
15
34
12
27
7
28
5
8
16
26
23
Corporate office
Marketing office/other
18
10
30
2
24
21
Glencore Annual Report 2016
35
11
Strategic report
Our business model
Strategic imperatives:
Integrating sustainability
throughout our business
Maintaining a robust and flexible balance sheet
Inputs:
Assets and natural resources:
• We wholly-own or have a significant ownership in our assets,
in which we make long-term investments
• We prioritise being a competitive, low-cost producer
• Our resources and reserves are overall long-life and of high
quality, enhancing the scale and value of our marketing business
(see page 213)
• We are a disciplined producer, aligning supply to demand
Our people and partners:
• We have worked to cultivate and establish long-term relationships
with a broad range of suppliers and customers across diverse
industries and geographies
• Our highly skilled and professional workforce of around 155,000
employees and contractors is located across six continents
• We interact with a large number and range of stakeholders
around the world. We are committed to building transparent
and constructive relationships with our partners to deliver
sustainable, long-term benefits to all our stakeholders
G
A
R I C U L T U RAL PRODU
C
T
E
M
&
L S
A
T
MINER
A
L
S
S
E N ERGY
EXPLORATION, ACQUISITION
& DEVELOPMENT
EXTRACTION &
PRODUCTION
What we do:
1
2
Our focus on brownfield sites and
exploration close to existing assets
lowers our risk profile and lets us use
existing infrastructure, realise
synergies and control costs.
We evaluate each industrial investment
opportunity on a standalone basis and
on its potential to strengthen our
marketing activities or existing
industrial assets.
This approach allows us to build on
our economies of scale, our familiarity
with individual political and cultural
landscapes, and our understanding
of commodity dynamics.
We mine and beneficiate minerals across a
range of commodities, mining techniques
and countries, for processing or refining
at our own facilities, or for sale.
Resource extraction and production involves
long-term commitments and exposure to
risks relating to commodity prices, project
development, changes in sovereign legislation
and community acceptance.
Earning and maintaining our licence to
operate from our host governments and local
communities is integral to developing and
maintaining our assets.
Outputs:
Sustainable business
See our Sustainable development
section on page 20
Our people:
Safety
Our people:
Health
Environment
Community &
human rights
Our people:
Workforce
Principal risks and uncertainties:
KPIs:
Total recordable injury frequency rate (TRIFR) | Water withdrawn | Greenhouse gas (GHG) emissions
Community investment spend
12
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Focusing on cost control and operating efficiencies
See page 16 for more information
on our strategy
Financial discipline:
• We deploy capital in a disciplined manner that creates value for
all our stakeholders. We have a long track record of value creation
across economic cycles
• Our hedging strategies protect us against price risks and ensure
that our marketing profitability is primarily determined by
volume-driven activities and value-added services rather than
absolute price
Unique market knowledge:
• Our scale and global reach give us valuable insight into market
flows and access to real-time information
• Our long experience has allowed us to build extensive market
knowledge and insight, as well as full logistics capabilities
• As an integrated commodity producer and marketer, we are
uniquely positioned to generate value at every stage of the
commodity chain
THIRD PARTY
MARKETING
O
IN E
V
PROCESSING &
REFINEMENT
BLENDING &
OPTIMISATION
LOGISTICS &
DELIVERY
U R C O MMODITIE
E R Y D AY PROD
U
S
C
T
S
3
4
5
Our expertise and technological advancement
in processing and refining mean we can
optimise our end products to suit a wider
customer base.
Our presence at every stage of the commodity
chain allows us to offer a wide range of
product specifications, resulting in a
superior service.
Our logistics assets allow us to handle large
volumes of commodities, both to fulfil our
obligations and to take advantage of demand
and supply imbalances.
Our smelting and refining facilities provide
volumes that are handled by our
marketing teams.
Our ability to blend and optimise both our
own and third party products helps us to
meet our customers’ specific requirements.
Our ownership of processing and refining
assets increases our flexibility and optionality
and provides security of supply as well as
valuable market knowledge.
We purchase and process additional products
from smaller operators that do not benefit
from our economies of scale.
Working with third party suppliers gives
us better oversight of the total supply status
for specific commodities; we have valuable
market and local knowledge to better
understand the supply-demand balance.
We have a worldwide network of storage
and logistics assets in key strategic locations,
including metal warehouses accredited by
the LME and numerous oil and grain
storage facilities.
Our many value-added services make us a
preferred counterparty for customers without
such capabilities, as well as strengthening
long-term relationships.
Financial performance
See our Financial review on page 45
Returns for
shareholders
Value for our
stakeholders
Adjusted EBIT/EBITDA | Funds from operations (FFO) | Net funding | Net debt/FFO to Net debt | Net income attributable to equity holders
See page 36 for more information
on risks and uncertainties
Glencore Annual Report 2016
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Strategic report
Our marketing business
We are an established physical marketer of commodities. Over the
past 40 years, we have built a strong reputation as a reliable, timely
supplier of quality products. Our presence on the ground gives us
unique, extensive market knowledge and insight, as well as trusted
relationships with our partners and customers. In addition, we have
developed the logistics capabilities to generate value-added margins
and are well positioned to seek arbitrage opportunities throughout
our supply chain.
Our marketing activities involve the
physical movement of commodities,
both those extracted by our industrial
business and those purchased from
third party suppliers. We supply these
to where they are in most demand.
We generate earnings as a fee-like
income from physical asset handling
and arbitrage, as well as blending and
optimisation opportunities.
Our market insight, extensive logistics
network and storage facilities
differentiate us from businesses based
solely on commodity production. As a
result, in addition to minimising costs
and maximising operational efficiency,
we can also focus on maximising the
fee-like returns we make from the
entire marketing process.
Our integrated marketing and
industrial businesses work side by side
to give us a presence across the entire
supply chain, delivering a unique
knowledge of market dynamics and
helping us to fully understand the
needs of our customers.
Less vulnerability to
commodity prices and
volatility
Our marketing business is
countercyclical from a cash flow
perspective, as its funding
requirements are highly linked to
commodity prices. The business
requires less working capital during
periods of falling prices, which helps
mitigate the generally negative effects
of lower prices on our industrial assets.
Virtually all our marketed volumes are
hedged or pre-sold to minimise price
exposure. Our use of hedging
instruments results in profitability
being overwhelmingly determined by
volume activity and associated
value-added supply chain margins,
and other marketing conditions, rather
than by the absolute flat price itself.
Risk management
We have developed a comprehensive
risk management system over our
40 years of business, supported by
robust procedures, to monitor our
marketing activities.
Unique market
knowledge: global office
network and logistics/
storage infrastructure
Fee-like income from
handling of physical
commodities and
arbitrage opportunities
Established third party
supply and global
customer base
Price exposure
minimised: marketed
volumes hedged
or pre-sold
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The arbitrage strategies we implement to generate additional
returns vary from commodity to commodity.
The main opportunities are:
Geographic
arbitrage
Product
arbitrage
Time
arbitrage
Disparity
Different prices for the same
product in different geographic
regions, taking into account
transportation and transaction
costs.
Execution
Leverage global relationships
and production, processing and
logistical capabilities to source
product in one location and
deliver in another.
Disparity
Pricing differences between
blends, grades or types of
commodity, taking into account
processing and substitution costs.
Execution
Ensure optionality with
commodity supply contracts,
and look to lock-in profitable
price differentials through
blending, processing or
end-product substitution.
Disparity
Different prices for a
commodity depending on
whether delivery is immediate
or at a future date, taking into
account storage and financing
costs.
Execution
Book “carry trades” that
benefit from competitive
sources of storage, insurance
and financing.
We mitigate the credit risks
associated with our marketing
activities, including those within
supplier and customer agreements,
through the extensive application
of measures including credit
insurance, letters of credit, security
arrangements and bank or
corporate guarantees.
Our teams manage Glencore’s market
exposure by reducing price risks
arising from timing differences
between the purchase and sale of
commodities to acceptably low levels.
Our extensive internal compliance
policies and procedures, as well as
third party screening, seek to ensure
that we comply with all applicable
sanctions, laws and regulations.
Arbitrage opportunities
Many of the physical commodity
markets in which we operate are
fragmented or periodically volatile.
This can result in arbitrage: price
discrepancies between the prices
for the same commodities in
different geographic locations or
time periods. Other factors with
arbitrage opportunities include
freight and product quality.
Arbitrage activity generates
additional value through sourcing,
transporting, blending, storing or
otherwise processing commodities.
Glencore Annual Report 2016
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Strategic report
Our strategy
Our main strategic objective is to sustainably grow total shareholder
returns while maintaining a strong investment grade rating and
acting as a responsible operator. To achieve this ambition, we are
focusing on three strategic imperatives: to fully integrate sustainability
throughout our business; to maintain a robust and flexible balance
sheet; and to focus on cost controls and operational efficiencies
throughout our entire business.
These three strategic imperatives are supported by our highly
entrepreneurial culture that underpins Glencore’s opportunistic
approach to doing business within clearly defined financial criteria.
From an operational level through to our senior management team,
our employees are empowered to evaluate opportunities and make
decisions while taking responsibility for their actions. This approach
allows our managers to be flexible and rapid in their response to
changing situations while risk is mitigated by a comprehensive
framework of controls. Our entrepreneurial culture is underpinned by
a high level of ownership by management and employees, which is
unique amongst the major resource companies.
Strategic priority
Integration of sustainability throughout our business
Strategic priority
Maintain a robust and flexible balance sheet
Strategic priority
Focus on cost control and operational efficiencies
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Strategic priority
Integration of sustainability throughout our business
Strategic objectives:
We believe that by being a better operator with a reputation for doing things the right way,
we will be seen by our stakeholders as a partner of choice. We are achieving this through
taking an approach of continuous improvement. This approach is delivered through our
health and safety programmes, advancing our environmental performance, respecting
human rights and by developing, maintaining and strengthening our relationships with
all of our stakeholders.
Key performance indicators:
see page 35
• Safe and healthy workplace – TRIFR
• Environmental performance – water withdrawn,
greenhouse gas (GHG) emissions, meeting our
commitments on climate change
• Long-term value for communities – community
investment spend
Principal risks and uncertainties:
• Health, safety and environment,
including potential catastrophes
• Emissions and climate change
• Community relations
• Skills availability and retention
Key highlights in 2016
Priorities going forward
• Continued to progress our SafeWork programme,
an initiative that focuses on eliminating fatalities and
serious injuries. Sadly, we failed to meet our target of
zero fatalities in 2016; 16 people died at our operations
during the year
• Improved our total recordable injury rate by 7%. Our lost
time injury frequency rate increased by 4%
We will continue to implement activities that further
integrate sustainability throughout our business to
support our commitment to continuously improve our
standards of health, safety, environmental and community
performance. We are committed to operating
transparently, responsibly and meeting or exceeding
applicable laws or external requirements.
• Completed the revision of our health strategy and
distributed its supporting materials. Developed and
implemented leading and lagging KPIs
• Rolled out throughout the Group our strategic water
management framework
• Published Climate change considerations for our business;
identified a range of climate change scenarios and
assessed their implications on our portfolio; responded
to the requirements of the Aiming for A resolution
• Implemented a strategic framework to enhance our
contribution to socio-economic benefits at all assets
Glencore Annual Report 2016
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Strategic report
Our strategy
Strategic priority
Maintain a robust and flexible balance sheet
Strategic objectives:
We recognise that a robust and sufficiently flexible balance sheet contributes to the delivery
of sustainable, long-term shareholder returns and ensures that Glencore is well placed to
withstand the cyclical nature of the natural resource industry. We aim to increase returns on
capital and cash flows while targeting a maximum two times Net debt to Adjusted EBITDA
ratio throughout the cycle. We aim to only deploy capital when strict and clearly defined
financial criteria, relating to returns and payback, can be met.
Key performance indicators:
see page 34
Principal risks and uncertainties:
• Reductions in commodity prices
• Returns to shareholders – Funds from operations,
• Fluctuations in supply or demand for commodities
Net funding and debt
• Value for our shareholders – Adjusted EBIT/EBITDA,
Net income attributable to equity holders
• Fluctuations in currency exchange rates
• Liquidity risk
• Counterparty credit and performance
Key highlights in 2016
Priorities going forward
We are committed to maintaining our balance sheet
strength to ensure it is capable of supporting growth and
shareholder returns regardless of the commodity price
environment. We will preserve a robust capital structure
and business portfolio that reflects our commitment to
targeting, receiving and maintaining a strong BBB/Baa
investment grade rating. In this regard, we will manage
the business to a net debt to EBITDA ratio of no greater
than two times throughout the cycle.
• Completed the debt reduction programme: at year-end,
net funding and net debt were $32.6 billion and
$15.5 billion respectively
• Disposed $6.2 billion of assets
• Issued $1.3 billion of bonds and repurchased $2.6 billion
of bonds with maturities mainly in 2018 to 2020, thus
capping post-2017 maturities at c.$3 billion in any one
year (down from c.$4–5 billion)
• Meaningfully and proactively repositioned Glencore’s
capital structure and credit profile through delivery of
the debt reduction programme
• Credit rating reaffirmed as Baa3 (stable) by Moody’s
and BBB- (positive outlook) by Standard & Poor’s
• Undertook an early refinancing of the short-term
tranche of the revolving credit facility, securing greater
than 24 months’ liquidity from such time
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Strategic priority
Focus on cost control and operational efficiencies
Strategic objectives:
Our major industrial assets are mainly long-life and low-cost, reflecting our substantial
investment into existing assets as well as our appetite, capabilities and belief in some
commodities and geographies where our peers are not materially present. Our industrial
assets provide a consistent source of volumes for our marketing operations, which are
supplemented by third party production. Our marketing activities use their scale and
capabilities to extract additional margin throughout our business model and provide a
superior service to our customers and a reliable supply of quality product.
We seek to increase the value of our business by improving the competitiveness of our assets
through an ongoing focus on cost management and logistical capabilities, including
operating safety and efficiently. We take a disciplined approach towards all of our assets and
will divest when another operator places greater value on them, or curtail production in
response to oversupply when it makes sense to do so.
Key performance indicators:
see page 34
• Returns to shareholders – Funds from operations,
Net funding and debt
• Value for our shareholders – Adjusted EBIT/EBITDA,
Net income attributable to equity holders
Principal risks and uncertainties:
• Geopolitical risk
• Laws, enforcement, permits and licences to operate
• Sourcing, freight, storage, infrastructure and logistics
• Development and operating risks and hazards
• Cost control
Key highlights in 2016
Priorities going forward
• Achieved $2.8 billion Adjusted EBIT across our
marketing business, underlining its resilience to the
commodity cycle
• Achieved significant reductions to operating costs at our
key industrial assets through efficiencies and savings as
well as favourable foreign exchange movements and
by-product credits
• Continued our disciplined approach to supply,
maintaining production curtailments; volumes will be
restarted at the right time and price
Our industrial activities will continue to focus on
controlling costs and generating sustainable operating
and capital efficiencies. Our marketing business supports
the creation of incremental value through critical mass,
blending, storage and geographical arbitrage.
Our marketing activities’ priorities are to maximise the
returns and cash flows from the pool of allocated capital,
which, in turn, supports the strengthening of our balance
sheet. Our presence at every stage of the value chain
means that Glencore is uniquely positioned to leverage
our scale and diversity.
Glencore Annual Report 2016
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Strategic report
Sustainable development
Our activities and our presence deliver lasting benefits to our
stakeholders and to society, creating value both locally and globally.
The commodities that we produce and market have an essential role
in everyday life and support the development of emerging economies.
Working with the communities living around our operations, we
support socio-economic development through our investment in
infrastructure, procurement, health and education projects.
We publish an annual sustainability report, in accordance
with the core requirements of Global Reporting Initiative
(GRI). This report covers in considerable detail our
approach, our performance and basis of preparation across
all key sustainability topics. Our sustainability reports are
available on our website: www.glencore.com/sustainability.
Our approach to sustainability is embodied by Glencore
Corporate Practice (GCP). This consists of three tiers, our
values, our Code of Conduct and our Group HSEC policies.
GCP is supported at asset level by operational policies,
developed for the specific needs of individual assets, with
compliance determined by performance monitoring
and assurance.
GCP provides a framework for the integration of our
sustainability principles, guidance and policies throughout
our business. GCP gives clear guidance on the standards we
expect all our operations to achieve. Through the reporting
function within GCP, our Board receives regular updates
and has detailed oversight of how our business is
performing across all our internally defined sustainability-
related key areas.
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Sustainable development framework
Values
Safety
Entrepreneurialism
Simplicity
Responsibility
Openness
Code of Conduct
Group HSEC policies
Detail our management processes and procedures
1. Health and safety
2. Emergency response and crisis management
3. Catastrophic and fatal hazards management
4. Environmental management
5. Communities and stakeholder engagement
6. Human rights
7. Product stewardship
8. HSEC assurance
9. HSEC management framework
10. HSEC risk management framework
Operational policies
Group HSEC policies are implemented and adapted locally
Performance and alignment
Data reporting, risk management and assurance by HSEC teams at Group,
departmental and asset level tracks our performance and alignment with policies
Our values reflect our purpose, our
priorities and the fundamental beliefs by
which we conduct ourselves. They define
what it means to work at Glencore,
regardless of location or role.
Our Code of Conduct defines the essential
requirements of our values and sets out the
standards we require our people to meet
and fully understand. Departments and
assets decide the best way to convey the
Code locally, including specialised training.
Our Group HSEC policies detail
our management processes and
procedures, which are integrated
into corporate decision-making
processes.
GCP is supported at
the operational
level by individual
policies pertaining
to local risks.
We monitor our
performance using a
Group GCP database
and via a full assurance
process at both Group
and asset level.
Glencore Annual Report 2016
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Strategic report
Sustainable development
Our sustainability strategy sets
out our ambitions against four
core pillars: health; safety;
environment; and community
and human rights. In addition,
we have identified “our people:
workforce” as a focus area.
Safety:
Become a leader in workplace safety,
eliminating fatalities and injuries
Health:
Become a leader in the protection and
improvement of our people’s and
communities’ wellbeing
Environment:
Minimise any negative environmental
impact from our operations and apply the
precautionary principle in decision-making
Topic
Safety
2016 priorities
Progress
Continue to implement SafeWork, build a strong culture
of safety and eliminate fatalities across the Group
16 fatalities took place at Glencore assets during 2016. All loss of life is
unacceptable and we are determined to eliminate fatalities across our Group
Progress our targeted 50% reduction of lost time injury
frequency rate (LTIFR) and total recordable injury
frequency rate (TRIFR) by 2020, based on our 2015 and
2014 baselines respectively
SafeWork implemented Group-wide; ongoing efforts to bring about a universally
robust safety culture at all our assets
Our TRIFR improved by 7%, our LTIFR increased by 4%
Health
Roll out the revised health strategy and supporting
materials to assets during 2016
Revised health strategy and supporting materials rolled out Group-wide;
underpinning the development and implementation of leading health and safety
practices at all of our assets
Environment
Undertake a feasibility study to develop a meaningful
target for carbon, continue to develop our position in the
debate on climate change and the role of fossil fuels in
the future global energy mix
Climate change considerations incorporated into the annual budget process to
improve understanding of our expected footprint, supporting the development of
realistic reduction goals to further decrease our Group GHG footprint
Implement the water management framework across the
Group and assess operations that have been identified as
being high-risk sites related to water
Strategic water management framework rolled out and an approach for
identifying potential high water-related risk sites established
Community
and human
rights
Continue to strengthen relationships with our
communities and other stakeholders to maintain our
licence to operate
Community Leadership Programme toolkit developed: a toolkit of training
materials for our community relations teams and management at assets,
drawn from internal and external expertise
Develop a strategic framework to enhance our
contribution to socio-economic development and roll
out associated metrics to all operations
Utilising our socio-economic contribution scorecard to examine the key value
flows that our assets create for four principal stakeholder groups: employees;
suppliers and contractors; local communities; and government
Our people
Continue to support and foster development of talented
people regardless of age, gender or race through local
employment, internships, scholarships or training
Ensuring appropriate succession planning and retention strategies are in place
that reflect both the local working environment skill requirements and
longer-term development and retention of talent for Glencore globally
Non-financial indicators includes the information and data from our industrial activities, including only assets where we have operational control, and excluding investment,
marketing and holding companies. The community investments spend and headcount information also includes our marketing activities.
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Community and human rights:
Foster sustainable growth and respect
human rights wherever we operate
Our people:
Employ workforces that reflect the
demographics of the communities in
which we operate
Within our strategy we have clearly defined imperatives,
objectives, priority areas and targets. Our Departments
and assets align their annual HSEC plans to the corporate
sustainability strategy.
The sustainability strategy is reviewed each year, which
includes consultation with our Department SD Leads to
ensure it continues to fulfil the needs of our business.
Key Performance indicator
Fatalities at managed operations
Lost time injury frequency rate
(per million hours worked)
Total recordable injury frequency rate (per million
hours worked)2
New occupational disease cases
CO2e Scope 1 (million tonnes)
CO2 Scope 2 – location-based (million tonnes)3
Water withdrawn (million m3)
Total energy use (petajoules)
Community investment spend ($ million)
2016
16
1.40
4.05
89
22.9
12.7
970
222
84
20151
10
1.34
4.35
127
23.0
14.8
954
236
94
20141
16
1.60
5.02
259
21.8
14.7
996
236
114
Number of employees and contractors
154,832
156,468
181,349
Share of female employees (%)
17
16
16
Our priorities going forward
We are committed to eliminating fatalities
throughout our assets
50% reduction of Group LTIFR by the end of
2020, against 2015 figure of 1.34
50% reduction in TRIFR by 2020 using 2014
figures as baseline
A year-on-year reduction in the number of new
cases of occupational disease
Continue to enhance our reporting on our
progress in fulfilling our climate change
commitments
Report on progress in developing carbon targets
across coal & ferroalloys
Assets identified with “high-risk water issues”
to implement five-year water targets 2017–2021
Maintain internal and external audits associated
with our high risk tailings dams
Distribute the Community Leadership
Programme toolkit to all assets, for
customisation to local circumstances
Implement our Social Value Creation strategy
Group-wide
No serious human rights incidents (Category 3
or above)
Continue to support and foster development of
talented people regardless of age, gender or race
through local employment, internships,
scholarships or training
1 For some indicators, data from previous years has been restated to reflect improvements in our data collection, analysis and validation systems.
2 TRIFR baseline set in 2014, definitions aligned post-merger.
3 Scope 2 indicators have been restated to reflect updated IEA grid emission factors and a shift to the location-based approach of the Greenhouse Gas Protocol.
Glencore Annual Report 2016
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Strategic report
Sustainable development
Materiality
Risk management
Glencore’s HSEC Management Framework Policy requires
regular materiality assessments to determine the Group’s
strategic priorities. Our 2016 materiality assessment process
considered Group, department and asset priorities, along
with external stakeholder concerns and was approved by
the Board HSEC Committee. The assessment included
information drawn from three areas:
• Our understanding of the issues that affect our business
and the natural resources sector
• What is required of us by law and how this affects
our activities
• Feedback: topics raised during engagement with our
people and external stakeholders
In line with the Global Reporting Initiative (GRI) guidance
on materiality, we undertook a Group-wide review of
material topics at global and local levels. This identified
topics raised during structured engagement activities, by a
broad range of internal and external stakeholders.
It considered the topics that affect our peers and the entire
sector, assessing media coverage and feedback from local
communities. It included input from each department’s
HSEC and Corporate Affairs teams on relevant issues and
reporting indicators, including interviews and analysis.
We report on topics with global interest or impact, or that
affect more than one region. A topic is considered material if
senior management determines that it may significantly
affect our business operations or have a significant impact
on any of our stakeholders.
We organised all the material issues raised into a material
matters register, with input from each department’s
sustainability lead. The final output of the assessment was a
material matters matrix and corresponding
reporting indicators.
The ten issues we have identified to focus on in 2017 were:
• Health and safety
• Catastrophic hazard management
• Process safety management
• Climate change and emissions
• Water and effluents
• Waste and spills
• Local community engagement and social
commitment compliance
• Human rights and grievance mechanisms
• Product stewardship
• Emerging regulations
The Board HSEC Committee has reviewed and approved
the results of this materiality assessment.
The identification, assessment and mitigation of risks
determines our approach to sustainability management.
Risk management is fully integrated into our business
planning and decision-making processes at every level of
the Group, with clearly defined roles, responsibilities and
key competencies.
All of our assets apply our risk management framework and
its supporting guidelines. The framework is aligned with
international standards and provides a standardised
approach to managing our health, safety, environment,
community, human rights and reputational risks, as well as
those linked to the management of financial and
legal issues.
Our assets use the framework to identify hazards,
particularly those with potentially major or catastrophic
consequences, and to develop plans to address and
eliminate, or mitigate, the related risks. Management tools
such as protocols, training packages, software and reporting
processes are available.
We require different levels of risk management for different
activities. From routine pre-task risk assessments using
simple tools to formal risk assessments where there are
changes to a business, to operations or to processes; the
introduction of new equipment; or new projects.
We maintain a register of risks and management plans and
continually monitor and review performance against these
plans, communicating risks and responsibilities to the
relevant stakeholders. We also undertake regular internal
reviews of our risk management effectiveness as part of our
continuous improvement process.
HSEC assurance
Our internal HSEC assurance programme has a primary
focus on the systematic management of catastrophic
hazards that have been identified by each of our commodity
departments, and their relevant controls and critical
controls. We put a high priority on accountability.
Our assessment criteria and methodologies are transparent;
the emphasis is on finding constructive solutions for
continual improvement.
In 2016 we finalised our HSEC auditing system, which is a
key part of our internal assurance programme. The systems
now in place ensure that all auditing of the way we address
catastrophic hazards is undertaken by experienced subject
matter experts and its findings are actively followed-up and
verified. The programme is contributing to improving
standards and performance Group-wide. All findings and
follow-up actions are presented to the Board
HSEC Committee.
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Safety
Fatalities per region (2014–2016)
Number
2016
2015
2014
The safety of our people
The health and safety of our people is our top priority.
We are committed to achieving strong health and safety
performances at all of our assets through resolving local
challenges and transforming behaviour at all levels of our
organisation.
Strategy and approach
We take a proactive, preventative approach towards health
and safety and our aim is to establish a positive safety
culture in which all of our employees and contractors are
empowered to have the authority to stop work if they
consider a workplace or situation unsafe. We believe that all
occupational fatalities, diseases and injuries are preventable.
We are working towards achieving this ambition through
SafeWork, a Group-wide initiative. A key element of
SafeWork is its focus on eliminating fatalities and serious
injuries through encouraging life-saving behaviours and
developing a better understanding of the consequences of
unsafe actions.
An important tool in improving safety at our operations has
been the recording of high potential risk incidents (HPRIs).
Reporting on HPRIs trends and making corrective actions
directly is helping to prevent the systemic cause of fatalities.
Performance
It is with deep regret that we have not met our goal of zero
fatalities. 16 people lost their lives at our operations,
compared to 10 during 2015. All loss of life is unacceptable
and we are determined to eliminate fatalities across
our Group.
Fatalities at managed operations
Number
16
2016
2015
2014
Fatalities
Incidents
16
8
10
7
16
15
Africa
Australia
North
America
South
America
Rest
of world
13
7
8
1
0
1
0
1
0
0
2
1
2
0
6
All our assets are implementing our SafeWork programme.
Each asset has completed a gap analysis against our fatal
hazard protocols requirements. This included identifying
and implementing controls, and producing detailed action
plans to close out any identified gaps. SafeWork also
requires training in hazard awareness, risk assessment,
life-saving behaviours and safety leadership.
In 2014, we identified a small number of our operations as
‘focus assets’. These assets are located in challenging
geographies and have legacy issues that have historically
resulted in them having a lower safety performance than
the rest of the business.
During 2016, 13 fatalities from five incidents took place at
our focus assets. We are determined to bring about
permanent structural change in our safety and risk
management, through the implementation of our SafeWork
and Catastrophic Hazard Management programmes.
We recognise that more work needs to be done to strengthen
each asset’s capabilities around sustaining the prevention
of fatalities.
Reducing injury frequency rates
Our long-term goal of reducing employee and contractor
injuries targets the delivery of year-on-year reductions in
our lost time injury frequency rate (LTIFR). Our LTIFR are
recorded when an employee or contractor is unable to work
following an incident; days recorded begin on the first
rostered shift that the worker is absent after the day of the
injury. It reflects the total number of LTIs per million hours
worked and does not include restricted work injuries
or fatalities.
In 2016, our LTIFR was 1.40 per million hours worked
(2015: 1.34). For the first year since 2010, we have not
delivered a year-on-year improvement in LTIFR.
The absolute number of lost time injuries continues
to reduce.
Glencore Annual Report 2016
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Strategic report
Sustainable development
Lost time injury frequency rate (LTIFR)
per million hours worked
Health
1.40
2016
2015
2014
1.40
1.34
1.60
The total recordable injury frequency rate (TRIFR) is the
sum of fatalities, lost time injuries, restricted work injuries
and medical treatment injuries per million hours worked.
The metric represents all injuries that require medical
treatment beyond first aid.
During 2015, we set a long-term goal of achieving a 50%
reduction in TRIFR by the end of 2020, using our 2014 TRIFR
of 5.02 as the baseline (restated as a result of enhanced
definitions and improved data accuracy and recording of
reporting indicators). Following the merger with Xstrata in
2013, 2014 was the first year all our assets had harmonised
their TRIFR reporting definitions. Our 2016 TRIFR of 4.05 is
a 19% improvement against the 2014 baseline. Our current
TRIFR is on track to meet the progressive improvement
required to meet our long-term goal.
Total recordable injury frequency rate (TRIFR)
per million hours worked
4.05
2016
2015
2014
4.05
4.35
5.02
405 High Potential Risk Incidents (HPRIs) were reported in
2016, compared to 338 for all of 2015. The reporting of HPRIs
represents a positive part of our strategy to reduce fatalities
and, as such, we do not target a reduction in this metric.
We are encouraging our workforce to recognise the need to
record and report HPRIs through the promotion of a
risk-based safety culture.
Promotion of health and wellbeing in our workforce
We believe that all occupational diseases can be prevented.
We are working to address risks to the health of our
workforce, both from exposure to hazards in the workplace,
and from broader lifestyle challenges. The most common
health hazards in our workplaces continue to be the manual
handling of heavy loads, noise, silica, lead, diesel exhaust
particles, acid mist and particulate matter (dust) containing
heavy metals.
Outside of our operations, the regions in which we operate
have a diverse range of health problems, including HIV/
AIDS and malaria in Africa, malnutrition in South America,
and diabetes and obesity in Canada and Australia.
The challenges relating to eliminating occupational diseases
vary with each site’s operational processes and procedures.
We have developed three key objectives to meet our
strategic intent in occupational disease management:
• Healthy workplaces where exposures to hazards are
controlled at the source
• Fit for work ensures the capabilities of employees is
appropriate for the tasks being undertaken
• Fit for life delivers wellbeing initiatives that reflect the
health needs of individuals in the workplace and those of
the local community
Underpinning the three core pillars and reflecting our
identified material issues, emerging issues including
regulations in relation to health and wellbeing are being
monitored and assessed.
The framework and key objectives for our Health Strategy
have been finalised. We have consolidated our leading
practices, developed tools to support the implementation of
the Health Strategy and established indicators to measure
performance. These resources are being shared
throughout Glencore.
Performance
In 2016, 93% of our sites reported no new cases of
occupational disease, compared to 94% of sites in 2015.
89 new cases of occupational disease have been recorded
in 2016 (2015: 127).
26
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
During 2017, we will further evaluate our assets using our
new approach on high water-related risk sites. We will
assess current water management practices at “high risk”
assets to identify potential areas for improvement.
We will run a pilot study using ICMM’s catchment-based
water management approach. This approach provides a
comprehensive and systematic approach for identifying,
evaluating and responding to catchment-based water-
related risks throughout the assets lifecycle as well as their
impact on other users.
Water withdrawn*
million m3
970
2016
2015
2014
970
954
996
*2016 data is not directly comparable to prior periods due to disclosed changes in data
reporting methodology.
We report to the CDP Water Disclosure programme.
Treatment of waste
Most of our waste is mineral; this includes tailings, slag and
rock. Our operations have rigorous waste management
systems to dispose of waste while preventing environmental
contamination. We reuse as much waste as possible, for
example we use waste rock to backfill our mines and fill
roads with non-hazardous tailings.
Our metal and coal assets generate tailings, which are
stored in purpose-built tailing storage facilities. The tailings
are placed in specially designed ponds filled with tailings
and water; over time, the water evaporates while the tailings
settle, eventually filling the dam. At this point, the dam is
capped, sealed and rehabilitated.
Tailings facilities are heavily regulated and undergo regular
inspections. Our facilities are monitored continuously to
ensure integrity and structural stability. In addition to
ongoing local assurance, our corporate HSEC assurance
team audits our tailings facilities against a defined protocol
that is aligned with international best practice.
Environment
Environment
Our operations have direct and indirect impact on the
environment in regions where we operate. We work to
minimise and mitigate any negative impact from our
activities and are always looking for ways to improve our
performance. We are committed to reducing our
environmental impact, including the efficient use of
resources, such as energy and water, wherever possible.
Our water footprint
Water is an essential component of our business activities.
More than half of our operations are located in water-scarce
areas. We are committed to managing our impact on water
resources responsibly. We are implementing new
technologies to help minimise or eliminate water discharge.
We prioritise efficient water use, water reuse/recycling,
responsible waste water disposal and maintaining any
equipment that may pose a hazard to water quality.
We engage with local water users to avoid material adverse
impacts on the quality and quantity of local water sources
or compromising their access to water.
We follow a risk-based approach for the implementation of
water management plans. Each asset is required to develop
a water management plan that reflects its lifecycle, the
identification of the steps needed to eliminate or mitigate
water impacts and risks, and the identification of
opportunities to improve operational water performance,
including the setting of water-related targets where needed.
Asset-based targets include water efficiency targets,
reducing the withdrawal of fresh water, and increasing the
quality of discharged water.
During 2016, we reviewed and revised our approach to
measuring our water-related performance, aligning our
reporting indicators with the commonly-accepted Water
Accounting Framework (WAF) of the Minerals Council of
Australia. This will enable us to create comprehensive water
balances for all our assets, which supports improved
measuring and reporting on water.
Our revised reporting process has resulted in a number of
amendments to the indicators and their definitions. As a
result, our 2016 water data cannot be fully aligned with
reporting from previous years. However, our improved
water performance reporting will greatly improve data
accuracy going forward.
Glencore Annual Report 2016
27
Strategic report
Sustainable development
During 2016, our hazardous and non-hazardous mineral
waste totalled 2,025 million tonnes
(2015: 2,111 million tonnes).
Hazardous and non-hazardous mineral waste
million tonnes
Community and human
rights
2,025
2016
2015
2014
Air emissions
2,025
2,111
2,244
Wherever we operate, we comply with relevant regulatory
limits and international standards for air emissions.
Our open cut operations emit dust from excavation and
movement of material. We monitor dust levels at affected
communities and minimise dust in a number of ways.
emissions totalled 402,000 tonnes
In 2016, our SO2
(2015: 366,000) as a result of increased production volumes at
one site and changes in the feed composition at another site.
Managing the closure of operations
Throughout the life of each operation, it must have a closure
plan that is continuously maintained, including appropriate
financial provisions. As some of our operations enter
suspensions or closure, we are aware of the importance of
managing our environmental impacts throughout this
process. We also work closely with the host communities to
manage the transition and identify opportunities for
delivering positive, lasting change.
Respecting fundamental human rights
Our operations have many contacts with the communities in
which we work. It is vital that we uphold the human rights
of our people and our local communities, including
vulnerable people such as women, indigenous people and
victims of conflict. This is particularly relevant in regions
where our assets require additional security.
Our approach to respecting fundamental human rights is
aligned with the UN Guiding Principles on Business and
Human Rights Protect, Respect and Remedy Framework, as
well as the ILO Core Conventions. Each of our operations is
required to identify human rights risks as part of their risk
assessment processes that are undertaken at key phases of
their lifecycle.
All our operations are required to have in place grievance
mechanisms that are accessible, accountable and fair, and
that enable our stakeholders to raise concerns without fear
of recrimination.
Performance
Following our successful application to join the Voluntary
Principles Initiative in 2015, we are working with the
member governments, companies and NGOs to further
develop our approach towards human rights.
In 2016, we reviewed our approach to the management of
grievances throughout our operations, and developed
further guidance to ensure alignment with the UN Guiding
Principles on Business and Human Rights.
Working in partnership with local communities
The communities surrounding our operations are our
neighbours, employees, business partners and future
workforce. Through our commitment to two-way dialogue
with our local communities we aim to secure a broad base
of support for our activities.
We aim to foster sustainable growth where we operate.
We contribute to society throughout our value chain, via
employment, procurement, enterprise development,
infrastructure and social investment programmes.
28
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Strategic report | Governance | Financial statements | Additional information
Local employment
Our most significant impact on the regions where we are
present is through employment, both directly and via
contractors. Local employment is particularly significant in
developing countries, where our local employees can
support as many as nine people each. Improving the
prosperity of our workforce also funds a general uplift in
local economies, resulting in further job creation.
Local procurement
We use local suppliers wherever possible, as this is cost-
effective and helps communities to reduce their reliance on
our operations for employment. It is also an important
building block for the development of local economies; in
some countries, national development objectives determine
procurement requirements for each region.
Local infrastructure
Our operations are often in remote and underdeveloped
areas, where we can share infrastructure such as roads,
water and electricity with our host communities.
This infrastructure will last long after our activities end, not
only boosting current economic growth but contributing to
a sustainable future.
Performance
We are committed to maintaining open and constructive
relationships with our host communities, and contributing
to their long-term resilience. We seek to maintain
engagement strategies that are aligned with the business
objectives, and are based on a thorough understanding of
community needs and concerns. Where relevant, we
develop targeted engagement strategies to work with
vulnerable groups.
During the year, we continued to target contributions to
initiatives that benefit our host communities. In 2016, this
contribution totalled $84 million.
Our community development projects are in three focus
areas: capacity building, including education, enterprise
development and economic diversification; health and
environment. Wherever possible, we seek to work closely
with host governments, and to strengthen governmental
capacity through training and other support.
Our people
Developing and supporting our workforce
Our people are fundamental to our success, underpinning
our ability to succeed and grow. We aim to provide clear,
attractive career paths and safe, healthy workplaces that are
free from discrimination and harassment.
Our success relies strongly on our ability to attract, develop
and retain the best talent at every level. We choose the best
people for each position and reward our people
competitively, in line with market conditions and their
contribution to our overall business success. We provide our
people with the opportunity to develop and grow their
skills, expertise and experience and the confidence to
enhance their careers.
Diversity
We believe that a diverse workforce is essential for a
successful business and seek to ensure that our workforce
reflects the diversity of the communities in which we
operate. We value diversity and treat employees and
contractors fairly, providing equal opportunities throughout
the organisation. In 2016, our workforce was made up of
15,857 (17%) female employees, compared to 16,382 (16%)
during 2015.
Protecting labour rights
We are committed to upholding the International Labour
Organization’s (ILO) Declaration of Fundamental Principles
and Rights at Work and their Core Labour Standards.
We prohibit any form of child, forced or bonded labour at
any of our operations and do not tolerate discrimination or
harassment. We endeavour to have a positive and
constructive relationship with the unions in the locations
where we operate.
Industrial relations
Around 70% of our employees are represented by an
independent trade union or covered by a collective
bargaining agreement. We uphold our employees’ right to
freedom of association, right to unionise and collective
representation, regardless of their location or function.
We are committed to working honestly and transparently
with labour unions and undertake negotiations in
good faith.
Glencore Annual Report 2016
29
Strategic report
Delivering on our commitments
on climate change
We recognise the science of global climate change as laid out by the
Intergovernmental Panel on Climate Change (IPCC). We believe this,
along with COP21 and public sentiment, will continue to drive a greater
number of decisions, policy developments and programmes to restrict
greenhouse gas emissions (GHG).
For a number of years, we have engaged with stakeholders
specifically interested in climate change, on its potential
impact on our business and the contributions that Glencore
can make towards a lower carbon economy. At our 2016
Annual General Meeting, a special resolution proposed by
the Aiming for A coalition of shareholders, was passed.
We welcome the opportunity to provide an update on the
reporting requirements associated with this resolution.
Portfolio resilience IEA scenarios
We continually test the resilience of our asset portfolio
against carbon scenarios, as well as the financial exposures
each scenario could potentially place on our business.
Our carbon assumptions are based on the current
International Energy Agency World Energy Outlook
scenarios and supplemented by local carbon prices and
regulatory developments.
During 2016, we established a cross-functional working
group to support the delivery of our climate change
commitments, as well as supporting our ongoing
identification, mitigation and management of related risks
and exploiting of business opportunities. The working
group is led by our Chairman and includes heads of
departments and senior representatives of key functions.
It is currently developing a comprehensive risk assessment
process and proactively seeking opportunities to reduce our
GHG emissions footprint. Progress on the steps the working
group is taking is regularly reported to the Board.
Emissions management
We take energy and carbon costs, regulations and emission
volumes into consideration as part of our business planning
and investment decision processes. Our business proactively
works to understand and manage our footprint, and
continues to invest in solutions to use energy more
efficiently and reduce emissions from the production and
end use of our products. Our assets incorporate energy
savings and emission reduction opportunities into their
ongoing business planning processes as part of our overall
efforts to reduce Glencore’s GHG footprint.
We are determining how a meaningful internal carbon
target might be applied across our business. This target will
take into account the diversity of our production processes
and geographical locations. We are using internal
operational-level energy and emission forecasts, produced
by all of our assets, to establish a 2020 GHG profile that will
underpin strategic programmes to support an improved
management of our GHG footprint and to identify emission
reduction opportunities Group-wide.
Across Glencore we use renewable energy sources whenever
feasible. Around 19% of the energy used by our assets
comes from renewable sources. This includes electricity
generated by Glencore facilities and renewable energy
procured from local or regional grid suppliers.
30
Glencore Annual Report 2016
Low carbon R&D and investment strategies
We are working to mitigate the physical impacts of climate
change where we can and take resource efficiency into
account when making operational decisions. Wherever we
operate, we seek to optimise our energy and carbon footprint.
Throughout our business we are sharing knowledge on how
to identify and implement projects to reduce emissions.
Our broad range of products will be required as the global
economy continues to grow, as countries develop and for the
transition to a lower emissions economy. Copper,
aluminium and steel are required for renewables-based
power stations as well as energy-efficient infrastructure and
the electrification of the transport sector. Nickel and cobalt
are required for energy storage and likely to play an
important role in the growth of electro-mobility.
Fossil fuels remain a key input for industrial sectors and a
critical source of safe, reliable and secure energy, when coupled
with carbon capture and storage technologies, fossil fuels can
continue to play a significant role in the global energy mix.
KPIs and executive incentives
Key performance indicators relating to climate change are
being developed for operational management, who are best
placed to implement changes to our energy-use and
emissions profiles.
Public policy positions
We believe that the corporate sector has an important role to
play in the process of developing climate change policy, and
can make a valuable contribution towards the development
of effective, efficient and equitable climate change policy.
We actively engage in public policy discussions with a range
of stakeholders on issues related to energy, carbon and
climate change. We also have a range of technical experts
who are able to assist policymakers in the development of
complex regulations through governmental technical
working groups.
Strategic report | Governance | Financial statements | Additional information
Commodities of today and tomorrow: coal
Under every policy scenario, demand for coal will be sustained
by the building of low-cost, coal-fired electricity generation in
developing economies, underpinning the consumption of 120 to
140 billion tonnes of coal between 2013 and 2030.
Low emission technologies can ensure that fossil fuels can play a
significant role in reducing global emissions while continuing to
play a vital role in delivering secure and reliable energy for
industry and households.
Investment in high efficiency low-emission (HELE) technologies,
including carbon capture and storage (CCS) will be critical for
reducing the cost of achieving the 2°C climate change goal given
its broad applicability to electricity generation, synthetic fuel
production, industrial processes, and bioenergy.
Our coal business has established a wholly owned, ‘non-profit’
subsidiary called Carbon Transport and Storage Company (CTSCo)
which is leading a CCS Project in Australia. The Project has been
established to demonstrate the technical viability, integration and
safe operation of CCS in the Surat Basin in Australia.
Some of our customers use our coal to feed highly efficient power
plants (ultra-super critical units) that can produce emissions that
are up to 40% lower than average coal plants.
Future global energy demand growth will require all
fuel sources
Our coal business has attracted particular interest in the context
of climate change. We are progressively integrating climate
change challenges and opportunities into business planning
and risk management frameworks. We expect our coal business
to remain viable and do not believe our coal assets will
become stranded.
Under the key energy outlooks, global energy demand will
require coal, oil and gas to contribute around 70% of required
energy in 2030, even with a $100 price on carbon.
The International Energy Agency’s modelling of the
commitments made as part the 2015 Paris agreements shows that
absolute demand for coal will continue to grow.
Global primary energy demand requires all fuel sources under the IEA’s New Policy scenario:
2030
2013
25%
28.6%
23%
6%
3%
10.6%
4%
Coal
Oil
29%
Gas
Nuclear
Hydro
Bio-Energy
Renewables
1%
31%
21%
5%
3%
10%
Future global primary energy demand under various scenarios:
2030 450 Scenario 20.7Btce
2030 New Policy 23.1Btce
2013 actual 19.3Btce
18.3%
26.8%
23.1%
8.5%
3.4%
13.3%
6.5%
25%
29%
28.6%
22.8%
6.2%
2.9%
10.6%
4%
31%
21%
5%
10%
Coal
Oil
Gas
Nuclear
Hydro
Bio-Energy
Renewables
2%
1.2%
Source: IEA WEO 2016
Btce: billion tonnes of coal equivalent; standardised coal quantity using coal with energy content of 7000kcal/kg or 29.31 GJ/t converted to metric tonnes based on global average
coal energy of 4850kcal/kg NAR.
In addition to reporting on our progress in our Annual
Report, we have produced the publication Climate change
considerations for our business, which provides a detailed
overview of the activities we are undertaking to better
understand the impact of climate change on our business.
This publication will be updated during 2017 to report on
the progress we have made.
Measuring our performance
We have a standardised approach to capturing data and
reporting on emissions and we openly and transparently
disclose our carbon and energy footprint. Our emissions
profile varies across our different business units, reflecting
the diversity of our business. We are working on
determining how an internal carbon target might be
effectively applied across our business.
Glencore Annual Report 2016
31
Strategic report
Delivering on our commitments
on climate change
Commodities of today and tomorrow: nickel and cobalt
Car makers are investing in technology that is required to
electrify vehicles in order to achieve regulatory emissions targets.
A number of large car manufacturers have recently announced
new electric car models, reflecting the anticipated demand from
the general public, supported by government subsidies and
investment in charging infrastructure.
The transition to electric vehicles has been underpinned by
developments in battery storage. Battery use has expanded from
small-scale, suitable for consumer products, to larger, more
powerful batteries that can be used as energy storage systems.
Battery chemistry that relies on nickel and cobalt compounds is
emerging as the technology of choice.
Increasing public acceptance is fuelling the demand for both
electric vehicles and the batteries used to power them.
The International Energy Agency recognises that reaching 2020
deployment targets for electric vehicles requires a sizeable
growth of the electric car stock globally and meeting the 2030
decarbonisation and sustainability goals across all scenarios
requires a major deployment of electric cars in the 2020s.
Demand for nickel and cobalt driven by
electric vehicles
The electric vehicle revolution is driving increasing battery
demand and, in turn, additional demand for nickel and cobalt,
two of Glencore’s core commodities.
Glencore is a leading producer and marketer of nickel and cobalt,
key commodities in climate change solutions. We produce some
of the world’s purest nickel and cobalt and are one of the largest
recyclers and processors of nickel and cobalt-bearing materials
including batteries.
Deployment scenarios for the stock of electric cars to 2030
Electric cars in the vehicle stock (millions)
Historical
IEA 2°C Scenario
Paris Declaration
IEA 4°C Scenario
EVI 2020 target
Cumulative country targets
160
140
120
100
80
60
40
20
0
2010
2015
2020
2025
2030
Source: IEA analysis based on IEA (2016), UNFCCC (2015b), the EVI 2020 target and the country targets assessment.
In line with the Greenhouse Gas Protocol, we divide carbon
emissions reporting into three different scopes. We measure
both the direct and indirect emissions generated by the
operational activities, entities and facilities in which we
have a controlling stake.
During 2016, we emitted 22.9 million tonnes CO2e of Scope 1
(direct emissions), a slight decrease on 2015. This figure
includes emissions from fuels consumed and the reductants
used in our metallurgical smelters. It also includes CO2e of
methane and CO2 emissions from our coal seam emissions,
which are around 38% of our Scope 1 emissions.
In 2016, we emitted 12.7 million tonnes CO2 of Scope 2 –
location-based (indirect emissions), which applied the grid
emission factor to all our purchased electricity, regardless of
specific renewable electricity contracts. This was a year-on-
year decrease of 14%, primarily due to the closure of our US
alumina operations.
Our Scope 3 emissions, which include those from a broad
range of sources, including usage of our products, are
reported in our sustainability report.
32
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Total greenhouse gas emissions
Million tonnes CO2
Scope 1
Scope 2 – location-based
Total
2016
2015
2014
22.9
12.7
35.6
23.0
14.8
37.8
21.8
14.7
36.5
We do not currently provide normalised figures for our CO2
emissions nor ratios of CO2 to production, financial results
or employee head count, as we do not believe that reporting
a normalised figure meaningfully contributes to an
understanding of our performance. The scope and diversity
of our products make a single production figure impossible
to calculate and our financial results are impacted by
commodity prices and foreign exchange rates, which are
outside of our control. In addition, due to the nature of
the exploration, development and the production cycle,
our CO2 emissions do not necessarily correlate to our
employee head count.
We publicly report to the CDP Climate Change programme.
The score that Glencore receives from CDP Carbon has
improved year-on-year as a result of improvements in our
reporting disclosure and clearer linking of climate change
to our business strategy.
Further information on our approach to climate change is
available in our sustainability report and Climate change
considerations for our business, both are available on
our website:
www.glencore.com/sustainability/our-progress/reports
Ferroalloys improving energy efficiency, reducing emissions
The South African government has ratified the COP21 Paris
agreement, which requires sizeable reductions in its greenhouse
gas (GHG) emissions, as well as committing to transition to a
green economy. The government is proposing a tax on carbon as
one of the instruments in helping South Africa meet its
international commitments to reduce GHG emissions.
Our ferroalloys business is mainly located in South Africa, where
the cost of its production of ferrochrome is heavily exposed to
energy prices and security. A carbon tax will further increase the
cost of production and potentially lead to the closure of some of
South Africa’s marginal ferrochrome producers, resulting in
major job losses.
To address this challenge, we have been improving energy
efficiency through a range of initiatives, identifying alternative
energy supplies and developing energy-efficient technologies,
such as our proprietary Premus technology.
Over a number of years, our ferroalloys business has been
planning and implementing new technology to address the
challenges of rising energy costs and stricter
emissions regulations:
• In 2007, we commissioned the Bokamoso Pelletiser at the
Wonderkop smelter at a cost of ZAR800 million, improving the
energy efficiency (Scope 2 emissions) of these smelters by 12.6%
in 2016 compared to 2006.
• In 2007 Phase 1 and in 2014 Phase 2 were commissioned at Lion
smelter, costing a total of ZAR6.6 billion and resulting in
Glencore’s largest proprietary Premus smelter, with 720,000tpa
ferrochrome capacity. Premus is designed to reduce electrical
energy consumption by using waste gas and heat. Its improved
efficiency delivers substantial financial benefits over existing
technologies. Lion’s specific energy consumption (Scope 2
emissions) is 28% less than the South African average smelter’s
energy consumption.
• In 2012, the Tswelopele Pelletiser at the Rustenburg Smelter was
completed at a cost of ZAR800 million, to replace the pellets
that the smelter received from the Bokomaso facility.
The utilisation of pellets improved the energy efficiency (Scope
2 emissions) of these smelters by 10.4% in 2016 compared
to 2006.
• During 2017, we will be piloting co-generation technology at
our Boshoek smelter. This technology generates electricity from
the carbon monoxide to carbon dioxide combustion heat, which
is currently a waste emission. If successful in terms of
operational and financial viability, the co-generation
technology will initially reduce Boshoek’s Scope 2 emissions by
8%. In addition, the capacity at the Boshoek smelter could be
doubled and the technology could also be considered for the
Lion and Lydenburg smelters.
In total, the initiatives implemented by our ferroalloys business
have improved energy efficiency and Scope 2 emissions at our
smelters by 26% in 2016 compared to 2003.
Going forward, our ferroalloys business’ cost of production and
greenhouse gas emissions will be highly connected to the energy
generation options that are implemented by the South African
government’s Integrated Resource Plan (IRP) 2010–30. The IRP
provides scenarios for forecasting future energy demand and
identifies the required increases in national energy generation.
The IRP considers the impact on emissions from installing
different energy generation options that include, amongst others,
fossil fuel, solar, wind and nuclear.
Glencore Annual Report 2016
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Strategic report
Key performance indicators
Our financial and non-financial key performance indicators (KPIs) provide a measure of our performance against the key
drivers of our strategy.
Financial key performance indicators
Adjusted EBIT/EBITDA
US$ million
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2014
2015
2016
EBIT
EBITDA
Funds from operations (FFO)
US$ million
12,000
10,000
8,000
6,000
4,000
2,000
0
2014
2015
2016
Net funding/Net debt and FFO
to net debt
US$ million
52,000
39,000
26,000
13,000
0
%
80
70
60
50
40
30
20
10
0
Definition
Adjusted EBIT/EBITDA, as defined in note 2 to the
financial statements, provide insight into our overall
business performance (a combination of cost
management, seizing market opportunities and
growth), and are the corresponding flow drivers
towards achieving an industry-leading return on
equity. Adjusted EBIT is the net result of revenue less
cost of goods sold and selling and administrative
expenses, plus share of income from associates and
joint ventures, dividend income and the attributable
share of underlying Adjusted EBIT of certain
associates and joint ventures, which are accounted for
internally by means of proportionate consolidation,
excluding significant items. Adjusted EBITDA
consists of Adjusted EBIT plus depreciation and
amortisation, including the related adjustment for
Proportionate Consolidation.
Definition
Funds from operations (FFO) is a measure that
reflects our ability to generate cash for investment,
debt servicing and distributions to shareholders.
It comprises cash provided by operating activities
before working capital changes, less tax and net
interest payments plus dividends received, related
adjustments for Proportionate Consolidation and
certain other one-off (Significant items) identified
expenses, comprising unrealised coal related hedging
costs and a legal settlement in 2016 and a legal
settlement and net incremental metal leak costs
incurred in 2015.
Definition
Net funding/debt demonstrates how our debt is
being managed and is an important factor in
ensuring we maintain an investment grade rating
status and an attractive cost of capital. In addition,
the relationship of FFO to net debt is an indication
of our financial flexibility and strength.
Net debt is defined as total current and non-current
borrowings less cash and cash equivalents, marketable
securities, readily marketable inventories and related
adjustments for Proportionate Consolidation.
2016 performance
Adjusted EBITDA was $10.3 billion
and Adjusted EBIT was $3.9 billion,
increases of 18% and 81% respectively
compared to 2015. These double digit
increases resulted from our
continuous focus on cost reduction
and operational efficiency initiatives
(supply chain, contractor
management, employee productivity,
etc.) with decisive action also taken to
reduce supply and associated capex/
opex, notably within our copper,
zinc, coal and oil portfolios.
2016 performance
FFO of $7.8 billion was 17% up on
2015, reflecting the improved
Adjusted EBITDA noted above and a
tax payments cycle reflective of last
year’s lower earnings.
2016 performance
At 31 December 2016 net funding
was down 21% at $32.6 billion
and net debt was down 40% at
$15.5 billion. This reflected proceeds
of over $6 billion from asset disposals
and streaming arrangements, healthy
FFO and a reduction in capex of
$2.5 billion year over year.
2014
2015
2016
Net debt
FFO to net debt
Net funding
Net income attributable
to equity holders
US$ million
5,000
Definition
Net income attributable to equity shareholders
is a measure of our ability to generate
shareholder returns.
2,500
0
-2,500
-5,000
2014
2015
2016
34
Glencore Annual Report 2016
2016 performance
Net income attributable to equity
holders increased from a loss of
$5 billion in 2015 to a profit of
$1.4 billion in 2016, following the
Adjusted EBIT increase described
above, and lower impairment
charges, net of gains on disposals.
Strategic report | Governance | Financial statements | Additional information
Non-financial key performance indicators
Safety
Total recordable injury frequency rate
(TRIFR)
per million hours worked
9
6
3
0
2014
2015
2016
Water withdrawn*
million m3
1,000
800
600
400
200
0
2014**
2015
2016
* 2016 data is not directly comparable to prior periods due to disclosed
changes in data reporting methodology.
** Restated primarily due to improved estimation methods at three sites.
Greenhouse gas emissions
million tonnes CO2*
40
30
20
10
0
2014
2015
2016
Scope 1
Scope 2 – location-based
* Scope 1 emissions are measured in CO2e
Community investment spend
$ million
200
150
100
50
0
2014
2015
2016
Definition
We believe that every work-related incident, illness
and injury is preventable and we are committed to
providing a safe workplace.
The (TRIFR) is the sum of fatalities, lost time injuries,
restricted work injuries and medical treatment
injuries per million hours worked. The metric
represents all injuries that require medical treatment
beyond first aid.
2016 performance
It is with great sadness to report that
during 2016, 16 people lost their lives
at our operations (2015: 10 fatalities).
Our 2016 TRIFR of 4.05 is a 7%
improvement over the 2015
TRIFR of 4.35.
Our long-term goal for TRIFR is to
achieve a 50% reduction by 2020,
using our 2014 TRIFR of 5.02 as
the baseline.
Definition
Water withdrawal is a measure of our operational
resource efficiency.
Our operations have an ongoing responsibility to
increase the reuse of processed and use of recycled
waste water in order to reduce our impact on local
water supplies. Recycled water is predominantly
used in place of fresh water for processes such as
dust suppression.
Definition
Our CO2 emissions reporting is separated into
Scope 1 and Scope 2 – location-based emissions.
Scope 1 includes emissions from combustion in
owned or controlled boilers, furnaces and vehicles/
vessels, coal seam emissions and rice cultivation.
Scope 2 – location-based emissions applies the grid
emission factor to all our purchased electricity,
regardless of specific renewable electricity contracts.
We monitor and report both the direct and
indirect emissions generated by the operational
activities, entities and facilities in which we
have a controlling stake.
Definition
Community investments are our contributions to, and
financial support of, the broader communities in the
regions where we operate.
Funds are set aside to support initiatives that benefit
communities and local sustainable development.
We also make in-kind contributions, such as
equipment and management. We support
programmes for community development,
enterprise and job creation, health, education and
the environment.
2016 performance
In 2016, we used 970 million m3
of water, a slight increase on 2015
(954 million m3), primarily due to a
change of our reporting (alignment
with Water Accounting Framework
(WAF) of the Minerals Council
of Australia).
During 2016, we rolled out our
Group-wide strategic water
management framework and
developed a method for the
identification of high-risk sites.
2016 performance
Our reporting on Scope 1 and Scope 2
emissions is in line with the
Greenhouse Gas Protocol.
During 2016, our Scope 1 (direct)
CO2e emissions slightly decreased to
22.9 million tonnes and were mainly
from fuel usage, reductants and coal
seam emissions.
Our Scope 2 – location-based CO2
emissions totalled 12.7 million
tonnes. This was a year-on-year
decrease of 14%, primarily due to the
closure of our US alumina operations.
2016 performance
In 2016, the funds we made
available for community investments
were $84 million, a decrease on the
amount invested in 2015 ($94 million).
Non-financial indicators includes information and data from our industrial activities, including only assets where we have operational control, and excluding investment,
marketing and holding companies. The community investments spend also includes our marketing activities.
For some 2015 and 2014 indicators, data has been restated to reflect improvements in our data collection, analysis and validation systems.
Glencore Annual Report 2016
35
Strategic report
Principal risks and uncertainties
Risk management is one of the key responsibilities of the Board and its
Audit and HSEC Committees. Our principal risks and uncertainties
– whether under our control or not – are highly dynamic and our
assessment and our responses to them are critical to our future business
and prospects.
Our risk management framework identifies and manages
risk in a way that is supportive of our strategic priorities
of opportunistically deploying capital, while protecting
our future financial security and flexibility. Our approach
towards risk management is framed by the ongoing
challenge of our understanding of the risks that we are
exposed to, our risk appetite and how these risks change
over time.
The Board assesses and approves our overall risk appetite,
monitors our risk exposure and sets the Group-wide limits,
which are reviewed on an ongoing basis. This process is
supported by the Audit and HSEC Committees, whose roles
include evaluating and monitoring the risks inherent in
their respective areas as described on pages 94 to 98.
Our current assessment of our risks, according to exposure
and impact, is detailed on the following pages. In compiling
this assessment we have indicated the impact of these risks
in comparison with a year ago in the table below.
The commentary on the risks in this section should be read
in conjunction with a commentary under Understanding the
information on risks which is set out on page 38.
To the extent that any of these risks are realised, they may
affect, among other matters: our current and future business
and prospects, financial position, liquidity, asset values,
growth potential, sustainable development (negatively
affecting health, safety, environmental, community effects
or otherwise) and reputation.
The natural diversification of our portfolio of commodities,
geographies, currencies, assets and liabilities is a source
of mitigation for many of the risks we face. In addition,
through our governance processes as noted previously and
our proactive management approach we seek to mitigate,
where possible, the impacts of certain risks should they
materialise. In particular:
• our liquidity risk management policy requires us to
maintain (via a $3 billion minimum prescribed level)
sufficient cash and cash equivalents and other sources
of committed funding available to meet anticipated
and unanticipated funding needs;
• making use of credit enhancement products, such as
letters of credit, insurance policies and bank guarantees
and imposing limits on open accounts extended;
• our management of marketing risk, including daily
analysis of Group value at risk (VaR); and
• adhering to the principles encapsulated in the
Glencore Corporate Practice (GCP) programme.
2016 developments and overview of principal risks and uncertainties
• Reductions in commodity prices
• Fluctuations in supply of or demand for commodities
• Fluctuations in currency exchange rates
• Health, safety, environment, including
potential catastrophes
• Geopolitical risk
• Laws, enforcement, permits and licences to operate
• Liquidity risk
• Counterparty credit and performance
• Sourcing, freight, storage infrastructure and logistics
• Development and operating risks and hazards
• Cost control
• Emissions and climate change
• Community relations
• Skills availability and retention
Key
36
Risk impact
Low
Medium
High
Risk exposure
Increase
Decrease
Static
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
2016 developments
The following remain the leading risks (i.e. those posing the
greatest potential threat) which the Group faces:
1. Reductions in commodity prices: the falls in commodity
prices experienced over the past few years appear to have
subsided in 2016, whereby many of the prices appear to
have, as a minimum, found a floor. Notwithstanding these
less extreme price conditions, we remain mindful that
underlying markets continue to be volatile and that we
continue to focus on the partially controllable element
of the margin equation – costs. Any significant downturn
in the current commodity price environment, especially
copper and coal, would have a severe drag on our
financial performance. As a result, this continues to be the
Group’s foremost risk.
2. Fluctuations in supply of, or demand for commodities:
the depression of commodity prices reflects the actual,
perceived or prospective increases in supply of
commodities and/or reductions in demand.
3. Fluctuations in currency exchange rates: the general
appreciation of the US dollar during 2016, particularly
against the currencies of emerging and commodity
producing countries, has contributed to commodity price
fluctuations. Although the strength of the US dollar is
generally beneficial to our operating costs, this gain can
be outweighed by the disruption to the world economy
and falls in commodity prices.
4. Liquidity risk: while the delevering and positive
repositioning of the balance sheet has been completed in
2016, we remain cognisant that access to credit is vital
and that current market conditions are volatile.
5. Health, Safety, Environment, including potential
catastrophes: the high-wall collapse at Katanga in early
2016 and the tailings dam disasters in Canada and Brazil
experienced by other mining companies in the past three
years remain reminders of major catastrophes that
represent significant unquantifiable risks for resources
companies and as a result this remains a leading concern
subject to challenge and monitoring. During 2016, the
HSEC Committee continued to concentrate on the Group’s
catastrophic hazards, following the launch of a new
sustainability risks assurance process in 2016.
In response to the above challenges, the Group continues to
ensure it takes appropriate measures to deliver on its
strategic objective of repositioning the balance sheet to
strong BBB/Baa investment grade ratings to ensure it is
capable of supporting growth and shareholder returns
regardless of the commodity price environment. In addition,
capital expenditure programmes remain at subdued levels,
initiatives continue to ensure we operate at optimal working
capital levels and marginal operations continue to be
carefully monitored.
Changes in risk exposure
Risk as a result of geopolitical events was brought to the
forefront during 2016. The UK voted to exit the EU, while
the EU along with other jurisdictions, increased their rigour
in pursuit of perceived aggressive tax structuring by
multinational companies. These events, in combination
with the imposed new derivative trading regulations being
implemented in Switzerland and the EU and heightened
global tax reporting obligations (via the BEPS initiative) led
to an increase, compared to 2015, in the potential risk
exposure related to – (1) geopolitical risks and (2) laws,
enforcement, permits and licences to operate.
The potential risk exposure related to liquidity risk was
reduced compared to 2015, as a result of the progress
achieved on the debt reduction initiatives and the successful
bond issuances in the Euro and Swiss markets.
Glencore Annual Report 2016
37
Strategic report
Principal risks and uncertainties
Understanding the information on risks
There are many risks and uncertainties which have the
potential to significantly impact our business, including
competitive, economic, political, legal, regulatory, social,
business and financial risk. The order in which these risks
and uncertainties appear does not necessarily reflect the
likelihood of their occurrence or the relative magnitude
of their potential material adverse effect on our business.
We have sought to provide examples of specific risks.
However, in every case these do not attempt to be an
exhaustive list. These principal risks and uncertainties
should be considered in connection with any forward
looking statements in this document as explained on
page 223.
Identifying, quantifying and managing risk is complex
and challenging. Although it is our policy and practice
to identify and, where appropriate and practical, actively
manage risk, our policies and procedures may not
adequately identify, monitor and quantify all risks.
The comments below describe our attempts to manage,
balance or offset risk. Risk is, however, by its very nature
uncertain and inevitably events may lead to our policies
and procedures not having a material mitigating effect
on the negative impacts of the occurrence of a particular
event. Since many risks are connected, our analysis should
be read against all risks to which it may be relevant.
In this section, we have sought to update our explanations,
reflecting our current outlook.
Mostly this entails emphasising certain risks more
strongly than other risks rather than the elimination of,
or creation of, risks. To understand the changes in outlook
and for more detail on certain risks, our previous annual
reports are on our website at: www.glencore.com/
investors/reports-and-results/reports/
To provide for concise text:
• where we hold minority interests in certain businesses,
although these entities are not generally subsidiaries,
the interests are mostly taken as being referred to in
analysing these risks, and “business” refers to these
and any business of the Group;
• where we refer to natural hazards, events of nature
or similar phraseology we are referring to matters
such as earthquake, flood, severe weather and other
natural phenomena;
• in each case our mitigation of risks will include the
taking out of insurance where it is customary and
economic to do so;
• “risk” includes uncertainty;
• “law” include regulation of any type;
• a reference to a note is a note to the 2016 financial
statements; and
• refer to our 2016 sustainability report which will be
published in May 2017.
38
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Risk
External
Reductions in commodity prices
Comments
The revenue and earnings of substantial parts of our industrial
activities and, to a lesser extent, our marketing activities, are
dependent upon prevailing commodity prices. Commodity
prices are influenced by a number of external factors, including
the supply of and demand for commodities, speculative
activities by market participants, global political and economic
conditions, related industry cycles and production costs in
major producing countries.
A significant downturn in the price of commodities generally
results in a decline in our profitability and could potentially
result in impairment and balance sheet constraints. It is
especially harmful to profitability in the industrial activities,
which are more directly exposed to price risk due to the higher
level of fixed costs, while our marketing activities are ordinarily
substantially hedged in respect of price risk and principally
operate a service-like margin-based model.
Fluctuations in the supply of, or demand for, the
commodities in which we operate
We are dependent on the expected volumes of supply or
demand for commodities in which we are active, which can
vary for many reasons, such as competitor supply policies,
changes in resource availability, government policies and
regulation, costs of production, global and regional economic
conditions and events of nature.
The dependence of the Group (especially our industrial business)
on commodity prices, make this the Group’s foremost risk.
See the Chief Executive Officer’s review on page 4 and the
financial review on pages 45 to 51.
While the price fundamentals of most of the Group’s main
production commodities currently appear to be stronger than at
the end of 2015, the global economic outlook remains uncertain
and any negative issues, especially if they affect China, could
quickly lead to reductions in demand and price.
This risk is currently prevalent, with demand growth
uncertainty in various commodities we produce and market,
notably within steel, coal and oil markets.
On the supply side, China’s implementation of a reduced
working year in its coal industry demonstrated the ability
and willingness of nation states to intervene directly in
markets. Also in nickel, Indonesia prohibited exports of nickel
concentrates and the authorities in the Philippines have in 2016
closed a quarter of the country’s mines.
Market price responses to such changes are neither
instantaneous nor perfectly calibrated nor can the sustained
implementation of such policies be certain.
See the Chief Executive Officer’s review on page 4.
Fluctuations in currency exchange rates
The vast majority of our transactions are denominated in
US dollars, while operating costs are spread across many
different countries, the currencies of which fluctuate against the
US dollar. A depreciation in the value of the US dollar against
one or more of these currencies will result in an increase in the
cost base of the relevant operations in US dollar terms.
The main currency exchange rate exposure is through our
industrial assets, as a large proportion of the costs incurred by
these operations is denominated in the currency of the country
in which each asset is located. The largest of these exposures
is to the currencies listed on page 183.
This risk is currently prevalent in our industry. However,
these fluctuations tend to move in symmetry with those in
commodity prices and supply and demand fundamentals as
noted above, such that decreases in commodity prices are
generally associated with increases in the US dollar relative
to local producer currencies and vice versa. If this occurs then
it is detrimental to us through higher equivalent US dollar
operating costs at the relevant operations. This negative,
however, would usually be offset by the increases in
commodity prices which had caused this change.
Glencore Annual Report 2016
39
Strategic report
Principal risks and uncertainties
Risk
Geopolitical risk
Comments
We operate and own assets in a large number of geographic
regions and countries, some of which are categorised as
developing, complex or having unstable political or social
climates. As a result, we are exposed to a wide range of
political, economic, regulatory and tax environments. Policies
or laws in these countries may change in a manner that may
be adverse for us. Also, some countries with more stable
political environments may nevertheless change policies
and laws in a manner adverse to us. We have no control over
changes to policies, laws and taxes.
The geopolitical risks associated with operating in a large
number of regions and countries, if realised, could affect our
ability to manage or retain interests in our industrial activities.
Increased scrutiny by governments and tax authorities
in pursuit of perceived aggressive tax structuring by
multinational companies has elevated the potential risk
exposures related to geopolitical events. The Group continues
actively to engage with governmental authorities in light of
upcoming changes and developments in legislation and
enforcement policies.
The global tax reporting initiative on Base Erosion and
Profit Sharing (“BEPS”) became effective in 2016.
Risks can also arise from the announcement and/or
implementation of reductions in workforces and temporary
or permanent production stoppages.
See map on pages 10 and 11 which sets out our global
operational footprint.
Laws, enforcement, permits and licences to operate
We are exposed to and subject to extensive laws including those
relating to bribery and corruption, taxation, anti-trust, financial
markets regulation, management of natural resources, licences
over resources owned by various governments, exploration,
production and post-closure reclamation. The terms attaching
to any permit or licence to operate may also be onerous.
Furthermore, in certain countries title to land and rights and
permits in respect of resources are not always clear or may
be challenged.
The legal system and dispute resolution mechanisms in some
countries may be uncertain so that we may be unable to enforce
our understanding of our title, permits or other rights.
Lawsuits may be brought, based upon damage resulting from
past and current operations, and could lead to the imposition of
substantial sanctions, the cessation of operations, compensation
and remedial and/or preventative orders. Moreover, the costs
associated with legal compliance, including regulatory permits,
are substantial. Any changes to these laws or their more
stringent enforcement or restrictive interpretation could cause
additional material expenditure to be incurred (including in
our marketing business) or impose suspensions of operations
and delays in the development of industrial assets. Failure to
obtain or renew a necessary permit could mean that we would
be unable to proceed with the development or continued
operation of an asset.
A dispute relating to an industrial asset could disrupt or delay
relevant extraction, processing or other projects and/or impede
our ability to develop new industrial properties.
We are committed to complying with or exceeding the laws
and external requirements applicable to our operations
and products. Through this and monitoring of legislative
requirements, engagement with government and regulators,
and compliance with applicable permits and licences, we strive
to ensure full compliance. We also seek to manage these risks
through the Glencore Corporate Practice (GCP) programme.
Its practical application across our business is detailed in our
code of conduct (www.glencore.com/who-we-are/our-values/
policies/) and this framework is reflected in our sustainability
reports. The Group’s anti-corruption policy may also be found
at: www.glencore.com/who-we-are/our-values/policies/.
Bribery and corruption risks remain highly relevant for
businesses operating in emerging markets as shown by recent
regulatory enforcement actions both inside and outside the
resources sector.
The Group continues to evaluate the impact of proposed
regulations to govern commodity market participants
(principally MiFID 2) in Europe.
In 2016 we published our first Payments to Governments report.
This detailed total government contributions in 2016 of around
$5 billion. This report built upon the disclosures which had
been provided in our annual sustainability report since 2010,
and our commitment as an active member of the Extractive
Industries Transparency Initiative (EITI).
40
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Risk
Liquidity risk
Comments
Our failure to access funds (liquidity) would severely limit our
ability to engage in desired activities.
Liquidity risk is the risk that we are unable to meet our
payment obligations when due, or are unable, on an ongoing
basis, to borrow funds in the market on an unsecured or
secured basis at an acceptable price to fund actual or proposed
commitments. While we adjust our minimum internal liquidity
threshold from time to time in response to changes in market
conditions, this minimum internal liquidity target may be
breached due to circumstances we are unable to control, such
as general market disruptions, sharp movements in commodity
prices or an operational problem that affects our suppliers,
customers or ourselves.
A lack of liquidity may mean that we will not have funds
available to maintain or increase marketing and industrial
activities, both of which employ substantial amounts of capital.
If we do not have funds available to sustain or develop our
marketing and industrial activities then these activities
will decrease.
Note 24 details our financial and capital risk
management approach.
During 2016, we have achieved our objectives in materially
delevering the Group’s balance sheet see pages 45 to 51. We also
issued during the year the following bonds with applicable
coupon and redemption dates: CHF250 million 2.25% 2021 and
EUR1.0 billion 1.875% 2023. We have undertaken a programme
to replace short dated paper with longer term bonds.
While significant progress on delevering and repositioning the
balance sheet has occurred over 2016, we remain cognisant that
access to credit is vital and that current market conditions
are volatile.
As at 31 December 2016, the Group had available undrawn
committed credit facilities and cash amounting to $16.7 billion
(31 December 2015: $15.2 billion), comfortably ahead of our
$3 billion minimum prescribed level.
Standard & Poor’s and Moody’s latest assessments for the
Company’s investment grade credit are BBB- (positive outlook)
and Baa3 (stable) respectively.
Business activities
Counterparty credit and performance
Financial assets consisting principally of marketable securities,
receivables and advances, derivative instruments and long-term
advances and loans can expose us to concentrations of credit risk.
Furthermore, we are subject to non-performance risk by our
suppliers, customers and hedging counterparties, in particular
via our marketing activities.
Non-performance by suppliers, customers and hedging
counterparties may occur and cause losses in a range of
situations, such as:
• a significant increase in commodity prices resulting in
suppliers being unwilling to honour their contractual
commitments to sell commodities at pre-agreed prices;
• a significant reduction in commodity prices resulting
in customers being unwilling or unable to honour their
contractual commitments to purchase commodities at
pre-agreed prices; and
• suppliers subject to prepayment or hedging counterparties
may find themselves unable to honour their contractual
obligations due to financial distress or other reasons.
We monitor the credit quality of our counterparties and seek
to reduce the risk of customer non-performance by requiring
credit support from creditworthy financial institutions
including making extensive use of credit enhancement
products, such as letters of credit, insurance policies and
bank guarantees. Specific credit risk policy rules apply to
open account risk with an established threshold for referral
of credit positions by departments to central management.
In addition, note 24 details our financial and capital risk
management approach.
Glencore Annual Report 2016
41
Strategic report
Principal risks and uncertainties
Risk
Comments
Sourcing, freight, storage, infrastructure and logistics
Our global network of infrastructure and logistics operations
such as vessels, oil terminals and tank farms, metals and other
warehouses and grain silos assists in mitigating risks related
to disruptions to or limitations of sourcing, freight, storage,
infrastructure and logistics.
See map on pages 10 and 11 that sets out our global
operational footprint.
Development and operating risks and hazards are managed
through our continuous development status evaluation
and reporting processes and ongoing assessment, reporting
and communication of the risks that affect our operations
through the annual risk review processes and updates to the
risk register.
We publish quarterly our production results and annually
our assessment of reserves and resources based on available
drilling and other data sources. Conversion of resources to
reserves and, eventually, reserves to production is an ongoing
process that takes into account technical and operational
challenges, economics of the particular commodities concerned
and the impact on the communities in which we operate.
The geotechnical failure and high-wall collapse at Katanga
resulted in the deaths of seven people. Other incidents during
the year have led to a further nine deaths. While the mining
workplace is inherently a dangerous one, we continue to believe
that every death is preventable with appropriate planning,
precautions taken, supervision and review.
Work on the whole ore leach process at Katanga is progressing
well. Mopani’s Synclinorium shaft was commissioned and
started to hoist ore at the end of 2016.
Availability of continuous high-voltage power continues
to be of critical importance to our copper operations in the
Democratic Republic of Congo. We are continuing to invest in
long-term power solutions via the Inga dam refurbishment.
Technological and cyber security risks are also relevant.
See also the next page for our assessment of and programmes
to mitigate our health, safety and environmental risks and in
particular catastrophic risks.
Details of the significant impairments recorded during the year
are contained in note 5. The valuations used for this analysis
remain sensitive to price and deterioration in the price outlook
may result in additional impairments.
Our marketing activities require access to significant amounts
of third party supplies of commodities, freight, storage,
infrastructure and logistics support and we are exposed to
reduced accessibility and/or increased pressure in the costs
of these. In addition, we often compete with other producers,
purchasers or marketers of commodities or other products for
limited storage and berthing facilities at ports and freight
terminals, which can result in delays in loading or unloading
of products and expose us to significant delivery interruptions.
Increases in the costs of freight, storage, infrastructure and
logistics support, or limitations or interruptions in the supply
chain (including any disruptions, refusals or inabilities to
supply), could adversely affect our business.
Development and operating risks and hazards
Our industrial activities are subject to numerous risks and
hazards normally associated with the initiation, development,
operation and/or expansion of natural resource projects, many
of which are beyond our control. These include unanticipated
variations in grade and other geological problems (so that
anticipated or stated reserves, resources or mineralised
potential may not conform to expectations and in particular
may not reflect the reserves and resources which the Group
reports and as a result the anticipated volumes or grades may
not be achieved). Other examples include seismic activity,
natural hazards, processing problems, technical and IT
malfunctions, unavailability of materials and equipment,
unreliability and/or constraints of infrastructure, industrial
accidents, labour force insufficiencies, disruptions and disputes,
disasters, protests, force majeure factors, cost overruns, delays in
permitting or other regulatory matters, vandalism and crime.
Cyber crime can also have materially adverse consequences
for our marketing and industrial businesses.
The development and operating of assets may lead to future
upward revisions in estimated costs, completion delays, cost
overruns, suspension of current projects or other operational
difficulties. Risks and hazards could result in damage to, or
destruction of, properties or production facilities, may cause
production to be reduced or to cease at those properties or
production facilities, may result in a decrease in the quality
of the products, personal injury or death, third party damage
or loss, and may result in actual production differing from
estimates of production.
In the resources business, the commodities we extract are
finite and reserves replacement is an issue for the industry
as a whole. Exploration and development necessarily require
a level of investment ahead of identification, extraction and
monetisation of such reserves.
Natural hazards, sabotage or other interference in operations,
could increase costs or delay supplies. In some locations poor
quality infrastructure is endemic. The realisation of these
development and operating risks and hazards could require
significant and additional capital and operating expenditures
to fund abatement, restoration or compensation to third parties
for any loss and/or payment of fines or damages.
42
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Risk
Cost control
Comments
As commodity prices are outside of our control, the
competitiveness and sustainable long-term profitability of our
industrial asset portfolio depends significantly on our ability
to closely manage costs and maintain a broad spectrum of
low-cost, efficient operations. Costs associated with the
operation of our industrial assets can be broadly categorised
into labour costs and other operating and infrastructure costs.
Overall production and operating costs are heavily influenced
by the extent of ongoing development required, ore grades,
mine planning, processing technology, logistics, energy and
supply costs and the impact of exchange rate fluctuations.
Over time, resources even on the same mine site tend to become
more difficult and costly to extract, as challenges such as
working at depth, increasing haulage distances and working
with inconsistent or chemically complex ores are faced.
All of our industrial assets are, to varying degrees, affected by
changes in costs for labour and fuel. Unit production costs are
also significantly affected by production volumes and therefore
production levels are frequently a key factor in determining the
overall cost competitiveness of an industrial asset.
Sustainable development
Health, safety, environment, including
potential catastrophes
Our operations are subject to health, safety and environmental
laws along with compliance with our corporate sustainability
framework. The processes and chemicals used in extraction
and production methods, as well as transport and storage,
may impose environmental hazards. A serious failure in these
areas could lead to an emergency or catastrophe at a site.
Environmental hazards may affect not only our properties but
also third parties. The storage of tailings at our industrial assets
and the storage and transport of oil are material examples of
these risks.
Environmental (including those associated with particular
environmental hazards) and health and safety laws may result
in increased costs or, in the event of non-compliance or
incidents causing injury or death or other damage at or to our
facilities or surrounding areas may result in significant losses,
including arising from (1) interruptions in production, litigation
and imposition of penalties and sanctions and (2) having
licences and permits withdrawn or suspended or being forced
to undertake extensive remedial clean-up action or to pay for
government-ordered remedial clean-up actions. In each case
liability may arise where the hazards have been caused by any
previous or subsequent owners or operators of the property, by
any past or present owners of adjacent properties, or by
third parties.
Catastrophes can also arise due to cyber attacks, e.g. where
there is malicious interference with operational software
at industrial assets.
While prices have recovered somewhat, cost control and
reduction is still a significant area of management focus.
A number of operations have adopted structured programmes
to deconstruct their costs, identify marginal savings and
implement these.
These local measures are complemented by global procurement
that leverages our scale to achieve the best possible value for
money on high-consumption materials such as fuel, explosives
and tyres.
Maintaining costs and, where possible, lowering them is
supported by our reporting on these measures, coupled with
the inclusion of certain cost control evaluation measures in
assessing management performance.
Our approach to sustainability and our expectations of our
employees, our contractors and our business partners are
outlined in our sustainability programme. This underpins our
approach towards social, environmental, safety and compliance
indicators, providing clear guidance on the standards we
expect all our operations to achieve. Through the reporting
function within the programme, our Board and senior
management receive regular updates and have a detailed
oversight on how our business is performing across all of the
sustainability indicators. We monitor catastrophic risks, in
particular, across our portfolio and operate emergency
response programmes.
Compliance with international and local regulations and
standards are our top priorities. Our operating procedures and
those of our partners in relation to owned tankers conform to
industry best practice working under the guidelines of the
International Maritime Organisation (IMO), relevant Flag States
and top tier classification societies.
We remain focused on the significant risks facing our industry
arising from operational catastrophes such as the examples of
tailings dam collapses in Canada and Brazil and the Turkish
coal mine disaster experienced in the last three years.
During 2016, the HSEC Committee continued to sponsor and
monitor the Group’s sustainability risks assurance process.
Its focus continues to be on the Group’s catastrophic hazards.
In addition, considerable ongoing investment continues in the
Group’s SafeWork health and safety programme.
See also pages 20 to 33 and the HSEC Committee report on
pages 97 and 98. Further details will also be published in our
2016 sustainability report.
Glencore Annual Report 2016
43
Strategic report
Principal risks and uncertainties
Risk
Comments
Emissions and climate change
Our global presence exposes us to a number of jurisdictions
in which regulations or laws have been or are being considered
to limit or reduce emissions. The likely effect of these changes
will be to increase the cost for fossil fuels, impose levies
for emissions in excess of certain permitted levels and
increase administrative costs for monitoring and reporting.
Third parties, including potential or actual investors, may also
introduce policies adverse to the Company due to its activities
in fossil fuels.
Increasing regulation of greenhouse gas (GHG) emissions,
including the progressive introduction of carbon emissions
trading mechanisms and tighter emission reduction targets is
likely to raise costs and reduce demand growth.
Through our sustainability programme (operated under our
GCP framework), we strive to ensure emissions and climate
change issues are identified, understood and effectively
managed and monitored in order to meet international best
practice standards and ensure regulatory compliance. We seek
to ensure that there is a balanced debate with regard to the
ongoing use of fossil fuels.
During the year, we published Climate change considerations for
our business which set out information about how our business
operates, our position on climate change and how we are
managing the opportunities and challenges of climate change
across our business.
Our 2016 sustainability report will provide further details
of the operation of our community engagement programme,
including the international standards to which we
voluntarily submit.
During the year, there have been further announcements by
some investment groups regarding the introduction of, or
tightening of, policies concerning reduced investment in
companies which have fossil fuel businesses.
It should be noted that in 2016 around 5% and 15% of our
revenue and EBITDA respectively were derived from coal
and oil industrial activities.
Community relations
The continued success of our existing operations and our future
projects are in part dependent upon broad support and a
healthy relationship with the respective local communities.
A perception that we are not respecting or advancing the
interests of the communities in which we operate, could have a
negative impact on our ‘‘social licence to operate’’, our ability to
secure access to new resources and our financial performance.
The consequences of negative community reaction could also
have a material adverse impact on the cost, profitability, ability
to finance or even the viability of an operation and the safety
and security of our workforce and assets. Such events could
lead to disputes with governments, with local communities or
any other stakeholders, and give rise to reputational damage.
Even in cases where no adverse action is actually taken, the
uncertainty associated with such instability could negatively
impact the perceived value of our assets.
We believe that the best way to manage these vital relationships
is to adhere to the principles of open dialogue and cooperation.
In doing so, we engage with local communities to demonstrate
our operations’ contribution to socio-economic development
and seek to ensure that appropriate measures are taken to
prevent or mitigate possible adverse impacts on the
communities, along with the regular reporting as outlined on
our website at: www.glencore.com/sustainability/society/
community-engagement/.
Some of our mine sites are in remote locations where they are
a – or the – key employer in the region. Inevitably, every mine
will reach a point of depletion where it is no longer economic
to operate and must be closed in an orderly fashion. We are
working with all stakeholders at our mine sites to operate
for as long as it is economically viable to do so, and to prepare
long-term plans that provide for a gradual transition to the end
of mine life.
Skills availability and retention
The maintenance of positive employee and union relations and
the ability to attract and retain skilled workers, including senior
management, are key to our success. This can be challenging,
especially in locations experiencing political or civil unrest, or
in which they may be exposed to other hazardous conditions.
Many employees are represented by labour unions under
various collective labour agreements. Their employing
company may not be able to satisfactorily renegotiate its
collective labour agreements when they expire and may face
tougher negotiations or higher wage demands than would be
the case for non-unionised labour. In addition, existing labour
agreements may not prevent a strike or work stoppage.
44
Glencore Annual Report 2016
We understand that one of the key factors in our success
is a good and trustworthy relationship with our people.
This priority is reflected in the principles of our sustainability
programme and related guidance, which require regular, open,
fair and respectful communication, zero tolerance for human
rights violations, fair remuneration and, above all, a safe
working environment, as outlined on our website at:
www.glencore.com/careers/our-people/.
Strategic report | Governance | Financial statements | Additional information
Financial review
Highlights
US$ million
Key statement of income and cash flows highlights1:
Adjusted EBITDA2
Adjusted EBIT2
Net income attributable to equity holders pre-significant items4
Net income/(loss) attributable to equity holders as per financial statements
Earnings per share (pre-significant items) (Basic) (US$)
Earnings per share as per financial statements (Basic) (US$)
Funds from operations (FFO)5,6
Capital expenditure3
US$ million
Key financial position highlights:
Total assets7
Current capital employed (CCE)6,7
Net funding5,6
Net debt5,6
Ratios:
FFO to Net debt5,6
Net debt to Adjusted EBITDA6
Adjusted EBITDA to net interest6
1 Refer to basis of preparation below.
2016
2015
Change %
10,268
3,930
1,992
1,379
0.14
0.10
7,770
3,497
8,694
2,172
1,342
(4,964)
0.10
(0.37)
6,615
5,957
18
81
48
n.m.
40
n.m.
17
(41)
31.12.2016
31.12.2015
Change %
124,600
128,485
10,075
32,619
15,526
12,443
41,245
25,889
50.0%
25.6%
1.51x
6.70x
2.98x
6.67x
(3)
(19)
(21)
(40)
95
(49)
–
2 Refer to note 2 of the financial statements for definition and reconciliation of Adjusted EBIT/EBITDA.
3 Refer to note 2 of the financial statements for reconciliation of capital expenditure.
4 Refer to significant items table on page 47.
5 Refer to page 49.
6 Refer to Glossary for definition.
7 2016 reflects completion of the disposal of 50% of the Agricultural Products division on 1 December 2016, refer to note 23 of the financial statements.
Basis of presentation
The financial information in the Financial Review is on a segmental measurement basis (see note 2) and has been prepared
on the basis as outlined in note 1 of the financial statements with the exception of the accounting treatment applied to
certain associates and joint ventures for which Glencore’s attributable share of revenues and expenses are presented.
Results are presented pre-significant items unless otherwise stated to provide an enhanced understanding and comparative
basis of the underlying financial performance. Significant items (see reconciliation below) are items of income and expense
which, due to their financial impact and nature or the expected infrequency of the events giving rise to them, are separated
for internal reporting and analysis of Glencore’s results.
Glencore Annual Report 2016
45
Strategic report
Financial review
Financial results
Net income attributable to equity holders increased from a loss of $5 billion in 2015 to a profit of $1.4 billion in 2016.
Adjusted EBITDA was $10,268 million and Adjusted EBIT was $3,930 million, increases of 18% and 81% respectively
compared to 2015. These double digit increases resulted from our continuous focus on cost reduction and operational
efficiency initiatives (supply chain, contractor management, employee productivity, etc.) with decisive action also taken to
reduce supply and associated capex/opex, notably within our copper, zinc, coal and oil portfolios. To a lesser, but still
meaningful extent, 2016 also benefited from currency depreciation relative to the US dollar e.g. Kazakhstan (53% lower) and
South Africa (15% lower), while commodity prices themselves were a relatively minor contributor to the year-on-year
progression with a mixed overall net result e.g. net average commodity prices were up for zinc and gold (9% and 8%
respectively), offset by reductions in copper and nickel (12% and 19% respectively). In addition, during 2016, Energy
industrial earnings bore an “opportunity cost” resulting from a corporate risk management decision in Q2 to lock-in/
economically hedge pricing in respect of a large share of Glencore’s remaining 2016 future steam coal production.
Cyclical pricing lows were likely reached in a number of key markets in Q1 2016, with large average price increases seen in
H2 relative to H1, notably thermal coal (GC Newcastle up 55%), coking coal (135%), zinc (33%) and nickel (22%).
Adjusted EBITDA/EBIT
Adjusted EBITDA by business segment is as follows:
US$ million
Metals and minerals
Energy products
Agricultural products
Corporate and other
Total
Adjusted EBIT by business segment is as follows:
US$ million
Metals and minerals
Energy products
Agricultural products
Corporate and other
Total
Marketing
activities
Industrial
activities
2016
Adjusted
EBITDA
Marketing
activities
Industrial
activities
2015
Adjusted
EBITDA
Change
%
1,586
959
454
(74)
6,030
1,503
138
(328)
7,616
2,462
592
(402)
1,280
826
584
(30)
4,030
2,269
150
(415)
2,925
7,343
10,268
2,660
6,034
5,310
3,095
734
(445)
8,694
43
(20)
(19)
n.m.
18
Marketing
activities
Industrial
activities
2016
Adjusted
EBIT
Marketing
activities
Industrial
activities
2015
Adjusted
EBIT
Change
%
1,562
2,182
3,744
1,255
909
418
(74)
(842)
104
(329)
2,815
1,115
67
522
(403)
3,930
778
461
(30)
2,464
148
(88)
63
(415)
(292)
1,403
690
524
(445)
2,172
167
(90)
–
n.m.
81
Marketing Adjusted EBITDA and EBIT increased by 10% and 14% to $2,925 million and $2,815 million respectively:
• Metals and minerals Adjusted marketing EBIT was up 24% over 2015, reflecting healthy demand and generally supportive
marketing conditions. In percentage terms, albeit from a relatively low 2015 base, nickel and ferroalloys delivered
markedly improved contributions, on account of the significantly higher stainless steel production, notably in China.
• Energy products Adjusted marketing EBIT was up 17% compared to 2015, with solid contributions from both oil and coal.
Oil declined somewhat from the buoyant comparative prior period, while coal was able to capitalise on market driven supply
and quality constraints and concerns, in the aftermath of Chinese policy amendments to curb domestic coal production.
• The Agricultural products Adjusted marketing EBIT was down 9% ($43 million) compared to 2015, in large part due to a
lower Viterra Canada contribution.
46
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Industrial Adjusted EBITDA increased by 22% to $7,343 million (Adjusted EBIT was $1,115 million, compared to negative
$292 million in 2015), owing primarily to significant operating cost reductions and productivity efficiencies, comfortably
offsetting any near-term volume impact from curtailing output across a number of operations. The reduction in US dollar
costs was also greatly assisted by weaker producer currencies notably, in Kazakhstan, South Africa and Argentina.
The benefits of the H2 rally in seaborne steam coal prices did not fully convert into reported Coal industrial earnings,
following the corporate risk decision taken in Q2 2016 to economically hedge a portion of H2 2016 and H1 2017 future coal
production. Reported Coal Industrial Adjusted EBITDA in H1 and H2 2016 was $506 million and $876 million respectively,
giving a FY 2016 Adjusted EBITDA of $1,382 million. During 2016, the locking-in/capping of the effective realised sales price
in respect of 44 million tonnes, resulted in an “opportunity cost” of $980 million being incurred i.e. EBITDA would have
been higher in H2 and FY had no such economic hedging been in place.
Earnings
A summary of the differences between reported Adjusted EBIT and income attributable to equity holders, including
significant items, is set out in the following table:
US$ million
Adjusted EBIT1
Net finance and income tax expense in certain associates and joint ventures1
Net finance and income tax expense of discontinued operations2
Net finance costs
Income tax (expense)/benefit7
Non-controlling interests
Income attributable to equity holders of the Parent from continuing and discontinued operations pre-significant items
Earnings per share (Basic) pre-significant items (US$)
Significant items
Share of Associates’ significant items3
Mark-to-market valuation on certain coal hedging contracts4
Unrealised intergroup (profit)/loss elimination and other4
Other expense – net5
Gain/(losses) on disposals and investments6
Income tax expense7
Non-controlling interests’ share of other income8
Total significant items
Income/(Loss) attributable to equity holders of the Parent from continuing and discontinued operations
Earnings/(Loss) per share (Basic) (US$)
1 Refer to note 2 of the financial statements.
2 Refer to note 23 of the financial statements.
3 Recognised within share of income from associates and joint ventures, see note 2 of the financial statements.
4 Recognised within cost of goods sold, see note 2 of the financial statements.
5 Recognised within other expense – net, see notes 2 and 4 of the financial statements.
6 See notes 2 and 3 of the financial statements.
7 Refer to Glossary for the allocation of the total income tax (expense)/benefit between pre-significant and significant items.
8 Recognised within non-controlling interests.
2016
3,930
(264)
(201)
2015
2,172
(159)
(198)
(1,533)
(1,303)
(362)
422
1,992
0.14
(477)
(225)
(374)
469
361
1,342
0.10
(88)
–
445
(1,615)
(7,998)
2,333
(276)
21
(994)
(460)
2,789
(613)
(6,306)
1,379
0.10
(4,964)
(0.37)
Glencore Annual Report 2016
47
Strategic report
Financial review
Significant items
Significant items are items of income and expense which,
due to their financial impact and nature or the expected
infrequency of the events giving rise to them, are separated
for internal reporting and analysis of Glencore’s results to
provide a better understanding and comparative basis of the
underlying financial performance.
In 2016, Glencore recognised a net $613 million of significant
items, including $276 million of income tax adjustments
mainly related to the gains on disposals. The net expense
comprises primarily:
• Impairments of $622 million related to Chad oil,
$311 million related to Equatorial Guinea oil operations,
$345 million related to Cerrejón coal (recognised within
share of income from associates) and various coal shipping
investments ($61 million).
• A $225 million expense relating to an accounting
measurement mismatch between the fair value of coal
derivative positions in respect of portfolio risk
management/hedging activities initiated in Q2 2016 and
the anticipated future revenue to be generated from the sale
of future unsold coal production. The derivative positions
manage forward sales price exposure relating to some
11 million tonnes of future attributable coal production,
substantially all of which is expected to be settled before
30 June 2017. These transactions were not able to be
designated as hedging instruments under IFRS, which
would have allowed for the deferment of any income
statement effect until performance of the underlying future
sale transactions. The fair value movements in the
derivative portfolio will be offset against future revenue in
the segment information as the related sales (of production)
are realised, as was the case in 2016.
• $75 million relating to restructuring and closure costs,
mainly associated with finalisation of the disposal of
Optimum Coal ($28 million) and $92 million to settle a
compliance dispute related to a U.S. biofuels program.
• Gains on disposals of $430 million related to GRail and
$1,848 million related to Glencore Agri.
See notes 3, 4, 5 and 23 to the consolidated financial
statements for further explanations.
In 2015, Glencore recognised a net $6,306 million of
significant items, including $460 million of largely foreign
exchange related income tax expense adjustments. The net
expense comprised primarily impairments of $1,424 million
($3,989 million less $2,565 million attributable to non-
controlling interests) related to Koniambo nickel and
$1,031 million related to Chad oil and a $1,034 million loss
(including $311 million of foreign currency translation losses
previously recognised in equity) on cessation of control of
48
Glencore Annual Report 2016
Optimum Coal, placed into business rescue proceedings in
August 2015, with subsequent sale agreed. See notes 3, 4 and
5 to the consolidated financial statements for
further explanations.
Net finance costs
Net finance costs were $1,533 million in 2016 compared to
$1,303 million incurred during the comparable reporting
period. Interest expense in 2016 was $1,688 million, a 14%
increase from $1,482 million in 2015, owing mainly to
interest that was required to be capitalised in the prior
period, in respect of certain capital development projects
offset by additional accretion expenses in 2016, representing
the time value of the upfront prepaid gold/silver streams
entered into in late 2015 and 2016. Interest income in 2016
was $155 million, consistent with the prior year.
Income taxes
An income tax expense of $638 million was recognised
during 2016 compared to an income tax benefit of $9 million
in 2015. Adjusting for a net $276 million (2015: $460 million)
of income tax expense related to significant items –
$19 million (2015: $307 million) due to currency translation
effects and a net $257 million of income tax arising from the
significant items (mainly the gains on disposals), the 2016
pre-significant items income tax expense was $362 million
(2015: a benefit of $469 million). The effective tax rate,
pre-significant items, in 2016 was 32.4% compared to a
calculated income tax benefit of 38.5% in 2015 as the mix of
taxable profits between marketing and industrial, the latter
generally in higher tax jurisdictions and subject to
commodity price swings, began to normalise during 2016.
In 2015, the income tax benefit relating to pre-significant
items was estimated as Adjusted EBIT for marketing and
industrial assets less an allocated interest expense
multiplied by an estimated tax rate of 10% and 25%
respectively. Refer to the Glossary for further information
and a reconciliation of this calculation.
Assets, leverage and working capital
Total assets were $124,600 million as at 31 December 2016
compared to $128,485 million as at 31 December 2015,
a period over which, current assets increased from
$42,198 million to $43,412 million, due to increases in
receivables and inventories as a result of commodity price
rises, notably oil in late Q4. Non-current assets decreased
from $86,287 million to $81,188 million, primarily due to the
various disposals, notably Glencore Agri and GRail, as
outlined in note 23 of the financial statements.
Strategic report | Governance | Financial statements | Additional information
Cash flow and net funding/debt
Net funding
US$ million
Total borrowings as per financial statements
Associates and joint ventures net funding1
Cash and cash equivalents and marketable securities
Net funding
Cash and non-cash movements in net funding
US$ million
Cash generated by operating activities before working capital changes
Coal related hedging, legal settlement and incremental metal leak costs included above (via statement of income)
Associates and joint ventures Adjusted EBITDA2
Net interest paid
Tax paid1
Dividends received from associates1
Funds from operations
Working capital changes (excluding gold and silver streaming proceeds)1
Gold and silver streaming proceeds
Acquisition and disposal of subsidiaries1
Purchase and sale of investments1
Purchase and sale of property, plant and equipment1
Net margin calls in respect of financing related hedging activities
Acquisition of additional interests in subsidiaries
Share issuance
Distributions paid and purchase of own shares
Coal related hedging, legal settlement and incremental metal leak costs (refer above)
Cash movement in net funding
Foreign currency revaluation of borrowings and other non-cash items
Total movement in net funding
Net funding, beginning of period
Net funding, end of period
Less: Readily marketable inventories3
Net debt, end of period
31.12.2016
31.12.2015
33,218
44,049
1,919
(58)
(2,518)
(2,746)
32,619
41,245
31.12.2016
31.12.2015
7,868
368
1,447
(1,271)
(680)
38
7,770
7,454
264
995
(1,085)
(1,072)
59
6,615
(2,386)
6,686
971
5,944
(13)
900
(106)
(195)
(3,306)
(5,688)
(695)
(7)
–
(88)
(368)
7,822
804
8,626
(618)
–
2,444
(2,695)
(264)
7,079
1,434
8,513
(41,245)
(49,758)
(32,619)
(41,245)
17,093
15,356
(15,526)
(25,889)
1 Adjusted to include the impacts of proportionate consolidation of certain associates and joint ventures as outlined in the Glossary.
2 See note 2 of the financial statements.
3 Refer to Glossary for definition.
The reconciliation in the table above is the method by which management reviews movements in net funding and net debt
and comprises key movements in cash and any significant non-cash movements on net funding items.
Net funding as at 31 December 2016 decreased by $8,626 million to $32,619 million from $41,245 million as at 31 December
2015. In addition to funds from operations and disposal proceeds of $5,944 million, the decrease was aided by $971 million
received under gold/silver streaming arrangements, a 41% reduction in net capital expenditure, offset by a $2,386 million
increase in net working capital as a result of higher year-end commodity prices and $515 million of non-current advances in
support of oil marketing growth initiatives.
Glencore Annual Report 2016
49
Strategic report
Financial review
Business and investment acquisitions and disposals
Value at risk
Net inflows from business divestures and investments was
$5,944 million compared to an outflow on acquisitions of
$301 million in 2015. See note 23 for further explanations.
Liquidity and funding activities
In 2016, the following significant financing activities
took place:
• In February 2016, fully syndicated and effective from May
2016, Glencore signed a new one-year revolving credit
facility for a total amount of $7.7 billion. This facility
refinanced the $8.45 billion one-year revolving credit
facility signed in May 2015. Funds drawn under the
facilities bear interest at US$LIBOR plus a margin of 50/60
basis points per annum. The current facilities comprise:
– a $7.7 billion short-term revolving credit facility with a
12 month borrower’s term-out option (to May 2018) and
12 month extension option; and
– a $6.8 billion medium-term revolving credit facility
(to May 2020) with one 12 month extension option or
24 month extension option.
• In May, issued a 5 year CHF 250 million, 2.25%
coupon bond.
• In September, issued a 7 year Euro 1,000 million, 1.875%
coupon bond.
• In October, repurchased bonds with a nominal value of
$1,492 million, comprising primarily 2018 and
2019 maturities.
• In December, repurchased bonds with a nominal value of
$1,137 million, comprising primarily 2019 and
2020 maturities.
As at 31 December 2016, Glencore had available committed
undrawn credit facilities and cash amounting to
$16.7 billion.
Credit ratings
In light of the Group’s extensive funding activities,
maintaining an investment grade credit rating status is a
financial priority/target. The Group’s credit ratings are
currently Baa3 (stable) from Moody’s and BBB- (positive
outlook) from Standard & Poor’s. Glencore’s publicly stated
objectives, as part of its overall financial policy package, is to
seek and maintain strong Baa/BBB credit ratings from
Moody’s and Standard & Poor’s respectively.
One of the tools used by Glencore to monitor and limit its
primary market risk exposure, namely commodity price risk
related to its physical marketing activities, is the use of a
value at risk (VaR) computation. VaR is a risk measurement
technique which estimates the potential loss that could occur
on risk positions as a result of movements in risk factors over
a specified time horizon, given a specific level of confidence.
The VaR methodology is a statistically defined, probability-
based approach that takes into account market volatilities, as
well as risk diversification by recognising offsetting positions
and correlations between commodities and markets. In this
way, risks can be measured consistently across all markets
and commodities and risk measures can be aggregated to
derive a single risk value. Glencore has set a consolidated VaR
limit (1 day 95%) of $100 million representing some 0.2% of
equity. In Q2 2016, this limit was technically breached for 1
day by $1 million as the VaR calculation did not account for
the future physical coal production that was economically
hedged with the corresponding captured and reported on
coal derivatives. If such underlying hedged exposure had
been included in the VaR calculation, the actual VaR number
would have been substantially lower, with no resulting
technical breach. Much of this hedge book has now been
realised, as noted above. Glencore uses a VaR approach based
on Monte Carlo simulations and is either a one day or one
week time horizon computed at a 95% confidence level with a
weighted data history.
Average market risk VaR (1 day 95%) during 2016 was
$42 million, representing less than 0.1% of equity.
Average equivalent VaR during 2015 was $35 million.
Subsequent events
• Further to the announcements in December 2016, Glencore
and Qatar Investment Authority (“QIA”) entered into
various agreements establishing a 50:50 consortium that
would acquire 19.5% of OSJC Rosneft Oil (“Rosneft”), enter
into a five year offtake agreement with Rosneft on market
terms and collectively evaluate and potentially enter into
additional opportunities related to infrastructure, logistics
and global trading. As at 31 December 2016, only the
establishment of the 50:50 consortium and payment of
Glencore’s funding commitment of EUR 300 million were
finalised. The balance of the funding and purchase of the
19.5% interest in Rosneft by the 50:50 consortium and
completion of the five year offtake agreement was
finalised on 3 January 2017.
• In February 2017, Glencore announced that it had acquired
the remaining 31% stake in Mutanda Mining Sarl
(“Mutanda”), which it did not previously own, and an
additional 10.25% stake in Katanga Mining Limited
(“Katanga”) for a cash outlay of $534 million, including
settlement of loan balances. Following the acquisition,
Glencore owns 100% of the shares in Mutanda and
approximately 86.3% of the shares in Katanga.
50
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Distributions
The directors have recommended a 2016 financial year cash distribution of $7 cents per share amounting to $996 million,
excluding any distribution on own shares and ignoring any attribution of shares which may take place prior to the record
dates for each tranche. Payment will be effected as a $3.5 cents per share distribution in May 2017 (see below) and a
$3.5 cents per share distribution in September 2017 (in accordance with the Company’s announcement on the 2017
Distribution timetable also made on 23 February 2017).
First tranche of proposed distribution
Applicable exchange rate determination date (Johannesburg Stock Exchange (JSE))
Last time to trade on JSE to be recorded in the register for distribution
Last day to effect removal of shares cum div between Jersey and JSE registers
Ex-dividend date (JSE)
Ex-dividend date (HK)
Ex-dividend date (Jersey)
Last time for lodging transfers in Hong Kong
Record date in JSE
Record date in Hong Kong
Record date in Jersey
Deadline for return of currency elections form (Jersey shareholders)
Removal of shares between the Jersey and JSE registers permissible from
Applicable exchange rate reference date (Jersey and Hong Kong)
Annual General Meeting (shareholder vote to approve aggregate distribution)
Payment date
2017
28 April
9 May
9 May
10 May
10 May
11 May
4:30 p.m. (HK), 11 May
Close of business (SA) 12 May
Opening of business (HK) 12 May
Close of business (UK) 12 May
15 May
15 May
17 May
24 May
31 May
The distribution is proposed to be effected as a reduction of the capital contribution reserves of the Company. As such, this
distribution would be exempt from Swiss withholding tax. As at 31 December 2016, Glencore plc had CHF 38 billion of such
capital contribution reserves in its statutory accounts. The distribution is subject to shareholders’ approval at its AGM on
24 May 2017.
The distribution is proposed to be declared and ordinarily paid in US dollars. Shareholders on the Jersey register may elect
to receive the distribution in sterling, euros or Swiss francs, the exchange rates of which will be determined by reference to
the rates applicable to the US dollar as stated above. Shareholders on the Hong Kong branch register will receive their
distribution in Hong Kong dollars, while shareholders on the Johannesburg register will receive their distribution in South
African rand. Further details on distribution payments, together with currency election and distribution mandate forms, are
available from the Group’s website (www.glencore.com) or from the Company’s Registrars.
Glencore Annual Report 2016
51
Strategic report
Metals and
minerals
Highlights
Metals and minerals’ Adjusted EBITDA of
$7,616 million represents a $2,306 million
(43%) increase over 2015.
Marketing and Industrial activities delivered higher
Adjusted EBITDA of 24% and 50% respectively, over prior
year. Unsurprisingly, the greater part of the increase flowed
from the Industrial side, augmented by large productivity
improvements and cost reductions implemented over the
last 18 months, and to a lesser extent, by price increases
in the second half of the year and the stronger US dollar
effect on producer country costs. The more defensive/stable
Marketing activities reported a solid earnings increase,
supported by improved demand fundamentals, notably in
China. Indications in early 2017 reflect a continuation of
these positive fundamentals.
52
Glencore Annual Report 2016
Adjusted EBITDA
US$ million
7,616
2014
2015
2016
Marketing activities
1,545 2014
1,280 2015
1,586 2016
Industrial activities
7,077 2014
4,030 2015
6,030 2016
Adjusted EBIT
US$ million
3,744
2014
2015
2016
Marketing activities
1,515 2014
1,255 2015
1,562 2016
Industrial activities
3,674 2014
148 2015
2,182 2016
Strategic report | Governance | Financial statements | Additional information
Glencore Annual Report 2016
53
Strategic report
Metals and minerals
US$ million
Revenue
Adjusted EBITDA
Adjusted EBIT
Adjusted EBITDA margin
Market conditions
Selected average commodity prices
S&P GSCI Industrial Metals Index
LME (cash) copper price ($/t)
LME (cash) zinc price ($/t)
LME (cash) lead price ($/t)
LME (cash) nickel price ($/t)
Gold price ($/oz)
Silver price ($/oz)
Marketing
activities
Industrial
activities
42,142
1,586
1,562
3.8%
24,196
6,030
2,182
24.9%
2016
66,338
7,616
3,744
11.5%
Metal Bulletin cobalt price 99.3% ($/lb)
Metal Bulletin ferrochrome 6–8% C basis 60% Cr, max 1.5% Si (¢/lb)
Iron ore (Platts 62% CFR North China) price ($/DMT)
Marketing
activities
Industrial
activities
41,151
1,280
1,255
3.1%
2016
272
4,867
2,094
1,868
9,606
1,248
17
12
90
58
24,782
4,030
148
16.3%
2015
291
5,503
1,928
1,785
11,835
1,160
16
13
94
56
2015
65,933
5,310
1,403
8.1%
Change %
(7)
(12)
9
5
(19)
8
6
(8)
(4)
4
Currency table
AUD : USD
USD : CAD
USD : COP
EUR : USD
GBP : USD
USD : CHF
USD : KZT
USD : ZAR
Average
2016
Spot
31 Dec 2016
Average
2015
Spot
31 Dec 2015
Change in
average %
0.75
1.32
3,052
1.11
1.35
0.99
342
14.69
0.72
1.34
3,002
1.05
1.23
1.02
334
13.74
0.75
1.28
2,749
1.11
1.54
0.96
223
12.78
0.73
1.38
3,175
1.09
1.47
1.00
341
15.47
–
3
11
–
(12)
3
53
15
54
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Marketing
Highlights
2016 is likely to be remembered as the year in which industrial metals prices found their cyclical floor and some meaningful
year-over-year price appreciation (spot basis) was seen towards the end of the year. These increases were fundamentally
supported by demand strength from China’s industrial base and confidence in the sustainability thereof, together with the
enhanced realisation that fear of a supply glut in many markets was overdone, as evidenced by declining stock levels in
most key commodity categories.
Against this improving background, Marketing delivered an Adjusted EBIT of $1,562 million in 2016, a 24% increase
over 2015.
Financial information
US$ million
Revenue
Adjusted EBITDA
Adjusted EBIT
Selected marketing volumes sold
Copper metal and concentrates1
Zinc metal and concentrates1
Lead metal and concentrates1
Gold
Silver
Nickel
Ferroalloys (incl. agency)
Alumina/aluminium
Iron ore
1 Estimated metal unit contained.
2016
42,142
1,586
1,562
2015
41,151
1,280
1,255
Change %
2
24
24
Units
mt
mt
mt
moz
moz
kt
mt
mt
mt
2016
3.5
2.0
0.9
2.1
92.1
221
7.6
11.4
47.1
2015
Change %
3.1
3.1
1.1
1.9
89.3
231
5.0
13.6
41.2
13
(35)
(18)
11
3
(4)
52
(16)
14
Glencore Annual Report 2016
55
Strategic report
Metals and minerals
Copper
Zinc
After underperforming the base metals complex for most
of the year, the copper market sprang back into life in
the closing months of 2016 amid a fundamental shift in
sentiment. The no-show of the much-trumpeted “wall
of supply”, lack of inventory build during the year and
significantly stronger than expected Chinese demand
propelled copper up towards $6,000/t by year end, from
a low of $4,310/t in early 2016. Copper averaged $4,867/t
during the year.
Chinese government stimulus measures coupled with
tighter scrap supply underpinned stronger global demand
growth. European growth also lent support while North
American cathode offtake was largely flat year-on-year.
Near-term demand prospects appear positive. A political
transition year in China should ensure continued positive
fundamentals while the actual and looming infrastructure
programmes in Japan and North America should start to
lend support to non-Chinese consuming regions.
Supply-side fundamentals also improved markedly during
the year. Despite some scaremongering, the “wall of supply”
failed to emerge. New supply growth from Peru was
almost fully offset by production decreases in Chile and
elsewhere, and continued shutdowns in the African copper
belt. Indeed, the copper market appears to be reverting to
form, with an unusually low volume of mine disruptions
seen in H1 2016, but increasing in the second half of the
year. The stresses induced by 18 months of low pricing and
related actions to enhance cash flows are only just starting
to manifest themselves.
The prospect of demand growth across Asia, Europe and
the US, as well as the likelihood of difficult labour contract
negotiations at some of the industry’s major mines over
the coming year, suggest that pricing risks lie to the upside
in 2017.
Zinc was one of the best performing industrial metals
in 2016, with an average year-over-year price increase of
9%. The widely anticipated zinc mining output reduction
materialised and resulted in significantly tighter physical
market conditions, particularly for zinc concentrate.
Confirmation of decreasing supply, in combination with
better than anticipated demand conditions driven by the
recovery of the Chinese real estate and global automotive
market, has resulted in destocking of both zinc concentrates
and metal during the year and a higher corresponding
LME price.
2016 Chinese zinc mine production was similar to 2015,
despite the incentive of a higher SHFE zinc metal price, and
a reduction in zinc mine production from the rest of the
world (“ROW”) of around 900kmtu (10.8%). Consequently,
realised Benchmark TCs reduced by $32/dmt ($243 to $211)
while average spot TCs were down by $99/dmt ($201 to
$102). The tightness in zinc concentrates is yet to impact
Chinese zinc metal production, even though Chinese
concentrate imports were down by 640kmtu and domestic
mine production was flat year-over-year. Chinese smelters
reported similar production as in 2015, which is attributed
to destocking of concentrates stock built up in prior
years. ROW zinc metal production was down by 244kmtu
compared to prior year.
ROW zinc metal continues to be shipped to China, following
the trend of the last few years. Metal imports into China
were stable year-on-year, causing further inventory
drawdowns from LME exchanges (stocks down from 463kt
to 428kt), while SHFE (199kt to 153kt) and Shanghai Metal
Market stocks have also been drawn to cover the needs
of the Chinese physical market. Published non-exchange
stocks in China have also reduced by a further 50–80kt.
Real estate and infrastructure end markets in China are
performing better than expected, supported by Chinese
government actions in H1 2016, while the automotive market
continues to show strong growth both in China and ROW.
56
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
The lead supply side trend is similar, given that it is
generally a by-product of zinc. Lead benchmark TCs were
down by $22.50/dmt ($170 versus $192.50), while spot was
down by $60/dmt ($117 versus $177) compared to 2015
averages. Chinese lead concentrates imports were also down
by 24% year-over-year.
Going forward, we expect tight zinc concentrates supply to
translate into lower metal production in 2017, which should
cause further inventory drawdowns and provide support to
the metal price.
Nickel
Whilst average nickel prices in 2016 were at multi-year lows
with prices bottoming in February around $7,600/t, prices
rebounded through the rest of the year, exceeding $12,000/t
in November before closing the year at c.$10,000/t.
Despite a weak January and February 2016, global stainless
steel production expanded materially in 2016, led by double-
digit demand growth in China. Furthermore, we saw a
continued shift to austenitic grades in Europe, India and the
US which supported nickel demand growth.
We estimate global stainless production in 2016 at over
45 million tonnes, up over 7% on the prior year, including
over 24 million tonnes from China. Globally 300S austenitic
production totalled over 25 million tonnes which is a 10%
increase versus 2015.
Developments in non-stainless remain mixed, with
special steel producers reporting challenging conditions
primarily due to continued oil and gas weakness, whilst
demand from the critical alloys industry and battery sector
remains robust.
Overall we estimate primary nickel demand in 2016
of 2.05 million tonnes, representing an ~8% increase
versus 2015.
Nickel supply continued to fall in 2016 with further
shutdowns (BCL, Tati, Votorantim, Mirabella), and lower
nickel unit exports (in ore) from the Philippines all driving a
fall in projected nickel output to approximately 1.95 million
tonnes of nickel, down 2% versus 2015.
Consequently the market entered its first material deficit
since 2010 enabling global inventories to fall by around
100,000 tonnes. Whilst inventories remain elevated, the
outlook is for continued deficits and further draws in
primary nickel inventories as demand remains strong.
Supply increases relate to Indonesia exporting more
nickel units in nickel pig iron, with production elsewhere
continuing to flat-line or even fall.
Ferroalloys
Oversupply, raw material destocking and limited growth in
key demand regions resulted in ferrochrome and chrome
ore prices falling to multi-year lows during Q1 2016,
eventually contributing to meaningful mine and foundry
closures. Following these production cuts, a resurgent
Chinese stainless steel market led to sharp recoveries in
chrome pricing starting Q2 2016. Between Q2 2016 and
Q4 2016, the European benchmark price for ferrochrome
increased 34%, indicative of the improved market sentiment
and a more positive global pricing environment going
into 2017.
Reduced manganese ore and alloy supply caused a price
recovery during the first half of 2016, which, together with
improved demand from the global carbon steel sector
during the second half, sparked a rally in prices towards the
end of 2016.
Vanadium demand and prices increased through the year
as a recovery in high-strength structural and specialty
steel continued, together with increased order flow from
premium aerospace and battery applications. This demand,
coupled with a reduction in supply during the second
half of the year, particularly from China, led to a global
reduction in the stock overhang experienced over the last
two years, resulting in a more balanced market heading
into 2017.
Glencore Annual Report 2016
57
Strategic report
Metals and minerals
Alumina/Aluminium
Iron Ore
Average primary aluminium prices decreased by 3% during
2016, but as with other industrial metals the price increased
strongly towards the end of the year, finishing at $1,693/t,
up 12% from 31 December 2015. Demand for aluminium
remains very healthy with growth expected in all three
major sectors: automotive, packaging and construction.
The market was in deficit in the west and oversupplied in
China, yielding similar year-over-year exports from China.
Following the significant reductions seen last year,
premiums completed their return to historical levels
during 2016 with Europe and Japan trading around
$70–120/t. The US premium closed 2016 at $184/t and is
expected to remain the strongest of the three regions, due
to its large deficit, importing over 4 million tonnes on an
annualised basis.
The FOB Australia alumina price showed a reversal of the
fall in 2015, opening the year at $199/t, and closing at $350/t.
Increases in alumina production have lagged behind the
increase in demand from increased aluminium production.
Both iron ore and rebar (steel) experienced tremendous
volatility throughout the year. Iron ore surpassed most
analysts’ expectations and continued to move higher
despite an increase in inventories. As the year progressed,
two factors impacted the iron ore market: steel demand
improved on the back of renewed Chinese stimulus and
coal capacity cuts created a surge in coking coal prices.
The resulting increase in steel margins and higher coking
coal prices led to an increase in demand for higher grade
iron ore, which stepped up benchmark prices for iron ore,
which are based on such higher grade cargoes.
Elsewhere in the market, India exported close to 40 million
tonnes in 2016, compared to under 10 million tonnes in 2015.
The increase in supply from India, which tends to be of
lower quality and mills switching from low grade to high
grade ore, led to significantly greater discounts for lower
grade ore and certain product penalties. Finally, as financial
players continued to become a bigger part of the market,
prices often became disconnected from short-term physical
fundamentals, all such factors contributing to a challenging
price environment to manage.
58
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Industrial activities
Highlights
The Metals and minerals industrial portfolio delivered a $2,000 million (50%) increase in Adjusted EBITDA to $6,030 million
and a $1,454 million reduction in capex. Some external factors played a part, such as the relative strength of the US dollar
versus key producer country currencies, notably in South Africa, Kazakhstan and Argentina, and price increases towards
the end of the year, however the largest positive impact on earnings and cash generation was the extensive cost reduction
and efficiency initiatives embedded into the businesses over the last 18 months.
It is noteworthy that among the asset groups where some tough decisions were made in 2015 regarding production
curtailments, Adjusted EBITDA is up strongly year-over-year, demonstrating the successful implementation thereof.
More generally, the overall portfolio has benefited from such supply discipline, which saw copper and zinc own production
decline year-over-year by 5% and 24% respectively.
Financial information
US$ million
Revenue
Copper assets
African copper (Katanga, Mutanda, Mopani)
Collahuasi1
Antamina1
Other South America (Alumbrera, Lomas Bayas, Antapaccay, Punitaqui)
Australia (Mount Isa, Ernest Henry, Townsville, Cobar)
Custom metallurgical (Altonorte, Pasar, Horne, CCR)
Intergroup revenue elimination
Copper
Zinc assets
Kazzinc
Australia (Mount Isa, McArthur River)
European custom metallurgical (Portovesme, San Juan de Nieva,
Nordenham, Northfleet)
North America (Matagami, Kidd, Brunswick, CEZ Refinery)
Other Zinc (AR Zinc, Los Quenuales, Sinchi Wayra, Rosh Pinah, Perkoa)
Zinc
Nickel assets
Integrated Nickel Operations (Sudbury, Raglan, Nikkelverk)
Australia (Murrin Murrin)
Nickel
Ferroalloys
Aluminium/Alumina
Metals and minerals revenue
1 Represents the Group’s share of these JVs.
2016
2015
Change %
1,839
1,006
820
2,257
1,799
6,572
(429)
13,864
2,602
1,133
1,209
1,030
537
6,511
1,432
503
1,935
1,873
13
24,196
3,038
876
702
1,943
2,049
5,988
(172)
14,424
2,244
1,211
1,172
1,084
632
6,343
1,340
600
1,940
1,717
358
24,782
(39)
15
17
16
(12)
10
n.m.
(4)
16
(6)
3
(5)
(15)
3
7
(16)
–
9
(96)
(2)
Glencore Annual Report 2016
59
Strategic report
Metals and minerals
US$ million
Copper assets
African copper
Collahuasi1
Antamina1
Other South America
Australia
Custom metallurgical
Copper
Adjusted EBITDA mining margin2
Zinc assets
Kazzinc
Australia
European custom metallurgical
North America
Other Zinc
Zinc
Adjusted EBITDA mining margin2
Nickel assets
Integrated Nickel Operations
Australia
Nickel
Adjusted EBITDA margin
Ferroalloys
Aluminium/Alumina
Iron ore
Metals and minerals Adjusted EBITDA/ EBIT
Adjusted EBITDA mining margin2
Adjusted EBITDA
Adjusted EBIT
2016
2015
Change %
2016
2015
Change %
264
542
602
1,060
458
407
3,333
38%
989
454
174
184
115
1,916
33%
446
(19)
427
22%
423
(60)
(9)
6,030
33%
51
343
463
718
414
301
2,290
23%
490
284
168
121
10
1,073
18%
421
32
453
23%
271
(43)
(14)
4,030
21%
418
(240)
(533)
n.m.
58
30
48
11
35
46
102
60
4
52
n.m.
79
6
(159)
(6)
56
n.m.
n.m.
50
286
341
407
85
280
1,159
539
143
84
104
1
871
(28)
(61)
(89)
310
(60)
(9)
2,182
85
220
202
48
210
232
44
(81)
81
21
(141)
(76)
(64)
(7)
(71)
138
(60)
(15)
148
236
55
101
77
33
400
n.m.
n.m.
4
395
n.m.
n.m.
n.m.
n.m.
n.m.
125
n.m.
n.m.
n.m.
1 Represents the Group’s share of these JVs.
2 Adjusted EBITDA mining margin is Adjusted EBITDA (excluding custom metallurgical assets) divided by Revenue (excluding custom metallurgical assets and intergroup revenue
elimination) i.e. the weighted average EBITDA margin of the mining assets. Custom metallurgical assets include the Copper custom metallurgical assets and Zinc European custom
metallurgical assets and the Aluminium/Alumina group, as noted in the table above.
60
Glencore Annual Report 2016
US$ million
Capital expenditure
Copper assets
African copper
Collahuasi1
Antamina1
Other South America
Australia
Custom metallurgical
Copper
Zinc assets
Kazzinc
Australia
European custom metallurgical
North America
Other Zinc
Zinc
Nickel assets
Integrated Nickel Operations
Australia
Koniambo
Other nickel projects
Nickel
Ferroalloys
Aluminium/Alumina
Iron ore
Capital expenditure
1 Represents the Group’s share of these JVs.
Strategic report | Governance | Financial statements | Additional information
Sustaining
Expansion
Total
Sustaining
Expansion
2016
2015
Total
270
160
194
310
176
127
357
4
1
34
2
3
627
164
195
344
178
130
390
100
182
464
198
178
1,237
401
1,638
1,512
127
209
54
61
55
506
96
14
–
–
110
101
–
–
1,954
26
–
–
4
–
30
34
–
263
–
297
13
–
–
741
153
209
54
65
55
536
130
14
263
–
407
114
–
–
189
357
79
62
102
789
140
20
–
–
160
118
19
1
756
1,146
5
5
67
23
124
980
37
29
–
9
–
75
88
–
360
4
452
25
18
–
105
187
531
221
302
2,492
226
386
79
71
102
864
228
20
360
4
612
143
37
1
2,695
2,599
1,550
4,149
Glencore Annual Report 2016
61
Strategic report
Metals and minerals
Production data
Production from own sources – Total1
Copper
Zinc
Lead
Nickel
Gold
Silver
Cobalt
Ferrochrome
Platinum
Palladium
Rhodium
Vanadium Pentoxide
kt
kt
kt
kt
koz
koz
kt
kt
koz
koz
koz
mlb
2016
1,425.8
1,094.1
294.2
115.1
1,027
39,069
28.3
1,523
148
209
16
21.1
2015
1,502.2
1,444.8
297.7
96.2
964
36,592
23.0
1,462
158
202
18
20.9
Change %
(5)
(24)
(1)
20
7
7
23
4
(6)
3
(11)
1
Production from own sources – Copper assets1
Production from own sources – Zinc assets1
2016
2015 Change %
2016
2015 Change %
African Copper (Katanga, Mutanda, Mopani)
Copper metal2
Cobalt3
Collahuasi4
Copper metal
Copper in concentrates
Silver in concentrates
Antamina5
Copper in concentrates
Zinc in concentrates
Silver in concentrates
kt
kt
kt
kt
koz
kt
kt
koz
254.4
24.5
2.1
220.8
3,276
145.5
66.8
6,778
Other South America
(Alumbrera, Lomas Bayas, Antapaccay, Punitaqui)
Copper metal
Copper in concentrates
Gold in concentrates and in doré
Silver in concentrates and in doré
kt
kt
koz
koz
80.0
308.8
382
2,366
421.9
19.4
9.8
190.6
2,828
131.8
79.3
5,987
71.1
272.0
318
1,918
Australia (Mount Isa, Ernest Henry, Townsville, Cobar)
Copper metal
Copper in concentrates
Gold
Silver
Total Copper department
Copper
Cobalt
Zinc
Gold
Silver
kt
kt
koz
koz
kt
kt
kt
koz
koz
205.1
53.9
86
205.6
50.8
90
1,794
1,723
1,270.6
1,353.6
24.5
66.8
468
19.4
79.3
408
14,214
12,456
(40)
26
(79)
16
16
10
(16)
13
13
14
20
23
–
6
(4)
4
(6)
26
(16)
15
14
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis,
except as stated.
2 Copper metal includes copper contained in copper concentrates and blister.
3 Cobalt contained in concentrates and hydroxides.
4 The Group’s pro-rata share of Collahuasi production (44%).
5 The Group’s pro-rata share of Antamina production (33.75%).
6 The Group’s attributable 79.5% share of the Glencore-Merafe Chrome Venture.
7 Consolidated 50% of Mototolo and 100% of Eland (placed on care and maintenance
from October 2015).
62
Glencore Annual Report 2016
Kazzinc
Zinc metal
Lead metal
Lead in concentrates
Copper metal2
Gold
Silver
Silver in concentrates
kt
kt
kt
kt
koz
koz
koz
Australia (Mount Isa, McArthur River)
Zinc in concentrates
Lead in concentrates
Silver in concentrates
North America (Matagami, Kidd)
Zinc in concentrates
Copper in concentrates
Silver in concentrates
kt
kt
koz
kt
kt
koz
187.6
44.0
15.2
53.9
521
4,510
469
488.4
185.4
8,741
130.1
48.0
2,292
193.4
26.3
–
51.9
520
3,653
(3)
67
n.m.
4
–
23
–
n.m.
750.9
216.0
8,248
115.2
48.3
2,368
Other Zinc
(Aguilar, Los Quenuales, Sinchi Wayra, Rosh Pinah, Perkoa)
Zinc metal
Zinc in concentrates
Lead metal
Lead in concentrates
Copper in concentrates
Silver metal
Silver in concentrates
Total Zinc department
Zinc
Lead
Copper
Gold
Silver
kt
kt
kt
kt
kt
koz
koz
kt
kt
kt
koz
koz
–
221.2
12.7
36.9
2.1
666
26.1
279.9
12.7
42.7
2.4
691
7,553
8,566
1,027.3
1,365.5
294.2
104.0
521
297.7
102.6
520
24,231
23,526
(35)
(14)
6
13
(1)
(3)
(100)
(21)
–
(14)
(13)
(4)
(12)
(25)
(1)
1
–
3
Strategic report | Governance | Financial statements | Additional information
Production from own sources – Nickel assets1
Production from own sources – Ferroalloys assets1
Integrated Nickel Operations (“INO”) (Sudbury, Raglan, Nikkelverk)
2016
2015 Change %
2016
2015 Change %
Nickel metal
Nickel in concentrates
Copper metal
Copper in concentrates
Cobalt metal
Gold
Silver
Platinum
Palladium
Rhodium
Murrin Murrin
Nickel metal
Cobalt metal
Koniambo
Nickel in ferronickel
Total Nickel department
Nickel
Copper
Cobalt
Gold
Silver
Platinum
Palladium
Rhodium
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
kt
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
65.6
0.6
16.6
34.6
1.0
37
624
90
173
6
35.3
2.8
49.1
0.5
14.9
31.1
0.8
35
610
76
157
5
37.5
2.8
34
20
11
11
25
6
2
18
10
20
(6)
–
13.6
9.1
49
115.1
51.2
3.8
37
624
90
173
6
96.2
46.0
3.6
35
610
76
157
5
20
11
6
6
2
18
10
20
Ferrochrome6
kt
1,523
1,462
4
PGM7
Platinum
Palladium
Rhodium
Gold
4E
koz
koz
koz
koz
koz
58
36
10
1
82
45
13
1
105
141
(29)
(20)
(23)
–
(26)
Vanadium Pentoxide
mlb
21.1
20.9
1
Total production – Custom metallurgical assets1
2016
2015 Change %
Copper (Altonorte, Pasar, Horne, CCR)
Copper metal
Copper anode
kt
kt
489.1
522.5
433.7
502.8
Zinc (Portovesme, San Juan de Nieva, Nordenham, Northfleet)
Zinc metal
Lead metal
Silver
Ferroalloys
kt
kt
789.8
216.6
788.8
199.2
koz
14,845
11,220
13
4
–
9
32
Ferromanganese
Silicon Manganese
kt
kt
136
82
146
98
(7)
(16)
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis,
except as stated.
2 Copper metal includes copper contained in copper concentrates and blister.
3 Cobalt contained in concentrates and hydroxides.
4 The Group’s pro-rata share of Collahuasi production (44%).
5 The Group’s pro-rata share of Antamina production (33.75%).
6 The Group’s attributable 79.5% share of the Glencore-Merafe Chrome Venture.
7 Consolidated 50% of Mototolo and 100% of Eland (placed on care and maintenance
from October 2015).
Glencore Annual Report 2016
63
Strategic report
Metals and minerals
Operating highlights
Australia
Copper assets
Copper production of 1,425,800 tonnes was 76,400 tonnes
(5%) below 2015, reflecting the production suspensions
at African Copper, partly offset by improved grades and
volumes at the South American assets.
African copper
Mutanda’s production of 213,300 tonnes was in line with
2015. Cobalt production of 24,500 tonnes was 8,000 tonnes
(48%) higher, reflecting various plant optimisation projects
completed during the year.
Mopani produced 41,100 tonnes of copper from own
sources, 51,000 tonnes (55%) lower than 2015, as a result
of the partial suspension of production, while the major
upgrade projects are being completed.
Collahuasi
Glencore’s share of Collahuasi’s production was 222,900
tonnes, a 22,500 tonne (11%) increase over 2015, due to
improved milling rates and grades.
Antamina
Glencore’s share of Antamina’s copper production was
145,500 tonnes, a 13,700 tonne (10%) increase over 2015 and
zinc production of 66,800 tonnes was 12,500 tonnes (16%)
lower than 2015, reflecting the mix of copper and zinc/
copper ore encountered in the mine.
Other South America
Copper production of 388,800 tonnes was 45,700 tonnes
(13%) higher than 2015, mainly relating to higher grades
at Alumbrera, the Tintaya plant being operational for the
full year at Antapaccay and incremental expansion at the
Antapaccay plant completed in the year. The increase in
gold production (318,000 ounces to 382,000 ounces) mainly
related to improved grades at Alumbrera.
Copper production of 259,000 tonnes was 2,600 tonnes up on
2015, reflecting a strong operating performance.
Custom metallurgical assets
Copper cathode production of 489,100 tonnes was 55,400
tonnes (13%) higher than 2015 and anode production of
522,500 tonnes was 19,700 tonnes (4%) higher, mainly as a
result of the restart of Pasar, following its upgrade in 2015.
Zinc assets
Zinc production of 1,094,100 tonnes was 350,700 tonnes
(24%) lower than 2015, mainly reflecting the production
suspensions announced in October 2015.
Kazzinc
Own-sourced zinc production of 187,600 tonnes was slightly
lower than 2015, as a result of the mix of own and third
party feeds. Total zinc production of 305,500 tonnes was in
line with 2015.
Own-sourced lead production of 59,200 tonnes was
32,900 tonnes (125%) higher than 2015, due to operational
improvements at the lead smelter, following maintenance in
2015, and additional volumes from the Zhairem mine.
Own-sourced copper production of 53,900 tonnes was 2,000
tonnes (4%) higher than the previous year, mainly due to
maintenance activities impacting volumes during 2015.
Own-sourced gold production of 521,000 ounces was in line
with the comparable period.
Australia
Zinc production of 488,400 tonnes was 262,500 tonnes (35%)
lower than 2015 and lead production of 185,400 tonnes was
30,600 tonnes (14%) lower, reflecting suspended production
at George Fisher, Lady Loretta and McArthur River. Q4 zinc
production of 138,200 tonnes was 19,700 tonnes (17%)
higher than Q3, mainly reflecting higher head grades at
McArthur River.
64
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
North America
Koniambo
Zinc production of 130,100 tonnes was 14,900 tonnes (13%)
higher than in 2015, mainly due to higher grades being
achieved at Kidd and Matagami. Copper production of
48,000 tonnes was in line with the previous year.
Other Zinc
Zinc production of 221,200 tonnes was 84,800 tonnes (28%)
below 2015, mainly due to the suspension of the Iscaycruz
mine in Peru (part of Los Quenuales).
European custom metallurgical assets
Zinc production of 789,800 tonnes was in line with 2015.
Lead production of 216,600 tonnes was 17,400 tonnes (9%)
higher than the comparable period, reflecting operational
improvements at Northfleet and prior year maintenance
at Portovesme.
Nickel assets
Nickel production of 13,600 tonnes was up 4,500 tonnes
(49%) over the comparable period, reflecting the ongoing
ramp-up of processing operations.
Ferroalloys assets
Ferrochrome
Attributable ferrochrome production of 1,523,000 tonnes was
4% higher than 2015, due to the timings of refurbishments
in 2016 versus 2015 leading to more available furnace hours,
and the full-year benefits of operating the Lion 2 furnace
which was ramping up through H1 2015.
Platinum Group Metals (“PGM”)
Glencore’s share of Mototolo’s production of 105,000
ounces was comparable with 2015, after adjusting for Eland
mine, which has been on care and maintenance since
October 2015.
Own-sourced nickel production of 115,100 tonnes was 18,900
tonnes (20%) higher than 2015, due to the processing in
2016 of material stockpiled during maintenance work at the
Sudbury smelter during the prior year.
Vanadium
Vanadium production of 21.1 million pounds was in line
with 2015.
Integrated Nickel Operations (“INO”)
Manganese
Manganese production of 218,000 tonnes was 26,000 tonnes
(11%) below 2015, mainly due to maintenance activities,
including a furnace rebuild in Norway that is now complete.
Own-sourced nickel production of 66,200 tonnes was 16,600
tonnes (33%) higher than 2015, mainly due to the Sudbury
smelter shutdown in 2015. Total nickel production of 93,400
tonnes, including third-party sources, was in line with 2015.
Own-sourced copper production of 51,200 tonnes was an
increase of 5,200 tonnes (11%) over the comparable period,
due to improved mill throughput at Sudbury and the impact
of the smelter shutdown on the base period.
Murrin Murrin
Own-sourced nickel production of 35,300 tonnes was
2,200 tonnes (6%) lower than 2015, reflecting maintenance
throughout the year. Cobalt production of 2,800 tonnes from
own sources was in line with 2015.
Glencore Annual Report 2016
65
Strategic report
Energy
products
Highlights
Energy products Adjusted EBITDA of
$2,462 million was 20% down on 2015,
with 2016 impacted by the corporate
risk management decision in Q2 2016 to
economically price hedge some 55 million
tonnes of future coal production, thereby
locking-in/capping the effective realised sales
price of 44 million tonnes in 2016, resulting
in an “opportunity cost” of $980 million
being realised as coal markets rallied into H2
2016. Adjusting for this hedging impact, 2016
Adjusted EBITDA would have been up 11%
over the prior year.
Marketing activities Adjusted EBIT delivered an
improvement of 17%, while industrial activities, pre
hedge impact, delivered a 3% Adjusted EBITDA margin
improvement to 32%, the latter driven largely by the
continuous and relentless focus on cost reduction and
margin improvement initiatives.
Adjusted EBITDA
US$ million
2,462
2014
2015
2016
Marketing activities
565 2014
826 2015
959 2016
Industrial activities
2,841 2014
2,269 2015
1,503 2016
Adjusted EBIT
US$ million
67
2014
2015
2016
Marketing activities
524 2014
778 2015
909 2016
Industrial activities
486 2014
(88) 2015
(842) 2016
66
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Glencore Annual Report 2016
67
Strategic report
Energy products
US$ million
Revenue
Adjusted EBITDA
Adjusted EBIT
Adjusted EBITDA margin
Market conditions
Selected average commodity prices
S&P GSCI Energy Index
Coal API4 ($/t)
Coal Newcastle (6,000) ($/t)
Oil price – Brent ($/bbl)
Marketing
Highlights
Marketing
activities
Industrial
activities
81,872
959
909
1.2%
7,149
1,503
(842)
21.0%
2016
89,021
2,462
67
2.8%
Marketing
activities
75,206
826
778
1.1%
Industrial
activities
8,406
2,269
(88)
27.0%
2015
83,612
3,095
690
3.7%
2016
151
64
65
45
2015
175
57
58
54
Change %
(14)
12
12
(17)
Coal and oil markets were notably impacted during 2016 by sovereign developments, key being China for coal and OPEC
for oil. Coal news was dominated by China’s effective domestic supply reduction campaign to restore/accelerate financial
health to an oversupplied industry and its consequential effect on seaborne pricing. Oil’s persistent fears of oversupply
and inventory builds were eventually tackled by OPEC’s first agreed production cut in almost a decade and pledges to
do likewise by various non-OPEC countries, including Russia. Solid contributions from both the oil and coal divisions
showcase Glencore’s abilities to successfully navigate such choppy markets.
2016
81,872
959
909
2016
105.7
2.4
0.9
911
844
2015
75,206
826
778
Change %
9
16
17
2015
93.9
2.5
0.7
566
634
Change %
13
(4)
29
61
33
mt
mt
mt
mbbl
mbbl
Financial information
US$ million
Revenue
Adjusted EBITDA
Adjusted EBIT
Selected marketing volumes sold
Thermal coal1
Metallurgical coal1
Coke1
Crude oil
Oil products
1 Includes agency volumes.
68
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Thermal coal
Oil
The introduction of Chinese policy measures in Q2 2016
to limit domestic coal production (address overcapacity
concerns) provided strong support for increased prices and
thermal coal import demand, particularly during the second
half of 2016. At the end of December 2016, market index
prices for Newcastle, API4 and API2 closed respectively
88%, 77% and 85% higher than December 2015. Overall,
Chinese thermal coal imports increased by over 40 million
tonnes in 2016, which together with demand growth in the
emerging economies of South East Asia, offset demand
reductions in India and the EU, to hold overall 2016 seaborne
demand in line with 2015. South East Asian demand growth
continues to be supported by the construction of new coal
fired generation capacity.
On the supply side, export declines from the US and
Indonesia were offset by some growth from Colombia
and Mozambique, while Australian exports and total
seaborne supply volumes were broadly flat year-over-year.
The price recovery from the lows at the beginning of 2016
has facilitated the return to positive cash margins for the
majority of seaborne thermal coal producers, yet price
volatility, access to capital and project lead times continue
to limit supply growth. Indonesia, however, is looking to
return some idled low quality capacity/production.
There continues to be a general decline in supply volumes
of higher energy coal export products, particularly from
Indonesia and South Africa, as high grade reserves are
depleted. Consequently, high energy coals remain in
tighter supply, supporting market segmentation and
price differentiation.
The first half of 2016 saw a period of sustained recovery
in oil prices up to $50 per barrel for Brent, after hitting a
decade low, amidst surging volatility, of close to $27/bbl
in January. Whilst price increases were initially driven by
a recovery from perceived oversold levels, this was later
supported by increasingly frequent supply disruptions and
declining US production. However, the oil price trajectory
stalled during the second half of 2016 and traded mostly
within a range of $45 to $55 per barrel as oversupply
concerns remained, inventories were high and refinery
margins came under pressure. OPEC continued to produce
at record levels, rig count increases indicated higher US
production and higher prices prompted renewed producer
hedging. On the demand side, expectations remained for
robust demand growth.
December 2016 saw the first agreed output cut by OPEC
since 2008, which marked a major shift from the “market
share policy” it had followed for the past two years.
Oil prices rallied to end the year at $56 per barrel, as the
market viewed this as significantly accelerating oil market
re-balancing expectations. A curve shift took place eroding
contango or even shifting to backwardation. Looking into
2017, the focus is now firmly on OPEC compliance and non-
OPEC producers delivering the agreed cuts as outlined.
Glencore Annual Report 2016
69
Strategic report
Energy products
Industrial activities
Highlights
Energy Products’ Adjusted EBITDA of $1.5 billion was down year-over-year, on account of the coal economic price
hedging initiatives noted above. Prior to such hedging impact, underlying Coal Adjusted EBITDA was up 14% year-over-
year, with Adjusted EBITDA margins consistent at ~30%. In a period of considerable uncertainty around the oil market,
the development programme in Chad was significantly curtailed, resulting in year-over-year capex savings of almost
$0.5 billion but, inevitably, also in lower production and earnings. Some limited development will recommence in 2017.
2016
2015
Change %
651
3,763
1,349
1,130
606
(980)
6,519
2
325
9
12
1
349
653
4,088
1,358
1,142
607
(980)
6,868
281
7,149
540
3,584
1,458
1,089
620
–
7,291
204
425
3
2
–
634
744
4,009
1,461
1,091
620
–
7,925
481
8,406
21
5
(7)
4
(2)
n.m.
(11)
(99)
(24)
200
n.m.
n.m.
(45)
(12)
2
(7)
5
(2)
n.m.
(13)
(42)
(15)
Financial information
US$ million
Net revenue
Coal operating revenue
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Impact of corporate coal economic hedging
Coal operating revenue
Coal other revenue
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Coal other revenue (buy-in coal)
Coal total revenue
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Impact of corporate coal economic hedging
Coal total revenue
Oil
Energy products revenue
1 Represents the Group’s share of this JV.
70
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
US$ million
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Coal result prior to hedging
Impact of corporate coal economic hedging
Total coal
Adjusted EBITDA margin2
Oil
Adjusted EBITDA margin
Energy products Adjusted EBITDA/ EBIT
Adjusted EBITDA margin – pre economic hedge
Adjusted EBITDA margin – post economic hedge
2016
154
1,334
456
178
240
2,362
(980)
1,382
31%
121
43%
1,503
32%
22%
2015
117
1,159
386
228
189
2,079
–
2,079
29%
190
40%
2,269
29%
29%
Adjusted EBITDA
Change %
32
15
18
(22)
27
14
n.m.
(34)
2016
12
(26)
213
16
62
277
(980)
(703)
Adjusted EBIT
2015
Change %
(33)
44
56
62
3
132
–
132
n.m.
(159)
280
(74)
n.m.
110
n.m.
n.m.
(36)
(139)
(220)
n.m.
(34)
(842)
(88)
n.m.
1 Represents the Group’s share of this JV.
2 Coal EBITDA margin is calculated on the basis of Coal operating revenue before corporate hedging, as set out in the preceding table.
US$ million
Capex
Australia (thermal and coking)
Thermal South Africa
Prodeco
Cerrejón1
Total Coal
Oil
Capital expenditure
1 Represents the Group’s share of this JV.
Sustaining
Expansion
Total
Sustaining
Expansion
2016
181
98
43
31
353
72
425
110
30
3
2
145
1
146
291
128
46
33
498
73
571
277
89
36
31
433
431
864
177
120
5
5
307
132
439
2015
Total
454
209
41
36
740
563
1,303
Glencore Annual Report 2016
71
Strategic report
Energy products
Production data
Coal assets1
Australian coking coal
Australian semi-soft coal
Australian thermal coal (export)
Australian thermal coal (domestic)
South African thermal coal (export)
South African thermal coal (domestic)
Prodeco
Cerrejón2
Total Coal department
mt
mt
mt
mt
mt
mt
mt
mt
mt
2016
5.3
4.2
52.5
5.6
17.2
12.1
17.3
10.7
2015
5.9
3.6
52.4
3.9
19.7
17.3
17.6
11.1
124.9
131.5
Change %
(10)
17
–
44
(13)
(30)
(2)
(4)
(5)
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis except for joint ventures, where the Group’s attributable share of production is included.
2 The Group’s pro-rata share of Cerrejón production (33.3%).
Oil assets
Glencore entitlement interest basis
Equatorial Guinea
Chad
Total Oil department
Gross basis
Equatorial Guinea
Chad
Total Oil department
2016
2015
Change %
kbbl
kbbl
kbbl
kbbl
kbbl
kbbl
3,629
3,882
7,511
16,909
5,308
22,217
4,937
5,632
10,569
22,939
7,699
30,638
(26)
(31)
(29)
(26)
(31)
(27)
72
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Operating highlights
Prodeco
Production of 17.3 million tonnes was 0.3 million tonnes
(2%) less than in 2015, impacted by heavy rainfall during
the year.
Cerrejón
Glencore’s share of volumes from Cerrejón was 10.7 million
tonnes, 0.4 million tonnes (4%) lower than the prior year,
mainly due to weather-related production disruptions.
Oil assets
In 2016, Glencore’s entitlement interest production was
7.5 million barrels, 3.1 million barrels (29%) lower than 2015,
reflecting the natural depletion of existing fields. During the
first quarter of 2016, the remaining workover rig in Chad
was temporarily suspended; a one-rig drilling schedule is
expected to recommence in 2017.
Coal assets
Production of 124.9 million tonnes was 6.6 million tonnes
(5%) lower than 2015, mainly reflecting the deconsolidation
and subsequent sale of Optimum Coal and scheduled mine
closures in South Africa and weather-related constraints on
production in Colombia.
Australian coking
Production of 5.3 million tonnes was 0.6 million tonnes
lower than 2015, mainly due to geological issues at Oaky
Creek earlier in the year.
Australian thermal and semi-soft
Production of 62.3 million tonnes was 2.4 million tonnes
(4%) higher than 2015, mainly as a result of planned
increases at Mangoola, Rolleston and Ravensworth North,
along with improved production at South Blakefield,
following geological challenges in 2015.
South African thermal
Production of 29.3 million tonnes was 7.7 million tonnes
(21%) lower than 2015, mainly due to the deconsolidation
and subsequent sale of Optimum Coal and some smaller
scheduled mine closures.
Glencore Annual Report 2016
73
Strategic report
Agricultural
products
Highlights
During 2016, 50% of our Agricultural Products
business was sold to two partners, establishing
a standalone business, Glencore Agriculture.
This transaction contributed strongly to
Glencore’s net debt reduction and has
positioned Glencore Agriculture well to take
advantage of future opportunities in the sector.
Below average harvests in Canada and South Australia in
September and October 2015 impacted handling margins
in the first half of the year. The improved harvests of 2016
contributed to significantly improved performances, which
are expected to carry over into the first quarter of 2017.
Adjusted EBITDA
US$ million
592
2014
2015
2016
Industrial activities
213 2014
150 2015
138 2016
Marketing activities
996 2014
584 2015
454 2016
Adjusted EBIT
US$ million
522
2014
2015
2016
Industrial activities
136 2014
63 2015
104 2016
Marketing activities
856 2014
461 2015
418 2016
74
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Glencore Annual Report 2016
75
Strategic report
Agricultural products
The disposal of 50% of the Agricultural Products division was completed on 1 December 2016, as discussed in the Financial review and
the financial statements. These highlights reflect 11 months’ results on a 100% consolidated basis and 1 month on a 50% proportionate
consolidated basis.
US$ million
Revenue
Adjusted EBITDA
Adjusted EBIT
Adjusted EBITDA margin
Marketing
activities
Industrial
activities
18,678
454
418
2.4%
3,292
138
104
4.2%
2016
21,970
592
522
2.7%
Market conditions
Selected average commodity prices
S&P GSCI Agriculture Index
CBOT wheat price (US¢/bu)
CBOT corn no.2 price (US¢/bu)
CBOT soya beans (US¢/bu)
ICE cotton price (US¢/lb)
ICE sugar # 11 price (US¢/lb)
Marketing
Highlights
Marketing
activities
Industrial
activities
20,617
584
461
2.8%
2016
295
436
358
989
66
18
2,529
150
63
5.9%
2015
295
507
377
945
63
13
2015
23,146
734
524
3.2%
Change %
–
(14)
(5)
5
5
38
Prices and volatility generally remained subdued during the period, with our grain and oilseed marketing business
performing consistently well in the circumstances. The marketing of wheat, Brazilian corn, soyameal and the rapeseed
complex, supported by our asset ownership, exceeded expectations, while sugar and cotton were below expectations.
Viterra Canada faced challenges in the first half of 2016, as the crop harvested in September 2015 was below average, with
margins suffering from competition amongst handlers in the face of low prices and farmer retention. Margins improved
in the final quarter with a near-record, albeit poor quality, crop harvested in September 2016. South Australia was broadly
similar, with the first half impacted by the disappointing October 2015 harvest and the final quarter benefiting from a record
2016 South Australian crop. In the meantime, we had added storage and were well prepared for the large Viterra Australia
intake. The crop size and delayed Australian harvest is also expected to positively impact results in the first quarter of 2017.
Financial information
US$ million
Revenue
Adjusted EBITDA
Adjusted EBIT
Selected marketing volumes sold
Million tonnes
Grain
Oil/Oilseeds
Cotton
Sugar
76
Glencore Annual Report 2016
2016
18,678
454
418
2016
43.8
26.7
0.4
0.5
2015
20,617
584
461
Change %
(9)
(22)
(9)
2015
43.7
23.3
0.4
1.1
Change %
–
15
–
(55)
Strategic report | Governance | Financial statements | Additional information
Operating highlights
Processing/production (100% basis) of 14.5 million tonnes reflected a year-on-year increase of 2.9 million tonnes (25%),
mainly relating to the acquisitions, in late 2015 and early 2016, of the Becancour and Warden crush plants in Canada and the
US, respectively, and higher capacity utilisation in Argentina.
At Becancour, margins were poor early in the year as sales of meal proved challenging, but increased in the second
half. In Argentina, where the fiscal environment has improved, margins were reasonable in the post-harvest period, but
contracted somewhat with farmer retention later in the year. Softseed crushing and biodiesel in Europe struggled with the
smaller rapeseed crop and resulting over-capacity.
Sugar milling volumes increased as we attracted ample third-party cane and the business benefited from higher sugar and
ethanol prices. Wheat milling in Brazil was challenging in early 2016 as demand contracted due to poor domestic economic
conditions, however this business recovered well in the second half.
Financial information
US$ million
Revenue
Adjusted EBITDA
Adjusted EBIT
Adjusted EBITDA margin
Sustaining capital expenditure
Expansionary capital expenditure
Total capital expenditure
Processing/production data1
Farming
Crushing
Long-term toll agreement
Biodiesel
Rice milling
Wheat milling
Sugarcane processing
Total agricultural products
1 Reported on a 100% basis.
2016
3,292
138
104
4%
22
22
44
2016
792
7,680
804
687
274
989
3,259
14,485
2015
2,529
150
63
6%
58
40
98
2015
704
6,069
284
556
206
976
2,751
11,546
Change %
30
(8)
65
Change %
13
27
183
24
33
1
18
25
kt
kt
kt
kt
kt
kt
kt
kt
Glencore Annual Report 2016
77
Corporate
governance
“ 2016 was a year of considerable
action by your Company and
your Board as we transitioned
from a higher-geared company
in a tough sector down-cycle to a
business with a robust balance
sheet and a more positive
operating environment.”
CHAIRMAN’S INTRODUCTION
(see page 80)
Chairman’s introduction
Directors and Officers
80
81
84 Corporate governance report
99 Directors’ remuneration report
109 Directors’ report
78
Glencore Annual Report 2016
Glencore Annual Report 2016
79
Governance
Chairman’s introduction
Dear Shareholders,
2016 was a year of considerable action by your Company
and your Board as we transitioned from a higher-geared
company in a tough sector down-cycle to a business with a
robust balance sheet and a more positive
operating environment.
From a governance and commercial perspective, our
unrelenting focus has been on the rapid delivery of our debt
reduction programme which we announced in September
2015. We ignored distractions, including gradually
improving market conditions, to deliver an outturn that has
surpassed our initial challenging objectives. I believe that
this is testament to the strength of our Board and the quality
of our management team.
New regulation and guidance on governance continue
apace. We seek to engage with the Financial Reporting
Council, the Investment Association and other bodies where
appropriate. As an example, I participated in the FRC’s
consultation on culture, and its working group published
their report in July last year. We agree that a healthy
corporate culture leads to long-term success by both
protecting and generating value. We believe that our
reaction to our challenges over the past 18 months or so has
been testament to the strong culture of Glencore which has
endured in a time of stress and challenge for the business.
Safety remains critical to the Board. We remain committed
to our goal of zero fatalities. Our condolences go to the
families of the sixteen people who lost their lives last year,
including ten people who died following two separate
incidents at our copper operations in central Africa.
All members of the HSEC Committee visited these sites in
2016, and have worked closely with the management of the
operations to understand the causes of these tragic events
and to address them. Similarly, as in previous years, we met
with the management of each of the operations that
experienced fatalities last year to discuss the incidents and
ensure that appropriate learnings have been identified and
shared throughout the organisation to prevent recurrence.
At the 2016 AGM, shareholders approved the ‘Aiming for A’
resolution, which called for a comprehensive response to the
challenges posed by climate change. I am chairing an
internal working group on climate change, which includes
business heads and senior representatives of key functions.
The working group is leading the delivery of our climate
change commitments. We have used this year’s budget
planning process to develop a view of the projected energy
use and emissions footprint of our operations until 2020,
and will be using this information to identify strategic
opportunities to reduce our emissions footprint and drive
meaningful targets in the business. We also continue to
engage positively in public policy debates in countries
where we operate concerning carbon-related regulation.
80
Glencore Annual Report 2016
We recognise that access to water is an essential need for
our host communities, as it is for our operations. A working
group comprising experts from across our business has
worked this year to better understand operations where
access to water may be a challenge, due either to its surplus
or scarcity, and are now looking at appropriate
management responses.
Our activities generate significant benefits for our host
governments and communities. To support responsible
management of revenues from extractive activities, we have
this year published a report detailing our payments to host
governments on a project-by-project level. We also continue
to support the Extractive Industries Transparency Initiative
(EITI), and participate in in-country efforts to strengthen
this further.
We continue to focus on dialogue with our host
communities; by supporting local training, business
development and procurement; and by investment in public
infrastructure such as roads and water and power
distribution. We strive to do so while meeting our
responsibility to respect human rights, as detailed by the
UN Guiding Principles for Business and Human Rights.
To achieve this, we identify and assess our human rights
impacts, and maintain mechanisms at our operations to
enable our host communities to raise concerns, complaints
or grievances.
We aim to deliver competitively-priced commodities that
meet our stakeholders’ needs and contribute to global
society. A number of our products, such as copper, cobalt
and nickel, play a key role in the transition to a lower-carbon
economy. We work to understand fully our products’
properties in order to produce, transport and store them
safely, and we share this knowledge with our stakeholders
in our value chains.
Never before has the Group been so well positioned for the
opportunities that lie ahead. Glencore today is a highly cash
generative business, underpinned by the resilience of our
marketing business, strong asset portfolio and excellent
management team.
Anthony Hayward
Chairman
1 March 2017
Strategic report | Governance | Financial statements | Additional information
Directors and Officers
Anthony Hayward
Chairman (Age 59)
Appointed: Anthony Hayward was appointed
Independent Non-Executive Chairman in May 2013.
Prior to being appointed Chairman he was the Senior
Independent Non-Executive Director of the Company.
Committees: Health, Safety, Environment and
Communities (“HSEC”)
Experience: Dr Hayward is non-executive chairman
of Genel Energy plc (LON:GENL), a partner and
member of the European advisory Board of AEA
Capital and chairman of Compact GTL Limited.
Dr Hayward was chief executive of BP plc from 2007
to 2010, having joined BP in 1982 as a rig geologist in
the North Sea. He became group treasurer in 2000,
chief executive for BP upstream activities and
member of the main Board of BP in 2003.
Dr Hayward studied geology at Aston University in
Birmingham and completed a Ph.D at Edinburgh
University. He is also a fellow of the Royal Society of
Edinburgh and holds honorary doctorates from the
University of Edinburgh, Aston University, the
University of Birmingham and Aberdeen University.
Ivan Glasenberg
Chief Executive Officer (Age 60)
Appointed: Ivan Glasenberg joined Glencore in
April 1984 and has been Chief Executive Officer
since January 2002.
Committees: HSEC
Experience: Mr Glasenberg initially spent three years
working in the coal commodity department in South
Africa as a marketer, before spending two years in
Australia as head of the Asian coal commodity
division. Between 1988 and 1989, he was based in
Hong Kong as head of Glencore’s Hong Kong and
Beijing offices, as well as head of coal marketing in
Asia, where his responsibilities included overseeing
the Asian coal marketing business of Glencore and
managing the administrative functions of the Hong
Kong and Beijing offices.
Peter Coates AO
Non-Executive Director (Age 71)
Appointed: Peter Coates has been a Non-Executive
Director since January 2014. Prior to this he served as
an Executive Director from June to December 2013
and a Non-Executive Director from April 2011 to
May 2013.
Committees: HSEC (Chairman)
Experience: Prior to joining Glencore in 1994 as a
senior executive in the coal department, Mr Coates
had occupied senior positions in a range of resource
companies, including those mining silver, lead,
nickel, iron ore, bauxite and coal. He joined Xstrata
in 2002 as chief executive of Xstrata’s coal business,
when Glencore sold its Australian and South
African coal assets to Xstrata, stepping down
in December 2007.
In January 1990, he was made responsible for the
worldwide coal business of Glencore for both
marketing and industrial assets, and remained in
this role until he became Chief Executive Officer
in January 2002.
Mr Glasenberg is a Chartered Accountant of South
Africa and holds a Bachelor of Accountancy from the
University of Witwatersrand. Mr Glasenberg also
holds an MBA from the University of Southern
California. He is currently a non-executive director of
United Company Rusal plc (HKG: 0486). Before joining
Glencore, Mr Glasenberg worked for five years at
Levitt Kirson Chartered Accountants in South Africa.
He was non-executive chairman of Xstrata Australia
from January 2008 until August 2009. From April
2008 until April 2011, he was a non-executive
chairman of Minara Resources Ltd. From May 2013
to June 2016, he was a non-executive chairman of
Sphere Minerals Limited. Mr. Coates is non-executive
chairman of Santos Limited (ASX:STO) and a
non-executive director of Event Hospitality and
Entertainment Limited (ASX:EVT). Mr Coates is a
past chairman of the Minerals Council of Australia,
the NSW Minerals Council and the Australian
Coal Association.
Mr Coates holds a Bachelor of Science degree in
Mining Engineering from the University of New
South Wales. He was appointed to the Office of the
Order of Australia in June 2009 and awarded the
Australasian Institute of Mining and Metallurgy
Medal for 2010.
Glencore Annual Report 2016
81
Governance
Directors and Officers
Leonhard Fischer
Independent Non-Executive Director
(Age 54)
Appointed: Leonhard Fischer was appointed an
Independent Non-Executive Director in April 2011.
Committees: Audit (Chairman), Nomination
and Remuneration
Experience: Mr Fischer was chief executive officer of
BHF Kleinwort Benson Group S.A. (formerly RHJ
International S.A.) from January 2009 until April
2016, having been co-chief executive officer since
May 2007.
William Macaulay
Independent Non-Executive Director
(Age 71)
Appointed: William Macaulay was appointed as an
Independent Non-Executive Director in April 2011.
Committees: Audit and Remuneration
Experience: Mr Macaulay is the chairman and chief
executive officer of First Reserve Corporation, a
private equity investment firm focused on the energy
industry, and has been with the company since its
founding in 1983.
Prior to joining First Reserve, Mr Macaulay was a
co-founder of Meridien Capital Company, a private
equity buyout firm. From 1972 to 1982, he served
as director of corporate finance at Oppenheimer
& Co. with direct responsibility for the firm’s
buyout business. He also served as president of
Oppenheimer Energy Corporation.
Peter Grauer
Senior Independent Non-Executive
Director (Age 71)
Appointed: Peter Grauer was appointed as an
Independent Non-Executive Director in June 2013
and became the Senior Independent Non-Executive
Director in May 2014.
Committees: Nomination (Chairman) and Audit
Experience: Mr Grauer is chairman of Bloomberg
Inc., the global financial media company that was
founded in 1981. Mr Grauer was chairman and chief
executive officer from 2002 to 2011 and has been a
member of Bloomberg’s Board of Directors since 1996.
Mr Fischer was chief executive officer of Winterthur
Group from 2003 to 2006 and a member of the
executive Board of Credit Suisse Group from 2003
to March 2007. He joined Credit Suisse Group from
Allianz AG, where he had been a member of the
management Board and head of the corporates and
markets division. Prior to this, he had been a
member of the executive Board of Dresdner Bank
AG in Frankfurt.
Mr Fischer holds an M.A. in Finance from the
University of Georgia.
Mr Macaulay is a director of Weatherford
International (NYSE:WFT). He also serves on
numerous private energy company Boards.
Mr Macaulay holds a B.B.A. degree (with honours) in
Economics from City College of New York, and an
MBA from the Wharton School of the University of
Pennsylvania. He has also received an Honorary
Doctor of Humane Letters degree from
Baruch College.
Prior to this, Mr Grauer was managing director of
Donaldson, Lufkin & Jenrette from 1992 to 2000
when DLJ was acquired by Credit Suisse First Boston
and founder of DLJ Merchant Banking. He served
as managing director and senior partner of CSFB
Private Equity until 2002. Mr Grauer is a director
of Blackstone (NYSE:BX) and Davita Inc (NYSE:DVA).
Mr Grauer is also a member of the International
Business Council of the World Economic Forum, and
a trustee of Rockefeller University.
Mr Grauer graduated from the University of North
Carolina and the Harvard University Graduate
School of Business Program for Management
Development in 1975.
82
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Patrice Merrin
Independent Non-Executive Director
(Age 68)
Appointed: Patrice Merrin was appointed as an
Independent Non-Executive Director in June 2014.
Committees: HSEC
Experience: Ms Merrin is currently a non-executive
director of Stillwater Mining (NYSE:SWC) and
Novadaq Technologies Inc (Nasdaq:NVDQ). She has
been a director and then chairman of CML
Healthcare from 2008 to 2013, of Enssolutions, a mine
tailing solutions company, and of NB Power.
Following initial roles with Molson and Canadian
Pacific, Ms Merrin worked at Sherritt, the Canadian
diversified miner, for 10 years until 2004, latterly as
COO. She then became CEO of Luscar, Canada’s
largest thermal coal producer.
John Mack
Independent Non-Executive Director
(Age 72)
Ms Merrin was a director of the Alberta Climate
Change and Emissions Management Corporation
from 2009 to 2014. She was also a member of the
Canadian Advisory Panel on Sustainable Energy
Science and Technology from 2005 to 2006, and from
2003 to 2006 was a member of Canada’s Round Table
on the Environment and the Economy.
Ms Merrin is a graduate of Queen’s University,
Ontario and completed the Advanced Management
Programme at INSEAD.
Appointed: John Mack was appointed as an
Independent Non-Executive Director in June 2013.
Committees: Remuneration (Chairman)
and Nomination
Experience: Mr Mack is a non-executive director of
Enduring Hydro, Corinthian Opthalmic and Lending
Club Corporation (NYSE:LC). Mr Mack also serves on
the Advisory Board of China Investment
Corporation, is a member of the International
Business Council of the World Economic Forum, the
NYC Financial Services Advisory Committee and the
Shanghai International Financial Advisory Council.
Mr Mack previously served as chief executive officer
of Morgan Stanley from June 2005 until December
2009. He retired as chairman in 2011. Mr Mack first
joined Morgan Stanley in May 1972, becoming a
Board Director in 1987 and was named President
in 1993.
Before rejoining Morgan Stanley as chairman and
chief executive officer in June 2005, Mr Mack served
as co-chief executive officer of Credit Suisse Group
and chief executive officer of Credit Suisse
First Boston.
Mr Mack is a graduate of Duke University.
Officers
Steven Kalmin
Chief Financial Officer (Age 46)
Appointed: Steven Kalmin has been Chief Financial
Officer since June 2005.
Experience: Steven Kalmin joined Glencore in
September 1999 as general manager of finance and
treasury functions at Glencore’s coal industrial unit
(which became part of Xstrata). Mr Kalmin moved to
Glencore’s Baar head office in October 2003 to oversee
Glencore’s accounting and reporting functions,
becoming Chief Financial Officer in June 2005.
Mr Kalmin holds a Bachelor of Business (with
distinction) from the University of Technology,
Sydney and is a member of the Chartered
Accountants Australia and New Zealand and the
Financial Services Institute of Australasia.
Before joining Glencore, Mr Kalmin worked for nine
years at Horwath Chartered Accountants in Sydney,
leaving the firm as a director.
John Burton
Company Secretary (Age 52)
Appointed: John Burton was appointed Company
Secretary in September 2011.
Experience: He was formerly company secretary and
general counsel of Informa plc and before that a
partner of CMS in London specialising in corporate
law. Mr Burton holds a B.A. degree in Law from
Durham University. He was admitted as a Solicitor
in England and Wales in 1990.
Glencore Annual Report 2016
83
Governance
Corporate governance report
This report should be read in conjunction with the Directors’
Report and the remainder of the Governance section.
Board governance and structure
Overview
This governance report sets out how Glencore has applied
the main principles of the UK Corporate Governance Code
(“the Code”) in a manner which enables shareholders to
evaluate how these principles have been applied. As a
London premium listed entity we seek to ensure full
compliance with the Code. The Board believes that the
Company has throughout the year complied with all
relevant provisions contained in the Code.
Glencore’s Board comprises seven Non-Executive Directors
(including the Chairman) and one Executive Director. A list
of the current Directors, with their brief biographical details
and other significant commitments, is provided in the
previous pages. The Chief Financial Officer attends all
meetings of the Board and Audit Committee. The Company
Secretary attends all meetings of the Board and
its committees.
Division of responsibilities
As a Jersey incorporated company, Glencore has a unitary
Board, meaning all Directors share equal responsibility for
decisions taken. Glencore has established a clear division
between the respective responsibilities of the Non-Executive
Chairman and the Chief Executive Officer which are set out
in a schedule of responsibilities which has been approved
by the Board. While the Non-Executive Chairman is
responsible for leading the Board’s discussions and
decision-making, the CEO is responsible for implementing
and executing strategy and for leading Glencore’s operating
performance and day-to-day management. The CEO and
CFO have line of sight across the Group. The CEO is further
supported by the Group’s senior management team
principally comprising the heads of the businesses and the
head of strategy. The Company Secretary is responsible for
ensuring that there is clear and effective information flow to
the Non-Executive Directors.
Further details of these responsibilities are set out opposite.
Peter Grauer, Senior Independent Non-Executive Director, is
available to meet with shareholders and acts as an
intermediary between the Chairman and other independent
Directors when required. This division of responsibilities,
coupled with the schedule of reserved matters for the Board,
ensures that no individual has unfettered powers
of decision.
S
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F
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Chairman
• Leader of the Board
• Responsible for effective communication flow
between Directors
• Facilitates effective contribution of all Directors
• Responsible for effective Board governance
• Ensures effective communication
with shareholders
Chief Executive Officer
• Leads and motivates management team
• Implements strategy and objectives as directed
by the Board
• Develops Group policies and proposals
for approval by the Board and ensures
effective implementation
Senior Independent Director
• Is a confidant of the Chairman and (when
appropriate) also acts as an intermediary for
other independent Directors
• Will stand in for the Chairman if he is unable
to attend
• Chairs the Nomination Committee
• Responsible for appraising the
Chairman’s performance along with other
independent Directors
• Available to shareholders to answer questions
Other Non-Executive Directors
• Supply challenge and support to management
• Bring independent mindset and differing
backgrounds and experience to Board debates
• Provide leadership and challenge as chair of, or a
member of, the Board Committees which (except
HSEC) comprise only Non-Executive Directors
• Scrutinise leadership of Chairman
Company Secretary
• Secretary to Board Committees
• Informs the Board on all matters reserved to it
and ensures papers are provided in sufficient
detail and on time
• Available to Directors in respect of Board
procedures and provides support and advice
• Ensures the Board is kept informed on
governance matters
• Coordinates and assists with the Board evaluation
process along with the Chairman
84
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Non-Executive Directors
Board Committees
The Company’s Non-Executive Directors provide a broad
range of skills and experience to the Board, which assists in
their roles in formulating the Company’s strategy and in
providing constructive challenge to executive management.
Glencore regularly assesses its Non-Executive Directors’
independence. Except for Peter Coates, due to his
employment by the Group during 2013–14 they all are
regarded by the Company as Independent Non-Executive
Directors within the meaning of ‘‘independent’’ as defined
in the Code and free from any business or other relationship
which could materially interfere with the exercise of their
independent judgement.
Management of conflicts of interest
All Directors endeavour to avoid any situation of conflict of
interest with the Company. Potential conflicts can arise and
therefore processes and procedures are in place requiring
Directors to identify and declare any actual or potential
conflict of interest. Any such notifications are required to be
made by the Directors prior to, or at, a Board meeting and
all Directors have a duty to update the whole Board of any
changes in circumstances. Glencore’s Articles of Association
and Jersey law allow for the Board to authorise potential
conflicts and the potentially conflicted Director must abstain
from any vote accordingly. During 2016, no abstention
procedures for conflicts had to be activated.
The following four Committees are in place to assist the
Board in exercising its functions: Audit, Nomination,
Remuneration and Health, Safety, Environmental and
Communities (“HSEC”), as set out in the diagram on the
next page. Committee meetings are held prior to Board
meetings and at each scheduled Board meeting the
chairman of each Committee leads a discussion concerning
the Committee’s activities since the previous Board meeting.
The Committees carry out a considerable amount of work.
In particular:
• the Audit Committee provides challenge and enquiry on
the significant areas of financial and accounting oversight
and risk management; and
• the HSEC Committee, whose membership includes both
Chairman and CEO, continues to have the heaviest
workload of all the committees due to its strong
leadership of sustainability issues and the range of
matters which it considers. Its work on driving
improvements in the prevention of catastrophic events
and safety performance continues to be of
particular focus.
A report for 2016 from each Committee Chairman is set out
later in this Corporate governance report.
Each Committee reports to, and has its terms of reference
approved by, the Board and the minutes of the Committee
meetings are circulated to the Board. Each Committee
reviewed its terms of reference during the year and as a
result revisions were made to the HSEC Committee’s terms
of reference to ensure they continue to conform to
best practice.
All Committees’ terms of reference are available at:
www.glencore.com/who-we-are/board-of-directors/
board-committees/
Glencore Annual Report 2016
85
Governance
Corporate governance report
N I T I E S C O M M IT TEE
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B O A R D OF DIRECTORS
T T H E DIRECT
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SHAREHOLDERS
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FICER
Board meetings
The Board has approved a formal schedule which sets out
those matters which are reserved for its decision-making
alone such as strategy, the annual budget and material
acquisitions and disposals. Meetings are usually held at the
Company’s headquarters in Baar, Switzerland. Details of the
Board and Committee meetings held during the year are
detailed below.
The Board and its Committees have standing agenda items
to cover their proposed business at their scheduled
meetings. The Chairman seeks to ensure that the very
significant work of the Committees feeds into, and benefits
as to feedback from, the full Board. The Board and
Committee meetings also benefit from presentations by
senior executives and some technical and investor relations
updates. Presentations from the business and senior
management allow Directors to enhance their
understanding of the business and the implementation of
strategy, in turn contributing to a more effective Board.
A summary of the Board’s main activities during 2016 is set
out on the next page.
Several times a year the Chairman holds meetings with the
Non-Executive Directors without the Executive Director
present, and at least once a year the Non-Executive Directors
meet without the Chairman present.
86
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Strategic report | Governance | Financial statements | Additional information
Work at Board meetings
The main considerations and actions carried out at the meetings of the Board during 2016 are summarised below. The work of the committees is described later
in this report.
At each main scheduled meeting the following standing matters are considered:
• consideration of any new conflicts of interest;
• review of minutes of previous meetings, including actions from previous meetings; and
• reports/updates from the CEO, CFO, Head of Strategy and Investor Relations and Head of Communications. These reports include consideration of strategic
matters including possible asset expansions/contractions, acquisitions/disposals, material debt refinancing and analysis of risks.
In addition:
• regular updates are provided by the Company Secretary on governance, Board processes and other Company secretarial matters; and
• usually the Non-Executive Directors have a separate meeting, with sometimes a second session without the Chairman present.
Principal Board activities during 2016
First scheduled short agenda meeting
• Results/business update
• Initial discussion as to proposed
impairment charges
Second short notice meeting
• Business update
• Consideration and approval of $625 million
investment by bcIMC in Agriculture division
• Consideration and approval of Antapaccay
• Market abuse regulation – review and next steps
streaming transaction
• Review and approval of 2015 Production Report
and Reserves and Resources Report
First scheduled meeting
• Annual Results, including review and approval,
where appropriate, of:
– report from the Audit Committee Chairman;
– detailed consideration of principal risks/
uncertainties and mitigation to be disclosed;
– report on going concern;
– final distribution recommendation;
– full-year results announcement for the
prior year;
– Annual Report draft; and
– management representation letter
• Consideration of AGM resolutions
• Report from the Nomination Committee
Chairman and discussion on whether all current
Directors should stand at AGM
• Report from the Remuneration
Committee Chairman
• Report from the HSEC Committee Chairman,
in particular discussions on safety and draft
sustainability report
• Reviewed updated Board governance documents
and key policies
First short notice meeting
• Business update
Fifth scheduled meeting
• In depth review of equity and credit markets and
careful review of investor priorities
• Consideration of progress of debt reduction
programme and review of debt management
• Review of Group’s IT function including
cyber security
• Review of legal and compliance function
including actual or potential litigation and the
Raising Concerns programme
• Report from the HSEC Committee Chairman
Fourth scheduled short agenda meeting
• Review of Q3 financial report
• Review and approval of Q3 Production Report
• Preliminary discussion as to the main topics and
messages for the December investor update
Third scheduled meeting
• Business update and review of financial position
• Review of debt reduction programme
• Review of M&A policy and possibilities
including other potential disposals and longer-
term strategy
• Sustainability roadshow report
• Report from the HSEC Committee Chairman
• Report from the Audit Committee Chairman
• Report from the Nomination
Committee Chairman
Third scheduled short agenda meeting
• Business update
• Review and approval of Half-year
Production Report
• Consideration and approval of proposed
Ernest Henry transaction
• Review of debt reduction programme
Third short notice meeting
• Review of balance sheet strategy including new
dividend policy and 2017 capex plans, future
reinvestment criteria
• Consideration and approval of the issues to
be disclosed in the December investor update
including as to capex and distribution policy
Fourth scheduled meeting
• Half-year results, including review and
approval, where appropriate, of:
– report from the Audit Committee Chairman;
– principal risks and mitigation to be disclosed;
– report on going concern;
– Half-year results announcement; and
– management representation letter
Sixth scheduled meeting
• Review of principal risks and uncertainties and
preparation for longer-term viability statement
• Presentations from the head of oil, head of
copper and head of nickel
• Consideration and approval of the 2017 budget
and 2018 – 20 business plan.
• Report from the HSEC Committee Chairman
• Report from the Audit Committee Chairman
• Approval of CPPIB $2.5 billion investment
in Agriculture division
• Report from the HSEC Committee Chairman
• Report from the Audit Committee Chairman
• Report from the Nomination
Committee Chairman
• Report from the Nomination
Committee Chairman
• Report from the Remuneration
Committee Chairman
• Considered outcomes from multiple
shareholder meetings on governance and
sustainability issues
Second scheduled short agenda meeting
• Business update
• Considered and approved the
Q1 Production Report
Second scheduled meeting
• Briefing on the business to be conducted at the
AGM (and after, of the other issues raised)
• Report from the HSEC Committee Chairman,
including discussion on several fatalities
at Katanga
• Report from the Audit Committee Chairman
• Report from the Nomination
Committee chairman
Glencore Annual Report 2016
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Governance
Corporate governance report
Attendance during the year for all scheduled full agenda Board and all Board Committee meetings is set out in the
table below:
Board of 6
Audit of 6 Remuneration of 2
Nomination of 4
HSEC of 7
Ivan Glasenberg
Anthony Hayward
William Macaulay
Leonhard Fischer
Peter Coates
John Mack
Peter Grauer
Patrice Merrin
6
6
6
6
6
6
4
6
6
6
4
2
2
2
4
4
2
6
7
7
7
All Directors have access to the advice and services of the
Company Secretary, who is responsible to the Board for
ensuring the Board procedures are complied with, and have
access to independent and professional advice at the
Company’s expense, where they judge this to be necessary
to discharge their responsibilities as Directors.
Director induction process
New Directors receive a full, formal and tailored induction
on joining the Board, including meetings with
senior management.
Board effectiveness
During the year no material conflicts have arisen concerning
the private interests of the Directors with those of
the Group.
Since an external evaluation was carried out during 2015
and no material governance issues arose during 2016, the
Board resolved to carry out an internal evaluation for the
year. As part of this process, the findings from the external
evaluation (which were summarised in the 2015 Annual
Report) were reviewed. The evaluation process has been
augmented by the private sessions which take place
between the Non-Executive Directors without management
and ongoing discussions as to the efficiency and
effectiveness of the Board and its committees. No material
issues arose from this evaluation.
Remuneration
Remuneration is covered in the Directors’ remuneration
report which follows this section. It includes a description of
the work of the Remuneration Committee.
In addition, there were another seven limited agenda
meetings of the Board. Details of all these Board meetings
are set out on the previous page.
Appointment and re-election of Directors
All Directors will be offering themselves for re-election at
the 2017 AGM.
All of the Directors have service agreements or letters of
appointment and the details of their terms are set out in the
Directors’ remuneration report. No other contract with the
Company or any subsidiary undertaking of the Company in
which any Director was materially interested existed during
or at the end of the financial year except that Peter Coates
received fees of AUD34,246 in 2016 relating to his
directorship of Sphere Minerals Limited. Sphere was
delisted part way through the year and Peter Coates
subsequently retired from his role as Director
and Chairman.
Information, management meetings, site visits and
professional development
It is considered of great importance that the Non-Executive
Directors (1) attain a good knowledge of the Company and
its business and (2) allocate sufficient time to Glencore to
discharge their responsibilities effectively. The Board
calendar is planned to ensure that Directors are briefed on a
wide range of topics. Directors are also given the
opportunity to visit Group operations and discuss aspects
of the business with employees, and regularly meet the
heads of the Group’s main departments and other senior
executives. As well as internal briefings, Directors attend
appropriate external seminars and briefings.
Normally meetings with heads of commodities and other
senior Group functions take place alongside scheduled
Board meetings. In addition, in order to better familiarise
themselves with the industrial activities, regular site visits
take place. During 2016 three operations were visited.
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Risk – Board leadership
The Board provides leadership and oversight on
risk management. Specifically it:
(1) provides a robust assessment of the principal risks
facing the Group
The Board determines the nature and extent of the
principal risks the Group should take in achieving
its strategic objectives. The Board has carried out a
robust assessment of the principal risks facing the
Group, including those that would threaten its business
model, future performance, solvency or liquidity.
The Directors’ description of those risks and their
explanation as to how they are being managed or
mitigated are set out on pages 36 to 44.
(2) determines a longer-term viability statement
Taking account of the Group’s position and principal
risks, the Directors assess the prospects of the
Group and conclude whether they have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over
the period of their assessment. Their conclusions are
set out on page 111 and 112.
(3) monitors the Group’s risk management and
internal control systems
The Board oversees sound risk management and internal
control systems. It carries out a regular review of their
effectiveness including reviewing the Group’s internal
financial controls and the Group’s internal control and
risk management. This monitoring and review covers all
material controls, including financial, operational and
compliance controls. Their work and conclusions are
described on pages 36, 89 and 90 to 93.
Accountability and audit
Financial reporting
The Group has in place a comprehensive financial review
cycle, which includes a detailed annual planning/budgeting
process where business units prepare budgets for overall
consolidation and approval by the Board. The Group uses a
large number of performance indicators to measure both
operational and financial activity in the business.
Depending on the measure, these are reported and
reviewed on a daily, weekly or monthly basis. In addition,
management in the business receives weekly and monthly
reports of indicators which are the basis of regular
operational meetings, where corrective action is taken if
necessary. At a Group level, a well-developed management
accounts pack, including income statement, balance sheet,
cash flow statement as well as key ratios is prepared and
reviewed monthly by management. As part of the monthly
reporting process, a reforecast of the current year
projections is performed. To ensure consistency of
reporting, the Group has a global consolidation system as
well as a common accounting policies and procedures
manual. Management monitors the publication of new
reporting standards and works closely with our external
auditors in evaluating their impact, if any.
Risk management and internal control
The Board has applied Principle C.2 of the Code by
establishing a continuous process for identifying, evaluating
and managing the risks that are considered significant by
the Group in accordance with the revised Turnbull
Guidance on Internal Control published by the Financial
Reporting Council. This process has been in place for the
period under review and up to the date of approval of the
Annual Report and financial statements. The process is
designed to manage and mitigate rather than eliminate risk,
and can only provide reasonable and not absolute assurance
against material misstatement or loss. The Directors confirm
that they have carried out a robust assessment of the
principal risks facing the Group and have reviewed the
effectiveness of the risk management and internal control
systems. This review excludes associates of the Group as
Glencore does not have the ability to dictate or modify the
internal controls of these entities. This report describes how
the effectiveness of the Group’s structure of internal controls
including financial, operational and compliance controls
and risk management systems is reviewed.
Glencore Annual Report 2016
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Governance
Corporate governance report
Approach to risk management
Effective risk management is crucial in helping the Group
achieve its objectives of preserving its overall financial
strength for the benefit of all shareholders and other
stakeholders and safeguarding its ability to continue as a
going concern while generating sustainable long-term
profitability. Spanning the organisational structure,
Glencore’s disciplined approach to risk management and
control originates with strategic responsibility in the hands
of the Board, which also retains operational authority on
matters exceeding agreed thresholds of materiality.
The Board retains final authority for assessing and
approving the Group’s overall risk appetite and sets overall
limits which are subject to review annually. It is assisted by
the work of the Audit Committee for oversight and by senior
management for day-to-day operational matters, in order to
maintain an effective risk management governance
apparatus for the Group.
Risk culture
Risk strategy and appetite
Risk governance
Risk organisation
External disclosure
Risk monitoring and reporting
Risk identification
Risk assessment
Risk management
Principal risks
and uncertainties
(see pages 36 to 44)
Risk Management Framework
Board of Directors
OVERSIGHT
Audit Committee
Tone from the top
HSEC Committee
INFRASTRUCTURE
People
Process
Technology
Management team (executive)
Group functions
Internal Audit
HSEC Assurance
RISK PROCESS
Identify
Measure
Mitigate
Control
Report
Business segments
and functions
Marketing
risk process
Industrial
risk process
HSEC
risk process
External
Business
Sustainability
Prices
Supply &
Demand
Operating
Credit
Catastrophes
HSEC
Risk Management Framework
Group functions
Management engagement
The Company’s senior management reviews the major risks
facing the Group and decides if the level of risk is acceptable
or whether further steps need to be taken to mitigate these
risks. Together, central and business management set the
level of risk appetite by ensuring that there is an appropriate
balance between the level of risk assumed and the
expected return.
Audit Committee
The Audit Committee is responsible for reviewing the risk
management system and internal controls.
Mandated by the Board, the Audit and HSEC Committees
are responsible for ensuring that the significant risks
identified are properly managed.
Group functions (Risk Management, Compliance, Legal and
Sustainable Development) support the Business Risk
Owners and senior management in mitigating risk across
the Group.
Internal Audit
Internal Audit, as an independent assurance provider,
reviews the risk management process and internal controls
established by the management team.
A risk-based audit approach is applied in order to focus on
high risk areas during the audit process. It involves
discussions with management on the risks identified in the
business risk registers, emerging risks, operational changes,
new investments and capital projects.
The key results from this process are reported to the
Audit Committee for their review.
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As well as being subject to a review of the Audit Committee
for its effectiveness, the Internal Audit function was also
subject to external evaluation. The next review is planned to
be carried out in 2017.
Industrial risk management
We believe that every employee should be accountable for
the risks related to their role. As a result, we encourage our
employees to escalate risks (not limited to hazards) to their
immediate supervisors. This enables risks to be tackled and
mitigated at an early stage by the team with the relevant
level of expertise.
The management teams at each industrial operation are
responsible for implementing a risk management process
that identifies, assesses and manages risk.
The risks that may impact on business objectives and plans
are maintained in a business risk register. They include
strategic, compliance, operational and reporting risks.
Any significant risks are reported to Management and the
Audit Committee. A Corporate Risk Management
Framework is implemented on a Group-wide basis to ensure
consistency in the assessment and reporting of risks.
HSEC risk management
These risk management processes are operated at asset level
subject to coordination and guidance from the central
sustainability team and subject to the leadership and
oversight of the HSEC Committee.
The Group’s internal assurance programme continues to be
developed for the assessment of compliance with leading
practices in health and safety, environment
and communities.
Further information is provided in the report from the
HSEC Committee below and will be published in the
Group’s sustainability report for 2016.
complementing their commercial decision-making.
A support, challenge and verification role is provided by the
central MR function headed by the Chief Risk Officer
(“CRO”) via its daily risk reporting and analysis which is
split by market and credit risk.
The CEO, as the central figure of commercial leadership and
control, drives functional risk management policy,
supported by the CFO and CRO, with data and reporting
from the central risk team and the other key functional
units. In turn the CEO reports to, and seeks authority limits
from the Board, with the main oversight role being
performed by the Audit Committee which receives a report
from the CRO at each of its scheduled meetings. It also
approves (subject to Board confirmation) the Group-wide
risk profile, and any exceptions to agreed
positional thresholds.
At the heart of the risk management regime is the process of
challenge that takes place between the CEO, the CRO and
the business heads which sets risk appetite in accordance
with Group requirements and market conditions for each
commodity. The objective is to ensure that an appropriate
balance is maintained between the levels of risk assumed
and expected return, which relies on the commodity-
specific expert knowledge provided by business heads.
This is then subject to challenge from the CEO based on his
overall Group knowledge and experience. This process is
designed to manage risk effectively while facilitating the
fast, commercial decision-making which is required in a
dynamic commodity marketing company.
Another important consideration of the MR team is the
challenge of dealing with the impact of large transactional
flows across many locations. The function seeks to ensure
effective supervision by its timely and comprehensive
transaction recording, ongoing monitoring of the
transactions and resultant exposures, providing all
encompassing positional reporting, and continually
assessing universal counterparty credit exposure.
Marketing risk management
Key focus points
Glencore’s marketing activities are exposed to commodity
price, basis, volatility, foreign exchange, interest rate, credit
and performance, liquidity and regulatory risks.
Glencore devotes significant resources to developing and
implementing policies and procedures to identify, monitor
and manage these risks.
Glencore has a disciplined and conservative approach to
Marketing Risk (“MR”) management supported by its flat
organisational structure. Glencore continues to update and
implement policies which are intended to mitigate and
manage commodity price, credit and other related risks.
Glencore’s MR is managed at an individual, business and
central level. Initial responsibility for risk management is
provided by the businesses in accordance with and
Market Risk limits and reporting
The MR team provides a wide array of daily/weekly
reporting. A daily risk report showing Group Value at Risk
(“VaR”) as shown on the next page and various other stress
tests and analyses are distributed to the CEO, CFO and
CRO. Business risk summaries showing positional exposure
and other relevant metrics, together with potential margin
call requirements, are also circulated daily. The MR function
works to enhance its stress and scenario testing as well as
enhancing measures to capture risk exposure within the
specific areas of the business, e.g. within metals, concentrate
treatment and refining charges are analysed.
Glencore Annual Report 2016
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Governance
Corporate governance report
Value at Risk
The Group monitors its commodity price risk exposure
by using a VaR computation assessing ‘open’ commodity
positions which are subject to price risks. VaR is one
of the risk measurement techniques the Group uses
to monitor and limit its primary market exposure
related to its physical marketing exposures and related
derivative positions. VaR estimates the potential loss in
value of open positions that could occur as a result of
adverse market movements over a defined time horizon,
given a specific level of confidence. The methodology
is a statistically defined, probability based approach
that takes into account market volatilities, as well as
risk diversification benefits by recognising offsetting
positions and correlations between commodities and
markets. In this way, risks can be compared across all
markets and commodities and risk exposures can be
aggregated to derive a single risk value.
Last year, the Board approved the Audit Committee’s
recommendation of a one day, 95% VaR limit of
$100 million for 2016, consistent with the previous year.
This limit is subject to review and approval on an annual
basis. The purpose of this Group limit is to assist senior
management in controlling the Group’s overall risk profile,
within this tolerance threshold. During 2016 Glencore’s
reported average daily VaR was approximately $42 million,
with an observed high of $101 million and a low of
$16 million.
In Q2 2016, this limit was technically breached for
1 day by $1 million as the VaR calculation did not
account for the future physical coal production that was
economically hedged with the corresponding captured
and reported on coal derivatives. If such underlying
hedged exposure had been included in the VaR
calculation, the actual VaR number would have been
sunstantially lower, with no resulting technical breach.
Much of this hedge book has now been realised.
VaR development ($m)
120
100
80
60
40
20
0
Jan 2016
Mar 2016 May 2016
Jul 2016
Sep 2016
Nov 2016
Agricultural Products
Energy products
Metals & minerals
The Group remains aware of the extent of coverage of
risk exposures and their limitations. In addition, VaR
does not purport to represent actual gains or losses in fair
value on earnings to be incurred by the Group, nor are
these VaR results considered indicative of future market
movements or representative of any actual impact on its
future results. VaR remains viewed in the context of its
limitations; notably, the use of historical data as a proxy
for estimating future events, market illiquidity risks
and risks associated with longer time horizons as well
as tail risks. Recognising these limitations the Group
complements and refines this risk analysis through the
use of stress and scenario analysis. The Group regularly
back-tests its VaR to establish adequacy of accuracy and to
facilitate analysis of significant differences, if any.
The Board has again approved the Audit Committee’s
recommendation of a one day, 95% VaR limit of
$100 million for 2017.
Credit Risk Management
Systems and reporting
Whilst no single trading system that the Group can identify
appears able to manage the broad range of requirements
that the different business profiles of the Group would place
on it, interfacing with multiple source systems and
transferring data from one to another create enhanced risk
to data integrity, granularity, consistency and timeliness.
The Group continues to make extensive use of credit
enhancement tools, seeking letters of credit, insurance cover,
discounting and other means of reducing credit risk from
counterparts. In addition, mark-to-market exposures in
relation to hedging contracts are regularly and substantially
collateralised (primarily with cash) pursuant to margining
agreements in place with such hedge counterparts.
The Group-wide Credit Risk Policy governs higher levels of
credit risk exposure, with an established threshold for
referral of credit decisions by business heads to CFO/CEO
(relating to unsecured amounts in excess of $75 million with
BBB or lower rated counterparts). At lower levels of
materiality, decisions may be taken by the business heads
where key strategic transactions or established relationships
suggest that an open account exposure may be warranted.
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Dealing with requirements arising from
regulatory reform
In 2016, Glencore continued to implement the requirements
of financial regulatory reform, including:
• the European Market Abuse Regulation (“MAR”) which
affects the protection and disclosure of inside information
and the prevention of market manipulation; and
• the Dodd-Frank Act, the European Market Infrastructure
Regulation (“EMIR”) and the Swiss Financial Market
Infrastructure Act (“FMIA”) which affect in particular the
areas of risk mitigation (trade confirmation timeframes,
portfolio reconciliation, portfolio compression and
dispute resolution) and trade reporting.
Upcoming financial regulatory reform proposals or
requirements include:
• further requirements under EMIR including mandatory
clearing and margining requirements;
• further requirements under FMIA including trade
reporting, risk mitigation, margin requirements and
mandatory clearing; and
• MIFID II including EU authorisations and position limits.
The impact of certain aspects of these and other new
regulations to commodity market participants is potentially
considerable. The impact on our marketing business will
largely be in the form of compliance requirements (with
associated costs), rather than meaningful commercial
limitations. Glencore’s compliance, finance, IT and risk
teams continue to work together in monitoring and advising
management on these developments.
Internal Audit
Glencore has a dedicated Internal Audit function reporting
directly to the Audit Committee. The role of Internal Audit
is to evaluate and improve the effectiveness of risk
management, control, and business governance processes.
Internal Audit reviews areas of potential risk within the
business and suggests control solutions to mitigate
exposures identified. The Audit Committee considers and
approves the risk-based audit plan, areas of audit focus and
resources and is regularly updated on audits performed and
relevant findings, as well as the progress on implementing
the actions arising. In particular, the Committee considered
Internal Audit’s high priority issues (with a particular focus
on procurement and systems), its KPIs and the effectiveness
and timeliness of management’s responses to its findings.
The Audit Committee reviewed the effectiveness of the
Internal Audit function. As part of this work, it considered
the function’s management framework and its
improvement programme.
Relationships with shareholders
The Board aims to present a balanced and clear view of the
Group in communications with shareholders and believes
that being transparent in describing how we see the market
and the prospects for the business is extremely important.
We communicate with shareholders in a number of different
ways. The formal reporting of our full- and half-year results
and quarterly production reports is achieved through a
combination of releases, presentations, group calls and one
to one meetings. The full- and half-year reporting is
followed by investor meetings in a variety of locations
where we have institutional shareholders. We also regularly
meet with existing and prospective shareholders to update
or to introduce them to the Company and periodically
arrange visits to parts of the business to give analysts and
major shareholders a better understanding of how we
manage our operations. These visits and meetings are
principally undertaken by the CEO, CFO and senior
members of the Investor Relations team and an array of
business heads. In addition, many major shareholders have
meetings with the Chairman and appropriate senior
personnel of the Group including other Non-Executive
Directors, the Company Secretary and senior
Sustainability managers.
In particular in 2016, the following were undertaken:
• a presentation and investor roadshow was held in May to
provide a detailed account of the Company’s
sustainability policies and plans. Led by the Chairman of
the HSEC Committee, presentations were also given by
the Chairman and the CEO; and
• the Chairman and Company Secretary met with a large
number of institutional shareholders in the summer,
principally to discuss governance and reporting.
The Board receives regular updates from the Company’s
Head of Strategy on the views of shareholders through a
briefing, which is a standing agenda item for all Board
meetings, which is supplemented by input from the
Chairman, CEO, CFO and, if applicable, the Senior
Independent Director.
AGM
The Company’s next AGM is due to be held in Zug on
24 May 2017. Full details of the meeting will be set out in the
Notice of Meeting which will be sent to shareholders in
April. Shareholders unable to attend are encouraged to vote
by proxy as detailed in the Notice of Meeting.
All documents relating to the AGM will be available on the
Company’s website at: www.glencore.com
Glencore Annual Report 2016
93
Governance
Corporate governance report
Audit Committee report
Chairman
Leonhard Fischer
Other members
William Macaulay
Peter Grauer
All members served throughout the year. All are considered
to be Independent Non-Executive Directors and deemed to
be financially literate by virtue of their business experience.
Additionally, all Committee members are considered by the
Board to have recent and relevant financial experience and
have competence in accounting. The Committee held four
scheduled and two additional meetings during the year,
which all the Committee members attended (except that Mr
Grauer was unable to attend two meetings). John Burton is
Secretary to the Committee.
Governance processes
The Audit Committee usually invites the CEO, CFO, Group
Financial Controller, CRO and Head of Internal Audit and
the lead partner from the external auditor to attend each
meeting. Other members of management and the external
auditor may attend as and when required. Other Directors,
and sometimes all other Directors, also attend its meetings.
The Committee also holds private sessions with the external
auditors and the Head of Internal Audit without members of
management being present. The Committee has adopted
guidelines allowing non-audit services to be contracted with
the external auditors on the basis set out below.
Role, responsibilities and main activities
The primary function of the Audit Committee is to assist the
Board in fulfilling its responsibilities with regard to
financial reporting, external and internal audit, risk
management and controls.
During the year, the Committee’s principal work included
the following:
• reviewing Glencore’s internal financial and compliance
controls and internal controls and risk
management systems;
• reviewing and agreeing the preparation and scope of the
year-end reporting process;
• determining the global audit plan, scope and fees of the
audit work to be undertaken by the external auditors;
• evaluating the Group’s procedures for ensuring that the
Annual Report and accounts, taken as a whole, are fair,
balanced and understandable;
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Glencore Annual Report 2016
• reviewing the full-year (audited), and half-year
(unaudited), financial statements with management and
the external auditors;
• reviewing the Group’s financial and accounting policies
and practices including discussing material issues with
management and the external auditors, especially matters
that influence or could affect the presentation of accounts
and key figures;
• considering applicable regulatory changes to
reporting obligations;
• evaluating the effectiveness of the external auditors;
• recommending to the Board a resolution to be put to the
shareholders for their approval on the appointment of the
external auditors and to authorise the Board to fix the
remuneration and terms of engagement of the
external auditors;
• monitoring the independence of the external auditor and
reviewing the operation of the Company’s policy for the
provision of non-audit services by it;
• considering and approving two assignments above the
approval threshold with the external auditors in respect of
non-audit services;
• considering the output from the Group-wide processes
used to identify, evaluate and mitigate risks, including
credit and performance risks, across the industrial and
marketing activities;
• considering the scope and methodologies to determine
the Company’s going concern and longer-term viability
statements;
• reviewing the Internal Audit department’s annual audit
plan and reviewing the effectiveness of the Internal
Audit function;
• monitoring and reviewing the effectiveness of Glencore’s
internal controls for which there were no significant
failings or weaknesses noted; and
• reviewing reports on the operation of the Group’s legal
compliance programme, including material notifications
under the Group’s Raising Concerns
whistleblowing programme.
Risk analysis
The Committee receives reports and presentations at its
meetings on our management of marketing and other risks
(excluding sustainability risks which are reviewed by the
HSEC Committee).
Strategic report | Governance | Financial statements | Additional information
Significant issues related to the financial statements
Internal Audit
The Committee assesses whether suitable accounting
policies have been adopted and whether management has
made appropriate estimates and judgements. They also
review external auditors’ reports outlining audit work
performed and conclusions reached in respect of key
judgements, as well as identifying any issues in respect
of these.
During the first half of the year, the most significant issue
for the Committee concerned impairment analysis.
The Committee considered whether the carrying value of
goodwill, industrial assets, physical trade positions and
material loans and advances may be impaired as a result of
falls in commodity prices and some asset specific factors.
We reviewed management’s reports, outlining the basis for
the key assumptions used in calculating the recoverable
value for the Group’s assets. Future performance
assumptions used are derived from the Board approved
business plan. As part of the process for approval of this
plan, the Committee considered the feasibility of strategic
plans underpinning future performance expectations, and
whether they remain achievable. Considerable focus was
applied to management’s commodity price and exchange
rate assumptions. The Committee discussed with the
external auditors their work in respect of impairment
review, which was the most significant area of audit focus
for them.
These impairment analyses focused in particular on:
• oil exploration and production assets and investments,
especially in Chad;
• copper assets in Africa, particularly following temporary
production curtailments; and
• various coal assets.
The other main areas of analysis have been:
• robust assessment of principal risks and impact on
longer-term viability;
• coal production economic hedging mark-to-market
derivative losses;
• capital preservation and debt reduction programme, in
particular the Agriculture, Antapaccay, Ernest Henry and
GRail transactions;
• credit risk exposures; and
• taxation risks, especially concerning the recognition of
deferred income tax assets, disputes and BEPS.
The Committee monitored the internal audit function as
described under Internal Audit on page 90.
External Audit
The Committee has evaluated the effectiveness of the
external auditor and as part of this assessment,
has considered:
• the steps taken by the auditors to ensure their objectivity
and independence;
• the deep knowledge of the Company which enhances
Deloitte’s ability to perform as external auditor;
• competence when handling key accounting and audit
judgements and ability to communicate these to the
Committee and management;
• the extent of the auditor’s resources and technical
capability to deliver a robust and timely audit including
consideration of the qualifications and expertise of
the team;
• auditor’s performance and progress against the agreed
audit plan, including communication of changes to the
plan and identified risks; and
• the proven stability that is gained from the continued
engagement of Deloitte as external auditor.
The Committee assesses the quality and effectiveness of the
external audit process on an annual basis in conjunction
with the senior management team. Key areas of focus
include consideration of the quality and robustness of the
audit, identification of and response to areas of risk and the
experience and expertise of the audit team, including the
lead audit partner.
Provision of non-audit services by the external auditor
The Group’s policy on non-audit services provided by the
external auditor is designed to ensure the external auditor
independence and objectivity is safeguarded. A specified
wide range of services may not be provided as they have the
potential to impair the external auditor’s independence
(Excluded Services). The Audit Committee’s approval is
required for (1) any Excluded Service (2) any other
engagement where either (i) the fee is contingent, (ii) the fee
may exceed $500,000, or (iii) where the fees for all non-audit
work may exceed $15 million. Subject to these restrictions
and other safeguards in the policy, the external auditors
may be permitted to provide certain non-audit services
when it is concluded that they are the most appropriate
supplier due to efficiency and status as a leading firm for
those specific services. For 2016, fees paid to the external
auditors were $31 million, the total non-audit fees of which
were $9 million; further details are contained in note 27 to
the financial statements.
Glencore Annual Report 2016
95
Governance
Corporate governance report
Reappointment of the external auditor
Nomination Committee
Deloitte has been the auditor of the listed entity since its IPO
in 2011. A lead audit engagement partner rotation occurred
prior to the financial year ended 31 December 2013 and is
due to take place again during 2018 for which preparations
have already commenced.
The Board and the Audit Committee acknowledge the
greater investor scrutiny as to a tendering for, and rotation
of, the external auditors and note the regulatory and
guidance changes made during 2016.
Taking into account all relevant factors the Audit Committee
has concluded that it is appropriate not to tender at the
current time.
The Committee has determined that it is satisfied that the
work of Deloitte LLP is effective, the scope is appropriate
and significant judgements have been challenged robustly
by the lead partner and team. Additionally, there are no
contractual restrictions on the Company’s choice of external
auditor. The Committee has therefore recommended to the
Board that a proposal be put to shareholders at the 2017
AGM for the reappointment of Deloitte LLP as
external auditor.
Leonhard Fischer
Chairman of the Audit Committee
1 March 2017
Chairman
Peter Grauer
Other members
John Mack
Leonhard Fischer
All members served on the Committee throughout the year.
The Committee only comprises Independent Non-Executive
Directors. The Committee met four times during the year
and all members attended these meetings (except that Mr
Grauer was unable to attend two meetings). In addition,
some of the discussions and deliberations in respect of the
matters summarised below were carried out at
Board meetings.
Roles and responsibilities
The main responsibilities of the Nomination Committee are
to assist the Board with succession planning and with the
selection process for the appointment of new Directors, both
Executive and Non-Executive, including the Chairman.
This involves:
• evaluating the balance and skills, knowledge and
experience of the Board and identifying the capabilities
required for a particular appointment;
• overseeing the search process; and
• evaluating the need for Board refreshment and succession
planning generally.
Main activities
The Committee focused on two main tasks during
this year. Firstly, prior to the notice of 2016 AGM being
compiled, the Committee considered the performance of
each Director. It concluded that each Director is effective in
their role and continues to demonstrate the commitment
required to remain on the Board. Accordingly, it
recommended to the Board that re-election resolutions be
put for each Director at the 2016 AGM.
Secondly, the Committee considered the composition of the
Board and refreshment. It had been previously agreed that a
further appointment would be beneficial and a search
process had then been commenced. Following a delay
during the first half of this year, the process was restarted
and several candidates have been considered for one or
more further appointments to the Board during 2017.
96
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
The Committee has noted the recommendations of the
Hampton/Alexander Review on gender and the Parker
Review on ethnic diversity. It is part of the Committee’s
policy when making new Board appointments to consider
the importance of diversity on the Board, including gender
and ethnicity. This is considered in conjunction with
experience and qualifications.
External consultancy Spencer Stuart has been retained for
the above search mandate. Other than this engagement
Spencer Stuart do not provide additional services
to Glencore.
Peter Grauer
Chairman of the Nomination Committee
1 March 2017
Health, Safety, Environment & Communities
(HSEC) Committee
Chairman
Peter Coates
Other members
Ivan Glasenberg
Anthony Hayward
Patrice Merrin
The Committee met seven times during the year.
Each Committee member served throughout the year and
attended all of the meetings, except that Mr Glasenberg was
not able to attend one meeting. Every scheduled meeting
had a substantial agenda, reflecting the Committee’s
objective of providing leadership for the Group in
continuing to achieve improved HSEC performance.
Role and responsibilities
The main responsibilities of the Committee are to:
• ensure that appropriate Group policies are developed in
line with our Values and Code of Conduct for the
identification and management of current and emerging
health, safety, environmental and community risks;
• ensure that the policies are effectively communicated
throughout the Company and that appropriate processes
and procedures are developed at operational level to
comply with these policies;
• evaluate the effectiveness of policy implementation and
HSEC risk management through:
– assessment of operational performance;
– review of recent internal and external reports; and
– independent audits and reviews of performance in
regard to HSEC matters, and action plans developed by
management in response to issues raised;
• evaluate and oversee the quality and integrity of any
reporting to external stakeholders concerning HSEC
matters; and
• report to the Board.
Glencore Annual Report 2016
97
Governance
Corporate governance report
Main activities
During the year, the Committee:
• reviewed and approved the Group’s HSEC strategy;
• continued its work on reducing fatalities, especially at the
higher risk “focus assets”. For this purpose it received a
report on, reviewed and made recommendations in
respect of, each fatality. The multiple fatalities at the
African copper assets in 2016 were a matter of particular
scrutiny and included a site visit to all the African copper
assets and a review of African copper safety management
at each scheduled Committee meeting during the year;
• provided leadership for catastrophic hazard management
which is the most important non-financial risk
management issue for the Group;
• oversaw a re-evaluation of safety and effectiveness of
tailings dams across the Group, including in particular a
study of an incident at Kazzinc;
• continued the implementation of the SafeWork
programme focusing on identification of fatal hazards and
an appropriate safety culture;
• oversaw the continued implementation of the Group’s
revamped assurance programme for sustainability
matters with an emphasis on catastrophic hazards and
approved the assurance plan for 2017;
• oversaw the Crisis and Emergency Management Policy;
• assisted with management’s engagement with the Aiming
for A coalition and oversaw policy initiatives in order to
comply with the requirements of the resolution proposed
by them which was passed at the 2016 AGM;
• considered engagement with communities and NGOs on
sustainability matters;
• reviewed and oversaw the Group’s sustainability report;
• held an investor roadshow to inform and receive feedback
on the Company’s sustainable development strategy and
approach to HSEC management; and
• considered a variety of other material HSEC issues such
as resettlement programmes, incident reporting and
health strategy.
Peter Coates
Chairman of the HSEC Committee
1 March 2017
98
Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Directors’ remuneration report
For the year ended 31 December 2016
On behalf of the Remuneration Committee, I am pleased to
present our Directors’ Remuneration Report for the year
ended 31 December 2016. As ever, we have sought to make
this report as short, simple and straightforward as possible.
As a Jersey registered company headquartered in
Switzerland, Glencore is not subject to the UK’s reporting
regime although as we consider it to be broadly reflective of
good practice, this report is prepared in full compliance
with the UK rules, unless stated otherwise. Accordingly,
over the following pages, we have set out:
• the Group’s forward-looking Directors’ Remuneration
Policy. While no material changes will be made to the
Directors’ Remuneration Policy for 2016, as the Company
reaches the end of the third anniversary of the original
policy approval at the 2014 AGM, a resolution will be
tabled to approve a new Directors’ Remuneration Policy at
the 2017 AGM; and
As at the 2014 AGM, to reflect best practice, we shall be
seeking shareholder approval of our remuneration
arrangements through two votes, one on the Directors’
Remuneration Report (excluding the Directors’
Remuneration Policy) and a separate vote on our Directors’
Remuneration Policy. Both will technically be advisory only
as the Company is not subject to the UK statutory regime to
make the latter binding although, clearly, the Committee
will take any voting outcome extremely seriously.
The only change in Board remuneration is an increase in the
fees of the Non-Executive Directors, the first since the rates
were set in early 2011.
The Committee continues to ensure that the Directors’
Remuneration Policy and its implementation are attractive
to shareholders in reflecting good governance, complete
simplicity and reasonable terms.
• details of the implementation of our reward policy in
John Mack
2016 including:
– the governance surrounding pay decisions in 2016,
members of the Committee and its advisers in 2016; and
– details of what was paid to Directors during the
financial year ended 31 December 2016.
Remuneration Committee Chairman
1 March 2017
Glencore Annual Report 2016
99
Governance
Directors’ remuneration report
For the year ended 31 December 2016
Introduction
Part A – Directors’ Remuneration Policy
We have presented this Remuneration Report to reflect the
reporting requirements on remuneration matters for
companies with a UK governance profile, particularly the
UK’s Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 (the
“UK Remuneration Regulations”). The Company aims to
comply in all material respects with the reporting
obligations within these regulations as a matter of good
practice. The report also describes how the Board has
complied with the provisions set out in the UK Corporate
Governance Code relating to remuneration matters.
Our auditors have reported on certain parts of the Directors’
Remuneration Report and stated whether, in their opinion,
those parts of the report have been properly prepared.
Those sections of the report which have been subject to
audit are clearly indicated.
The Directors’ Remuneration Policy as set out in this section
of the report will take effect for all payments made to
directors from the date of the 2017 AGM. Whilst it does not
differ materially from that approved at the 2014 AGM, the
policy approved by shareholders at the 2014 AGM will apply
until approval is obtained for the new policy. Any changes
to the policy are highlighted where relevant.
UK Remuneration Regulations and related investor
guidance encourages companies to disclose a cap within
which each element of remuneration policy will operate.
The Committee has set an annual cap for each element of
remuneration under the maximum opportunity column
which will apply until a revised policy is approved
by shareholders.
The General policy table which begins below must be read
alongside the notes set out on page 102 which together set
out and explain our remuneration policy. The policy for
Executive Directors currently only applies to Mr Glasenberg
as he is the only Executive Director.
General policy
Elements of the package
Remuneration Policy for the Directors is summarised in the table below:
General Policy for
Executive Directors
(this section does
not technically form
part of the Directors’
Remuneration
Policy and is for
information only)
We have the same philosophy as any other Remuneration Committee, namely to set the Company’s remuneration policies
and practices so that they promote the long-term success of the Company and support the implementation of the Group’s
strategy while aligning the interests of the Executive Directors and executives with those of shareholders generally. This
policy has consistently underpinned our entire approach to executive remuneration.
The Committee is satisfied that the remuneration policy is in the best interests of shareholders and does not raise any
environmental, social or governance issues and does not promote excessive risk taking.
One exceptional aspect of our CEO’s remuneration is that, at his instigation and reflecting his status as a major shareholder,
he does not participate in bonus or LTI arrangements, a policy which will continue into 2017. As a result, we are currently
able to set overall remuneration for our CEO at significantly lower levels than in comparable companies. The Committee
believes that his significant personal shareholding creates sufficient alignment of interest with shareholders in the absence of
participation in a bonus or LTI arrangement.
Element and purpose
Policy and operation
Maximum opportunity
Performance measures
Key changes to last
approved policy
Base salary
• Provides market
competitive fixed
remuneration
that rewards
relevant skills,
responsibilities
and contribution
• Salaries are positioned within a market
competitive range for companies of a
similar size and complexity
• The Committee does not slavishly follow
data but uses it as a reference point in
considering, in its judgement, the
appropriate level having regard to other
relevant factors including corporate and
individual performance and any changes
in an individual’s role and
responsibilities
• Base salary is paid monthly in cash
• Base salaries are
• Not applicable (N/A)
• None
reviewed annually
with the next review
due to take place in
December 2017
• The Committee has not
increased Executive
Director salary levels
since the Company’s
IPO in May 2011,
demonstrating a
responsible approach to
setting base salaries
• Mr Glasenberg, the CEO,
is the only Executive
Director on the Board.
A base salary cap of
$1,447,292 p.a., being his
current salary, has been
set so that no voluntary
increase will be made to
his base salary without
shareholder approval or
unless the law otherwise
requires
100 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Element and purpose
Policy and operation
Maximum opportunity
Performance measures
Benefits
• Provides appropriate insurance cover
• Benefits received by
• N/A
Key changes to last
approved policy
• None
• To provide
appropriate
supporting
non-monetary
benefits
Pension
• Provides basic
retirement
benefits which
reflects local
market practice
Annual Bonus Plan
• Supports delivery
of short-term
operational,
financial and
strategic goals
Long-Term
Incentives
• Glencore
Performance
Share Plan
incentivises
the creation of
shareholder
value over the
longer-term
benefits
• Values are shown in the single figure
table below but may fluctuate without the
Committee taking action
• The Company may periodically change
the benefits available to staff for the office
at which an Executive Director works in
which case the director would normally
be eligible to receive the amended
benefits on similar terms to all relevant
staff. In the case of Mr Glasenberg, this
would be expected to mean employees
generally in the Baar office
• Mr Glasenberg participates in the
defined contribution scheme for all
Baar (Switzerland) -based employees
Mr Glasenberg comprise
salary loss (long-term
sickness) and accident
insurance/travel
insurance
• A monetary limit
of $20,000 p.a for
Mr Glasenberg has
been set
• An annual cap on the
cost of provision of
retirement benefits of
$150,000 per Executive
Director has been set
• Annual Bonus plan levels and the
appropriateness of measures are
reviewed annually to ensure they
continue to support the strategy
• The Committee has set
a maximum annual
bonus level of 200%
of base salary p.a.
• Any Annual Bonus plan outcome above
100% of salary is to be deferred into
shares for a period of up to three years
although the Committee reserves
discretion to alter the current practice
of deferral (whether by altering the
portion deferred, the period of deferral
or whether amounts are deferred into
cash or shares)
• Cash element paid in one tranche
following the year end
• Malus provisions apply to any
amounts deferred
• No Executive Director has, to date,
participated, although this will be
kept under review to ensure it
remains appropriate
• Malus clauses apply
• The Company will honour the vesting
of all awards granted under previous
policies in accordance with the terms of
such awards
• N/A
• None
• The performance
• None
measures applied may be
financial, non-financial
and corporate, divisional
or individual and in such
proportions as the
Committee considers
appropriate
• Additionally, the
Committee will consider
the outcomes against
pre-set targets following
their calculation and may
moderate these outcomes
to take account of a range
of factors including the
Committee’s view of
overall Company
performance in the year
• Overall annual
• Executive Directors do
• None
Executive Directors’
limit of 200% of
salary for LTI grants
(recognising that this
is less than the formal
limit in the plan)
not at present participate
in the plan reflecting, in
the case of the CEO, the
significant alignment
achieved through his
personal shareholding.
Accordingly, no
performance conditions
have been established
for Executive Directors.
On any future
participation, the
Committee may set such
performance conditions
on LTI awards as it
considers appropriate
(whether financial or
non-financial and
whether corporate,
divisional or individual)
Glencore Annual Report 2016
101
Significant Personal
Shareholdings
• Aligns the
interests of
executives and
shareholders
Chairman and
Non-Executive
Director fees
• Reflects time
commitment,
experience, global
nature and size of
the Company
Governance
Directors’ remuneration report
For the year ended 31 December 2016
Element and purpose
Policy and operation
Maximum opportunity
Performance measures
• The Committee has set a formal
• N/A
• N/A
shareholding requirement for Executive
Directors of 300% of salary
• Usually to be achieved within 5 years of
Board appointment
Key changes to last
approved policy
• None
• The objective in setting the fees paid to
• Fees are paid monthly
• N/A
• The fees payable
to Non-
Executive
Directors have
been increased
as set out on
page 105
the Chairman and the other Non-
Executive Directors is to be competitive
with other listed companies of equivalent
size and complexity. Fee levels are
periodically reviewed by the Board (for
Non-Executives) and the Committee (for
the Chairman). In both cases, the
Company does not adopt a quantitative
approach to pay positioning and exercises
judgement as to what it considers to be
reasonable in all the circumstances as
regards quantum
in cash
• Aggregate fees for
all Non-Executive
Directors (including
the Chairman) are
subject to the cap set
in the Articles of
Association. This is
currently set at
$5,000,000
• Non-Executive Directors and the Senior
Independent Director receive a base fee
• Additional fees are paid for chairing or
membership of a Board committee
• Chairman receives a single inclusive fee
• Reasonable business related expenses are
reimbursed (subject to gross up
if appropriate)
• Non-Executive Directors are not eligible
for any other remuneration or benefits of
any nature
• Reviewed every year with the next review
due to take place in December 2017
Notes to the Policy table
1.
Mr Glasenberg, the only Executive Director, has received no salary increase since the Company’s IPO in May 2011.
2.
Differences between the policy on remuneration for Directors from the policy on remuneration of other employees: the
only Executive Director has waived any entitlement to participate in the variable pay arrangements. Arrangements also
differ from its pay policies for Group employees as necessary to reflect the appropriate market rate position for the
relevant roles. In particular, Mr Glasenberg’s pension benefits are consistent with those provided to other Swiss-based
employees and do not include any enhancement to reflect seniority.
3.
For 2016, all remuneration and fees were paid in US dollars except for pension contributions and the provision of
benefits which were provided in Swiss francs.
102 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Recruitment Remuneration Policy
The Company’s Recruitment Remuneration Policy aims to give the Committee sufficient flexibility to secure the
appointment and promotion of high-calibre executives to strengthen the management team and secure the skill
sets to deliver our strategic aims.
• The starting point for the Committee will be to look to the
general policy for Executive Directors as set out above and
structure a package in accordance with that policy.
However, the policy was developed having regard to the
specific circumstances of the current Executive Director
and therefore (consistent with the UK regulations) for a
newly appointed Executive Director the Committee is not
constrained by the caps on fixed pay within the policy on
a recruitment or at any subsequent annual review within
the life of this policy as approved by shareholders.
The Committee will not pay more than it considers to be
necessary to secure the recruitment having regards to
appropriate market rates and evolving best practice
• For an internal appointment, any variable pay element
awarded in respect of the prior role may either continue
on its original terms or be adjusted to reflect the new
appointment as appropriate
• For external and internal appointments, the Committee
may agree that the Company will meet certain relocation
expenses as they consider appropriate and/or to make a
contribution towards legal fees in connection with
agreeing employment terms
• The Committee reserves the right to make awards of
incentive pay that are necessary to secure a candidate,
which may include either awards to compensate for the
forfeiture of incentive awards in a previous employer or to
provide appropriate incentives for a new recruit to the
Group. Details of any such awards will be
appropriately disclosed
• Where it is necessary to make a recruitment related pay
award to an external candidate, the Company will not pay
more than is, in the view of the Committee, necessary and
will in all cases seek, in the first instance, to deliver any
such awards under the terms of the existing incentive pay
structure. It may, however, be necessary in some cases to
make such awards on terms that are more bespoke than
the existing annual and equity-based pay structures in the
Group in order to secure a candidate
• All such awards for external appointments, whether
under the annual bonus plan, Performance Share Plan or
otherwise, to compensate for awards forfeited on leaving
a previous employer will take account of the nature,
time-horizons and performance requirements on those
awards. In particular, the Committee’s starting point will
be to ensure that any awards being forfeited which
remain subject to outstanding performance requirements
(other than where these are substantially complete) are
bought-out with replacement requirements and any
awards with service requirements are bought out with
similar terms. However, exceptionally the Committee may
relax those obligations where it considers it to be in the
interests of shareholders and those factors are, in the view
of the Committee, equally reflected in some other way, for
example through a significant discount to the face value of
the awards forfeited. It will only include guaranteed sums
where the Committee considers that it is necessary to
secure the recruitment
• For the avoidance of doubt, where recruitment related
awards are intended to replace existing awards held by a
candidate in an existing employer, the maximum amounts
for incentive pay as stated in the general policies will not
apply to such awards. The Committee has not placed a
maximum limit on any such awards which it may be
necessary to make as it is not considered to be in
shareholders’ interests to set any expectations for
prospective candidates regarding such awards.
Any recruitment-related awards which do not replace
awards with a previous employer will be subject to the
limits on incentive awards as detailed in the
general policy
The elements of any package for a new recruit and the
approach taken by the Committee in relation to setting each
element of the package will be consistent with the Executive
Directors’ Remuneration Policy described in this report, as
modified by the above statement of principles
where appropriate.
A new Non-executive Director would be recruited on the
terms explained above in respect of the main policy for
such directors.
Glencore Annual Report 2016
103
Governance
Directors’ remuneration report
For the year ended 31 December 2016
Potential rewards under various scenarios
Executive Directors’ contracts
The table below summarises the key features of the service
contract for Ivan Glasenberg, the only person who served as
an Executive Director during 2016.
All Directors’ contracts and letters of appointment will be
available for inspection on the terms to be specified in the
Notice of 2017 AGM.
Provision
Notice period
Contract date
Service contract terms
• Twelve months’ notice by either party
• 28 April 2011 (as amended on
30 October 2013)
Expiry date
• Rolling service contract
Termination payment
• No special arrangements or entitlements
on termination. Any compensation would
be limited to base salary only for any
unexpired notice period (plus any
accrued leave)
Change in control
• On a change of control of the Company,
no provision for any enhanced payments,
nor for any liquidated damages
External appointments
Any external appointments are noted on pages 81, 82 and 83.
The Executive Director assigns to the Group any
compensation received in relation to the appointment.
The appropriateness of these appointments are
considered as part of the annual review of Directors’
interests/potential conflicts.
Under the formal policy, consistent with other large FTSE
companies, the total available variable pay (i.e.
the maximum amount payable in respect of bonus and
long-term incentives) available to Mr. Glasenberg would be
approximately $5,790,000 (being four times base salary).
As Mr Glasenberg has waived entitlement to all variable
elements for 2016, including both bonus and long-term
incentives, his base salary and all benefits are set at less than
25% of the aggregate remuneration which would potentially
have been available to him had he not waived participation
in these aspects. These waivers are considered appropriate
as the level of his personal shareholding is sufficient to
provide a keen alignment of interest between him and of
shareholders more generally without the need to add
additional aspects to his package (and cost to other
shareholders). His fixed remuneration set out below is set at
a modestly below market level so the waivers do not reflect
any element of an excessive bias to fixed pay in the
traditional sense. Consistent with UK legislation, it has been
prepared using the following assumptions.
In 2016, Mr Glasenberg’s base salary was paid in US dollars
and his benefits and pension contributions were paid in
Swiss francs, as described above and in the single figure
table below.
Fixed
• Consists of base salary, benefits and pension.
• Base salary is that to be paid in 2017.
• Benefits measured as benefits figure in the
single figure table.
• Pension measured as pension figure in the
single figure table.
Ivan Glasenberg
Base Salary
$’000
Benefits
$’000
Pension
$’000
Total Fixed
$’000
1,447
2
60
1,509
On-target and
Maximum
Based on what the Director would receive if
performance was on-target (excl. share price
appreciation and dividends):
• STI: Mr Glasenberg currently waives any right
to participate in the annual bonus plan
• LTI: He does not currently participate in the
Performance Share Plan
104 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Termination Policy Summary
In practice, the facts surrounding any termination do not
always fit neatly into defined categories for good or bad
leavers. Therefore, it is appropriate for the Committee to
consider the suitable treatment on a termination having
regard to all of the relevant facts and circumstances
available at that time. Further, in practice no Executive
Director has, to date, participated in the PSP so the policy
remains to be tested. This policy applies both to any
negotiations linked to notice periods on a termination and
any treatment which the Committee may choose to apply
under the discretions available to it under the terms of the
annual bonus and LTI arrangements. The potential
treatments on termination under these plans are
summarised below.
Incentives Good leaver
Bad leaver
If a leaver is deemed to be a
‘good leaver’; i.e. leaving
through, serious ill health or
death or otherwise at the
discretion of the Committee
If a leaver is deemed to be
a ‘bad leaver’; typically
voluntary resignation or
leaving for disciplinary
reasons
Annual
Bonus
LTIP
No awards made
All awards will
normally lapse
Pro-rated bonus
Will receive a pro-rated
award (if applicable, subject
to the application of the
performance conditions
at the normal measurement
date.)
Committee discretion to
disapply pro-rating
The UK Remuneration Regulations do not require the
inclusion of a cap or limit in relation to payments for loss of
office. The Committee will take all relevant factors into
account in deciding whether any discretion should be
exercised in an individual’s favour in these circumstances,
and the Committee will aim to ensure that any payments
made are, in its view, appropriate having regard to
prevailing best practice guidelines. The Committee may
also, after taking appropriate legal advice, sanction the
payment of additional sums in the settlement of potential
legal claims.
Non-Executive Directors’ Letters of
appointment and re-election
All Non-Executive Directors have letters of appointment
with the Company for an initial period of three years from
their date of appointment, subject to reappointment at each
AGM. The Company may terminate each appointment by
immediate notice and there are no special arrangements or
entitlements on termination except that the Chairman is
entitled to three months’ notice.
The fees payable to the Non-Executive Directors have been
increased with effect from 1 January 2017. The annual fees
are paid in accordance with a Non-Executive Director’s role
and responsibilities. The fees payable for 2017 and those
paid for 2016 are as follows:
US$ ‘000
Directors
Chairman
Senior Independent Director
Non-Executive Director
Remuneration Committee
Chairman
Member
Audit Committee
Chairman
Member
Nomination Committee
Chairman
Member
HSEC Committee
Chairman
Member
2017
2016
1,150
200
135
45
25
60
35
40
20
125
40
1,056
170
124
44
23
55
31
36
19
125
19
Consideration of employment conditions
elsewhere in the Group
The Committee has not, since IPO, awarded a salary
increase to any Executive Director. It has not, therefore, in
practice had to take into account Group-wide pay and
employment conditions in making any decisions but would
do so as and when such issues arise.
In accordance with prevailing commercial practice, the
Committee did not consult with employees in preparing the
Directors’ Remuneration Policy.
Consideration of shareholders’ views
Each year, the Committee takes into account the approval
levels of remuneration related matters at our Annual
General Meeting in determining that the current Directors’
Remuneration Policy remains appropriate for the Company.
The Committee also seeks to have a productive dialogue
with investors on developments in the remuneration aspects
of corporate governance generally and any changes to the
Company’s executive pay arrangements in particular.
Glencore Annual Report 2016
105
Governance
Directors’ remuneration report
For the year ended 31 December 2016
Part B – Implementation Report
Remuneration Committee meetings
Implementation Report – Unaudited Information
Remuneration Committee
Membership and experience of the Remuneration Committee
We believe that the members of the Committee provide a
useful balance of abilities, experience and perspectives to
provide the critical analysis required in carrying out the
Committee’s function. John Mack, the Chairman of the
Committee, has had a long career in investment bank
management and therefore provides considerable
experience of remuneration analysis and implementation.
William Macaulay has had a long tenure in private equity
which has involved exposure to remuneration issues many
times and in a variety of situations while Leonhard Fischer
is a career banker who similarly has had considerable
exposure to issues of pay and incentives. All members of the
Remuneration Committee are considered to be independent.
Further details concerning independence of the Non-
Executive Directors are contained on page 85 of the
Annual Report.
Role of the Remuneration Committee
The terms of reference of the Committee set out its role.
They are available on the Company’s website at:
www.glencore.com/who-we-are/corporate-governance/
board-committees
Its principal responsibilities are, on behalf of the Board, to:
• set the Company’s executive remuneration policy (and
review its ongoing relevance and appropriateness);
• establish the remuneration packages for the Executive
Director including the scope of pension benefits;
consultation with the Chief Executive;
• have responsibility for overseeing schemes of
performance related remuneration (including share
incentive plans) for, and determine awards for, the
Executive Director (as appropriate);
• ensure that the contractual terms on termination for the
Executive Director are fair and not excessive; and
• monitor senior management remuneration.
The Committee considers corporate performance on HSEC
and governance issues when setting remuneration for the
Executive Director. The Committee seeks to ensure that the
incentive structure for the Group’s senior management does
not raise HSEC or governance risks by inadvertently
motivating irresponsible behaviour.
106 Glencore Annual Report 2016
The Committee met two times during the year and
considered, amongst other matters, the remuneration policy
applicable to the Executive Director, senior management
remuneration policy, including its level and structure, the
form and structure of grants to employees under the
Company’s Deferred Bonus Plan and Performance Share
Plan, and the content and approval of the
remuneration Report.
The Chairman, CEO and CFO are usually invited to attend
some or all of the proceedings of Remuneration Committee
meetings. They do not participate in any decisions
concerning their own remuneration.
Advisers to the Remuneration Committee
The Committee appointed and received independent
remuneration advice during the year from its external
adviser, FIT Remuneration Consultants LLP (“FIT”). FIT is a
member of the Remuneration Consultants Group (the UK
professional body for these consultants) and adheres to its
code of conduct. The Committee was satisfied that the
advice provided by FIT was objective and independent.
FIT’s fees for this advice in respect of 2016 were $10,410 (2015:
$4,094). FIT’s fees were charged on the basis of the firm’s
standard terms of business for advice provided.
FIT provided no other services to the Group in the year.
The Committee also receives advice from John Burton, the
Company Secretary.
Relative importance of remuneration spend
The table below illustrates the change in total remuneration,
dividends paid and net profit from 2015 to 2016.
2016
US$m
_
1,379
4,245
2015
US$m
2,898
(4,964)
5,287
Net income/(loss) attributable to
equity holders
Total remuneration
The figures presented have been calculated on the
following bases:
• Dividends and buy-backs – dividends paid during the
financial year plus the cost of shares bought back during
the year.
• Net income/(loss) attributable to equity holders –
our reported net income in respect of the financial year.
The Committee believes it is the most direct reflection
of our financial performance.
• Total remuneration – represents total personnel costs as
disclosed in note 21 to the financial statements which
includes salaries, wages, social security, other personnel
costs and share-based payments.
• determine the remuneration package for the Chairman, in
Dividends and buy-backs
Strategic report | Governance | Financial statements | Additional information
Performance graph and table
Performance
This graph shows the value to 31 December 2016, on a total
shareholder return (“TSR”) basis, of £100 invested in
Glencore plc on 24 May 2011 (IPO date) compared with the
value of £100 invested in the FTSE 350 Mining Index.
The FTSE 350 Mining Index is considered to be an
appropriate comparator for this purpose as it is an equity
index consisting of companies listed in London in the same
sector as Glencore.
The UK reporting regulations also require that a TSR
performance graph is supported by a table summarising
aspects of CEO remuneration, as shown below for the same
period as the TSR performance graph:
100
80
60
40
20
0
18 May
2011
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
FTSE 350 Mining Index
Glencore
2016
2015
2014
2013
2012
2011
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Single figure of
total remuneration1
(US$’000)
Annual variable element
award rates against
maximum opportunity2
Long-term incentive
vesting rates against
maximum opportunity2
1,509
1,510
1,513
1,509
1,533
1,483
_
_
–
–
–
–
_
_
–
–
–
–
1 The value of benefits and pension provision in the single figure vary as a result of the application of exchange rates although in the relevant local currency these parts of Mr Glasenberg’s
remuneration have not altered since May 2011. In this table the figures are reported in US dollars, the currency in which Mr Glasenberg received his salary in 2016. The salary was
payable in pounds sterling prior to 2014. Therefore those figures have been translated into US dollars at the exchange rates used for the preparation of the financial statements in those
years. Mr Glasenberg’s pension and other benefits are charged to the Group in Swiss francs and these amounts are translated into US dollar on the same basis.
2 The CEO has requested not to be considered for these potential awards.
Percentage change in pay of Chief Executive Officer and comparative ratios
The UK Remuneration Regulations provide for disclosure of percentage changes of the CEO’s remuneration against the
average percentage change for employees generally or an appropriate group of employees. In addition, the UK Investment
Association’s 2016 Remuneration Principles recommend disclosure as to how the out-turn for a Company’s CEO compares
with that of a) its median employee and b) its Executive Committee. Given that the CEO has, since May 2011, waived any
entitlement to any increase in salary (and given that his only other unwaived benefits are those provided to all employees
at the Company’s head office in Baar) no such comparisons or ratios have been made.
Most recent shareholder voting outcomes
The votes cast (1) to approve the Directors’ remuneration report, for the year ended 31 December 2015, at the 2016 AGM held
on 19 May 2016 and (2) to approve the Directors’ Remuneration Policy at the 2014 AGM on 20 May 2014, were:
Votes “For”
Votes “Against”
Votes “Abstentions” (as a total of votes cast)
Directors’ Remuneration Report
99.14%
(9,213,244,369)
Directors’ Remuneration Policy
97.93%
(8,539,263,284)
0.86%
(80,083,116)
2.07%
(180,199,515)
0.00%
(9,725,264)
2.60%
(226,561,025)
While no changes will be made to the Directors’ Remuneration Policy for 2017 (other than as set out on page 105), as the
Company reaches the end of the three-year policy period approved by shareholders at the 2014 AGM, a resolution will be
tabled to approve the Directors’ Remuneration Policy at the 2017 AGM.
The Committee continues to seek a productive and ongoing dialogue with investors on the Directors’ Remuneration Policy,
remuneration aspects of corporate governance, any changes to the Company’s executive pay arrangements and
developments as to executive remuneration issues in general.
Glencore Annual Report 2016
107
Governance
Directors’ remuneration report
For the year ended 31 December 2016
Implementation of policy in 2017
No change to any aspect of Directors’ remuneration is envisaged for 2017 except for the increase in the fees for
Non-Executive Directors set out on page 105.
Implementation Report – Audited Information
Single Figure Table
US$’000
Ivan Glasenberg
Salary
2015
1,447
2016
1,447
Benefits
Annual
Bonus
Long-term
incentives
Pension
2016
2015
2016
2015
2016
2
2
–
–
–
2015
–
2016
60
2015
61
2016
1,509
Total
2015
1,510
The notes to the performance table above also apply in relation to the compilation of this table. As no bonuses or long-term
incentives have been granted to Mr Glasenberg, there are no relevant performance measures to be disclosed although see
the first page of this report as to the alignment of his position with that of other shareholders.
Non-Executive fees
The emoluments of the Non-Executive Directors for 2016 were as follows:
Name
Non-Executive Chairman
Anthony Hayward
Non-Executive Directors
Leonhard Fischer
William Macaulay
Peter Coates
Peter Grauer
John Mack
Patrice Merrin
Total 2016
US$’000
Total 2015
US$’000
1,056
1,056
221
178
249
237
187
143
221
178
249
237
187
143
The aggregate emoluments of all Directors for 2016 (including pension contributions) were $3,780,000 (2015: $3,781,000).
The only Director participant in a pension plan was Mr Glasenberg.
Directors’ interests
The Directors’ interests in shares are set out in the Directors’ report which is set out after this report. Mr Glasenberg’s
holding is considerably in excess of the formal share ownership guideline for Executive Directors of 300% of salary.
Approval
This report in its entirety has been approved by the Committee and the Board of Directors and signed on its behalf by:
John Mack
Remuneration Committee Chairman
1 March 2017
108 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Directors’ report
For the year ended 31 December 2016
Introduction
This Annual Report is presented by the Directors on the affairs
of Glencore plc (the “Company”) and its subsidiaries (the
“Group” or “Glencore”), together with the financial statements
and auditor’s report, for the year ended 31 December 2016.
The Directors’ report includes details of the business, the
development of the Group and likely future developments as set
out in the Strategic Report, which together forms the
management report for the purposes of the UK Financial
Conduct Authority’s Disclosure and Transparency Rule (DTR)
4.1.8R. The notice concerning forward-looking statements is set
out at the end of the Annual Report. References to the Company
may also include references to the Group or part of the Group.
Corporate structure
Glencore plc is a public company limited by shares,
incorporated in Jersey and domiciled in Baar, Switzerland.
Its shares are listed on the London, Johannesburg and Hong
Kong Stock Exchanges.
Financial results and distributions
The Group’s financial results are set out in the financial
statements section of this Annual Report.
No distribution was declared or paid during the 2016
financial year.
The Board is recommending two distributions totalling
US$0.07 per share in respect of the 2016 financial year
(expected to be approximately $996 million in aggregate).
It is proposed that these be payable in equal tranches of
US$0.035 on 31 May and 26 September this year on the
terms to be set out in, and subject to the passing of, a
resolution to be put to shareholders at the Company’s AGM
on 24 May 2017.
Review of business, future developments and post
balance sheet events
A review of the business and the future developments of the
Group is presented in the Strategic Report.
A description of acquisitions, disposals, and material
changes to Group companies undertaken during the year, is
included in the Financial review and in note 23 to the
financial statements.
Financial instruments
Descriptions of the use of financial instruments and
financial risk management objectives and policies, including
hedging activities and exposure to price risk, credit risk,
liquidity risk and cash flow risk are included in notes 24 and
25 to the financial statements.
Corporate governance
A report on corporate governance and compliance with the
UK Corporate Governance Code is set out in the Corporate
Governance report and forms part of this report by reference.
Health, safety, environment & communities (“HSEC”)
An overview of health, safety and environmental
performance and community participation is provided in
the Sustainable Development section of the Strategic report.
The work of the HSEC Board committee is contained in the
Corporate Governance report.
Taxation policy
During 2016 we published our first payments to
Governments report http://www.glencore.com/assets/
sustainability/doc/sd_reports/GLEN-Payments-to-
Government-2015.pdf which we shall issue annually.
As well as disclosing the payments made by the Group on a
country-by-country and project-by-project basis, the report
sets out the Company’s approach to tax and transparency.
Exploration and research and development
The Group business units carry out exploration and
research and development activities that are necessary to
support and expand their operations.
Employee policies and involvement
Glencore operates an equal opportunities policy that aims to
treat individuals fairly and not to discriminate on the basis
of sex, race, ethnic origin, disability or on any other basis.
Applications for employment and promotion are fully
considered on their merits, and employees are given
appropriate training and equal opportunities for career
development and promotion.
Where disability occurs during employment, the Group
seeks to accommodate that disability where reasonably
possible, including with appropriate training.
The Group places considerable value on the involvement of
its employees which is reflected in the principles of its Code
of Conduct and its related guidance, which requires regular,
open, fair and respectful communication, zero tolerance for
human rights violations, fair remuneration and, above all, a
safe working environment.
Employee communication is mainly provided by the
Group’s intranet and corporate website. A range of
information is made available to employees including all
policies applicable to them as well as information on the
Group’s financial performance and the main drivers of its
business. Employee consultation depends upon the type
and location of operation or office.
Directors’ conflicts of interest
Under Jersey law and the Company’s Articles of Association
(which mirror section 175 of the UK Companies Act 2006), a
Director must avoid a situation in which the Director has, or
can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the interests of the Company.
The duty is not infringed if the matter has been authorised
by the Directors. Under the Articles, the Board has the
Glencore Annual Report 2016
109
Governance
Directors’ report
For the year ended 31 December 2016
power to authorise potential or actual conflict situations.
The Board maintains effective procedures to enable the
Directors to notify the Company of any actual or potential
conflict situations and for those situations to be reviewed
and, if appropriate, to be authorised by the Board. Directors’
conflict situations are reviewed annually. A register of
authorisations is maintained.
Share capital and shareholder rights
As at 1 March 2017, the issued ordinary share capital of the
Company was $145,862,001 represented by 14,586,200,066
ordinary shares of $0.01 each, of which 191,459,158 shares are
held in treasury and 144,418,070 shares are held by Group
employee benefit trusts.
Directors’ liabilities and indemnities
The Company has granted third party indemnities to each
of its Directors against any liability that attaches to them in
defending proceedings brought against them, to the extent
permitted by Jersey Law. In addition, Directors and Officers
of the Company and its subsidiaries are covered by directors
& officers liability insurance.
Directors and Officers
The names of the Company’s Directors and Officers who
were in office at the end of 2016, together with their
biographical details and other information, are shown on
pages 81 to 83.
Directors’ interests
Details of interests in the ordinary shares of the Company of
those Directors who held office during 2016 are given below:
Name
Executive Directors
Ivan Glasenberg
Non-Executive Directors
Peter Coates
Anthony Hayward
Leonhard Fischer
William Macaulay
Peter Grauer
John Mack
Patrice Merrin
Number of
Glencore Shares
Percentage of
Total Voting
Rights
1,211,957,850
1,585,150 1
244,907
–
200,000
129,792
750,000
43,997
8.42
0.01
0.00
–
0.00
0.00
0.00
0.00
1 Peter Coates also has 206,172 options over shares arising from his prior employment
with Xstrata which are not included in the above table.
No Director has any other interest in the share capital of the
Company whether pursuant to any share plan or otherwise.
No changes in Directors’ interests of those in office at the
date of this report have occurred between 31 December 2016
and 1 March 2017.
Mr Glasenberg executed a Lock-Up Deed in 2011, pursuant
to which he agreed, subject to certain customary exceptions,
that during the period from 24 May 2011 to 24 May 2016 he
would not dispose of a certain percentage of the ordinary
shares held by him at 24 May 2011. These disposal
restrictions have now expired entirely.
110 Glencore Annual Report 2016
Major interests in shares
As at 1 March 2017 Glencore had been notified of the
following interests representing 3% or more of the issued
ordinary share capital of the Company:
Name of holder
Qatar Holding
Ivan Glasenberg
BlackRock Inc
Harris Associates
Daniel Maté
Aristotelis Mistakidis
Norges Bank
Share capital
Number of
shares
1,221,497,099
1,211,957,850
820,422,580
503,985,535
454,136,143
450,175,134
436,312,499
Percentage of
Total Voting
Rights
8.49
8.42
5.70
3.50
3.15
3.13
3.03
The rights attaching to the Company’s ordinary shares,
being the only share class of the Company, are set out in the
Company’s Articles of Association (the “Articles”), which
can be found at www.glencore.com. Subject to Jersey law,
any share may be issued with or have attached to it such
preferred, deferred or other special rights and restrictions as
the Company may by special resolution decide or, if no such
resolution is in effect, or so far as the resolution does not
make specific provision, as the Board may decide.
No such resolution is currently in effect. Subject to the
recommendation of the Board, holders of ordinary shares
may receive a dividend. On liquidation, holders of ordinary
shares may share in the assets of the Company. Holders of
ordinary shares are also entitled to receive the Company’s
Annual Report and Accounts (or a summarised version) and,
subject to certain thresholds being met, may requisition the
Board to convene a general meeting (“GM”) or the proposal of
resolutions at AGMs. None of the ordinary shares carry any
special rights with regard to control of the Company.
Holders of ordinary shares are entitled to attend and speak
at GMs of the Company and to appoint one or more proxies
or, if the holder of shares is a corporation, a corporate
representative. On a show of hands, each holder of ordinary
shares who (being an individual) is present in person or
(being a corporation) is present by a duly appointed
corporate representative, not being himself a member, shall
have one vote and on a poll, every holder of ordinary shares
present in person or by proxy shall have one vote for every
share of which he is the holder. Electronic and paper proxy
appointments and voting instructions must be received not
later than 48 hours before a GM. A holder of ordinary shares
Strategic report | Governance | Financial statements | Additional information
can lose the entitlement to vote at GMs where that holder
has been served with a disclosure notice and has failed to
provide the Company with information concerning interests
held in those shares. Except as (1) set out above and (2)
permitted under applicable statutes, there are no limitations
on voting rights of holders of a given percentage, number of
votes or deadlines for exercising voting rights.
The Directors may refuse to register a transfer of a
certificated share which is not fully paid, provided that the
refusal does not prevent dealings in shares in the Company
from taking place on an open and proper basis or where the
Company has a lien over that share. The Directors may also
refuse to register a transfer of a certificated share unless the
instrument of transfer is: (i) lodged, duly stamped (if
necessary), at the registered office of the Company or any
other place as the Board may decide accompanied by the
certificate for the share(s) to be transferred and/or such
other evidence as the Directors may reasonably require as
proof of title; or (ii) in respect of only one class of shares.
Transfers of uncertificated shares must be carried out using
CREST and the Directors can refuse to register a transfer of
an uncertificated share in accordance with the regulations
governing the operation of CREST.
The Directors may decide to suspend the registration of
transfers, for up to 30 days a year, by closing the register of
shareholders. The Directors cannot suspend the registration
of transfers of any uncertificated shares without obtaining
consent from CREST.
There are no other restrictions on the transfer of ordinary
shares in the Company except: (1) certain restrictions may
from time to time be imposed by laws and regulations (for
example insider trading laws); (2) pursuant to the Company’s
share dealing code whereby the Directors and certain
employees of the Company require approval to deal in the
Company’s shares; and (3) where a shareholder with at least a
0.25% interest in the Company’s issued share capital has been
served with a disclosure notice and has failed to provide the
Company with information concerning interests in those
shares. There are no agreements between holders of ordinary
shares that are known to the Company which may result in
restrictions on the transfer of securities or on voting rights.
The rules for appointment and replacement of the Directors
are set out in the Articles. Directors can be appointed by the
Company by ordinary resolution at a GM or by the Board
upon the recommendation of the Nomination Committee.
The Company can remove a Director from office, including
by passing an ordinary resolution or by notice being given
by all the other Directors. The Company may amend its
Articles by special resolution approved at a GM.
The powers of the Directors are set out in the Articles and
provide that the Board may exercise all the powers of the
Company including to borrow money. The Company may
by ordinary resolution authorise the Board to issue shares,
and increase, consolidate, sub-divide and cancel shares in
accordance with its Articles and Jersey law.
Purchase of own shares
At the end of the year, the Directors had authority, under a
shareholder’s resolution passed on 19 May 2016, to purchase
through the market up to 10% of the Company’s issued
ordinary shares. No purchase was made by the Company
during 2016. The Directors will seek a similar authority at
the Company’s AGM to be held in 2017.
Going concern
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are set out in the Strategic
Report. Furthermore, notes 24 and 25 to the financial
statements includes the Group’s objectives and policies for
managing its capital, its financial risk management
objectives, details of its financial instruments and hedging
activities and its exposure to credit and liquidity risk.
Significant financing activities that took place during the
year are detailed in the Financial review section.
The results of the Group, principally pertaining to its
industrial asset base, are exposed to fluctuations in both
commodity prices and currency exchange rates whereas
the performance of marketing activities is primarily
physical volume driven with commodity price risk
substantially hedged.
The Directors have a reasonable expectation, having made
appropriate enquiries that the Group has adequate resources
to continue its operational existence for the foreseeable future.
For this reason they continue to adopt the going concern basis
in preparing the financial statements. The Directors have
made this assessment after consideration of the Group’s
budgeted cash flows and related assumptions including
appropriate stress testing of the identified uncertainties
(being primarily commodity prices and currency exchange
rates), assessment of asset disposal initiatives and undrawn
credit facilities, monitoring of debt maturities, and after
review of the Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting 2014
as published by the UK Financial Reporting Council.
Longer-term viability
In accordance with paragraph C2.2 of the Code, the
Directors have assessed the prospects of the Group’s
viability over a longer period than the 12 months required
by the going concern assessment above. The Board has
assessed the viability of the Group over a four-year period.
This period is consistent with the Group’s established
annual business planning and forecasting processes and
cycle which is subject to review and approval each year by
the Board. The four-year plan considers Glencore’s EBITDA,
Capital Expenditure, Funds From Operations (“FFO”) and
Net Debt, and the key financial ratios of Net Debt to EBITDA
and FFO to Net Debt over the forecasted years and
Glencore Annual Report 2016
111
Governance
Directors’ report
For the year ended 31 December 2016
incorporates stress tests to simulate the potential impacts of
exposure to the Group’s principal risks and uncertainties as
set out on pages 36 to 44. These scenarios included:
• a prolonged downturn in the price and demand of
commodities most impacting Glencore’s operations;
• foreign exchange movements to which the Group is
exposed as a result of its global operations; and
• consideration of the potential impact of adverse
movements in macro-economic assumptions and their
effect on certain key financial KPIs and ratios which could
increase the Group’s access to or cost of funding.
The scenarios were assessed taking into account current risk
appetite and any mitigating actions Glencore could take, as
required, in response to the potential realisation of any of
the stressed scenarios.
Based on the results of the related analysis, the Directors
have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due
over the four-year period of this assessment. They also
believe that the review period of four years is appropriate
having regard to the Group’s business model, strategy,
principal risks and uncertainties, and viability.
Auditors
Each of the persons who is a Director at the date of approval
of this Annual Report confirms that:
(a) so far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are
unaware; and
(b) the Director has taken all the steps that he ought to have
taken as a director in order to make himself aware of
any relevant audit information and to establish that the
Company’s auditors are aware of that information.
Deloitte LLP have expressed their willingness to continue in
office as auditors and a resolution to reappoint them will be
proposed at the forthcoming AGM.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual
Report and financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have elected to prepare the financial statements in
accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board
and International Financial Reporting Standards as adopted
for use in the European Union (together “IFRS”).
The financial statements are required by law to be properly
prepared in accordance with the Companies (Jersey) Law
1991. International Accounting Standard 1 requires that
financial statements present fairly for each financial year the
112 Glencore Annual Report 2016
Company’s financial position, financial performance and cash
flows. This requires the faithful representation of the effects
of transactions, other events and conditions in accordance
with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the International
Accounting Standards Board’s “Framework for the
preparation and presentation of financial statements”.
In virtually all circumstances, a fair presentation will be
achieved by compliance with all applicable IFRSs. However,
the Directors are also required to:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time
the financial position of the Company and enable them to
ensure that the financial statements comply with the
Companies (Jersey) Law 1991. They are also responsible for
safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of
fraud and other irregularities. The Directors are responsible
for the maintenance and integrity of the corporate and
financial information included on the Company’s website.
Legislation in the UK governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
John Burton
Company Secretary
1 March 2017
Strategic report | Governance | Financial statements | Additional information
Information required by Listing Rule LR 9.8.4C
In compliance with UK Listing Rule 9.8.4C the Company discloses the following information:
Listing Rule
Information required
Interest capitalised by the Group
Relevant disclosure
See note 7 to the financial statements
9.8.4(1)
9.8.4(2)
9.8.4(5)
9.8.4(6)
9.8.4(12)
9.8.4(13)
9.8.4(14)
Unaudited financial information as required (LR 9.2.18)
See Chief Executive Officer’s review
Director waivers of emoluments
Director waivers of future emoluments
Waivers of dividends
Waivers of future dividends
See Directors’ remuneration report
See Directors’ remuneration report
See note 16 to the financial statements
See note 16 to the financial statements
Agreement with a controlling shareholder (LR 9.2.2A
Not applicable
There are no disclosures to be made in respect of the other numbered parts of LR 9.8.4.
The consolidated financial statements of the Group for the
year ended 31 December 2016 were approved on the date
below by the Board of Directors.
Signed on behalf of the Board:
Anthony Hayward
Ivan Glasenberg
Chairman
1 March 2017
Chief Executive Officer
Confirmation of Directors’ responsibilities
We confirm that to the best of our knowledge:
• the consolidated financial statements, prepared in
accordance with International Financial Reporting
Standards and interpretations as adopted by the
European Union, International Financial Reporting
Standards and interpretations as issued by the
International Accounting Standards Board and the
Companies (Jersey) Law 1991, give a true and fair view of
the assets, liabilities, financial position and loss of the
Group and the undertakings included in the consolidation
taken as a whole;
• the management report, which is incorporated in the
Strategic Report, includes a fair review of the development
and performance of the business and the position of the
Group and the undertakings included in the consolidation
taken as a whole, together with a description of the
principal risks and uncertainties they face; and
• the Annual Report and consolidated financial statements,
taken as a whole, are fair and balanced and
understandable and provide the information necessary for
shareholders to assess the performance, strategy and
business model of the Company.
Glencore Annual Report 2016
113
Financial
statements
“ Our robust financial
performance during 2016 reflects
the quality of our industrial asset
portfolio and the resilience of our
large scale diversified
marketing business.”
IVAN GLASENBERG
Chief Executive Officer (see page 04)
116 Independent Auditor’s Report
126 Consolidated statement of income/(loss)
127 Consolidated statement of comprehensive income/(loss)
128 Consolidated statement of financial position
129 Consolidated statement of cash flows
131 Consolidated statement of changes of equity
132 Notes to the financial statements
114 Glencore Annual Report 2016
Glencore Annual Report 2016
115
Financial statements
Independent Auditor’s Report to
the members of Glencore plc
Opinion on financial statements of Glencore plc
In our opinion the financial statements:
• give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of the Group’s income for the
year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union; and
• have been properly prepared in accordance with the Companies (Jersey) Law 1991.
The financial statements that we have audited comprise:
• the Consolidated Statement of Income/(Loss);
• the Consolidated Statement of Comprehensive Income/(Loss);
• the Consolidated Statement of Financial Position;
• the Consolidated Statement of Cash Flows;
• the Consolidated Statement of Changes of Equity; and
• the related notes 1 to 33.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union.
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
• Capital preservation/Debt reduction plans;
• Impairments;
• Revenue recognition;
• Fair value measurements within the marketing operations;
• Classification of financial instruments;
• Credit and performance risk; and
• Taxation
Our assessment of the Group’s significant risks is consistent with 2015, except for
Capital Projects and Commissioning which is no longer considered a significant risk
as a result of the significant reduction in the Group’s expansionary capital projects
and related capital expenditures in 2016.
We determined materiality for the Group to be $150 million, based on a normalised
3-year average pre-tax profit.
We focused our Group audit scope primarily on the audit work at 45 components,
representing the Group’s most material marketing operations and industrial assets.
These 45 components account for 92% of the Group’s net assets, 95% of the Group’s
revenue and 89% of the Group’s adjusted EBITDA.
There were no significant changes to our audit approach when compared to 2015.
Materiality
Scoping
Significant changes
in our approach
116 Glencore Annual Report 2016
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Independence
We are required to comply with the Financial Reporting
Council’s Ethical Standards for Auditors and confirm that
we are independent of the Group and we have fulfilled our
other ethical responsibilities in accordance with
those standards.
We confirm that we are independent of the Group and we
have fulfilled our other ethical responsibilities in
accordance with those standards. We also confirm we have
not provided any of the prohibited non-audit services
referred to in those standards.
Our assessment of risks of material
misstatement
The assessed risks of material misstatement described
below are those that had the greatest effect on our audit
strategy, the allocation of resources in the audit and
directing the efforts of the engagement team.
In arriving at our audit opinion on the financial statements,
we have considered any significant changes in the Group’s
operations and the broader market conditions that may
influence the audit risk profile of the Group.
Our assessment of the Group’s significant risks is consistent
with 2015, except for Capital Projects and Commissioning
which is no longer considered a significant risk as a result of
the significant reduction in the Group’s expansionary capital
projects and related capital expenditures in 2016.
The description of risks below should be read in conjunction
with the significant issues considered by the Audit
Committee discussed on page 95. These matters were
addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Separate opinion in relation to IFRSs as issued
by the IASB
As explained in note 1 to the financial statements, in
addition to applying IFRSs as adopted by the European
Union, the Group has also applied IFRSs as issued by the
International Accounting Standards Board (IASB).
In our opinion the financial statements comply with IFRSs
as issued by the IASB.
Going concern and the Directors’ assessment
of the principal risks that would threaten the
solvency or liquidity of the Group
We have reviewed the Directors’ statement regarding the
appropriateness of the going concern basis of accounting
contained within note 1 to the financial statements and the
Directors’ statement on the longer-term viability of the
Group contained within the Governance section of the
Annual Report.
We are required to state whether we have anything material
to add or draw attention to in relation to:
• the Directors’ confirmation on page 89 that they have
carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity;
• the disclosures on pages 36–44 and 89–93 that describe
those risks and explain how they are being managed
or mitigated;
• the Directors’ statement in note 1 to the financial
statements about whether they considered it appropriate
to adopt the going concern basis of accounting in
preparing them and their identification of any material
uncertainties to the Group’s ability to continue to do so
over a period of at least 12 months from the date of
approval of the financial statements; and
• the Director’s explanation on page 112 as to how they have
assessed the prospects of the Group, over what period
they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
We confirm that we have nothing material to add or draw
attention to in respect of these matters.
We agreed with the Directors’ adoption of the going
concern basis of accounting and we did not identify any
such material uncertainties. However, because not all
future events or conditions can be predicted, this
statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Glencore Annual Report 2016
117
Financial statements
Independent Auditor’s Report to the members of Glencore plc
Capital preservation/Debt reduction plans
Risk description
How the scope of our audit responded to the risk
Following the September 2015 announcement of a number of
measures to preserve capital and reduce debt by
31 December 2016, the Group’s initiatives are now completed
with Net Funding reduced to $32,619 million as at
31 December 2016. Due to the bespoke nature of some of the
specific reduction measures undertaken and the resultant
market focus on them, we identified a heightened key audit
risk relating to potential management override and earnings
management with respect to fair presentation and
disclosure of financial performance and position.
Key measures delivered in 2016 include:
To scope our audit and respond to the risks associated with
the announced measures we have:
• undertaken a detailed assessment of each of the measures
to assess how it may impact the Group and therefore our
audit response;
• enhanced our Group and component audit approach and
risk assessment to address the risk of material
misstatement and potential management bias associated
with transactions underlying these measures, particularly
where significant judgements, estimates and assumptions
are applied;
• sale of interests in the Agriculture Products business
• for individually material transactions relating to the
announced measures that were completed during the year
ended 31 December 2016, reviewed and tested these with
reference to supporting documentation (e.g.
contractual agreements) and assessed the associated
accounting treatment focusing on fair presentation
and disclosure;
• reviewed long-term advances (including streaming
transactions) received and working capital movements to
understand significant non-routine transactions impacting
the year-end financial position and reviewed the
associated accounting for compliance with IFRS and for
evidence of potential management override and earnings
management; and
• continued to monitor operations where production was
curtailed or suspended through on-going focus on
impairment of assets (see “Impairments” below).
(“Glencore Agri”) and the Ernest Henry Mining
operations (“EHM”), disposal of Glencore Rail (NSW) Pty
Ltd (“GRail”) and the Antapaccay streaming transaction;
• reduction in capital expenditure to $3,497 million from
$5,957 million in 2015; and
• working capital management.
Fair presentation and disclosure is achieved when the
transactions underpinning the announced measures have
been recorded:
• when the transaction has occurred (occurrence
and existence);
• in accordance with the substance of the transaction (rights
and obligations and classification);
• in the correct amount in the appropriate accounting
period (measurement and cut-off); and
• in accordance with the requirements of IFRS including
appropriate presentation and disclosure (presentation
and disclosure).
Refer to “Key judgements” within note 1 and additionally
notes 10, 12, 19, 22 and 23.
Our conclusion
Our testing noted no significant bias in the accounting judgements, estimates and assumptions made by management on
each of the significant transactions underpinning the measures and we concur with the accounting positions adopted.
We reviewed the disclosures of the sale of interests in Glencore Agri and EHM, the Antapaccay streaming transaction and
the disposal of GRail transactions in notes 19 and 23 and found them to be in line with the relevant IFRS requirements.
Significant sales and purchase transactions affecting working capital and containing a financing element have been
accounted for in line with IFRS requirements and the Group accounting policies as stated in note 1 of the
financial statements.
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Impairments
Risk description
How the scope of our audit responded to the risk
The carrying value of the Group’s non-current assets, which
includes intangible assets, property, plant and equipment,
investments in associates and joint ventures, amounted to
$81,188 million at 31 December 2016.
The volatility in expected future prices of certain
commodities key to the Group (particularly oil, copper, zinc
and coal) and foreign exchange rates, requires management
to closely monitor non-current asset carrying values.
We reviewed management’s assessment of the indicators of
impairment and challenged the significant
assumptions used.
Where significant indicators of impairment were identified,
we utilised Deloitte mining valuation specialists to assess
the appropriateness of management’s recoverable value
models, which included the underlying model inputs and
significant assumptions.
Given the nature of the Group’s industrial assets,
developments concerning geology, production or
distribution of the Group’s products may also trigger a need
to consider impairment.
The outcome of impairment assessments could vary
significantly were different assumptions applied. Refer to
“Key estimates and assumptions” within note 1 and
additionally notes 4, 5 and 9.
In total, impairments amounting to $1,268 million (note 5)
and $345 million (note 9) were recognised in the year ended
31 December 2016 relating to oil and coal assets primarily
resulting from a reduction in management’s long-term oil
price assumptions, specific production and reserve
related issues.
We challenged the significant inputs and assumptions used
in impairment testing for intangible assets, property, plant
and equipment, associates and joint ventures, specifically
the commodity price, foreign exchange, assumed production
levels, operating costs and discount rate assumptions,
including consideration of the risk of management bias.
Our challenge included comparing inputs and significant
assumptions, such as commodity price, foreign exchange,
and discount rates, to third party forecasts, Deloitte
developed discount rates, production to life of mine and
hydrocarbon extraction plans and reserves and resources
estimates, assessing whether macro assumptions had been
applied on a consistent basis across the Group.
Operating costs and production levels were compared to the
current period actual results, management approved
budgets and life of mine models.
We challenged management’s sensitivity analysis by
performing independent sensitivity analyses on selected
assets, including those which were not identified as having
indicators of impairment but have a higher risk of
impairment due to lower available headroom in fair value
models, volatility in key pricing assumptions or the
existence of operational circumstances which may indicate
potential for impairment.
We also assessed the adequacy of impairment related
disclosures in the financial statements, including the key
assumptions used and the sensitivity of the financial
statements to these assumptions.
Our conclusion
We concluded that management’s assessment of impairment indicators was appropriate. Where there were impairment
indicators, our procedures found that the impairment models were in line with the underlying mine and hydrocarbon
extraction plans and supported by appropriate inputs and assumptions. We concluded that the key pricing and discount
rate assumptions were in line with third party evidence and our expert’s acceptable ranges.
We reviewed management’s disclosures on key assumptions and impairment sensitivities and found them to
be appropriate.
Glencore Annual Report 2016
119
Financial statements
Independent Auditor’s Report to the members of Glencore plc
Revenue recognition
Risk description
Revenue recognition has been identified as a risk primarily
relating to the following:
Marketing operations:
How the scope of our audit responded to the risk
We have reviewed Glencore’s revenue recognition policies
for compliance with the requirements of IAS 18 Revenue
(“IAS 18”).
• The completeness and accuracy of the capture of trades
For marketing operations we:
within the trade book and the timing of revenue
recognition for commodity sales with deliveries occurring
on or around year-end
• evaluated the design, implementation and operating
effectiveness of key controls over revenue and the
trade cycle;
• Judgement is required to determine when risks and
rewards have transferred under certain contractual
arrangements with third parties
• Due to the significant volume of transactions and the
complexity of the supporting IT systems, minor errors
could, in aggregate, have a material impact on the
financial statements
Industrial assets:
• Substantially all output from industrial assets will be sold
by the Group’s marketing divisions. For direct third party
sales, a key risk relates to the consideration of embedded
derivatives in sales contracts, particularly in commercial
transactions with provisional pricing terms.
• assessed general IT controls surrounding major
technology applications and critical interfaces over
revenue recognition and completeness and accuracy of
trade capture; and
• agreed, on a sample basis, deliveries occurring near
31 December 2016 to supporting documentation to assess
that the IFRS revenue recognition criteria were met for
recognised sales and obtained third party confirmations
where relevant to check completeness and accuracy of
trade books.
For industrial assets we:
• assessed the design and implementation of controls
around the methodology adopted by management to
identify the provisional pricing terms and the
determination of estimates of metal in concentrate sold;
and
• reviewed key new contracts for the existence of embedded
derivatives and performed valuation testing
as appropriate.
We also performed testing on journal entries using
computer assisted profiling techniques to test for any
management override of internal controls related to
revenue recognition.
Our conclusion
Based on the results of our testing, we are satisfied that the revenue recognition policies are in line with IFRS and were
appropriately applied throughout the period.
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Fair value measurements within the marketing operations
Risk description
How the scope of our audit responded to the risk
Determination of fair values of marketing inventories,
financial assets and liabilities is a complex and subjective
area often requiring significant estimates, particularly
where valuations utilise unobservable inputs (e.g. credit risk
assessments, market volatility and forecast operational
estimates). At 31 December 2016, total Level 3 Other financial
assets and liabilities amounted to $558 million and
$612 million respectively.
As the Group’s marketing inventories and other financial
assets and liabilities are measured at fair value at each
reporting date, these fair value measurements significantly
impact the Group’s results.
Refer to “Key estimates and assumptions” within note 1 and
additionally notes 25 and 26.
Our conclusion
We performed internal control testing over management’s
processes for determining inputs to fair value measurements
and performed detailed substantive testing on a sample
basis of the related fair value measurements.
We specifically tested the evidence supporting significant
unobservable inputs utilised in Level 3 measurements in the
fair value hierarchy as outlined in note 26 to the financial
statements, which included reviews of broker quotes, recent
transactions and other supporting documentation.
Based on the results of our testing, we are satisfied that the Level 3 fair value measurements were supported by reasonable
assumptions in line with externally verifiable information where possible.
We have reviewed the financial statement disclosures on fair value measurements in note 26 and found them to be adequate.
Classification of financial instruments
Risk description
How the scope of our audit responded to the risk
Glencore trades a diverse portfolio of commodities and
utilises a wide variety of trading strategies in order to profit
from volatility in market prices, differentials and spreads
whilst maximising flexibility and optionality.
The classification of contracts relating to the Group’s
marketing operations is a judgemental area, particularly
distinguishing sales contracts where the Group physically
delivers its own production to a third party (“own use”),
from those which form part of the Group’s
marketing operations.
Differences in classification affect recognition of associated
gains and losses as contracts which are “own use” are
exempt from mark-to-market accounting.
Refer to notes 25 and 26.
Our conclusion
We obtained an understanding of the trading strategies and
associated product flows within the Group’s marketing
departments using financial instrument experts embedded
within the audit team with experience in
commodity trading.
We analysed the trade books to identify incidents where
contracts were not physically delivered (“net settled”), which
may indicate tainting of the “own use” criteria.
Where a contract had been net settled, we checked that the
contract was appropriately ring-fenced from the “own use”
trade book and mark-to-market reflecting the underlying
facts and circumstances.
We assessed the adequacy of related disclosures in the
financial statements in accordance with the requirements
of IFRS.
Based on the results of our testing, we are satisfied that all significant assumptions applied in respect of the classification of
financial instruments are appropriate and disclosure given around financial instruments to be in accordance with the
requirements of IFRS.
Glencore Annual Report 2016
121
Financial statements
Independent Auditor’s Report to the members of Glencore plc
Credit and performance risk
Risk description
The Group is exposed to credit and performance risk arising
from the Group’s global marketing operations and trade
advances, particularly in markets demonstrating significant
price volatility with limited liquidity and terminal markets.
This risk is heightened in times of increased price volatility,
where suppliers may be incentivised to default on delivery
and customers are unable to make payments.
At 31 December 2016, total Advances and loans and
Accounts receivable amounted to $3,483 million and
$20,066 million respectively.
Refer to notes 10, 12 and 24.
How the scope of our audit responded to the risk
We undertook internal control testing of the Group’s
centralised and local credit and performance risk
monitoring procedures.
We challenged management’s assessment of the
recoverability of aged and overdue receivables, loans and
advance payments with delayed or overdue deliveries,
considering historical patterns of trading and settlement as
well as recent communications with the counterparties and
other post balance sheet date evidence.
In addition, we challenged the valuation of significant fixed
price positions in commodities across the Group at year-end
given the high price volatility during the year, particularly
with respect to base metals and coal where the risk of
non-performance is higher.
Our conclusion
We concluded that the Group’s provisioning in relation to counterparty and performance risk was appropriately assessed.
Taxation
Risk description
There is significant judgement around accounting for
income taxes particularly in light of the number of
jurisdictions in which the Group operates, including
judgements concerning residency of key corporate
operations and holding companies, provisioning for tax
exposures, application of transfer pricing rules, the
recognition of deferred income tax assets and the taxation
impacts of any corporate restructurings.
This gives rise to complexity and uncertainty in respect of
the calculation of income taxes and deferred tax assets and
consideration of contingent liabilities associated with tax
years open to audit.
As at 31 December 2016, the Group has recorded a tax
expense of $638 million, $3,904 million of net deferred tax
liabilities (see note 6) and has disclosed its assessment of
tax-related provisions in note 20.
Our conclusion
How the scope of our audit responded to the risk
We undertook a specific assessment of the material
components impacting the Group’s tax expense, balances
and exposures and performed detailed audit procedures in
relation to these.
We considered the appropriateness of management’s
assumptions and estimates in relation to the likelihood of
generating future taxable profits to support the recognition
of deferred tax assets with reference to forecast taxable
profits and consistency of these forecasts with the
Group’s budgets.
We reviewed and challenged management’s assessment of
uncertain tax positions and conclusions on complex tax
arrangements through discussions with the Group taxation
department, reviewing correspondence with local tax
authorities, reviewing third party expert tax opinions and
utilising Deloitte tax specialists, where appropriate, to assess
the adequacy of associated provisions and disclosures.
The results of our testing were satisfactory and we concur that the level of tax provisions and disclosures are appropriate.
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Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
$150 million (2015: $210 million)
The applied materiality is approximately 6.7% of normalised 3-year average pre-tax
profit (2015: 6.0%), and equates to less than 1% (2015: 1%) of equity.
$m
2016
2016 Ind Asset
2016 Marketing
2015
210
150
100
90
75
10
10
Group materiality
Maximum allowed
component materiality
Audit Committee
reporting threshold
Basis for determining
materiality
Consistent with the methodology in the prior year, we have determined materiality
by using a percentage of normalised 3-year average (2014 – 2016) of pre-tax profits.
Rationale for the
benchmark applied
These normalising items are outlined in notes 3, 4 and 23 to the financial statements.
The pre-tax profits for the 2014 – 2016 years have been normalised in determining
materiality to exclude items which, due to their nature and/or expected infrequency
of the underlying events, are not considered indicative of continuing operations of
the Group and so do not form part of the Group’s internally or externally monitored
primary KPIs, and which if included, would distort materiality year-on-year.
We consider this approach to be more appropriate given the nature of the mining
industry which is exposed to cyclical commodity price fluctuations and to therefore
provide a more stable base reflective of the scale of the Group’s size and operations.
We agreed with the Audit Committee that we would report all individual audit differences in excess of $10 million
(2015: $10 million) whilst retaining an internal aggregation threshold of $7.5 million, reported in aggregate to the Audit
Committee, representing 5% of the Group materiality, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified
when assessing the overall presentation of the financial statements.
Glencore Annual Report 2016
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Financial statements
Independent Auditor’s Report to the members of Glencore plc
Detailed audit instructions were sent to the auditors of these
in-scope components. These detailed audit instructions
specified areas of audit focus, identified the risks of material
misstatement assessed by the Group audit team and set out
the information to be reported back to the Group audit team.
The Group audit team continued to follow a programme of
regular physical meetings with components that has been
designed so that the Group Audit Partner or another senior
member of the Group audit team periodically meets with
local management and the component audit team on a
rotational basis. In 2016, the Group audit team held meetings
with 13 components (2015: 25 components).
Additionally for all in-scope components the Group audit
team was involved in the audit work performed by the
component auditors through a combination of our global
planning conference call meetings, provision of referral
instructions, review and challenge of related component
inter-office reporting and of findings from their work
(which included the audit procedures performed to respond
to risks of material misstatement), attendance at component
audit closing conference calls and regular interaction on any
related audit and accounting matters which arose.
At the parent entity level we also tested the consolidation
process and carried out analytical procedures to confirm
our conclusion that there were no significant risks of
material misstatement of the aggregated financial
information of the remaining components not subject
to audit or audit of specified account balances.
Matters on which we are required to report
by exception
Adequacy of explanations received and
accounting records
Under the Companies (Jersey) Law, 1991 we are required to
report to you if, in our opinion:
• we have not received all the information and explanations
we require for our audit; or
• proper accounting records have not been kept by the
parent company, or proper returns adequate for our audit
have not been received from branches not visited by us; or
• the financial statements are not in agreement with the
accounting records and returns.
We have nothing to report in respect of these matters.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an
understanding of the Group and its environment, including
group-wide controls, and assessing the risks of material
misstatement at the Group level. Based on our continuing
assessment, we focused our Group audit scope primarily on
the audit work at 45 components (2015: 51 components),
representing the Group’s most material marketing
operations and industrial assets, and utilised 21 component
audit teams (2015: 19 component audit teams) in 18 countries
(2015: 17 countries).
• 29 of these were subject to a full scope audit
(2015: 34 components); and
• 16 were subject to specified audit procedures where
the extent of our testing was based on our assessment
of the risk of material misstatement and of the materiality
of the Group’s operations at those locations
(2015: 17 components).
The reduction in the scoping compared to 2015 is primarily
as a result of the restructuring of various Glencore Agri
related components into one full scope component in the
current year.
These 45 components account for 92% of the Group’s net
assets (2015: 90%), 95% of the Group’s revenue (2015: 89%)
and 89% of the Group’s adjusted EBITDA (2015: 88%).
The above mentioned reduction in Group materiality from
2015 did not significantly impact our assessment of audit
coverage because of the significant number of marketing
operations and industrial asset components already within
Group audit scope.
Net assets
Revenue
8
32
60
5
1
94
Adjusted EBITDA
Coverage percentages
Full scope audit
Specified audit procedures
Analytical procedures
11
6
83
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This report is made solely to the Company’s members, as a
body, in accordance with Article 113A of the Companies
(Jersey) Law, 1991. Our audit work has been undertaken so
that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
report and/or those further matters we have expressly
agreed to report to them on in our engagement letter and for
no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than
the Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we
have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s
circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read
all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the
audited financial statements and to identify any information
that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us
in the course of performing the audit. If we become aware
of any apparent material misstatements or inconsistencies,
we consider the implications for our report.
Matthew Sheerin, ACA CA (AUS)
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
London, UK
1 March 2017
Corporate Governance Statement
Under the Listing Rules we are also required to review the
part of the Corporate Governance Statement relating to the
Company’s compliance with certain provisions of the UK
Corporate Governance Code.
We have nothing to report arising from our review.
Our duty to read other information in the
Annual Report
Under International Standards on Auditing (UK and
Ireland), we are required to report to you if, in our opinion,
information in the Annual Report is:
• materially inconsistent with the information in the
audited financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired
in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the Directors’ statement
that they consider the Annual Report is fair, balanced
and understandable and whether the Annual Report
appropriately discloses those matters that we communicated
to the Audit Committee which we consider should have
been disclosed.
We confirm that we have not identified any such
inconsistencies or misleading statements.
Other matter
In our opinion, the part of the Directors’ remuneration
report to be audited has been properly prepared in
accordance with the provisions of the UK Companies Act
2006 as if that Act had applied to the Company.
Respective responsibilities of Directors
and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance
with applicable law and International Standards on
Auditing (UK and Ireland). We also comply with
International Standard on Quality Control 1 (UK and
Ireland). Our audit methodology and tools aim to ensure
that our quality control procedures are effective, understood
and applied. Our quality controls and systems include our
dedicated professional standards review team and
independent partner reviews.
Glencore Annual Report 2016
125
Financial statements
Consolidated statement of income/(loss)
For the year ended 31 December 2016
US$ million
Revenue
Cost of goods sold
Selling and administrative expenses
Share of income from associates and joint ventures
Gains/(losses) on disposals and investments
Other expense – net
Dividend income
Interest income
Interest expense
Loss before income taxes
Income tax (expense)/credit
Loss for the year from continuing operations
Income from discontinued operations, net of tax
Income/(loss) for the year
Attributable to:
Non-controlling interests
Equity holders of the Parent
Loss per share – continuing operations:
Basic (US$)
Diluted (US$)
Earnings/(loss) per share – continuing and discontinued operations:
Basic (US$)
Diluted (US$)
Notes
2016
152,948
2015
Restated1
147,351
(149,763)
(144,533)
9
3
4
6
23
15
15
15
15
(1,102)
11
452
(1,589)
27
155
(1,688)
(549)
(638)
(1,187)
2,123
936
(443)
1,379
(0.05)
(0.05)
0.10
0.10
(1,096)
99
(994)
(7,928)
25
179
(1,482)
(8,379)
9
(8,370)
256
(8,114)
(3,150)
(4,964)
(0.39)
(0.39)
(0.37)
(0.37)
1 Certain amounts shown here reflect the adjustment made relating to discontinued operations (see note 23), and therefore do not correspond to the consolidated statement of income/
(loss) for the year ended 31 December 2015.
The accompanying notes are an integral part of the consolidated financial statements.
126 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Consolidated statement of comprehensive
income/(loss)
For the year ended 31 December 2016
US$ million
Income/(loss) for the year
Other comprehensive income/(loss)
Notes
2016
936
2015
Restated1
(8,114)
Items not to be reclassified to the statement of income in subsequent periods:
Defined benefit plan actuarial (losses)/gains, net of tax of $14 million (2015: $29 million)
Discontinued operations – Actuarial (losses)/gains net of tax of $1 million (2015: $5 million)
Net items not to be reclassified to the statement of income in subsequent periods:
Items that are or may be reclassified to the statement of income in subsequent periods:
Exchange gain/(loss) on translation of foreign operations
Gains/(losses) on cash flow hedges, net of tax of $5 million (2015: $42 million)
Share of comprehensive loss from associates and joint ventures
Unrealised gain/(loss) on available for sale financial instruments
Discontinued operations2
21
21
9
9
Items recycled to the statement of income upon disposal of subsidiaries
3/23
Net items that are or may be reclassified to the statement of income in subsequent periods:
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Attributable to:
Non-controlling interests
Equity holders of the Parent
(41)
(4)
(45)
472
99
–
365
43
602
1,581
1,536
2,472
76
16
92
(1,531)
(85)
(22)
(488)
(272)
311
(2,087)
(1,995)
(10,109)
(411)
2,883
(3,217)
(6,892)
1 Certain amounts shown here reflect the adjustment made relating to discontinued operations (see note 23), and therefore do not correspond to the consolidated statement of
comprehensive income/(loss) for the year ended 31 December 2015.
2 Includes exchange gain on translation of foreign operations of $22 million (2015: loss of $264 million), gain on cash flow hedges net of tax of $21 million (2015: loss of $4 million) and
share of comprehensive loss from associates and joint ventures of $Nil million (2015: $4 million).
The accompanying notes are an integral part of the consolidated financial statements.
Glencore Annual Report 2016
127
Financial statements
Consolidated statement of financial position
As at 31 December 2016
US$ million
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates and joint ventures
Other investments
Advances and loans
Inventories
Deferred tax assets
Current assets
Inventories
Accounts receivable
Other financial assets
Prepaid expenses and other assets
Marketable securities
Cash and cash equivalents
Total assets
Equity and liabilities
Capital and reserves – attributable to equity holders
Share capital
Reserves and retained earnings
Non-controlling interests
Total equity
Non-current liabilities
Borrowings
Deferred income
Deferred tax liabilities
Other financial liabilities
Provisions
Current liabilities
Borrowings
Accounts payable
Deferred income
Provisions
Other financial liabilities
Income tax payable
Total equity and liabilities
The accompanying notes are an integral part of the consolidated financial statements.
128 Glencore Annual Report 2016
Notes
2016
2015
7
8
9
9
10
11
6
11
12
26
13
14
31
18
19
6
26
20
18
22
19
20
26
53,826
6,716
13,086
1,753
3,483
564
1,760
81,188
18,347
20,066
2,212
269
10
2,508
43,412
124,600
146
44,097
44,243
(462)
43,781
23,188
2,266
5,664
403
5,931
37,452
10,030
26,176
138
458
6,386
179
60,774
7,516
11,337
1,305
3,005
504
1,846
86,287
18,303
17,001
3,701
447
39
2,707
42,198
128,485
146
41,108
41,254
89
41,343
32,932
1,452
5,777
186
5,923
46,270
11,117
24,088
87
474
4,931
175
43,367
124,600
40,872
128,485
Strategic report | Governance | Financial statements | Additional information
Consolidated statement of cash flows
For the year ended 31 December 2016
US$ million
Operating activities
Loss before income taxes from continuing operations
Income before income taxes from discontinued operations
Adjustments for:
Depreciation and amortisation
Share of income from associates and joint ventures
Decrease in employee benefit liabilities
(Gains)/losses on disposals and investments
Unrealised mark-to-market movements on other investments
Impairments
Other non-cash items – net2
Interest expense – net
Cash generated by operating activities before working capital changes
Working capital changes
(Increase)/decrease in accounts receivable3
(Increase)/decrease in inventories
Increase/(decrease) in accounts payable4
Proceeds from gold and silver streaming
Total working capital changes
Income taxes paid
Interest received
Interest paid
Net cash generated by operating activities
Investing activities
Net cash received/(used) in acquisition of subsidiaries
Net cash received from disposal of subsidiaries
Purchase of investments
Proceeds from sale of investments
Purchase of property, plant and equipment
Payments for exploration and evaluation
Proceeds from sale of property, plant and equipment
Dividends received from associates and joint ventures
Net cash generated/(used) by investing activities
1 Includes results from discontinued operations.
2 Includes certain non-cash items as disclosed in note 4.
3 Includes movements in other financial assets, prepaid expenses, long-term advances and loans and other assets.
4 Includes movements in other financial liabilities, provisions and deferred income.
The accompanying notes are an integral part of the consolidated financial statements.
Notes
20161
20151
23
9
3/23
4
5
19
23
23
9
(549)
2,254
5,632
(26)
(17)
(2,384)
121
1,268
(34)
1,603
7,868
(5,005)
(2,707)
5,540
971
(1,201)
(584)
111
(1,376)
4,818
176
5,535
(15)
3
7/8
(3,048)
7
9
–
128
833
(8,379)
363
5,835
(101)
(202)
994
262
7,120
168
1,394
7,454
4,975
5,410
(3,572)
900
7,713
(865)
119
(1,203)
13,218
(318)
212
(236)
41
(5,372)
(147)
115
428
3,612
(5,277)
Glencore Annual Report 2016
129
Financial statements
Consolidated statement of cash flows
For the year ended 31 December 2016
US$ million
Financing activities2
Proceeds from issuance of capital market notes3
Repayment of capital market notes
Repurchase of capital market notes
Repayment of other non-current borrowings
Margin payments in respect of financing related hedging activities
Proceeds from/(repayment of) current borrowings
Acquisition of additional interests in subsidiaries
Return of capital/distributions to non-controlling interests
Disposal/(repurchase) of own shares
Share issuance3
Distributions paid to equity holders of the Parent
Net cash used by financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
1 Includes results from discontinued operations.
2 Presented net of directly attributable issuance costs where applicable.
Notes
20161
20151
18
18
16
1,366
(4,748)
(2,629)
(2,848)
(695)
1,020
(7)
(91)
3
–
–
(8,629)
(199)
2,707
2,508
4,901
(4,459)
(529)
(5,176)
(618)
(1,926)
–
(95)
(272)
2,444
(2,328)
(8,058)
(117)
2,824
2,707
3 Net of issuance costs relating to capital market notes and shares of $9 million (2015: $16 million) and $Nil million (2015: $64 million) respectively.
The accompanying notes are an integral part of the consolidated financial statements.
130 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Consolidated statement of changes of equity
For the year ended 31 December 2016
(Deficit)/
retained
earnings
Share
premium
Other
reserves
(Note 14)
Total
reserves and
(deficit)/
retained
earnings
Own
shares
Total equity
attributable
to equity
holders
Non-
controlling
interests
(Note 31)
Share
capital
(222)
52,533
(2,409)
(1,493)
48,409
133
48,542
(4,964)
66
(4,898)
–
–
(45)
66
–
–
–
–
(5,099)
(5,099)
1,379
(45)
1,334
(9)
75
–
(40)
–
–
–
–
2,431
–
–
–
–
–
–
(2,626)
52,338
52,338
–
–
–
–
–
–
–
–
–
(1,994)
(1,994)
–
–
–
–
(16)
–
–
–
(4,419)
(4,419)
–
1,549
1,549
–
–
68
–
–
–
–
–
–
(281)
62
–
–
–
–
–
(1,712)
(1,712)
–
–
–
12
–
–
–
–
(4,964)
(1,928)
(6,892)
2,431
(281)
17
66
(16)
–
–
(2,626)
41,108
41,108
1,379
1,504
2,883
3
75
68
(40)
–
–
–
–
13
–
–
–
–
–
–
–
146
146
–
–
–
–
–
–
–
–
Total
equity
51,480
(8,114)
(1,995)
(4,964)
(1,928)
2,938
(3,150)
(67)
(6,892)
(3,217)
(10,109)
2,444
(281)
17
66
(16)
–
–
(2,626)
41,254
41,254
1,379
–
–
–
–
35
(257)
685
(95)
89
89
(443)
2,444
(281)
17
66
19
(257)
685
(2,721)
41,343
41,343
936
1,504
32
1,536
2,883
(411)
2,472
3
75
68
(40)
–
–
–
17
(66)
(91)
3
75
85
(106)
(91)
(3,739)
52,338
(2,802)
(1,700)
44,097
146
44,243
(462)
43,781
US$ million
1 January 2015
Loss for the year
Other comprehensive loss
Total comprehensive loss
Shares issued1
Own share purchases1
Own share disposal1
Equity-settled share-based
expenses2
Change in ownership interest
in subsidiaries
Disposal of business3
Cancellation of put option4
Distributions paid5
At 31 December 2015
1 January 2016
Income for the year
Other comprehensive
(loss)/income
Total comprehensive
income/(loss)
Own share disposal1
Equity-settled share-based
expenses2
Change in ownership interest
in subsidiaries
Disposal of business3
Distributions paid5
At 31 December 2016
1 See note 14.
2 See note 17.
3 See note 23.
4 See note 26.
5 See note 16.
The accompanying notes are an integral part of the consolidated financial statements.
Glencore Annual Report 2016
131
Financial statements
Notes to the financial statements
1. ACCOUNTING POLICIES
Corporate information
Glencore plc (the “Company”, “Parent”, the “Group” or
“Glencore”), is a leading integrated producer and marketer of
natural resources, with worldwide activities in the production,
refinement, processing, storage, transport and marketing of
metals and minerals, energy products and agricultural products.
Glencore operates on a global scale, marketing and distributing
physical commodities sourced from third party producers and
own production to industrial consumers, such as those in the
automotive, steel, power generation, oil and food processing
industries. Glencore also provides financing, logistics and other
services to producers and consumers of commodities. In this
regard, Glencore seeks to capture value throughout the commodity
supply chain. Glencore’s long experience as a commodity producer
and merchant has allowed it to develop and build upon its
expertise in the commodities which it markets and cultivate long-
term relationships with a broad supplier and customer base across
diverse industries and in multiple geographic regions.
Glencore plc is a publicly traded limited company incorporated in
Jersey and domiciled in Switzerland. Its ordinary shares are traded
on the London, Hong Kong and Johannesburg stock exchanges.
These consolidated financial statements were authorised for issue
in accordance with a Directors’ resolution on 1 March 2017.
Statement of compliance
The accounting policies adopted in this preliminary announcement
are based on the Company’s financial statements which are
prepared in accordance with:
• International Financial Reporting Standards (“IFRS”) and
interpretations as adopted by the European Union (“EU”)
effective as of 31 December 2016; and
• IFRS and interpretations as issued by the International
Accounting Standards Board (“IASB”) effective as of
31 December 2016.
Critical accounting judgements and key sources of estimation
The preparation of the consolidated financial statements requires
management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities as well as
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Estimates and assumptions
are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are
believed to be reasonable and relevant under the circumstances,
independent estimates, quoted market prices and common,
industry standard modelling techniques. Actual outcomes could
result in a material adjustment to the carrying amount of assets or
liabilities affected in future periods.
Glencore has identified the following areas as being critical
to understanding Glencore’s financial position as they
require management to make complex and/or subjective
judgements, estimates and assumptions about matters that are
inherently uncertain:
Key judgements
In the process of applying Glencore’s accounting policies,
management has made the following judgements based on the
relevant facts and circumstances including macro-economic
circumstances and, where applicable, interpretation of underlying
agreements, which have the most significant effect on the amounts
recognised in the consolidated financial statements.
Determination of control of subsidiaries and joint arrangements (note 33)
Judgement is required to determine when Glencore has control of
subsidiaries or joint control of joint arrangements. This requires an
assessment of the relevant activities (those relating to the operating
and capital decisions of the arrangement, such as: the approval of
the capital expenditure programme for each year, and appointing,
remunerating and terminating the key management personnel
or service providers of the operations) and when the decisions
in relation to those activities are under the control of Glencore or
require unanimous consent.
Judgement is also required in determining the classification of
a joint arrangement between a joint venture or a joint operation
through an evaluation of the rights and obligations arising from
the arrangement and in particular, if the joint arrangement has
been structured through a separate vehicle, further consideration is
required of whether:
(1) the legal form of the separate vehicle gives the parties rights to
the assets and obligations for the liabilities;
(2) the contractual terms and conditions give the parties rights to
the assets and obligations for the liabilities; and
(3) other facts and circumstances give the parties rights to the
assets and obligations for the liabilities.
Joint arrangements in which the primary activity is the provision
of output to the shareholders, typically convey substantially all
the economic benefits of the assets to the parties and judgement is
required in assessing whether the terms of the offtake agreements
and any other obligations for liabilities of the arrangement result
in the parties being substantially the only source of cash flows
contributing to the continuity of the operations of the arrangement.
Certain joint arrangements that are structured through separate
vehicles including Collahuasi and Glencore Agri are accounted
for as joint ventures. The Collahuasi arrangement is primarily
designed for the provision of output to the shareholders sharing
joint control, the offtake terms of which are at prevailing market
prices and the parties are not obligated to cover any potential
funding shortfalls. In management’s judgement, Glencore is not
the only possible source of funding and does not have a direct or
indirect obligation to the liabilities of the arrangement, but rather
shares in its net assets and, therefore, such arrangements have been
accounted for as joint ventures.
Differing conclusions around these judgements, may materially
impact how these businesses are presented in the consolidated
financial statements – under the full consolidation method,
equity method or recognition of Glencore’s share of assets,
liabilities, revenue and expenses, including any assets or liabilities
held jointly.
132 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Credit and performance risk (note 24)
Valuation of derivative instruments (note 26)
The Group’s global marketing operations expose it to credit
and performance (the risk that counterparties fail to sell or
purchase physical commodities on agreed terms) risks; these arise
particularly in markets demonstrating significant price volatility
with limited liquidity and terminal markets and when global and/
or regional macro-economic conditions are weak.
Continuously, but particularly during such times, judgement is
required to determine whether receivables, loans and advances are
recoverable and if contracted product deliveries will be received.
Judgements about recoverability and contractual performance
may materially impact both non-current and current assets as
recognised in the statement of financial position.
Recognition of deferred tax assets (note 6)
Deferred tax assets are recognised only to the extent it is
considered probable that those assets will be recoverable.
This involves an assessment of when those deferred tax assets
are likely to reverse, and a judgement as to whether there will be
sufficient taxable income available to offset the tax assets when they
do reverse. These judgements are subject to risk and uncertainty
and therefore, to the extent assumptions regarding future
profitability change, there can be a material increase or decrease in
the amounts recognised in the consolidated statement of income
in the period in which the change occurs. The recoverability of
deferred tax assets including the estimates and assumptions
contained therein are reviewed regularly by management.
Classification of transactions which contain a financing element (notes 18,
19 and 22)
Transactions for the sale or purchase of commodities may contain
a financing element such as extended payment term agreements.
Judgement is required to determine the most appropriate
classification and presentation of these transactions within the
statements of cash flows and financial position. In determining the
appropriate classification, management considers the underlying
economic substance of the transaction and the significance of
the financing element to the transaction. Typically the economic
substance of the transaction is determined to be operating in
nature, i.e. predominantly related to the sale or purchase of
commodities as the financing element is insignificant and the entire
cash flow will therefore be presented as operating in the statement
of cash flow with a corresponding trade receivable or payable in the
statement of financial position.
Key estimates and assumptions
In the process of applying Glencore’s accounting policies,
management has made key estimates and assumptions concerning
the future and other key sources of estimation uncertainty.
The key assumptions and estimates at the reporting date that have
a significant impact on the financial position and the results of
operations, are described below. Actual results may differ from
these estimates under different assumptions and conditions and
may materially affect financial results or the financial position
reported in future periods.
Derivative instruments are carried at fair value and Glencore
evaluates the quality and reliability of the assumptions and data
used to measure fair value in the three hierarchy levels, Level
1, 2 and 3, as prescribed by IFRS 13 Fair Value Measurement.
Fair values are determined in the following ways: externally
verified via comparison to quoted market prices in active markets
(Level 1); by using models with externally verifiable inputs (Level
2); or by using alternative procedures such as comparison to
comparable instruments and/or using models with unobservable
market inputs requiring Glencore to make market-based
assumptions (Level 3). Level 3 inputs therefore include the highest
level of estimation uncertainty.
Depreciation and amortisation of mineral and petroleum rights, deferred
mining costs and plant and equipment (note 7)
Mineral and petroleum rights, deferred mining costs and certain
plant and equipment are depreciated/amortised using the Units
of Production basis (“UOP”). The calculation of the UOP rate
of depreciation/amortisation, and therefore the annual charge
to operations, can fluctuate from initial estimates. This could
generally result when there are significant changes in any of the
factors or assumptions used in estimating mineral or petroleum
reserves and resources, notably changes in the geology of the
reserves and resources and assumptions used in determining
the economic feasibility of the reserves. Such changes in reserves
and resources could similarly impact the useful lives of assets
depreciated on a straight-line basis, where those lives are limited
to the life of the project, which in turn is limited to the life of
the underlying reserves and resources. Estimates of proven
and probable reserves and resources are prepared by experts in
extraction, geology and reserve determination. Assessments of
UOP rates against the estimated reserve and resource base and the
operating and development plan are performed regularly.
Impairments (notes 3, 5, 7, 8 and 9)
Investments in associates and joint ventures, other investments,
advances and loans, property, plant and equipment and intangible
assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value may not be fully
recoverable or at least annually for goodwill and other indefinite
life intangible assets. If an asset’s recoverable amount is less than
the asset’s carrying amount, an impairment loss is recognised in
the consolidated statement of income. Future cash flow estimates
which are used to calculate the asset’s fair value are discounted
using asset specific discount rates and are based on expectations
about future operations, primarily comprising estimates about
production and sales volumes, commodity prices (considering
current and historical prices, price trends and related factors),
reserves and resources, operating, rehabilitation and restoration
costs and capital expenditures. Estimates are reviewed regularly
by management. Changes in such estimates and in particular,
deterioration in the pricing outlook, could impact the recoverable
values of these assets, whereby some or all of the carrying amount
may be impaired or the impairment charge reduced (if pricing
outlook improves significantly) with the impact recorded in the
statement of income.
Glencore Annual Report 2016
133
Financial statements
Notes to the financial statements
1. ACCOUNTING POLICIES (continued)
New and revised standards not yet effective
Restoration, rehabilitation and decommissioning costs (note 20)
A provision for future restoration, rehabilitation and
decommissioning costs requires estimates and assumptions
to be made around the relevant regulatory framework, the
magnitude of the possible disturbance, the timing, extent
and costs of the required closure and rehabilitation activities.
Most of these rehabilitation and decommissioning events are
expected to take place many years in the future and the currently
estimated requirements and costs that will have to be met when
the restoration event occurs are inherently uncertain and could
materially change over time.
At the date of authorisation of these consolidated financial
statements, the following new and revised IFRS standards, which
are applicable to Glencore, were issued but are not yet effective:
Amendments to IAS 12 – Recognition of deferred tax assets for unrealised
losses – effective for year ends beginning on or after 1 January 2017
The amendments to IAS 12 clarify the requirement on recognition
of deferred tax assets related to debt instruments measured at fair
value. The Group is assessing the potential impact of the change on
its consolidated financial statements and so far, it does not expect
any significant impact.
In calculating the appropriate provision for the expected
restoration, rehabilitation or decommissioning obligations,
static cost estimates of the future potential cash outflows based
on, current studies of the expected rehabilitation activities and
timing, assuming third party contractor rates and existing lives of
operations are prepared. These static/deterministic forecasts are
then discounted to their present value using a rate specific to the
liability which is comprised of an estimate of the country specific
risk free rate and adjustments based on management’s judgements
and experience for potential prolongation of the underlying timing
assumptions and an anticipated benefit of eventually realising
costs lower than those estimated.
Any changes in the expected future costs are initially reflected
in both the provision and the asset and subsequently in the
consolidated statement of income over the remaining economic life
of the asset. As the actual future costs can differ from the estimates
due to changes in laws, regulations, technology, costs and timing,
the provisions including the estimates and assumptions contained
therein are reviewed regularly by management.
Fair value measurements (notes 9, 11, 24, 25 and 26)
In addition to recognising derivative instruments at fair value,
as discussed above, an assessment of the fair value of assets and
liabilities is also required in accounting for other transactions, most
notably, business combinations and marketing inventories and
disclosures related to fair values of financial assets and liabilities.
In such instances, fair value measurements are estimated based on
the amounts for which the assets and liabilities could be exchanged
at the relevant transaction date or reporting period end, and are
therefore not necessarily reflective of the likely cash flow upon
actual settlements. Where fair value measurements cannot be
derived from publicly available information, they are estimated
using models and other valuation methods. To the extent possible,
the assumptions and inputs used take into account externally
verifiable inputs. However, such information is by nature subject
to uncertainty, particularly where comparable market-based
transactions often do not exist.
Amendments to IFRS 2 – Classification and measurement of share-based
payment transactions – effective for year ends beginning on or after
1 January 2018
The amendments to IFRS 2 Share-based payments clarify
the classification and measurement of share-based payments
transactions with respect to accounting for cash-settled share-
based payment transactions that include a performance obligation,
the classification of share-based payment transactions with net
settlement features and the accounting for modifications of share-
based payment transactions from cash-settled to equity-settled.
The Group is assessing the potential impact of the change on its
consolidated financial statements and so far, it does not expect any
significant impact.
IFRS 9 – Financial Instruments – effective for year ends beginning on or
after 1 January 2018
IFRS 9 modifies the classification and measurement of certain
classes of financial assets and liabilities. The most significant
change is to rationalise from four to two primary categories of
financial assets, reflecting the business model in which assets
are managed and their cash flow characteristics. The Group’s
implementation activities to date have principally focussed on
gaining an understanding of the likely effects of IFRS 9 given
the nature of financial instruments currently held by the Group.
The Group is assessing the potential impact of the change on its
consolidated financial statements and so far, it does not expect any
significant impact.
IFRS 15 – Revenue from Contracts with Customers – effective for year
ends beginning on or after 1 January 2018
IFRS 15 applies to revenue from contracts with customers and
replaces all of the revenue standards and interpretations in
IFRS. The standard outlines the principles an entity must apply
to measure and recognise revenue and the related cash flows.
The Group is currently in the process of completing its review
of the potential impact of adopting IFRS 15 with the primary
focus being to understand whether the timing and amount of
revenue recognised could differ under IFRS 15. As the majority
of the Group’s revenue is derived from arrangements in which
the transfer of risks and rewards coincides with the fulfilment
of performance obligations, no material changes in respect of
timing and amount of revenue currently recognised by the Group
are expected.
134 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
IFRS 16 – Leases – effective for year ends beginning on or after
1 January 2019
IFRS 16 provides a comprehensive model for identification of
lease arrangements and their treatment (on-balance sheet) in the
financial statements of both lessees and lessors. It supersedes IAS
17 Leases and its associated interpretative guidance. Under the
new standard, a lessee is required to recognise all lease assets
and liabilities (including those currently classified as operating
leases) on the statement of financial position at the present value
of the unavoidable lease payments and an amortisation charge on
the leased assets and an interest charge on the leased liabilities.
Although the Group is still evaluating the potential impact of
IFRS 16 on the financial statements and performance measures,
including an assessment of whether any arrangements the Group
enters into will be considered a lease under IFRS 16, it is expected
IFRS 16 will increase the Group’s recognised assets and liabilities
and affect the presentation and timing of related depreciation
and interest charges in the consolidated statement of income/loss.
Upon adoption of IFRS 16, the most significant impact is likely to
be the present value of the operating lease commitments currently
disclosed in note 28 being shown as a liability on the statement
of financial position together with an asset representing the right
of use.
Basis of preparation
The financial statements are prepared under the historical cost
convention except for the revaluation of certain financial assets,
liabilities and marketing inventories that are measured at revalued
amounts or fair values at the end of each reporting period as
explained in the accounting policies below. Historical cost is
generally based on the fair value of the consideration given in
exchange for goods and services. The principal accounting policies
adopted are set out below.
The Directors have assessed that they have, at the time of
approving the financial statements, a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the 12 months from the date of approval of the 2016
Annual Report and Accounts. Therefore they continue to adopt
the going concern basis of accounting in preparing these financial
statements. Also see page 112. Further information on Glencore’s
objectives, policies and processes for managing its capital and
financial risks are detailed in note 24.
All amounts are expressed in millions of United States Dollars,
unless otherwise stated, consistent with the predominant
functional currency of Glencore’s operations.
Comparative information
Certain comparative information for the year ended 31 December
2015 has been restated for the effects of the application of IFRS
5 Non-current assets held for sale and discontinued operations,
see note 23. The nature of each change reflected in the restated
financial statements is as follows:
• All income and expense items relating to the Agricultural
products business segment (“Glencore Agri”) have been removed
from the individual line items in the statement of income and
the statement of other comprehensive income. The net income
of Glencore Agri, until close of transaction on 1 December 2016,
is presented as a single amount in the line item – “Income from
discontinued operations – net of tax”.
The statement of financial position, statement of changes in equity
and cash flow have not been restated as there is no requirement to
do so.
Inventory with a net carrying value of $504 million disclosed under
deferred mining cost within property, plant and equipment in 2015
were reclassified to non-current inventories to better reflect the
nature of these items.
Principles of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
and its subsidiaries.
Control is achieved when Glencore is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
Specifically, Glencore controls an investee if, and only if, Glencore
has all of the following:
• power over the investee (i.e. existing rights that give it the
current ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with
the investee; and
• the ability to use its power over the investee to affect its returns.
When Glencore has less than a majority of the voting rights of an
investee or similar rights of an investee, it considers all relevant
facts and circumstances in assessing whether it has power over the
investee including:
• the size of Glencore’s holding of voting rights relative to the size
and dispersion of holdings of the other vote holders;
• potential voting rights held by Glencore, other vote holders or
other parties;
• rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that
Glencore has, or does not have, the current ability to direct the
relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders’ meetings.
Glencore Annual Report 2016
135
Financial statements
Notes to the financial statements
1. ACCOUNTING POLICIES (continued)
The Company reassesses whether or not it controls an investee
if facts and circumstances indicate that there are changes
to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when Glencore obtains
control over the subsidiary and ceases when Glencore loses control
of the subsidiary. Specifically, income and expenses of a subsidiary
acquired or disposed of during the year are included in the
consolidated statement of income and other comprehensive income
from the date Glencore gains control until the date when Glencore
ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income
are attributed to the owners of the Company and to the non-
controlling interests. Total comprehensive income of subsidiaries is
attributed to the owners of the Company and to the non-controlling
interests even if this results in the non-controlling interests having
a deficit balance.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
the Group’s accounting policies. All intragroup assets and
liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full
on consolidation.
Changes in Glencore’s interests in subsidiaries that do not result
in a loss of control are accounted for as equity transactions with
any difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration paid
or received being recognised directly in equity and attributed to
equity holders of Glencore.
When Glencore loses control of a subsidiary, a gain or loss
is recognised in the consolidated statement of income and is
calculated as the difference between (i) the aggregate of the fair
value of the consideration received and the fair value of any
retained interest and (ii) the previous carrying amount of the assets
(including goodwill), and liabilities of the subsidiary and any non-
controlling interests. All amounts previously recognised in other
comprehensive income in relation to that subsidiary are accounted
for as if Glencore had directly disposed of the related assets or
liabilities of the subsidiary (i.e. reclassified to profit or loss or
transferred to another category of equity as specified/permitted by
applicable IFRSs). The fair value of any investment retained in the
former subsidiary at the date when control is lost is regarded as the
fair value on initial recognition for subsequent accounting under
IAS 39, when applicable, or the cost on the initial recognition of an
investment in an associate or a joint venture.
Investments in associates and joint ventures
Associates and joint ventures (together “Associates”) in which
Glencore exercises significant influence or joint control are
accounted for using the equity method. Significant influence is the
power to participate in the financial and operating policy decisions
of the investee but is not control or joint control over those policies.
Significant influence is presumed if Glencore holds between 20%
and 50% of the voting rights, unless evidence exists to the contrary.
A joint venture is a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the
joint arrangement. Joint control is the contractually agreed sharing
of control over an arrangement, which exists only when decisions
about relevant strategic and/or key operating decisions require
unanimous consent of the parties sharing control.
136 Glencore Annual Report 2016
Equity accounting involves Glencore recording its share of the
Associate’s net income and equity. Glencore’s interest in an
Associate is initially recorded at cost and is subsequently adjusted
for Glencore’s share of changes in net assets of the Associate,
less any impairment in the value of individual investments.
Where Glencore transacts with an Associate, unrealised profits
and losses are eliminated to the extent of Glencore’s interest in
that Associate.
Changes in Glencore’s interests in Associates are accounted for as
a gain or loss on disposal with any difference between the amount
by which the carrying value of the Associate is adjusted and the
fair value of the consideration received being recognised directly in
the consolidated statement of income.
Joint operations
A joint operation is a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the assets, and
obligations for the liabilities, relating to the arrangement.
When Glencore undertakes its activities under joint operations,
Glencore recognises in relation to its interest in a joint operation:
• its assets, including its share of any assets held jointly;
• its liabilities, including its share of any liabilities incurred jointly;
• its revenue from the sale of its share of the output arising from
the joint operation;
• its share of the revenue from the sale of the output by the joint
operation; and
• its expenses, including its share of any expenses incurred jointly.
The Group accounts for the assets, liabilities, revenues and
expenses relating to its interest in a joint operation in accordance
with the IFRSs applicable to the particular assets, liabilities,
revenues and expenses.
Where Glencore transacts with a joint operation, unrealised profits
and losses are eliminated to the extent of Glencore’s interest in that
joint operation.
Business combinations and goodwill
Acquisitions of subsidiaries and businesses are accounted for
using the acquisition method of accounting. The cost of the
acquisition is measured at fair value, which is calculated as the
sum of the acquisition date fair values of the assets transferred,
liabilities incurred to the former owners of the acquiree and the
equity interests issued in exchange for control of the acquiree.
The identifiable assets, liabilities and contingent liabilities
(“identifiable net assets”) are recognised at their fair value at the
date of acquisition. Acquisition related costs are recognised in the
consolidated statement of income as incurred.
Where a business combination is achieved in stages, Glencore’s
previously held interests in the acquired entity are remeasured
to fair value at the acquisition date (i.e. the date Glencore attains
control) and the resulting gain or loss, if any, is recognised in the
consolidated statement of income.
Strategic report | Governance | Financial statements | Additional information
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in
the acquiree, and the fair value of the acquirer’s previously
held equity interest in the acquire (if any) over the net of the
acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to the cash-generating units
(“CGU”) that are expected to benefit from the synergies of the
combination. CGUs to which goodwill has been allocated are
tested for impairment annually, or more frequently when there
is an indication that the unit may be impaired. If the recoverable
amount of the CGU is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount
of any goodwill allocated to the unit and then to the other assets
of the unit pro-rata based on the carrying amount of each asset in
the unit. Any impairment loss is recognised directly in profit or
loss. An impairment loss recognised for goodwill is not able to be
reversed in subsequent periods.
On disposal of the relevant CGU, the attributable amount of
goodwill is included in the determination of the profit or loss
on disposal.
If the initial accounting for a business combination is incomplete by
the end of the reporting period in which the combination occurs,
Glencore reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted
for additional information obtained during the “measurement
period” (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date
that, if known, would have affected the amounts recognised at
that date.
Non-controlling interests that are present ownership interests
and entitle their holders to a proportionate share of the entity’s
net assets in the event of liquidation may be initially measured
either at fair value or at the non-controlling interests’ proportionate
share of the recognised amounts of the acquiree’s identifiable net
assets. The choice of measurement basis is made on a transaction-
by-transaction basis. Other types of non-controlling interests are
measured at fair value or, when applicable, on the basis specified in
another IFRS.
Similar procedures are applied in accounting for the purchases of
interests in Associates and joint operations. Any goodwill arising
from such purchases is included within the carrying amount of the
investment in Associates, but not amortised thereafter. Any excess
of Glencore’s share of the net fair value of the Associate’s
identifiable net assets over the cost of the investment is included in
the consolidated statement of income in the period of the purchase.
Revenue recognition
Revenue is recognised when Glencore has transferred to the buyer
all significant risks and rewards of ownership of the assets sold.
Revenue excludes any applicable sales taxes and is recognised
at the fair value of the consideration received or receivable to
the extent that it is probable that economic benefits will flow to
Glencore and the revenues and costs can be reliably measured.
In most instances sales revenue is recognised when the product
is delivered to the destination specified by the customer, which is
typically the vessel on which it is shipped, the destination port or
the customer’s premises.
For certain commodities, the sales price is determined on a
provisional basis at the date of sale as the final selling price
is subject to movements in market prices up to the date of
final pricing, normally ranging from 30 to 90 days after initial
booking. Revenue on provisionally priced sales is recognised
based on the estimated fair value of the total consideration
receivable. The revenue adjustment mechanism embedded within
provisionally priced sales arrangements has the character of a
commodity derivative. Accordingly, the fair value of the final sales
price adjustment is re-estimated continuously and changes in fair
value are recognised as an adjustment to revenue. In all cases, fair
value is estimated by reference to forward market prices.
Royalty, interest and dividend income is recognised when the
right to receive payment has been established, it is probable that
the economic benefits will flow to Glencore and the amount of
income can be measured reliably. Royalty revenue is recognised
on an accrual basis in accordance with the substance of the
relevant agreement. Interest income is accrued on a time basis, by
reference to the principal outstanding and the applicable effective
interest rate.
Foreign currency translation
Glencore’s reporting currency and the functional currency of the
majority of its operations is the US dollar as this is assessed to
be the principal currency of the economic environment in which
it operates.
Foreign currency transactions
Transactions in foreign currencies are converted into the functional
currency of each entity using the exchange rate prevailing at the
transaction date. Monetary assets and liabilities outstanding at
year end are converted at year-end rates. The resulting exchange
differences are recorded in the consolidated statement of income.
Translation of financial statements
For the purposes of consolidation, assets and liabilities of group
companies whose functional currency is in a currency other
than the US dollar are translated into US dollars using year-end
exchange rates, while their statements of income are translated
using average rates of exchange for the year.
Goodwill and fair value adjustments arising from the acquisition
of a foreign operation are treated as assets and liabilities of
the foreign operation and are translated at the closing rate.
Translation adjustments are included as a separate component of
shareholders’ equity and have no consolidated statement of income
impact to the extent that no disposal of the foreign operation
has occurred.
Glencore Annual Report 2016
137
Financial statements
Notes to the financial statements
1. ACCOUNTING POLICIES (continued)
Cash-settled share-based payments
Borrowing costs
Borrowing costs are expensed as incurred except where they relate
to the financing of construction or development of qualifying
assets in which case they are capitalised up to the date when the
qualifying asset is ready for its intended use.
Retirement benefits
Glencore operates various pension schemes in accordance with
local requirements and practices of the respective countries.
The annual costs for defined contribution plans that are funded
by payments to separate trustee administered funds or insurance
companies equal the contributions that are required under the
plans and accounted for as an expense.
Glencore uses the Projected Unit Credit Actuarial method to
determine the present value of its defined benefit obligations and
the related current service cost and, where applicable, past service
cost. Net interest is calculated by applying the discount rate at the
beginning of the period to the net defined benefit liability or asset.
The cost of providing pensions is charged to the consolidated
statement of income so as to recognise current and past service
costs, interest cost on defined benefit obligations, and the effect
of any curtailments or settlements, net of expected returns on
plan assets. Actuarial gains and losses are recognised directly
in other comprehensive income and will not be reclassified to
the consolidated statement of income. The retirement benefit
obligation/asset recognised in the consolidated statement of
financial position represents the actual deficit or surplus in
Glencore’s defined benefit plans. Any surplus resulting from this
calculation is limited to the present value of any economic benefits
available in the form of refunds from the plans or reductions in
future contributions to the plans.
Glencore also provides post-retirement healthcare benefits to
certain employees in Canada, South Africa and the United States.
These are accounted for in a similar manner to the defined benefit
pension plans, however are unfunded.
Share-based payments
Equity-settled share-based payments
Equity-settled share-based payments are measured at the fair value
of the awards based on the market value of the shares at the grant
date. Fair value excludes the effect of non-market-based vesting
conditions. The fair value is charged to the consolidated statement
of income and credited to retained earnings on a straight-line basis
over the period the estimated awards are expected to vest.
At each balance sheet date, the Company revises its estimate of
the number of equity instruments expected to vest as a result of
the effect of non-market-based vesting conditions. The impact of
the revision of the original estimates, if any, is recognised in the
consolidated statement of income such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to
retained earnings.
For cash-settled share-based payments, a liability is initially
recognised at fair value based on the estimated number of awards
that are expected to vest, adjusting for market and non-market-
based performance conditions. Subsequently, at each reporting
period until the liability is settled, it is remeasured to fair value
with any changes in fair value recognised in the consolidated
statement of income.
Income taxes
Income taxes consist of current and deferred income taxes.
Current taxes represent income taxes expected to be payable based
on enacted or substantively enacted tax rates at the period end
on expected current taxable income, and any adjustment to tax
payable in respect of previous years. Deferred taxes are recognised
for temporary differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable income, using enacted
or substantively enacted income tax rates which are expected to
be effective at the time of reversal of the underlying temporary
difference. Deferred tax assets and unused tax losses are only
recognised to the extent that their recoverability is probable.
Deferred tax assets are reviewed at reporting period end and
amended to the extent that it is no longer probable that the related
benefit will be realised. To the extent that a deferred tax asset not
previously recognised but which subsequently fulfils the criteria
for recognition, an asset is then recognised.
Deferred tax assets and liabilities are offset when they relate
to income taxes levied by the same authority and Glencore has
both the right and the intention to settle its current tax assets
and liabilities on a net or simultaneous basis. The tax effect of
certain temporary differences is not recognised principally with
respect to the initial recognition of an asset or liability (other
than those arising in a business combination or in a manner that
initially impacted accounting or taxable profit) and temporary
differences relating to investments in subsidiaries and Associates
to the extent that Glencore can control the timing of the reversal
of the temporary difference and it is probable the temporary
difference will not reverse in the foreseeable future. Deferred tax
is provided in respect of fair value adjustments on acquisitions.
These adjustments may relate to assets such as extraction rights
that, in general, are not eligible for income tax allowances.
Current and deferred tax are recognised as an expense or income
in the consolidated statement of income, except when they relate
to items that are recognised outside the consolidated statement
of income (whether in other comprehensive income or directly
in equity) or where they arise from the initial accounting for a
business combination.
138 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Royalties, extraction taxes and other levies/taxes are treated
as taxation arrangements when they have the characteristics
of an income tax including being imposed and determined
in accordance with regulations established by the respective
government’s taxation authority and the amount payable is based
on taxable income – rather than physical quantities produced
or as a percentage of revenues – after adjustment for temporary
differences. For such arrangements, current and deferred tax is
provided on the same basis as described above for other forms of
taxation. Obligations arising from royalty arrangements that do
not satisfy these criteria are recognised as current provisions and
included in cost of goods sold.
Property, plant and equipment
Property, plant and equipment are stated at cost, being the fair
value of the consideration given to acquire or construct the asset,
including directly attributable costs required to bring the asset to
the location or to a condition necessary for operation and the direct
cost of dismantling and removing the asset, less accumulated
depreciation and any accumulated impairment losses.
Property, plant and equipment are depreciated to their estimated
residual value over the estimated useful life of the specific asset
concerned, or the estimated remaining life of the associated mine
(“LOM”), field or lease.
Depreciation commences when the asset is available for use.
The major categories of property, plant and equipment are
depreciated/amortised on a UOP and/or straight-line basis
as follows:
Buildings
Freehold land
Plant and equipment
Mineral and petroleum rights
Deferred mining costs
10 – 45 years
not depreciated
3 – 30 years/UOP
UOP
UOP
Assets under finance leases, where substantially all the risks
and rewards of ownership transfer to the Group as lessee, are
capitalised and amortised over their expected useful lives on
the same basis as owned assets or, where shorter, the term of the
relevant lease. All other leases are classified as operating leases,
the expenditures for which are charged against income over the
accounting periods covered by the lease term.
Mineral and petroleum rights
Mineral and petroleum reserves, resources and rights (together
“Mineral and petroleum rights”) which can be reasonably valued,
are recognised in the assessment of fair values on acquisition.
Mineral and petroleum rights for which values cannot be
reasonably determined are not recognised. Exploitable Mineral
and petroleum rights are amortised using the UOP basis over the
commercially recoverable reserves and, in certain circumstances,
other mineral resources. Mineral resources are included in
amortisation calculations where there is a high degree of
confidence that they will be extracted in an economic manner.
Exploration and evaluation expenditure
Exploration and evaluation expenditure relates to costs incurred in
the exploration and evaluation of potential mineral and petroleum
resources and includes costs such as exploration and production
licences, researching and analysing historical exploration data,
exploratory drilling, trenching, sampling and the costs of pre-
feasibility studies. Exploration and evaluation expenditure for
each area of interest, other than that acquired from another entity,
is charged to the consolidated statement of income as incurred
except when the expenditure is expected to be recouped from
future exploitation or sale of the area of interest and it is planned
to continue with active and significant operations in relation to the
area, or at the reporting period end, the activity has not reached
a stage which permits a reasonable assessment of the existence of
commercially recoverable reserves, in which case the expenditure
is capitalised. As the intangible component (i.e. licences) represents
an insignificant and indistinguishable portion of the overall
expected tangible amount to be incurred and recouped from future
exploitation, these costs along with other capitalised exploration
and evaluation expenditure are recorded as a component of
property, plant and equipment. Purchased exploration and
evaluation assets are recognised at their fair value at acquisition.
As the capitalised exploration and evaluation expenditure asset
is not available for use, it is not depreciated. All capitalised
exploration and evaluation expenditure is monitored for
indications of impairment. Where a potential impairment is
indicated, an assessment is performed for each area of interest or
at the CGU level. To the extent that capitalised expenditure is not
expected to be recovered it is charged to the consolidated statement
of income.
Administration costs that are not directly attributable to a specific
exploration area are charged to the consolidated statement of
income. Licence costs paid in connection with a right to explore in
an existing exploration area are capitalised and amortised over the
term of the permit.
Development expenditure
When commercially recoverable reserves are determined and
such proposed development receives the appropriate approvals,
capitalised exploration and evaluation expenditure is transferred
to construction in progress, a component within the plant and
equipment asset sub-category. All subsequent development
expenditure is similarly capitalised, provided commercial viability
conditions continue to be satisfied. Proceeds from the sale of
product extracted during the development phase are netted against
development expenditure. Upon completion of development and
commencement of production, capitalised development costs
are further transferred, as required, to the appropriate plant
and equipment asset category and depreciated using the unit of
production method (“UOP”) or straight-line basis.
Deferred mining costs
Mainly comprises certain capitalised costs related to underground
mining as well as pre-production and in-production stripping
activities as outlined below. Deferred mining costs are amortised
using the UOP basis over the life of the ore body to which those
costs relate.
Glencore Annual Report 2016
139
Financial statements
Notes to the financial statements
1. ACCOUNTING POLICIES (continued)
Intangible assets
Deferred stripping costs
Stripping costs incurred in the development of a mine (or pit)
before production commences are capitalised as part of the cost of
constructing the mine (or pit) and subsequently amortised over the
life of the mine (or pit) on a UOP basis.
In-production stripping costs related to accessing an identifiable
component of the ore body to realise benefits in the form of
improved access to ore to be mined in the future (stripping activity
asset), are capitalised within deferred mining costs provided all the
following conditions are met:
(a) it is probable that the future economic benefit associated with
the stripping activity will be realised;
(b) the component of the ore body for which access has been
improved can be identified; and
(c) the costs relating to the stripping activity associated with the
improved access can be reliably measured.
If all of the criteria are not met, the production stripping costs
are charged to the consolidated statement of income as they
are incurred.
The stripping activity asset is subsequently depreciated on a UOP
basis over the life of the identified component of the ore body
that became more accessible as a result of the stripping activity
and is then stated at cost less accumulated depreciation and any
accumulated impairment losses.
Biological assets
Biological assets are carried at their fair value less estimated selling
costs. Any changes in fair value less estimated selling costs are
included in the consolidated statement of income in the period in
which they arise.
Restoration, rehabilitation and decommissioning
Restoration, rehabilitation and decommissioning costs arising from
the installation of plant and other site preparation work, discounted
using a risk adjusted discount rate to their net present value, are
provided for and capitalised at the time such an obligation arises.
The costs are charged to the consolidated statement of income over
the life of the operation through depreciation of the asset and the
unwinding of the discount on the provision.
Costs for restoration of subsequent site disturbance, which is
created on an ongoing basis during production, are provided for at
their net present values and charged to the consolidated statement
of income as extraction progresses.
Changes in the estimated timing of the rehabilitation or changes
to the estimated future costs are accounted for prospectively by
recognising an adjustment to the rehabilitation liability and a
corresponding adjustment to the asset to which it relates, provided
the reduction in the provision is not greater than the depreciated
capitalised cost of the related asset, in which case the capitalised
cost is reduced to Nil and the remaining adjustment recognised in
the consolidated statement of income. In the case of closed sites,
changes to estimated costs are recognised immediately in the
consolidated statement of income.
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost
less any accumulated amortisation (calculated on a straight-line
basis over their useful lives) and accumulated impairment losses,
if any.
Internally generated intangibles are not capitalised. Instead, the
related expenditure is recognised in the consolidated statement of
income and other comprehensive income in the period in which the
expenditure is incurred.
Identifiable intangible assets with a finite life are amortised on a
straight-line basis over their expected useful life. The amortisation
method and period are reviewed annually and impairment
testing is undertaken when circumstances indicate the carrying
amount may not be recoverable. Other than goodwill which is not
depreciated, Glencore has no identifiable intangible assets with an
indefinite life.
The major categories of intangibles are amortised on a straight-line
basis as follows:
Port allocation rights
Licences, trademarks and software
Royalty arrangements
Acquired offtake arrangements
30 – 40 years
3 – 20 years
30 – 40 years
5 – 10 years
Other investments
Equity investments, other than investments in Associates,
are recorded at fair value unless such fair value is not reliably
determinable in which case they are carried at cost. Changes in fair
value are recorded in the consolidated statement of income unless
they are classified as available for sale, in which case fair value
movements are recognised in other comprehensive income and are
subsequently recognised in the consolidated statement of income
when realised by sale or redemption, or when a reduction in fair
value is judged to be a significant or prolonged decline.
Impairment
Glencore conducts, at least annually, an internal review of asset
values which is used as a source of information to assess for any
indications of impairment. Formal impairment tests are carried out,
at least annually, for cash-generating units containing goodwill
and for all other non-current assets when events or changes in
circumstances indicate the carrying value may not be recoverable.
A formal impairment test involves determining whether the
carrying amounts are in excess of their recoverable amounts.
An asset’s recoverable amount is determined as the higher of its
fair value less costs of disposal and its value in use. Such reviews
are undertaken on an asset-by-asset basis, except where assets do
not generate cash flows independent of other assets, in which case
the review is undertaken at the CGU level.
If the carrying amount of an asset exceeds its recoverable amount,
an impairment loss is recorded in the consolidated statement of
income to reflect the asset at the lower amount.
140 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
An impairment loss is reversed in the consolidated statement of
income if there is a change in the estimates used to determine
the recoverable amount since the prior impairment loss was
recognised. The carrying amount is increased to the recoverable
amount but not beyond the carrying amount net of depreciation
or amortisation which would have arisen if the prior impairment
loss had not been recognised. Goodwill impairments and
impairments of available for sale equity investments cannot be
subsequently reversed.
Provisions
Provisions are recognised when Glencore has a present obligation
(legal or constructive), as a result of past events, and it is probable
that an outflow of resources embodying economic benefits that can
be reliably estimated will be required to settle the liability.
The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties
surrounding the obligation, including interpretation of specific
laws and likelihood of settlement. Where a provision is measured
using the cash flow estimated to settle the present obligation, its
carrying amount is the present value of those cash flows (when the
effect of the time value of money is material).
Onerous contracts
An onerous contract is considered to exist where Glencore has
a contract under which the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits
expected to be received from the contract. Present obligations
arising under onerous contracts are recognised and measured
as provisions.
Unfavourable contracts
An unfavourable contract is considered to exist when Glencore,
in a business combination, acquires a contract under which the
terms of the contract require Glencore to sell products or purchase
services on terms which are economically unfavourable compared
to current market terms at the time of the business combination.
Unfavourable contracts are recognised at the present value of
the economic loss and amortised into income over the term of
the contract.
Inventories
The vast majority of inventories held by the marketing activities
(“marketing inventories”) are valued at fair value less costs of
disposal with the remainder valued at the lower of cost or net
realisable value. Unrealised gains and losses from changes in fair
value are reported in cost of goods sold.
Inventories held by the industrial activities (“production
inventories”) are valued at the lower of cost or net realisable
value. Cost is determined using the first-in-first-out (“FIFO”)
or the weighted average method and comprises material costs,
labour costs and allocated production related overhead costs.
Financing and storage costs related to inventory are expensed
as incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash held at bank, cash in
hand and short-term bank deposits with an original maturity
of three months or less. The carrying amount of these assets
approximates their fair value.
Financial instruments
Financial assets are classified as either financial assets at fair value
through profit or loss, loans and receivables, held-to-maturity
investments or available for sale financial assets depending
upon the purpose for which the financial assets were acquired.
Financial assets are initially recognised at fair value on the trade
date, including, in the case of instruments not recorded at fair
value through profit or loss, directly attributable transaction
costs. Subsequently, financial assets are carried at fair value (other
investments, derivatives and marketable securities) or amortised
cost less impairment (accounts receivable and advances and loans).
Financial liabilities other than derivatives are initially recognised
at fair value of consideration received net of transaction costs as
appropriate and subsequently carried at amortised cost.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for
indicators of impairment at the end of each reporting period.
Financial assets are considered to be impaired when there is
objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been affected.
For financial assets carried at amortised cost, the amount of the
impairment loss recognised is the difference between the asset’s
carrying amount and the present value of estimated future cash
flows. The amount of the loss is recognised in the statement
of income.
For financial assets that are carried at cost, the amount of the
impairment loss is measured as the difference between the asset’s
carrying amount and the present value of the estimated future
cash flows discounted at the current market rate of return for a
similar financial asset. Such impairment loss will not be reversed in
subsequent periods.
Derecognition of financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or when it transfers
the financial asset and substantially all the risks and rewards
of ownership of the asset to another party. If the Group neither
transfers nor retains substantially all the risks and rewards
of ownership and continues to control the transferred asset,
the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group
retains substantially all the risks and rewards of ownership of a
transferred financial asset, the Group continues to recognise the
financial asset and also recognises a collateralised borrowing for
the proceeds received.
On derecognition of a financial asset in its entirety, the difference
between the asset’s carrying amount and the sum of the
consideration received and receivable and the cumulative gain or
loss that had been recognised in other comprehensive income and
accumulated in equity is recognised in profit or loss.
Glencore Annual Report 2016
141
Financial statements
Notes to the financial statements
1. ACCOUNTING POLICIES (continued)
2. SEGMENT INFORMATION
Own shares
The cost of purchases of own shares is deducted from equity.
Where they are purchased, issued to employees or sold, no
gain or loss is recognised in the consolidated statement of
income. Such gains and losses are recognised directly in equity.
Any proceeds received on disposal of the shares or transfers to
employees are recognised in equity.
Derivatives and hedging activities
Derivative instruments, which include physical contracts to sell or
purchase commodities that do not meet the own use exemption, are
initially recognised at fair value when Glencore becomes a party to
the contractual provisions of the instrument and are subsequently
remeasured to fair value at the end of each reporting period.
Fair values are determined using quoted market prices, dealer price
quotations or using models and other valuation techniques, the key
inputs for which include current market and contractual prices for
the underlying instrument, time to expiry, yield curves, volatility of
the underlying instrument and counterparty risk.
Gains and losses on derivative instruments for which hedge
accounting is not applied, other than the revenue adjustment
mechanism embedded within provisionally priced sales, are
recognised in cost of goods sold.
Those derivatives qualifying and designated as hedges are either
(i) a Fair Value Hedge of the change in fair value of a recognised
asset or liability or an unrecognised firm commitment, or (ii)
a Cash Flow Hedge of the change in cash flows to be received
or paid relating to a recognised asset or liability or a highly
probable transaction.
A change in the fair value of derivatives designated as a Fair Value
Hedge is reflected together with the change in the fair value of the
hedged item in the consolidated statement of income.
A change in the fair value of derivatives designated as a Cash
Flow Hedge is initially recognised as a cash flow hedge reserve
in shareholders’ equity. The deferred amount is then released to
the consolidated statement of income in the same periods during
which the hedged transaction affects the consolidated statement
of income. Hedge ineffectiveness is recorded in the consolidated
statement of income when it occurs.
When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in shareholders’
equity and is recognised in the consolidated statement of
income when the committed or forecast transaction is ultimately
recognised in the consolidated statement of income. However,
if a forecast or committed transaction is no longer expected to
occur, the cumulative gain or loss that was recognised in equity is
immediately transferred to the consolidated statement of income.
A derivative may be embedded in a “host contract”. Such combinations
are known as hybrid instruments and at the date of issuance, the
embedded derivative is separated from the host contract and
accounted for as a standalone derivative if the criteria for separation
are met. The host contract is accounted for in accordance with its
relevant accounting policy.
142 Glencore Annual Report 2016
Glencore is organised and operates on a worldwide basis in three
core business segments – Metals and minerals, Energy products and
Agricultural products, with each business segment responsible for
the marketing, sourcing, hedging, logistics and industrial investment
activities of their respective products and reflecting the structure used
by Glencore’s management to assess the performance of Glencore.
The business segments’ contributions to the Group are primarily
derived from the net margin or premium earned from physical
marketing activities (net sale and purchase of physical commodities),
provision of marketing and related value-add services and the
margin earned from industrial asset activities (net resulting from the
sale of physical commodities over the cost of production and/or cost
of sales) and comprise the following underlying key commodities:
• Metals and minerals: Zinc, copper, lead, alumina, aluminium,
ferroalloys, nickel, cobalt and iron ore, including smelting,
refining, mining, processing and storage related operations of
the relevant commodities;
• Energy products: Crude oil, oil products, steam coal and
metallurgical coal, including investments in coal mining and oil
production operations, ports, vessels and storage facilities; and
• Agriculture products: Wheat, corn, canola, barley, rice, oil
seeds, meals, edible oils, biofuels, cotton and sugar supported
by investments in farming, storage, handling, processing and
port facilities.
Corporate and other: consolidated statement of income amount
represents unallocated Group related expenses (including variable
pool bonus charges). Statement of financial position amounts
represent Group related balances.
The financial performance of the segments is principally evaluated
with reference to Adjusted EBIT/EBITDA which is the net result
of revenue less cost of goods sold and selling and administrative
expenses, plus share of income from other associates and joint
ventures, dividend income and the attributable share of underlying
Adjusted EBIT/EBITDA of certain associates and joint ventures which
are accounted for internally by means of proportionate consolidation,
excluding significant items. In addition, the segment information
includes Glencore Agri, which has been disclosed as a discontinued
operation until close of transaction on 1 December 2016, see note 23.
The accounting policies of the operating segments are the same as
those described in note 1 with the exception of certain associates and
joint ventures. Under IFRS 11, Glencore’s investments in the Antamina
copper/zinc mine (34% owned) and the Cerrejón coal mine (33%
owned) are considered to be associates as they are not subject to joint
control and the Collahuasi copper mine (44% owned) and Glencore
Agri (50% owned) are considered to be joint ventures. Associates and
joint ventures are required to be accounted for in Glencore’s financial
statements under the equity method. For internal reporting and
analysis, Glencore evaluates the performance of these investments
under the proportionate consolidation method reflecting Glencore’s
proportionate share of the revenues, expenses, assets and liabilities
of the investments. Under IFRS 5, the Agricultural business segment
is required to be presented as a discontinued operation following
the agreed sale of a 50% interest in Glencore Agri, which completed
on 1 December 2016 (see note 23). Prior to completion of the sale,
Glencore evaluated the performance of this segment under the full
consolidation method, consistent with prior periods. The balances
presented for internal reporting purposes are reconciled to Glencore’s
statutory disclosures as outlined in the following tables.
Strategic report | Governance | Financial statements | Additional information
Glencore accounts for intra-segment sales and transfers where applicable as if the sales or transfers were to third parties, i.e. at arm’s
length commercial terms.
2016
US$ million
Revenue – Marketing activities2
Revenue – Industrial activities
Revenue
Marketing activities
Adjusted EBITDA
Depreciation and amortisation
Adjusted EBIT
Industrial activities
Adjusted EBITDA
Depreciation and amortisation3
Adjusted EBIT
Total Adjusted EBITDA
Depreciation and amortisation
Total Adjusted EBIT
Metals and
minerals
Energy
products
Agricultural
products1
Corporate
and other
42,142
24,196
66,338
1,586
(24)
1,562
6,030
(3,848)
2,182
7,616
(3,872)
3,744
81,872
7,149
89,021
959
(50)
909
1,503
(2,345)
(842)
2,462
(2,395)
67
18,678
3,292
21,970
454
(36)
418
138
(34)
104
592
(70)
522
–
22
22
(74)
–
(74)
(328)
(1)
(329)
(402)
(1)
(403)
Share of associates’ significant items4,5
Unrealised intergroup profit elimination adjustments4,6
Mark-to-market valuation on certain coal hedging contracts4,7
Gains on disposals and investments8
Other expense – net9
Interest expense – net10
Income tax expense11
Income for the year from continuing and discontinued operations
Total
142,692
34,659
177,351
2,925
(110)
2,815
7,343
(6,228)
1,115
10,268
(6,338)
3,930
(477)
(374)
(225)
2,333
(1,615)
(1,619)
(1,017)
936
1 Includes Glencore’s proportionate share of the Agricultural products business (50%) since the disposal of Glencore Agri on 1 December 2016, see note 23.
2 Balance is net of intra-segment sales arising from transactions between the Industrial and Marketing activities. Metals and minerals segment: $16,602 million, Energy products
segment: $2,263 million and Agricultural products: $2,253 million.
3 Includes an adjustment of $705 million to depreciation and amortisation expenses related to presenting certain associates and joint ventures on a proportionate consolidation basis.
Metals and minerals segment: $517 million, Energy products segment $178 million and Agricultural products $10 million, see reconciliation table below.
4 Refer to Glossary for definition of significant items.
5 Share of associates’ significant items comprise Glencore’s share of significant charges booked directly by various associates, primarily impairment charges recognised within coal
shipping investments and $345 million of impairment related to Cerrejón, see reconciliation table below.
6 Represents the required adjustment to eliminate unrealised profit or losses arising on intergroup transactions. For Glencore, such adjustments arise on the sale of product, in the
ordinary course of business, from its Industrial to Marketing operations. Management assesses segment performance prior to any such adjustments, as if the sales were to third parties.
7 Represents an accounting measurement mismatch between the fair value of coal derivative positions in respect of portfolio risk management/hedging activities initiated in Q2 2016 and
the anticipated future revenue to be generated from the sale of future unsold coal production. The derivative positions manage forward sales price exposure relating to some 11 million
tonnes of future attributable coal production, which is expected to be settled before 31 December 2017. The derivative positions include pre-existing trading contracts, for which mark-
to-market movements, up until the time of them being ring-fenced for hedging activities, were included in trading results. These transactions were not able to be designated as hedging
instruments under IFRS, which would have allowed for the deferment of any income statement effect until performance of the underlying future sale transactions. The fair value
movements in the derivative portfolio will be offset against future revenue in the segment information as the related sales (of production) are realised.
8 Gains on disposals and investments of $452 million as disclosed in note 3, $33 million gains on disposals and investments as reported by discontinued operations and $1,848 million
gain on disposal of discontinued operations, see note 23.
9 Other expense – net of $1,589 million as disclosed in note 4 and $26 million of other expenses related to discontinued operations, see note 23.
10 Includes an adjustment for net finance costs of $70 million related to discontinued operations, see note 23, and $16 million related to presenting certain associates and joint ventures on
a proportionate consolidation basis. Metals and minerals segment: net finance costs of $12 million, Energy products segment: net finance costs of $5 million and Agricultural products
segment: net finance income of $1 million, see reconciliation table below.
11 Includes an adjustment for income tax expenses of $131 million related to discontinued operations, see note 23, and $248 million related to presenting certain associates and joint
ventures on a proportionate consolidation basis. Metals and minerals segment: $216 million, Energy products segment: $16 million and Agricultural products segment: $16 million, see
reconciliation table below.
Glencore Annual Report 2016
143
Financial statements
Notes to the financial statements
Metals and
minerals
41,151
24,782
65,933
Energy
products
75,206
8,406
83,612
1,280
(25)
1,255
4,030
(3,882)
148
5,310
(3,907)
1,403
826
(48)
778
2,269
(2,357)
(88)
3,095
(2,405)
690
Agricultural
products
(Discontinued)
Corporate
and other
20,617
2,529
23,146
584
(123)
461
150
(87)
63
734
(210)
524
–
4
4
(30)
–
(30)
(415)
–
(415)
(445)
–
(445)
2. SEGMENT INFORMATION (continued)
2015
US$ million
Revenue – Marketing activities1
Revenue – Industrial activities
Revenue
Marketing activities
Adjusted EBITDA
Depreciation and amortisation
Adjusted EBIT
Industrial activities
Adjusted EBITDA
Depreciation and amortisation2
Adjusted EBIT
Total Adjusted EBITDA
Depreciation and amortisation
Total Adjusted EBIT
Share of associates’ significant items3,4
Unrealised intergroup loss elimination adjustments3,5
Losses on disposals and investments6
Other expense – net7
Interest expense – net8
Income tax expense9
Loss for the year from continuing and discontinued operations
Total
136,974
35,721
172,695
2,660
(196)
2,464
6,034
(6,326)
(292)
8,694
(6,522)
2,172
(88)
445
(994)
(7,998)
(1,391)
(260)
(8,114)
1 Balance is net of intra-segment sales arising from transactions between the Industrial and Marketing activities. Metals and minerals segment: $17,843 million, Energy products
segment: $2,318 million and Agricultural products segment: $1,847 million.
2 Includes an adjustment of $687 million to depreciation and amortisation expenses related to presenting certain associates and joint ventures on a proportionate consolidation basis.
Metals and minerals segment: $501 million and Energy products segment: $186 million, see reconciliation table below.
3 Refer to Glossary for definition of significant items.
4 Share of associates’ significant items comprise Glencore’s share of significant charges booked directly by various associates, predominantly Century.
5 Represents the required adjustment to eliminate unrealised profit or losses arising on intergroup transactions. For Glencore, such adjustments arise on the sale of product, in the
ordinary course of business, from its Industrial to Marketing operations. Management assesses segment performance prior to any such adjustments, as if the sales were to third parties.
6 See note 3.
7 Other expense – net items of $7,928 million as disclosed in note 4 and $70 million of other expenses related to discontinued operations, see note 23.
8 Includes an adjustment for net finance costs of $91 million related to discontinued operations, see note 23, and net finance income of $3 million related to presenting certain associates
and joint ventures on a proportionate consolidation basis. Metals and minerals segment: net finance income of $9 million and Energy products segment: net finance costs of $6 million,
see reconciliation table below.
9 Includes an adjustment for income tax expenses of $107 million related to discontinued operations, see note 23, and $162 million to income tax expenses related to presenting certain
associates and joint ventures on a proportionate consolidation basis. Metals and minerals segment: $103 million and Energy products segment: $59 million, see reconciliation
table below.
144 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
2016
US$ million
Current assets
Current liabilities
Allocatable current capital employed
Property, plant and equipment
Intangible assets
Investments in associates and other investments
Non-current advances and loans
Inventory
Metals and
minerals
Energy
products
Agricultural
products
Corporate
and other
23,904
(13,853)
10,051
32,635
3,671
7,963
1,737
564
17,456
(18,902)
(1,446)
20,795
3,028
3,721
1,737
–
–
–
–
–
–
3,155
–
–
Allocatable non-current capital employed
46,570
29,281
3,155
Other assets1
Other liabilities2
Total net assets
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities3
Capital expenditure
–
–
56,621
27,835
3,155
14
2,695
2,709
27
571
598
96
44
140
1 Other assets include deferred tax assets, marketable securities and cash and cash equivalents.
2 Other liabilities include borrowings, non-current deferred income, deferred tax liabilities, non-current provisions and non-current financial liabilities.
3 Includes an adjustment to capital expenditure of $407 million related to presenting certain associates and joint ventures on a proportionate consolidation basis. Metals and minerals
segment: $359 million Energy products segment: $33 million and Agricultural products segment: $15 million, see reconciliation table below.
2015
US$ million
Current assets
Current liabilities
Allocatable current capital employed
Property, plant and equipment
Intangible assets
Investments in associates and other investments
Non-current advances and loans
Inventory
Metals and
minerals
Energy
products
Agricultural
products
Corporate
and other
21,707
(10,848)
10,859
34,161
3,695
8,088
1,414
504
12,131
(15,913)
(3,782)
23,443
2,915
3,926
1,369
–
5,720
(2,685)
3,035
2,836
889
628
114
–
Allocatable non-current capital employed
47,862
31,653
4,467
Other assets1
Other liabilities2
Total net assets
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities3
Capital expenditure
58,721
27,871
7,502
81
4,149
4,230
17
1,303
1,320
146
98
244
(466)
(582)
(1,048)
396
17
–
9
–
422
4,278
(47,482)
(43,830)
1
49
50
(106)
(309)
(415)
334
17
–
108
–
459
4,592
(57,387)
(52,751)
–
163
163
Total
40,894
(33,337)
7,557
53,826
6,716
14,839
3,483
564
79,428
4,278
(47,482)
43,781
138
3,359
3,497
Total
39,452
(29,755)
9,697
60,774
7,516
12,642
3,005
504
84,441
4,592
(57,387)
41,343
244
5,713
5,957
1 Other assets include deferred tax assets, marketable securities and cash and cash equivalents.
2 Other liabilities include borrowings, non-current deferred income, deferred tax liabilities, non-current provisions and non-current financial liabilities.
3 Includes an adjustment to capital expenditure of $244 million related to discontinued operations and $328 million related to presenting certain associates and joint ventures on
a proportionate consolidation basis. Metals and minerals segment: $292 million, Energy products segment: $36 million and Agricultural products segment: $244 million, see
reconciliation table below.
Glencore Annual Report 2016
145
Financial statements
Notes to the financial statements
2. SEGMENT INFORMATION (continued)
The reconciliation of revenue, certain associates’ and joint ventures’ Adjusted EBIT to “Share of net income from associates and joint
ventures” and capital expenditure for the years ended 31 December 2016 and 2015 is as follows:
Metals and
minerals
Energy
products
Agricultural
products
Corporate
and other
2016
US$ million
Revenue
Revenue
Impact of:
Presenting certain associates and joint ventures on a
proportionate consolidation basis
Discontinued operations
Revenue – reported measure
Share of income from certain associates and joint ventures
Associates’ and joint ventures’ Adjusted EBITDA
Depreciation and amortisation
Associates’ and joint ventures’ Adjusted EBIT
Impairment, net of tax1
Net finance costs
Income tax expense
Share of income/(loss) from certain associates and
joint ventures
Share of loss from other associates
Share of income/(loss) from associates and joint ventures2
Capital expenditure
Capital expenditure
Impact of:
66,338
89,021
21,970
(1,826)
–
64,512
(607)
–
88,414
1,144
(517)
627
–
(12)
(216)
(228)
399
(113)
286
240
(178)
62
(345)
(5)
(16)
(366)
(304)
(9)
(313)
(1,085)
(20,885)
–
63
(10)
53
–
1
(16)
(15)
38
–
38
2,709
598
140
Total
177,351
(3,518)
(20,885)
152,948
1,447
(705)
742
(345)
(16)
(248)
(609)
133
(122)
11
3,497
(407)
3,090
22
–
–
22
–
–
–
–
–
–
–
–
–
–
50
–
50
Presenting certain associates and joint ventures on a
proportionate consolidation basis
Capital expenditure – reported measure
(359)
2,350
(33)
565
(15)
125
1 Energy products segment comprises an impairment of $345 million, net of taxes of $176 million relating to Cerrejón, resulting from reduced near term production estimates due to
increased risk related to the possibility of delays in sourcing approvals as a result of the continued social and environmental challenges to current mine plans.
2 Comprises share in earnings of $12 million from marketing activities and losses of $1 million from industrial activities.
146 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
2015
US$ million
Revenue
Revenue
Impact of:
Presenting certain associates and joint ventures on a
proportionate consolidation basis
Discontinued operations
Revenue – reported measure
Share of income from certain associates and joint ventures
Associates’ and joint ventures’ Adjusted EBITDA
Depreciation and amortisation
Associates’ and joint ventures’ Adjusted EBIT
Net finance costs
Income tax expense
Share of income/(loss) from certain associates and
joint ventures
Share of (loss)/income from other associates
Discontinued operations
Share of income/(loss) from associates and joint ventures2
Capital expenditure
Capital expenditure
Impact of:
Metals and
minerals
Energy
products
Agricultural
products
(Discontinued)
Corporate
and other
Total
Restated1
65,933
83,612
23,146
(1,578)
–
64,355
(620)
–
82,992
806
(501)
305
9
(103)
(94)
211
(35)
–
176
189
(186)
3
(6)
(59)
(65)
(62)
(15)
–
(77)
–
(23,146)
–
–
–
–
–
–
–
–
2
(2)
–
4
–
–
4
–
–
–
–
–
–
–
–
–
–
172,695
(2,198)
(23,146)
147,351
995
(687)
308
3
(162)
(159)
149
(48)
(2)
99
4,230
1,320
244
163
5,957
Presenting certain associates and joint ventures on a
proportionate consolidation basis
Discontinued operations
Capital expenditure – reported measure
(292)
–
3,938
(36)
–
1,284
–
(244)
–
–
–
163
(328)
(244)
5,385
1 Certain amounts shown here reflect the adjustments made relating to discontinued operations (see note 23).
2 Comprises share in earnings of $80 million from industrial activities and $19 million from marketing activities.
Glencore Annual Report 2016
147
Financial statements
Notes to the financial statements
2. SEGMENT INFORMATION (continued)
Adjusted EBIT is revenue less cost of goods sold and selling and administrative expenses plus share of income from associates and
joint ventures, dividend income and the attributable share of underlying Adjusted EBIT of certain associates and joint ventures and the
discontinued Agricultural products segment, excluding significant items. Adjusted EBITDA consists of Adjusted EBIT plus depreciation
and amortisation. The reconciliation of Adjusted EBIT/EBITDA to the reported measures is as follows:
US$ million
Reported measures
Revenue
Cost of goods sold
Selling and administrative expenses
Share of income from associates and joint ventures
Dividend income
Adjustments to reported measures
Share of associates’ significant items
Unrealised intergroup profit/(loss) elimination
Mark-to-market valuation on certain coal hedging contracts
Net finance and income tax expense impact of presenting certain associates
and joint ventures on a proportionate consolidation basis
Adjusted EBIT from discontinued operations
Adjusted EBIT from continuing and discontinued operations
Depreciation and amortisation from continuing operations
Depreciation impact of presenting certain associates and joint ventures
on a proportionate consolidation basis
Depreciation from discontinued operations
Adjusted EBITDA from continuing and discontinued operations
1 Certain amounts shown here reflect the adjustments made relating to discontinued operations (see note 23).
Geographical information
US$ million
Revenue from third parties2
The Americas
Europe
Asia
Africa
Oceania
Non-current assets3
The Americas
Europe
Asia
Africa
Oceania
2016
2015
Restated1
152,948
(149,763)
(1,102)
11
27
2,121
477
374
225
264
469
3,930
5,573
705
60
10,268
2016
22,401
55,021
61,060
3,934
10,532
147,351
(144,533)
(1,096)
99
25
1,846
88
(445)
–
159
524
2,172
5,625
687
210
8,694
2015
Restated1
29,422
46,758
55,879
4,824
10,468
152,948
147,351
18,713
10,434
4,895
19,596
20,554
74,192
22,663
8,447
5,416
19,841
23,764
80,131
1 Certain amounts shown here reflect the adjustments made relating to discontinued operations (see note 23).
2 Revenue by geographical destination is based on the country of incorporation of the sales counterparty, however this may not necessarily be the country of the counterpart’s ultimate
parent and/or final destination of product.
3 Non-current assets are non-current assets excluding other investments, advances and loans and deferred tax assets.
148 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
3. GAINS/(LOSSES) ON DISPOSALS AND INVESTMENTS
US$ million
Gain on sale of GRail
Loss on cessation of control of Optimum
Loss on distribution of interest in Lonmin
Gain on sale of other operations
Total
GRail
2016
430
–
–
22
452
2015
–
(1,034)
(256)
296
(994)
In December 2016, Glencore disposed its New South Wales’ coal rail haulage business, resulting in a gain of $430 million (see note 23).
Optimum
In August 2015, the directors of Optimum Coal placed the company under the control and supervision of business rescue practitioners,
resulting in the Group ceasing to have control over Optimum. In December 2015, the business rescue practitioners reached agreement to
sell the business, which closed in 2016. Due to cessation of control of Optimum, the net assets were deconsolidated, with the fair value
of such determined to be $Nil, being the amount to be received. As a result, a loss of $1,034 million was recognised, which includes
$311 million of foreign currency translation losses previously recognised in equity and $152 million of related impairments (see note 23).
Lonmin
On 9 June 2015, following approval by shareholders at the Annual General Meeting, Glencore completed the in specie distribution of its
23.9% stake in Lonmin plc. Based on the closing Lonmin share price (a Level 1 valuation technique) at the time of distribution, its fair value
was determined to be $298 million and as a result, a $256 million loss on disposal of the investment was recognised (see notes 9 and 16).
Other
In 2015, the gain on sale of other operations arose primarily from the disposals of the Tampakan and Falcondo operations in August 2015,
which resulted in a net gain of $192 million and $87 million respectively (see note 23).
4. OTHER EXPENSE – NET
US$ million
Impairments
Net changes in mark-to-market valuations on investments held for trading
Net foreign exchange losses
Legal settlement
Loss on metal leak
Gain on bond buy-backs
Other expense – net2
Total
Notes
5
2016
(1,268)
(121)
(70)
(92)
–
–
(38)
(1,589)
2015
Restated1
(7,104)
(265)
(128)
(89)
(235)
35
(142)
(7,928)
1 Certain amounts shown here reflect the adjustment made relating to discontinued operations (see note 23).
2 “Other expense – net” for the year ended 31 December 2016 comprised of $37 million gain on disposal of property, plant and equipment offset by restructuring and closure costs
of $47 million and a settlement of a financial guarantee in relation to Optimum of $28 million. “Other expense – net” for the year ended 31 December 2015 mainly comprises
restructuring and closure costs.
Together with foreign exchange movements and mark-to-market movements on investments held for trading, other expense – net includes
other significant items of income and expense which due to their non-operational nature or expected infrequency of the events giving rise
to them are reported separately from operating segment results. Other expense – net includes, but is not limited to, impairment charges
and restructuring and closure costs.
Changes in mark-to-market valuations on investments held for trading – net
Primarily relates to movements on interests in investments classified as held for trading (see note 9) and the ARM Coal non-discretionary
dividend obligation (see note 26) carried at fair value. In 2016, positive fair value movements in Glencore’s interest in Volcan Compania
Minera S.A.A. and Century Aluminum cash-settled equity swaps were offset by the movement in the ARM Coal derivative (see note 26),
accounting for the majority of the net expense.
Legal settlement
In September 2016, a subsidiary of the Group reached a settlement with U.S. agencies to pay a penalty of $27 million and retire around
$65 million of credits in relation to compliance with a U.S. biofuels programme in the years 2011/12.
In April 2015, OMV Petrom was awarded $89 million related to a dispute over oil deliveries in the early 1990s.
Glencore Annual Report 2016
149
Financial statements
Notes to the financial statements
4. OTHER EXPENSE – NET (continued)
Loss from metal leak
In December 2014, a metal leak in Line 1 of the metallurgical plant at Koniambo was detected and the related production suspended.
Following an extensive investigation during H1 2015, it was determined that the furnace would need to be rebuilt/repaired at a cost of
approximately $60 million and incremental net operating costs of an additional $175 million were incurred in relation to this incident.
Gain on bond buy-backs
In 2015, Glencore acquired $564 million of outstanding bonds, at a discount to their carrying values, realising a gain of $35 million
(see note 18).
5. IMPAIRMENTS
US$ million
Property, plant and equipment and intangible assets
Investments
Advances and loans – non-current
Trade advances and deposits
Non-current inventory and other2
Total impairments3
Notes
7/8
9
12
2016
(1,268)
–
–
–
–
2015
Restated1
(6,028)
(193)
(455)
(359)
(69)
(1,268)
(7,104)
1 Certain amounts shown here reflect the adjustment made relating to discontinued operations (see note 23).
2 These items, if classified by function of expense would be recognised in cost of goods sold.
3 Impairments recognised during the year are allocated to Glencore’s operating segments as follows: Metals and minerals $50 million (2015: $5,135 million) and Energy products
$1,218 million (2015: $1,969 million).
As part of a regular portfolio review, Glencore carries out an assessment of whether there is an indication of asset impairment or whether a
previously recorded impairment may no longer be required.
The recoverable amounts of the property, plant and equipment and intangible assets were measured based on fair value less costs of
disposal (“FVLCD”), determined by discounted cash flow techniques based on the most recent approved financial budgets and three-year
business plans, which are underpinned and supported by life of mine plans of the respective operations. The valuation models use the
most recent reserve and resource estimates, relevant cost assumptions generally based on past experience and where possible, market
forecasts of commodity price and foreign exchange rate assumptions discounted using operation specific discount rates ranging from 7% –
11% (2015: 6% – 12%). The valuations remain sensitive to price and further deterioration/improvements in the pricing outlook may result in
additional impairments/reversals. The determination of FVLCD uses Level 3 valuation techniques for both years.
As a result of the regular impairment assessment, the following significant impairment charges resulted:
2016
Property, plant and equipment and intangible assets
• Due to changes in estimated reserve life and revised mining plans, the estimated mine life of Tahmoor in Australia (Energy products
segment) was reduced from 2020 to 2017. As a result, the carrying value of this operation was impaired by $168 million, to its estimated
recoverable amount of $100 million, which is expected to be depleted over the following year as the mine approaches its completion.
• As a result of a write down of appraisal expenditure and certain operational challenges at the Equatorial Guinea oil operations (Energy
products segment), an impairment charge of $311 million has been recognised resulting in a remaining recoverable value of $194 million.
The valuation remains sensitive to price and further deterioration in the pricing outlook may result in additional impairment. The short-
to long-term Brent crude oil price assumptions used in the valuation were between $50 – $75 per barrel and should these fall by 10%, a
further $46 million of impairment would be recognised.
• During 2016, Glencore’s long-term oil price assumptions were revised downwards, which together with delayed work programmes,
resulted in a $622 million impairment of the onshore Chad oil operations (Energy products segment), to their estimated recoverable
amount of $1,480 million. The valuation remains sensitive to price and further deterioration in the pricing outlook may result in
additional impairment. The short to long-term Brent crude oil price assumptions used in the valuation were between $50 – $75 per barrel
and should these fall by 10%, a further $695 million of impairment would be recognised.
• The balance of property, plant and equipment related impairment charges (none of which were individually material) arose due to
changes in production and development plans and resulted in impairments of $50 million and $117 million being recognised in our
Metals and minerals and Energy products segments respectively.
150 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
2015
Property, plant and equipment and intangible assets
• Following the sharp decline in oil prices in 2015, significant amendments were made to Chad’s work programme, with the objective
of preserving value for the long term, while reducing cash outlays in the near term. This included changes to the fields’ capex and
production profiles and significantly reducing the number of drilling rigs in operation. As a result, the carrying value of these fields/
blocks (Energy products segment) was impaired by $1,031 million, to their estimated recoverable amount of $2,012 million. The valuation
remains sensitive to price and further deterioration in the pricing outlook may result in additional impairment. The short- to long-term
oil price assumptions used in the valuation were between $40 – $80 per barrel.
• Upon further review and evaluation of the exploration activities on the Tilapia licence in Cameroon (Energy product segment) it was
determined that the technical risk of continuing to evaluate/develop the field was unacceptably high and as a result, the full carrying
value of $27 million was impaired.
• As a result of the current subdued coking coal market and resulting weak shorter-term price outlook, the Oaky Creek coking coal
operations (Energy products segment) were determined to be impaired by $240 million, to their estimated recoverable amount of
$959 million, given the relatively short life of one of the relevant mines. The valuation remains sensitive to coking coal prices and further
deterioration in the pricing outlook may result in additional impairment. The short- to long-term coking coal price assumptions used in
the valuation were between $81 – $135 per metric tonne.
• In Q4 2015, it was determined, for the foreseeable future, to defer the Blakefield North coal project and place the Ravensworth
underground coal operations (Energy products segment) on care and maintenance. As a result, the full carrying value of these projects
($82 million) was impaired.
• Due to continued subdued current and long-term nickel prices and the ongoing operational and technical challenges at the Koniambo
processing plant, it was determined, post significant line one furnace redesign/repair work, to operate only one processing line (of two)
for an extended period of time until it proves itself to be technically robust. As a result of this updated plan and reflecting the lower
nickel price environment, Koniambo (Metal and minerals segment) was written down to its recoverable value of $917 million, resulting
in a $3,989 million impairment. The valuation remains sensitive to price and further deterioration in the pricing outlook may result in
additional impairment. The short- to long-term nickel prices used in the valuation were between $12,500 – $16,000 per metric tonne.
• Sherwin Alumina (Metal and minerals segment) is an alumina production facility located in Corpus Christi, USA. Adverse market
conditions resulted in a decrease in its valuation to an estimated recoverable value of $Nil and, as a result, an impairment of $128 million
was recognised. Since January 2016, Sherwin has been under United States Chapter 11 proceedings.
• Kabanga (Metal and minerals segment) is an undeveloped nickel deposit in Tanzania, in which Glencore has a 50% interest.
During 2015, a sales process was undertaken to find a potential buyer. No acceptable bids were received and as a result the project was
written down to $Nil, reflective of the lower nickel price environment noted above, resulting in an impairment of $115 million.
• Following a strategic review of the Komarovskoe (within Kazzinc) gold mining deposit (Metal and minerals segment) it was determined
to cease further development and, as a result, the full carrying value of $70 million was impaired.
• Following the placing of Eland Platinum (Metal and minerals segment) on care and maintenance in October 2015 and a further deterioration
in platinum prices, it was determined that its recoverable value was $Nil and, as a result, an impairment of $77 million was recognised.
• The London Metal Exchange (“LME”) proposed changes to its warehousing regulations in a further attempt to reduce metal queues
via increasing load-out rates and capping longer-term rental income streams. As a result, the goodwill of $169 million relating to the
Pacorini metals warehousing business (Metals and minerals segment) was impaired by $119 million to a recoverable value of $50 million
(see notes 8 and 9).
• The balance of the property, plant and equipment related impairment charges (none of which were individually material) arose due
to changes in production and development plans and resulted in impairments of $85 million and $65 million being recognised in our
Metals and minerals and Energy products segments respectively.
Investments
Based on lower mid- to long-term aluminium price assumptions, it was determined that the recoverable value of our investment in
Century Aluminum Company was $592 million with a resulting impairment of $162 million. The recoverable amount was determined
using similar valuation techniques and inputs described above. The valuation remains sensitive to price and further deterioration in the
pricing outlook may result in additional impairment. The short- to long-term aluminium prices used in the valuation were between $1,550
– $1,790 per metric tonne.
Advances and loans – non-current
• In November 2015, Glencore and Russneft effected a debt to equity conversion which resulted in Glencore exchanging its loan balance of
$984 million and investments in operating subsidiaries carried at $Nil for a 46% interest in Russneft. The fair value of the equity received
was determined to be $685 million, resulting in a $300 million impairment recognised upon settlement of the loan.
• In December 2015, an impairment of $155 million was recognised reflecting non-performance of contractual terms and rescheduling of
the timing in product supply and a recoverable value provision in respect of other advances and loans.
Glencore Annual Report 2016
151
Financial statements
Notes to the financial statements
6. INCOME TAXES
Income taxes consist of the following:
US$ million
Current income tax expense
Adjustments in respect of prior year income tax
Deferred income tax credit
Adjustments in respect of prior year deferred income tax
Total tax (expense)/credit reported in the statement of income/(loss)
Current income tax (expense)/credit recognised directly in other comprehensive income
Deferred income tax credit/(expense) recognised directly in other comprehensive income
Total tax credit/(expense) recognised directly in other comprehensive income
2016
(765)
3
117
7
(638)
–
24
24
2015
Restated1
(365)
30
354
(10)
9
–
(77)
(77)
The effective Group tax rate is different from the statutory Swiss income tax rate applicable to the Company for the following reasons:
US$ million
Loss before income taxes and attribution from continuing operations
Income before income taxes and attribution from discontinued operations
Income/(loss) before income taxes and attribution from continuing and discontinued operations
Less: Share of income from associates and joint ventures from continuing operations
Less: Share of income from associates and joint ventures from discontinued operations
Parent Company’s and subsidiaries’ income/(loss) before income tax and attribution from continuing and
discontinued operations
Income tax (expense)/credit calculated at the Swiss income tax rate of 15% (2015: 15%)
Tax effects of:
Different tax rates from the standard Swiss income tax rate
Tax exempt income ($160 million (2015: $326 million) from recurring items and $283 million (2015: $15 million)
from non-recurring items)
Items not tax deductible ($365 million (2015: $618 million) from recurring items and $269 million
(2015: $424 million) from non-recurring items)
Foreign exchange fluctuations
Changes in tax rates
Utilisation and changes in recognition of tax losses and temporary differences
Tax losses not recognised
Adjustments in respect of prior years
Other
Income tax expense
Income tax (expense)/credit reported in the statement of income/(loss)
Income tax expense attributable to discontinued operations
1 Certain amounts shown here reflect the adjustments made relating to discontinued operations (see note 23).
2016
(549)
2,254
1,705
(11)
(15)
1,679
(252)
205
443
(634)
(19)
3
(41)
(483)
10
(1)
(769)
(638)
(131)
2015
Restated1
(8,379)
363
(8,016)
(99)
(2)
(8,117)
1,218
(154)
341
(1,042)
(307)
24
(24)
(175)
20
1
(98)
9
(107)
The non-tax deductible items of $634 million (2015: $1,042 million) primarily relate to non-deductible exploration charges, financing costs,
impairments and various other expenses. The impact of tax exempt income of $443 million (2015: $341 million) primarily relates to non-
taxable intra-group dividends, income that is not effectively connected to the taxable jurisdiction, and various other items.
The tax impact of foreign exchange fluctuations relates to the foreign currency movements on deferred tax balances where the underlying
tax balances are denominated in a currency different to the functional currency determined for accounting purposes. In 2016, in relation to
our Australian tax group, an election was finalised to change the tax functional currency to align with the accounting functional currency.
152 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Notes
2016
2015
Deferred taxes as at 31 December 2016 and 2015 are attributable to the items in the table below:
US$ million
Deferred tax assets1
Tax losses carried forward
Other
Total
Deferred tax liabilities1
Depreciation and amortisation
Mark-to-market valuations
Other
Total
Total Deferred tax – net
Reconciliation of deferred tax – net
1 January
Recognised in income for the year from continuing and discontinued operations
Recognised in other comprehensive income from continuing and discontinued operations
Business combination
Disposal of subsidiaries
Effect of foreign currency exchange movements
Other
31 December
23
23
1,653
107
1,760
(5,546)
(76)
(42)
(5,664)
(3,904)
1,680
166
1,846
(5,483)
(238)
(56)
(5,777)
(3,931)
(3,931)
(4,768)
52
24
–
100
(130)
(19)
345
(77)
17
205
349
(2)
(3,904)
(3,931)
1 Asset and liability positions in the same category reflect the impact of tax assets and liabilities arising in local tax jurisdictions that cannot be offset against tax assets and liabilities
arising in other tax jurisdictions.
Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable.
As at 31 December 2016, $2,898 million (2015: $3,736 million) of deferred tax assets related to available loss carry forwards have been
brought to account, of which $1,653 million (2015: $1,680 million) are disclosed as deferred tax assets with the remaining balance being
offset against deferred tax liabilities arising in the same respective entity. $1,241 million (2015: $1,149 million) of net deferred tax assets
arise in entities, primarily domiciled in Switzerland and the DRC that have been loss making for tax purposes in either 2016 or 2015.
In evaluating whether it is probable that taxable profits will be earned in future accounting periods prior to any tax loss expiry as may be
the case, all available evidence was considered, including approved budgets, forecasts and business plans and, in certain cases, analysis of
historical operating results. These forecasts are consistent with those prepared and used internally for business planning and impairment
testing purposes. Following this evaluation, it was determined there would be sufficient taxable income generated to realise the benefit of
the deferred tax assets and that no reasonably possible change in any of the key assumptions would result in a material reduction in forecast
headroom of tax profits so that the recognised deferred tax asset would not be realised.
The recognised losses carried forward in Switzerland primarily relate to non-recurring events in 2011 and 2012. Based on the core business
activities conducted in Switzerland, sufficient taxable profits are expected to fully utilise the recognised tax losses prior to expiration.
The losses carried forward in the DRC have an unlimited carry forward period, subject to an annual utilisation limitation. The DRC entity
has temporarily ceased operations to complete facility improvements.
Available gross tax losses carried forward and deductible temporary differences, for which no deferred tax assets have been recognised in
the consolidated financial statements, are detailed below and will expire as follows:
US$ million
1 year
2 years
3 years
Thereafter
Unlimited
Total
2016
34
320
2,408
13,507
2,149
18,418
2015
153
69
534
16,266
1,444
18,466
As at 31 December 2016, unremitted earnings of $40,088 million (2015: $41,285 million) have been retained by subsidiaries for reinvestment.
No provision is made for income taxes that would be payable upon the distribution of such earnings.
Glencore Annual Report 2016
153
Financial statements
Notes to the financial statements
7. PROPERTY, PLANT AND EQUIPMENT
Notes
Freehold land
and buildings
Plant and
equipment
Mineral and
petroleum rights
Exploration and
evaluation
Deferred
mining costs
20,579
2,337
2,393
US$ million
Gross carrying amount:
1 January 2016
Business combination
Disposal of subsidiaries
Additions
Disposals
Effect of foreign currency
exchange movements
Other movements
31 December 2016
Accumulated depreciation
and impairment:
1 January 2016
Disposal of subsidiaries
Depreciation
Disposals
Impairments
Effect of foreign currency
exchange movements
Other movements
31 December 2016
Net book value 31 December 2016
23
23
23
5
5,326
22
(694)
62
(85)
28
149
4,808
995
(137)
263
(44)
–
3
(19)
1,061
3,747
56,037
37
(4,012)
2,606
(409)
401
(38)
–
(712)
110
(14)
303
66
–
–
–
–
–
6
54,622
20,332
2,343
19,067
(1,284)
4,063
(404)
807
85
58
22,392
32,230
4,324
(224)
978
(3)
105
50
(11)
5,219
15,113
784
–
–
–
351
–
3
1,138
1,205
Total
86,672
59
(5,513)
3,074
(522)
733
(36)
84,467
25,898
(1,725)
5,537
(453)
1,263
138
(17)
30,641
53,826
–
(95)
296
(14)
1
(219)
2,362
728
(80)
233
(2)
–
–
(48)
831
1,531
154 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
US$ million
Gross carrying amount:
1 January 2015
Business combination
Disposal and cessation of
control of subsidiaries
Additions
Disposals
Effect of foreign currency
exchange movements
Reclassification to non-
current inventory1
Other movements
31 December 2015
Accumulated depreciation
and impairment:
1 January 2015
Depreciation
Disposal and cessation of
control of subsidiaries
Disposals
Impairments
Effect of foreign currency
exchange movements
Reclassification to non-
current inventory1
Other movements
31 December 2015
Net book value 31 December 2015
Notes
Freehold land
and buildings
Plant and
equipment
Mineral and
petroleum rights
Exploration and
evaluation
Deferred
mining costs
23
23
23
5
5,568
85
(125)
121
(34)
(131)
–
(158)
5,326
775
251
(22)
(6)
18
(16)
–
(5)
995
4,331
52,840
201
(597)
4,534
(476)
(1,300)
–
835
22,505
–
(541)
428
(14)
(843)
–
(956)
56,037
20,579
10,405
4,168
(166)
(416)
5,147
(227)
–
156
19,067
36,970
2,887
1,028
(89)
(5)
641
(102)
–
(36)
4,324
16,255
2,196
2,330
–
–
147
–
–
–
(6)
2,337
681
–
–
–
74
–
–
29
784
1,553
–
–
355
(4)
–
(607)
319
2,393
581
259
–
–
–
–
(103)
(9)
728
1,665
Total
85,439
286
(1,263)
5,585
(528)
(2,274)
(607)
34
86,672
15,329
5,706
(277)
(427)
5,880
(345)
(103)
135
25,898
60,774
1 Represents a net reclassification of $504 million, including net realisable value adjustments of $103 million, from deferred mining costs to non-current inventory to better reflect the
nature of these items (see note 11).
Plant and equipment includes expenditure for construction in progress of $4,599 million (2015: $5,011 million) and a net book value of
$592 million (2015: $596 million) of obligations recognised under finance lease agreements. Mineral and petroleum rights include biological
assets of $21 million (2015: $71 million). Depreciation expenses included in cost of goods sold are $5,457 million (2015: $5,683 million), in
selling and administrative expenses $20 million (2015: $23 million) and in discontinued operation $60 million (2015: $Nil).
During 2016, $49 million (2015: $163 million) of interest was capitalised. With the exception of project specific borrowings, the rate used to
determine the amount of borrowing costs eligible for capitalisation was 3% (2015: 2.9%).
As at 31 December 2016, no property, plant or equipment was pledged as security for borrowings (2015: $Nil).
Glencore Annual Report 2016
155
Financial statements
Notes to the financial statements
Notes
Goodwill
Port allocation
rights
Licences,
trademarks and
software
Royalty and
acquired offtake
arrangements
23
23
5
14,122
(829)
–
–
–
–
1,252
(15)
–
(1)
166
6
13,293
1,408
8,243
–
–
–
–
–
–
67
(9)
28
–
–
14
–
8,243
5,050
100
1,308
394
(8)
13
(15)
2
(1)
385
156
(5)
31
5
(15)
1
(10)
163
222
318
(98)
3
–
2
33
258
104
(20)
36
–
–
–
2
122
136
Notes
Goodwill
Port allocation
rights
Licences,
trademarks
and software
Royalty and
acquired offtake
arrangements
14,122
–
–
–
–
–
14,122
8,124
–
–
119
–
–
–
8,243
5,879
2,369
(670)
–
–
(479)
32
1,252
94
(46)
42
–
–
(23)
–
67
1,185
365
–
26
(2)
(10)
15
394
111
–
29
29
(2)
(7)
(4)
156
238
485
(116)
18
(73)
(9)
13
318
146
(28)
58
–
(70)
(5)
3
104
214
Total
16,086
(950)
16
(16)
170
38
15,344
8,570
(34)
95
5
(15)
15
(8)
8,628
6,716
Total
17,341
(786)
44
(75)
(498)
60
16,086
8,475
(74)
129
148
(72)
(35)
(1)
8,570
7,516
8. INTANGIBLE ASSETS
US$ million
Cost:
1 January 2016
Disposal of subsidiaries
Additions
Disposals
Effect of foreign currency exchange movements
Other movements
31 December 2016
Accumulated amortisation and impairment:
1 January 2016
Disposal of subsidiaries
Amortisation expense1
Impairments
Disposals
Effect of foreign currency exchange movements
Other movements
31 December 2016
Net carrying amount 31 December 2016
1 Recognised in cost of goods sold.
US$ million
Cost:
1 January 2015
Disposal and cessation of control of subsidiaries
23
Additions
Disposals
Effect of foreign currency exchange movements
Other movements
31 December 2015
Accumulated amortisation and impairment:
1 January 2015
Disposal and cessation of control of subsidiaries
Amortisation expense1
Impairments
Disposals
Effect of foreign currency exchange movements
Other movements
31 December 2015
Net carrying amount 31 December 2015
1 Recognised in cost of goods sold.
23
5
156 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Goodwill
The carrying amount of goodwill has been allocated to cash-generating units (“CGUs”), or groups of CGUs as follows:
US$ million
Grain marketing business
Metals and minerals marketing businesses
Coal marketing business
Metals warehousing business
Total
Grain marketing business
2016
–
3,326
1,674
50
5,050
2015
829
3,326
1,674
50
5,879
Goodwill of $829 million was recognised in previous business combinations attributable to synergies associated with the grain marketing
division CGU, which was derecognised as a result of the disposal of Glencore Agri (see note 23).
Metals and minerals and coal marketing businesses
Goodwill of $3,326 million and $1,674 million was recognised in connection with previous business combinations and was allocated to the
metals and minerals marketing and coal marketing CGUs respectively, based on the annual synergies expected to accrue to the respective
marketing departments as a result of increased volumes, blending opportunities and freight and logistics arbitrage opportunities.
Metals warehousing business
Goodwill of $50 million (2015: $50 million) relates to the Pacorini warehousing business CGU.
Port allocation rights
Port allocation rights represent contractual entitlements to export certain amounts of coal on an annual basis from Richard Bay Coal
Terminal in South Africa recognised as part of previous business combinations. The rights are amortised on a straight-line basis over the
estimated economic life of the port of 40 years.
Licences, trademarks and software
Intangibles related to internally developed technology and patents were recognised in previous business combinations and are amortised
over the estimated economic life of the technology which ranges between 10 – 15 years.
Royalty and acquired offtake arrangements
The fair value of a royalty income stream related to output from the Antamina copper mine was recognised as part of a previous business
combination. This amount is amortised on a unit of production basis through to 2027, the expected mine life.
Acquired offtake arrangements represent contractual entitlements acquired from third parties to provide marketing services and receive
certain products produced from a mining or processing operation over a finite period of time. These rights are amortised on a straight-line
basis over the contractual term which currently ranges between 10 – 15 years.
Goodwill impairment testing
For the purpose of impairment testing, goodwill has been allocated to the CGUs, or groups of CGUs, that are expected to benefit from
the synergies of the business combination and which represent the level at which management monitors and manages the goodwill.
In assessing whether an impairment is required, the carrying value of the CGU is compared with its recoverable amount. The recoverable
amount is the higher of its fair value less costs of disposal (“FVLCD”) and its value in use (“VIU”). If the recoverable amount of the CGU is
less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to
the unit and then to the other assets of the unit on a pro-rata basis of the carrying amount of each asset in the unit. Any impairment loss
for goodwill is recognised directly in the consolidated statement of income. An impairment loss recognised for goodwill is not reversed in
subsequent periods.
Given the nature of each CGU’s activities, information on its fair value is usually difficult to obtain unless negotiations with potential
purchasers or similar transactions are taking place. Consequently,
• the recoverable amount for each of the marketing CGUs is determined by reference to the FVLCD (compared against a VIU cash flow
projection) which utilises a price to earnings multiple approach based on the 2016 approved financial budget which includes factors
such as marketing volumes handled and operating, interest and income tax charges, generally based on past experience. The price to
earnings multiple of 13.5 times (2015: 11.0 times) is derived from observable market data for broadly comparable businesses; and
• Glencore believes that no reasonably possible change in any of the above key assumptions would cause the recoverable amount to fall
below the carrying value of the CGU. The determination of FVLCD for each of the marketing CGUs uses Level 3 valuation techniques
in both years.
Glencore Annual Report 2016
157
Financial statements
Notes to the financial statements
9. INVESTMENTS IN ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS
Investments in associates and joint ventures
US$ million
1 January
Additions
Disposals
Share of income from associates and joint ventures
Share of income from associates and joint ventures from discontinued operations
Share of other comprehensive income from associates and joint ventures
Fair value of retained interest in Glencore Agri
Disposal of equity accounted investments within Glencore Agri
Dividends received
Impairments
Discontinued operations share of impairments
Reclassification
Other movements
31 December
Of which:
Investments in associates
Investments in joint ventures
Notes
23
23
23
5
5
2016
11,337
15
(9)
11
15
–
3,125
(624)
(833)
–
–
46
3
2015
Restated1
12,274
236
(612)
99
2
(26)
–
–
(428)
(193)
(16)
46
(45)
13,086
11,337
6,910
6,176
8,166
3,171
1 Certain amounts shown here reflect the adjustments made relating to discontinued operations (see note 23).
As at 31 December 2016, the fair value of listed associates and joint ventures, which have a carrying value of $555 million (2015:
$681 million), using published price quotations (a Level 1 fair value measurement) was $424 million (2015: $255 million). The 2016 and 2015
balance mainly comprises Century Aluminum which has a carrying value of $460 million (2015: $592 million).
Additions
In June 2015, Glencore completed the acquisition of a 50% stake in the Barcarena grain terminal in northern Brazil for $115 million.
With this acquisition, Glencore now owns two key ports in the Northern corridor of Brazil which is expected to give access to fast growing
origination areas like Mato Grosso and Matopiba, enabling the Group to increase its marketing of corn and soya beans.
Disposals
2015 disposals mainly relate to the in specie distribution of the stake in Lonmin plc (see notes 3 and 16).
158 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Details of material associates and joint ventures
Summarised financial information in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’ and
joint ventures’ relevant figures, is set out below.
US$ million
2016
Non-current assets
Current assets
Non-current liabilities
Current liabilities
The above assets and liabilities include
the following:
Cash and cash equivalents
Current financial liabilities1
Non-current financial liabilities1
Net assets 31 December 2016
Glencore’s ownership interest
Acquisition fair value and other adjustments
Carrying value
1 Financial liabilities exclude trade, other payables and provisions.
Cerrejón
Antamina
Total material
associates
Collahuasi Glencore Agri
Total material
joint ventures
Total material
associates and
joint ventures
2,487
670
(604)
(291)
108
(1)
–
2,262
33.3%
1,028
1,781
4,313
952
(1,064)
(470)
90
(77)
(135)
3,731
33.8%
2,021
3,282
6,800
1,622
(1,668)
(761)
198
(78)
(135)
5,993
3,049
5,063
4,504
1,164
(1,032)
(442)
127
(2)
(77)
4,194
44.0%
1,176
3,021
4,461
6,354
(841)
(6,286)
147
(3,420)
(603)
3,688
50.0%
1,311
3,155
8,965
7,518
(1,873)
(6,728)
274
(3,422)
(680)
7,882
2,487
6,176
15,765
9,140
(3,541)
(7,489)
472
(3,500)
(815)
13,875
5,536
11,239
Summarised profit and loss in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’ and joint
ventures’ relevant figures for the year ended 31 December 2016, including group adjustments relating to alignment of accounting policies
or fair value adjustments, is set out below.
US$ million
2016
Revenue
(Loss)/income for the year
Other comprehensive (loss)/income
Total comprehensive (loss)/income
Glencore’s share of dividends paid
The above profit for the year includes the following:
Depreciation and amortisation
Interest income1
Interest expense2
Impairment, net of tax3
Income tax expense
1 Includes foreign exchange gains and other income of $37 million.
2 Includes foreign exchange losses of $49 million.
Cerrejón
Antamina
Total material
associates
Collahuasi Glencore Agri
Total material
joint ventures
Total material
associates and
joint ventures
1,822
(913)
–
(913)
105
(534)
–
(14)
(1,036)
(49)
2,429
584
–
584
338
4,251
(329)
–
(329)
443
(774)
(1,308)
28
(31)
–
(420)
28
(45)
(1,036)
(469)
2,285
2,170
4,455
459
(11)
448
352
(581)
1
(25)
–
(168)
76
10
86
–
(20)
12
(11)
–
(32)
535
(1)
534
352
(601)
13
(36)
–
(200)
8,706
206
(1)
205
795
(1,909)
41
(81)
(1,036)
(669)
3 Glencore’s attributable share of impairments relating to Cerrejón amounts to $345 million, net of taxes of $176 million, resulting from reduced near term production estimates due to
increased risks related to delays in securing approvals as a result of continued social and environmental challenges to current mine plans. The valuation remains sensitive to price and a
10% decrease of the price assumptions would result in a further impairment of $293 million.
Glencore Annual Report 2016
159
Financial statements
Notes to the financial statements
9. INVESTMENTS IN ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (continued)
US$ million
2015
Non-current assets
Current assets
Non-current liabilities
Current liabilities
The above assets and liabilities include
the following:
Cash and cash equivalents
Current financial liabilities1
Non-current financial liabilities1
Net assets 31 December 2015
Glencore’s ownership interest
Acquisition fair value and other adjustments
Carrying value
1 Financial liabilities exclude trade, other payables and provisions.
Cerrejón
Antamina
Total material
associates
Collahuasi
Total material
joint ventures
Total material
associates and
joint ventures
2,744
595
(859)
(202)
150
(5)
–
2,278
33.3%
1,431
2,190
4,279
951
(948)
(286)
133
(61)
(167)
3,996
33.8%
2,073
3,422
7,023
1,546
(1,807)
(488)
283
(66)
(167)
6,274
3,504
5,612
4,609
1,144
(986)
(273)
166
(3)
(75)
4,494
44.0%
1,194
3,171
4,609
1,144
(986)
(273)
166
(3)
(75)
11,632
2,690
(2,793)
(761)
449
(69)
(242)
4,494
10,768
1,194
3,171
4,698
8,783
Summarised profit and loss in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’ and joint
venture’s relevant figures for the year ended 31 December 2015, is set out below.
Cerrejón
Antamina
Total material
associates
Collahuasi
Total material
joint ventures
Total material
associates and
joint ventures
US$ million
2015
Revenue
(Loss)/income for the year
Other comprehensive income
Total comprehensive (loss)/income
Glencore’s share of dividends paid
The above profit for the year includes the following:
Depreciation and amortisation
Interest income1
Interest expense2
Income tax expense
1 Includes foreign exchange gains and other income of $37 million.
2 Includes foreign exchange losses of $7 million.
1,859
(187)
–
(187)
53
(557)
–
(18)
(178)
2,080
3,939
411
–
411
206
(721)
2
(9)
(233)
224
–
224
259
(1,278)
2
(27)
(411)
1,991
166
(9)
157
110
(586)
36
(10)
(54)
Aggregate information of associates that are not individually material:
US$ million
The Group’s share of loss
The Group’s share of other comprehensive income/(loss)
The Group’s share of total comprehensive income/(loss)
Aggregate carrying value of the Group’s interests
1,991
166
(9)
157
110
(586)
36
(10)
(54)
2016
(122)
–
(122)
1,847
5,930
390
(9)
381
369
(1,864)
38
(37)
(465)
2015
(48)
(22)
(70)
2,554
Glencore’s share of total comprehensive income did not include joint ventures other than the material joint ventures discussed above.
The amount of corporate guarantees in favour of associates and joint ventures as at 31 December 2016 was $470 million (2015: $337 million).
In addition, there still exist guarantees amounting to $7,339 million in favour of Glencore Agri and, following release of its 2016
consolidated financial results (expected by end of Q1 2017), as part of post-completion matters, Glencore expects to terminate these,
with the exception of $400 million related to legacy Viterra 2020 bonds outstanding. No amounts have been claimed or provided as at
31 December 2016. Glencore’s share of joint ventures’ capital commitments amounts to $154 million (2015: $176 million).
160 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Other investments
US$ million
Available for sale
United Company Rusal plc
OAO NK Russneft
Fair value through profit and loss
Volcan Compania Minera S.A.A.
Century Aluminum Company cash-settled equity swaps
Other
Total
Available for sale investments
2016
2015
562
895
1,457
124
78
94
296
1,753
407
685
1,092
95
40
78
213
1,305
Glencore accounts for its interests in United Company Rusal plc and OAO NK Russneft (“Russneft”) as available for sale investments at fair
value with mark-to-market movements recognised in other comprehensive income. Although Glencore holds a 25% interest in Russneft, it
does not exercise significant influence over the financial and operating policy decisions of Russneft.
10. ADVANCES AND LOANS
US$ million
Loans to associates1
Rehabilitation trust fund
Other non-current receivables and loans2
Total
1 Loans to associates generally bear interest at applicable floating market rates plus a premium.
2 Includes advances, net of $2,284 million (2015: $1,427 million) provided by various banks.
Rehabilitation trust fund
2016
526
193
2,764
3,483
2015
436
152
2,417
3,005
Glencore makes contributions to controlled funds that were established to meet the costs of its restoration and rehabilitation liabilities,
primarily in South Africa. These funds are not available for the general purposes of the Group, and there is no present obligation to make
any further contributions.
Other non-current receivables and loans comprise the following:
US$ million
Counterparty
Secured marketing related financing arrangements1
Société Nationale d’Electricité (“SNEL”) power advances
Chad State National Oil Company
Société Nationale des Pétroles du Congo
Iron ore prepayment
Other
Total
2016
2015
1,043
1,004
295
389
292
89
656
266
544
165
–
438
2,764
2,417
1 Various marketing related financing facilities, generally secured against certain assets and/or payable from the future sale of production of the counterparty. The advances and loans are
interest-bearing and on average are to be repaid over a three-year period.
SNEL power advances
In early 2012, a joint agreement with Société Nationale d’Électricité (“SNEL”), the Democratic Republic of the Congo’s (“DRC”) national
electricity utility, was signed whereby Glencore’s operations will contribute $386 million to a major electricity infrastructure refurbishment
programme, including transmission and distribution systems. This is expected to facilitate a progressive increase in power availability to
450 megawatts by the end of 2017. Funding commenced in the second quarter of 2012 and will continue until the end of 2017. The loans are
being repaid via discounts on electricity purchases, which will accelerate upon completion of the refurbishment programme.
Glencore Annual Report 2016
161
Financial statements
Notes to the financial statements
10. ADVANCES AND LOANS (continued)
Chad State National Oil Company
Glencore has provided a net $418 million (2015: $544 million) to the Chad State National Oil Company (“SHT”) to be repaid through future
oil deliveries over seven years. As at 31 December 2016, the advance is net of $972 million (2015: $905 million) provided by a syndicate of
banks, the repayment terms of which are contingent upon and connected to the receipt of oil due from SHT under the prepayment. Of the
net amount advanced, $389 million (2015: $544 million) is receivable after 12 months and is presented within Other non-current receivables
and loans and $29 million (2015: $Nil) is due within 12 months, such amounts included within Accounts receivable.
Société Nationale des Pétroles du Congo (“SNPC“)
In 2016, Glencore advanced an additional $118 million to SNPC, repayable through future oil deliveries over five years. As at 31 December
2016, the total advance of $336 million (2015: $218 million) is recorded net of $512 million (2015: $522 million) provided by the bank market,
the repayment terms of which are contingent upon and connected to the future receipt of oil contractually due from SNPC. Of the net
amount advanced, $292 million (2015: $165 million) is due after 12 months and is presented within Other long-term receivables and loans
and $44 million (2015: $53 million) is due within 12 months and included within Accounts receivable.
Iron ore prepayment
In 2016, Glencore advanced $160 million to iron ore suppliers to be repaid through future iron ore deliveries over two years. As at
31 December 2016, the total advance of $1,571 million is recorded net of $1,414 million provided by the bank market, the repayment terms
of which are contingent upon and connected to the future receipt of iron ore contractually due from the counterpart. Of the net amount
advanced, $89 million is due after 12 months and presented within Other long-term receivables and loans and $68 million is due within
12 months and included within Accounts receivable.
11. INVENTORIES
Current inventory
Inventories of $18,347 million (2015: $18,303 million) comprise $11,323 million (2015: $10,928 million) of inventories carried at fair value less
costs of disposal and $7,024 million (2015: $7,375 million) valued at the lower of cost or net realisable value. The amount of inventories and
related ancillary costs recognised as an expense during the year approximates the cost of goods sold balance.
Fair value of inventories is a Level 2 fair value measurement (see note 26) using observable market prices obtained from exchanges, traded
reference indices or market survey services adjusted for relevant location and quality differentials. There are no significant unobservable
inputs in the fair value measurement of such inventories.
Glencore has a number of dedicated financing facilities, which finance a portion of its inventories. In each case, the inventory has not
been derecognised as the Group retains the principal risks and rewards of ownership. The proceeds received are recognised as current
borrowings (see note 18). As at 31 December 2016, the total amount of inventory secured under such facilities was $1,632 million (2015:
$1,649 million). The proceeds received and recognised as current borrowings were $1,320 million (2015: $1,607 million) and $61 million
(2015: $Nil) were recognised as non-current borrowings.
Non-current inventory
$564 million (2015: $504 million) of inventories valued at the lower of cost or net realisable value are not expected to be utilised or sold
within 12 months and are therefore classified as non-current inventory.
12. ACCOUNTS RECEIVABLE
US$ million
Trade receivables1
Trade advances and deposits1,2,3
Associated companies1
Income tax receivable
Other receivables
Total
2016
10,482
7,053
444
201
1,886
20,066
2015
10,175
4,206
414
306
1,900
17,001
1 Collectively referred to as receivables presented net of allowance for doubtful debts.
2 Includes advances, net of $614 million (2015: $180 million) provided by banks, the repayment terms of which are contingent upon and connected to the future delivery of contractual
production over the next 12 months.
3 In December 2015, impairments of $359 million were recognised reflecting non-performance of contractual terms and a recoverable value provision in respect of trade advances and
deposits (see note 5).
The average credit period on sales of goods is 25 days (2015: 27 days).
As at 31 December 2016, 7% (2015: 6%) of receivables were between 1 to 60 days overdue, and 4% (2015: 5%) were greater than 60 days
overdue. Such receivables, although contractually past their due dates, are not considered impaired as there has not been a significant
change in credit quality of the relevant counterparty, and the amounts are still considered recoverable taking into account customary
payment patterns and in many cases, offsetting accounts payable balances.
162 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
The movement in allowance for doubtful accounts is detailed below:
US$ million
1 January
Released during the year
Charged during the year
Utilised during the year
Disposal of subsidiaries
31 December
2016
269
(58)
232
(46)
(102)
295
2015
293
(62)
80
(42)
–
269
Glencore has a number of dedicated financing facilities, which finance a portion of its receivables. The receivables have not been
derecognised, as the Group retains the principal risks and rewards of ownership. The proceeds received are recognised as current
borrowings (see note 18). As at 31 December 2016, the total amount of trade receivables secured was $1,917 million (2015: $2,205 million)
and proceeds received and classified as current borrowings amounted to $1,670 million (2015: $1,937 million).
13. CASH AND CASH EQUIVALENTS
US$ million
Bank and cash on hand
Deposits and treasury bills
Total
As at 31 December 2016, $22 million (2015: $22 million) was restricted.
14. SHARE CAPITAL AND RESERVES
Authorised:
31 December 2016 and 2015 Ordinary shares with a par value of $0.01 each
Issued and fully paid up:
1 January 2015
Share issuance
Distributions paid (see note 16)
31 December 2015 – Ordinary shares
31 December 2016 – Ordinary shares
2016
2,050
458
2,508
2015
2,059
648
2,707
Number of
shares
(thousand)
50,000,000
13,278,405
1,307,795
–
14,586,200
14,586,200
Share capital
(US$ million)
Share premium
(US$ million)
–
133
13
–
146
146
–
52,533
2,431
(2,626)
52,338
52,338
In September 2015, a total of 1,307,794,600 new ordinary shares in Glencore were placed at a price of 125 pence per share, raising gross
proceeds of approximately $2.5 billion. The new shares issued represented approximately 10% of the Company’s issued ordinary share
capital prior to the placing.
Treasury Shares
Trust Shares
Total
Number
of shares
(thousand)
Share
premium
(US$ million)
Number
of shares
(thousand)
Share
premium
(US$ million)
Number
of shares
(thousand)
Share
premium
(US$ million)
Own shares:
1 January 2015
Own shares purchased during the year
Own shares transferred to satisfy employee
share awards
Own shares disposed during the year
31 December 2015
1 January 2016
Own shares purchased during the year
Own shares transferred to satisfy employee
share awards
Own shares disposed during the year
143,278
58,050
(9,869)
–
191,459
191,459
–
–
–
(758)
(240)
50
–
(948)
(948)
–
–
–
31 December 2016
191,459
(948)
150,462
28,843
9,869
(14,770)
174,404
174,404
–
–
(7,474)
166,930
(735)
(41)
(50)
62
(764)
(764)
–
–
12
(752)
293,740
86,893
–
(14,770)
365,863
365,863
–
–
(7,474)
358,389
Glencore Annual Report 2016
(1,493)
(281)
–
62
(1,712)
(1,712)
–
–
12
(1,700)
163
Financial statements
Notes to the financial statements
14. SHARE CAPITAL AND RESERVES (continued)
Own shares
Own shares comprise shares acquired under the Company’s previous share buy-back programme and shares of Glencore plc held by
Group employee benefit trusts (“the Trusts”) to satisfy the potential future settlement of the Group’s employee stock plans, primarily
assumed as part of previous business combinations.
The Trusts also coordinate the funding and manage the delivery of ordinary shares and free share awards under certain of Glencore’s
share plans. The shares have been acquired by either stock market purchases or share issues from the Company. The Trusts are permitted
to sell the shares and may hold up to 5% of the issued share capital of the Company at any one time. The Trusts have waived the right to
receive distributions from the shares that they hold. Costs relating to the administration of the Trust are expensed in the period in which
they are incurred.
As at 31 December 2016, 358,389,443 shares (2015: 365,863,517 shares), equivalent to 2.5% (2015: 2.5%) of the issued share capital were held at
a cost of $1,700 million (2015: $1,712 million) and market value of $1,227 million (2015: $488 million).
Translation
adjustment
Cash flow hedge
reserve
Net unrealised
gain/(loss)
(2,163)
(1,727)
–
–
–
311
(3,579)
(3,579)
440
–
–
(31)
–
22
595
(2,553)
58
–
(89)
–
–
–
(31)
(31)
–
99
–
30
–
21
(3)
116
Net ownership
changes in
subsidiaries
(815)
–
–
–
(16)
–
(831)
(831)
–
–
–
1
68
–
10
Other reserves
10
–
–
–
–
–
10
10
–
–
–
–
–
–
–
Total
(2,409)
(1,727)
(89)
(489)
(16)
311
(4,419)
(4,419)
440
99
365
–
68
43
602
501
–
–
(489)
–
–
12
12
–
–
365
–
–
–
–
377
(752)
10
(2,802)
Other reserves
US$ million
1 January 2015
Exchange loss on translation of foreign
operations
Loss on cash flow hedges, net of tax
Loss on available for sale financial instruments
Change in ownership
interest in subsidiaries
Foreign currency translation losses recycled to
the statement of income
31 December 2015
1 January 2016
Exchange gain on translation of foreign
operations
Gain on cash flow hedges, net of tax
Gain on available for sale financial
instruments
Reclassifications
Change in ownership interest in subsidiaries
Discontinued operations
Items recycled to the statement of income
upon disposal of subsidiaries (see note 23)
31 December 2016
164 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
15. EARNINGS PER SHARE
US$ million
Profit/(loss) attributable to equity holders of the Parent
Continuing operations
Discontinued operations
Profit/(loss) attributable to equity holders of the Parent for basic earnings per share
2016
(744)
2,123
1,379
2015
Restated1
(5,220)
256
(4,964)
Weighted average number of shares for the purposes of basic earnings per share (thousand)
14,224,100
13,317,970
Effect of dilution:
Equity-settled share-based payments (thousand)2
Weighted average number of shares for the purposes of diluted earnings per share (thousand)2
Basic earnings/(loss) per share (US$)
Continuing operations
Discontinued operations
Total basic earnings/(loss) per share
Diluted earnings/(loss) per share (US$)2
Continuing operations
Discontinued operations
Total diluted earnings/(loss) per share
134,179
14,358,279
(0.05)
0.15
0.10
(0.05)
0.15
0.10
–
–
(0.39)
0.02
(0.37)
(0.39)
0.02
(0.37)
1 Certain amounts shown here reflect the adjustments made relating to discontinued operations (see note 23).
2 As both the result attributable to equity holders and to Headline results is a loss in 2015, the effect has not been presented as this would be anti-dilutive.
Headline earnings:
Headline earnings is a Johannesburg Stock Exchange (“JSE”) defined performance measure. The calculation of basic and diluted earnings
per share, based on headline earnings as determined by the requirements of the Circular 2/2015 as issued by the South African Institute of
Chartered Accountants (“SAICA”), is reconciled using the following data:
US$ million
2016
2015
Profit/(loss) attributable to equity holders of the Parent from continuing and discontinued operations for basic
earnings per share
Net (gain)/loss on disposals2
Net loss on disposals – non-controlling interest
Net loss/(gain) on disposals – tax
Impairments3
Impairments – non-controlling interest
Impairments – tax
Headline and diluted earnings/(loss) for the year
Headline earnings/(loss) per share (US$)
Diluted headline earnings/(loss) per share (US$)1
1,379
(2,370)
–
148
1,789
(16)
(573)
357
0.03
0.03
(4,964)
1,061
(31)
(263)
6,692
(2,611)
(316)
(432)
(0.03)
(0.03)
1 In 2016 equity-settled share-based payments are only dilutive with respect to Headline earnings per share calculation. As both the result attributable to equity holders and to Headline
results is a loss in 2015, the effect has not been presented as this would be anti-dilutive.
2 2016 comprises gain on disposals and investments of $452 million, gain on disposals of property, plant and equipment of $37 million, gain on disposal of Glencore Agri of
$1,848 million and gain on disposals and investments as reported in discontinued operations of $33 million (see notes 3, 4 and 23). 2015 comprises losses on disposals and investments
of $994 million, loss from metal leak of $60 million and loss on vessel charter contract and net other expenses of $7 million (see notes 3 and 4).
3 Comprises impairments of property, plant and equipment and intangible assets (see note 5) and impairments related to Cerrejón of $521 million.
Glencore Annual Report 2016
165
Financial statements
Notes to the financial statements
16. DISTRIBUTIONS
US$ million
Paid during the year:
Final distribution for 2015 – $Nil per ordinary share (2014: $0.12 per ordinary share)
Interim distribution for 2016 – $Nil per ordinary share (2015: $0.06 per ordinary share)
In specie distribution of Group’s 23.9% in Lonmin plc
Total
2016
2015
–
–
–
–
1,551
777
298
2,626
As announced on 7 September 2015, the final distribution for 2015 and the interim distribution for 2016 were suspended.
The proposed distribution of $7 cents per ordinary share amounting to $996 million is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these financial statements. Distributions declared in respect of the year ended
31 December 2016 are expected to be paid equally ($3.5 cents each) in May 2017 and September 2017.
17. SHARE-BASED PAYMENTS
Number of
awards granted
(thousand)
Fair value at
grant date
(US$ million)
Number of
awards
outstanding
2016
(thousand)
Number of
awards
outstanding
2015
(thousand)
Expense
recognised
2016
(US$ million)
Expense
recognised
2015
(US$ million)
Deferred Bonus Plan
2014 Series
2015 Series
2016 Series
Performance Share Plan
2013 Series
2014 Series
2015 Series
2016 Series
Total
Deferred Bonus Plan
3,633
15,634
14,177
33,444
12,048
20,908
77,062
6,835
116,853
150,297
20
35
34
65
115
106
24
–
14,315
14,177
28,492
–
10,485
75,316
6,835
92,636
121,128
2,455
15,634
–
18,089
4,075
11,035
44,475
–
59,585
77,674
–
–
34
34
6
21
48
–
75
109
–
35
–
35
20
46
–
–
66
101
Under the Glencore Deferred Bonus Plan (“DBP”), the payment of a portion of a participant’s annual bonus is deferred for a period of one
to two years as an award of either ordinary shares (a ‘‘Bonus Share Award’’) or cash (a “Bonus Cash Award”). The awards are vested at
grant date with no further service conditions, however they are subject to forfeiture for malus events. The Bonus Share Awards may be
satisfied, at Glencore’s option, in shares by the issue of new ordinary shares, by the transfer of ordinary shares held in treasury or by the
transfer of ordinary shares purchased in the market or in cash, with a value equal to the market value of the award at settlement, including
distributions paid between award and settling. Glencore currently intends to settle these awards in shares. The associated expense is
recorded in the statement of income/loss as part of the expense for performance bonuses.
Performance Share Plan
Under the Glencore Performance Share Plan (“PSP”), participants are awarded PSP awards which vest in annual tranches over a specified
period, subject to continued employment and forfeiture for malus events. At grant date, each PSP award is equivalent to one ordinary
share of Glencore. The awards vest in three or five equal tranches on 30 June, 31 December or 31 January of the years following the year
of grant, as may be the case. The fair value of the awards is determined by reference to the market price of Glencore’s ordinary shares at
grant date. The PSP awards may be satisfied, at Glencore’s option, in shares by the issue of new ordinary shares, by the transfer of ordinary
shares held in treasury or by the transfer of ordinary shares purchased in the market or in cash, with a value equal to the market value of
the award at vesting, including distributions paid between award and vesting. Glencore currently intends to settle these awards in shares.
166 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Share-based awards assumed in previous business combinations
1 January 2015
Forfeited
Lapsed
Exercised¹
31 December 2015
1 January 2016
Dilution due to share issue
Forfeited
Lapsed
Exercised¹
31 December 2016
Total options
outstanding
(thousands)
Weighted
average exercise
price (GBP)
148,562
–
–
(1,960)
146,602
146,602
322
–
(5,424)
(228)
141,272
3.83
–
–
1.69
3.89
–
–
2.85
1.10
1 The weighted average share price at date of exercise of the share based awards was GBP2.80 (2015: GBP2.89).
As at 31 December 2016, a total of 141,271,783 options (2015: 146,601,834 options) were outstanding and exercisable, having a range
of exercise prices from GBP1.095 to GBP6.87 (2015: GBP1.098 to GBP6.880) and a weighted average exercise price of GBP3.8941 (2015:
GBP3.853). These outstanding awards have expiry dates ranging from March 2017 to February 2022 (2015: March 2016 to February 2022)
and a weighted average contractual life of 3.6 years (2015: 2.8 years). The awards may be satisfied at Glencore’s option, by the issue of
new ordinary shares, by the transfer of ordinary shares held in treasury or by the transfer of ordinary shares purchased in the market.
Glencore currently intends to settle these awards, when exercised, by the transfer of ordinary shares held in treasury.
18. BORROWINGS
US$ million
Non-current borrowings
Capital market notes
Committed syndicated revolving credit facilities
Finance lease obligations
Other bank loans
Total non-current borrowings
Current borrowings
Secured inventory/receivables facilities
U.S. commercial paper
Capital market notes
Finance lease obligations
Other bank loans1
Total current borrowings
Notes
2016
2015
28
11/12
28
21,968
476
326
418
28,938
2,994
376
624
23,188
32,932
2,990
–
4,388
75
2,577
10,030
3,544
15
4,474
88
2,996
11,117
1 Comprises various uncommitted bilateral bank credit facilities and other financings.
Committed syndicated revolving credit facilities
In February 2016, fully syndicated and effective from May 2016, Glencore signed a new one-year revolving credit facility for a total amount
of $7.7 billion. This facility refinanced the $8.45 billion one-year revolving credit facility signed in May 2015. Funds drawn under the
facilities bear interest at US$LIBOR plus a margin of 50/60 basis points per annum.
As at 31 December 2016, the active facilities comprise:
• a $7.7 billion short-term revolving credit facility with a 12 month borrower’s term-out option (to May 2018) and 12 month extension
option; and
• a $6.8 billion medium-term revolving credit facility (to May 2020) with one 12 month extension option or 24 month extension option.
Glencore Annual Report 2016
167
Financial statements
Notes to the financial statements
18. BORROWINGS (continued)
Capital Market Notes
US$ million
AUD 500 million 4.500% coupon bonds
Euro 1,250 million 5.250% coupon bonds
Euro 500 million 5.250% coupon bonds
Euro 1,250 million 4.625% coupon bonds
Euro 1,000 million 2.625% coupon bonds
Euro 750 million 3.375% coupon bonds
Euro 1,250 million 1.250% coupon bonds
Euro 600 million 2.750% coupon bonds
Euro 700 million 1.625% coupon bonds
Euro 1,000 million 1.875% coupon bonds
Euro 400 million 3.700% coupon bonds
Euro 750 million 1.750% coupon bonds
Euro 500 million 3.750% coupon bonds
Eurobonds
JPY 10 billion 1.075% coupon bonds
GBP 650 million 6.500% coupon bonds
GBP 500 million 7.375% coupon bonds
GBP 500 million 6.000% coupon bonds
Sterling bonds
CHF 450 million 2.625% coupon bonds
CHF 175 million 2.125% coupon bonds
CHF 500 million 1.250% coupon bonds
CHF 250 million 2.250% coupon bonds
Swiss Franc bonds
US$ 700 million 3.600% coupon bonds
US$ 250 million 5.500% coupon bonds
US$ 1,750 million 2.700% coupon bonds
US$ 250 million LIBOR plus 1.06% coupon bonds
US$ 500 million 2.125% coupon bonds
US$ 200 million LIBOR plus 1.200% coupon bonds
US$ 500 million LIBOR plus 1.360% coupon bonds
US$ 1,500 million 2.500% coupon bonds
US$ 1,000 million 3.125% coupon bonds
US$ 1,000 million 2.875% coupon bonds
US$ 400 million 5.950% coupon bonds
US$ 1,000 million 4.950% coupon bonds
US$ 250 million LIBOR plus 1.650% coupon bonds
US$ 1,000 million 4.250% coupon bonds
US$ 1,500 million 4.125% coupon bonds
US$ 1,000 million 4.625% coupon bonds
US$ 500 million 4.000% coupon bonds
US$ 250 million 6.200% coupon bonds
US$ 500 million 6.900% coupon bonds
US$ 500 million 6.000% coupon bonds
US$ 500 million 5.550% coupon bonds
US$ bonds
Total non-current bonds
168 Glencore Annual Report 2016
Maturity
Sep 2019
Mar 2017
Jun 2017
Apr 2018
Nov 2018
Sep 2020
Mar 2021
Apr 2021
Jan 2022
Sep 2023
Oct 2023
Mar 2025
Apr 2026
May 2022
Feb 2019
May 2020
Apr 2022
Dec 2018
Dec 2019
Dec 2020
May 2021
Jan 2017
Jun 2017
Oct 2017
Apr 2018
Apr 2018
May 2018
Jan 2019
Jan 2019
Apr 2019
Apr 2020
Aug 2020
Nov 2021
May 2022
Oct 2022
May 2023
Apr 2024
Apr 2025
Jun 2035
Nov 2037
Nov 2041
Oct 2042
2016
370
–
–
1,296
1,055
781
1,294
617
733
1,048
420
784
524
8,552
86
798
689
621
2015
374
1,281
556
1,337
1,086
801
1,330
633
753
–
432
804
539
9,552
83
948
821
747
2,108
2,516
443
172
492
246
1,353
–
–
–
48
159
200
279
690
451
416
–
1,056
250
1,013
1,536
1,034
484
273
597
540
473
9,499
21,968
449
174
498
–
1,121
707
262
1,753
233
463
200
499
1,474
1,006
990
400
1,066
250
1,016
1,553
1,046
485
274
600
541
474
15,292
28,938
Strategic report | Governance | Financial statements | Additional information
Capital Market Notes
US$ million
Euro 1,250 million 1.750% coupon bonds
Euro 1,250 million 5.250% coupon bonds
Euro 500 million 5.250% coupon bonds
Eurobonds
US$ 500 million LIBOR plus 1.16% coupon bonds
US$ 1,000 million 1.700% coupon bonds
US$ 1,000 million 5.800% coupon bonds
US$ 700 million 3.600% coupon bonds
US$ 250 million 5.500% coupon bonds
US$ 1,750 million 2.700% coupon bonds
US$ bonds
CHF 825 million 3.625% coupon bonds
Total current bonds
2016 Bond activities
Maturity
May 2016
Mar 2017
Jun 2017
May 2016
May 2016
Nov 2016
Jan 2017
Jun 2017
Oct 2017
Apr 2016
2016
–
1,244
514
1,758
–
–
–
660
254
1,716
2,630
–
4,388
• In May, issued a 5 year CHF 250 million, 2.25% coupon bond.
• In September, issued a 7 year Euro 1,000 million, 1.875% coupon bond.
• In October, repurchased bonds with a nominal value of $1,492 million, comprising primarily 2018 and 2019 maturities.
• In December, repurchased bonds with a nominal value of $1,137 million, comprising primarily 2019 and 2020 maturities.
Secured facilities
US$ million
Syndicated committed metals
inventory/receivables facilities
Syndicated uncommitted metals
inventory/receivables facilities
Syndicated uncommitted oil
receivables facilities
Syndicated uncommitted agricultural
products inventory/receivables facilities
Total
Maturity
Borrowing base
Mar 2017
Jan1/Mar/Apr/Oct 2017
Oct 2017
Jan/Oct 2016
100
2,936
550
–
3,586
Interest
US$ LIBOR
+ 160 bps
US$ LIBOR
+ 50/95/110/160 bps
US$ LIBOR
+ 95 bps
US$ LIBOR
+ 70 bps
2016
100
2,340
550
–
2,990
1 Since year-end, in the ordinary course of business, these maturities have been rolled/extended as required.
2015
1,228
–
–
1,228
489
1,000
934
–
–
–
2,423
823
4,474
2015
350
2,161
550
483
3,544
Glencore Annual Report 2016
169
Financial statements
Notes to the financial statements
19. DEFERRED INCOME
US$ million
1 January 2015
Additions
Utilised in the year
Disposals and loss of control of subsidiaries
Effect of foreign currency exchange difference
23
31 December 2015
Current
Non-current
1 January 2016
Additions
Utilised in the year
Effect of foreign currency exchange difference
31 December 2016
Current
Non-current
Unfavourable contracts
Notes
Unfavourable
contracts
Prepayments
1,138
–
(146)
(212)
(127)
653
53
600
653
–
(74)
38
617
56
561
135
900
(149)
–
–
886
34
852
886
971
(70)
–
1,787
82
1,705
Total
1,273
900
(295)
(212)
(127)
1,539
87
1,452
1,539
971
(144)
38
2,404
138
2,266
In previous business combinations, Glencore recognised liabilities related to various assumed contractual agreements to deliver tonnes
of coal and zinc concentrates over periods ending between 2017 and 2034 at fixed prices lower than the prevailing market prices on the
respective acquisition dates.
These amounts are released to revenue as the underlying commodities are delivered to the buyers over the life of the contracts at rates
consistent with the implied forward price curves at the time of the acquisitions.
Prepayments
Antapaccay
In February 2016, Glencore entered into a long-term streaming agreement with Franco-Nevada, for the delivery of gold and silver calculated
by reference to copper produced by the Antapaccay mine in Peru. Glencore will deliver 300 ounces of gold per 1,000 tonnes of copper in
concentrate until 630,000 ounces of gold have been delivered and 30% of gold production thereafter, and 4,700 ounces of silver per 1,000
tonnes of copper in concentrate until 10,000,000 ounces of silver have been delivered and 30% of silver production thereafter. In consideration,
Franco-Nevada made an advance payment of $500 million and pays an ongoing amount of 20% of the spot gold and silver price per ounce
delivered, increasing to 30% of the respective spot prices after 750,000 ounces of gold and 12,800,000 ounces of silver have been delivered
under the streaming agreement. The arrangement has been accounted for as an executory contract whereby the advance payment has been
recorded as deferred revenue. The revenue from the advance payment is being recognised as the silver and gold is delivered to Franco-
Nevada at an amount consistent with the implied forward price curve at the time of the transaction along with the ongoing cash payments.
An accretion expense, representing the time value of the upfront deposit on the deferred revenue balance, is also being recognised.
Ernest Henry
In October 2016, Glencore entered into an agreement with Evolution Mining Limited (“Evolution”), whereby Glencore received
$669 million cash in return for a 30% economic interest in the Ernest Henry Mine mining operation (“EHM”) and an entitlement to 100% of
the gold produced from Glencore’s remaining 70% interest in EHM. The consideration received was allocated between the two elements of
the transaction (sale of the 30% interest and the 70% gold prepaid streaming arrangement) by estimating the fair value of the gold stream
by reference to the net present value of the anticipated gold to be delivered over the life of mine ($471 million) with the residual amount
representing the consideration for the 30% interest ($198 million, see note 23). The gold streaming element of the arrangement has been
accounted for as an executory contract whereby the advance payment ($471 million) has been recorded as deferred revenue. The revenue
from the advance payment is being recognised as the gold is delivered to Evolution at an amount consistent with the implied forward
price curve at the time of the transaction. An accretion expense, representing the time value of the upfront deposit on the deferred revenue
balance, is also being recognised.
170 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Antamina
In December 2015, effective 1 October 2015, Glencore entered into a long-term streaming agreement with Silver Wheaton Corporation
(“Silver Wheaton”), for the delivery of the equivalent of 33.75% of the silver produced by the Antamina mine (“Antamina”) until
140 million ounces of silver is delivered, at which time, the designated percentage reduces to 22.50% of the silver production from
Antamina over the remaining life of mine. In consideration, Silver Wheaton made an up-front advance payment of $900 million and pays
an ongoing amount of 20% of the spot silver price for each ounce of silver delivered under the streaming agreement. The arrangement
has been accounted for as an executory contract whereby the advance payment has been recorded as deferred revenue. The revenue from
the advance payment is being recognised as the silver is delivered to Silver Wheaton at an amount consistent with the implied forward
price curve at the time of the transaction along with the ongoing cash payments. An accretion expense, representing the time value of the
upfront deposit on the deferred revenue balance, is also being recognised.
20. PROVISIONS
US$ million
1 January 2015
Provision utilised in the year
Accretion in the year
Assumed in business combination1
Disposals and cessation of control
of subsidiaries1
Additional provision in the year
Effect of foreign currency exchange
difference
31 December 2015
Current
Non-current
1 January 2016
Provision utilised in the year
Accretion in the year
Assumed in business combination1
Disposals of subsidiaries1
Additional provision in the year
Effect of foreign currency exchange
difference
31 December 2016
Current
Non-current
1 See note 23.
Post-retirement employee benefits
Post-retirement
employee
benefits
Other employee
entitlements
Rehabilitation
costs
1,070
(249)
–
–
(2)
102
(118)
803
–
803
803
(92)
–
–
(6)
160
(5)
860
–
860
308
(137)
–
–
–
52
(2)
221
–
221
221
(34)
–
5
(6)
32
–
218
–
218
3,836
(448)
178
–
(241)
(302)
(118)
2,905
89
2,816
2,905
(140)
181
154
(107)
164
37
3,194
144
3,050
Onerous
contracts
1,730
(447)
6
–
–
189
–
1,478
155
1,323
1,478
(381)
2
84
–
122
–
1,305
178
1,127
Other
1,187
(457)
–
21
(18)
268
(11)
990
230
760
990
(555)
–
4
(78)
448
3
812
136
676
Total
8,131
(1,738)
184
21
(261)
309
(249)
6,397
474
5,923
6,397
(1,202)
183
247
(197)
926
35
6,389
458
5,931
The provision for post-retirement employee benefits includes pension plan liabilities of $428 million (2015: $346 million) and post-
retirement medical plan liabilities of $432 million (2015: $457 million), see note 21.
Other employee entitlements
The employee entitlement provision represents the value of governed employee entitlements due to employees upon their termination of
employment. The associated expenditure will occur in a pattern consistent with when employees choose to exercise their entitlements.
Glencore Annual Report 2016
171
Financial statements
Notes to the financial statements
20. PROVISIONS (continued)
Rehabilitation costs
Rehabilitation provision represents the accrued cost required to provide adequate restoration and rehabilitation upon the completion
of production activities. These amounts will be settled when rehabilitation is undertaken, generally at the end of a project’s life, which
ranges from two to in excess of 50 years with an average for all sites, weighted by closure provision, of some 16 years. As outlined in note 1,
significant estimates are required in determining the rehabilitation provisions, one of which is the determination of appropriate discount
rates. Decreasing the rates used for active mining and processing operations by 2% would result in an increase in the overall rehabilitation
provision by $288 million, with a resulting equal movement in property, plant and equipment. In the following year, the depreciation
expense would increase by some $23 million, with an opposite direction interest expense adjustment of $8 million. The resulting net
impact in the statement of income would be a decrease of $15 million, eventually netting to $Nil over the weighted average settlement date
of the provision.
Onerous contracts
Onerous contracts represent liabilities related to contractual take or pay commitments for securing coal logistics capacity at fixed prices
and quantities higher than the acquisition date forecasted usage and prevailing market price. The provision is released to costs of goods
sold as the underlying commitments are incurred.
Other
Other comprises provisions for possible demurrage, mine concession, tax and construction related claims.
Tax disputes
Glencore assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available.
Inherent uncertainties exist in estimates of tax contingencies due to complexities of interpretation and changes in tax laws. For those
matters where it is probable that an adjustment will be made, the Group records its best estimate of these tax liabilities, including related
interest charges. The current open tax matters are spread across numerous jurisdictions and consist primarily of legacy transfer pricing
matters that have been open for a number of years and may take several more years to resolve, none of which are individually material.
Accordingly, management does not anticipate a significant risk of material change in estimates within the next financial year.
21. PERSONNEL COSTS AND EMPLOYEE BENEFITS
Total personnel costs, which include salaries, wages, social security, other personnel costs and share-based payments, incurred for the
years ended 31 December 2016 and 2015, were $4,245 million and $5,287 million, respectively. Personnel costs related to consolidated
industrial subsidiaries of $3,355 million (2015: $4,344 million) are included in cost of goods sold. Other personnel costs, including the
deferred bonus and performance share plans, are included in selling and administrative expenses.
The Company and certain subsidiaries sponsor various pension schemes in accordance with local regulations and practices. Eligibility for
participation in the various plans is either based on completion of a specified period of continuous service, or date of hire. Among these
schemes are defined contribution plans as well as defined benefit plans.
Defined contribution plans
Glencore’s contributions under these plans amounted to $118 million in 2016 (2015: $199 million).
Post-retirement medical plans
The Company participates in a number of post-retirement medical plans, principally in Canada, which provide coverage for prescription
drugs, medical, dental, hospital and life insurance to eligible retirees. Almost all of the post-retirement medical plans in the Group
are unfunded.
Defined benefit pension plans
The Company operates defined benefit plans in various countries, the main locations being Canada, Switzerland, UK and the US.
Approximately 72% of the present value of obligations accrued to date relates to the defined benefit plans in Canada, which are pension
plans that provide benefits to members in the form of a guaranteed level of pension payable for life. Contributions to the Canadian
plans are made to meet or exceed minimum funding requirements based on provincial statutory requirements and associated federal
taxation rules.
The majority of benefit payments are from trustee-administered funds; however, there are also a number of unfunded plans where
Glencore meets the benefit payments as they fall due. Plan assets held in trusts are governed by local regulations and practices in each
country. Responsibility for governance of the plans – overseeing all aspects of the plans including investment decisions and contribution
schedules – lies with Glencore. Glencore has set up committees to assist in the management of the plans and has also appointed
experienced, independent professional experts such as investment managers, actuaries, custodians, and trustees.
172 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
The movement in the defined benefit pension and post-retirement medical plans over the year is as follows:
US$ million
1 January 2016
Current service cost
Past service cost – plan amendments
Settlement
Termination benefit
Interest expense/(income)
Total expense recognised in consolidated statement of income
Gain on plan assets, excluding amounts included in interest expense – net
Gain from change in demographic assumptions
Loss from change in financial assumptions
Gain from actuarial experience
Change in asset ceiling, excluding amounts included in interest expense
Actuarial losses/(gains) recognised in consolidated statement of
comprehensive income
Employer contributions
Employee contributions
Benefits paid directly by the Company
Benefits paid from plan assets
Net cash (outflow)/inflow
Disposal of subsidiaries1
Exchange differences
Other
31 December 2016
1 See note 23.
Post-retirement
medical plans
Present value of
defined benefit
obligation
Fair value of
plan assets
Net liability for
defined benefit
pension plans
Defined benefit pension plans
457
3,405
(3,059)
7
1
–
–
18
26
–
–
5
(3)
–
2
–
–
(20)
–
(20)
(48)
15
(33)
67
(3)
(94)
4
126
100
–
(13)
137
(3)
(4)
117
–
1
(9)
(192)
(200)
(487)
11
(476)
–
–
90
–
(116)
(26)
(59)
–
–
–
–
(59)
(72)
(1)
9
192
128
529
(31)
498
432
2,946
(2,518)
346
67
(3)
(4)
4
10
74
(59)
(13)
137
(3)
(4)
58
(72)
–
–
–
(72)
42
(20)
22
428
The Group expects to make a contribution of $101 million to the defined benefit pension and post-retirement medical plans during the next
financial year.
Glencore Annual Report 2016
173
Financial statements
Notes to the financial statements
21. PERSONNEL COSTS AND EMPLOYEE BENEFITS (continued)
US$ million
1 January 2015
Current service cost
Past service cost – plan amendments
Settlement
Termination benefit
Interest expense/(income)
Total expense recognised in consolidated statement of income
Gain on plan assets, excluding amounts included in interest expense – net
Loss from change in demographic assumptions
Loss/(gain) from change in financial assumptions
(Gain)/loss from actuarial experience
Change in asset ceiling, excluding amounts included in interest expense
Actuarial gains recognised in consolidated statement of comprehensive income
Employer contributions
Employee contributions
Benefits paid directly by the Company
Benefits paid from plan assets
Net cash (outflow)/inflow
Disposal of subsidiaries1
Exchange differences
Other
31 December 2015
1 See note 23.
Post-retirement
medical plans
Present value of
defined benefit
obligation
Fair value of
plan assets
Net liability for
defined benefit
pension plans
Defined benefit pension plans
(3,654)
531
539
9
(1)
–
–
20
28
–
(1)
2
(5)
–
(4)
–
–
(24)
–
(24)
–
(82)
(82)
457
4,185
72
1
(183)
–
139
29
–
(3)
(39)
10
(4)
(36)
–
2
(10)
(217)
(225)
(3)
(545)
(548)
–
–
177
–
(123)
54
(86)
–
–
–
–
(86)
(108)
(2)
10
217
117
1
509
510
72
1
(6)
–
16
83
(86)
(3)
(39)
10
(4)
(122)
(108)
–
–
–
(108)
(2)
(36)
(38)
346
3,405
(3,059)
The defined benefit obligation accrued in Canada represents the majority for the Company. The breakdown below provides details of
the Canadian plans for both the statement of financial position and the weighted average duration of the defined benefit obligation as at
31 December 2016 and 2015. The defined benefit obligation of any other of the Group’s defined benefit plans as at 31 December 2016 does not
exceed $227 million (2015: $195 million).
2016
US$ million
Post-retirement medical plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to pensioners
Defined benefit pension plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to non-active members
of which: amounts owing to pensioners
Fair value of plan assets
Net defined benefit liability at 31 December 2016
Weighted average duration of defined benefit obligation – years
174 Glencore Annual Report 2016
Canada
Other
Total
402
123
279
2,112
545
44
1,523
(1,981)
131
12
30
4
26
834
383
241
210
(537)
297
18
432
127
305
2,946
928
285
1,733
(2,518)
428
14
Strategic report | Governance | Financial statements | Additional information
2015
US$ million
Post-retirement medical plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to pensioners
Defined benefit pension plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to non-active members
of which: amounts owing to pensioners
Fair value of plan assets
Net defined benefit liability at 31 December 2015
Weighted average duration of defined benefit obligation – years
Canada
Other
Total
395
121
274
2,534
571
102
1,861
(2,454)
80
13
62
21
41
871
457
197
217
(605)
266
18
457
142
315
3,405
1,028
299
2,078
(3,059)
346
14
The actual return on plan assets in respect of defined benefit pension plans amounted to a gain of $206 million (2015: loss of $300 million).
The plan assets consist of the following:
US$ million
Cash and short-term investments
Fixed income
Equities
Other1
Total
2016
105
1,210
1,076
127
2,518
2015
88
1,605
1,180
186
3,059
1 Includes securities in non-active markets in the amount of $18 million (2015: $58 million).
The fair value of plan assets includes none of Glencore’s own financial instruments and no property occupied by or other assets used
by Glencore. For many of the plans, representing a large portion of the global plan assets, asset-liability matching strategies are in place,
where the fixed-income assets are invested broadly in alignment with the duration of the plan liabilities, and the proportion allocated to
fixed-income assets is raised when the plan funding level increases.
Through its defined benefit plans, Glencore is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility: The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets
underperform this yield, this will create a deficit. The funded plans hold a significant proportion of equities, which are expected to
outperform bonds in the long term while contributing volatility and risk in the short term. Glencore believes that due to the long-term
nature of the plan liabilities, a level of continuing equity investment is an appropriate element of Glencore’s long-term strategy to manage
the plans efficiently.
Change in bond yields: A decrease in bond yields will increase plan liabilities, although this will be partially offset by an increase in the
value of the plans’ bond holdings.
Inflation risk: Some of the plans’ benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities, although,
in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation.
Life expectancy: The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy
will result in an increase in the plans’ liability.
Salary increases: Some of the plans’ benefit obligations related to active members are linked to their salaries. Higher salary increases will
therefore tend to lead to higher plan liabilities.
Glencore Annual Report 2016
175
Financial statements
Notes to the financial statements
21. PERSONNEL COSTS AND EMPLOYEE BENEFITS (continued)
The principal weighted-average actuarial assumptions used were as follows:
Discount rate
Future salary increases
Future pension increases
Ultimate medical cost trend rate
Post-retirement medical plans
Defined benefit pension plans
2016
4.1%
2.8%
–
4.2%
2015
4.2%
2.8%
–
4.3%
2016
3.5%
2.8%
0.3%
–
2015
3.7%
2.7%
0.4%
–
Mortality assumptions are based on the latest available standard mortality tables for the individual countries concerned. As at
31 December 2016, these tables imply expected future life expectancy, for employees aged 65, 19 to 24 years for males (2015: 19 to 24) and
22 to 25 years for females (2015: 23 to 26). The assumptions for each country are reviewed each year and are adjusted where necessary to
reflect changes in fund experience and actuarial recommendations.
The sensitivity of the defined benefit obligation to changes in principal assumptions as at 31 December 2016 is set out below, assuming that
all other assumptions are held constant and the effect of interrelationships is excluded.
Increase/(decrease) in pension obligation
US$ million
Discount rate
Increase by 100 basis points
Decrease by 100 basis points
Rate of future salary increase
Increase by 100 basis points
Decrease by 100 basis points
Rate of future pension benefit increase
Increase by 100 basis points
Decrease by 100 basis points
Medical cost trend rate
Increase by 100 basis points
Decrease by 100 basis points
Life expectancy
Increase in longevity by one year
22. ACCOUNTS PAYABLE
US$ million
Trade payables
Trade advances from buyers
Associated companies
Other payables and accrued liabilities
Total
Post-retirement
medical plans
Defined benefit
pension plans
(58)
66
–
–
–
–
56
(45)
13
(352)
422
41
(38)
33
(29)
–
–
68
2016
22,438
1,071
635
2,032
26,176
Total
(410)
488
41
(38)
33
(29)
56
(45)
81
2015
19,424
1,684
467
2,513
24,088
Trade payables are obligations to pay for goods and services. Trade payables typically have maturities up to 90 days depending on the type
of material and the geographic area in which the purchase transaction occurs and the agreed terms. The carrying value of trade payables
approximates fair value.
176 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
23. ACQUISITION AND DISPOSAL OF SUBSIDIARIES
2016 Acquisitions
In 2016, Glencore acquired controlling interests in Newlands Collinsville Abbot Point Joint Venture (“NCA”). The net cash received
in the acquisition of subsidiaries and the provisional fair value of assets acquired and liabilities assumed on the acquisition date are
detailed below:
US$ million
Non-current assets
Property, plant and equipment
Advances and loans
Current assets
Inventories
Accounts receivable1
Cash and cash equivalents
Non-current liabilities
Provisions
Current liabilities
Borrowings
Accounts payable
Provisions
Other financial liabilities
Total fair value of net (liabilities)/assets acquired
Less: cash and cash equivalents acquired
Net cash (received)/used in acquisition of subsidiaries
NCA
Other
Total
39
2
41
41
24
11
76
(242)
(242)
–
(33)
(1)
(8)
(42)
(167)
(11)
(178)
20
–
20
7
6
–
13
(4)
(4)
(10)
(17)
–
–
(27)
2
–
2
59
2
61
48
30
11
89
(246)
(246)
(10)
(50)
(1)
(8)
(69)
(165)
(11)
(176)
1 There is no material difference between the gross contractual amounts for loans and advances and accounts receivable and their fair value.
NCA
In September 2016, Glencore completed the acquisition of the remaining 45% interest in NCA, for cash consideration received of
$167 million. This increased Glencore’s ownership from 55% to 100%, providing the ability to exercise control over NCA.
If the acquisition had taken place effective 1 January 2016, the operation would have contributed additional revenue of $173 million and an
additional attributable loss of $21 million. From the date of acquisition, the operation contributed $72 million and $25 million of revenue
and attributable income, respectively.
Glencore Annual Report 2016
177
Financial statements
Notes to the financial statements
23. ACQUISITION AND DISPOSAL OF SUBSIDIARIES (continued)
2015 Acquisitions
In 2015, Glencore acquired controlling interests in Prokon Pflanzenöl GmbH, subsequently renamed Glencore Magdeburg GmbH
(“Magdeburg”) and Twin Rivers Technologies Enterprises De Transformation De Graines Oléagineuses Du Québec Inc. (“TRT”).
These operations are part of the Glencore Agri Group, which was disposed on 1 December 2016, see below. The net cash used in
the acquisition of subsidiaries and the provisional fair value of assets acquired and liabilities assumed on the acquisition dates are
detailed below:
US$ million
Non-current assets
Property, plant and equipment
Deferred tax assets
Current assets
Inventories
Accounts receivable1
Other financial assets
Cash and cash equivalents
Non-current liabilities
Deferred tax liabilities
Provisions
Current liabilities
Accounts payable
Other financial liabilities
Total fair value of net assets acquired
Less: cash and cash equivalents acquired
Net cash used in acquisition of subsidiaries
Magdeburg
178
–
178
5
6
1
4
16
(22)
(21)
(43)
(14)
(3)
(17)
134
(4)
130
TRT
108
39
147
44
22
3
5
74
–
–
–
(23)
(5)
(28)
193
(5)
188
Total
286
39
325
49
28
4
9
90
(22)
(21)
(43)
(37)
(8)
(45)
327
(9)
318
1 There is no material difference between the gross contractual amounts for loans and advances and accounts receivable and their fair value.
Magdeburg
In March 2015, Glencore completed the acquisition of a 100% interest in Magdeburg for a cash consideration of $134 million. The acquisition
of Magdeburg, an integrated oilseeds crushing and biodiesel plant located in Germany, adds further value to and enlarges our crushing
portfolio in Europe, allowing Glencore to further optimise around this business sector.
If the acquisition had taken place effective 1 January 2015, the operation would have contributed additional revenue of $15 million and an
additional attributable loss of $2 million. From the date of acquisition the operation contributed $161 million and $10 million of revenue
and attributable loss, respectively.
TRT
In November 2015, Glencore completed the acquisition of a 100% interest in TRT for a cash consideration of $193 million. TRT owns the
largest oilseed crushing and refining plant in Quebec, Canada with a capacity of 1.05 million tonnes per year.
If the acquisition had taken place effective 1 January 2015, the operation would have contributed additional revenue of $237 million and an
additional attributable loss of $20 million. From the date of acquisition the operation contributed $65 million and $1 million of revenue and
attributable income, respectively.
The acquisition accounting for Magdeburg and TRT have now been finalised, with no adjustments to the previously reported provisional
fair values.
178 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
2016 Disposals
In 2016, Glencore disposed of its controlling interest in the Glencore Agricultural products business (“Glencore Agri”), Ernest Henry
mining operation (“EHM”) and its New South Wales’ coal rail haulage business (“GRail”).
The carrying value of the assets and liabilities over which control was lost and the net cash received from these disposals are
detailed below:
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates
Advances and loans
Deferred tax assets
Current assets
Inventories
Accounts receivable
Other financial assets
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Current liabilities
Borrowings
Accounts payable
Provisions
Other financial liabilities
Carrying value of net assets disposed
Cash and cash equivalents received
Future consideration
Items recycled to the statement of income
Reclassified to investment in joint venture1
Transaction fees
Net gain on disposal
Cash and cash equivalents received
Less: Cash and cash equivalents disposed
Settlement of debt due from Glencore Agri
Net cash received from disposal
Glencore Agri
EHM
GRail
Others
Total
2,919
892
624
116
103
4,654
2,725
2,774
746
469
6,714
(37)
(602)
(138)
(111)
(851)
(3,751)
(2,315)
(36)
(629)
(6,731)
3,749
(3,125)
–
602
(3,125)
51
(1,848)
3,125
(469)
1,670
4,326
244
413
–
–
–
–
–
–
–
–
244
413
6
1
–
–
7
–
–
(36)
(9)
(45)
–
(7)
(1)
–
(8)
198
(198)
–
–
–
–
–
198
–
–
198
–
2
–
–
2
–
–
–
–
–
–
(5)
–
–
(5)
410
(840)
–
–
–
–
(430)
840
–
–
840
212
24
–
13
1
250
57
77
2
27
163
(29)
(1)
(30)
(40)
(71)
(35)
(54)
–
(2)
(91)
222
(198)
(46)
–
–
–
(22)
198
(27)
–
171
3,788
916
624
129
104
5,561
2,788
2,854
748
496
6,886
(66)
(603)
(204)
(160)
(967)
(3,786)
(2,381)
(37)
(631)
(6,835)
4,579
(4,361)
(46)
602
(3,125)
51
(2,300)
4,361
(496)
1,670
5,535
1 Includes a gain of $1,252 million attributable to the remeasurement of the retained Glencore Agri investment to its fair value upon change in control.
Glencore Annual Report 2016
179
Financial statements
Notes to the financial statements
23. ACQUISITION AND DISPOSAL OF SUBSIDIARIES (continued)
Glencore Agri
On 6 April 2016, Glencore announced that it had entered into an agreement with the Canada Pension Plan Investment Board for the sale
of a 40% equity interest in Glencore Agri and on 9 June 2016, entered into an agreement with British Columbia Investment Management
Corporation for the sale of a 10% equity interest in Glencore Agri. The aggregate equity consideration for the combined 50% interest,
including the indirect assumption of certain levels of net working capital and debt, amounted to $3.125 billion, payable in cash
upon closing.
Glencore Agri represents the entire Agricultural products operating segment and was determined to be a discontinued operation prior
to the close of transaction on 1 December 2016, and has been disclosed as such. Upon closing of the sale, Glencore is no longer able to
unilaterally direct the key strategic, operating and capital decisions of Glencore Agri and was deemed to dispose of its controlling interest
at fair value. The difference to the net carrying value was recognised through the statement of income, with Glencore subsequently
accounting for its share of the resulting joint venture using the equity method in accordance with IFRS 11 and IAS 28 (see note 9).
The results of Glencore Agri included in the consolidated statement of income until loss of control are detailed below:
US$ million
Revenue
Cost of goods sold
Selling and administrative expenses
Share of income from associates
Gain on disposals and investments
Other expense – net
Interest income
Interest expense
Income before income taxes from discontinued operations
Income tax expense
Gain on disposal of Glencore Agri, including items recycled to the statement of income of $602 million
Income for the year from discontinued operations
Attributable to:
Non-controlling interests
Equity holders of the Parent
Earnings per share – discontinued operations:
Basic (US$)
Diluted (US$)
The net cash flows incurred by Glencore Agri are as follows:
US$ million
Net cash (used)/generated from operating activities, after working capital changes
Net cash used in investing activities
Net cash generated/(used) in financing activities
Net cash (used)/generated in discontinued operations
2016
20,885
(20,256)
(175)
2015
23,146
(22,449)
(175)
15
33
(26)
9
(79)
406
(131)
275
1,848
2,123
–
2,123
0.15
0.15
2016
(855)
(11)
671
(195)
2
–
(70)
12
(103)
363
(107)
256
–
256
–
256
0.02
0.02
2015
1,276
(677)
(579)
20
180 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
EHM
In October 2016, Glencore entered into an agreement with Evolution Mining Limited (“Evolution”), whereby Glencore received
$669 million cash in return for a 30% economic interest in the Ernest Henry Mine mining operation (“EHM”) and an entitlement to 100% of
the gold produced from Glencore’s remaining 70% interest in EHM. The consideration received was allocated between the two elements of
the transaction (sale of the 30% interest and the 70% gold prepaid streaming arrangement) by estimating the fair value of the gold stream
by reference to the net present value of the anticipated gold to be delivered over the life of mine ($471 million) with the residual amount
representing the consideration for the 30% interest ($198 million). Also see note 19. As part of the transaction, Glencore and Evolution
entered into a 70/30 joint venture agreement governing the operations of EHM. As Glencore is no longer able to unilaterally direct the key
strategic, operating and capital decisions of EHM, it is deemed to have lost control of EHM and, together with Evolution, jointly controls
it. As the new arrangement is an unincorporated joint venture, Glencore derecognised 30% of the identified assets and liabilities of EHM
against the proceeds received as noted above.
GRail
In December 2016, Glencore disposed of its New South Wales’ coal rail haulage business to Genesee & Wyoming for cash consideration of
$840 million (A$1.1 billion).
2015 Disposals
In 2015, Glencore disposed of its controlling interest in Tampakan and Falcondo. Furthermore, upon Optimum Coal commencing business
rescue proceedings, Glencore ceased having control over Optimum in August 2015. As a result of such loss of control, Optimum was no
longer accounted for as a subsidiary and has been deconsolidated (see note 3).
The carrying value of the assets and liabilities over which control was lost and net cash received from these disposals are detailed below:
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Loans and advances
Current assets
Inventories
Accounts receivable
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Borrowings
Deferred income
Deferred tax liabilities
Provisions
Current liabilities
Accounts payable
Deferred income
Provisions
Carrying value of net assets/(liabilities) disposed
Less: Cash and cash equivalents received
Add: Foreign currency translation losses recycled
to the statement of income
Net (gain)/loss on disposal
Cash and cash equivalents received
Less: Cash and cash equivalents disposed
Net cash received from disposal
1 Includes associated impairments of $152 million (see note 3).
Tampakan
Falcondo
Optimum1
Other
Total
161
–
1
162
–
21
–
21
(14)
(142)
–
–
(8)
(150)
(3)
–
–
(3)
16
(208)
–
(192)
208
–
208
11
–
–
11
45
12
1
58
–
–
–
(1)
(110)
(111)
(5)
–
–
(5)
(47)
(40)
–
(87)
40
(1)
39
809
712
256
1,777
39
34
15
88
(243)
(277)
(150)
(203)
(137)
(767)
(64)
(62)
(6)
(132)
723
–
311
1,034
–
(15)
(15)
5
–
–
5
12
12
22
46
–
–
–
(1)
–
(1)
(42)
–
–
(42)
8
(2)
–
6
2
(22)
(20)
986
712
257
1,955
96
79
38
213
(257)
(419)
(150)
(205)
(255)
(1,029)
(114)
(62)
(6)
(182)
700
(250)
311
761
250
(38)
212
Glencore Annual Report 2016
181
Financial statements
Notes to the financial statements
24. FINANCIAL AND CAPITAL RISK MANAGEMENT
Financial risks arising in the normal course of business from Glencore’s operations comprise market risk (including commodity price
risk, interest rate risk and currency risk), credit risk (including performance risk) and liquidity risk. It is Glencore’s policy and practice to
identify and, where appropriate and practical, actively manage such risks (for management of “margin” risk within Glencore’s extensive
and diversified industrial portfolio, refer net present value at risk below) to support its objectives in managing its capital and future
financial security and flexibility. Glencore’s overall risk management programme focuses on the unpredictability of financial markets and
seeks to protect its financial security and flexibility by using derivative financial instruments where possible to substantially hedge these
financial risks. Glencore’s finance and risk professionals, working in coordination with the commodity departments, monitor, manage and
report regularly to senior management and the Board of Directors on the approach and effectiveness in managing financial risks along
with the financial exposures facing the Group.
Glencore’s objectives in managing its “capital attributable to equity holders” include preserving its overall financial health and strength
for the benefit of all stakeholders, maintaining an optimal capital structure in order to provide a high degree of financial flexibility at an
attractive cost of capital and safeguarding its ability to continue as a going concern, while generating sustainable long-term profitability.
Central to meeting these objectives is maintaining an investment grade credit rating status. Glencore’s current credit ratings are Baa3
(stable) from Moody’s and BBB- (positive outlook) from S&P.
Distribution policy and other capital management initiatives
In September 2015, the Board determined that no cash distributions would be made in 2016, in an effort to preserve capital and investment
grade credit ratings. In December 2016, Glencore announced the reinstatement of distributions to shareholders. Initially Glencore will
return approximately $1 billion to shareholders in two equal tranches in 2017, to be paid following preliminary full-year results and
half-year results. In 2018, the new cash distribution policy, in respect of 2017 cash flows, comprises the fixed $1 billion component and
a variable element representing a minimum 25% of free cash flow attributable to our industrial assets. The actual variable distribution
component (minimum 25% pay-out guidance) will reflect prevailing market conditions and outlook and be confirmed annually in respect
of prior period’s cash flows. Distributions are expected to be formally declared by the Board semi-annually (with the preliminary full-year
results and half-year results). Distributions, when declared, will be paid in US dollars, although shareholders will be able to elect to receive
their distribution payments in Pounds Sterling, Euros or Swiss Francs based on the exchange rates in effect around the date of payment.
Shareholders on the Hong Kong branch register will receive their distributions in Hong Kong dollars, while shareholders on the JSE will
receive their distributions in South African Rand.
Commodity price risk
Glencore is exposed to price movements for the inventory it holds and the products it produces which are not held to meet priced forward
contract obligations and forward priced purchase or sale contracts. Glencore manages a significant portion of this exposure through
futures and options transactions on worldwide commodity exchanges or in over the counter (“OTC”) markets, to the extent available.
Commodity price risk management activities are considered an integral part of Glencore’s physical commodity marketing activities and
the related assets and liabilities are included in other financial assets from and other financial liabilities to derivative counterparties,
including clearing brokers and exchanges. Whilst it is Glencore’s policy to substantially hedge its commodity price risks, there remains
the possibility that the hedging instruments chosen may not always provide effective mitigation of the underlying price risk. The hedging
instruments available to the marketing businesses may differ in specific characteristics to the risk exposure to be hedged, resulting in
an ongoing and unavoidable basis risk exposure. Residual basis risk exposures represent a key focus point for Glencore’s commodity
department teams who actively engage in the management of such.
Value at risk
One of the tools used by Glencore to monitor and limit its primary market risk exposure, principally commodity price risk related to its
physical marketing activities, is of a value at risk (“VaR”) computation. VaR is a risk measurement technique which estimates a threshold
for potential loss that could occur on risk positions as a result of movements in risk factors over a specified time horizon, given a specific
level of confidence and based on a specific price history. The VaR methodology is a statistically defined, probability-based approach
that takes into account market volatilities, as well as risk diversification by recognising offsetting positions and correlations between
commodities and markets. In this way, risks can be measured consistently across markets and commodities and risk measures can be
aggregated to derive a single risk value. Glencore’s Board has set a consolidated VaR limit (one day 95% confidence level) of $100 million
representing less than 0.5% of total equity, which the Board reviews annually. In Q2 2016, this limit was technically breached for 1 day
by $1 million as the VaR calculation did not account for the future physical coal production that was economically hedged with the
corresponding captured and reported on coal derivatives. If such underlying hedged exposure had been included in the VaR calculation,
the actual VaR number would have been substantially lower, with no resulting technical breach. Much of this hedge book has now
been realised.
Glencore uses a VaR approach based on Monte Carlo simulations computed at a 95% confidence level and utilising a weighted data history
for a one-day time horizon.
Position sheets are regularly distributed and monitored and daily Monte Carlo simulations are applied to the various business groups’ net
marketing positions to determine potential losses.
182 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Market risk VaR (one-day 95% confidence level) ranges and year-end positions were as follows:
US$ million
Year-end position
Average during the year
High during the year
Low during the year
2016
31
42
101
16
2015
18
35
52
17
VaR does not purport to represent actual gains or losses in fair value on earnings to be incurred by Glencore, nor does Glencore claim that
these VaR results are indicative of future market movements or representative of any actual impact on its future results. VaR should always
be viewed in the context of its limitations; notably, the use of historical data as a proxy for estimating future events, market illiquidity risks
and tail risks. Glencore recognises these limitations, and thus complements and continuously refines its VaR analysis by analysing forward
looking stress scenarios, benchmarking against an alternative VaR computation based on historical simulations and back testing calculated
VaR against the hypothetical portfolio returns arising in the next business day.
Glencore’s VaR computation currently covers its business in the key base metals (including aluminium, nickel, zinc, copper and lead),
coal, iron ore and oil/natural gas and assesses the open priced positions which are subject to price risk, including inventories of these
commodities. Due to the lack of a liquid terminal market, Glencore does not include a VaR calculation for products such as alumina,
molybdenum, cobalt, freight and some risk associated with concentrates as it does not consider the nature of these markets to be suited to
this type of analysis. Alternative measures are used to monitor exposures related to these products.
Net present value at risk
Glencore’s future cash flows related to its forecast energy, metals and minerals and agricultural production activities are also exposed to
commodity price movements. Glencore manages this exposure through a combination of portfolio diversification, occasional shorter-term
hedging via futures and options transactions, insurance products and continuous internal monitoring, reporting and quantification of the
underlying operations’ estimated cash flows and valuations.
Interest rate risk
Glencore is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its assets
and liabilities and cash flows. Matching of assets and liabilities is utilised as the dominant method to hedge interest rate risks; other
methods include the use of interest rate swaps and similar derivative instruments. Floating rate debt which is predominantly used to fund
fast turning working capital (interest is internally charged on the funding of this working capital) is primarily based on US$ LIBOR plus
an appropriate premium. Accordingly, prevailing market interest rates are continuously factored into transactional pricing and terms.
Assuming the amount of floating rate liabilities at the reporting period end were outstanding for the whole year, interest rates were 50
basis points higher/lower and all other variables held constant, Glencore’s income and equity for the year ended 31 December 2016 would
decrease/increase by $100 million (2015: $134 million).
Currency risk
The US dollar is the predominant functional currency of the Group. Currency risk is the risk of loss from movements in exchange rates
related to transactions and balances in currencies other than the US dollar. Such transactions include operating expenditure, capital
expenditure and to a lesser extent purchases and sales in currencies other than the functional currency. Purchases or sales of commodities
concluded in currencies other than the functional currency, apart from certain limited domestic sales at industrial operations which act
as a hedge against local operating costs, are ordinarily hedged through forward exchange contracts. Consequently, foreign exchange
movements against the US dollar on recognised transactions would have an immaterial financial impact. Glencore enters into currency
hedging transactions with leading financial institutions.
Glencore’s debt related payments (both principal and interest) are overwhelmingly denominated in or swapped using hedging
instruments into US dollars. Glencore’s operating expenses, being a small portion of its revenue base, are incurred in a mix of currencies of
which the US dollar, Swiss Franc, Pound Sterling, Canadian dollar, Australian dollar, Euro, Kazakhstan Tenge, Colombian Peso and South
African Rand are the predominant currencies.
Glencore has issued Euro, Swiss Franc, Sterling, Yen and Australian dollar denominated bonds (see note 18). Cross currency swaps were
concluded to hedge the currency risk on the principal and related interest payments of these bonds. These contracts were designated as
cash flow hedges of the foreign currency risks associated with the bonds. The fair value of these derivatives is as follows:
US$ million
Cross currency swap agreements – 2016
Cross currency swap agreements – 2015
1 Refer to note 18 for details.
Notional amounts
Recognised fair values
Buy
–
–
Sell
14,179
15,905
Assets
Liabilities
26
34
2,873
2,418
Average
maturity¹
2020
2020
Glencore Annual Report 2016
183
Financial statements
Notes to the financial statements
24. FINANCIAL AND CAPITAL RISK MANAGEMENT (continued)
Credit risk
Credit risk arises from the possibility that counterparties may not be able to settle obligations due to Glencore within their agreed payment
terms. Financial assets which potentially expose Glencore to credit risk consist principally of cash and cash equivalents, receivables and
advances, derivative instruments and non-current advances and loans. Glencore’s credit management process includes the assessment,
monitoring and reporting of counterparty exposure on a regular basis. Glencore’s cash and cash equivalents are placed overnight with a
diverse group of highly credit rated financial institutions. Credit risk with respect to receivables and advances is mitigated by the large
number of customers comprising Glencore’s customer base, their diversity across various industries and geographical areas, as well as
Glencore’s policy to mitigate these risks through letters of credit, netting, collateral and insurance arrangements where appropriate.
Additionally, it is Glencore’s policy that transactions and activities in trade related financial instruments be concluded under master
netting agreements or long form confirmations to enable offsetting of balances due to/from a common counterparty in the event of default
by the counterparty. Glencore actively and continuously monitors the credit quality of its counterparties through internal reviews and a
credit scoring process, which includes, where available, public credit ratings. Balances with counterparties not having a public investment
grade or equivalent internal rating are typically enhanced to investment grade through the extensive use of credit enhancement products,
such as letters of credit or insurance products. Glencore has a diverse customer base, with no customer representing more than 2.9%
(2015: 1.9%) of its trade receivables (on a gross basis taking into account credit enhancements) or accounting for more than 3.9% of its
revenues over the year ended 31 December 2016 (2015: 4.7%).
The maximum exposure to credit risk (including performance risk – see below), without considering netting agreements or without taking
account of any collateral held or other credit enhancements, is equal to the carrying amount of Glencore’s financial assets (see note 25).
Performance risk
Performance risk (part of the broader credit risk subject matter, discussed above) is inherent in contracts, with agreements in the future, to
physically purchase or sell commodities with fixed price attributes, and arises from the possibility that counterparties may not be willing
or able to meet their future contractual physical sale or purchase obligations to/from Glencore. Glencore undertakes the assessment,
monitoring and reporting of performance risk within its overall credit management process. Glencore’s market breadth, diversified
supplier and customer base as well as the standard pricing mechanism in the vast majority of Glencore’s commodity portfolio which does
not fix prices beyond three months, with the main exception being coal, where longer-term fixed price contracts are common, ensure that
performance risk is adequately mitigated. The commodity industry has trended towards shorter-term fixed price contract periods, in part
to mitigate against such potential performance risk, but also due to the development of more transparent and liquid spot markets, e.g.
coal and iron ore and associated derivative products and indexes.
Liquidity risk
Liquidity risk is the risk that Glencore is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis,
to borrow funds in the market on an unsecured or secured basis at an acceptable price to fund actual or proposed commitments.
Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and availability of adequate committed
funding facilities. Glencore has set itself an internal minimum liquidity target to maintain at all times, including via available committed
undrawn credit facilities of $3 billion (2015: $3 billion), which has purposely been substantially exceeded in recent years, accounting for the
more volatile market backdrop. Glencore’s credit profile, diversified funding sources and committed credit facilities, ensure that sufficient
liquid funds are maintained to meet its liquidity requirements. As part of its liquidity management, Glencore closely monitors and plans
for its future capital expenditure and proposed investments, as well as credit facility refinancing/extension requirements, well ahead
of time.
As at 31 December 2016, Glencore had available committed undrawn credit facilities, cash and marketable securities amounting to
$16,740 million (2015: $15,155 million). The maturity profile of Glencore’s financial liabilities based on the contractual terms is as follows:
US$ million
2016
Borrowings
Expected future interest payments
Accounts payable
Other financial liabilities
Total
Current assets
After 5 years
Due 3 – 5 years
Due 2 – 3 years
Due 1 – 2 years
Due 0 – 1 year
10,687
3,318
–
403
14,408
5,726
1,018
–
–
2,937
616
–
–
3,838
650
–
–
6,744
3,553
4,488
10,030
635
26,176
6,386
43,227
43,412
Total
33,218
6,237
26,176
6,789
72,420
43,412
184 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
US$ million
2015
Borrowings
Expected future interest payments
Accounts payable
Other financial liabilities
Total
Current assets
25. FINANCIAL INSTRUMENTS
Fair value of financial instruments
After 5 years
Due 3 – 5 years
Due 2 – 3 years
Due 1 – 2 years
Due 0 – 1 year
11,401
3,965
–
186
10,949
1,515
–
–
2,823
796
–
–
7,759
814
–
–
15,552
12,464
3,619
8,573
11,117
935
24,088
4,931
41,071
42,198
Total
44,049
8,025
24,088
5,117
81,279
42,198
The following tables present the carrying values and fair values of Glencore’s financial instruments. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (most advantageous) market at
the measurement date under current market conditions. Where available, market values have been used to determine fair values.
When market values are not available, fair values have been calculated by discounting expected cash flows at prevailing market interest
and exchange rates. The estimated fair values have been determined using market information and appropriate valuation methodologies,
but are not necessarily indicative of the amounts that Glencore could realise in the normal course of business.
The financial assets and liabilities are presented by class in the tables below at their carrying values, which generally approximate
the fair values with the exception of $33,218 million (2015: $44,049 million) of borrowings, the fair value of which at 31 December
2016 was $33,673 million (2015: $39,406 million) based on observable market prices applied to the borrowing portfolio (a Level 2 fair
value measurement).
US$ million
2016
Assets
Other investments3
Advances and loans
Accounts receivable
Other financial assets (see note 26)
Cash and cash equivalents and marketable securities4
Total financial assets
Liabilities
Borrowings
Non-current other financial liabilities (see note 26)
Accounts payable
Other financial liabilities (see note 26)
Total financial liabilities
Carrying
value1
Available
for sale
FVtPL2
Total
–
3,483
20,066
–
–
1,457
–
–
–
–
23,549
1,457
33,218
–
26,176
–
59,394
–
–
–
–
–
296
–
–
2,212
2,518
5,026
–
403
–
6,386
6,789
1,753
3,483
20,066
2,212
2,518
30,032
33,218
403
26,176
6,386
66,183
1 Carrying value comprises investments, loans, accounts receivable, accounts payable and other liabilities measured at amortised cost.
2 FVtPL – Fair value through profit and loss – held for trading.
3 Other investments of $1,715 million are classified as Level 1 measured using quoted market prices with the remaining balance of $38 million being investments in private companies
whose fair value cannot be reliably measured and therefore carried at cost. The movement in Level 1 measured investments compared to prior year (see below), mainly relates to the
Group’s share in Russneft, which after the listing on the Moscow stock exchange in November 2016, is measured at fair value.
4 Classified as Level 1, measured using quoted exchange rates and/or market prices.
Glencore Annual Report 2016
185
Financial statements
Notes to the financial statements
25. FINANCIAL INSTRUMENTS (continued)
US$ million
2015
Assets
Other investments3
Advances and loans
Accounts receivable
Other financial assets (see note 26)
Cash and cash equivalents and marketable securities4
Total financial assets
Liabilities
Borrowings
Non-current other financial liabilities (see note 26)
Accounts payable
Other financial liabilities (see note 26)
Total financial liabilities
Carrying
value1
Available
for sale
FVtPL2
Total
–
3,005
17,001
–
–
1,092
–
–
–
–
20,006
1,092
44,049
–
24,088
–
68,137
–
–
–
–
–
213
–
–
3,701
2,746
6,660
–
186
–
4,931
5,117
1,305
3,005
17,001
3,701
2,746
27,758
44,049
186
24,088
4,931
73,254
1 Carrying value comprises investments, loans, accounts receivable, accounts payable and other liabilities measured at amortised cost.
2 FVtPL – Fair value through profit and loss – held for trading.
3 Other investments of $568 million are classified as Level 1 measured using quoted market prices with the remaining balance of $737 million being investments in private companies
whose fair value cannot be reliably measured and therefore carried at cost.
4 Classified as Level 1, measured using quoted exchange rates and/or market prices.
Offsetting of financial assets and liabilities
In accordance with IAS 32 the Group reports financial assets and liabilities on a net basis in the consolidated statement of financial position
only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the
asset and settle the liability simultaneously. The financial assets and liabilities subject to offsetting, enforceable master netting and similar
agreements as at 31 December 2016 and 2015 were as follows:
Amounts eligible for set off
under netting agreements
Related amounts not set off
under netting agreements
US$ million
2016
Derivative assets1
Derivative liabilities1
Gross
amount
10,679
(14,288)
Amounts
offset
Net
amount
Financial
instruments
Financial
collateral
(9,834)
9,834
845
(4,454)
(288)
288
(171)
3,784
1 Presented within current other financial assets and current other financial liabilities.
Amounts
not subject
to netting
agreements
1,367
(1,932)
Net
amount
386
(382)
Amounts eligible for set off
under netting agreements
Related amounts not set off
under netting agreements
US$ million
2015
Derivative assets1
Derivative liabilities1
Gross
amount
6,164
(6,799)
Amounts
offset
(4,282)
4,282
Net
amount
1,882
(2,517)
Financial
instruments
Financial
collateral
(406)
406
(494)
1,674
Net
amount
982
(437)
1 Presented within current other financial assets and current other financial liabilities.
Amounts
not subject
to netting
agreements
1,819
(2,414)
Total as
presented
in the
consolidated
statement
of financial
position
2,212
(6,386)
Total as
presented
in the
consolidated
statement
of financial
position
3,701
(4,931)
For the financial assets and liabilities subject to enforceable master netting or similar arrangements above, each agreement between the
Group and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis.
In the absence of such an election, financial assets and liabilities may be settled on a gross basis, however, each party to the master netting
or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the other party. Per the terms
of each agreement, an event of default includes failure by a party to make payment when due, failure by a party to perform any obligation
required by the agreement (other than payment) if such failure is not remedied within periods of 30 to 60 days after notice of such failure is
given to the party or bankruptcy.
186 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
26. FAIR VALUE MEASUREMENTS
Fair values are primarily determined using quoted market prices or standard pricing models using observable market inputs where
available and are presented to reflect the expected gross future cash in/outflows. Glencore classifies the fair values of its financial
instruments into a three level hierarchy based on the degree of the source and observability of the inputs that are used to derive the fair
value of the financial asset or liability as follows:
Level 1
Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that Glencore can assess at the
measurement date; or
Level 2
Inputs other than quoted inputs included in Level 1 that are observable for the assets or liabilities, either directly or indirectly; or
Level 3 Unobservable inputs for the assets or liabilities, requiring Glencore to make market-based assumptions.
Level 1 classifications primarily include futures with a tenor of less than one year and options that are exchange traded, whereas Level
2 classifications primarily include futures with a tenor greater than one year, over the counter options, swaps and physical forward
transactions which derive their fair value primarily from exchange quotes and readily observable broker quotes. Level 3 classifications
primarily include physical forward transactions which derive their fair value predominantly from models that use broker quotes and
applicable market-based estimates surrounding location, quality and credit differentials and financial liabilities linked to the fair value of
certain mining operations. In circumstances where Glencore cannot verify fair value with observable market inputs (Level 3 fair values), it
is possible that a different valuation model could produce a materially different estimate of fair value.
It is Glencore’s policy that transactions and activities in trade related financial instruments be concluded under master netting agreements
or long form confirmations to enable balances due to/from a common counterparty to be offset in the event of default, insolvency or
bankruptcy by the counterparty.
The following tables show the fair values of the derivative financial instruments including trade related financial and physical forward
purchase and sale commitments by type of contract and non-current other financial liabilities as at 31 December 2016 and 2015.
Other assets and liabilities which are measured at fair value on a recurring basis are marketing inventories, other investments, cash and
cash equivalents and marketable securities. Refer to notes 11 and 25 for disclosures in connection with these fair value measurements.
There are no non-recurring fair value measurements.
Other financial assets
US$ million
2016
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Total
US$ million
2015
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Total
Level 1
Level 2
Level 3
Total
207
31
166
–
–
–
154
37
146
763
26
124
404
1,250
–
–
–
558
–
–
558
361
68
312
1,321
26
124
2,212
Level 1
Level 2
Level 3
Total
889
30
112
–
–
–
1,031
246
15
556
1,299
34
296
2,446
–
–
–
224
–
–
224
1,135
45
668
1,523
34
296
3,701
Glencore Annual Report 2016
187
Financial statements
Notes to the financial statements
26. FAIR VALUE MEASUREMENTS (continued)
Other financial liabilities
US$ million
2016
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Current other financial liabilities
Non-current other financial liabilities
Non-discretionary dividend obligation1
Non-current other financial liabilities
Total
US$ million
2015
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Current other financial liabilities
Non-current other financial liabilities
Non-discretionary dividend obligation1
Non-current other financial liabilities
Total
Level 1
Level 2
Level 3
Total
1,068
5
846
–
–
–
1,919
–
–
150
12
321
859
2,873
43
4,258
–
–
1,919
4,258
–
6
–
203
–
–
209
403
403
612
1,218
23
1,167
1,062
2,873
43
6,386
403
403
6,789
Level 1
Level 2
Level 3
Total
414
40
197
–
–
3
654
–
–
654
33
4
323
1,156
2,418
137
4,071
–
–
4,071
–
1
–
205
–
–
206
186
186
392
447
45
520
1,361
2,418
137
4,931
186
186
5,117
1 A ZAR denominated derivative liability payable to ARM Coal, one of the Group’s principal coal joint operations based in South Africa. The liability arises from ARM Coal’s rights as
an investor to a share of agreed free cash flows from certain coal operations in South Africa and is valued based on those cash flows using a risk adjusted discount rate. The derivative
liability is settled over the life of those operations (modelled mine life of 20 years as at 31 December 2016) and has no fixed repayment date and is not cancellable within 12 months.
188 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
The following table shows the net changes in fair value of Level 3 other financial assets and other financial liabilities:
US$ million
1 January 2015
Total gain/(loss) recognised in cost of goods sold
Cancellation of put option over non-controlling interest
Non-discretionary dividend obligation
Realised
31 December 2015
1 January 2016
Total gain/(loss) recognised in cost of goods sold
Non-discretionary dividend obligation
Realised
31 December 2016
Physical
forwards
75
36
–
–
(92)
19
19
258
–
78
355
Options
(724)
(1)
685
–
39
(1)
(1)
(6)
–
1
(6)
Other
(295)
–
–
109
–
(186)
(186)
–
(217)
–
(403)
Total
Level 3
(944)
35
685
109
(53)
(168)
(168)
252
(217)
79
(54)
During the year no amounts were transferred between Level 1 and Level 2 of the fair value hierarchy and no amounts were transferred
into or out of Level 3 of the fair value hierarchy for either other financial assets or other financial liabilities.
Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following
table provides information about how the fair values of these financial assets and financial liabilities are determined, in particular, the
valuation techniques and inputs used.
Fair value of financial assets/financial liabilities
US$ million
Futures – Level 1
Valuation techniques and key inputs:
Quoted bid prices in an active market
Significant unobservable inputs:
None
Futures – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
Assets
Liabilities
2016
207
(1,068)
154
(150)
2015
889
(414)
246
(33)
Inputs include observable quoted prices sourced from exchanges or traded reference indices in active
markets for identical assets or liabilities. Prices are adjusted by a discount rate which captures the
time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Options – Level 1
Valuation techniques and key inputs:
Quoted bid prices in an active market
Significant unobservable inputs:
None
Options – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
Assets
Liabilities
31
(5)
37
(12)
30
(40)
15
(4)
Inputs include observable quoted prices sourced from exchanges or traded reference indices in active
markets for identical assets or liabilities. Prices are adjusted by a discount rate which captures the
time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Options – Level 3
Assets
Liabilities
–
(6)
–
(1)
Valuation techniques and key inputs:
Standard option pricing model
Significant unobservable inputs:
Prices are adjusted by volatility differentials. This significant unobservable input generally represents
2% – 20% of the overall value of the instruments. A change to a reasonably possible alternative
assumption would not result in a material change in the underlying value.
Glencore Annual Report 2016
189
Financial statements
Notes to the financial statements
26. FAIR VALUE MEASUREMENTS (continued)
Fair value of financial assets/financial liabilities
US$ million
Swaps – Level 1
Valuation techniques and key inputs:
Quoted bid prices in an active market
Significant unobservable inputs:
None
Swaps – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
Assets
Liabilities
2016
166
(846)
146
(321)
2015
112
(197)
556
(323)
Inputs include observable quoted prices sourced from exchanges or traded reference indices in active
markets for identical assets or liabilities. Prices are adjusted by a discount rate which captures the
time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Physical Forwards – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
763
(859)
1,299
(1,156)
Inputs include observable quoted prices sourced from exchanges or traded reference indices in active
markets for identical assets or liabilities. Prices are adjusted by a discount rate which captures the
time value of money and counterparty credit considerations, such as history of non-performance,
collateral held and current market developments, as required.
Significant unobservable inputs:
None
Physical Forwards – Level 3
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
558
(203)
224
(205)
Valuation of the Group’s commodity physical forward contracts categorised within this level is based
on observable market prices that are adjusted by unobservable differentials, as required, including:
– Quality;
– Geographic location;
– Local supply & demand;
– Customer requirements; and
– Counterparty credit considerations.
These significant unobservable inputs generally represent 2% – 30% of the overall value of the
instruments. These differentials are generally symmetrical with an increase/decrease in one
input resulting in an opposite movement in another input, resulting in no material change in the
underlying value.
190 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Fair value of financial assets/financial liabilities
US$ million
Cross currency swaps – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
2016
26
2015
34
(2,873)
(2,418)
Inputs include observable quoted prices sourced from exchanges or traded reference indices in active
markets for identical assets or liabilities. Prices are adjusted by a discount rate which captures the
time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Foreign currency and interest rate contracts – Level 1
Valuation techniques and key inputs:
Quoted bid prices in an active market
Significant unobservable inputs:
None
Foreign currency and interest rate contracts – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
Assets
Liabilities
–
–
124
(43)
–
(3)
296
(137)
Inputs include observable quoted prices sourced from exchanges or traded reference indices in active
markets for identical assets or liabilities. Prices are adjusted by a discount rate which captures the
time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Non-discretionary dividend obligation – Level 3
Valuation techniques:
Discounted cash flow model
Significant observable inputs:
– Forecast commodity prices;
Assets
Liabilities
–
(403)
–
(186)
– Discount rates using weighted average cost of
capital methodology;
– Production models;
– Operating costs; and
– Capital expenditures.
The resultant liability is essentially a discounted cash flow valuation of the underlying mining
operation. Increases/decreases in forecast commodity prices will result in an increase/decrease
to the value of the liability though this will be partially offset by associated increases/decreases
in the assumed production levels, operating costs and capital expenditures which are inherently
linked to forecast commodity prices. The valuation remains sensitive to price and a 10% increase/
decrease in commodity price assumptions would result in an $127 million adjustment to the current
carrying value.
Glencore Annual Report 2016
191
Financial statements
Notes to the financial statements
27. AUDITORS’ REMUNERATION
US$ million
Remuneration in respect of the audit of Glencore’s consolidated financial statements
Other audit fees, primarily in respect of audits of accounts of subsidiaries
Audit-related assurance services1
Total audit and related assurance fees
Transaction services
Taxation compliance services
Other taxation advisory services
Other assurance services
Total non-audit fees
Total professional fees
2016
2015
3
17
2
22
3
3
2
1
9
31
3
19
3
25
–
3
2
1
6
31
1 Audit-related assurance services primarily related to interim reviews of the Group’s half-year accounts and quarterly accounts of the Group’s publicly listed subsidiaries.
28. FUTURE COMMITMENTS
Capital expenditure for the acquisition of property, plant and equipment is generally funded through the cash flow generated by the
respective industrial entities. As at 31 December 2016, $776 million (2015: $1,088 million), of which 81% (2015: 77%) relates to expenditure to
be incurred over the next year, was contractually committed for the acquisition of property, plant and equipment.
Certain of Glencore’s exploration tenements and licences require it to spend a minimum amount per year on development activities, a
significant portion of which would have been incurred in the ordinary course of operations. As at 31 December 2016, $177 million (2015:
$144 million) of such development expenditures are to be incurred, of which 20% (2015: 29%) are for commitments to be settled over the
next year.
Glencore procures seagoing vessels/chartering services to meet its overall marketing objectives and commitments. As at 31 December 2016,
Glencore has committed to future hire costs to meet future physical delivery and sale obligations and expectations of $217 million (2015:
$894 million), of which $105 million (2015: $145 million) are with associated companies. 46% (2015: 60%) of the total charters are for services
to be received over the next two years.
As part of Glencore’s ordinary sourcing and procurement of physical commodities and other ordinary marketing obligations, the
selling party may request that a financial institution act as either a) the paying party upon the delivery of product and qualifying
documents through the issuance of a letter of credit or b) the guarantor by way of issuing a bank guarantee accepting responsibility for
Glencore’s contractual obligations. Similarly, Glencore is required to post rehabilitation and pension guarantees in respect of some of
these future, primarily industrial, long-term obligations. As at 31 December 2016, $17,358 million (2015: $15,385 million) of procurement
and $2,972 million (2015: $2,642 million) of rehabilitation and pension commitments have been issued on behalf of Glencore, which will
generally be settled simultaneously with the payment for such commodity and rehabilitation and pension obligations.
Glencore has entered into various operating leases mainly as lessee for office and warehouse/storage facilities. Rental expenses for these
leases totalled respectively $157 million and $237 million for the years ended 31 December 2016 and 2015. Future net minimum lease
payments under non-cancellable operating leases are as follows:
US$ million
Within 1 year
Between 2 – 5 years
After 5 years
Total
2016
106
245
97
448
2015
143
346
170
659
192 Glencore Annual Report 2016
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Glencore has entered into finance leases for various plant and equipment items, primarily vessels and machinery. Future net minimum
lease payments under finance leases together with the future finance charges are as follows:
US$ million
Within 1 year
Between 1 and 5 years
After 5 years
Total minimum lease payments
Less: amounts representing finance lease charges
Present value of minimum lease payments
29. CONTINGENT LIABILITIES
Undiscounted minimum
lease payments
Present value of minimum
lease payments
2016
99
259
222
580
179
401
2015
116
267
277
660
196
464
2016
75
172
154
401
–
401
2015
88
193
183
464
–
464
The amount of corporate guarantees in favour of third parties as at 31 December 2016 was $Nil (2015: $Nil). Also see note 9.
The Group is subject to various claims which arise in the ordinary course of business as detailed below. These contingent liabilities are
reviewed on a regular basis and where practical an estimate is made of the potential financial impact on the Group. As at 31 December 2016
and 2015 it was not practical to make such an assessment.
Litigation
Certain legal actions, other claims and unresolved disputes are pending against Glencore. Whilst Glencore cannot predict the results of
any litigation, it believes that it has meritorious defences against those actions or claims. Glencore believes the likelihood of any material
liability arising from these claims to be remote and that the liability, if any, therefore resulting from any litigation will not have a material
adverse effect on its consolidated income, financial position or cash flows.
Environmental contingencies
Glencore’s operations are subject to various environmental laws and regulations. Glencore is in material compliance with those laws
and regulations. Glencore accrues for environmental contingencies when such contingencies are probable and reasonably estimable.
Such accruals are adjusted as new information develops or circumstances change. Recoveries of environmental remediation costs from
insurance companies and other parties are recorded as assets when the recoveries are virtually certain. At this time, Glencore is unaware
of any material environmental incidents at its locations. Any potential liability arising from these allegations is not expected to have a
material adverse effect on its consolidated income, financial position or cash flows.
30. RELATED PARTY TRANSACTIONS
In the normal course of business, Glencore enters into various arm’s length transactions with related parties, including fixed price
commitments to sell and to purchase commodities, forward sale and purchase contracts, agency agreements and management service
agreements. Outstanding balances at period end are unsecured and settlement occurs in cash (see notes 10, 12, and 22). There have been no
guarantees provided or received for any related party receivables or payables.
All transactions between Glencore and its subsidiaries are eliminated on consolidation along with any unrealised profits and losses
between its subsidiaries, associates and joint ventures. In 2016, sales and purchases with associates and joint ventures amounted to
$1,570 million (2015: $1,196 million) and $3,194 million (2015: $3,562 million) respectively.
Remuneration of key management personnel
Glencore’s key management personnel are the members of the Board of Directors, CEO, CFO and the heads of the operating segments.
The remuneration of Directors and other members of key management personnel recognised in the consolidated statement of income
including salaries and other current employee benefits amounted to $13 million (2015: $10 million). There were no other long-term benefits
or share-based payments to key management personnel (2015: $Nil). Further details on remuneration of Directors are set out in the
Director’s remuneration report on page 99.
Glencore Annual Report 2016
193
Financial statements
Notes to the financial statements
31. PRINCIPAL SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS
Non-controlling interest is comprised of the following:
US$ million
Kazzinc
Koniambo
Katanga
Mutanda
Alumbrera
Other1
Total
2016
1,396
(2,653)
(511)
767
118
421
(462)
2015
1,316
(2,460)
(196)
713
126
590
89
1 Other comprises various subsidiaries in which no individual balance attributable to non-controlling interests is material.
Summarised financial information in respect of Glencore’s subsidiaries that have material non-controlling interest as at 31 December 2016,
reflecting 100% of the underlying subsidiary’s relevant figures, is set out below.
US$ million
31 December 2016
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Non-controlling interests
Non-controlling interests in %
2016
Revenue
Expenses
Net profit/(loss) for the year
Profit attributable to owners of the Company
Profit attributable to non-controlling interests
Other comprehensive income attributable to owners of the Company
Other comprehensive income attributable to non-controlling interests
Total comprehensive income/(loss) for the year
Dividends paid to non-controlling interests
Net cash inflow/(outflow) from operating activities
Net cash outflow from investing activities
Net cash (outflow)/inflow from financing activities
Total net cash inflow/(outflow)
Kazzinc
Koniambo
Katanga
Mutanda
4,703
1,014
5,717
719
391
1,110
4,607
3,211
1,396
30.3%
2,602
(2,211)
391
273
118
–
–
391
(38)
856
(122)
(567)
167
1,226
294
1,520
9,494
101
9,595
(8,075)
(5,422)
(2,653)
51.0%
152
(529)
(377)
(184)
(193)
–
–
(377)
–
–
(263)
210
(53)
4,424
652
5,076
3,380
1,848
5,228
(152)
359
(511)1
24.7%
–
(625)
(625)
(310)
(315)1
–
–
(625)
–
(161)
(213)
338
(36)
4,763
549
5,312
1,885
281
2,166
3,146
2,379
767
31.0%
1,322
(1,147)
175
121
54
–
–
175
–
428
(234)
(195)
(1)
1 Glencore has a 75.3% interest in Katanga Mining Limited, which in turn has a 75% interest in Kamoto Copper Company (“KCC”) the entity engaged in copper mining activities.
The “non-controlling interests” balance includes negative $629 million and the “profit attributable to non-controlling interests” balance includes negative $214 million related to non-
controlling interests arising at the KCC level.
194 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
US$ million
31 December 2015
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Non-controlling interests
Non-controlling interests in %
2015
Revenue
Expenses
Net (loss)/profit for the year
Profit attributable to owners of the Company
Profit attributable to non-controlling interests
Other comprehensive income attributable to owners of the Company
Other comprehensive income attributable to non-controlling interests
Total comprehensive (loss)/income for the year
Dividends paid to non-controlling interests
Net cash inflow/(outflow) from operating activities
Net cash outflow from investing activities
Net cash (outflow)/inflow from financing activities
Total net cash inflow/(outflow)
Kazzinc
Koniambo
Katanga
Mutanda
4,796
872
5,668
975
344
1,319
4,349
3,033
1,316
30.3%
2,244
(2,494)
(250)
(174)
(76)
–
–
(250)
(10)
591
(262)
(319)
10
958
337
1,295
8,878
114
8,992
(7,697)
(5,237)
(2,460)
51.0%
–
(4,824)
(4,824)
(2,364)
(2,460)
–
–
(4,824)
–
–
(360)
404
44
4,468
639
5,107
3,072
1,562
4,634
473
669
(196)1
24.7%
691
(1,357)
(666)
(347)
(319)1
–
–
(666)
–
(600)
(542)
1,190
48
4,814
440
5,254
2,028
255
2,283
2,971
2,258
713
31.0%
1,315
(1,232)
83
57
26
–
–
83
–
330
(261)
(170)
(101)
1 Glencore has a 75.3% interest in Katanga Mining Limited, which in turn has a 75% interest in Kamoto Copper Company (“KCC”) the entity engaged in copper mining activities.
The “non-controlling interests” balance includes negative $416 million and the “profit attributable to non-controlling interests” balance includes negative $205 million related to
non-controlling interests arising at the KCC level.
32. SUBSEQUENT EVENTS
• Further to the announcements in December 2016, Glencore and Qatar Investment Authority (“QIA”) entered into various agreements
establishing a 50:50 consortium that would acquire 19.5% of OSJC Rosneft Oil (“Rosneft”), enter into a five year offtake agreement
with Rosneft on market terms and collectively evaluate and potentially enter into additional opportunities related to infrastructure,
logistics and global trading. As at 31 December 2016, only the establishment of the 50:50 consortium and payment of Glencore’s funding
commitment of EUR 300 million were finalised. The balance of the funding and purchase of the 19.5% interest in Rosneft by the 50:50
consortium and completion of the five year offtake agreement was finalised on 3 January 2017.
• In February 2017, Glencore announced that it had acquired the remaining 31% stake in Mutanda Mining Sarl (“Mutanda”), which it did
not previously own, and an additional 10.25% stake in Katanga Mining Limited (“Katanga”) for a cash outlay of $534 million, including
settlement of loan balances. Following the acquisition, Glencore owns 100% of the shares in Mutanda and approximately 86.3% of the
shares in Katanga.
Glencore Annual Report 2016
195
Financial statements
Notes to the financial statements
33. PRINCIPAL OPERATING, FINANCE AND INDUSTRIAL SUBSIDIARIES AND INVESTMENTS
Country
of incorporation
% interest
2016
% interest
2015
Main activity
Principal subsidiaries
Metals and minerals
Minera Alumbrera Limited1
Cobar Group
Compania Minera Lomas Bayas
Complejo Metalurgico Altonorte S.A.
Minera Altos de Punitaqui Limitada
Compania Minera Antapaccay S.A.
Pasar Group
Glencore Recycling Inc.
Mopani Copper Mines plc
Sable Zinc Kabwe Limited
Katanga Mining Limited2
Mutanda Group
Mount Isa Mines Limited
Kazzinc Ltd.
Zhairemsky GOK JSC
Vasilkovskoye Gold
Energia Austral Joint Venture
African Carbon Producers (Pty) Ltd
African Fine Carbon (Pty) Ltd
Char Technology (Pty) Ltd
Sphere Minerals Limited
Britannia Refined Metals Limited
Glencore Manganese Group
Access World Group (formerly Pacorini Group)
Murrin Murrin Group
Koniambo Nickel S.A.S.3
Glencore Nikkelverk AS
Eland Platinum Mines (Pty) Limited
McArthur River Mining Pty Ltd
Perkoa Group
Nordenhammer Zinkhütte GmbH
Asturiana de Zinc S.A.
Antigua
Australia
Chile
Chile
Chile
Peru
Philippines
USA
Zambia
Zambia
Canada
DRC
Australia
Kazakhstan
Kazakhstan
Kazakhstan
Chile
South Africa
South Africa
South Africa
Australia
UK
France/Norway
Switzerland
Australia
New Caledonia
Norway
South Africa
Australia
Burkina Faso
Germany
Spain
50.0
100.0
100.0
100.0
100.0
100.0
78.2
100.0
73.1
100.0
75.3
69.0
100.0
69.7
69.7
69.7
66.6
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
49.0
100.0
74.0
100.0
90.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
78.2
100.0
73.1
100.0
75.3
69.0
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper/Cobalt production
Copper/Cobalt production
100.0 Copper/Zinc/Lead production
69.7 Copper/Zinc/Lead production
69.7 Copper/Zinc/Lead production
69.7
66.6
100.0
100.0
100.0
97.5
100.0
100.0
100.0
100.0
49.0
100.0
74.0
100.0
90.0
100.0
100.0
Gold production
Hydroelectric project
Char production
Char production
Char production
Iron Ore production
Lead production
Manganese furnace
Metals warehousing
Nickel production
Nickel production
Nickel production
Platinum production
Zinc production
Zinc production
Zinc production
Zinc production
1 This investment is treated as a subsidiary as the Group is entitled to elect the chairman of the Board who has the casting vote where any vote is split equally between the four board
positions. Minera Alumbrera Limited’s principal place of business is Argentina.
2 Publicly traded on the Toronto Stock Exchange under the symbol KAT.TO and principal place of business is DRC. Glencore owns 1,435,848,228 shares.
3 The Group has control of Koniambo Nickel S.A.S. as a result of the ability to direct the key activities of the operation and to appoint key management personnel provided by the terms of
the financing arrangements underlying the Koniambo project.
196 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Country
of incorporation
% interest
2016
% interest
2015
Main activity
Argentina
Italy
Namibia
Peru
Bolivia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Colombia
South Africa
South Africa
South Africa
South Africa
B.V.I.
Bermuda
Bermuda
Bermuda
Hong Kong
Germany
Switzerland
Argentina
Czech Republic
Hungary
Poland
Canada/Australia
Brazil
Brazil
100.0
100.0
80.1
97.6
100.0
100.0
100.0
100.0
78.0
100.0
100.0
100.0
100.0
100.0
100.0
90.0
95.0
100.0
0.0
49.9
48.7
100.0
100.0
100.0
100.0
100.0
100.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
100.0
80.1
97.6
100.0
100.0
100.0
100.0
78.0
100.0
100.0
100.0
55.0
100.0
100.0
90.0
95.0
100.0
67.6
49.9
48.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Zinc/Lead production
Zinc/Lead production
Zinc/Lead production
Zinc/Lead production
Zinc/Tin production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Ship owner
Oil production
Oil production
Oil exploration/production
Oil storage and bunkering
Biofuel production
Biofuel production
Edible oil production
Edible oil production
Edible oil production
Edible oil production
Grain handling
100.0
Sugar cane/ethanol production
100.0
Wheat flour milling
Metals and minerals (continued)
AR Zinc Group
Portovesme S.r.L.
Rosh Pinah Zinc Corporation (Pty) Limited
Empresa Minera Los Quenuales S.A.
Sinchi Wayra Group
Energy products
Cumnock No. 1 Colliery Pty Ltd
Enex Foydell Limited
Enex Liddell Pty Ltd
Oakbridge Pty Ltd
Glencore Coal Queensland Pty Limited
Jonsha Pty Limited
Mangoola Coal Operations Pty Limited
Newlands, Collinsville
Oceanic Coal Australia Pty Limited
Ravensworth Operations Pty Ltd
Ulan Coal Mines Limited
United Collieries Pty Ltd
Prodeco Group
Optimum Coal Holdings (Pty) Limited4
Izimbiwa Coal (Pty) Ltd5
Umcebo Mining (Pty) Ltd6
Tavistock Collieries (Pty) Limited
Topley Corporation
Glencore Exploration Cameroon Ltd.
Glencore Exploration (EG) Ltd.
Petrochad (Mangara) Limited
Chemoil Energy Limited
Agricultural products7
Glencore Magdeburg GmbH
Glencore Biofuels AG
Moreno Group
Usti Oilseed Group
Pannon Vegetable Oil Manufacturing LLC
Zaklady Tluszczowe w Bodaczowie Sp.z.o.o.
Viterra Group (incl. TRT)
Glencane Bioenergia S.A.
Correcta Industria e Comercio Ltdo.
4 Although Glencore held 67.6% of the voting rights in Optimum at 31 December 2015, it was not able to exercise control from August 2015, see note 3.
5 Although Glencore holds less than 50% of the voting rights, it has the ability to exercise control over Izimbiwa (previously Shanduka Coal) through the ability to direct the key activities
of the operation and to appoint key management personnel provided by the terms of the shareholders agreement.
6 Although Glencore holds less than 50% of the voting rights, it has the ability to exercise control over Umcebo as a result of shareholder agreements which provide Glencore the ability to
control the Board of Directors.
7 In 2016, Glencore disposed of its controlling interest in the Agricultural products business segment and retained a 49.9% interest, see note 23.
Glencore Annual Report 2016
197
197
Financial statements
Notes to the financial statements
33. PRINCIPAL OPERATING, FINANCE AND INDUSTRIAL SUBSIDIARIES AND INVESTMENT (continued)
Country
of incorporation
% interest
2016
% interest
2015
Main activity
Other operating and finance
Xstrata Limited
Glencore Australia Investment Holdings Pty Ltd
Glencore Operations Australia Pty Limited
Glencore Queensland Limited
Glencore Investment Pty Ltd
Glencore Australia Holdings Pty Ltd
Glencore Finance (Bermuda) Ltd
Glencore Canada Financial Corp
Glencore Finance (Europe) S.A.
Finges Investment B.V.
Glencore (Schweiz) AG
Glencore Group Funding Limited
Glencore Funding LLC
Glencore Canada Corporation
Glencore Agriculture B.V.7
Glencore Singapore Pte Ltd
ST Shipping & Transport Pte Ltd
Glencore AG
Glencore International AG
Glencore Commodities Ltd
Glencore Energy UK Ltd
Glencore UK Ltd
Principal joint ventures8
Glencore Agriculture Limited7
Clermont Coal Mines Limited9
Compania Minera Dona Ines de Collahuasi
El Aouj Joint Venture
Principal joint operations10
Pentland Joint Venture
Redrock Joint Venture
Togara North Joint Venture
Wandoan Joint Venture
Bulga Joint Venture
Cumnock Joint Venture
Foybrook Joint Venture
Liddell Joint Venture
Oaky Creek Coal Joint Venture
Ravensworth Underground Mine Joint Venture
Rolleston Joint Venture
Ulan Coal Mines Joint Venture
United Joint Venture
UK
Australia
Australia
Australia
Australia
Australia
Bermuda
Canada
Luxembourg
Netherlands
Switzerland
UAE
USA
Canada
Netherlands
Singapore
Singapore
Switzerland
Switzerland
UK
UK
UK
Jersey
Australia
Chile
Mauritania
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
0.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
49.9
25.1
44.0
50.0
75.0
75.0
70.0
75.0
68.3
90.0
67.5
67.5
55.0
70.0
75.0
90.0
95.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
0.0
25.1
44.0
44.0
75.0
75.0
70.0
75.0
68.3
90.0
67.5
67.5
55.0
70.0
75.0
90.0
95.0
Holding
Holding
Holding
Holding
Holding
Finance
Finance
Finance
Finance
Finance
Finance
Finance
Finance
Operating
Operating
Operating
Operating
Operating
Operating
Operating
Operating
Operating
Agriculture business
Coal production
Copper production
Iron Ore production
Coal exploration
Coal exploration
Coal exploration
Coal exploration
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
8 The principal joint arrangements are accounted for as joint ventures as the shareholder agreements do not provide the Group the ability to solely control the entities.
9 The Group’s effective 25.05% economic interest in Clermont Coal is held through GS Coal Pty Ltd, a 50:50 joint venture with Sumitomo Corporation.
10 Classified as joint operations under IFRS 11, as these joint arrangements are not structured through separate vehicles.
198
198 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Country
of incorporation
% interest
2016
% interest
2015
Main activity
Principal joint operations (continued)
ARM Coal (Pty) Ltd.
Goedgevonden Joint Venture
Ernest Henry Mining Pty Ltd.
Merafe Pooling and Sharing Joint Venture
Kabanga Joint Venture
Mototolo Joint Venture
Rhovan Pooling and Sharing Joint Venture
Principal associates
Renova S.A.7
Carbones del Cerrejon LLC
Port Kembla Coal Terminal Limited
Port Waratah Coal Services Ltd
South Africa
South Africa
Australia
South Africa
Tanzania
South Africa
South Africa
Argentina
Colombia
Australia
Australia
Richards Bay Coal Terminal Company Limited
South Africa
Polymet Mining Corp.
Century Aluminum Company11
Terminal de Grãos Ponta da Montanha (Barcarena)7
Noranda Income Fund
Compania Minera Antamina S.A.
Recylex S.A.
Other investments
United Company Rusal plc
OAO NK Russneft12
Volcan Compania Minera S.A.A.
Canada
USA
Brazil
Canada
Peru
France
Jersey
Russia
Peru
49.0
74.0
70.0
79.5
50.0
37.0
74.0
0.0
33.3
29.7
15.5
26.7
28.4
47.5
0.0
25.0
33.8
32.2
8.8
25.0
7.3
49.0
74.0
100.0
79.5
50.0
37.0
74.0
50.0
33.3
29.7
15.5
26.7
28.4
47.5
49.9
25.0
33.8
32.2
8.8
46.0
7.3
Coal production
Coal production
Copper production
Ferroalloys production
Nickel production
Platinum production
Vanadium production
Biofuel production
Coal production
Coal terminal
Coal terminal
Coal terminal
Copper production
Diversified production
Grain terminal
Zinc production
Zinc/Copper production
Zinc/Lead production
Aluminium production
Oil production
Zinc production
11 Represents the Group’s economic interest in Century, comprising 42.9% (2015: 42.9%) voting interest and 4.6% non-voting interest (2015: 4.6%). Century is publicly traded on
NASDAQ under the symbol CENX.
12 Although the Group holds more than 20% of the voting rights in Russneft, it is unable to exercise significant influence over the financial and operating policy decisions of Russneft.
Glencore Annual Report 2016
199
199
Additional
information
201 Glossary
206 Production by quarter – Q4 2015 to Q4 2016
213 Resources and reserves
222 Shareholder information
IBC Forward looking statements
200 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Glossary
Available committed liquidity1
US$ million
Cash and cash equivalents and marketable securities – reported
Cash and cash equivalents of certain associates and joint ventures
Headline committed syndicated revolving credit facilities
Amount drawn under syndicated revolving credit facilities
Amounts drawn under U.S. commercial paper programme
Total
1 Presented on an adjusted measured basis.
Adjusted EBIT/EBITDA
2016
2,518
198
14,500
(476)
–
2015
2,746
168
15,250
(2,994)
(15)
16,740
15,155
Adjusted EBIT/EBITDA, as defined in note 2 of the financial statements, provide insight into our overall business
performance (a combination of cost management, seizing market opportunities and growth), and are the corresponding
flow drivers towards our objective of achieving industry-leading returns. Adjusted EBIT is the net result of revenue less cost
of goods sold and selling and administrative expenses, plus share of income from associates and joint ventures, dividend
income and the attributable share of underlying Adjusted EBIT of certain associates and joint ventures which are accounted
for internally by means of proportionate consolidation, excluding significant items. In addition, the segment information
includes Glencore Agri, which has been disclosed as a discontinued operation until close of transaction on 1 December 2016,
see note 23 of the financial statements.
Adjusted EBITDA consists of Adjusted EBIT plus depreciation and amortisation, including the related adjustment for
Proportionate Consolidation. In addition, the relationships Net debt to Adjusted EBITDA and Adjusted EBITDA to net
interest (interest expense less interest income disclosed on the face of the consolidated statement of income/(loss)) are an
indication of our financial flexibility and ability to service debt.
Adjustment for Proportionate Consolidation
For internal reporting and analysis, management evaluates the performance of Antamina copper/zinc mine (34% owned),
Cerrejón coal mine (33% owned), Collahuasi copper mine (44% owned) and Glencore Agri (50% owned) under the
proportionate consolidation method reflecting Glencore’s proportionate share of the revenues, expenses, assets and
liabilities of these investments.
Current capital employed (“CCE”)
Current capital employed is current assets less accounts payable, current deferred income, current provisions, current other
financial liabilities and income tax payable.
Funds from operations (“FFO”)
FFO is a measure that reflects our ability to generate cash for investment, debt servicing and distributions to shareholders.
It comprises cash provided by operating activities before working capital changes, less tax and net interest payments plus
dividends received, related adjustments for Proportionate Consolidation and certain other one-off (Significant items)
identified expenses, comprising unrealised coal related hedging costs and a legal settlement in 2016 and a legal settlement
and net incremental metal leak costs incurred in 2015. See reconciliation table below.
Net funding/debt and FFO to net debt
Net funding/debt demonstrates how our debt is being managed and is an important factor in insuring we maintain an
investment grade rating status and an attractive cost of capital. In addition, the relationship of FFO to net debt is an
indication of our financial flexibility and strength. Net debt is defined as total current and non-current borrowings less cash
and cash equivalents, marketable securities, readily marketable inventories and related adjustments for Proportionate
Consolidation. See reconciliation table below.
Net income attributable to equity shareholders pre-significant items
Net income attributable to equity shareholders pre-significant items is a measure of our ability to generate shareholder
returns. For 2016, calculation of tax items to be excluded from Net income, includes tax significant items and the tax effect of
non-tax significant items themselves. Previously, the calculation was driven by estimated notional effective tax rates; refer to
the reconciliation of tax expense below.
Glencore Annual Report 2016
201
Additional information
Glossary
Readily marketable inventories (“RMI”)
RMI comprising the core inventories which underpin and facilitate Glencore’s marketing activities, represent inventories,
that in Glencore’s assessment, are readily convertible into cash in the short term due to their liquid nature, widely available
markets and the fact that price risk is covered either by a forward physical sale or hedge transaction. Glencore regularly
assesses the composition of these inventories and their applicability, relevance and availability to the marketing activities.
As at 31 December 2016, $17,093 million (2015: $15,356 million) of inventories were considered readily marketable.
This comprises $12,707 million (2015: $10,928 million) of inventories carried at fair value less costs of disposal and
$4,386 million (2015: $4,428 million) carried at the lower of cost or net realisable value. Total readily marketable inventories
includes $1,718 million related to certain associates and joint ventures (see note 2) accounted under the proportionate
consolidation method, comprising $1,384 million of inventory carried at fair value less cost of disposal and $334 million
carried at lower of cost or net realisable value. Given the highly liquid nature of these inventories, which represent a
significant share of current assets, the Group believes it is appropriate to consider them together with cash equivalents in
analysing Group net debt levels and computing certain debt coverage ratios and credit trends.
Significant items
Significant items of income and expense which, due to their financial impact and nature or the expected infrequency of the
events giving rise to them, are separated for internal reporting and analysis of Glencore’s results to provide a better
understanding and comparative basis of the underlying financial performance.
Reconciliation of selected reported financial information to those applying the proportionate
consolidation method to certain associates and joint ventures
Cash flow related adjustments 2016
US$ million
Cash generated by operating activities before working capital changes
Addback EBITDA of certain associates and joint ventures
Cash generated by operating activities before working capital changes
Coal related hedging and legal costs included above (via statement of income – refer to note 2)
Income taxes paid
Interest received
Interest paid
Dividend received from associates and joint ventures
Funds from operations (“FFO”)
Working capital changes (excluding gold and silver streaming proceeds)
Gold and silver streaming proceeds
Net cash received in acquisitions of subsidiaries
Net cash received from disposal of subsidiaries
Purchase of investments
Proceeds from sale of investments
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Margin calls in respect of financing related hedging activities
Acquisition of additional interests in subsidiaries
Return of capital/distributions to non-controlling interests
Proceeds from own shares
Coal related hedging and legal costs (refer above)
Cash movement in net funding
202 Glencore Annual Report 2016
Reported
measure
Adjustment for
proportionate
consolidation
Adjusted
measure
7,868
–
7,868
368
(584)
111
(1,376)
833
7,220
(2,172)
971
176
5,535
(15)
3
(3,048)
128
(695)
(7)
(91)
3
(368)
7,640
–
1,447
1,447
–
(96)
–
(6)
(795)
550
7,868
1,447
9,315
368
(680)
111
(1,382)
38
7,770
(214)
(2,386)
–
–
971
176
233
5,768
(1)
–
(16)
3
(394)
(3,442)
8
–
–
–
–
–
182
136
(695)
(7)
(91)
3
(368)
7,822
Strategic report | Governance | Financial statements | Additional information
Cash flow related adjustments 2015
US$ million
Cash generated by operating activities before working capital changes
Addback EBITDA of certain associates and joint ventures
Cash generated by operating activities before working capital changes
Legal settlement and incremental metal leak costs included above (via statement of income – refer to note 4)
Income taxes paid
Interest received
Interest paid
Dividend received from associates and joint ventures
Funds from operations (“FFO”)
Net working capital changes (excluding silver streaming proceeds)
Silver streaming proceeds
Net cash used in acquisition of subsidiaries
Net cash received from disposal of subsidiaries
Purchase of investments
Proceeds from sale of investments
Purchase of property, plant and equipment
Payments for exploration and evaluation
Proceeds from sale of property, plant and equipment
Margin calls in respect of financing related hedging activities
Return of capital/distributions to non-controlling interests
Purchases of own shares
Share issuance
Distributions paid to equity holders of the Parent
Legal settlement and incremental metal leak costs (refer above)
Cash movement in net funding
Reported
measure
Adjustment for
proportionate
consolidation
Adjusted
measure
7,454
–
7,454
264
(865)
119
(1,203)
428
6,197
6,813
900
(318)
212
(236)
41
(5,372)
(147)
115
(618)
(95)
(272)
2,444
(2,328)
(264)
7,072
–
995
995
–
7,454
995
8,449
264
(207)
(1,072)
–
(1)
(369)
418
119
(1,204)
59
6,615
(127)
6,686
–
–
–
–
–
900
(318)
212
(236)
41
(298)
(5,670)
–
14
–
–
–
–
–
–
7
(147)
129
(618)
(95)
(272)
2,444
(2,328)
(264)
7,079
Glencore Annual Report 2016
203
Additional information
Glossary
Net funding/debt at 31 December 2016
US$ million
Non-current borrowings
Current borrowings
Total borrowings
Less: cash and cash equivalents and marketable securities
Net funding
Less: Readily marketable inventories
Net debt
Net funding/debt at 31 December 2015
US$ million
Non-current borrowings
Current borrowings
Total borrowings
Less: cash and cash equivalents and marketable securities
Net funding
Less: Readily marketable inventories
Net debt
Reconciliation of tax expense 2016
US$ million
Adjusted EBIT, pre-significant items1
Net finance costs
Adjustments for:
Net finance costs from certain associates and joint ventures1
Net finance costs from discontinued operations2
Share of income from other associates pre-significant items1
Share of income from associates from discontinued operations2
Profit on a proportionate consolidation basis before tax and pre-significant items
Income tax expense, pre-significant items
Adjustments for:
Tax expense from certain associates and joint ventures1
Tax expense from discontinued operations2
Tax expense on a proportionate consolidation basis
Applicable tax rate
1 See note 2 of the financial statements.
2 See note 23 of the financial statements.
US$ million
Tax expense on a proportionate consolidation basis
Adjustment in respect of certain associates and joint ventures tax
Adjustment in respect of discontinued operations
Tax expense on the basis of the income statement
204 Glencore Annual Report 2016
Reported
measure
Adjustment for
proportionate
consolidation
Adjusted
measure
23,188
10,030
33,218
(2,518)
30,700
(15,375)
15,325
380
23,568
1,737
2,117
11,767
35,335
(198)
(2,716)
1,919
32,619
(1,718)
(17,093)
201
15,526
Reported
measure
Adjustment for
proportionate
consolidation
Adjusted
measure
32,932
11,117
44,049
(2,746)
41,303
(15,356)
25,947
89
21
110
33,021
11,138
44,159
(168)
(2,914)
(58)
41,245
–
(15,356)
(58)
25,889
Total
3,930
(1,533)
(16)
(70)
(10)
(15)
2,286
(362)
(248)
(131)
(741)
32.4%
Pre-
significant
tax expense
741
(248)
(131)
362
Significant
items tax
Total tax
expense
276
1,017
–
–
276
(248)
(131)
638
Strategic report | Governance | Financial statements | Additional information
Reconciliation of tax expense 2015
US$ million
Adjusted EBIT, pre-significant items
Interest expense allocation
Adjustments for:
Certain associates and joint ventures’ net finance costs
Share of income in associates and dividend income
Allocated profit before tax for the basis of tax calculation
Applicable tax rate
Pre-significant tax expense/(credit)
US$ million
Tax (credit)/expense on a proportionate consolidation basis
Adjustment in respect of certain associates and joint ventures’ tax
Adjustment in respect of discontinued operations
Tax (credit)/expense on the basis of the income statement
Reconciliation of net significant items 2016
US$ million
Share of Associates’ significant items1
Mark-to-market valuation on certain coal hedging contracts1
Unrealised intergroup profit elimination1
Gains on disposals and investments2
Other expense – net3
Other expense – net related to discontinued operations4
Gain on disposal of discontinued operations4
Income tax expense
Total significant items
1 See note 2 of the financial statements.
2 See note 3 of the financial statements.
3 See notes 4 and 5 of the financial statements.
4 See note 23 of the financial statements.
Reconciliation of net significant items 2015
US$ million
Share of Associates’ significant items1
Unrealised intergroup loss elimination1
Losses on disposals and investments2
Other expense – net3
Other expense – net related to discontinued operations4
Income tax expense
Total significant items
1 See note 2 of the financial statements.
2 See note 3 of the financial statements.
3 See notes 4 and 5 of the financial statements.
4 See note 23 of the financial statements.
Marketing
activities
Industrial
activities
2,464
(292)
Total
2,172
(153)
(1,432)
(1,585)
–
(110)
2,201
10.0%
220
(3)
45
(1,682)
(3)
(65)
519
25.0%
(38.5%)
(420)
(200)
Pre-
significant
tax expense
Significant
items tax
Total tax
expense
(200)
(162)
(107)
(469)
460
–
–
460
260
(162)
(107)
(9)
Gross
significant
charges
Non-
controlling
interests’
share
Equity
holders’
share
(477)
(225)
(374)
452
(1,589)
7
1,848
(276)
(634)
–
–
–
–
21
–
–
–
21
(477)
(225)
(374)
452
(1,568)
7
1,848
(276)
(613)
Gross
significant
charges
Non-
controlling
interests’
share
(88)
445
(994)
–
–
–
Equity
holders’
share
(88)
445
(994)
(7,928)
2,789
(5,139)
(70)
(460)
–
–
(70)
(460)
(9,095)
2,789
(6,306)
Glencore Annual Report 2016
205
Additional information
Production by quarter – Q4 2015 to Q4 2016
Metals and minerals
Production from own sources – Total1
Copper
Zinc
Lead
Nickel
Gold
Silver
Cobalt
Ferrochrome
Platinum
Palladium
Rhodium
Vanadium Pentoxide
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
kt
kt
kt
kt
koz
koz
kt
kt
koz
koz
koz
mlb
374.7
317.7
69.2
27.5
275
335.0
257.1
71.0
27.6
215
368.0
249.4
74.3
29.5
257
358.2
282.7
74.3
25.3
273
364.6
304.9
74.6
32.7
282
1,425.8
1,502.2
1,094.1
1,444.8
294.2
115.1
1,027
297.7
96.2
964
9,979
9,009
9,804
10,177
10,079
39,069
36,592
6.2
390
33
45
3
5.5
5.8
400
35
47
4
5.6
6.9
362
46
73
4
4.5
8.3
344
35
44
5
5.5
7.3
417
32
45
3
5.5
28.3
1,523
148
209
16
21.1
23.0
1,462
158
202
18
20.9
(5)
(24)
(1)
20
7
7
23
4
(6)
3
(11)
1
(3)
(4)
8
19
3
1
18
7
(3)
–
–
–
Production from own sources – Copper assets1
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
African Copper (Katanga, Mutanda, Mopani)
Katanga
Copper metal2
Cobalt
Mutanda
Copper metal2
Cobalt3
Mopani
Copper metal
kt
kt
kt
kt
kt
–
–
55.1
5.3
12.8
–
–
54.7
4.9
10.7
–
–
54.2
6.0
10.6
–
–
53.4
7.3
9.3
–
–
51.0
6.3
10.5
–
–
213.3
24.5
41.1
113.7
2.9
216.1
16.5
92.1
(100)
(100)
(1)
48
(55)
n.m.
n.m.
(7)
19
(18)
30.9
26.7
27.8
27.1
28.4
110.0
184.8
(40)
African Copper – total production including third party feed
Mopani
Copper metal
Total Copper metal2
Total Cobalt3
Collahuasi4
Copper metal
Copper in concentrates
kt
kt
kt
kt
kt
67.9
5.3
1.4
60.2
Silver in concentrates
koz
1,086
Antamina5
Copper in concentrates
Zinc in concentrates
kt
kt
38.6
19.6
65.4
4.9
0.8
50.3
774
36.8
14.1
64.8
6.0
0.7
55.5
876
40.1
7.7
62.7
7.3
0.3
56.7
865
35.4
18.3
61.5
6.3
0.3
58.3
761
33.2
26.7
254.4
24.5
2.1
220.8
3,276
145.5
66.8
6,778
421.9
19.4
9.8
190.6
2,828
131.8
79.3
5,987
Silver in concentrates
koz
1,818
1,945
1,732
1,494
1,607
Other South America (Alumbrera, Lomas Bayas, Antapaccay, Punitaqui)
Alumbrera
Copper in concentrates
kt
25.8
20.1
17.2
20.1
24.5
81.9
61.8
Gold in concentrates
and in doré
Silver in concentrates
and in doré
Lomas Bayas
Copper metal
koz
koz
kt
68
68
53
64
71
256
196
190
19.5
161
18.4
154
20.9
165
19.7
268
21.0
748
80.0
498
71.1
206 Glencore Annual Report 2016
(8)
(9)
19
(79)
(3)
(30)
(14)
36
(12)
(5)
4
41
8
(40)
26
(79)
16
16
10
(16)
13
33
31
50
13
Production from own sources – Copper assets1
Antapaccay
Copper in concentrates
Gold in concentrates
Silver in concentrates
Punitaqui
Copper in concentrates
Gold in concentrates
Silver in concentrates
Punitaqui – total production including third party feed
Copper in concentrates
Gold in concentrates
Silver in concentrates
Total Copper metal
Total Copper in
concentrates
Total Gold in
concentrates and in doré
Total Silver in
concentrates and in doré
kt
koz
koz
kt
koz
koz
kt
koz
koz
kt
kt
koz
koz
Australia (Mount Isa, Ernest Henry, Townsville, Cobar)
Mount Isa, Ernest
Copper metal
Henry, Townsville
Gold
Silver
kt
koz
koz
Copper metal
Gold
Silver
Cobar
Copper in concentrates
Silver in concentrates
Total Copper
Total Copper in
concentrates
Total Gold
Total Silver
Total Copper department
Copper
Cobalt
Zinc
Gold
Silver
kt
koz
koz
kt
koz
kt
kt
koz
koz
kt
kt
kt
koz
koz
Mount Isa, Ernest Henry, Townsville – total production including third party feed
Strategic report | Governance | Financial statements | Additional information
Q4
2015
Q1
2016
Q2
2016
49.9
36
357
2.0
–
25
2.6
–
28
48.0
19
334
1.9
1
24
2.9
2
34
57.3
27
381
1.6
3
13
2.5
3
23
Q3
2016
59.0
32
419
1.7
3
21
2.7
3
29
Q4
2016
55.6
37
402
1.8
4
24
2.4
4
32
2016
2015
219.9
115
1,536
7.0
11
82
10.5
12
118
202.1
122
1,315
8.1
–
105
10.3
–
123
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
9
(6)
17
11
3
13
(14)
(10)
n.m.
n.m.
(22)
(4)
2
n.m.
(4)
(8)
n.m.
14
19.5
18.4
20.9
19.7
21.0
80.0
71.1
77.7
70.0
76.1
80.8
81.9
308.8
272.0
88
83
99
112
382
318
519
548
605
694
2,366
1,918
104
572
55.0
24
412
41.0
17
181
72.5
37
455
13.7
133
70.2
28
556
11.9
114
57.3
19
309
71.2
31
657
14.4
145
50.7
25
418
69.5
42
533
12.2
130
56.1
25
343
64.6
34
525
15.4
154
205.1
205.6
86
90
1,251
1,227
275.5
288.7
135
2,271
147
2,140
53.9
543
50.8
496
55.0
41.0
57.3
50.7
56.1
205.1
205.6
13.7
24
545
11.9
17
295
14.4
19
454
12.2
25
548
15.4
25
497
53.9
86
50.8
90
1,794
1,723
334.0
294.6
329.8
318.5
327.7
1,270.6
1,353.6
5.3
19.6
128
4.9
14.1
105
6.0
7.7
102
7.3
18.3
124
6.3
26.7
137
24.5
66.8
468
19.4
79.3
408
4,021
3,533
3,610
3,512
3,559
14,214
12,456
13
14
20
23
–
(4)
2
(5)
(8)
6
6
9
–
6
(4)
4
(6)
26
(16)
15
14
8
5
8
21
2
4
(17)
(11)
(8)
15
12
16
2
12
4
(9)
(2)
19
36
7
(11)
Glencore Annual Report 2016
207
Additional information
Production by quarter – Q4 2015 to Q4 2016
Metals and minerals
Production from own sources – Zinc assets1
Kazzinc
Zinc metal
Lead metal
Lead in concentrates
Copper metal2
Gold
Silver
Silver in concentrates
Kazzinc – total production including third party feed
Zinc metal
Lead metal
Lead in concentrates
Copper metal
Gold
Silver
Silver in concentrates
Australia (Mount Isa, McArthur River)
Mount Isa
Zinc in concentrates
Lead in concentrates
kt
kt
kt
kt
koz
koz
koz
kt
kt
kt
kt
koz
koz
koz
kt
kt
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
46.3
11.9
7.8
12.4
142
47.4
8.1
5.9
16.4
141
51.0
11.8
1.5
12.4
137
187.6
44.0
15.2
53.9
521
193.4
26.3
(3)
67
(1)
46
–
n.m.
n.m.
51.9
520
4
–
23
(15)
(1)
22
1,212
1,135
1,277
4,510
3,653
202
238
29
469
–
n.m.
n.m.
76.1
35.0
7.8
16.9
178
76.0
33.2
5.9
19.3
181
77.4
32.3
1.5
15.3
175
305.5
133.6
15.2
68.2
658
304.5
119.8
–
62.2
674
–
12
–
(7)
n.m.
n.m.
10
(2)
(9)
(13)
(2)
(19)
7,839
6,060
8,495
6,507
6,346
27,408
30,049
–
–
202
238
29
469
–
n.m.
n.m.
51.4
8.1
–
14.6
138
1,046
–
77.3
34.6
–
17.6
179
42.9
12.2
–
12.7
101
886
–
76.0
33.1
–
16.7
124
96.3
34.6
80.3
35.9
62.2
30.9
70.4
37.0
75.3
39.5
Silver in concentrates
koz
1,427
1,760
1,643
1,891
2,038
McArthur River
Zinc in concentrates
Lead in concentrates
Silver in concentrates
Total Zinc in concentrates
Total Lead in concentrates
kt
kt
koz
kt
kt
Total Silver in concentrates koz
54.0
12.3
428
150.3
46.9
1,855
North America (Matagami, Kidd, Brunswick, CEZ Refinery)
Matagami
Zinc in concentrates
Copper in concentrates
Kidd
Zinc in concentrates
Copper in concentrates
kt
kt
kt
kt
Silver in concentrates
koz
14.4
2.7
14.8
11.9
569
43.7
11.1
395
124.0
47.0
2,155
14.2
3.0
12.8
10.2
359
45.5
10.5
374
107.7
41.4
2,017
11.8
2.4
19.5
8.4
520
48.1
9.7
347
118.5
46.7
2,238
14.6
2.5
24.0
9.8
739
62.9
10.8
293
138.2
50.3
2,331
11.0
1.8
22.2
9.9
674
288.2
143.3
7,332
200.2
42.1
1,409
488.4
185.4
8,741
51.6
9.7
78.5
38.3
478.2
163.0
6,524
272.7
53.0
1,724
750.9
216.0
8,248
52.0
8.2
63.2
40.1
2,292
2,368
(40)
(12)
12
(27)
(21)
(18)
(35)
(14)
6
(1)
18
24
(4)
(3)
(22)
14
43
16
(12)
(32)
(8)
7
26
(24)
(33)
50
(17)
18
Total Zinc in concentrates
Total Copper in
concentrates
kt
kt
Total Silver in concentrates koz
29.2
27.0
31.3
38.6
33.2
130.1
115.2
13
14
14.6
569
13.2
359
10.8
520
12.3
739
11.7
48.0
48.3
674
2,292
2,368
(1)
(3)
(20)
18
208 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Production from own sources – Zinc assets1
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
North America – total production including third party feed
Brunswick Smelter
Lead metal
CEZ Refinery6
Silver metal
Zinc metal
kt
koz
kt
20.9
5,157
18.0
19.8
5,122
16.9
13.7
4,299
17.3
19.6
6,295
17.0
16.4
69.5
70.8
5,048
20,764
21,354
18.1
69.3
68.2
Other Zinc (Aguilar, Los Quenuales, Sinchi Wayra, Rosh Pinah, Perkoa)
Zinc metal
Zinc in concentrates
Lead metal
Lead in concentrates
Copper in concentrates
Silver metal
Silver in concentrates
Total Zinc department
Zinc
Lead
Copper
Gold
Silver
kt
kt
kt
kt
kt
koz
koz
kt
kt
kt
koz
koz
5.7
61.5
3.5
10.7
0.6
210
–
49.1
2.8
9.0
0.4
120
–
56.4
3.3
9.9
0.5
186
–
59.9
3.1
10.5
0.7
154
–
–
55.8
221.2
3.5
7.5
0.5
206
12.7
36.9
2.1
666
26.1
279.9
12.7
42.7
2.4
691
2,127
1,746
1,861
2,041
1,905
7,553
8,566
298.1
243.0
241.7
264.4
278.2
1,027.3
1,365.5
69.2
29.8
138
71.0
26.3
101
74.3
23.7
142
74.3
29.4
141
74.6
24.6
137
294.2
104.0
521
297.7
102.6
520
5,807
5,266
5,998
6,545
6,422
24,231
23,526
(2)
(3)
2
(100)
(21)
–
(14)
(13)
(4)
(12)
(25)
(1)
1
–
3
(22)
(2)
1
(100)
(9)
–
(30)
(17)
(2)
(10)
(7)
8
(17)
(1)
11
Glencore Annual Report 2016
209
Additional information
Production by quarter – Q4 2015 to Q4 2016
Metals and minerals
Production from own sources – Nickel assets1
Integrated Nickel Operations (Sudbury, Raglan, Nikkelverk)
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
15.5
15.7
17.8
0.1
3.6
10.9
0.3
12
196
30
63
2
22.8
0.2
6.5
13.0
0.9
17
322
43
95
2
8.4
0.6
0.2
4.8
9.3
0.2
9
210
20
38
1
23.3
0.2
7.6
10.7
0.9
12
336
27
55
2
9.3
0.7
0.1
3.9
7.0
0.2
9
151
17
35
1
23.2
0.1
7.9
8.8
0.9
13
253
26
59
1
10.5
0.7
12.8
0.9
12.0
0.8
10.9
0.7
1.4
2.4
3.2
27.5
10.9
0.9
9
151
17
35
1
27.6
14.1
0.9
9
210
20
38
1
29.5
14.5
0.9
12
196
30
63
2
13.8
18.3
0.1
3.6
6.7
0.2
8
120
21
36
2
0.2
4.6
7.7
0.3
8
98
19
36
1
23.3
23.3
0.2
6.9
9.1
1.0
11
141
25
52
2
10.1
0.7
13.2
0.8
0.1
7.1
7.8
0.7
10
195
28
52
2
7.5
0.8
9.9
0.9
3.9
25.3
10.3
1.0
8
120
21
36
2
65.6
0.6
16.6
34.6
1.0
37
624
90
173
6
92.7
0.7
28.1
40.6
3.5
50
994
123
254
8
35.3
2.8
46.0
3.2
49.1
0.5
14.9
31.1
0.8
35
610
76
157
5
91.2
0.6
35.5
38.2
3.1
50
1,046
106
242
6
37.5
2.8
46.7
3.3
34
20
11
11
25
6
2
18
10
20
2
17
(21)
6
13
–
(5)
16
5
33
(6)
–
(1)
(3)
18
100
18
10
50
(11)
(35)
12
3
–
–
100
(13)
3
11
(15)
(44)
(4)
(12)
100
(4)
–
3
(11)
4.1
13.6
9.1
49
193
32.7
12.3
1.0
8
98
19
36
1
115.1
51.2
3.8
37
624
90
173
6
96.2
46.0
3.6
35
610
76
157
5
20
11
6
6
2
18
10
20
19
13
11
(11)
(35)
12
3
–
Integrated Nickel Operations – total production including third party feed
Nickel metal
Nickel in concentrates
Copper metal
Copper in concentrates
Cobalt metal
Gold
Silver
Platinum
Palladium
Rhodium
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
Nickel metal
Nickel in concentrates
Copper metal
Copper in concentrates
Cobalt metal
Gold
Silver
Platinum
Palladium
Rhodium
Total Nickel metal
Total Cobalt metal
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
kt
kt
Murrin Murrin
Murrin Murrin – total production including third party feed
Total Nickel metal
Total Cobalt metal
Koniambo
Nickel in ferronickel
Total Nickel department
Nickel
Copper
Cobalt
Gold
Silver
Platinum
Palladium
Rhodium
kt
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
210 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Production from own sources – Ferroalloys assets1
Ferrochrome7
PGM8
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
kt
390
400
362
344
417
1,523
1,462
4
7
Platinum
Palladium
Rhodium
Gold
4E
koz
koz
koz
koz
koz
16
10
2
–
28
15
9
3
–
27
16
10
2
1
29
14
8
3
–
25
13
9
2
–
24
58
36
10
1
82
45
13
1
105
141
(29)
(20)
(23)
–
(26)
(19)
(10)
–
n.m.
(14)
Vanadium Pentoxide
mlb
5.5
5.6
4.5
5.5
5.5
21.1
20.9
1
–
Total production – Custom metallurgical assets1
Copper (Altonorte, Pasar, Horne, CCR)
Copper metal
Copper anode
kt
kt
121.7
123.1
113.9
136.1
127.7
129.0
122.5
98.9
125.0
158.5
489.1
522.5
433.7
502.8
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
Zinc (Portovesme, San Juan de Nieva, Nordenham, Northfleet)
200.8
50.9
3,342
197.6
55.5
3,058
197.3
54.8
4,247
199.4
56.4
3,270
195.5
49.9
789.8
216.6
788.8
199.2
4,270
14,845
11,220
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
13
4
–
9
32
3
29
(3)
(2)
28
Ferroalloys
Zinc metal
Lead metal
Silver
Ferromanganese
Silicon Manganese
kt
kt
koz
kt
kt
44
18
45
19
28
25
30
23
33
15
136
82
146
98
(7)
(16)
(25)
(17)
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis, except as stated.
2 Copper metal includes copper contained in copper concentrates and blister.
3 Cobalt contained in concentrates and hydroxides.
4 The Group’s pro-rata share of Collahuasi production (44%).
5 The Group’s pro-rata share of Antamina production (33.75%).
6 The Group’s pro-rata share of CEZ production (25%).
7 The Group’s attributable 79.5% share of the Glencore-Merafe Chrome Venture.
8 Consolidated 50% of Mototolo and 100% of Eland (placed on care and maintenance from October 2015).
Glencore Annual Report 2016
211
Additional information
Production by quarter – Q4 2015 to Q4 2016
Energy products
Production from own sources – Coal assets1
Australian coking coal
Australian semi-soft coal
Australian thermal coal (export)
Australian thermal coal (domestic)
South African thermal coal (export)
South African thermal coal (domestic)
Prodeco
Cerrejón2
Total Coal department
mt
mt
mt
mt
mt
mt
mt
mt
mt
Q4
2015
Q1
2016
1.7
0.9
13.6
1.0
3.5
1.7
3.7
2.7
1.2
1.0
11.6
1.7
4.1
3.2
4.3
2.6
Q2
2016
0.8
1.2
12.5
1.5
4.3
2.5
4.0
2.3
Q3
2016
1.6
0.9
13.7
1.4
4.5
3.3
4.7
3.0
Q4
2016
1.7
1.1
14.7
1.0
4.3
3.1
4.3
2.8
2016
2015
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
5.3
4.2
52.5
5.6
17.2
12.1
17.3
10.7
5.9
3.6
52.4
3.9
19.7
17.3
17.6
11.1
(10)
17
–
44
(13)
(30)
(2)
(4)
(5)
–
22
8
–
23
82
16
4
15
28.8
29.7
29.1
33.1
33.0
124.9
131.5
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis except for joint ventures, where the Group’s attributable share of production is included.
2 The Group’s pro-rata share of Cerrejón production (33.3%).
Production from own sources – Oil assets
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
1,238
1,297
2,535
1,147
1,253
2,400
953
997
821
855
708
777
1,950
1,676
1,485
3,629
3,882
7,511
4,937
5,632
10,569
5,651
1,773
7,424
5,177
1,713
6,890
4,464
1,363
5,827
3,959
1,169
5,128
3,309
1,063
16,909
22,939
5,308
7,699
4,372
22,217
30,638
kbbl
kbbl
kbbl
kbbl
kbbl
kbbl
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
2016
2015
kt
kt
kt
kt
kt
kt
kt
kt
124
1,627
6
1,826
62
144
32
236
776
141
119
56
239
219
3,001
2,606
183
1,935
214
158
59
241
461
142
1,586
2,333
436
200
113
262
13
210
46
247
746
792
7,680
804
687
274
989
704
6,069
284
556
206
976
3,259
2,751
1,046
3,836
1,248
4,306
3,737
14,485
11,546
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
(26)
(31)
(29)
(26)
(31)
(27)
(43)
(40)
(41)
(41)
(40)
(41)
Change
2016 vs
2015
%
Change
Q4 16 vs
Q4 15
%
13
27
183
24
33
1
18
25
15
43
(79)
46
44
5
(4)
25
Glencore entitlement interest basis
Equatorial Guinea
Chad
Total Oil department
Gross basis
Equatorial Guinea
Chad
Total Oil department
Agricultural products
Processing/production data
Farming
Crushing
Long-term toll agreement
Biodiesel
Rice milling
Wheat milling
Sugarcane processing
Total Agricultural products
212 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Resources and reserves
The resource and reserve data in the following tables is a summary of the Glencore Resources and Reserves report as at
31 December 2016, as published on the Glencore website on 2 February 2017. The Glencore Resources and Reserves report
was publicly reported, as appropriate for individual components, in accordance with the 2012 edition of the Australasian
Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), the 2007 edition (as amended
July 2009) of the South African Code for Reporting of Mineral Resources and Mineral Reserves (SAMREC), the Canadian
Institute of Mining, Metallurgy and Petroleum (CIM) Standards on Mineral Resources and Reserves (2014 edition) and the
Petroleum Resources Management System (PRMS) for reporting of oil and natural gas reserves and resources.
Data is reported as at 31 December 2016, unless otherwise noted. For comparison purposes, data for 2015 has been included.
Metric units are used throughout, and all data is presented on a 100% asset basis with the exception of Oil assets which are
shown on a working interest basis. All tonnage information has been rounded to reflect the relative uncertainty in the
estimates; there may therefore be small differences in the totals.
Metals and minerals: Copper
Copper mineral resources
Name of operation
Commodity
2016
2015
2016
2015
2016
2015
2016
2015
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and Indicated
Resources
Inferred
Mineral Resources
African copper
Katanga
Mutanda
Mopani
Collahuasi
Antamina
Other South
America
Australia
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Molybdenum (%)
(Mt)
Copper (%)
Zinc (%)
Silver (g/t)
16
3.58
0.57
245
1.52
0.60
202
2.11
0.08
859
0.80
0.02
239
0.91
0.72
10
14
3.53
0.49
242
1.57
0.63
199
2.11
0.08
791
0.81
0.02
256
0.93
0.70
11
259
3.66
0.54
194
1.10
0.40
74
2.00
0.08
4,263
0.79
0.02
846
0.88
0.79
11
194
3.53
0.52
197
1.06
0.39
71
1.99
0.09
4,310
0.82
0.02
841
0.90
0.82
11
Molybdenum (%)
0.025
0.027
0.019
0.020
276
3.66
0.55
439
1.33
0.51
277
2.08
0.08
5,122
0.80
0.02
1,085
0.89
0.78
11
0.021
207
3.53
0.52
439
1.34
0.52
270
2.08
0.08
5,102
0.82
0.02
1,097
0.91
0.79
11
0.021
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
701
0.41
0.09
0.6
122
1.89
0.08
0.6
673
0.39
0.11
0.5
119
1.89
0.10
0.6
2,195
0.37
0.04
0.6
182
1.37
0.23
0.4
2,104
0.40
0.04
0.7
182
1.36
0.24
0.3
2,896
2,777
0.38
0.05
0.6
304
1.58
0.17
0.5
0.40
0.06
0.6
301
1.57
0.18
0.5
168
3.78
0.44
235
0.81
0.24
77
2.06
0.10
4,853
0.76
0.01
1,247
0.88
0.62
10
0.018
886
0.33
0.05
0.4
162
1.1
0.03
0.8
200
3.81
0.43
221
0.79
0.23
80
2.08
0.09
4,876
0.80
0.02
1,273
0.90
0.68
11
0.017
870
0.37
0.05
0.6
161
1.1
0.03
0.8
Glencore Annual Report 2016
213
Additional information
Resources and reserves
Metals and minerals: Copper
Copper mineral resources (continued)
Name of operation
Commodity
Other projects
(El Pachon,
West Wall)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
Molybdenum (%)
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and Indicated
Resources
Inferred
Mineral Resources
2016
534
0.67
–
2.4
0.01
2015
534
0.67
–
2.4
0.01
2016
1,551
0.51
0.02
1.4
0.01
2015
1,549
0.51
0.02
1.4
0.01
2016
2,085
0.55
0.01
1.7
0.01
2015
2,083
0.55
0.01
1.7
0.01
2016
2,537
0.44
0.02
1.1
0.01
2015
2,479
0.44
0.02
1.1
0.01
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
2016
2015
2016
2015
2016
2015
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Molybdenum (%)
(Mt)
Copper (%)
Zinc (%)
Silver (g/t)
10
3.63
0.41
116
1.88
0.74
112
1.90
0.08
419
1.08
0.03
174
1.01
0.82
11
10
3.62
0.41
114
2.14
0.85
114
1.90
0.08
516
0.99
0.02
191
1.04
0.79
11
114
3.50
0.53
43
1.53
0.65
30
1.95
0.08
2,669
0.87
0.02
378
0.92
1.10
11
88
3.94
0.49
43
1.77
0.69
30
1.92
0.07
2,607
0.82
0.02
407
0.91
1.06
11
125
3.51
0.52
159
1.79
0.72
142
1.91
0.08
3,088
0.90
0.02
552
0.95
1.01
11
99
3.91
0.48
157
2.04
0.81
144
1.90
0.08
3,123
0.85
0.02
598
0.95
0.97
11
Molybdenum (%)
0.028
0.028
0.020
0.020
0.022
0.023
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
531
0.42
0.08
0.7
26
2.25
0.20
2.2
490
0.42
0.07
0.6
34
2.17
0.19
1.6
834
0.46
0.05
1.1
80
1.38
0.31
0.5
740
0.35
0.05
0.7
59
1.30
0.42
0.8
1,365
1,230
0.45
0.07
0.9
106
1.59
0.28
0.9
0.37
0.06
0.6
93
1.63
0.34
1.1
Copper ore reserves
Name of operation
African copper
Katanga
Mutanda
Mopani
Collahuasi
Antamina
Other South America
Australia
214 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Metals and minerals: Zinc
Zinc mineral resources
Name of operation
Commodity
2016
2015
2016
2015
2016
2015
2016
2015
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and Indicated
Resources
Inferred
Mineral Resources
Kazzinc
Kazzinc Polymetallic
Kazzinc Gold
(Vasilkovskoye)
Australia
Mount Isa
McArthur River
North America
Zinc North America
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
Copper North America
(Mt)
Other Zinc
Copper (%)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
87.2
3.98
1.54
0.33
19.5
0.43
87.0
2.2
118
7.20
4.49
87.5
123
9.94
4.64
46.9
24.0
4.32
0.44
1.56
47.7
0.38
75.0
0.39
0.16
16.6
9.27
2.19
0.18
163
27.7
3.42
0.89
1.20
36.0
1.42
61.5
2.2
141
6.86
4.26
80.3
118
10.2
4.81
48.6
25.8
4.42
0.41
1.62
48.2
0.35
75.0
0.39
0.16
10.6
9.78
2.65
0.06
88.0
100
1.9
0.6
0.3
17
0.9
40
2.1
340
5.9
3.1
59
64
8.9
4.1
43
36
4.7
0.5
0.7
107
0.4
255
0.4
0.2
31
5.9
1.7
0.3
150
152
2.8
1.1
0.2
17
0.6
22
2.2
330
5.2
2.9
57
60
9.4
4.4
46
36
4.9
0.5
0.7
107
0.4
255
0.4
0.2
37
6.1
1.0
0.2
80
190
2.9
1.0
0.3
18
0.7
127
2.2
460
6.2
3.5
66
190
9.6
4.5
46
60
4.6
0.5
1.0
83
0.4
330
0.4
0.2
48
7.1
1.8
0.2
154
180
2.9
1.1
0.3
20
0.7
83
2.2
470
5.7
3.3
64
180
9.9
4.7
48
62
4.7
0.5
1.1
83
0.4
330
0.4
0.2
48
6.9
1.4
0.1
82
97
2
1
0.3
31
1
26
1.7
200
5
3
60
–
–
–
–
60
4
0.5
0.5
140
0.2
120
0.4
0.1
58
7
1
0.1
24
94
3
0.7
0.3
28
2
7.6
1.9
210
5
3
50
–
–
–
–
60
4
0.5
0.5
140
0.2
120
0.4
0.1
59
7
1
0.1
20
Glencore Annual Report 2016
215
Additional information
Resources and reserves
Metals and minerals: Zinc
Zinc ore reserves
Name of operation
Kazzinc
Kazzinc Polymetallic
Kazzinc Gold
(Vasilkovskoye)
Australia
Mount Isa
McArthur River
North America
Other Zinc
216 Glencore Annual Report 2016
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
2016
2015
2016
2015
2016
2015
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
70.7
3.88
1.57
0.14
16.1
0.20
70.6
2.3
22.4
9.08
4.78
92.1
71.2
10.6
5.00
50.1
7.66
4.21
1.84
44.9
0.06
7.34
8.99
1.96
0.08
120
14.4
2.80
0.72
0.95
32.3
1.15
64.2
2.0
30.5
8.27
4.49
77.9
49.4
12.1
5.66
57.5
8.20
4.38
1.91
45.1
0.05
3.46
11.4
3.28
0.02
79.5
20
4.8
0.8
0.6
20
0.6
30
2.2
55
7.9
3.8
69
45
7.4
3.6
37
4.8
6.2
1.4
35
0.4
14
6.2
1.4
0.2
96
15
5.5
0.6
0.8
27
0.8
23
2.0
47
7.1
3.7
64
53
8.3
4.0
41
7.5
5.9
1.4
35
0.4
16
7.4
1.1
0.1
69
91
4.1
1.4
0.2
17
0.3
101
2.3
78
8.2
4.1
75
117
9.4
4.5
45
12
5.0
1.7
41
0.2
22
7.1
1.6
0.1
104
30
4.2
0.7
0.9
29
1.0
87
2.0
78
7.5
4.0
69
102
10
4.8
49
16
5.1
1.7
40
0.2
20
8.1
1.5
0.1
71
Strategic report | Governance | Financial statements | Additional information
Metals and minerals: Nickel
Nickel mineral resources
Name of operation
Commodity
INO
Murrin Murrin
Koniambo
Other Nickel
(Kabanga)
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
(Mt)
Nickel (%)
Cobalt (%)
(Mt)
Nickel (%)
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
Nickel ore reserves
Name of operation
INO
Murrin Murrin
Koniambo
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and Indicated
Resources
2016
14.9
2.58
1.44
0.06
0.98
1.60
186.1
0.97
0.071
13.1
2.50
13.8
2.49
0.34
0.21
0.16
0.19
2015
15.6
2.59
1.56
0.05
1.00
1.54
167.3
1.01
0.071
18.1
2.48
13.8
2.49
0.34
0.21
0.16
0.19
2016
29.9
2.75
0.99
0.06
0.71
1.33
88.3
0.98
0.078
46.3
2.44
23.4
2.72
0.36
0.19
0.42
0.28
2015
31.4
2.76
1.08
0.06
0.69
1.30
79.0
0.99
0.083
29.1
2.42
23.4
2.72
0.36
0.19
0.42
0.28
2016
44.8
2.70
1.14
0.06
0.80
1.42
274.4
0.97
0.073
59.6
2.46
37.2
2.63
0.35
0.20
0.32
0.25
2015
47.0
2.70
1.24
0.06
0.79
1.37
246.3
1.00
0.075
47.2
2.44
37.2
2.63
0.35
0.20
0.32
0.25
Inferred
Mineral Resources
2016
2015
38
2.1
2.4
0.1
1.1
1.9
21
0.9
0.06
88
2.5
21
2.6
0.3
0.2
0.3
0.3
33
2.5
1.8
0.1
1.0
1.8
18
0.9
0.07
95
2.5
21
2.6
0.3
0.2
0.3
0.3
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
(Mt)
Nickel (%)
Cobalt (%)
(Mt)
Nickel (%)
2016
9.8
2.02
1.46
0.04
0.95
1.40
183.7
0.94
0.064
9.7
2.30
2015
10.9
1.95
1.60
0.04
1.02
1.44
151.6
0.97
0.070
14.2
2.33
2016
9.3
2.59
0.73
0.06
0.66
1.47
54.2
0.92
0.061
26.2
2.28
2015
10.6
2.47
0.78
0.05
0.67
1.40
39.9
0.96
0.069
20.9
2.29
2016
19.1
2.29
1.10
0.05
0.81
1.44
237.9
0.94
0.064
35.9
2.29
2015
21.4
2.21
1.20
0.04
0.85
1.43
191.6
0.97
0.069
35.1
2.30
Glencore Annual Report 2016
217
Additional information
Resources and reserves
Metals and minerals: Ferroalloys
Ferroalloys mineral resources
Name of operation
Commodity
Chrome
Vanadium
PGM
Silica
(Mt)
Cr2O3 (%)
(Mt)
V2O5 (%)
(Mt)
3PGE + Gold (g/t)
(Mt)
SiO2 (%)
Ferroalloys ore reserves
Name of operation
Chrome
Vanadium
PGM
Silica
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and Indicated
Resources
Inferred
Mineral Resources
2016
115
41.2
49.18
0.48
80
4.31
–
–
2015
118
41.1
48.85
0.48
85
4.37
–
–
2016
83
41.0
39.4
0.5
26
3.1
2015
83
40.9
38.7
0.5
26
3.1
2016
197
41.1
88.5
0.5
106
4.0
2015
201
41.0
87.6
0.5
111
4.1
23.27
91
23.81
91
23.27
91
23.81
91
2016
297
40
95
0.5
83
4.3
–
–
2015
297
40
95
0.5
83
4.3
–
–
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
(Mt)
Cr2O3 (%)
(Mt)
V2O5 (%)
(Mt)
3PGE + Gold (g/t)
2016
43
32.7
26.83
0.47
2015
47
34.0
26.66
0.48
12.795
3.58
18.731
3.82
(Mt)
SiO2 (%)
–
–
–
–
2016
17
31.1
13.0
0.5
–
–
2.05
91
2015
17
32.6
12.9
0.5
–
–
2.15
91
2016
59
32.2
39.8
0.5
12.80
3.6
2.05
91
2015
63
33.6
39.6
0.5
18.73
3.8
2.15
91
218 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Metals and minerals: Iron Ore
Iron ore mineral resources
Name of operation
Commodity
(Mt)
Iron (%)
(Mt)
Iron (%)
(Mt)
Iron (%)
(Mt)
Iron (%)
El Aouj Mining
Company S.A.
Sphere Mauritania
S.A.
(Askaf)
Sphere Lebtheinia
S.A.
Jumelles Limited
(Zanaga)
Iron ore reserves
Name of operation
El Aouj Mining
Company S.A.
Jumelles Limited
(Zanaga)
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and Indicated
Resources
Inferred
Mineral Resources
2016
470
36
215
36
–
–
2015
470
36
215
36
–
–
2,300
34
2,300
34
2016
2015
2016
2015
2016
2015
1,435
36
190
35
2,180
32
2,500
30
1,435
36
190
35
2,180
32
2,500
30
1,905
36
405
36
2,180
32
4,800
32
1,905
36
405
36
2,180
32
4,800
32
2,520
35
2,520
35
251
35
560
32
251
35
560
32
2,100
31
2,100
31
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
2016
(Mt)
Iron (%)
(Mt)
Iron (%)
380
35
770
37
2015
380
35
770
37
2016
551
35
1,290
32
2015
551
35
1,290
32
2016
2015
931
35
2,070
34
931
35
2,070
34
Glencore Annual Report 2016
219
Additional information
Resources and reserves
Energy products: Coal
Coal resources
Name of operation
Australia
New South Wales
Queensland
Measured
Coal Resources
Indicated
Coal Resources
Inferred
Coal Resources
Commodity
2016
2015
2016
2015
2016
2015
Coking/Thermal Coal (Mt)
Coking/Thermal Coal (Mt)
3,145
3,033
3,170
3,028
2,943
3,685
2,869
3,373
5,211
8,030
5,271
8,269
South Africa
Thermal Coal (Mt)
2,895
2,914
1,136
1,151
Thermal Coal (Mt)
175
185
210
220
Thermal Coal (Mt)
3,000
2,950
1,250
1,150
Coking/Thermal Coal (Mt)
45
45
113
113
435
70
650
130
435
70
800
130
Coal Reserves
Marketable
Coal Reserves
Proved
Probable
Proved
Probable
Total Marketable
Coal Reserves
Commodity
2016
2016
2016
2016
2016
2015
Thermal Coal (Mt)
Coking Coal (Mt)
Thermal Coal (Mt)
Coking Coal (Mt)
926
18
890
83
756
100
490
155
42
401
42
307
80
70
671
11
799
55
468
100
470
109
28
353
28
179
80
70
780
39
1,152
83
646
180
540
839
40
1,220
108
670
200
610
Prodeco
Cerrejón
Canada projects
(Suska, Sukunka)
Coal reserves
Name of operation
Australia
New South Wales
Queensland
South Africa
Thermal Coal (Mt)
Prodeco
Cerrejón
Thermal Coal (Mt)
Thermal Coal (Mt)
220 Glencore Annual Report 2016
Strategic report | Governance | Financial statements | Additional information
Energy products: Oil
Oil net reserves (Proven and Probable)1
Equatorial Guinea
Chad
Cameroon
Working Interest Basis
Oil mmbbl
Gas bcf
Oil mmbbl
Gas bcf
Oil mmbbl
Gas bcf
Oil mmbbl
Gas bcf
31 December 2015
Revisions
Production
31 December 2016
19
(2)
(4)
13
–
–
–
–
166
(9)
(5)
152
–
–
–
–
–
–
–
–
–
–
–
–
185
(11)
(9)
165
–
–
–
–
Net contingent resources (2C)1
Equatorial Guinea
Chad
Cameroon
Working Interest Basis
Oil mmbbl
Gas bcf
Oil mmbbl
Gas bcf
Oil mmbbl
Gas bcf
Oil mmbbl
Gas bcf
31 December 2015
Revisions
Divestments
31 December 2016
23
2
–
25
562
(32)
–
530
9
–
–
9
–
–
–
–
47
–
(29)
18
595
–
(595)
–
79
2
(29)
52
1,157
(32)
(595)
530
1 “Net” reserves or resources are equivalent to Glencore’s working interest in the asset/property.
Total
Combined
mmboe
185
(11)
(9)
165
Total
Combined
mmboe
278
(3)
(132)
143
Glencore Annual Report 2016
221
Additional information
Shareholder information
Glencore plc is registered in Jersey, with headquarters in Switzerland and operations around the world.
Headquarters
Registered Office
Baarermattstrasse 3
P.O. Box 777
CH-6341 Baar
Switzerland
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
The Company has a primary quote on the London Stock Exchange (LSE) and a secondary quote on both the
Johannesburg Stock Exchange (JSE) and the Hong Kong Stock Exchange (HKEx).
Share registrars
Jersey:
Johannesburg:
Hong Kong:
Enquiries
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier, Jersey
JE1 1ES
Channel Islands
Tel.: +44 (0) 870 707 4040
Computershare Investor Services (Pty) Ltd
70 Marshall Street
Johannesburg
2001 South Africa
Tel.: +27 (0) 11 370 5000
Computershare Hong Kong Investor Services Limited
Hopewell Centre 46th Floor
183 Queen’s Road East
Wan Chai
Hong Kong
Tel.: +852 2862 8628
Company Secretary
John Burton
john.burton@glencore.com
Glencore plc
Baarermattstrasse 3
CH-6340 Baar
Switzerland
Tel.: +41 41 709 2000
Fax: +41 41 709 3000
Email: info@glencore.com
222 Glencore Annual Report 2016
Forward looking statements
This document contains statements that are, or may be
deemed to be, “forward looking statements” which are
prospective in nature. These forward looking statements
may be identified by the use of forward looking
terminology, or the negative thereof such as “plans”,
“expects” or “does not expect”, “is expected”, “continues”,
“assumes”, “is subject to”, “budget”, “scheduled”, “estimates”,
“aims”, “forecasts”, “risks”, “intends”, “positioned”,
“predicts”, “anticipates” or “does not anticipate”, or
“believes”, or variations of such words or comparable
terminology and phrases or statements that certain actions,
events or results “may”, “could”, “should”, “shall”, “would”,
“might” or “will” be taken, occur or be achieved.
Such statements are qualified in their entirety by the
inherent risks and uncertainties surrounding future
expectations. Forward-looking statements are not based on
historical facts, but rather on current predictions,
expectations, beliefs, opinions, plans, objectives, goals,
intentions and projections about future events, results of
operations, prospects, financial condition and discussions
of strategy.
By their nature, forward looking statements involve known
and unknown risks and uncertainties, many of which are
beyond Glencore’s control. Forward looking statements are
not guarantees of future performance and may and often do
differ materially from actual results. Important factors that
could cause these uncertainties include, but are not limited
to, those discussed in the Principal Risks and Uncertainties
section on pages 36 to 44.
Neither Glencore nor any of its associates or directors,
officers or advisers, provides any representation, assurance
or guarantee that the occurrence of the events expressed or
implied in any forward-looking statements in this document
will actually occur. You are cautioned not to place undue
reliance on these forward-looking statements which only
speak as of the date of this document. Other than in
accordance with its legal or regulatory obligations
(including under the UK Listing Rules and the Disclosure
and Transparency Rules of the Financial Conduct Authority
and the Rules Governing the Listing of Securities on the
Stock Exchange of Hong Kong Limited and the Listing
Requirements of the Johannesburg Stock Exchange Limited),
Glencore is not under any obligation and Glencore and its
affiliates expressly disclaim any intention, obligation or
undertaking to update or revise any forward looking
statements, whether as a result of new information, future
events or otherwise. This document shall not, under any
circumstances, create any implication that there has been no
change in the business or affairs of Glencore since the date
of this document or that the information contained herein is
correct as at any time subsequent to its date.
No statement in this document is intended as a profit
forecast or a profit estimate and no statement in this
document should be interpreted to mean that earnings per
Glencore share for the current or future financial years
would necessarily match or exceed the historical published
earnings per Glencore share.
This document does not constitute or form part of any offer
or invitation to sell or issue, or any solicitation of any offer to
purchase or subscribe for any securities. The making of this
document does not constitute a recommendation regarding
any securities.
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Glencore plc
Baarermattstrasse 3
CH-6340 Baar
Switzerland
Tel: +41 41 709 2000
Fax: +41 41 709 3000
E-mail: info@glencore.com
www.glencore.com