On Monday three analysts from the bank and asset manager Investec issued a note that sent shock waves through the mining industry. According to the Financial Times, the worst affected company was the Zug-headquartered Glencore, which saw its shares plummet 29% on the London Stock Exchange. Some in the industry had never seen anything like it before, including the Investec analysts who issued the note.
The Investec note said “The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve.” “If major commodity prices remain at current levels our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate”.
Some in the market doubted that it was Investec’s note alone that had caused Glencore’s share price to drop so steeply.
Gloomy growth prospects in China, the worlds largest importer of raw materials, combined with concerns about the debt levels of some commodities companies seems to be unsettling the market. On 7 September 2015 Glencore announced a debt reduction plan to shore up its balance sheet. Bloomberg reported that the company had hired Citigroup and Credit Suisse to sell a minority stake in its agricultural business as part of the debt-reduction plan.
According the Evening Standard newspaper, a Glencore source described the Investec note as “rubbish”. In a statement Glencore wrote “Our business remains operationally and financially robust – we have positive cash flow, good liquidity and absolutely no solvency issues.”
The markets appeared to respond positively to the company’s assurances. Glencore’s share price has since bounced back from its low of 67 British pence and was trading at around 91 pence on 2 October 2015.
In 2014 Glencore employed 181,000 people across 50 countries and generated US$ 224 billion of revenue. It is headquartered in the town of Baar in the canton of Zug, Switzerland.
Analysts at eye of Glencore storm speak of their ‘boldest call’ (FT – in English)
Glencore in Freefall as Analysts See Tougher Restructuring (Bloomberg – in English)
Take Glencore private if market unfair Citi says with buy call (Bloomberg – in English)
Glencore factsheet 2014 (Glencore website – in English)