Activist investor Harris Associates has secured a 1.06 percent holding in the beleaguered Switzerland-based commodities trading house and mining giant Glencore Plc (LON:GLEN), The Telegraph reported over the weekend.
The £250 million position is held via one of Harris Associates’ mutual funds, the Oakmark International Fund.
The Chicago-based investor, which holds some $135 billion under management, has a history of forcing change at struggling companies, and its buy-in is seen as a challenge to Ivan Glasenberg, Glencore’s billionaire chief executive.
Both Glencore and Harris Associates declined to comment on the buy-in.
Glasenberg is expected to present a slump in the company’s performance as it reports first-half results on Wednesday. Analysts are projecting that H1 net income will come in at $848 million (£543 million), down from $2.27 billion for the second half of last year.
The slump in the commodities market is taking a massive toll on energy and mining companies alike. Two of Glencore’s top rivals, Rio Tinto and Anglo American recently reported that their H1 profits had slid 43 and 36 percent, respectively.
China’s devaluation of the yuan in a bid to prop up its slowing export trade will inevitably affect import levels in the negative. In particular, the move will have a significant impact on Glencore, as well as other miners, as China is the single biggest importer of base metals in the world. The country accounts for nearly 45 percent of global copper consumption, and the red metal is one of Glencore’s main products.
The miner’s problems are further compounded by a real danger that the company’s stock rating will be demoted to junk status, which would significantly hamper the ability of Glencore’s trading division to execute big, leveraged trades.
“They are in constant dialogue with the [rating] agencies and at the moment they are only two notches above junk at BBB,” Ben Davis, analyst at broker Liberum, said as quoted by The Telegraph.
Glencore’s credit rating hangs on the company’s debt-asset ratio, and more precisely, on Glasenberg’s readiness to cut costs. Last week, the company announced that it is winding down 2015 full-year capex to about $6 billion, while last week the firm confirmed the sale of three mining projects for a total of $290 million.
However, analysts argue that Glencore would need to trim its dividend in order to avoid a crippling rating downgrade.
“The first thing to go will be the dividend, then assets, then the credit rating,” Davis noted.
Glencore’s share price had dropped 0.55 percent to a new all-time low of 171.90p as of 08:20 BST today. The firm’s stock has depreciated more than 67 percent since flotation in 2011.