Glencore share price plunges 30 percent after Investec warning

Glencore Plc (LON:GLEN) slumped as much as 31 percent in in London today, slipping well below the previous record low, as Investec warned that the Swiss firm would offer marginal value to shareholders, if depressed commodities prices were to persist.

The investment banking institution said that without substantial restructuring, almost all of Glencore’s equity value would evaporate.
“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,” Investec said in a note to investors Monday.

“Despite the drastic action that management has announced recently (even assuming all of the measures are successfully implemented), a spot price scenario results in an almost complete collapse in forward earnings such that no meaningful estimate of shareholder value can be derived under our price-to-earnings methodology,” the brokerage said.

Glencore’s share price had slid 25.28 percent to 72.64p as of 14:41 BST today, though earlier in the session the stock was as much as 31 percent in the red at 66.67p. Last week, the firm’s stock dropped a further 23 percent. In the year-to-date, Glencore’s value has slumped 75 percent, and the company’s current market valuation stands at about £10.3 billion.

As one of the most leveraged of the big miners, operating under a $30 billion debt overhang, Glencore has led the retreat amongst miners over the past year, as base metals slid under a cooling growth outlook in China.

The world’s second-top economy buys nearly half of the world’s copper and aluminium and accounts for 70 percent of global seaborne iron ore imports.
Glencore is particularly exposed to copper, which has lost about a quarter of its value over the past twelve months. The firm’s management, however, has expressed confidence that commodities will rebound with Glencore’s chief executive Ivan Glasenberg boasting that the recently announced $10 billion fundraising measures will do little more than “pitch our balance sheet for Armageddon”.

Traders and analysts are now eyeing Wednesday’s manufacturing PMIs from China. The official figure for September is expected to come in at a three-year low of 49.6, indicating a minor contraction in the sector. The private Caixin reading, however, traditionally lower than official figures, is projected at the much more bearish 47.2. Caixin’s preliminary September PMI stood at a seven-year low of 47.0.

In a separate development, Glencore announced that it has sold its Araguaia nickel project in Brazil to Aim-listed Horizonte Minerals for a discount price of $8 million. The sale is part of the company’s plan to dispose of non-core assets as it aims to raise some $10 billion to combat its heavy indebtedness.
Glencore was also reportedly in talks with sovereign wealth funds in the Middle East and Japanese trading houses over the sale of a minority stake in the firm’s grains trading business.

The deal could bring in as much as $2 billion-$3 billion from the sale, people familiar with the matter said as quoted by Bloomberg.
Although the deals could bring in some much needed capital at Glencore, there are concerns that “there is going to be a fire-sale going on,” said Beaufort Securities’ sales trader Basil Petrides.