Shares in commodities group Glencore PLC have slumped by a fifth after an investment bank warned that the company faced a bleak future if commodity prices don’t recover.
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Shares of Glencore were down 24 per cent at 73.16 pence at 1323 GMT after falling as much as 31 per cent to a record low of 66.67 pence.
“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.
Monday’s fall spread to the broader United Kingdom mining sector, which has also felt the pain from an emerging-markets slowdown and a crash in commodities prices. The sale is part of the debt-cutting program announced earlier this month that included selling $2.5 billion of new stock in an attempt to reduce the company’s debt from $30 billion to $20 billion.
That might not be enough, according to Investec.
“One can not deny the fact that investors are – if the (Glencore) share price is telling you anything – extremely concerned about the near-term outlook”, Charles Stanley market analyst, Jeremy Batstone-Carr, said.
European equities sank on Monday as more disappointing Chinese data and downbeat analyst comment weighed on the mining sector, with London-listed Glencore hit the hardest. “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 nearly complete collapse in forward earnings, such that no meaningful estimate of shareholder value can be derived under our [price-to-earnings] methodology”, the analysts wrote…
The company has hired Credit Suisse Group AG and Citigroup Inc.to unload a minority stake in the agricultural business, a deal that could value the business at up to $12 billion, a person familiar with the matter said.
News that Glencore had sold a nickel project in Brazil to Horizonte Minerals for $8 million offered little respite, with Hobart Capital Markets’ Justin Haque saying the price was a fraction of what Glencore had spent. It is also looking to sell rights to its precious metals production. The nation’s industrial profits dropped 8.8 percent last month, the most in at least four years, signaling weakening demand.
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Glencore’s shares are down more than 75% so far this year, making it the worst performer in the blue-chip index, and are down almost 90% since their listing in London in 2011. “I would be looking for Glencore to rebound from here…[but] only time will tell”.
