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Best to stay clear of NOW on SGX, another disaster waiting to unfold:
http://www.cnbc.com/2015/09/28/glencore-...-next.html
METALS AND MINING
Glencore tanks another 29%: Who's next?
Matt Clinch | @mattclinch81
10 Hours AgoCNBC.com
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Anglo–Swiss commodity and mining behemoth [url=http://data.cnbc.com/quotes/GLEN-GB]Glencore saw its shares slip another 29 percent on Monday with analysts stressing that the weakness is likely to be felt across the entire sector.
London-listed shares of Glencore briefly hit 69 pence in morning trade Monday. It was on course for its worst intraday move on record with shares tumbling 75 percent year-to-date and 85 percent since its flotation in 2011. The U.K. FTSE 350 mining index hit its lowest level since 2008 on the back of Glencore's fall.
Weaker commodity prices and softening Chinese demand have put the brakes on the formerly formidable rise the sector enjoyed over the last decade, but analysts have highlighted that Glencore's main problem is actually its debt load.
"Mining companies gorged themselves on cheap debt in a race to grow production following the Chinese stimulus that occurred in the wake of the (global financial crash)," a team of Investec analysts, led by Hunter Hillcoat, said in a note on Monday morning.
"The consequences are only now coming home to roost, as mines take a long time to build."
Investec said that Glencore had a "higher debt base" than its peers and a "lower-margin asset base," adding that its debt levels would still be above its rivals despite an intense period of restructuring over the next five years.
Value 'virtually eliminated'
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Glencore shares hit fresh all-time low
Investec detailed a scenario of weakening commodity prices - which is not its base case scenario - where it sees an "almost complete collapse" in potential earnings for Glencore as the company would be solely working to repay debt obligations.
Shareholder value would be would be "virtually eliminated" under this scenario, it said.
The FTSE 100-listed company, which specializes in copper, coal, nickel and zinc, has announced it would be scrapping its shareholder dividend and partaking in an equity issue. On Monday, it was confirmed that it would be selling a nickel mining project in Brazil to Horizonte Minerals for $8 million.
Credit Suisse slashed its earnings estimates last week for the metals and mining sector. Also on Thursday, Goldman Sachs said in a note that Glencore's steps to reduce debt and bolster its balance sheet were inadequate. Thirteen out of 25 analysts still have a "buy" rating on Glencore's stock, however, with five of them having a "strong buy" rating.
Who's next?
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After Glencore shutdown, has copper found afloor?
While Glencore suffered the brunt of the selling Monday, its closest rivals weren't immune from the plunge in share prices, or from the pessimism noted in Investec's research.
"While the picture is less extreme for BHP Billiton and Rio Tinto, they too would face a substantial challenge to meet management's apparently steadfast commitment to maintaining dividends, which we estimate would consume 50 percent of ongoing operating cash flows in this scenario," the investment bank said.
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Glencore shares soar on fightback plans
"Anglo American is also in a weaker position than BHP Billiton or Rio Tinto if commodity prices remain depressed."
Anglo American's shares slipped 8 percent, while BHP Billition and Rio Tinto both slid 4.7 percent. Traders in London highlighted the Investec note for the further weakness in the sector.
"The (copper) the price is presently scraping its knuckles on the floor and trading at $2.27 a pound," Brenda Kelly, the head analyst at London Capital Group, said in a note Monday.
"Investec's note this morning, while certainly on the money,… is certainly not helping."
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Matt ClinchAssociate Producer, CNBC.com
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Glencore's true value after stock hammering has analysts guessing
DateSeptember 29, 2015 - 10:50AM- 22 reading now
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Inyoung Hwang and Camila Russo
[Image: 1443489338854.jpg]
Switzerland-based Glencore shed almost 30 per cent of its market capitalisation on Monday. Photo: Urs Flueeler
Glencore, the commodity trader that lost about a third of its value Monday, is worth either $US98 billion ($140 billion) or $US26 billion, depending on which analyst you ask.
At Sanford C. Bernstein, price targets published by Paul Gait suggest the Baar, Switzerland-based resource company can rally sevenfold to 450 pence, the top end of analysts' predictions. At the bottom, Nomura Holdings's 120-pence forecast implies a market value that is $US72 billion lower.
The variance shows the difficulty in valuing a company caught between China's slowing economy and mounting concerns about its debt load. In addition to diverging views on copper prices, questions about how to evaluate Glencore's trading business, unique among big mining companies, are muddling the equation, says Jeremy Sussman, an analyst at Clarksons Platou Securities.
"Glencore does have a unique trading business that is different from their competitors, and it's a much more difficult business to model than a straight 'you mine it, you sell it, and take whatever margin' one," said Sussman. He recommends holding the stock, which he estimates will rise to 190 pence. Analysts "with targets in the higher end are probably in the camp that think trading will return to levels where it had been in the past couple of years."
Glencore tumbled 29 per cent yesterday, the biggest slide since its $US10 billion initial public offering in 2011, after Investec warned there would be little value for shareholders if low raw-material prices persist. With a closing stock price of 68.6 pence, below the most-bearish estimate, at least two of the three analysts with a sell rating have a forecast that implies a rally. Of the remaining, 17 have a buy rating or similar, and 12 recommend holding the shares.
Bernstein's Gait, who has one of the most bullish stock-price projections among analysts, says that while the trading division remains "somewhat of a 'black box,'" it still generates earnings, he wrote in a note last week. The stock has fallen so much that it now reflects the risk of bankruptcy, according to Gait. He says the slump is overdone and recommends buying the shares.
It's unclear what portion of the trading business' earnings comes from arbitrage -- where Glencore buys a commodity in one region and sells it in another to capture the profits -- versus directional bets, where the company buys raw materials and takes on price risk, according to David Wang, an analyst with Morningstar Investment Services
"It's fair to say the marketing segment is a black box," Wang said, referring to the trading unit. "They disclose the volumes they transact but not what sort of bets they've been making. There could be so many bets that it's difficult to distill down to a couple of data points. That being said, there hasn't been much transparency regarding it."
In the first half of 2015, adjusted earnings before interest and taxes from the trading business was $US1.07 billion, about three-quarters of Glencore's total profit and falling short of the average analyst projection. The company slashed last month its forecast for full-year Ebit from the unit to no more than $US2.6 billion from as much as $US3.7 billion.
Glencore shares trade at a valuation that's about a third that of miners in the Stoxx Europe 600 Index. In the three years before 2015, its price relative to earnings before interest, taxes, depreciation and amortisation was more than 55 per cent higher.
At 330 pence, the difference between the highest and lowest analyst estimate is almost five times Glencore's share price. That compares with an average of 52 per cent for other members of the Stoxx 600. Tullow Oil, Seadrill and miner Anglo American have the next widest spreads in price targets. A Glencore spokesman declined to comment for this story.
"What should we be paying for that trading business?" said Nomura analyst Patrick Jones. "That's the big question. I don't think we should be paying any more than what its parts are. It should be a discount because there's very little synergy between" the trading and mining businesses, he said.
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- OPINION
- Sep 29 2015 at 11:32 AM
- Updated Sep 29 2015 at 12:22 PM
Glencore in debt's death grip, Ivan Glasenberg confronts mortality
NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/j/5/j/3/image.related.afrArticleLead.620x350.gjx0rx.png/1443493358524.jpg[/img]How does Glencore CEO Ivan Glasenberg get out of this? One suggestion is that he heads off to his friends among the oil emirates and raises a very, very serious amount of new and likely discounted equity. Andrey Rudakov
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by Matthew Stevens
Suddenly Ivan Glasenberg is no longer a paper billionaire and Glencore, the shiny global product of his acumen and ambition, sits on the cusp of a crisis so deep that its very survival is now a matter of serious debate.
Glencore closed at another record post-float low of 74p ($1.62) in Monday's trading.
The real worry about that is that there was no specific negative news flow that might justify the overweight belting delivered in another generally unhappy day for everyone making a living in the commodities cycle.
Glencore was valued at $US60 billion ($86 billion) when it floated four years ago. When the London market closed on Monday its market capitalisation stood at $US16 billion. And at least one reputable UK advisory has warned clients that at current commodities prices Glencore's real value might be "zero".
Glencore's problem is the same today as it was when Glasenberg stunned the market in early September with a humiliating back-flip that involved an emergency $US2.5 billion equity raising and confirmation a $US10.2 billion savings program that started with immediate cutbacks in copper production.
Glasenberg's people are sitting on $US50 billion of debt and the market has pretty much no confidence at all that the company can afford that pile of other people's money or that the initiatives announced to reduce it will generate any material improvement in the company's circumstances.
Glencore's fate rests firmly with the hedge funds that have made such a lot of money shorting the stock for a year or so and so far Glasenberg has been unable to offer the market the quality of response that might loosen that death-grip. The result is a plummeting share price and news waves of rumours that some of Glencore's long-only investors are now looking to "get out at any price".
Glencore's debt is traditionally divided into two large chunks. To reduce the complex to the brutally simple, Glencore carries $US30 billion of debt against the assets of the business and another $US20 billion that supports the legacy trading operations that once sat at the heart of Glasenberg's empire.
Until very recently indeed, Glasenberg had convinced the market to assess this commodity trading position as liquidity rather than debt. But it is this forgotten pile that is now the real concern for Glencore.
Confidence in Glencore collapsed after it missed its half year numbers in August. As a result there has been an increased effort across equity and debt markets to identify and understand the points of vulnerability on the company's balance sheet. But it has become apparent that the market does not really know how to value the commodities marketing, distribution and trading businesses. And that matters when investors are being asked to believe that the trading positions that support $US20 billion of debt are both liquid and in-the-money.
For the record, it is understood that there are no share price triggers for any of that debt and that Glencore debt covenants are based on net debt rather than the gross number. This proposition, of itself, speaks to how successful Glasenberg has been able to sell this idea that the trading debt is somehow different to any other debt.
And there's the rub. Some of Australia's most senior miners worry that Glencore might be out of the money in very large commodity trading positions that have already matured or are about to.
The risk is that some subsidiaries within the trading business are already in default of the terms of their lending and that this could cascade through the business, triggering at best a serious credit squeeze and, at worst, a collapse that would leave Glencore in the hands of its bond holders.
It is not just the equity markets that are repricing the risk of Glencore. The debt markets are making similarly harsh assessment with Glencore's five year senior credit default surging to 550 basis points. This means the market it betting there is a better than one-in-four chance of default at some point over the next five years. And that is disastrous for a miner and trader that has arrived as a concerted low point of the commodities cycle carrying too much debt.
The markets plainly no longer believe that Glencore has done enough in raising equity, suspending dividends for 18 months or flagging assets sales that might now include marketing maybe half of its grains business.
There is talk Glencore might sell other crown jewels like its Latin American copper twins, Antamina and Collahuasi. They could make maybe $US4 billion each. But that doesn't look like it will enough either.
So how does Glasenberg get out of this? Well, one suggestion is that he heads off to his friends among the oil emirates and raises a very, very serious amount of new and likely discounted equity.
"He is made of extremely stern stuff," a very senior Australian miner suggested in the wake of Monday's share price spanking. "He will take this right down to the wire. But if he is out of the money in his trading positions, and that is what the market is indicating it believes, then he is going to have to find a new shareholder and accept the risk of that control might slip to his owners."
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as far as news have been painted for Glencore, high debt gearing with rising operational cost and more critically the slump metal prices.
Will Glencore survive this commodity headwind given the large exposure to the mining business? Ivan Glasenberg's debt restructuring don't seem to comfort investors, most firms and funds are having short positions with glencore, this pressuring the share price further.
The more interesting question is what values there left for Glencore?
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Glencore stock rebounds almost 20pc
- DOW JONES
- SEPTEMBER 30, 2015 7:46AM
[b]Shares in Glencore have jumped after the commodities giant said it remained operationally and financially robust with “absolutely no solvency issues”.[/b]
Shares in the Swiss company surged up to 20 per cent as a result, making the commodities trader and miner the top performer of the UK’s blue chip FTSE 100 index. The firm ended the day 17 per cent higher, recovering some of the prior session’s 29 per cent plunge.
In an emailed statement, Glencore spokesman Charles Watenphul said: “Our business remains operationally and financially robust — we have positive cash flow, good liquidity and absolutely no solvency issues.
“We are getting on and delivering a suite of measures to reduce our debt levels by up to $US10.2 billion,” he added.
Glencore was confident about the medium- and long-term fundamentals of the commodities it produces and had no debt covenants, and it continued to retain strong lines of credit with secure access to funding, thanks to strong relationships with banks, Mr Watenphul said.
Glencore’s shares are still down by nearly three quarters so far this year, and down about 85 per cent since it listed its shares in London.
Investors have been concerned about the company’s ability to safeguard its credit rating from a downgrade given its heavy debt burden, and the prospect that commodity prices could fall further or remain low for longer.
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Glencore will emerge 'even stronger', vows Ivan Glasenberg
DateOctober 2, 2015 - 5:59AM- 12 reading now
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Javier Blas and Jesse Riseborough
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"We are materially cash-generative at current spot commodity prices," Glasenberg wrote in a memo to staff. Photo: Andrey Rudakov
Glencore chief executive officer Ivan Glasenberg told staff that a plan to curb debt is sufficient, there is about $US13.5 billion of available liquidity and the company "will emerge even stronger".
The Swiss commodity trader's available funds are "anchored by substantial undrawn medium-term committed bank lines by our very supportive, extensive and long-term core banking group", Glasenberg said in a September 29 memo emailed to staff and seen by Bloomberg News.
Given such a "strong current liquidity position, together with the ongoing debt reduction plan, the next material group financing requirement only falls due in 2017, by which stage, given the significantly lower leverage and associated improvement in financial strength, we expect such to be a formality", he said.
Glencore's shares have endured a roller-coaster week in London trading after a 29 per cent plunge on Monday was followed by two days of gains that largely erased the record loss. The stock has been weighed down by concerns over the company's $US30 billion debt load and whether the recently announced plan to reduce it by a third was sufficient.
Glencore declined 0.6 per cent to close at 91.02 pence in London trading, valuing the company at about $US20 billion. The stock has plunged 69 per cent this year, making it the worst performer on the UK's benchmark FTSE 100 Index.
The company is "making progress" on asset sales and reducing its working capital, Glasenberg said in the memo.
A Glencore spokesman declined to comment.
The billionaire CEO is working on a debt-cutting plan including sales of assets, halting dividends and the $US2.5 billion share sale completed last month. The firm has hired banks to sell a stake in its agricultural business, people familiar with the deal said. Glencore's market value has shrunk from more than $US85 billion at its height in 2014 as investors fled amid a rout in commodity prices.
"We are materially cash-generative at current spot commodity prices," Glasenberg wrote. "The budget for 2016 will confirm our plans for additional operational and capital expenditure cuts in order to further improve the cash generating capabilities of our businesses. We have no doubt our company will emerge even stronger once the current volatility subsides and the above initiatives are delivered."
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Glencore Rises to Cut Weekly Loss After Roller Coaster Few Days
Nicholas Larkin
October 2, 2015 — 3:04 PM HKT
Glencore Plc, the commodity miner and trader which this week sought to reassure investors over concern about its debt load, rose for the third time in four days.
The shares rose 1.1 percent to 92 pence by 8:02 a.m. in London, narrowing this week’s loss to 5.4 percent. The company has endured a roller-coaster week after it plunged a record 29 percent on Monday before recovering much of those losses in the following two days.
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Glencore pays the price for high debts, aggressive deals
- SCOTT PATTERSON, JOHN W. MILLER
- THE WALL STREET JOURNAL
- OCTOBER 03, 2015 12:00AM
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The value of Ivan Glasenberg’s stake in Glencore has fallen from $US10bn to $US1.7bn. Source: Supplied
[b]The morning he closed the biggest mining deal in history, Ivan Glasenberg pulled out a map dotted with mines around the world.[/b]
The hard-charging chief executive of Glencore was jubilant. It was May 3, 2013, and his trading company had just merged with Xstrata, one of the world’s biggest mining companies, in a $US29.5 billion deal. And he had won a boardroom struggle to stay in control.
The map detailed his sprawling new empire of mines for everything from copper to coal to zinc. He had even circled competitors’ mines that he could add to his collection.
“Damn sure I’m going to be opportunistic,” he told Wall Street Journal reporters and editors at his London headquarters. “We’ll buy anything if it makes economic sense.”
Then he struck a note of caution: “Will commodity prices stay strong … and justify putting this much money into an asset-rich company? Have we done the right thing? This is my biggest fear.”
More than two years later, those fears have become a reality for Glencore, the large mining company hit worst by declining prices for raw industrial materials such as copper and coal.
Glencore lost $US676m in the first half of 2015, and its debt levels have sent investors fleeing. Glencore’s stock price has fallen by nearly three-quarters since the Xstrata deal — including a 29 per cent drop on Monday that has since been partially erased. Glencore executives are trying to stop the bleeding by selling assets and cutting billions of dollars in debt. The company last month said it would suspend its dividend and raise $US2.5bn ($3.5bn) in a share offering.
For years, Glasenberg’s brash style and candour had charmed investors and rankled competitors. But his two big bets — taking Glencore public and buying Xstrata — have soured, with nearly 83 per cent of the company’s market value wiped out since the initial public offering in 2011.
Now Glasenberg is on his heels. He has been jetting around the world visiting mines, trading offices and banks, sometimes touching down in two countries a day, to gather information and reassure bankers, investors and employees.
People who have spoken to him say that despite the crisis, his mood has remained buoyant and his outlook confident. He has told people that markets have overreacted and that the panic is a side effect of being a public company, although he has also noted the risks of carrying too much debt and owning mines at a time of weak commodity prices.
On Tuesday, the company assured the market that Glencore’s business “remains operationally and financially robust”. On Wednesday, Glasenberg dispatched a credit team to the London office of Barclays, where it told bondholders that concerns about a credit downgrade were overblown.
Glencore’s bankers told reporters the company’s balance sheet was solid and the debt plan was in place, but the market was acting irrationally.
Glasenberg’s board of directors is trying to boost confidence. Chairman Tony Hayward purchased $US138,000 in shares, and former Morgan Stanley’s CEO John Mack bought $US673,000 worth this week.
Glencore executives spent about $US540m on shares when the company issued new equity. Glasenberg has continued telling investors that the Xstrata deal was a great one, delivering strong cash flow and earnings, according to people familiar with the conversations.
Glasenberg took an unusual approach to running mines. He bet his team of traders could make big money peddling product from an empire of second- and third-tier mines acquired on the cheap. Glencore had enough scale — 60 per cent of the world’s zinc, 50 per cent of copper and 45 per cent of lead markets in 2011 — that its traders could profit from their deep knowledge about supply and demand.
That worked well during a commodities boom, when prices for copper, gold, iron ore and other raw materials soared. But the bust reduced demand, exposing the high costs and inefficiencies at many of Glencore’s mines. Investors grew concerned about Glencore’s highly leveraged balance sheet, which as of June 30 carried $US29.6bn in net debt — not including trading-arm debt.
Mining giants Rio Tinto and BHP Billiton have fared better, despite plunging prices for their key commodity, iron ore. BHP had $US24.4bn in net debt, while Rio Tinto had $US13.7bn. But neither company has massive trading operations dependent on keeping investment-grade debt ratings, which is now under threat at Glencore.
Last year, with commodity prices already tumbling, Glasenberg bid to merge with Rio Tinto — only to be rebuffed by Rio.
Glasenberg “has always had a very high risk tolerance, and that’s obviously come back to bite him,” said Anthony Sedgwick, fund manager at Abax Investments in South Africa and a one-time Glencore investor.
Glasenberg is one of Glencore’s biggest shareholders, having kept a nearly $US10bn stake in the company’s $US59bn public offering in 2011. That stake is now valued at $US1.7bn.
His image as the mining industry’s alpha male is driven by what he describes as an obsession for information about commodities markets. He spends 80 per cent of this time on the road, meeting national leaders and his own workers. He has said he doesn’t take vacations and frowns upon employees who do.
Glasenberg, born in 1957 in South Africa and raised in Johannesburg, joined controversial financier Marc Rich’s trading firm in 1984. He swiftly rose through the ranks, taking control of its worldwide coal business in 1990. In 1994, Glasenberg and a team of executives bought out Rich for $US1.2 billion and launched Glencore.
Until then, the trading house had largely avoided owning big mining assets, which its traders saw as unpredictable and subject to commodity slumps.
But Glencore, under the direction of Glasenberg and then-CEO Willy Strothotte, showed an appetite for mining deals in unpredictable, risky places. In 1995, it snapped up a coal project in Colombia at a time when the country was racked by a bloody drug war. Two years later, it bought a majority stake in a mining company in the former Soviet nation of Kazakhstan.
It also bought coal assets in South Africa, then emerging from decades of apartheid.
Glasenberg has said owning mines would provide consistent product for Glencore’s traders, who bought and sold natural resources around the world. He says that because his traders can ship product to wherever the best price can be found, the quality of the mine isn’t necessarily important.
Glencore became known as a go-to company for mining CEOs looking to sell unwanted assets, says Dick Evans, former CEO of aluminium giant Alcan.
Glasenberg, who likes to say he’ll “buy anything if the price is right”, justifies such acquisitions by saying they can provide good return on equity if prices are favourable.
In 2001, Alcan sold unprofitable bauxite-refining operations in Jamaica to Glencore for $US175m, taking a $US70m writedown on the transaction. But in 2009, as markets crashed, a Glencore subsidiary booked a $US73.2m loss partly on the sale of Jamaican assets.
That same year, an industry acquaintance of Glasenberg’s, Mick Davis, took the helm of Xstrata, a tiny natural-resources company partly owned by Glencore. The move surprised industry watchers because Davis had recently served as chief financial officer of big miner Billiton, which had just merged with BHP, forming BHP Billiton.
A year later, Xstrata went public, with Davis as CEO. The same year, Glasenberg became CEO of Glencore, which still owned more than a third of Xstrata.
They began building a business partnership — and rivalry — just as demand from China began to turbocharge commodity markets. Prices for everything from copper to zinc to iron ore took off. Davis was concerned he might find himself bidding against Glasenberg for the same assets, according to people familiar with the matter.
Glasenberg made several overtures to Davis in the late 2000s to buy the balance of Xstrata not already owned by Glencore. Davis pushed back, saying he wasn’t able to merge with a private company that was hard to value. If Glencore went public, Xstrata would have a much better idea about how the market valued Glencore.
Glasenberg ultimately decided the benefits of a public listing outweighed the risks, giving Glencore the firepower to make an offer for Xstrata.
In February 2012, the companies said they were in discussions for an all-share merger of equals. Davis would be CEO and Glasenberg would serve as his deputy, according to plans announced at the time. The mining giant created by the tie-up would be a powerhouse in coal and copper, which accounted for about 70 per cent of Xstrata’s mining assets.
The deal would involve merging two different cultures: the gun-slinging traders of Glencore and nuts-and-bolts mining engineers and geologists of Xstrata.
Tensions emerged almost immediately between Glasenberg and Davis. At a meeting between top officials soon after the deal was announced, Glasenberg said Glencore traders were irreplaceable “entrepreneurs”, according to people familiar with the meeting. Some in the meeting took that to mean that Xstrata corporate managers could be easily replaced, one of the people said.
In June, a big investor in Xstrata, Qatar Holding, baulked at the terms Glencore offered and demanded more. Glasenberg eventually agreed to sweeten the deal.
There was one caveat: Glasenberg would take the top spot at the company, not Davis.
Davis left the company and launched a private-equity fund called X2 Resources. Other Xstrata executives also left.
In the two years after the Xstrata deal, two of the biggest assets Glencore bet on with the purchase turned downward sharply — coal by 41 per cent, copper by 30 per cent.
Investors began to focus on a different legacy of the deal: debt. Glencore took on Xstrata’s $US15bn in debt, and by 2015, it carried nearly $US30bn in net debt — far more than competitors — and almost $US20bn in revolving credit lines it used to buy and sell commodities.
A natural-resource fund managed by JPMorgan Chase unloaded 2.3 million shares of Glencore in this year’s second quarter, partly because of worries about its high debt load, according to a person familiar with the investment.
Carmignac Gestion Group, a French asset manager that until last year was one of Glencore’s biggest bondholders, sold most of its Glencore bonds and stock because of fears about Glencore’s debt and the impact of slowing Chinese growth on commodity prices.
“We feel the combination of operational and financial leverage remains too high in the current environment,” said Carmignac analyst Simon Lovat.
The worries about Glencore accelerated after the company in August reported lacklustre first-half results. With the sharp slide in earnings, investors and analysts started to worry that Glencore’s debt load was too steep.
If ratings firms slashed ratings on Glencore’s debt, pushing it into junk territory, it could cripple the firm’s credit-fuelled trading operation.
Glasenberg and a team of Glencore financiers have been trying to allay fears. A few months ago they travelled to the US to meet investors and hedge funds. They learned some investors had serious concerns. If copper, one of the firm’s most important commodities, declined further, Glencore’s earnings would be too low in relation to its current debt level, according to a person familiar with the meetings.
The message: Glencore needed to slash its debt, right away.
Glencore executives say they believed they had the right level of debt and earnings, and they doubted copper would lose much more ground. But they agreed to appease investors.
After an initial rally, though, the stock continued to slump. Rumours about big trading losses and trouble with creditors spread through trading floors. The stock’s lightning-fast decline on Monday shocked investors worldwide and raised fears of knock-on effects throughout commodity and financial markets. Glencore executives tried to reassure investors all was well.
Even amid the turmoil, Glasenberg has been pondering his next big deal. Glencore in recent weeks has been in talks to bid for about $US3bn in coal assets owned by Rio Tinto in Australia, according to people familiar with the talks.
Also interested in the coal assets: Davis of X2.
Additional reporting: Alex MacDonald.
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- Oct 4 2015 at 5:24 PM
- Updated Oct 4 2015 at 5:41 PM
Glencore 'open to takeover' as it battles to cut debt mountain
NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/w/v/u/j/image.related.afrArticleLead.620x350.gk0z3c.png/1443940916862.jpg[/img]Ivan Glasenberg, billionaire and chief executive officer of Glencore. Andrey Rudakov
by Andrew Critchlow
Glencore would listen to offers for a takeover of the entire company but its management does not believe there are any buyers willing to pay a fair value for the business in the current market, London's The Sunday Telegraph has learnt.
The revelation comes after a week in which billions of dollars were wiped off the company's shares following a series of damning analyst notes warning that its equity value could collapse should commodities prices fall further.
Senior management from the company are due to meet this week as its chief executive, Ivan Glasenberg, leads a fight back to persuade investors that the company is financially secure. Mr Glasenberg is understood to have been surprised by the downturn in China's economy, which is blamed for the current slump in commodities.
He is also thought to be dismissive of the suggestion from Glencore's house broker Citigroup that taking the troubled mining and commodities trader private could be a viable option.
Glencore's market value has fallen by 83pc since it floated at 530p per share in May 2011, with most of the declines coming in recent weeks following the unveiling of a plan to slash its $29.5bn net debt by a third. The company is also understood to be in talks with sovereign wealth funds from Asia and the Middle East including Singapore's GIC about the sale of a stake in its agricultural commodities business.
Disposals of a minority stake could raise about $2bn. Last month, Glencore generated around $2.5bn in an equity raising as part of a plan to cuts its debt by around $10.2bn. Other measure include cutting 400,000 tonnes of production from its African copper mines and suspending the firm's dividend.
A key challenge for Mr Glasenberg will be to maintain the support of major shareholders such as Qatar Holdings, which is understood to be "raw" over the paper losses it faces on its near 9pc stake in Glencore. A spokesman for the Qatari fund declined to comment.
Key for Glencore and other mining companies will be the direction of commodities prices over the next quarter. Investors are concerned about Glencore's ability to absorb copper prices falling below $4,000 per tonne.
Glencore will hope to restore a measure of trust at the presentation of its upcoming production report.
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Glencore shares surge 21pc in London
- AFP
- OCTOBER 06, 2015 7:46AM
[Image: 294947-ca3deef0-6ba2-11e5-b3da-9dc16b8ce769.jpg]
Glencore’s Ivan Glasenberg blames hedge funds for artificially driving down copper prices. Source: AFP
[b]Shares in commodities giant Glencore have jumped higher again, closing up 21 per cent in London after similar gains in Hong Kong earlier, continuing a recent pattern of volatile trading as management seeks to deflect worries about the group’s finances amid falling commodity prices.[/b]
A rise of as much as 71 per cent in the group’s share price in heavy trading in Asia yesterday triggered a statement from Glencore to assure investors there was no new announcement on its part to explain the gains.
Glencore “confirms that it is not aware of any reasons for these price and volume movements or of any information which must be announced to avoid a false market in the Company’s securities or of any inside information that needs to be disclosed,” the company said in a statement to the Stock Exchange of Hong Kong at the bourse’s request.
Glencore’s shares closed up almost 18 per cent in Hong Kong.
Reports have emerged that Glencore is in discussions with several sovereign wealth funds and commodities traders about offloading a minority stake in its agricultural business.
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Chief Executive Ivan Glasenberg, in his first public remarks since Glencore’s stock plunged, didn’t address the crisis in confidence facing his mining and trading firm. He blamed hedge funds for artificially driving down copper prices and said the industrial metal — Glencore’s biggest earnings driver — would rebound after falling about 25 per cent this year.
“The funds are playing the commodity cycle,” Mr Glasenberg said at the Financial Times Africa Summit in London. “But in the end the fundamentals will prevail,” noting that “demand is still there.”
Glencore is particularly vulnerable to sliding copper prices. The company produced 730,900 tons of copper in the first half of 2015. A 10 per cent decline in copper from where it stood in the first half of the year would erase about $US1 billion from Glencore’s adjusted earnings, according to estimates by Liberum Capital analyst Ben Davis. On the other hand, a 10 per cent gain would be a boon for Glencore and help ease fears about its high debt levels.
The company has suspended operations at two African copper mines that will remove some 400,000 tonnes of the industrial metal from the market. Mr Glasenberg said that will have a positive impact on prices.
The mining and commodities-trading group has been on a communications offensive for several days after a sharp drop in the group’s stock price at the end of last month.
In conversations with analysts and investors, Mr Glasenberg and other officials have stressed they aren’t worried about a possible credit rating downgrade, one factor that has weighed on the firm’s share price in recent days. Glencore has almost $US30bn in net debt and as much as $US18bn in short-term credit used for trading.
It lost $US676 million in the first half of 2015, and its debt levels have sent investors fleeing. The stock price has fallen by nearly three-quarters since 2013, when the company merged with Xstrata, one of the world’s biggest mining companies, in a $US29.5bn deal.
Glencore executives are trying to stop the bleeding by selling assets and cutting billions of dollars in debt. The company last month said it would suspend its dividend and raise $US2.5bn in a share offering.
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