Glencore falls to record low as analyst eye grim future for metals
Mining and commodities giant is weighed down by debt
Shares in Swiss-based commodities giant Glencore plunged 29 per cent to a record low on Monday after analysts raised fears about lower metal prices.
The heavily indebted miner and commodities trader saw its stock slide to 62 pence on the London exchange, the lowest level since it began trading in 2011. At the beginning of the year, its stock was trading at just under £3 ($6.06 Cdn).
Investec analysts issued a warning about Glencore, saying that "almost all equity value" could be wiped out by low metals prices.
"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.
Goldman Sachs Group Inc. said last week that the Glencore's recent steps to reduce debt and bolster its balance sheet are inadequate.
China and commodities
The slowdown in China is putting pressure on commodity prices, with metals and minerals particularly hard hit by news that Chinese manufacturing is slowing. That could mean less demand from the world's second largest economy for all commodities in the years ahead.
Glencore has debt of about £20 billion ($40 billion Cdn), built up during the years when commodities were a booming business because of China's insatiable need for resources.
In the first week of September, Glencore said it was suspending its dividend and outlined a $10 billion debt-reduction plan that included the sale of some assets.
Selling agricultural business
The company has hired Citigroup Inc. and Credit Suisse Group AG to sell a minority stake in its agricultural business, according to Bloomberg.
But Investec was not impressed by that plan, saying it will leave the company more reliant on the volatile commodities cycle.
"In the current climate, debt is fast becoming the most important consideration for mining company management," Investec said. "Under a spot scenario, we feel that Glencore may have to undertake further restructuring beyond the dividend suspension, capital raising and asset sales programs it has already announced."
Other mining and commodities giants, such as BHP Billiton Ltd. and Rio Tinto Group also have analysts nervous. Meanwhile commodities and commodity related stocks took hits around the world as traders eyed Glencore's fall.