Glencore haemorrhages value

Glencore stocks have been slammed, with the miner shedding nearly a third of its value overnight.

The miner took a beating as its shares fell 29.42 per cent following analysts’ predictions of a continued commodity depression.

This is the second ‘record’ drop for Glencore in a week.

The Swiss diversified firm recorded a major drop late last week, falling 16 per cent, with this overnight rout helping to wipe around US$13 billion off the miner’s value.

Investec analysts Hunter Hillcoat and Marc Elliot released notes stating Glencore would offer marginal value to shareholders, if the ongoing low commodities prices continue.

The two said that without major restructuring most 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 yesterday.

“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,” Investec said.

Precipitated by these market views, the miner has now reached a new record low, as it stock marked a decline of around 75 per cent for this current year.

Market comments are painting the miner as the next Lehman Brothers, however sources within Glencore were quick to reject this, adding that many of the financial assumptions made by Investec were inaccurate.

“We don’t rate the assumptions in the Investec notes,” the source told Australian Mining.

“The figures were off in terms of EBITDA and free cash, and unlike Lehmans we have a lot of liquidity, no covenants, and ample lines of funding with banks.”

They went on to say moves are already being made to inure the miner against the continued commodity slump, including a focus on the reduction of the current US$30.34 billion worth of debt by around US$10 billion, by means of a share placement worth US$2.43 billion and the sale of a minority stake in its agricultural businesses.

“The mood in HQ is relatively optimistic, although there are still concerns,” the source explained.

“In the short term there will be pain ahead as commodity markets are affected by ongoing slow growth in China, but in relation to the longer term supply and demand we expect it to be much better.”

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