Glencore shares skyrocket on back of sell-off rumours

Glencore shares skyrocketed 72 per cent in Hong Kong as reports emerge it is talking to possible buyers for its agricultural business.

The London traded shares also rose, albeit at a much more sedate 12 per cent, lifting to 106.75 pence, according to Bloomberg.

It comes after a brutal week of sharp declines and recovery for Glencore, in which it saw nearly a third of its value wiped from the market.

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

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

The Swiss diversified firm recorded a major drop late last, falling 16 per cent, with an 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.

“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.

However the market soon turned, with Glencore recovering value the following day.

Many believed the downwards move was a gross over-reaction.

Citigroup backed Glencore following the market slaughter, stating that the company didn’t have a stressed balance sheet, has the ability to sell assets – and is in the process with its agricultural stakes – and rated the business as a buy, according to Bloomberg.

“The markets response is overdone,” Citigroup said in a report.

“In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly.”

This position was supported by Jefferies Group LLC, which gave Glencore a hold rating, stating “there is value in Glencore shares if the company can pull the appropriate levers now, but risks are clearly very high”.

A resources analyst at Old Mutual Investment Group added: “I think what we’ve seen is an over-reaction.”

This continued move to offload its agricultural stake is only increasing market confidence, and has already seen investors buying up stock while it sits at a relatively low price.

“It’s definitely looking well-bid and if it’s distressed in terms of Glencore’s balance sheet then it’s going to get a lot of interest,” James Wilson, a senior analyst at Morgans Financial told Bloomberg.

“The agricultural sector is extremely well looked-at at the moment.”

Glencore is reportedly  also considering approaches for the entire business unit, although the miner is yet to confirm this rumour.

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