Glencore Isn’t Out of the Woods Yet – by Stanley Reed (New York Times – October 1, 2015)

http://www.nytimes.com/

LONDON — Shares of Glencore, the giant Swiss-based mining and trading company, may have recovered from a panic sell-off this week, but few analysts consider the company out of danger.

Glencore still has a heavy debt load, and investors remained worried about global economic trends and some management missteps. And the slowing Chinese economy is hurting demand for many of the commodities, like copper, that the company not only mines but also heavily trades.

Those factors have sent the stock reeling in trading in London this summer, from 289 pence in early June to a 52-week low of 68.52 pence on Monday.

“There is clearly a very strong degree of fear in the market more broadly associated with China,” said Paul Gait, a mining analyst at Bernstein Research in London. Until recently, though, the company’s management, led by Ivan Glasenberg, seemed reluctant to acknowledge the severity of the situation.

The company announced on Aug. 19 that it had lost $676 million for the first half of the year, compared with a profit of $1.7 billion for the period a year earlier. But Mr. Glasenberg tried to soothe concerns, writing in a letter to shareholders that commodity prices “appear driven increasingly by perceptions and technical factors rather than reality or fundamentals.”

In response, investors and analysts began asking whether the company would be able to continue servicing its heavy debt, which the company said was $30 billion at the end of the first half of 2015. The company does not include $17 billion in trading inventories in that figure, an omission that may be further spooking investors.

Fears that Glencore cannot meet its debt obligations evidently helped lead to the steep drop on Monday, when the shares fell 29 percent in a single trading day. The company reacted on Tuesday with a statement saying that its business was “operationally and financially robust” and had “absolutely no solvency issues.”

By Thursday, after first being sharply higher, shares closed down 0.58 percent for the day. That left them down about 6.2 percent for the week.

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