Ivan Glasenberg faces major test amid Glencore’s shaky future – by Eric Reguly (Globe and Mail – October 24, 2015)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

LONDON — The partners at mining and commodities trading giant Glencore PLC earned a fortune buying into the “stronger for longer” China story. That bet has been looking shaky for a couple of years and downright precarious since January, when copper – Glencore’s most important commodity – went into the tank and stayed there.

In early January, copper futures plunged almost $1,000 (U.S.) a tonne, to $5,400, taking them to their lowest level in more than five years. Glencore’s shares tripped into the sinkhole with them. Since then, copper prices have lost another 5 per cent or so, a bewildering scenario for Glencore’s normally unflappable traders and executives.

“It’s just not making sense,” Glencore chief executive officer Ivan Glasenberg told analysts on the company’s earnings call on Aug. 19. “We’ve never seen copper inventories down at these levels and prices, because, [at] these levels, you normally have a much higher copper price.”

But the naturally bullish Mr. Glasenberg insisted everything would be okay. He spoke too soon. And for that, he is fighting to restore his reputation as the savviest trader on the planet. He waited until September, nine months after the bottom fell out of the copper market, to reveal a sweeping restructuring program. Investors punished the heavily indebted company for the delay.

Why did he wait so long? People close to the company say Mr. Glasenberg did not believe a restructuring was needed, partly because he was convinced – and is still convinced – that copper prices would not keep dropping. and partly because he believed the commodities trading and mining business model, built on high debt leverage, was fundamentally strong.

“There may have been too much hubris there, even though the management team is very strong,” said David Neuhauser, managing director of the Chicago investment firm Livermore Partners, which piled into the shares when they hit their lows.

Mr. Glasenberg stayed the course even as the Glencore sell-off accelerated through August. The situation became critical on Sept. 28, when a reputable Anglo-South African investment firm, Investec, said that Glencore’s equity value “could evaporate” if commodity prices did not rise and the company did not undergo a “substantial restructuring.”

Suddenly, some investors wondered whether Glencore could become the mining world’s version of Lehman Brothers. The Investec warning sent Glencore shares down an astounding 29 per cent the next day, hitting an all-time low of 67 pence ($1.03) on the London Stock Exchange – 87 per cent below their 2011 initial public offering price of £5.30 ($8.11 U.S.), which had valued the company at £73-billion.

While they have since bounced back to about £1.28 on the back of a hastily announced restructuring program, they are still down 60 per cent over one year. Glencore’s value today is £17-billion, a quarter of its flotation price, and the company reported a loss of $676-million in the first half of the year.

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