In the late summer of 2015, Glencore was evidently sized up by the hedge funds as a potential Lehman Bros.
Debt at the world’s biggest commodities trader, and one of the biggest miners, was way too high, at almost $30-billion (U.S.). Prices for copper and other metals were sinking. The situation became critical when South African investment firm Investec on Sept. 28 of last year said Glencore’s equity value “could evaporate” if commodity prices did not rise and CEO Ivan Glasenberg did not implement a “substantial restructuring.”
Much to the delight of the hedge funds, which had been shorting the shares with alacrity, Glencore fell 29 per cent the next day, hitting an all-time low of 67 pence on the London Stock Exchange – 87 per cent below their 2011 initial public offering price of 530 pence. They were even more delighted by Mr. Glasenberg’s curious inaction. Typically hard charging, he seemed to be resisting a deleveraging exercise that could restore confidence in the company.
But truly shocked by the share price collapse, Mr. Glasenberg overcame his initial reluctance to go onto war footing and launched a strategy to transform the company with remarkable speed, even if it meant shrinking his cherished creation. Today, Glencore’s revival is being touted as the corporate turnaround of the year. The London-traded shares are up some 209 per cent over 12 months, to 277 pence, giving the company a market value of £40-billion.
Glencore is now back in the good books of Wall Street and the City of London. Most analysts who cover the company have given Glencore a buy or hold rating. “Glencore has gone from a position of weakness to a position of strength this year,” Jeffries’ mining analysts, who have a 350-pence target on the shares, said in a December note.
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