Glencore had a crazy week — here's what analysts made of it

Commodities trading and mining business Glencore has seen its share price destroyed over the last week, falling 29% on Monday alone.

Investors are worrying how the company will deal with its huge net debt pile, worth $30 billion (£20 million), as copper prices fall. Glencore is not especially profitable.

The good news is that the stock has sunk so low that analysts are now mostly bullish: They think the selloff has been overdone. (One called it “absurd.”)

The bad news is that they mostly agree that the picture will change if copper and other commodity prices go lower. 

Here’s a round-up of what mining analysts are saying about the company’s prospects.

INVESTEC — Bearish: “Nearly all the equity value of both Glencore and Anglo American could evaporate.”

Analyst: Hunter Hillcoat

“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. We have adopted a P/E-based approach to evaluate how the equity value of the major diversified companies might vary over time in proportion to debt and have identified the companies where equity values are most at risk.

"If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.”

CITI — Bullish: “We believe the market’s response is overdone.”

Analyst: Heath R Jansen

“We believe the share prices have reacted to concerns around balance sheet and liquidity, reflected by both the rising CDS spreads and bond yields. We believe the markets response is overdone and that the ratings agencies are likely to take a more through the cycle view and therefore a downgrade to sub-investment is not likely.

"We also think the group is not limited to just selling a minority stake and if the need be, the entire agricultural marketing business can be sold, which we value at ~$10.5bn. The group can stay away from debt markets till 2017.”

JEFFERIES — Bearish: “Highly leveraged miners could have no equity value if commodity prices fall only marginally lower.”

Analyst: Christopher LaFemina

“Our analysis indicates that highly leveraged miners could have no equity value if commodity prices fall only marginally lower and do not recover. The market clearly feels this way about Glencore. Glencore must stop the bleeding.

"Glencore is now under pressure to strengthen its balance sheet via asset sales or a capital injection, and time is of the essence. There is value in Glencore shares if the company can pull the appropriate levers now, but risks are clearly very high.”

See the rest of the story at Business Insider

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