Will Glencore Lead the Way to Another ASX Commodities Rout?

Tuesday 29 September 2015
Nic Crowther's picture
Co Editor
The Shaker

Those with half an eye on the stock market have viewed Glencore with fascination over the last four or five years. Those who purchased shares in the commodities giant have watched its rise with glee.

Those still holding stocks are not so thrilled. Glencore is tanking. Big time.

It’s hard to imagine a more bullish approach to the mining and energy boom over the last decade. Founded in 1974 with its HQ in Switzerland and registered in Jersey (of course!), the company built up on a base of commodities trading to become the third-largest family business in the world by 2013.

 


Glencore 28.09.15 Chart

 

Glencore’s management maintained an almost zealous belief in the power of the Chinese economy to sustain demand as the company went about the world buying up miners. So large did Glencore become, based on some curious (though highly effective) acquisitions, that in 2012 they targeted another Swiss giant, Xtrata, as the target of their largest takeover.

All was completed in 2013 for the cost of US$82 billion – just in time for commodity prices to come off the boil and for the huge amount of debt that the company had accumulated through its aggressive program of acquisition began to impact the company’s viability.

 


Glencore 5Y Chart

 

With further viability in the Shanghai composite, the future of Glencore has become increasingly precarious. That was realised overnight as the company’s market price, already down some 40% over the last 12 months, plummets 29% and dragged the FTSE 100 down 2% in Monday’s trading.

Glencore shares are worth only 20% of what they were a year ago, and analysts suggest they are practically worthless; such is the weight of debt that sits within the company. With Glencore’s mines across the world being shuttered (including a string throughout Queensland), the revenue streams are on hold. Only a sell-off of assets (particularly its agricultural acquisitions) can help save the company, but it all bodes badly for mining and energy investments across the world.

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