Glencore’s Best Start to Year Eases Blow From Post-IPO Slump

Updated on
  • Billionaire CEO will face investors at annual meeting Thursday
  • Debt reduction may offer opportunity for battered shareholders

Glencore Plc shareholders showing up for the miner’s annual meeting on Thursday can take comfort in the stock’s best ever start to a year.

Less so the loss of about half the company’s value since they met 12 months ago and more than 70 percent since a $10 billion initial public offering in 2011.

Such wild share swings highlight both the opportunities from billionaire Chief Executive Officer Ivan Glasenberg’s plans to cut net debt by as much as $9 billion, and the risks from weak demand for the commodities it produces.

"The world has obviously changed a lot," said Christopher LaFemina, an analyst at Jefferies LLC in New York. "A general gradual recovery in commodity prices would be a positive for Glencore. But you need a strong recovery to get back to the 2011 levels and that’s unlikely for now."

Investors are gathering in the Theater-Casino of the sleepy Swiss lakeside city of Zug five years to the day since Glencore’s IPO in London. Those who stuck with the company have faced near unrelenting losses as commodity prices slumped.

The offering, which made billionaires of Glasenberg and some company trading chiefs, took place in a commodity bull market. Since then copper and oil prices have sunk by half, and in September Glencore tumbled 38 percent, its worst month ever. While raw materials have rebounded from lows this year, the outlook for metals prices remains bearish, Goldman Sachs Group Inc. said in a report on May 17.

‘Better Position’

"No company can withstand a repeat anywhere close to what we’ve had," said Paul Gait, a mining analyst in London at Sanford C. Bernstein Ltd. "If we were to going to have another catastrophe, where commodity prices will halve again, no company will withstand it. Are they in a better position to where they were? Absolutely."

Glencore is ditching assets to meet its targets, aiming to cut net debt to as low as $17 billion this year, from $25.9 billion at the end of 2015. It’s in talks to sell 9.9 percent more of its agriculture unit after offloading 40 percent in April. It’s also disposing of infrastructure, selling two copper mines and studying options for a Kazakh gold project.

The company traded down 4.3 percent at 127.3 pence by 10:03 a.m. in London, down from 297 pence a year earlier and an IPO at 530 pence. Its nadir was 66.67 pence on Sept. 28.

"Glencore is proving that they can take major steps to repair their balance sheets even in a tough market," LaFemina said. "In September, the balance sheet was problematic, trading conditions were deteriorating, the outlook was weakening, commodity prices were falling."

Shareholders in Zug will get the chance to vote on measures from approving executives’ pay to climate change-related disclosures. Some may also reflect on their investment losses. Those who bought in the IPO, face a negative return of about 71 percent.

"Will people ever get their money back? It depends on how long they want to hold back for,” said Gait at Bernstein. “Mining companies are long-term investments."

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.

— With assistance by Jesse Riseborough

(Updates London shares in ninth paragraph.)
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