Glencore stock rebounds nearly 20%

By Tuesday afternoon the company’s stock had risen to 82 pence a share on a volatile day of trading.

An official Glencore company statement added; “Our business remains operationally and financially robust – we have positive cash flow, good liquidity, and absolutely no solvency issues”.

Today (Sept. 28) Glencore’s stock fell more than 20% in London to an all-time low.

But the Federal Treasurer Scott Morrison said the economy was performing “incredibly well”, despite a plunge in the Australian stock market.

Fears about the heavily indebted Glencore’s ability to survive caused the rout in its share price and a surge in the cost of insuring its debt, leading many analysts to question whether this might be the commodity sector’s Lehman Brothers moment. The Investec note said all the equity value in Glencore could evaporate if commodity prices remained at their current multi-year lows.

The company is now weighed down by over US$30 billion of net debt (total debt less cash and the value of the commodities it holds for trading purposes) following is purchase of Xstrata in 2012, while its market capitalisation has fallen to about US$15 billion.

The Swiss mining goliath said it was making progress on a range of drastic moves announced at the beginning of the month aimed to cut its $30-billion debt by a third.

In the first week of September, Glencore said it was suspending its dividend and outlined a $10 billion debt-reduction plan that included the sale of a few assets.

Glencore has hired Citigroup and Credit Suisse Group to sell a minority stake in its agricultural business, a person familiar with the situation said Friday.

News that Glencore had sold a nickel project in Brazil to Horizonte Minerals for $8 million offered little respite, with Hobart Capital Markets’ Justin Haque saying the price was a fraction of what Glencore had spent. Goldman Sachs Group said last week that should commodity prices fall another 5%, the metrics needed to maintain Glencore’s credit rating would be out of the required range.

Investec analyst Hunter Hillcoat warned that Glencore could end up in the situation where it’s “solely working to repay debt obligations” if commodity prices don’t recover.

Investec’s analysts have avoided the normal splinters associated with fence-sitting by painting its pessimistic picture so clearly and acting as the focal point for market fears.

Prices for the main commodities that drive Glencore’s revenues – copper, coal and oil, among others – have all hit multiyear lows in recent months.

In fact, a lethal cocktail of excess supply and weak demand means commodity markets could remain subdued “for several years”, according to one expert.