A year is a long time in business. Last autumn, Glencore was riding high after profit-smashing forecasts and a $1bn (£660m) share buyback, so much so it even tried (and failed) to buy rival Rio Tinto. Fast forward 12 months and its shares have gone into freefall, as plummeting commodity prices take their toll on its debt-soaked balance sheet.
The miner’s shares plunged more than 28% to around 69p today, after falling consistently for most of the day. In the last five days, they’ve lost more than 45% of their value and are now 87% lower than when the company floated at 530p in 2011.
Ouch. Miners have been doing badly across the board since the so-called ‘commodities supercycle’ ground to an halt as the Chinese economy slowed. The FTSE 350 mining index, for example, is at its lowest level since 2008. But Rio’s shares were down ‘just’ 5% this morning.
The wider sell-off was sparked by yet more bad Chinese industrial data. But there was no real news from Glencore, save for an announcement it was selling its Araguaia nickel project for the bargain basement price of $8m.
Investors are clearly now panicking about its ability to pay down debt that stood at an eyewatering $29.5bn at the start of this month. This is herd mentality at its finest. (As a side note, analysts appear to have been asleep at their desks - before today 12 out of 26 recommended buying the stock. Only one said investors should sell.)
On September 7, Glencore announced it was aiming to cut its debt mountain by $10.2bn via suspending dividends to save $2.4bn, a $2bn asset sale and a $2.5bn rights issue. Chief executive Ivan Glasenberg even bought 110 million shares in the sale on September 16, in what now looks like a failed attempt to shore up confidence in the company he created.
For a business built on acquisitions, like the $30bn takeover of Xstrata, it’s now looking rather digestible itself. That tumbling commodity prices means no other miner is likely to be able to stump up the cash to buy Glencore is the only silver lining for Glasenberg.