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 $US30 billion (£20 million), as copper prices fall. Glencore is not especially profitable.
Here’s a round-up of what mining analysts are saying about the companies prospects.
Analyst: Hunter Hillcoat
'The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve. We have adopted a P/E-based approach to evaluate how the equity value of the major diversified companies might vary over time in proportion to debt and have identified the companies where equity values are most at risk.
'If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.'
Analyst: Heath R Jansen
'We believe the share prices have reacted to concerns around balance sheet and liquidity, reflected by both the rising CDS spreads and bond yields. We believe the markets response is overdone and that the ratings agencies are likely to take a more through the cycle view and therefore a downgrade to sub-investment is not likely.
'We also think the group is not limited to just selling a minority stake and if the need be, the entire agricultural marketing business can be sold, which we value at ~$US10.5bn. The group can stay away from debt markets till 2017.'
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.'
Analyst: Myles Allsop
'We have a Buy rating on the stock and believe the share has been heavily oversold. While the volatility in the share and concerns about management credibility is likely to put off investors near-term, we expect the share to re-rate over 6-12 months as v delivers on promises to cut net debt and as the copper price picks up on improving property sales/ grid spend in China & supply closures.
'In our opinion, the risk of a further capital increase is low, with GLEN more likely to sell a larger stake in (its agriculture business) to get net debt below $US20bn and lower the CDS.'
Analyst: Alon Olsha
'Reducing the spot commodity price deck by 8% and applying peer group multiples to Mining and Trading EBITDA yields an equity value close to £0.70/sh. In contrast, our base case price deck suggests an equity value closer to £1.80/sh. Where the stock ultimately ends up trading will therefore largely depend on the market's confidence that GLEN will defend its BBB rating but also on sentiment towards commodity prices.'
Analyst: Paul Gait
'There is genuine economic value to be found in both Glencore's commodity trading business, and its industrial metals & mining business.
'Commodity trading is a fundamental building block of the global economy, and has in fact facilitated global economic development over the past several thousand years. There is clearly value in the transfer of commodities from times and geographies abundant with those commodities to times and geographies that lack them. To see this as having suddenly lost fundamental value to the global economy seems absurd.'
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