Glencore downgraded by RBC over Congolese asset freeze

Complications at mining giant Glencore continue to mount following the freezing of its assets in the Democratic Republic of the Congo as a result of a $3.0bn claim from an Israeli businessman, leading analysts at RBC Capital Markets to reassess their stance.

Late last week, the Swiss commodities group announced that Katanga Copper and Mutanda Mining, Glencore's Congolese majority-owned businesses, had been served freezing orders via a claim from tycoon Dan Gertler, the company's former partner in Congo, who said he had not received due royalties following his inclusion on the recent US sanctions lists.

Gertler's Ventora issued freezing orders against Katanga and Mutanda for roughly $2.28bn and $695m respectively, which it said would be the damages relating to future royalties due to it. Katanga disputes that Ventora has any claim against it. The contracts between Mutanda and Ventora are subject to English Law and arbitration in Hong Kong, while the agreement between Katanga and Ventora is subject the exclusive jurisdiction of the English courts, Glencore said.

Although the situation remains unclear and Glencore denies any breach of its agreements with Gertler, RBC still saw cause to downgrade its stance on the group from 'top pick' to 'outperform'.

"Assuming Glencore's DRC assets halt production, the impact on the copper market is likely to be large," the Monday note from RBC said.

"Our analysis suggests the lost 360kt of copper will shift the copper market into deficit for 2018," it added.

However, RBC still likes the look of Glencore, as its forecasts still managed to place the FTSE 100 group in line with its sector peers and even went as far to say that if the miners marketing business was capable of providing lower earnings volatility, a premium rating would be expected to be reissued in just a short time.

"Owing to the nature of the challenges facing Glencore's presence in the DRC, it will be nearly impossible to provide definitive forecasts for the DRC assets until further developments occur," RBC said.

"For now, we think it prudent to remove these operations from our forecasts and shift to a risked value for the assets," RBC's analysts added.

RBC also dropped Glencore's target price from 460p to 410p.