Glencore tumbles as Investec warns it holds little value for shareholders

Glencore shares tumbled on Monday on the back of a fairly downbeat assessment from Investec, which warned the stock holds little value for shareholders.

“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,” the brokerage said.

It said if major commodity prices remain at current levels, its analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.

“Despite the drastic action that management has announced recently (even assuming all of the measures are successfully implemented), a spot price scenario results in an almost complete collapse in forward earnings such that no meaningful estimate of shareholder value can be derived under our price-to-earnings methodology,” said Investec.

It said that under a spot scenario, Glencore may have to undertake further restructuring beyond the dividend suspension, capital raising and asset sales programs it has already announced/implemented.

It said Anglo American is also in a weaker position than rivals BHP Billiton and Rio Tinto if commodity prices remain depressed.

“While it offers upside potential for equity holders on our base case assumptions, applying spot pricing suggests a meaningfully negative impact on equity value,” said Investec.

It said that assuming persistent spot prices presents a similar picture to that for Glencore. “Although not quite as severe, derived equity value comes close to disappearing."

Investec rates both Anglo and Glencore at 'hold'.

At 0953 BST, Glencore shares were down 10.5% at 87p while Anglo shares were 3% lower at 596.40p.