Copper rises as Glencore plans mine shutdown

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    Copper gained after commodities group Glencore announced plans to shut down loss-making mines to help to reduce a glut of supply that has weighed on prices.

    Bearish investors scrambled to close out positions by buying futures, but analysts said it was uncertain whether Glencore's move to close some African copper operations for 18 months would create a trend.

    "It's probably not enough to see prices go up (substantially), but it certainly supports the market," said Grant Sporre, head of metals research at Deutsche Bank in London. "It also ensures that copper is probably not going to fall in the same way that iron ore and met (metallurgical) coal have done."

    Sporre had forecast a global copper supply/demand surplus of 350,000 tonnes for next year and said that Glencore's move would bring the market close to balance, given that it is expected to remove 300,000 tonnes in 2016.

    Glencore's mine closures, which were due to remove 400,000 tonnes of copper cathode from the market over 18 months, were part of a wider initiative that included the suspension of dividends, asset sales and a $US2.5 billion share issue as it seeks to cut debt.

    Three-month copper on the London Metal Exchange failed to trade in closing open outcry activity amid thin volumes, with US markets closed for the Labor Day holiday.

    Copper was last bid at $US5148 a tonne, up 0.6 per cent from Friday's close.

    There have been signs of a pick-up in copper demand from mainland China, UBS analyst Dan Morgan said.

    "Merchant premia in China have lifted quite strongly which, with prices being relatively cheaper now, suggests we might see a little bit of a lift in copper imports."

    But technical analyst Cliff Green, who examines charts to identify future trends, said the current rally was probably temporary after lifting copper from a six-year low of $US4855 last month.

    "There is no evidence at this stage that the bear cycle (in copper) is over and my targets in the $US4700 and even $US4400 areas are still readable," he told the Reuters Global Base Metal Forum.

    Most other LME metals were weaker ahead of forthcoming Chinese economic data that analysts say could point to further economic weakness.

    Zinc shed 0.7 per cent to close at $US1772 a tonne, nickel was down 1.5 per cent at $US9750 and tin fell 0.7 per cent to $US14,925.

    Lead bucked the weaker trend and added 0.2 per cent to $US1668 a tonne while aluminium, untraded in closing rings, was bid down 0.5 per cent to $US1600.

    courtesy of the Age

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    (DYOR)

    TAKE CARE !

    this could move the affected miners either way ie. cause a shock to the price of BHP and RIO or excessively boost copper producers like OZL

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    The humiliating crash in the credibility of Swiss commodities trader Ivan Glasenberg is a reminder that in times of crisis debt calls the tune on equity.

    Glencore's equity holders are going to suffer dilution of their interests to keep the banks happy. What is so galling about this development is that the company has been dragged kicking and screaming to the equity capital markets.

    As much as you have to admire Glasenberg for building "one of the world's largest global diversified natural resource companies", he now has a track record in public capital markets of having a tin ear for the concerns of stakeholders.

    He first showed this unfortunate tendency during the takeover of Xstrata in 2012-13. He only lifted the takeover consideration after being pressured by one of the company's largest shareholders, Qatar's sovereign wealth fund.

    Misreading markets is probably a result of Glasenberg's 25 years operating behind the veil of privacy and secrecy in Switzerland. That all changed in 2011 when Glencore was listed in London through an initial public offering that valued the company at 69 billion.

    On Monday the stock was valued by the market at 16 billion ($35 million).

    It is hard to believe that a year ago, Glencore was considered by some to be in a position to take over either Rio Tinto or Anglo American. Glasenberg is said to have put the $US180 billion merger proposition to Rio's chairman, Jan du Plessis, in July last year.

    One analyst who pushed the merger options hard at the time was Paul Gait from Sanford C. Bernstein. His report published in September last year "Glencore: Frying The Biggest Fish Is It Rio Tinto or Anglo American That Looks Vulnerable?" laid out the case for Glasenberg achieving his dream of owning some of the world's best long-life assets.

    POSITIVE MEASURES

    On Monday, Gait told his clients the latest debt-reduction measures by Glencore were positive because "it removes a certain degree of uncertainty as bankruptcy risks had clearly become a serious concern for investors".

    As a commodities trader who made a margin on shifting raw materials to end users, Glasenberg had an incentive to pump as much as possible through the Glencore trading machine.

    Maximising the throughput of commodities dovetailed well with the perverse incentive in the global financial system for banks to lend as much as possible to investment-grade credits.

    The business model worked fine when a nice fat margin could be earned by the commodities trading business. But as commodity prices collapsed to five-year lows, the trading margins got squeezed.

    The negative implications of impairments and lower earnings put the focus on the Glencore balance sheet and its net debt of $US30 billion.

    As recently as August 19, Glasenberg was boasting of his company's ability to pay dividends with net debt of $US27 billion.

    Glasenberg told analysts that Glencore was "one of the few companies I think out there in this general natural resource environment to have metals commitments, paid its CapEx, paid its dividends, funded interest and tax, and still be delivering at $1billion during this period and looking forward. And we've set ourselves that $27billion target at the end of 2016 as well."

    Three weeks later the company is now promising to slash its net debt by $US10billion to $US20 billion by the end of 2016.

    Glencore said on Monday it would raise $US2.5 billion in equity and launch a series of measures to cut $US7.7 billion in commitments including suspending dividends, shutting down operations and selling assets.

    TWO POWERFUL FORCES

    Glasenberg is capitulating to two powerful forces his own shareholders and the credit rating agencies.

    During a call with analysts on Monday night, Glasenberg and his chief financial officer Steven Kalmin were trying to talk up the positive side of this urgent capital raising.

    Kalmin said the market reaction to the company's $US27 billion net debt target was to start running all sorts of scenarios including some "doomsday" ones.

    He said even though these scenarios included fantasy outcomes the company needed to make sure Glencore was "bulletproof".

    "It's about making sure that this business is bulletproof and robust," he said.

    He raised the possibility that shareholders will look back in a year's time and think the company was too aggressive in its response to the demands of the market. Also, he repeatedly stressed that the dividend suspension was "temporary". "There is a possibility of dividends returning in the not-too-distant future," Kalmin said.

    Glasenberg said it was only after listening to shareholders that he realised the company needed to make the balance sheet bulletproof.

    One theme that is clearly playing out right across the resources sector, particularly in the oil and gas market, is that the boards of many companies have not been running worst-case scenarios.

    This is evident from what has been happening on the boards of Australia's major LNG suppliers. It is also true of many coal-mining companies.

    It has to be said that Glasenberg is putting a portion of his own considerable wealth on the line as part of the recapitalisation of Glencore.

    "We remain very positive on the long-term outlook for our business and this is reinforced by senior management's commitment to take up 22 per cent of the proposed equity issuance," Glasenberg said. That works out at $US550 million of support from management and board members.

    For every miner in trouble, there is a vulture ready to pounce.

    One of the delicious ironies of Glasenberg's woes is that the executive who came off second-best from the Xstrata takeover, former Xstrata chief executive Mick Davis, is well-positioned to pounce. Davis's vehicle X2 has $US5.6 billion in cash and access to more than $US10billion in debt facilities. Davis is interested in buying coal and copper assets.

    One quote that will be ringing in the ears of many global mining executives as they watch Glasenberg soothe the market concerns about possible bankruptcy is a statement Glasenberg made in 2014. He said: "The big guys really screwed up."

    However, Rio Tinto and BHP Billiton made sure they maintained very strong balance sheets.

    WESTPAC DIFFERENTIATES

    Brian Hartzer has done enough to differentiate Westpac Banking Corp's strategy from its peers. But it is not clear he has done enough to remove the sense that Westpac lags in technology.

    Westpac's multi-branding strategy has worked well but it is now clear that the systems never talked to each other. That explains the need for chief technology officer Dave Curran to create a customer service hub.

    Westpac comes to the task of refreshing its technology with an advantage over its competitors. It sells more products to each customer than any other of the big four banks.

    Tony Boyd

    courtesy of Australian Financial Review

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    (DYOR)

    does Westpac have less "fancy machines " than their rivals .... yes !

    do those fewer machine more efficiently YES ( and supply actual on site redundancy )

    when was the last ATM/internet banking outage at WBC say compared to the CBA ???

    **** Westpac's multi-branding strategy has worked well but it is now clear that the systems never talked to each other. That explains the need for chief technology officer Dave Curran to create a customer service hub ***

    please not that is not always a bad thing ( especially in the event of a computer attack , or system outage ( some sections will still function and may be used as a stop-gap for troubled sections )

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