Glencore fights back — to slash debt by $10bn, halt copper mines in Africa

Commodities rout responsible for wiping out Glencore’s value and CEO Ivan Glasenberg’s smile.

Mining and commodities giant Glencore (LON:GLEN), which in recent weeks became the poster child of how hard companies have been hit by a brutal sell-off in raw materials, is fighting back.

The Swiss-based company unveiled Monday a $10 billion package of debt-reduction measures, which include issuing up to $2.5bn of new shares, cutting dividends, selling assets and looking to offload a stake in its agricultural business to a third party.

Glencore also said it plans to suspend production at its copper mines in the Democratic Republic of Congo and Zambia, in a move that it says will take 400,000 tonnes out of the market and potentially provide a boost to metals prices.

Investors reacted positively to the news, sending the company’s shares up about 12% before paring gains a touch to trade 6.5% higher at about 131 pence at 12:40 pm GMT.

At the same time, the announcement of a upcoming stoppage at Glencore’ Mopani operation in Zambia and the Katanga facility in the DRC had an immediate effect on copper prices, with the red metal climbing more than 1% to $5,192 a tonne on the London Metal Exchange.

Shanghai Futures Exchange copper rose 0.8% to 39,370 yuan ($6,183) a tonne.

Glencore CEO Ivan Glasenberg said in a statement that the measures announced today wouldn’t affect the firm’s core business activities and overall franchise value.

However, he acknowledged that “recent stakeholder engagement in response to market speculation around the sustainability of our leverage highlights the desire to strengthen and protect our balance sheet amid the current market uncertainty.”

BoAML upgrade

Bank of America Merrill Lynch upgraded the company’s rating to neutral following the plan’s unveiling.

“Unlike other management teams in the sector, Glencore has acknowledged its debt problem and is taking steps to address it,” BoAML said in an e-mailed note.

“We think the plan goes some way to addressing some of our concerns on Glencore’s financing, we do still have a question mark on Chinese demand and hence (only) an upgrade to Neutral. Even after the reductions, the company will still be quite highly geared,” the note said.

Glencore swung to a net loss of $676 million in its first half of the year from a profit of $1.7 billion in the same period last year due to write downs in the value of its mines and oil fields, which have been hit by a price slump.

The company is now worth a fraction of what it was when it made its first attempt a year ago at a “merger of equals” with Rio Tinto (LON:RIO), which is valued at $92.6 billion.