Glencore Shares Groan Under Copper Pressure

By Alex MacDonald 

LONDON--Mining and metals stocks fell sharply on Wednesday after copper prices tumbled to nearly a six-year low, with commodities group Glencore among the worst hit.

Glencore shares dropped to their lowest levels since the company went public in 2011, falling more than 10% at one stage before recovering slightly.

The slide indicated investor nervousness about future earnings at the world's third-biggest copper miner and largest supplier of the metal which is also dependent on commodities trading for its profit.

When Glencore floated in 2011, top executives and their advisers made much of the fact that its model combining mining and physical trading of commodities would deliver superior value to shareholders. Just under four years on, the Swiss-based giant's shares have underperformed those of Rio Tinto and BHP Billiton, outstripping only Anglo American among the major London-listed miners.

That continued to be the case on Wednesday. Glencore fared worse than other big mining companies which bore the brunt of the selloff, such as Anglo American PLC, down 8.8%, BHP Billiton PLC, down 6.1% and Rio Tinto PLC, off 4.5%.

Copper-focused producers were hit even harder. Shares in Kazakhstan-focused Kaz Minerals PLC and base-metals producer Vedanta Resources PLC fell by nearly a fifth. Shares in Chilean copper producer Antofagasta PLC fell 7.3%. The benchmark FTSE 350 mining index, which tracks the U.K.'s 350 largest-listed mining companies down nearly 8% at one stage, while the FTSE 100 index dropped 2.3%.

The slide on stock markets came as copper was sold heavily overnight and in early trading as worries intensify about global economic growth, also visible in tumbling oil prices. Brent crude was down 1.4% at $47.16 a barrel. The World Bank on Tuesday cut its outlook for global growth in 2015 and 2016.

The London Metal Exchange's three-month copper contract was down 3.5% at $5,566.00 a metric ton in morning European trade, having fallen as low as $5,353.25 during Asian trading hours. Copper prices have fallen nearly 25% over the past year to their lowest levels since July 2009.

Wednesday's stock plunge raises questions about Glencore's own bet on copper, notably an increase in production at its Katanga mine in war-torn Congo. Copper accounted for 38% of Glencore's operating profit in the first half of last year compared with Rio Tinto, the world's second-largest diversified miner, which only generated 10% of its operating profit from copper during the same period.

Glencore officials declined to comment. The group sounded bullish oncopper's prospects only last month.

"Copper, we like," said Glencore's Chief Executive Ivan Glasenberg at the company's investor day presentation in December.

Copper demand is seen as a barometer of the world economy's health because of its many uses, from building skyscrapers and telecommunications cables to manufacturing electrical appliances, hence the wisdom of Glencore's strategy in the long term for some analysts.

Jeff Largey at Macquarie Research, who has a neutral rating on Glencore's stock, said copper is still a good bet. "There is no metal that enjoys better fundamentals than copper," Mr. Largey said. "That is mostly driven by constraints on the supply side."

After the market was flush with copper in 2014, the metal's world supply is forecast to be largely balanced with demand in 2015 before swinging to a deficit later in the decade, according to Macquarie. Miners are failing to increase production in line with demand because of declining copper grades world-wide and the need to explore for copper in more remote locations, where the cost to develop support infrastructure is high.

Mr. Glasenberg said last month that Glencore doesn't expect the forecast copper surplus to be very big over the next one or two years while its mines are relatively efficient.

"We're the only guys who don't have declining grades of copper in any of our assets," he said. "And when you see the quality and the grades we're mining in the Congo, in Zambia, et cetera, we're right down in the cost curve."

--Andrew Peaple contributed to this article.

Write to Alex MacDonald at [e-mail]

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