Glencore International AG (Glencore) trades in energy, agricultural products, metals and minerals. Based in Switzerland, the company operates in 30 countries with a payroll of 56,000 employees. The company was created by Marc Rich, a financier indicted in the U.S. for tax evasion, In 1994, the company was bought out by its management. Ivan Glasenberg took the company public in 2011, valuing his personal stake at around $10 billion. The Company merged with Xstrata to form the world’s largest commodities trading company in 2013. Last year, the CEO of Glencore, Ivan Glasenberg, proposed a $150 billion merger with rival miner Rio Tinto PLC. Glasberg remains the company’s second biggest shareholder behind sovereign-wealth fund Qatar Holding LLC. However, fortunes have changed quickly at Glencore, its stock price has collapsed by more than 50% since early May.
Some of the key reasons for the decay in stock price include:
• Slowdown in the economic growth in China, which is the world’s biggest consumer of metal
• A 29% decline in earnings for the first half of 2015
• The company cut its capital expenditure by 21%
• The trading division related to commodities is unable to generate profits (think Enron!)
• Debt to equity ratio is currently at nearly 110% which is the largest among big miners
• Some write-downs are imminent, possibly on its Koniambo nickel project in New Caledonia and Optimum Coal assets in South Africa.
• A goodwill impairment is a distinct possibility
• Standard & Poor’s cut Glencore’s outlook to negative from stable last week
Glencore is a risky stock with dubious history of human rights violations, tax evasion, environmental damages, and labor rights abuses in Africa and elsewhere in emerging markets. The BBC accused Glencore of indirectly receiving copper produced by child labour from the Tilwezembe copper mine. It also remains the only company in FTSE 100 not to have a woman on its board.
What is your position? Is Glencore a buy (the worst is over and a turn around is imminent or “money for nothing”) or a sell (dire straits ahead)?
http://www.facin g-finance.org/en/database/cases/katanga-mining/
http://finance.yahoo.com/news/falling-knife-screaming-buy-glencore-134103079.html
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