Shares in mining and commodities group Glencore rebounded on Tuesday after the embattled firm attempted to calm growing concerns about its finances and analysts said that management could take it private.
In an unscheduled statement, Glencore said it was “operationally and financially robust” after volatile trading in the company’s shares.
The statement drove up shares in Glencore by 20% at one stage, although they fell back slightly to close up by nearly 17% at 80.25p.
On Monday, shares in Glencore fell by 29% – one of the biggest daily falls for a FTSE 100 company – after analysts at investment bank Investec warned that the value of Glencore could evaporate if commodity prices stay at current levels.
However, Glencore responded with a robust statement, claiming it had “no debt covenants and continues to retain strong lines of credit and secure access to funding”.
Glencorealso won support from analysts at Citi, the bank that helped the company to float in 2011.
Citi claimed the recent slump in the commodity group’s share price was overdone and that management should consider buying the business and taking it back to private ownership.
Despite the rebound in its shares, Glencore’s share price is still 85% lower than when the company floated in 2011. It has fallen by three quarters so far this year due to concerns about the Chinese economy, falling commodity prices and the company’s debt levels.
The share price slump means that Glencore’s boss, Ivan Glasenberg – whose stake was valued at around £6bn when the company floated – is no longer a paper billionaire on the basis of his Glencore stake alone.
Nonetheless, Glencore was further boosted on Tuesday as the price of copper steadied. The benchmark three-month copper on the London Metal Exchange ended up 0.1% at $4,970 a tonne, although this remains close to the six-year low of $4,915.50 hit in late August.
China uses almost half the world’s copper and fears of an economic slowdown have badly affected the price of the metal.
Heath Jansen at Citi said that even if copper hit $4,000 a metric tonne and other raw material prices stayed stable, Glencore should still post annual profits of roughly $7.5bn (£4.9bn).
The analysts said: “In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly.”
Citi said that Glencore had resources of $12bn to fund the group, including $6.5bn of cash after a $2.5bn share placing this month, which was designed to ease fears about the company’s future.
Glencore backed up Citi’s comments by insisting in its statement that it had access to sufficient funds
The company said in a statement: “Glencore has taken proactive steps to position our company to withstand current commodity market conditions. Our business remains operationally and financially robust – we have positive cash flow, good liquidity and absolutely no solvency issues.”
Earlier this month Glencore announced plans to reduce its debt by $10.2bn through a share placing, suspending dividend payments, halting operations at two African mines and selling assets.
“We are getting on and delivering a suite of measures to reduce our debt levels by up to $10.2bn,” said Glencore.
“Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding thanks to long-term relationships we have with the banks.
“We remain focused on running efficient, low-cost and safe operations and are confident the medium- and long-term fundamentals of the commodities we produce and market remain strong into the future.”
Analysts at investment bank UBS also said that Glencore shares had been “heavily oversold”, although staff at Jefferies warned that the risks of investing in Glencore were “clearly very high”.
UBS added: “Glencore is now under pressure to strengthen its balance sheet via asset sales or a capital injection, and time is of the essence.”
