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 alex.macdonald@wsj.com
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