GLNCY Glencore Plc (PK)

LONDON—Glencore PLC Chief Executive Ivan Glasenberg's rescue plan for his company could hinge on the fortunes of a single metal: copper.

The company's decision to close two unprofitable African copper mines would take 400,000 tons of copper production out of the market over the next 18 months, and helped send prices for the industrial metal up 5% in the U.S. and nearly 4% in London on Tuesday. Copper's gain was also attributed to new data out of China showing stronger-than-expected demand from the world's largest consumer of the metal.

Copper is today by far the most important commodity to Glencore, which produced 730,900 tons of it in the first half of 2015. Declining copper prices—which dipped below $5,000 a ton in August for the first time since the financial crisis, wiping more than 50% off its 2011 peak—slammed Glencore's earnings this year, helping it swing to a loss in the first half of the year.

Copper's struggles were part of the reason Mr. Glasenberg ordered the African mines shut and unveiled other actions Monday to cut the company's debt to about $20 billion, down by $10 billion, over the next 16 months. He scrapped Glencore's dividend, announced a stock issue and called for a new round of cost-cutting and asset sales.

Mr. Glasenberg said his plans should protect Glencore against a "doomsday" scenario in commodity prices, in which Chinese demand continues to fall and prices plunge even farther. Aside from copper, Glencore is the world's biggest producer of thermal coal, which is used in power stations; and it is also a major player in oil, zinc, and other commodities.

Nearly all of its commodities are down this year. The international Brent crude oil price has fallen 15% and the benchmark thermal coal export price from South Africa is down 17%.

Analysts on Tuesday began questioning whether Mr. Glasenberg's moves were enough.

Additional declines in copper prices could mean trouble. A 10% drop in copper from where it stood at the end of the first half of the year would erase about $1 billion from Glencore's earnings, excluding interest and taxes, in 2016, according to estimates by Liberum Capital analyst Ben Davis. Such a steep drop could put pressure on the company's investment-grade credit rating if it doesn't pare down its debt fast enough. Sanford C. Bernstein analyst Paul Gait said he expects Glencore to reduce its net debt to $22.2 billion in 2016, higher than Glencore's target.

On the other hand, a 10% gain in copper prices would work wonders for Glencore, boosting operating earnings by $1 billion, according to Mr. Davis. That could give the company room to put on hold its plan to issue shares, among other moves.

The importance of copper to Glencore's success is one reason some experts believe the most significant piece of Mr. Glasenberg's plan is a shutdown of operations at two of its big African copper mines, Katanga in the Democratic Republic of the Congo and Mopani in Zambia. The company said it would ramp up production at the mines again in 2017 after the 18-month suspension, after cutting costs to return them to profitability.

Mr. Glasenberg said the suspensions are in line with his view that mining companies should cut production when there is too much supply. He has chided iron-ore producers for continuing to churn out the steelmaking ingredient despite a collapse in prices.

"We've introduced supply discipline," Mr. Glasenberg said on a conference call Monday.

Analysts were divided about how important the copper-production cuts would be globally.

Stephen Briggs, base metal analyst at BNP Paribas, said Chinese economic growth was more important for the "bigger macro picture than Glencore cutting production."

"I would say in itself [Glencore's shutdowns] are a mild positive, but I wouldn't call it a complete game-changer," Mr. Briggs said.

ICBC Standard Bank analyst Leon Westgate said the move comes amid other cutbacks in Zambia and Chile, with about 1.5 million tons of disruptions so far this year. Mining companies Freeport-McMoRan Inc., Asarco LLC and Ok Tedi Mining Ltd. also have said that they will suspend copper operations in recent months.

The cuts could also benefit Glencore's trading arm, which buys and sells commodities around the world. Glencore can "influence the trading and availability of physical metal and this should work to the benefit of Glencore's traders," SP Angel analyst John Meyer wrote Tuesday.

Not everyone is convinced that Glencore will be able to keep the mines shut. It could face political pressure to keep them running, as the mines employ thousands of workers.

"The most difficult initiative management announced is the decision to shut down the cash-burning Katanga and Mopani copper operations," Nomura analyst Patrick Jones wrote in a note on Monday.

Mr. Glasenberg said Monday the company has "spoken to the local authorities" and that the mines would "still be employing a certain amount of the workforce."

Arthur Katalayi, the senior executive adviser to the chairman of Congolese state-owned mining company Gecamines, said the company wasn't in a position to influence the decision-making process as a minority investor in the Katanga operations. "The Glencore decision is one that we can do nothing about," he said. "It's their decision."

Alistair MacDonald contributed to this article.

Write to Scott Patterson at scott.patterson@wsj.com, Ese Erheriene at ese.erheriene@wsj.com and Alex MacDonald at alex.macdonald@wsj.com

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(END) Dow Jones Newswires

September 08, 2015 15:05 ET (19:05 GMT)

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