That Glencore’s shares did just that after it announced a debt reduction package that included a $2.bn equity capital raising, the suspension of its 2015 final dividend and 2016 interim dividend, asset sales and further portfolio optimisation all designed to bring its net debt into the low $20bns by the end of next year is, perhaps, a sign of just how far the mining sector has fallen in the eyes of investors.
But, it also needs to be seen in light of the fact that the firm lost 17% of its value over the course of the week just past and has, since the beginning of the year, seen its market cap drop by 55%.
As Chris Beauchamp, senior market analyst, IG said: “Given how crowded this short trade has been, it is not surprising to see such a bounce in the shares, but it will be interesting to see whether this is more than just a flash in the pan.”
The answer to that question will largely depend on which side of the commodity price debate one falls.
One of the primary reasons for the miner’s share price weakness has been the concerns around its growing debt pile and its ability to service it should commodity prices fall even further. Until now it is a fear that has been dismissed by management. As recently as last month, in its interim management statement, CEO Ivan Glasenberg said the firm’s balance sheet flexibility and optionality would allow it to maintain its net debt to adjusted EBITDA ratio below its target of 3 times.
