A way to get exposure to metals is through investment in producers trading on the stock markets.
With substantial improvement currently seen by analysts and operators in the price of copper due to an expected deficit in the market of the red metal in the coming years, it is wise to get exposure to this base metal and possibly through larger producers that are publicly traded.
One of these larger producers of copper is Glencore Plc (LON:GLEN), an Anglo–Swiss international commodity trading and mining company.
Concerning copper, Glencore is the largest supplier and producer in the world. The company can count on industrial assets that are fully integrated with marketing activities and on operations that are equipped with plants that allow Glencore to process complex concentrates and with plants for smelting and refining activities.
Glencore’s copper assets are located in four continents. In the Americas, the company holds assets in Argentina, Canada, Peru and Chile. In Africa the company holds assets in Democratic Republic of Congo and Zambia. The company also has assets in the Philippines and Australia.
Just to have an idea of the size of Glencore’s copper reserves: As of Dec. 31, it holds approximately 50.8 million tons of the red metal, which is hosted in mineral ore proven and probable reserves of about 5.54 billion tons.
Investing in Glencore is not only a way to take advantage of the rising base metal price, but it also means distributing the risk through different commodities and activities. Also, the risk profile of the company is low since – as mentioned before – the company’s assets and interests, geographically speaking, are well distributed across four continents.
Thanks to its highly diversified portfolio of assets and interests, the company is also engaged in the international trade of other base metals such as zinc, lead, aluminium and iron ore, with oil and agricultural commodities. The latter is executed through its holding in Glencore Agriculture, which is a leader in the market of agricultural commodities such as grain, oilseeds, pulses, sugar, rice, cotton, vegetable oils, protein meals and biodiesel.
Glencore is also engaged in marketing and logistic activities.
From a highly diversified portfolio that makes Glencore active in the entire supply chain of more than 90 different commodities, the company can annually generate a cash flow of about GBp 6.50 to GBp 7.0 billion. Part of this cash flow is – after having met financial obligations and reinvested into the business – distributed to the shareholders of the company.
Glencore currently distributes an annual dividend of about 5.72 cents of GBp for a forward yield of 1.45%.
The value accretion for its shareholders, however, is not really represented by the distribution of the dividend, which is - to be frank - not much, but by the rise in the market value of this stock. Year to date, Glencore’s shareholders are enjoying an almost 26% gain in the London Stock Exchange. This climbing in the market value is not going to stop as commodities – and especially copper – are set to continue its up-trending course for the remaining part of 2017 and for 2018 as well.
Glencore is currently trading its book value per share at 1.43 times versus an industry average of 1.93. The price-earnings ratio is 14.81. The company is currently trading at GBp 3.55 per share with a market capitalization of GBp 51.07 billion and an enterprise value of GBp 70.39 billion.
Glencore has cash and securities of approximately GBp 2.12 billion as of the most recent quarterly report and total debt of GBp 30.45 for a total debt to equity ratio of 68.97%. The company is more leveraged compared to its peers since the industry’s average ratio is 22.78%.
Glencore has approximately 14.26 billion shares outstanding, of which 76% is the float.
Among the top mutual fund holders of Glencore, the stand outs are Oakmark International Fund with a volume of 295.61 million shares or 2.05% of the company’s total volume of shares outstanding, Europacific Growth Fund with 250.223 million shares or 1.74%, Oppenheimer Developing Markets Fund with 183.25 million shares or 1.27% and Vanguard International Stock Index-Total Intl Stock Indx with 143.23 million shares or 1%.
In addition, Bloomberg reported yesterday that Glencore is a whisper away from inking a $700 million valued agreement with the Ontario Teachers' Pension Plan for the creation of the first large royalty company specialized in base metals.
Disclosure: I have no positions in Glencore Plc.
