By Alex MacDonald And John W. Miller
LONDON--Mining company stocks plunged across the world on
Tuesday on continued fears that China's economic slowdown would
cause metal prices to tumble further.
The carnage was most apparent at Switzerland-based trader and
producer Glencore PLC, where shares fell below GBP1 ($1.55) for the
first time, down more than 16%. The beleaguered company's shares
recovered slightly but closed down 10%.
But Tuesday's tumble was another hammer on the head of almost
all mining companies.
Freeport-McMoRan Inc., the biggest American miner, lost almost
1.5% of its value in afternoon trading in the U.S. In the U.K.,
Anglo American PLC fell 6.73%, while Anglo-Australian miners BHP
Billiton Ltd. and Rio Tinto PLC ranked among the 10 biggest losers
in London trading.
In London, the FTSE 350 mining index lost 2.5%. In Toronto, a
major center for mining finance, the stock market's materials
index--home to miners of gold, copper and potash, among other
commodities--was down 4.2% on the day, bringing its 12-month drop
to 30%.
The losses were an extension of a pattern of market volatility
since the U.S. Federal Reserve said on Thursday it wasn't raising
interest rates this month. The Fed's decision sparked renewed fears
over the sluggish pace of global growth and has left investors
second-guessing when the first rate move will come.
Miners also have been roiled by a long rout in commodities
prices, with gold, copper and iron ore trading at multi-year lows
in recent weeks on worries that demand is slackening in China, the
world's biggest consumer of many raw materials.
On Tuesday, there were widespread worries that data to be
released late Wednesday will show a continued decline in Chinese
factory activity.
The copper price, the largest earnings driver for Glencore and
Freeport-McMoRan, led a group of metals' prices lower in afternoon
European trading, falling 3.6% to $5,036 a ton. Meanwhile the price
of zinc, a major metal for Glencore, fell to a more than six-year
low of $1,640 a ton on Tuesday.
Credit Suisse Group AG on Tuesday slashed earnings estimates
across the mining sector.
"Until China demand and emerging market currencies find a floor,
it will remain challenging to put an absolute floor on commodity
prices," Credit Suisse said in a note.
Even in the gold mining sector, traditionally considered an
outlier from global macroeconomic forces, companies were shellacked
on Tuesday.
North America's two major gold producers, Toronto-based Barrick
Gold Corp. and Colorado-based Newmont Mining Corp. both suffered
share price losses over 5%.
The mood is particularly bleak at the Denver Gold Forum, an
annual mining conference this week. Chief executives of the world's
biggest gold companies watched helplessly Tuesday as their share
prices fell.
Mining executives are "projecting optimism, but off the record,
they're very concerned about where prices are going," says Paul
Sacks, chief investment officer of New York-based Aurum, a start-up
gold trading fund.
A big worry is that "nobody really sees where the bottom is,
that's the $64,000 question," he added.
As share and metals prices plummet, mining companies are
increasingly responding by slashing costs.
Investment and capital spending are "increasingly difficult as
the gold price drops," said Chuck Jeannes, president and chief
executive of Vancouver-based Goldcorp, Inc., one of the world's
biggest miners. "We are laser-focused on reducing operating
costs."
Glencore has become a symbol for investor jitters around Chinese
demand. The company is exposed to a host of commodities -- from
copper to zinc to coal -- that have experienced huge price drops
thanks to uncertain Chinese demand.
The company also has heavy debt -- something that it needs to
finance its massive commodities trading arm but that has become a
liability as its cash flow sinks and questions get raised about its
credit rating.
The company issued $2.5 billion in new shares last week and
announced a host of cost cuts, asset sales and other measures to
restore investors' faith -- to no avail so far, analysts said.
"Glencore has suffered a complete loss of confidence from
investors," Credit Suisse said in a note to clients on Tuesday. The
company's stock could rebound, the bank said, if it delivers on its
second half earnings targets.
Glencore's shares are down nearly two thirds since the beginning
of the year and are down more than 80% since the company's London
share listing in 2011. All of the share price gains made since the
company's debt-reduction plan was announced have been wiped
out.
Analysts were struggling to explain why Glencore's stock had
fallen so much more than others, except to note that funds are
likely short selling the stock in greater numbers.
"It's too big a move," said Liberum Capital analyst Ben Davis.
"This feels more technically driven than fundamentals [driven]," he
noted.
Write to Alex MacDonald at alex.macdonald@wsj.com and John W.
Miller at john.miller@wsj.com
(END) Dow Jones Newswires
September 22, 2015 15:10 ET (19:10 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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