London Mining Plc And Glencore PLC Slide After Payments Dispute

London Mining Plc (LON: LOND) is falling today after getting into a dispute with Glencore PLC (LON: GLEN).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

opencast.miningLondon Mining (LSE: LOND) and Glencore (LSE: GLEN) are both falling today, after it was revealed that London Mining is considering ending an iron ore off-take agreement between itself and Glencore.

London Mining is accusing Glencore of refusing to pay an advance payment, for iron ore to be mined at the company’s mine in Sierra Leone.

Winners and losers

It would be easy to assume that London Mining, being a small-cap underdog, would regard Glencore’s support as invaluable, doing everything that it could to maintain a good relationship. However, according to the company’s management other commodity trading houses have been fighting to get their hands on this additional supply, ever since the disagreement with Glencore was announced. So, it would appear as if London Mining has the upper hand here.

For Glencore, however, the dispute over payment and cancellation of supply could be good news. Indeed, the price of iron ore has recently fallen to a five-year low, amid oversupply. London Mining itself has been forced to defer a $175m mine expansion plan and put off $20m of non-essential capital expenditure because of weak prices.

Glencore on the other hand has almost no exposure to iron ore, a trait that has been praised by analysts. The group approved a $900m mine project in Mauritania earlier this year but that’s it.

Changing outlook

But will the outlooks for Glencore and London Mining change after today’s news? Well, initial indications lead to the conclusion that the two parties will quickly find new partners to replace existing commitments. As mentioned above, London Mining has already received calls from other trading houses asking to take Glencore’s place.

Further, Glencore as one of the world’s commodity giants, is unlikely to have a hard time finding another miner willing to sign an offtake agreement with it. The company is seeking to increase its exposure to iron ore and there has been speculation that Glencore could make a bid for iron ore giant Rio Tinto.  

All in all though, as the price of iron ore is falling, Glencore is likely to profit the most from this disagreement.

Uncertainty

Unfortunately, London Mining’s outlook is more uncertain. In particular, as the price of iron ore falls, London Mining’s short-term liquidity is being squeezed. At the end of June the company had $282m of net debt, compared to the firm’s current market capitalisation of only £33m, or $54m. Management has agreed a $30m revolving, two-year financing facility to meet near-term commitments. This still requires approval from existing lenders.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »