FTSE 100 mining stock Glencore endures share price volatility. Should I buy?

Does Glencore present a good investment opportunity? This FTSE 100 mining stock has a fluctuating share price but its commodities are sought after.

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FTSE 100 mining stock Glencore (LSE:GLEN) looked to be emerging from 2020 with promise. But recently, its share price has slipped back 10%. Mining stocks are notoriously volatile, and it can be a risky sector to invest in. Does Glencore look like a long-term winning stock for me to buy? 

Energy transition is not easy

The pandemic hurt Glencore’s production across some of its asset classes in 2020, namely coal, oil and its energy transition metals. But it fared better with gold, silver and zinc. In its FY20 results, operating profits more than doubled year-on-year to $2bn. This was thanks to the volatility in commodity markets that present favourable trading conditions for the firm. 

If commodity prices fall, that would be bad news for shareholders. Commodity prices tend to be higher in low-interest-rate environments like we’re in now. Although a rate hike is unlikely, investors should keep it in mind. Glencore is exposed to fluctuations in commodity prices.

Glencore’s competitors Evraz and Vale have both recently announced they’re divesting their coal-mining assets. This leaves Glencore one of few large coal-miners left. While coal isn’t a climate-friendly commodity, it’s not yet obsolete, which means as the last man standing, Glencore may continue to profit. But a reliance on a commodity that will one day be obsolete is also a risk.

Coal is a mainstay of the portfolio, contributing around a third of its earnings. Of course, it may follow its rivals and bow out of the coal game entirely. Being carbon-neutral by 2050 could provide enough reason for it to do so. However, it seems more likely the company will reduce its reliance gradually, reinvesting profits from this sector into advancing its efforts in mining the metals required for electrification and the global energy transition.

Dice engraved with the words buy and sell, possibly in FTSE 100

Divesting underperforming assets

Glencore is rapidly divesting assets to reduce debt and to streamline. It’s giving its Colombian mining contracts back to the government there, as they’re no longer deemed economically viable. Meanwhile, in Zambia it sold its 90% stake in Mopani Copper Mines back to the government for $1.5bn. It’s disappointing that these assets haven’t turned out to be as profitable as hoped, but getting rid of them should help the company focus on its more lucrative projects.

Will the Glencore share price rise?

The Glencore share price is up over 160% in the past five years. However, volatility has been rife during this time with many investors nursing heavy losses. Nevertheless, from November to mid-January its share price shot up 82%. I think that could be because its assets include metals that are necessary for the global transition to renewable energy infrastructure and electric vehicles, including cobalt, copper and nickel.

I’ve a few reasons to believe Glencore’s share price might improve. It plans to reinstate its dividend once it lowers its debt below $16bn. The transition from coal, whether rapid or gradual, should help improve its sustainability rating. Meanwhile, if it’s one of the few coal-miners left, this could bring in good returns. There’s an ongoing investigation by the US Department of Justice, which has adversely affected the share price. It’s hoped this will be resolved soon, which should provide shareholder relief. I’m tempted to buy shares in this FTSE 100 giant, as I think it’s got considerable upside potential with its hold on the sought-after commodities markets. But it’s not without risk.

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.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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