After surging 47% last year, Glencore (LSE: GLEN) stock has struggled so far in 2023. As I write, it’s down 10% versus a gain of 3.86% for the FTSE 100.
Since last week, however, the shares have risen by 8%. This rally came after Glencore became the latest company to launch a takeover bid after a wave of buyout offers across the mining sector.
Why have investors taken kindly to this news?
Hostile bid
On 3 April, the commodities giant made an unsolicited offer for Teck Resources (NYSE: TECK), one of Canada’s leading mining companies. This was an all-share offer that valued the firm at about $23bn.
Glencore’s plan was to merge both companies and then separate their operations to create two standalone businesses, MetalsCo and CoalCo. The former would be listed in London and the latter in the US, with the focus of each company flagged in their proposed trading names.
However, this “unsolicited and opportunistic” offer was turned down by Teck’s board.
So Glencore revised its offer to include $8.2bn in cash too. Teck shareholders would receive 24% of the combined metals company and the money (rather than part of a large coal business).
This modified offer has also been rejected. So as things stand, there’ll be no deal.
The coal conundrum
Glencore plans to run down its thermal coal operations by the mid-2040s. However, major institutional investors have been pressuring the company to justify how this fossil fuel side of its business aligns with its pledge to hit net-zero carbon emissions by 2050.
Personally, as a shareholder, I’d prefer the company to spin off this business. But we’re talking about the world’s most profitable thermal coal operation, so it’s a bit of a conundrum.
The question now is how exactly the company will proceed if a deal can’t be struck with Teck.
Should I buy more shares?
My reasons for investing in Glencore are twofold. Firstly, the prospective 10% dividend yield soars way above the market average. Even if the payout was cut, which may soon happen, I’d still expect the yield to comfortably exceed what the FTSE 100 can collectively offer me (about 3.6% at present).
Secondly, I’m expecting that the world’s demand for copper is going to outstrip supply. The electrification of the planet is going to need massive amounts of the metal. It’s used in everything from wind turbines and solar panels to electric vehicles.
S&P Global is estimating that demand for copper will rise from 25m to 40m tonnes a year between 2021 and 2030. Glencore thinks demand could almost double within the next three decades.
However, new copper mines are extremely rare due to huge underinvestment in the industry. So many mining experts expect supply deficits to emerge in the coming years. The price of copper could absolutely soar.
As one of the world’s leading producers and marketers of the metal, Glencore is well-positioned to benefit. It extracts and processes copper ore in three separate continents. Plus, it recycles copper scrap too.
I wouldn’t be surprised to see some volatility in the shares in the coming days. So I’ll be watching closely with a view to taking advantage of any major dip in the share price.
