At the height of April’s sell-off that was sparked by tariff news, the price of Glencore (LSE: GLEN) shares hit a four-year low. Fast forward to today and the stock is up 38%, turning a £5,000 investment into £6,930. During that period the stock also went ex-dividend, so the payout would add another £90 to the total return.
Share buybacks
I’ve been arguing for some time that the stock is in bargain basement territory. One reason is that the firm has now reinstated share buybacks. By the time it releases H1 results in August, it will have bought back $1bn of its own shares. And it doesn’t intend stopping there.
Mergers and acquisitions (M&A) are in Glencore’s DNA and have made it the commodities giant it is today. But the best ‘acquisitions’ in my book for the miner have been buybacks.
Unlike acquiring another miner, it doesn’t have to worry about paying a premium for the privilege. And there’s zero due diligence required as it knows its assets better than anyone. Since 2021, it’s bought back 10% of its entire stock. Today, with the share price in the doldrums this looks terrific to me.
Coal back in favour
Some years ago most of its large-cap peers were rushing to get out of energy coal. This enabled it to pick up a number of high-grade assets on the cheap.
Over the years it’s acquired various joint venture partner minority stakes, adding 20m tonnes of production per annum at a cost of $270m. This included assets in Ulan, Clermont and Cerrejon.
As with oil and gas, the pendulum has now swung back in favour of energy coal. Over the last few years, governments have decided that transitioning to renewables isn’t going to happen overnight. There may be a place for coal in the energy mix after all.
Trading business
One of the main things that differentiates Glencore from all its peers is its Marketing division. This is effectively where it trades commodities, both what it produces and from third parties.
This part of the business is the jewel in the crown, in my opinion. Many of its competitors have tried to replicate its success but none have succeeded. In 2022, amid broken supply chains, that division became a cash cow. As deglobalisation accelerates and tariffs become the norm, price differentials in different commodities across geographies will open up.
When tariffs were announced on ‘Liberation Day’, prices of copper on the US copper exchange surged ahead of those on London’s exchange. US importers rushing to buy caused the price difference. I expect this kind of behaviour to become the norm in the future.
Glencore made a massive bet when it decided to stick with and expand its coal assets. That certainly paid off for it in 2022 and 2023 when prices shot to the moon. But in 2024, as thermal coal prices fell, it was a noose around its neck, resulting in a loss of $2.7bn. Continued weak prices undoubtedly create a significant risk.
Investing in miners is a risky business generally though. But I remain convinced that a rerating of the stock will come in the years ahead. As it continues to buy back its own shares, I decided to add some more to my portfolio this month.
