For stakeholders in resources giants Glencore (LSE: GLEN) and Anglo American (LSE: AAL), 2015 has proved nothing but an unmitigated nightmare.
While it is true to say the entire mining space has suffered an annus horribilis, both Swiss and British businesses have been the worst performers by some distance, their shares sinking 69% and 67% respectively since the turn of January.
With both companies now rattling around record lows, is it time for investors to stock up or instead keep heading for the hills?
Attacked from all sides
Well, those expecting a sudden uptick in commodity prices are likely to end up disappointed. Sure, the copper market received a shot in the arm this week with news that Chinese producers aim to reduce production by 350,000 tonnes in 2016.
But this reduction represents less than 5% of total Chinese annual production, meaning that prices remain locked around the $4,500 per tonne marker, precariously perched above recent six-year troughs.
Investors are clearly seeking wider action from producers across the globe to curtail red metal production before sending prices higher. And this is the case across all major commodity classes — Brent crude was recently a whisker off multi-year nadirs around $43 per barrel, while coal, aluminium, nickel, iron ore and zinc all dropped to their cheapest since the financial crisis in November.
Indeed, while the key Chinese economy continues to decelerate sharply, the top-line at diversified players Glencore and Anglo American is likely to languish. Latest manufacturing PMI numbers this week revealed a fall to 49.6 in November, further below the benchmark of 50 that separates expansion from contraction, and representing a three-year low.
Allied to this, the prospect of a strengthening US dollar next year and beyond also threatens to put the kibosh on a meaningful bounceback in commodity prices.
Restructuring set to fail?
In their defence, both Glencore and Anglo American have been busy de-risking their businesses to limit the fallout of slumping commodity prices.
The latter announced the sale of its Norte copper business in Chile for $300m in September, taking total proceeds from asset sales in the year to date to $1.9bn. And its industry rival followed this up by putting its copper mines in Australia and Chile on the chopping block in October — Glencore had already earmarked other copper projects, as well as nickel and agricultural assets, for sale.
The Swiss company also elected to cut the dividend, raise $2.5bn through a rights issue, and slash its capex targets to $6bn in 2015 and $5bn in 2016 in September. Such measures are designed to help get a grip on Glencore’s colossal net debt pile, which stood at an eye-watering $30bn as of June.
But while commodity prices remain on their steady downtrend, it is difficult to view the self-help measures over at both Glencore and Anglo American as nothing more than temporary sticking plasters.
And although prudent at the current time, a likely intensifying of asset sales hardly do either firms’ long-term growth prospects much good, either. I believe more lucrative, and certainly less-risky, stock candidates can be found elsewhere.
