The Glencore (LSE:GLEN) share price has been on fire lately. After taking a massive hit in early 2020, the business has since been recovering. And over the last 12 months, the stock price is up more than 115%. In fact, it has risen so much that it is now trading firmly above its pre-pandemic levels.
But can it climb higher? And should I be adding this business to my portfolio?
The rising Glencore share price
The mining industry was heavily impacted by Covid-19. National lockdowns led to many mining sites being temporarily shut down. And even today, there remains plenty that has yet to return to full operating capacity.
However, this lack of supply created a shortage in several commodities that has sent the prices of metals like copper and nickel surging. And Glencore is a leading provider of these, as well as many other metals.
Looking at the most recent report, the effects of Covid-19 are pretty clear. Top-line revenue fell by 34% as a result of reduced mining volumes. However, due to the previously mentioned rising commodity prices, underlying profits remained flat.
With mining volumes back on the rise and demand for precious metals still going up, Glencore and its share price look to me like they can continue growing in 2021 and beyond. The management team appears to think that, given the recent return of shareholder dividends.
Some risks to consider
Building and operating a mining site is an expensive endeavour with little room for cost-cutting. So the profitability of Glencore, as with other mining businesses, is ultimately determined by fluctuating commodity prices. This lack of pricing power adds considerable risk.
The recent increase in demand has been beneficial. However, if it falls or the supply becomes saturated, prices will once again drop, taking Glencore with it. This is actually why the company’s net income has never been particularly stable in comparison to its revenue.
Beyond this financial risk, the business also has to comply with regulations surrounding mining activity. These rules are put in place to protect the safety of workers as well as the environment. But, Glencore is an international business. It has to comply with different regulations across multiple countries. While I think it’s unlikely, suppose the firm were to breach any of these rules. In that case, it’s likely to suffer severe legal penalties and potentially lose the right to bid on new locations within the region.
The bottom line
Over the past couple of decades, Glencore has become one of the biggest resource businesses in the world. And it spent that time building up a diverse portfolio of assets.
With the world shifting towards green energy technology, I believe that the rising demand for precious metals won’t be slowing down in the near future. Combining this with Glencore’s proven business model makes me think that the share price can continue to rise. And therefore, I would consider adding it to my portfolio.
