Short sellers zoom in on Glencore as next target

SHORT sellers sensed something was amiss at Anglo American this month, pushing bearish bets against the miner to a record high on the eve of yesterday’s investor meeting. It paid off when the stock plunged 12 percent after announcing a dividend cut.

Are they on to something at Glencore too? Short interest has been rising ahead of the Swiss company’s shareholder day tomorrow, climbing to a two-year high of 5.3 percent of shares outstanding, according to Markit.

A multitude of concerns could be driving the bets.

Combined with a 27 percent plunge in copper this year, Glencore’s debt burden is putting pressure on chief executive Ivan Glasenberg to deliver on a $10 billion (R145.61bn) debt-cutting plan.

At the meeting, executives are expected to discuss measures to achieve that goal.

“It’s the interaction between the low commodityprice environment and the debt on the balance sheet,” said Tyler Broda, an analyst at go the wrong way. “Typically, they present a good story on their investor updates,” Elliott said in an interview. “Going short ahead of the investor day is quite a risky call.”

Compared with peers with high short interest, Glencore’s is not that high. That might be because getting hold of stock to short can be difficult – five of the company’s eight largest shareholders are directors.

Wm Morrison Supermarkets and J Sainsbury are the most shorted companies in Britain’s FTSE 100 index, with more than 17 percent of shares outstanding. Representatives for Glencore and Anglo American declined to comment on the short interest.

Glencore’s debt is adding to price slump woes. It is the biggest in the industry at $30bn, and it is also among the most expensive to insure in Europe, according to data from S&P Capital IQ. Anglo’s debt – at about $12bn – is the next riskiest to insure.

“It’s the usual suspects, you go for anybody that’s leveraged,” said Paul Gait, an analyst at Sanford C Bernstein in London, referring to short sellers. – Bloomberg “As we approach 2016, we are positioning the company for free cash flow generation in a weak commodity price environment and remain focused on actions to reduce debt,” chairman James “Jim Bob” Moffett and chief executive Richard Adkerson said.

Freeport shares have plummeted 73 percent in the past year compared with a 13 percent average decline among peers tracked by Bloomberg.

The stock rose 3.1 percent to $6.95 before the start of regular trading yesterday. In oil and gas, the firm reduced capital expenditures from $2bn a year in 2016 and 2017 to $1.8bn in 2016 and $1.2bn in 2017, and lowered rig utilisation from three Deepwater Gulf of Mexico drillships to one.

Freeport invested heavily in oil and gas in 2013 with the acquisitions of McMoRan Exploration and Plains Exploration & Production, swelling its debt just ahead of a downturn in energy prices.

“The revised plans, together with initiatives to obtain thirdparty financing or other strategic alternatives, will be pursued with the goal of achieving funding for oil and gas capital spending within its cash flows and resources,” it said.

In mining, Freeport will shutter its Sierrita mine in Arizona as part of a plan to increase curtailments to about £350 million (R7.7bn) of copper and £34m of molybdenum a year. It is also evaluating other financing alternatives and the potential sale of minority interests in some assets for debt reduction purposes. – Bloomberg