Glencore’s woes are investors’ boon
GLENCORE’S woes have become a boon for bond investors in Latin America’s biggest zinc producer.
Peru miner Volcan Compañia Minera’s $600 billion (R7.9 trillion) of notes due in 2022 have returned 1.3 percent since October 8, when Glencore said it would slash zinc output by a third to cut costs and stem a plunge in its shares.
Glencore’s move stoked a rebound in prices of zinc, which is used in everything from sunscreen to smartphones.
The surge in Volcan’s bonds may not be over. BTG Pactual began recommending investors buy the notes on October 12, saying the company’s zinc exposure would help it withstand the global slump in commodities. The Lima-based producer gets almost 55 percent of its revenue from the metal.
“Glencore (has) something happening in the macroenvironment that is going to help the company improve its profitability going forward,” John Haugh, a Latin American strategist at Mizuho Securities USA, said from New York.
Volcan expected “better” zinc prices in the coming years, David Gleit, the investor relations manager, said. He declined to comment on the performance of its bonds after the Glencore announcement.
Yields on Volcan’s 5.375 percent notes have fallen 0.42 percentage points since October 7 to 8.24 percent, the lowest since September 18, data show. That’s twice the average decline for emerging market corporate bonds. Before Glencore’s announcement, the securities had lost 10 percent this year.
“Volcan trades at a significant discount to its peers,” Soummo Mukherjee, a fixedincome analyst at Itau BBA, said. “It is clearly the one that has, in our view, the greatest upside from these fundamentals.”
The price of zinc has jumped 5.6 percent since Glencore’s announcement. The metal slumped earlier this year as part of a sell-off in commodities as China’s slowdown reduced demand for raw materials.
“Volcan offers a decent safety margin to wade through the weak commodity price environment,” Josefina Valdivia and Thomas Tenyi of BTG said in a October 12 report.