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The extraordinary run up in the Glencore (LSE: GLEN) share price a few years back feels like a distant memory now. Indeed, since peaking in 2023, the stock has slumped 50%. I’ve learnt the hard way that investing in miners brings with it heightened risk given the volatile and cyclical nature of the commodities sector.
Sliding profits
Ongoing weak coal prices remain the primary driver behind the stock’s decline. Since 2023, realised prices for energy coal (or Newcastle coal as it’s known) has declined from $172/t to $102/t. For hard coking coal, used in steel production, realised prices have fallen from $296/t to $184/t.
Such massive declines have hurt a business that over the past few years has doubled down on its coal assets. In energy coal, it bought out a number of minority stakes in joint venture partners, adding 20m tonnes. These included at Ulan and Cerrejón.
In steelmaking coal, last year it acquired a 77% stake in EVR for $7bn. Initially, it intended to spin out the business via a blockbuster US listing. However, institutional shareholders overwhelming voted to keep it, and thermal coal, in-house.
Copper
The miner has long touted copper as its future cash cow. In 2025, it’s expecting to produce 850k-890k tonnes. By 2028, it’s on a glide path toward reaching 1m tonnes.
However, its H1 results disappointed. Production came it at 343,900 tonnes, down 26% on the same period last year. Lower ore grades, mine sequencing and water constraints were primarily to blame. This puts enormous pressure on its numerous copper mines to deliver two-thirds of expected production in H2.
If it can deliver on production targets, then I would expect a significant boost in the stock’s price. The miner provides very detailed free cash flow estimates based on a number of factors. These include realised prices, unit cost and margins.
Reaching full-year 2025 targets, copper is predicted to contribute $4.4bn of $14.2bn of adjusted earnings before income tax, depreciation and amortisation (EBITDA). That would represent a significant ramp up from $1.1bn, reported at H1.
Shareholder returns
The current dividend yield of 2.6% is hardly anything to write home about. But what supercharges returns isn’t its base dividend, but top-up payments. No special payments will be made in 2025, because net debt currently sits above its $10bn threshold.
Nevertheless, the miner remains very active in the market, buying back its own shares at record levels. It reached its target of buying back $1bn ahead of an expected completion by H1. The accelerated purchase was probably precipitated by the massive sell-off in the stock during April. And now it has instigated another $1bn.
Bottom line
Many investors would no doubt be turned off Glencore, due to significant volatility. But I view volatility as an investor’s friend. To me, long-term wealth is built by taking positions in businesses that others won’t touch.
Recently, coal prices have turned upwards. I expect demand for thermal coal to remain robust among developing countries. And with, among many things, the US onshoring manufacturing together with driving massive data centre expansion, coking coal will remain in high demand.
Long-term, I still believe the stock will receive a significant re-rating, as copper production ramps up. That is why I recently added more shares to my portfolio.
