«Верьте в ИИ, верьте в медь, верьте в Glencore»

Goldman Sachs analyst James McGeoch published a note on Friday, informing clients that commodity mining and trading giant Glencore could be one of the most straightforward plays on rising copper prices, driven by AI-related demand and tightening commodity markets. He noted that Glencore’s upside potential extends beyond being undervalued, with a potential catalyst for a stock buyback program announcement.

„Why I like Glencore and think the bottom could be in – Mkt has hammered Glencore for poor prodn profile, margin compression, pessimistic commodity outlook, high beta, tariffs proxy and has become a value trap,” McGeoch said.

He continued, „To change the direction of travel they need to: Start buying back own stock. Take prodn offline to show „value” over „volume”. Improve the margin per unit by tightening the mkt (balances are tight enough for small changes to allow it). Reduce capex, spin that into higher long term capital returns.”

Glencore shares in London

McGeoch provided more color on what Glencore management could do to reverse the multi-year sinking ship.

1. Announce a buyback. I am more bullish than most, basis the fact you gotta draw a line in the sand and at these prices that line is a ravine. Consensus is $3bn of returns – $1.5bn DPS (basis the formula) and $1.5bn Buyback. Important the Buyback has long been hinged by the Viterra sale and $1bn cash received. Note last night they got the second last approval Link(EU approval of Louis Dreyfus purchases, BG.US said they expect it to close soon, China is last standing and they are back form holiday). Cons is $1.5bn, thats a meagre $500m of own cashflow top up. I know the CFO and his style, hes a CFO through and through, so lets see if the CEO can twist his arm and look at a 18month facility thats double that amount, alternatively they guide to a top up in August.
2. They will in my opinion cut a decent amount of prodn. See Passar closure yesterday , they have prev cut hard in Zinc, they will to my mind take off NEWC high CV tonnes, Ferrochrome in SA, could trim Nickel prodn and Cobalt is just terrible with African Copper and Chile lkely to guide lower. 3) reduce the capex and recylce that. Anyone following SSAB knows what a change of strategy and reduction in capex can do for your equity.

The analyst also highlighted rising copper prices, driven by factors such as AI-related demand (recall: 'Next AI Trade’ theme), low global stocks, and inventory build in China, as key tailwinds for the miner:

1. Whilst the numbers are debated, listen to the likes of Amazon „ambition constrained only by capacity” or META/Microsoft upgrading capex into the channel. None of it works without Copper. Note yday UAE to fund $30-50bn AI DC inv in France.
2. Look to China post the Holiday. All the action out there is in this AI channel (GSXACAIT +4%) and the Buyer of Copper is China. Open Interest was +7% today (+30k lots) on back of +6% yday (+24kt lots).
3. Global stocks are low, inventory build in China ahead of CNY were below the 5yr avg, supply disruptions are elevated post latest prodn guides for 2025. Demand line may be a question for construction, however in the green channel its strong.

McGeoch concluded: „Believe in AI, believe in Copper, believe in GLEN.”