Is Glencore worth a look after latest crash?

After suffering their biggest slide in more than two years and sinking to a multi-month low, Graeme Evans looks at whether Glencore's dive is an overreaction. 

Glencore shares have suffered their biggest slide in more than two years after news of a subpoena from the US Department of Justice added to pressure on the FTSE 100 giant. The request for information relates to business in Nigeria, the Democratic Republic of Congo (DRC) and Venezuela from 2007 to present.

As UBS noted on Glencore last week, ongoing uncertainties in relation to DRC are among the factors continuing to hold back the investment case for the commodity trader and mining giant.

The strength of Glencore's commodity mix, its dynamic management and impressive growth strategy should be reasons to find the London-listed company attractive over the medium term.

Source: interactive investor      Past performance is not a guide to future performance

But the risk/reward profile is balanced in the eyes of UBS analysts by these other factors, amounting to a neutral stance on Glencore compared to buy ratings for diversified miners BHP Billiton and Rio Tinto.

Today's news that Glencore has been ordered to hand over documents to the US DoJ relating to compliance with the Foreign Corrupt Practices Act and US money laundering rules will only add to investor caution.

Shares tumbled 11% today to leave the FTSE 100 stock at its lowest level in a year and in danger of breaching its technical support level. The stock joined the London stock market at a price of 530p in 2011 but has not tested that level since.

Today's fall may prove to be an over-reaction given that the US authorities merely want to see documentation and haven’t opened any formal investigation. 

But it does add to a long list of issues that Glencore has been forced to work through in recent months. Most relate to DRC, where Glencore is the country's biggest miner of cobalt used in mobile phone and electric vehicle batteries.

Only last month it had to untangle a dispute involving Israeli billionaire Dan Gertler that had threatened to disrupt its supplies of cobalt. 

Glencore was contractually obliged to pay Gertler production royalties from mines in DRC but cut ties with him after its former partner in DRC was sanctioned for alleged corruption. This prevented U.S. companies from doing business with Gertler and blocked his access to dollars.

Source: interactive investor      Past performance is not a guide to future performance

In April, Gertler won a court ruling to freeze Glencore assets, leading to speculation that he could take over Glencore's operations in the country. 

Glencore got round the problem last month by pledging to restart royalty payments to Gertler in euros using a non-US financial institution.

Last week's UBS note also points to the uncertainty caused by the reported investigation by the UK's Serious Fraud Office into allegations relating to Glencore's operations in DRC. It is about concerned about continued political uncertainty in the country as elections are scheduled for later this year.