Glencore: the only commodities investment you need

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Glencore: the only commodities investment you need

27 January 2023

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Glencore's next potential success story is (quietly) waiting in the wings. The global commodities firm already accounts for 4% of the world's copper consumption and owns mining assets that allow to more than double its production.

Copper is likely to benefit from a coming structural pricing shift. The base metal copper will be required to turn plans for an electrification of Western economies into reality. Even without these plans, there will likely be a shortage of copper from 2025 onwards, as a result of years of underinvestment and the steadily growing demand in a broad range of industries.

Glencore is expected to pay a ≈15% dividend yield for 2023, it is currently buying back stock at a rate of >10% the daily trading volume, and it has the highest free cash flow yield in its peer group. Over the next three years, the company should return 50-60% of its current share price to shareholders. Due to the sheer size of its copper reserves and their low production costs, it's also one of the cheapest blue chip stocks for getting exposure to the copper story.

Within a set of comparable large commodity firms, Glencore is the cheapest stock by far. Its stock is priced for commodity prices that are 50% below current spot prices, compared to Rio Tinto trading with a 27% discount, Anglo American's 5% discount, and the industry's average 30% discount. At the very least, Glencore stock should catch up with the industry's average – and longer term, its superior business model should narrow that discount further.

Commodities stocks have been out of favour for many years. Following their initial recovery spurt in 2022, it's likely they will gradually regain traction over the next years – leading to an ongoing re-rating of Glencore.

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|  What readers said about this report

Ed W.
February 2023

Great deep dive on this. Really liked the comparisons with other mining majors on spot implied price discount as well. … Nice work, I own a decent chunk but will look at buying more.

Yvo D.
February 2023

Thx for the recent piece on copper and Glencore, very useful analysis. Interesting times are lying ahead.

Christian T.
January 2023

Thanks, very good. I already owned a few but will now buy some more.

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