Glencore shines light on risky business
Mining companies loaded with debt are suddenly the most-hated assets in financial markets. The chief victim today is Glencore, which was down 29.4% today in London trading.
I'd argue that the company is more of a tax evasion scheme disguised as a mining company but what's inarguable is that it's saddled with a massive debt load and that Glencore employs about 18,000 Australians in coal, copper, cotton, grain and oilseeds, nickel and zinc.
Glencore is not the only victim today but it shines a light on how cheaply companies have been able to borrow for the past five years. The companies who will have the most difficulty paying back those bonds are the ones who expected to use commodity sales make the payments.
It's part of a rout in mining shares and their bonds. Shares of Freeport McMoran are down 11% today. Mining giant Rio Tinto is down 4.8% and at a more-than 5-year low.
Bank of America highlighted how resource-based exports are the bulk of Australia's exports and a significantly larger ratio than in Canada or New Zealand. This means the weaker AUD is less likely to boost growth.
Australia new resources and energy minister Josh Frydenberg last week but in an interview today he didn't sound like he had any fresh ideas.
"I'm very positive about the renewable energy space; I'm very positive about the opportunities for further investment. I'm very positive about the increasing demand for Australia's natural resources and energy sector," Mr. Frydenberg said in an interview with the WSJ.
