Bottom Line: Mining shares set for rollercoaster ride

 
Elizabeth Fournier

AS EVER, mining stocks yesterday gave a pretty clear picture of how investors were feeling.

But this time – in addition to the ever-present spectre of Fed uncertainty and slowdown in Chinese material demands – there were more tangible reasons for their concern.

BHP Billiton and Glencore Xstrata fell 1.7 per cent and 1.6 per cent respectively yesterday after results disappointed investors, with the latter falling as low as 290p after it confirmed a £4.9bn writedown – 45 per cent below its 2011 float price.

When a firm the size of Glencore Xstrata is already under pressure from spiralling commodities prices a headline writedown like that is the last thing its chief executive needs – but an upbeat Ivan Glasenberg is refusing to be knocked down.

Perhaps he’s right. As management pointed out, had the Xstrata acquisition date been pushed back just 30 days the size of the writedown would have been just £1.3bn. It also pointed to higher-than-expected synergies from the tie-up – already above the predicted $500m per year – which along with planned asset disposals could go some way to brightening the picture.

But despite his headstrong performance, Glasenberg faces an uphill battle over the next six months to convince investors he didn’t massively overpay for Xstrata.

Though Glencore Xstrata’s structure – straddling the commodities world and spreading its exposure across raw materials – means it has better visibility than some of its peers on fluctuating prices, its fate is ultimately at the whim of the markets.

Enough value has already been obliterated – until everyone calms down a bit investors should be ready to hold on tight.