03 June 2020 by jbchevrel
Glencore (GLENLN) 5y CDS had started the COVID crisis (2/21) at 125, then reached a wide of 562 on 3/23 and has now retraced c85% of the initial widening move, closing at 193 today, tighter by -10bp on the day. The name is currently rated Baa1 / BBB+ (S&P). ‘In the beginning’, GLENLN had a strong liquidity position of $10.1b at EOY 2019, management took various actions during Q1-2020 to ensure liquidity remains sufficient to weather the unknown length of the current crisis. These actions include cutting capex, deferring its dividend decision until 3Q20, and refinancing and upsizing (+$200m) its credit facilities. FY20 capex guidance was lowered by $1.0-1.5b to $4.0-4.5b and the dividend suspension would save ~$2.6 bn. Total savings from these actions would total ~$3.6-4.1b in 2020. GLENLN then reported weak Q1-2020 production results and cut FY20 production guidance, yet guided to lower unit costs for the FY20. Like many of the miners in our universe, GLENLN saw a limited impact on production in Q1-2020 due to COVID-19 but said that disruptions came after the quarter ended. As a result of these disruptions, management lowered its EOY 2020 production guidance for all resources, on the occasion of the Q1-2020 release. There was a 3% (45 kt) cut to total copper production and 8% (105 kt) cut to zinc production. The company's copper production guidance cut was attributed to a slower ramp at its Mopani smelter, while ex-Africa production guidance was unchanged but subject to review upon restart at the Antamina mine in Peru. Zinc guidance was impacted by shutdowns at its operations in Canada, Peru, Argentina, and Bolivia which was coupled with a slower timeline to production at its Kazakhstan mine project, which is now expected in 2021. Management reiterated its EBIT guidance of $2.2-3.2b in April. Part of the potential headwinds, going forward, is the fact that some institutional investors will have more and more difficulties to invest in the name, given the constantly evolving ESG standards of some of the most political institutional investors. CDS are tight compared to cash, although not in an extreme manner, inded bases are negative in the area of 50-70bp across 2020s, 2021s and 2023s.