Why are Glencore shares falling from January highs?

Glencore’s share price surged in 2022, as the company made a record profit amid soaring energy prices and the war in Ukraine. The stock has fallen from its January highs, however, as the price of coal — alongside demand — falls. As the fallout from last year’s bribery conviction continues to hit the company, does the stock still represent a potential opportunity for investors?

The Glencore [GLEN.L] share price surged 47.3% in 2022, as the energy giant made a record profit amid soaring energy prices and the war in Ukraine. The positive momentum appeared to be continuing in 2023, after the stock hit an all-time high of 584.50p on 18 January. However, demand – and the price of coal – has since slipped, dragging down shares 21.6% from those record peaks to close at 457.97 on 10 March.

Despite the Swiss-based miner and commodities group revealing a record $34bn annual profit in February, the fallout from last year’s bribery conviction continues to hit the company. Asset manager Legal & General [LGEN.L] has since sued Glencore over alleged investor losses. The company has also been hit with another $700m fine in the US.

Volatility fuels record profit

Glencore unveiled a whopping 60% rise in full-year earnings to $34bn in its preliminary results last month. Its coal mining division was robust, with earnings jumping from $12.7bn to $17.9bn. The Swiss-based miner paid a record $5.6bn in cash dividends to shareholders, along with a $1.5bn share buyback. Glencore’s trading operations also hit a record profit of $6.4m, thanks to higher commodity prices (particularly coal), triggered by Russia’s invasion of Ukraine.

Coal prices have declined recently, however, report the Financial Times, due to high stockpiles and a mild winter in Europe, which has resulted in a drop in demand. This has led the company to admit its earnings in 2023 will be significantly lower. Glencore’s share price has fallen 19.08% since its 15 February earnings report.

Glencore hit by legal action from Legal & General

Last year, Glencore’s UK subsidiary pleaded guilty to multiple charges of bribery and market manipulation between 2007 and 2018 across seven countries, including Brazil, the Democratic Republic of the Congo, Nigeria and Venezuela. The company paid out over $1.6bn in penalties in 2022, after a coordinated investigation by the US, UK and Brazilian authorities.

Legal & General sued Glencore in early February over alleged investor losses relating to the corruption scandal, filing a claim in London’s High Court last month. The case concerns alleged losses to shareholders resulting from Glencore’s statements to the market. Legal & General, which controls around £1.3trn in assets under management, filed the case on behalf of pension, investment and insurance customers.

Glencore pays another $700m fine

Glencore has agreed to install independent legal monitors for the next three years, as part of an agreement with the US government, reports the FT. A US judge had agreed to the measure recommended in Glencore’s plea deal. The legal monitors will evaluate the effectiveness of Glencore’s compliance programme and internal controls.

In what is a necessarily intrusive process, the lawyers can conduct interviews, request documents and communications, and attend meetings. The monitors will “oversee the business long after the resolution with government”, according to Barry Vitou at international law firm HFW. The lawyers involved won’t come cheap, however. Glencore will face costs potentially reaching hundreds of millions of dollars.

The repercussions continued last month, after a US judge ordered Glencore to pay another $700m, in line with last May’s plea deal with federal prosecutors in Manhattan. The fine is 15% below US sentencing guidelines, according to Reuters. This had been dependent on Glencore's cooperation in the investigation which included providing documents from overseas, and significant investments in improving the company’s ethics and compliance procedures.

What’s next for Glencore’s share price?

Analysts polled by the FT on 9 March remain overwhelmingly positive on the GLEN share price. Among 18 analysts, five rated the shares a ‘buy’ and 11 marked them as ‘outperform’, along with two ‘hold’ recommendations. None of the 18 analysts have an underperform or sell recommendation on Glencore.

The 15 analysts offering 12-month price targets on Glencore’s share price have a median target of 615.13p, with a high estimate at 711.56p and a low estimate of 526.19p. The median estimate represents a potential 30% gain compared with last week’s close at 473p. Even the analysts’ lowest forecast of 526.19p suggests the shares have a potential upside of 11.2%, while the highest forecast would represent a 50.4% rise versus Friday’s close.