A sudden plunge in the price of copper pulled the shares of global miner Glencore to their lowest level on record on Wednesday and risks frustrating any intention to make a fresh move on larger rival Rio Tinto.
Copper prices slid to their lowest in 5-1/2 years after a downward revision to global growth forecasts by the World Bank and shares in Glencore lost as much as 12 percent to 236.20 pence on Wednesday. [MET/L]. Glencore, among the large diversified miners, has the largest exposure to copper, which contributes almost 40 percent of its earnings.
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If sustained, the steeper fall in copper prices compared with that of iron ore so far this year, might derail any potential move by Glencore to take over Australian miner Rio Tinto, which is heavily exposed to iron ore.
After Glencore's first takeover approach was rebuffed by Rio last summer, the market was widely expecting Swiss-based Glencore to make another attempt this year.
A Glencore takeover of Rio would be the largest ever deal in the mining sector. Such a large acquisition would most likely happen in an all-share deal, market sources said.
The steeper fall last year in prices of iron compared with base metals made Rio a more affordable target for Glencore.
That has been partially reversed this year.
"The fall in copper prices makes it much harder for Glencore to take over Rio as the share exchange ratio is not in their favor," said London-based analyst Paul Gait at Bernstein Research. "The issue is that Glencore's commodity mix hasn't played in its favor in the last few weeks and Rio is looking more expensive as a consequence."
Glencore and Rio Tinto's market capitalization got closer to one another last summer, just around the time when Glencore made its approach. But since the beginning of the year the gap has grown, mirroring the price movement of their key metals.
Copper has shed almost 12 percent of its value so far this year, while iron ore has lost less than 5 percent.
On Wednesday alone, Glencore lost about $5 billion of its market value, while Rio lost about $3.2 billion.
Gait however, like many other analysts, thought fundamentals for copper looked much better that those of iron ore and expected this situation to be short-lived.
Glencore's stock, first listed in London in 2011, was the worst loser among the blue-chip FTSE-100 companies, closing 9.3 percent lower at 244 pence.
The second biggest loser was Anglo American, with the second-largest exposure to copper among the diversified miners, at about a quarter of its earnings.
Its shares were down 9 percent at 10.42 pounds.
Rio Tinto and BHP Billiton, with smaller exposure to copper, were down 4 and 3 percent, respectively.
Other stocks battered by the steep fall in copper prices were pure copper miners such as Kaz Minerals, a relatively high-cost producer in Kazakhstan which lost more than 26 percent, Chile's Antofagasta down more than 4.8 percent and First Quantum, down 18 percent.
(By Silvia Antonioli; Additional Reporting by Vikram Subhedar; Editing by Elaine Hardcastle)