Is corrupt Glencore a good buy after rising by 40% YTD?

  • November 23, 2022

Glencore (LON: GLEN) share price held steady on Wednesday after the embattled company sold an important business in Australia. The stock rose to 535p, which was the highest level since November 7. It has jumped by about 40% this year, outperforming the FTSE 100 index.

Glencore and Metal Acquisition deal

Glencore share price jumped sharply after the company reached an agreement with Metal Acquisition Corp. The mining giant will sell its Cobar coppe mine in Australia to the SPAC company in a deal valued at $1.1 billion. It received $775 million in cash and up to $100 million in equity. The deal will close in the first quarter of 2023.

The deal came at a crucial time for Glencore, a leading mining and trading company. The firm recently slashed its production guidance citing the ongoing war in Ukraine, strikes, and floods in Australia. Therefore, the firm’s profitability will likely be lower than what it guided a few months ago.

Glencore was also forced to pay $314 million by a London court for bribery accusations. Prosecutors revealed that the company flew cash bribes to Africa via private jets. The firm has set aside $1.5 billion to pay fines for bribes in the UK, US, and Brazil. Analysts expect that the company will pay more fines in the coming months.

Glencore share price faces numerous risks ahead. First, there is the cyclical nature of the mining industry. Historically, commodities tend to experience boom and busts. Therefore, after the recent boom, there is a likelihood that the firm will be caught in the upcoming bust.

Second, the ongoing weakness of the Chinese economy could have an impact on the company. Further, commodity prices have declined slightly recently while Glencore has downgraded its production forecast. Finally, with the stock up by 40% in 2022, I suspect that it will pare back some of those gains in 2023.

Glencore share price forecast

Glencore stock chart by TradingView

The daily chart shows that the GLEN share price has been in a strong bullish trend this year. The stock found a strong resistance at 547p, where it has struggled moving above since June. It has also formed an ascending channel pattern shown in blue. 

The stock has also moved above all moving averages while the Stochastic Oscillator has moved above the neutral level. Therefore, a move above the resistance level at 547p will mean that bulls have prevailed, which will see it rise to 600p.

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