Investec hails lowered balance sheet risk at Glencore Xstrata post-Las Bambas

14th Apr 2014 09:55

Investec has kept a 'reduce' rating on Glencore Xstrata but said that the sale price of its Las Bambas copper project in Peru was ahead of expectations.Las Bambas is being sold for $5.85bn to a consortium 62.5%-owned by MMG, a subsidiary of state-owned China Minmetals Corp, 22.5% by GUOXIN International Investment Corporation and 15% by CITIC Metal Co.Investec has lifted its target price for the stock slightly as a result from 300p to 303p, having previously assumed a sale price closer to $5.5bn."Until the transaction is finalised, we would expect Glencore Xstrata to be cautious on advancing new significant transactions in order to ensure the company's credit rating remains unchanged and the balance sheet doesn't come under undue pressure, particularly against the background of volatile commodity pricing," said Analyst Marc Elliott.Nevertheless, Elliot said that the main positive from the sale is that Glencore will use some of the proceeds to "immediately and materially de-gear [the] balance sheet". He said that the company is reducing the balance sheet risk "against the threat of weaker earnings from depressed commodity prices, particularly coal and copper, in the short to medium term".Investec warned of "key risks" to the investment case, including commodity price fluctuations and operational issues.Glencore Xstrata was trading 0.8% higher at 314.05p by 10:15 on Monday.BC