Glencore Pain Is Windfall for Bond Traders in Peru Miner Volcan

October 22, 2015

  • Volcan’s bonds jump after Glencore cuts zinc production
  • Lima-based Volcan is Latin America’s biggest zinc miner

Glencore Plc’s woes have become a boon for bond investors in Latin America’s biggest zinc producer.

Peru miner Volcan Cia. Minera SAA’s $600 billion of notes due in 2022 have returned 1.3 percent since Oct. 8, when Glencore, the world’s largest producer of the metal, said it would slash zinc output by a third to cut costs and stem a plunge in its shares. Glencore’s move stoked a rebound in prices of zinc, which is used in everything from sunscreen to smartphones.

The surge in Volcan’s bonds may not be over. BTG Pactual began recommending investors buy the notes Oct. 12, saying the company’s zinc exposure will help it withstand the global slump in commodities. The Lima-based miner gets almost 55 percent of its revenue from the metal.

”Glencore is something happening in the macro environment that is going to help the company improve its profitability going forward,” John Haugh, a Latin American strategist at Mizuho Securities USA, said from New York.

Volcan expects “better” zinc prices in the coming years, David Gleit, the company’s investor relations manager, said in an e-mail. He declined to comment on the performance of its bonds after the Glencore announcement.

Yields on Volcan’s 5.375 percent notes have tumbled 0.42 percentage points since Oct. 7 to 8.24 percent, the lowest since Sept. 18, data compiled by Bloomberg show. That’s twice the average decline for emerging-market corporate bonds. Before Baar, Switzerland-based Glencore’s announcement, the securities had lost 10 percent in 2015.

“Volcan trades at a significant discount to its peers,” Soummo Mukherjee, a fixed-income analyst at Itau BBA, said from Santiago. “It is clearly the one that has, in our view, the greatest upside from these fundamentals.”

The price of zinc has jumped 4.7 percent since Glencore’s announcement as of 7:38 a.m. in New York. The metal slumped earlier this year as part of a selloff in everything from oil to steel as China’s slowdown reduced demand for raw materials.

“Volcan offers a decent safety margin to wade through the weak commodity price environment, due to its zinc exposure,” BTG analysts Josefina Valdivia and Thomas Tenyi said in an Oct. 12 report.


Glencore Pain Is Windfall for Bond Traders in Peru Miner Volcan