If you fancyhanging tough with high-risk commodity plays in the hope of unearthing a quick buck, let mining giantGlencore (LSE: GLEN) be an example to you. It has just suspended its final 2015 dividend, in the teeth of falling commodity prices and $30bn of netdebt.
Scrapping the dividend will save it $1.6bn but it needs to do a lot more to cut its debt to a target $20bn by the end of next year. In pursuit of this goal, it is launching a capital-raising drive, cost-cutting purge and asset fire sale all at the same time. Glencoresshares surged on news of the plan, even though the debt reduction programme will still leave ithighly geared.
Risk seekers have been tempted by chief executiveIvan Glasenberg and chief financial officer Steven Kalmins joint statement highlighting the companys strong liquidity, positive free cashflow, lack of debt covenants and recent credit ratings affirmation. The stock is down 67% in the year and the 2016 interim dividend has already been scrapped. Despite theeuphoria thats followed,Glencore offersmore muck than brass rightnow.
Gulf In Cash
No natural resources company has escaped thecommodity price meltdown unscathed, but oilexplorers have been hit harder than most. Investors inGulf Keystone Petroleum (LSE: GKP) have seen the share price more than halve from 75p to around 33p over the past year. Buying opportunity or blowout,which is it?
Gulfs plight has been worsened by the fact it operates in the most politically turbulentregions of the world. ItsShaikan operation in Kurdistan has the capacity to produce 60,000 to 70,000 barrels per day, the problem is getting the oil to market, and securingpayment from the Kurdistan Regional Government. That has left GKPburning through cash market while it awaits payment. When I last looked at the stock in April, it had $127m in cash reserves, but it has sinceburned through half that sum, sounless help is forthcoming,it is only a matter of months before it burns through the rest.
The good news is that theKurdistan government has indicated that it will start making regular payments from this month, while GKPcontinues tobankrevenuesfrom the laboriousjob of trucking oil to Turkey. All is not lost but this is a company on a deadline. Asset sales and fresh financing may give it more time, but theclock is ticking down at nerve-wrackingspeed.
I Should Soco
Oil producerSoco International (LSE: SIA) has seen its share price slidearound 65% this year as the sector hits the skids. But it is in a stronger financial position than Gulf, strong enough to pay out $51m of dividends in the first half of this year, despite significant capital investment in its H5 wellhead platform in Vietnam, which has just started production month ahead of schedule.
Withno debt on the balance sheet, low operating costs and attractive Vietnam production economics, this is more solid than the average oilexplorer these days. First-half 2015 pre-tax profits of $32m were sharply down on last years $174m, but at least it is profitable. Traders will be celebrating a 12% rise in its share price over the last week. Investors will appreciate the 6.37% yield. Soco is still risk, but the rewards are a bit more visible.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.