Noble

Noble: Winding down its copper & zinc trading business?
The Wall Street Journal reports that Noble is winding down its copper and zinc trading business amidst a global commodities rout to focus on its more profitable energy business.

Noble has been hit by selling pressure after a damning report by Iceberg Research surfaced in Feb. It is currently one of the top decliners on the Straits Times Index (STI) having lost more than half of its market capitalisation since the beginning of the year as the prices of metals its trades in decline.

The report mentioned that banks financing Noble have become increasingly nervous about their exposure to the group with some banks reportedly trying to sell parts of that exposure at a high discount.

Indeed, in a recent interview, chief executive Yusuf Alireza was quoted as saying that the group would be relocating capital from metals to energy. It would thus seem that the scalpel has been put to use on the poor performing copper and zinc business.

Both metals are currently in a bearish market with the YTD spot prices of copper having lost about 16.7% to US$5,303.50/MT and zinc declining 18% to US$1,777.25/MT.

In its most recent financial report, Noble posted a US$50m 2Q15 loss in its mining and metals division. Back then, the group said that demand weakness weighed heavily on prices and premiums across both zinc and copper operations. The group opined that trading conditions would remain under pressure due to weak global demand.

Despite worries of credit drying up, Noble recently secured a borrowing facility worth US$1.1b from six key banks led by The Bank of Tokyo-Mitsubishi UFJ, and Societe Generale to fund its coal and petroleum businesses.

Noble is has recently rebounded from a 52-week low of $0.38 in late Sep and is currently trading at 5.8x forward P/E. In light of the sharp drop in its price, the street has 5 Buys, 7 Holds, a 1 Sell ratings on the counter with a consensus TP of $0.71.