Thermal coal prices are at record levels said the broker and that points to a US$15bn cash return from the mining giant on the horizon.
Coal futures generally are also at their highest since 2008 and more than double a year ago due to a chronic shortage of power in China and gas elsewhere.
Reports today said that China’s energy crisis had prompted its vice premier to order the state energy groups to buy coal “at all costs” to keep its industries running.
Deutsche said interest in how this coal demand might boost Glencore’s earnings is picking up, though the actual outcome depends on the regional exposure, coal types, pricing and cash flow scenarios.
“Crystalising the high returns being earned through returning cash will be crucial to the investment case, in our view, and should begin from early 2022.”
“We forecast a total return over 2022-23 of US$15bn or 25% of the current market cap.”
“Over the medium term, we see the company’s leading ‘transitions metals’ business, low reinvestment needs and other self-help catalysts as additional re-rating drivers,” it added.
The broker, a buyer of the shares, has a target price of 440p, which combined with its cash return assumptions implies more than a 40% total return over the next 12-18 months.
Shares today were 351.1p.