UBS expects debt-ridden commodities player Glencore's (LON:GLEN, OTCMKTS:GLCNF) shares to re-rate in the next six to 12 months.
The Swiss banking giant reckons the shares should pick up as management delivers on promises to cut net debt and as copper and zinc prices pick up.
Glencore has made a decent start on those promises, announcing earlier today it was starting a process to sell its wholly-owned Cobar copper mine in Australia and Lomas Bayas copper mine in Chile.
The miner said it was in response to a number of unsolicited expressions of interest for the pits from various potential buyers.
Meanwhile, the company has also announced it is reducing its zinc metal production capacity by around 500,000 tonnes and its lead production by around 100,000 tonnes to "preserve the value of Glencore's reserves in the ground at a time of low zinc and lead prices, which do not correctly value the scarce nature of the resources".
UBS outlined the operations were cash flow positive at current spot rates for their respective commodities, and notes that Glencore has not revealed the spot price at which it would bring the mothballed production back on line.
In UBS's view, Glencore would be looking at a greater than 20% recovery in prices for a phased but sustained period of increasing capacity.
"We believe the Zn [zinc] & Pb [lead] prices look oversold, in part on speculative factors, with more than 2Mt [million tonnes] of money-market selling of Zn positions since May-15," UBS said.
"We forecast the Zn price lifting from US$0.74/lb to US$0.95/lb in 2016e," it added.
With an investor day scheduled in the next month or so, at which the company is likely to update on its debt reduction plan, UBS reiterated its 'buy' target and 240p 12-month price target, which is double the current price.
