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Glencore’s shares are being hammered. Here’s why.

Headquarters of Glencore International AG & Xstrata PlcHeadquarters of Glencore International AG & Xstrata Plc
The headquarters of Glencore International in Baar, SwitzerlandPhotograph by Gianluca Colla/Bloomberg—Getty Images

Shares in mining giant Glencore Plc (GLCNF) are getting hammered Monday after an investment bank warned that sustained low commodity prices, combined with its high debt level could wipe out shareholders.

The rout was caused by U.K.-based Investec, which said in a morning note about the mining sector that “the heavily indebted companies (such as Glencore and Anglo American Plc) could see almost all equity value eliminated under spot conditions, leaving nothing for shareholders.”

It’s the latest in a series of hammer blows for investors in mining stocks in a year when the economic slowdown in China has completely changed the conventional wisdom about the outlook for commodities such coal, copper and iron ore.

The reaction of Glencore’s share price Monday is all the more shocking because the company has only just completed a $2.5 billion secondary share offering aimed to a large degree at paying down debt. Glencore managers who are still the group’s biggest shareholders, including CEO Ivan Glasenberg, put up $800 million of that $2.5 billion. The group had total debt of over $50 billion at the end of June. Net debt was $30 billion and the group intends to cut that to $20 billion with the measures it has already announced. The group has already scrapped its dividend to conserve cash.

Investec’s analysts believe that if commodity prices stay where they are for any length of time, that $2.5 billion will soon be used up, despite the cost-cutting measures that the group announced at the same time. The company’s shares have now fallen 86% from their price when the group went public in 2011.

Anglo American, the other highly-indebted mining giant singled out by Investec, has had a far smoother ride so far today, losing “only” 7.5%. Anglo has traditionally enjoyed one big advantage over other mining companies in its ownership of De Beers, whose control of the global diamond market has ensured that at least one of its core revenue streams was always stable. But even they have fallen by two thirds in the last four years.