Getting nervous over Glencore

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[miningmx.com] — MUCH of the extraordinary wealth attributed to South Africa’s new commercial glitterati, Ivan Glasenberg, and the coterie of Glencore directors who surround him, has been in shares; paper money. Until now.

Glencore, a commodities trader that keeps its HQ in the canton of Zug, Switzerland,
listed in London in May. The company was valued at a fabulous $59bn and handed Glasenberg, a South African, a jaw-dropping fortune of $10bn – richer than the Duke of Westminster.

Since then, the company’s value has fallen on pre-recessionary global economic
conditions. As a result, UK pension funds, which track heavy hitters on the FTSE100
Index, were 24% out of pocket. So was Glasenberg, technically.

They will be soothed, however, by the 5c/share dividend Glencore paid in August
based on a 32% increase in first half profits. Yet they won’t be anywhere as jubilant as Glasenberg himself whose 16% stake in Glencore nets him $54m or R374m.

Glasenberg’s disciples left and right at the Glencore table also get to profit. Star
traders Daniel Mate and Telis Mistakidis will be paid $20m each while Tor Peterson,
a coal executive, and Alex Beard, who looks after Glencore’s oil business, will receive
$18m and $16m respectively.

A bid for the balance of shares in Minara Resources, a nickel and cobalt firm Glencore
already partially owns, is already in.

More recent, is Glencore’s R8.5bn pitch for Optimum Coal Holdings (Optimum) in
association with a subsidiary held by Cyril Ramaphosa. The bid was well broadcasted
in the week prior to announcing Glencore had a 14,1% foothold in Optimum, yet analysts are in a bit of a stir about it.

They find it odd that Glencore, which earns a good deal of its profits from trading,
would want an asset where it can’t actually trade the coal. The marketing right
to some of Optimum’s coal is held by BHP Billiton, the rest by Mercuria, a trading
rival. “I am not sure why Glencore is bothering,’ said a UK asset manager. “To me,
it’s a messy deal.’

There are also the empowerment complexities.

Optimum has employee trusts and three empowerment shareholders. It’s not wise to be taking out empowerment partners right now, especially as Government has been critical of the mining sector which it claims has failed in its BEE duties.

It’s for that reason the somewhat counter-intuitive decision was made by Glencore
and Ramaphosa to urge at least 30% of the share register to reject its deal. So why,
as the analyst observes, bother?

“It’s not wise to be taking out empowerment partners right now…”

Well, a successful takeover of Optimum would lift Glencore’s global thermal coal
production 27% and perhaps, critically, provide the Swiss trader with export allocation of 8.4Mtpa.

“The company also controls Shanduka (which Ramaphosa chairs) in South Africa
(10Mtpa, 70% owned) with which there may be operational synergies,’ said JP
Morgan.

Shares in Optimum Coal have already matched Glasenberg’s R34/share cash offer.

– The column first appeared in Finweek. If you want to subscribe to the digital format of Finweek visit www.zinio.com.

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