From the Editor - Metals Trading Giant Floats IPO
Founded in 1974, Glencore has evolved from purely marketing commodities sourced from third parties into a diversified natural re- sources group. The group also provides financing, logistics and other supply chain services to producers and consumers of commodities. Directly or through its sub- sidiaries, Glencore holds significant stakes in publicly-listed mining companies including Xstrata Plc (UK), Century Aluminum (USA), Katanga Mining (Canada), Minara Resources (Australia) and UC Rusal (Hong Kong). Its trading operations employ more than 2,700 worldwide in 40 countries. The company’s industrial installations employ more than 54,800 in 30 countries.
The 1,637-page prospectus details a Glencore initial public offering (IPO), which would sell 1.25 billion shares at a minimum of £4.80 ($7.81). The group has already secured several “cornerstone investors,” namely sovereign wealth funds and hedge funds. If successful, the company would be valued at $61 billion. The IPO would also elevate five executives to billionaire status on paper—CEO Ivan Glasenberg’s 15.8% holding alone would be valued at $9.6 billion.
A recent public relations gaffe has exposed this business to public scrutiny. Glencore appointed Simon Murray to serve as chairman. That decision has drawn fierce criticism in the U.K. press. Murray is an arctic explorer and former French Foreign Legionnaire. Shortly after being appointed, he managed to offend women, minorities and most of England, referring to the country as an irrelevant nation of football hooligans. At 63, he became the oldest man to reach the South Pole unsup- ported. His remarks, however, have not helped a company viewed as having a poor grasp of corporate governance.
The IPO could be the largest ever in London. The listing would also be a mile- stone for the Hong Kong exchange, which has been trying to attract more com- modities-related listings—those traditionally listed in Toronto, London and Australia. Hong Kong is viewed by many as the future gateway to the mineral resources business in mainland China.
The IPO could be a stepping stone to another effort to merge with Xstrata. Last year, Glencore proposed a merger with Xstrata and was rebuffed. Glencore already holds 34% of Xstrata, which has a market value of $70 billion. The group trades much of Xstrata’s commodities and is the sole distributor of its nickel and cobalt production. Xstrata’s silence so far speaks volumes. In March, Xstrata CEO Mick Davis explained to analysts that having the two companies listed independently was unsustainable. That can be interpreted two ways: merger or a sell-off. Glencore has not signaled it intends to sell its stake in Xstrata. In light of the Glencore IPO, Xstrata recently appointed Sir John Bond as chairman replacing Willy Strohotte, who was also the chairman of Glencore.
Integrating Glencore’s trading business and mining assets with Xstrata’s mining assets could be an interesting mix. Gelncore’s mining assets have strong growth poten- tial; some, however, are located in politically unstable regions—nothing unusual for the mining business. A merger would create a hybrid mining-trading company with a market cap of more than $100 billion that could rival BHP Billiton, Vale and Rio Tinto.
Steve Fiscor, Editor-in-Chief, E&MJ