Surprises of the wrong kind from the enigmatic Glencore

Frank Kane

Jun 22, 2011 

Glencore International is an enigma on a number of levels, and its emergence on the London Stock Exchange last month has done nothing to dispel the air of mystery and intrigue that has often lingered around the giant mining and commodities trading house.

In fact, since the listing, Glencore has been even more firmly at the heart of big events, getting itself involved in a row with the European Investment Bank (EIB) over financial goings-on in Africa; spooking global markets with a warning about a possible fall in demand for commodities in China; and finally sparking a flurry of bid rumours over its possible intentions regarding rival miners in Khazakstan.

It has crammed more news into the six weeks or so since its London listing than many companies do in a full financial year.

What happens at Glencore is also closely watched in the Gulf. Aabar Investments, the Abu Dhabi company associated with Sheikh Mansour bin Zayed Al Nahyan, took 1.4 per cent of Glencore, a stake then worth some US$850 million (Dh3.12 billion), on the initial public offering (IPO) in London.

Aabar has said it is keen to do further business with Glencore, especially in African land and commodities. So Abu Dhabi should be keeping a close eye on the apparently hyperactive Glencore.

The IPO was the biggest London has ever seen, valuing Glencore at some $53bn and raising $11bn of new money. Since the start of the year, analysts have been debating how much Glencore might be worth and how much it would seek from investors.

When the valuation came out, it seemed the advisers had gone for near the top of the range, and events since then have done nothing to dispel that notion.

Apart from the past few days, when some upside has crept back into the share price, the performance has been pretty dismal. The shares launched at 530 pence and were on the slide immediately, touching a low of 452 pence last week.

They're now about 484 pence, still some 8 per cent down on the IPO price.

Given that part of the intention for the London listing was to use shares to buy other companies, the downward movement was not what Glencore executives, or investors, wanted to see.

One big reason was external. Soon after the IPO, world commodities went through a brief spasm that saw all major indicators - oil, copper and other raw materials - plummeting for a few days in what some wary traders thought was the bursting of a commodities bubble. Those fears receded somewhat, but the threat is still hanging over global markets.

Then, at its first results as a London-quoted company, Glencore threw a spanner in the works. Ivan Glasenberg, the chief executive, who was among the executives emerging from the IPO as even bigger billionaires than they were before, spoke of a slowdown in China's demand for commodities.

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Mr Glasenberg has a privileged position from which to make these calls: he is at the heart of the global trade in commodities of which the Chinese have been the main buyers, and his comments carry weight.

Coming with deflationary sentiments from Beijing, his assessment caused fresh jitters in global markets.

The results themselves were not too inspiring. Even a 47 per cent rise in profits was not enough to satisfy analysts' expectations, and the shares were marked down again.

There was more bad news in the pipeline. The EIB, usually not the most aggressive of lending institutions, announced out of the blue it was suspending business with Glencore.

It had previously given the company loans for its projects, but would do so no more until Glencore cleared up "serious concerns" the EIB had about the tax affairs of a copper smelter in Zambia that the bank had helped to fund.

Glencore brushed off the news as a "misunderstanding" that would be quickly resolved. The shares were walloped again.

Then, most recently, Glencore was at the heart of a series of Sunday newspaper-inspired bid rumours that got the advisers and London takeover authorities reaching for the rule book.

It was said to be considering a bid for Eurasian Natural Resources Company (ENRC), a Kazakh mining company, or even for its compatriot and rival Kazakhmys.

Takeover talks with either would be intriguing but probably laced with difficulty. The affairs of ENRC were recently described by a former executive as "more Soviet than City [of London]".

So, what excitement Glencore has brought its investors in just a few short weeks.

Let's hope for their sake there is less controversial news to follow.