Glencore ‘Aggressively’ Chases Acquisitions Following Slump in Valuations
Glencore Said to Be Near Agreement to Combine With Xstrata
Gianluca Colla/Bloomberg
The headquarters of Glencore International AG stand in Baar, Switzerland.
The headquarters of Glencore International AG stand in Baar, Switzerland. Photographer: Gianluca Colla/Bloomberg
Aug. 25 (Bloomberg) -- Greg Smith, managing director of Fat Prophets, assesses the outlook for Glencore International Plc after the world’s largest listed commodities trader said first-half profit jumped 57 percent to $2.45 billion on higher prices for raw materials. He talks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Glencore International Plc CEO Ivan Glasenberg
Jerome Favre/Bloomberg
Glencore International Plc Chief Executive Officer Ivan Glasenberg.
Glencore International Plc Chief Executive Officer Ivan Glasenberg. Photographer: Jerome Favre/Bloomberg
Glencore International Plc, the largest publicly traded commodities company, is “aggressively” studying mergers and acquisitions after reporting a 57 percent jump in first-half profit and as market valuations slide.
“We are an opportunistic company, we are in a fortunate position in that now we have the robust balance sheet to look at assets more aggressively,” Chief Executive Officer Ivan Glasenberg, 54, told reporters today on a conference call from London. “Companies are a lot cheaper,” he said. “It’s definitely, we believe, a very opportune time.”
Glencore, which owns mines, plants and warehouses, sold $10 billion in stock in May in the world’s biggest initial public offering this year, ending more than three decades operating as a closely held partnership. About $6 trillion has been wiped off the value of global equities this month on signs economic growth is slowing in the U.S. and as speculation mounts that the sovereign debt crisis in Europe is spreading.
“A large part of the agenda for listing was to make those acquisitions, cash and share offers, and it’s got the flexibility and the liquidity to do so,” Greg Smith, managing director of Fat Prophets, said in an interview with Maryam Nemazee on Bloomberg Television’s “The Pulse” in London. “It will be ongoing, they will be looking at volatility, or weakness if you want to call it that, as opportunity.”
Four-Day Gain
The company fell 0.3 percent to 388.5 pence by the 4:30 p.m. close of London trading, erasing an earlier gain of as much as 6.2 percent and valuing Glencore at about 27 billion pounds ($44 billion). It sold shares in the IPO at 530 pence each.
“We expect Glencore to continue with acquisition activity,” RBC Capital Markets analyst Miriam Hehir wrote today in an e-mailed note, citing its $285 million bid yesterday for Minara Resources Ltd. (MRE) “Glencore’s outlook statements are encouraging and the balance sheet position is in line with our expectations.”
Underlying demand for commodities was “generally robust” in the period and the company remains optimistic about long-term global economic prospects, Glasenberg said today in a statement.
Net income before other significant items rose to $2.45 billion in the first half, from $1.56 billion a year earlier, the Baar, Switzerland-based company said in the statement. The trader will pay a first interim dividend of 5 cents a share.
‘Solid’ Performance
“The headline will be marketing’s performance in the second-quarter’s weaker price environment,” Liberum Capital Ltd. wrote in an e-mailed note, adding the result was “solid.”
Adjusted earnings before interest and tax rose 45 percent to $1.25 billion in the marketing division and 54 percent at the company’s industrial unit to $2.05 billion, the company said.
“The volumes are still strong in Asia,” Glasenberg said. “The Chinese see this as buying opportunities, and we see increased purchasing in China.”
BHP Billiton Ltd. (BHP), the world’s biggest mining company, yesterday said it is confident in the commodities outlook and sees “robust demand” in the short- and medium-term.
“We remain optimistic about long-term global economic prospects, and that the trends that underpin the growth of Glencore’s business are firmly in place,” Glasenberg said in the statement. “The drive towards greater urbanization and improved living standards in countries such as China and India will continue to underpin the growth in global trade.”
Second-Quarter Profit
The company posted a 32 percent increase in sales to $92.1 billion in the six months. Second-quarter profit was $1.15 billion, spokesman Simon Buerk confirmed. That’s down from the $1.3 billion Glencore reported on June 14 for the first quarter, when the company posted a 47 percent year-on-year gain.
“We forecast marketing earnings to improve in the second half of 2011 with metals and minerals benefiting from higher industrial volumes,” Heath Jansen, a London-based analyst at Citigroup Inc., said today in an e-mailed report.
The average level of the Standard & Poor’s GSCI Spot Index of 24 commodities rose 34 percent in the six months from the same period a year earlier. Melbourne-based BHP, which reported fiscal 2011 profit of $23.7 billion yesterday, said demand “will be supported by commodities-intensive emerging economic growth,” including China, India and other emerging economies.
Goldman Sachs Group Inc. (GS) this month recommended investors buy commodities because growth in emerging economies is enough to tighten supply. The broker joined JPMorgan Chase & Co. (JPM) and Morgan Stanley in forecasting gains in commodity prices.
Glencore yesterday offered 87 Australian cents a share for the stock in Minara Resources it doesn’t already own. The company holds 73.44 percent of Minara, Australia’s second- largest nickel producer.
To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net
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