- Analysts say China companies likely buyers if Glencore sells
- Glencore said to seek sale of stake in agriculture business
As Glencore Plc looks to reduce its debt load by selling assets, analysts say Chinese companies would be most interested in the Swiss trader’s copper mines.
With China’s economic slowdown roiling commodity markets, Glencore has announced measures to shore up its balance sheet, including issuing new shares, scrapping dividends and selling assets. While it hasn’t flagged its copper operations alongside options including the sale of stakes in agriculture assets and precious metals streaming deals, the China Mining Association, Argonaut Securities Asia Ltd. and Clarksons Platou Securities say the Chinese would be willing buyers.
China’s commodities companies are seizing on the turmoil in markets to fund or buy suppliers or assets. Iron-ore giant Vale SA signed four deals with Chinese counterparts in May including a credit agreement worth as much as $4 billion, while MMG Ltd., the overseas unit of China’s biggest state-owned metals trader, led a group that bought the Las Bambas copper project in Peru from Glencore last year for about $6 billion.
“If Glencore wanted to have some asset sales then they could definitely speak to some of these Chinese companies,” Helen Lau, a mining analyst at Argonaut Securities, said by phone from Hong Kong. Potential buyers are seeking assets with high grade, good logistics and low political risks, Lau said. “Of course the price is very, very important.”
Glencore advanced as much as 11 percent in London trading Wednesday, gaining for a second day, after a rout that drove yields on some of its bonds to junk levels and knocked 30 percent off its share price on Monday. The company declined to comment on how it would respond to any approaches over its copper assets. Glencore is “getting on and delivering a suite of measures to reduce our debt levels,” it said Tuesday in an e-mailed statement.
Glencore has copper operations in countries including Chile, Zambia and Peru and is the third-largest producer of mined copper, according to its website. The company has about 150 mines, energy assets and agricultural facilities globally.
“You go back to the biggest piece of Glencore’s mining business from an earnings standpoint, and that’s copper,” according to Jeremy Sussman, an analyst at Clarksons Platou Securities in New York. “Given China’s history with Las Bambas, that would be the first place that we’d look,” he said in a phone interview. Sussman recommends holding Glencore’s London-listed stock, which he estimates will rise to 190 pence, more than double its current price.
The company’s coal assets and trading unit aren’t likely to interest Chinese companies, though nickel and zinc could be possible targets, Sussman said. London-based Horizonte Minerals Plc said Monday it had agreed to pay Glencore $8 million for a nickel project in Brazil.
Value for Money
Metal companies from China are stepping up acquisitions of mining assets overseas, including copper, according to Bloomberg Intelligence. Ministry of Commerce data shows deals have continued even as prices slump, analysts Yi Zhu and Kenneth Hoffman wrote in a Sept. 17 note.
While the world’s most populous nation is no longer scrambling to secure supplies of metals and energy, Chinese companies may be interested in some of Glencore’s assets , according to Wang Jiahua, executive vice chairman at the China Mining Association.
“About 70 percent of Chinese copper demand relies on imports so there’s obviously a long-term need to secure supply,” Wang said by phone from Beijing. “Chinese companies would be most interested in the copper or gold assets if Glencore has any good ones up for sale.”
Since the Las Bambas acquisition, buyers in China and Hong Kong have proposed or completed about $700 million of deals for copper assets, according to data compiled by Bloomberg. The Democratic Republic of Congo this month approved Zijin Mining Group Co.’s purchase of a 49.5 percent stake in country’s Kamoa copper project, while the Chinese company was said in June to have been among those to show interest in Barrick Gold Corp.’s sale of a stake in its Zaldivar mine in Chile.
Miners are hunting for new operations amid forecasts that supply constraints will push the metal into a deficit over the longer term. Global supply won’t keep pace with rising demand for copper, used in pipes and wires, appliances and to conduct electricity, leading to a deficit from 2017-2018, Hudbay Minerals Inc. Chief Executive Officer David Garofalo said this month.
Glencore has lost about 70 percent of its market value in London since March, as commodity prices have tumbled and on investors’ doubts over the plan outlined this month to trim its $30 billion net debt by about a third by the end of next year.
Alsons Prime Investments Corp., a closely held unit of Alcantara Group, in June acquired Glencore’s stake in the Tampakan copper project in the Philippines. Glencore said last month it raised $290 million from the sales of Tampakan and stakes in the Falcondo nickel operations and Sipilou nickel project.
The company has hired Citigroup Inc. and Credit Suisse Group AG to sell a minority stake in its agricultural business, a person familiar with the situation said Friday. That business may be worth $10.5 billion, according to a Sept. 28 report by Heath Jansen, an analyst at Citigroup. The company has the potential to go beyond its target of $2 billion in asset sales, Jansen said.
Returns from raw materials plunged to the least since 1999 last month amid forecasts for the slowest economic growth since 1990 in China, the biggest user of energy, metals and grains. Copper has slid almost 20 percent this year and was at $5,077.50 a metric ton on the London Metal Exchange at 5:23 p.m. in Singapore
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.