Buyer Seller Chasm May Curb Glencore's Plans to Sell Assets

Updated on
  • Australian coal deals would be difficult, CRU Group says
  • Glencore falls in Hong Kong after London losses on Monday

The biggest obstacle to any plans by Glencore Plc to widen its asset sale program after this week’s record share plunge may be the company’s own expectations.

Even some of the jewels in the commodity trader and miner’s portfolio -- the Australian coal and South American copper mines that so far aren’t for sale -- would be out of reach of potential buyers, according to CRU Group and Pengana Capital Ltd.

Glencore, the world’s biggest exporter of power-station coal, probably wouldn’t be offered a fair price for the Australian coal operations, even if it was prepared to sell them, according to Matthew Boyle, a consultant at CRU in Sydney. Although coal prices are languishing, the mines are relatively cheap to run and some could remain profitable, he said Tuesday.

“There would be a large differential between their value of the assets and any potential buyer’s value,” Boyle wrote in an e-mail. “Glencore, if they wanted to divest any assets, would look at non-core or non-performing assets.”

Glencore shares have continued to plummet, losing more than three quarters of their value since March, even after the miner scrapped its dividend, raised $2.5 billion in a share sale and pledged to sell assets. The Baar, Switzerland-based company indicated that both coal and copper were among its assets with positive outlooks when it announced its asset sale and debt reduction plan on Sept. 7.

Record Low

Francis de Rosa, a spokesman for Glencore in Sydney, wasn’t immediately able to comment.

The miner run by Ivan Glasenberg fell to a record in London on Monday, and slumped almost 32 percent in Hong Kong on Tuesday, as Investec Plc warned there was little value for shareholders should low commodity prices persist. London shares rebounded 8.5 percent as of 9:24 a.m. in London.

Glencore announced a debt-cutting program earlier this month in a bid to reduce its borrowings to $20 billion from $30 billion. The company has also 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 slump in raw material prices to the lowest level since 1999 last month may deter buyers, according to Tim Schroeders, a portfolio manager who helps oversee about $1 billion in equities at Pengana Capital in Melbourne.

Huge Chasm

“The trouble with selling assets in this environment is the huge chasm between buyers and sellers,” Schroeders said. “Everything is up for grabs at the right price, but the big question is what is the right price?”

Glencore trades everything from wheat to oil to cobalt, has more than 30 mines in Australia, Colombia and South Africa and is among the top three agricultural exporters in Russia, the European Union, Canada and Australia. The company controls more than 150 mining and metallurgical, oil production and agricultural assets.

Amid an oversupply, Glencore has cut output at its Australian coal mines and said it would close copper mines in the Democratic Republic of Congo and Zambia that account for about 2.2 percent of global supply.

“Glencore fired its shot in an attempt to address the decline in its share price by cutting some production and various balance sheet measures,” Schroeders said. “But the market is saying to them that it is too little, too late.”

The company also last month sold its stakes in several former Xstrata Plc assets including in the Tampakan copper project in the Philippines, the Falcondo nickel plant and the Sipilou nickel project for a total of $290 million.

In April last year it sold its stake in the Las Bambas copper project in Peru to a group led by China Minmetals Corp.’s MMG Ltd. unit for $5.85 billion. The sale satisfied a condition by Chinese regulators for Glencore’s $29 billion takeover of Xstrata.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.