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Glencore's Double-Deal Week Adds African Oil and Peru Zinc

Updated on
  • Company enters deal for Chevron South Africa, Botswana assets
  • Glencore to also take a bigger stake in Peruvian miner Volcan

Even for commodities deal king Ivan Glasenberg, it’s been a busy week.

Glencore Plc announced two acquisitions potentially worth as much as $2 billion within days of each other. One to capture a stake in Chevron Corp.’s oil refining and fuel service stations in South Africa and Botswana, the other to take a bigger stake in Latin America’s top zinc miner.

It’s the strongest sign yet that Glencore and its billionaire chief executive are hungry for acquisitions and growth as business revs back from the commodities crisis of 2015. It also highlights the company’s divergent business strategy compared with major players Rio Tinto Group and BHP Billiton Ltd., who have focused on dividends and stock buybacks.

Glencore has “a choice of returning cash to shareholders or buying assets that they think can deliver more than that,” said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. “If you are a shareholder in Glencore, you probably think Ivan Glasenberg is a shrewd operator that can add value in that process.”

Read: Glencore Gets What It Wants With Zinc Market Tightest in Years

On Friday, the Swiss commodities company agreed to buy a controlling stake in Chevron’s assets in southern Africa for $973 million. The assets include a 100,000 barrel-a-day refinery in Cape Town and more than 800 gas stations.

Off the Shelf

Glencore will buy 75 percent of Chevron’s South African unit and its entire Botswanan business from minority black investors who exercised a pre-emptive right. It plans to support the black investor group, Off The Shelf Investments Fifty Six Pty Ltd., as a technical and financial partner, according to a statement.

Glencore could bring a third investor into the deal, according to a person familiar with the matter. The company could sell down some of its stake to the other investor to reduce the size of its financial commitment, the person said, asking not to be identified.

The Swiss trader intends to limit net capital expenditure across its oil business to less than $500 million over the next 12 months, it said in the statement.

The acquisition, together with a recent deal in Mexico to invest in fuel service stations and terminals, signals a shift in Glencore. Until now, the company had invested in so-called upstream assets, such as oil fields, to complement its trading operation. After significant writedowns in oil fields in countries including Chad, Glencore is now investing in so-called downstream businesses such as refining and service stations.

It comes as commodities traders including Vitol Group BV and Trafigura Group have pushed into the business globally, to help offset declining margins in their bread-and-butter trading businesses. The firms now have hundreds of stations from Latin America to Africa serving as outlets for the products they trade.

On Tuesday, Glencore also pushed into South American zinc by inking a deal to take a bigger stake in Peru’s Volcan Cia. Minera SAA. It will acquire 27 percent of Volcan’s Class A voting shares for $531 million. It may increase its stake even further via a public tender, which could leave the total price tag at $956 million.

Zinc prices have doubled to $3,279 a metric ton since the start of 2016, driven by mine shutdowns and China’s curbs on pollution and mine safety. Last month, spot zinc traded at the biggest premium to futures in 10 years, a condition called backwardation that’s a red flag for demand overshooting supply.

Glencore declined 0.9 percent to 366.90 pence a share by the close in London. The stock has gained 32 percent this year.

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

(An earlier version of this story was corrected to show that the agreement is for the whole business in Botswana.)

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