Glencore to increase stake in Latin America’s biggest zinc producer
GLENCORE is doubling down on its zinc bet after the metal’s price rallied to a 10-year high.
The Swiss commodities giant, already the world’s top zinc miner, said on Tuesday that it was planning to increase its stake in Peru’s Volcan, the largest producer of the metal in Latin America.
Glencore reached an agreement to buy out members of the Letts family and acquire 27 percent of Volcan’s Class A voting shares for $531 million (R7.2 billion).
It will offer to increase its stake via a public tender for as much 48 percent, which could raise the total price to $956m.
The deal gives Glencore even more exposure to zinc, which has surged on supply cutbacks and China’s tougher curbs on mining. The metal has rallied 27 percent this year and is the best performer on the Bloomberg Commodities Index.
Volcan’s Class B shares, which are more actively traded, rallied almost 40 percent in the two weeks leading up to the deal. The stock rose 6.5 percent to 1.31 Peruvian soles (R5.45) on Tuesday. Glencore’s offer price of $1.215 compares with the current value of Volcan’s A shares of 3.20 soles.
“While the headline price does not appear overly cheap, taking control of Peru’s largest zinc and lead producer with good assets, resource optionality and growth potential in what is probably one of the richest polymetallic regions globally appears well timed,” Barclays analysts Ian Rossouw and Amos Fletcher said in a note.
While other major miners such as Rio Tinto Group and BHP Billiton have focused on bigger dividends, share buybacks and other ways to reward shareholders, Glencore has been an exception. The company said in August that it would use its balance sheet to pursue selective growth opportunities.
The deal, which Glencore said would provide an opportunity for synergies with its existing Peruvian zinc operations, comes two years after the Swiss firm decided to cut about 500 000 metric tons of its zinc production to bolster prices.
“Paying up for Peruvian zinc exposure would appear to suggest that Glencore is in no hurry to restart the idled capacity,” wrote Hunter Hillcoat, an analyst at Investec in London, in a note.
Before the deal, Glencore owned 18 percent of the Class A shares, which carry voting rights, and 0.02 percent of the B shares, giving it a total interest in Volcan of 7.7 percent.
In the first five months of this year, there was a global deficit in zinc of 181 000 tons, according to the World Bureau of Metal Statistics. – Bloomberg