Glen­core has a big ap­petite for farm­ing

The Star Early Edition - - COMPANIES -

DE­SPITE all the up­heaval at Glen­core in the past two years, Ivan Glasen­berg’s ap­petite for deal mak­ing hasn’t changed.

The 60-year-old, pug­na­cious South African ex­ec­u­tive has emerged from the com­modi­ties cri­sis with a leaner com­pany, un­bur­dened by lots of debt, and ready to find the next big growth op­por­tu­nity. While other min­ing gi­ants are dish­ing out hefty div­i­dends, a stan­dard prac­tice for a ma­ture in­dus­try, Glasen­berg is branch­ing out to farm­ing.

“We are al­ways prag­matic and have pa­tience, but we do want to grow the agri­cul­tural com­pany,” he said in an in­ter­view af­ter the com­pany re­ported earn­ings that matched ex­pec­ta­tions.

Glasen­berg has a long rep­u­ta­tion as a ma­jor deal maker in min­ing, ty­ing to­gether Glen­core with Xs­trata in 2013 in a $43 bil­lion (R578.32bn) trans­ac­tion that trans­formed the com­pany from a trader to a miner with as­sets all over the world. While the agri­cul­ture side of the busi­ness is sig­nif­i­cantly smaller, the com­pany is a ma­jor pres­ence in grain mar­kets out­side the US.

On Thurs­day, the com­pany opted not to in­crease its div­i­dend plans for this year, in­stead us­ing the ex­tra cash to pay down debt and strengthen the bal­ance sheet. “We con­tinue to see Glen­core’s po­ten­tial to drive value through fu­ture merg­ers and ac­qui­si­tions (M&A) and mar­ket­ing vol­ume ad­di­tions as at­trac­tive in this cur­rent low-growth min­ing en­vi­ron­ment,” Tyler Broda, an an­a­lyst at RBC Cap­i­tal Mar­kets in Lon­don, wrote.

Glen­core does plan to in­crease div­i­dends next year, promis­ing a min­i­mum of $2.5bn if com­modi­ties prices re­main at cur­rent lev­els.

Glen­core is “bal­anc­ing div­i­dends and M&A,” Christo­pher LaFem­ina, min­ing an­a­lyst at Jefferies in New York, said. “Man­age­ment is fo­cused on growth and po­ten­tial op­por­tunis­tic M&A.”

Glen­core cut bor­row­ings to $13.9bn by the end of June, down more than 60 per­cent from a peak in mid-2014 of $37.6bn and be­low a self-im­posed cap of $16bn.

The com­pany cut its pre­ferred lever­age ra­tio to 1.07, well be­low its tar­get of 2, sug­gest­ing it can pur­sue ac­qui­si­tions with­out stretch­ing its bal­ance sheet.

Steve Kalmin, the fi­nance chief, said the bal­ance sheet was “con­sis­tent” with a credit rat­ing a notch higher than cur­rently. S&P Global Rat­ings has Glen­core on pos­i­tive out­look with a BBB rat­ing.

The fo­cus on M&A comes as com­modi­ties mar­kets re­cover on signs of stronger Chi­nese eco­nomic growth and sup­ply cut­backs.

“I’m still pretty bullish on China,” Glasen­berg said on Thurs­day. “Eco­nomic growth on a per­cent­age ba­sis is lower than a decade ago, but the size of the coun­try’s eco­nomic base is to­day much larger.”

Glen­core cut bor­row­ings to $13.9bn by the end of June, down more than 60 per­cent.

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