Cape Times

Glencore has a big appetite for farming


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.” – Bloomberg

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

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