Glencore listing sends strong signal
Miner regarded as an attractive new stock on JSE
THE secondary listing of Glencore Xstrata on the JSE on Wednesday will “send a powerful signal to the world” about South Africa as a destination for mining investment, say fund managers.
The listing will be the biggest on the JSE since the secondary listing of British American Tobacco (BAT) in 2008. Glencore will be the thirdbiggest company on the exchange after SABMiller and BAT, and will bring more diversity to the resources sector for investors.
Many investors will see Glencore as an attractive new mining stock. Of 27 analysts who cover the stock, more than half rate it a buy, eight a hold, and only four a sell, according to Bloomberg.
In London where it is also listed, Glencore’s share price has fallen 4% this year, BHP Billiton’s has fallen 7%, Anglo American’s 21% and Rio Tinto’s 6%.
Hanré Rossouw, Investec Asset Management’s head of commodities for frontier and emerging markets and a former investor relations head of Xstrata, says the listing is significant in many ways.
“Where you can argue that BHP Billiton and Rio Tinto, and to a lesser extent Anglo American, have been reducing their exposure to South Africa, the Glencore listing sends a powerful signal about South Africa as a mining investment opportunity.
“Glencore will not be sitting in the stands. They will be active in engagement with the government and labour to promote South Africa as an investment destination, and use this as a platform also to promote investment in Africa,” he said.
Since early last year, Glencore, which has substantial coal assets in South Africa in partnership with Cyril Ramaphosa’s Shanduka Group, bought Optimum Coal and a substantial stake in Umcebo Coal.
Following the merger with Xstrata in May to form the world’s fourth-biggest diversified miner, it appointed two Glencore executives to the board of Lonmin.
Adrian Saville, chief investment officer of Cannon Asset Managers,
Where it makes a difference is to positive sentiment, and that should be welcomed
said: “The Glencore listing will probably make little difference to real economic activity — they’re not starting up a business; they’re not raising capital; it’s not a new investment.
“Where it makes a difference is to positive sentiment, and that should be welcomed,” he said.
The decision “lends some weight to South Africa from a regulatory and capital markets perspective”, and was a “distinct positive” for the country given the concerns expressed over its policies regarding foreign investment, Saville said.
Glencore, which has a primary listing in London and a secondary listing in Hong Kong, said it wanted to list on the JSE as Africa was an important and growing market for the group, and to get access to South Africa’s strong institutional investor base.
The commodities trader and miner, with operations in more than 50 countries and a focus on 24 key commodities ranging from barley to zinc, is the world’s biggest exporter of thermal coal. It makes most of its money from coal and copper sales.
In South Africa, it has coal, ferrochrome and platinum operations. Glencore said in September that its platinum assets were non-core and that a decision on the future of the business would be determined “in the near/medium term”.
Elsewhere on the continent, its operations include copper mining in Zambia and the Democratic Republic of Congo, zinc mining in Namibia, the development of iron-ore mines in Mauritania and the Republic of Congo, oil production and exploration in Equatorial Guinea, and oil exploration in Cameroon and Chad.
“It will be the only diversified miner on the JSE with no significant iron ore exposure. If you look at the other major stocks on the exchange — Anglo, BHP, Exxaro, African Rainbow Minerals, Assore — they all have significant iron-ore exposure.
“Certainly in terms of its marketing arm, which brings a defensive component to its revenue stream, and particularly its copper exposure, it is offering something new to South African investors,” said Rossouw.