GlencoreXstrata CEO Ivan Glasenberg, who served in the old Glencore for 22 years prior to the merger with Xstrata, is a coal bull who is keen to boost the company’s coal position in South Africa.

The Switzerland-domiciled but South African-born Glasenberg spent many a trading day in the coalfields of South Africa’s Mpumalanga province before walking the corridors of corporate power in Baar and London.

Now with a lot of his own skin in the GlencoreXstrata game, he and his owner-management team continue to have a strong belief in coal’s future, which is beneficial for South Africa given this country’s heavy dependence on the commodity.

GlencoreXstrata operates in 17 African countries and is South Africa’s biggest exporter of coal and ferrochrome.

It has oil assets in Equatorial Guinea, Cameroon and Chad; copper in Zambia and the Democratic Republic of Congo (DRC); and zinc in Burkino Faso and Namibia.

Its integration facilitates the capture of value at every stage of the supply chain.

Already a supply of 20-million tons of coal a year to South Africa’s State-owned power utility Eskom, GlencoreXstrata paid $174- million to the South African government in taxes and royalties in 2012 and $600-million in wages to its 40 000 employees in South Africa.

In coal, the company has an extensive portfolio of multiquality products from four South African mining complexes, which produce 47.3-million tons a year, and from three midtier operations, which produce 20.7-million tons a year.

Its saleable coal production in 2012 was 49-million tons and the company owns 31.7% of the key Richards Bay Coal Terminal, which has a throughput of 91-million tons of coal a year.

The 24-year-life, 920-employee Goedgevonden mining complex, where South Africa’s black-controlled African Rainbow Minerals is a partner, exports 44% of its coal and sells 56% into the local market.

The 17-year-life Optimum complex has 3 700 employees; the 22-year-life iMpunzi complex has 1 400 employees; and the 23-year-life Tweefontein nearly 3 000 employees.

Besides the midtier Middelburg complex with more than 2 000 employees, Umcebo with 2 200 employees and Koornfontein with nearly 2 000 employees, there is also a long list of coal projects that are under development (see table).

GlencoreXstrata is also big in ferroalloys, where the company has the low-energy Lion II smelter and Tswelopele pelletiser projects under advanced development.

In the DRC, the Katanga and Mutanda mines are producing copper, as is the Mopani mine, in Zambia, and the company’s oil and gas assets in Equatorial Guinea, Chad and Cameroon.

This London-, Hong Kong- and now also Johannesburg-listed diversified major is arguably more diversified than any of its diver- sified peers (see accompanying diagram).

BETTER WORLD ECONOMY IN 2014 

Glasenberg said at last week’s post-results media briefing, in which Mining Weekly participated, that the outlook for the world economy in 2014 is better than it has been seen for a number of years, with the markets for the company’s key copper, zinc, nickel and coal products remaining positive, despite coal’s near-term oversupply.

“Coal remains the prime choice to fuel economic growth in Asia,” Glasenberg said, adding that Australian and Indonesian coal supply growth is expected to be significantly lower in 2014 as a result of capital expenditure being slashed and projects being suspended.

GlencoreXstrata itself presented better- than-forecast results for 2013, which saw its shares rise 2.3% on the JSE, buoyed by the company’s low-commodity-price-beating trading success.

The GlencoreXstrata viewpoint is that global economic growth is now poised to accelerate on the back of reducing austerity in advanced economies.

Against that background, the company said it lifted its final dividend beyond last year’s, as an endorsement of its confidence in future prospects that are poised to be driven by US economic strength driven by a more confident consumer, a flexible labour force and a strong financial sector.

After two years of contraction, driven largely by external and domestic demand as well as a reduction in the pace of spending cuts, Europe is also forecast to record positive growth.

In addition, robust Chinese growth is being supported by policy measures and reforms.

Indonesia’s ban on the export of nickel ore and the likelihood of enforcement had potentially transformed nickel’s outlook and was likely to balance the market in 2014 and create a significant deficit in 2015.

Chinese nickel output was forecast to fall below 200 000 t/y in 2015 from 420 000 t/y in 2014, with supply difficult to replace in the short term.

The much expected tightening of zinc mine supply was materialising, illustrated by a zinc metal deficit in 2013 for the first time in five years.

New zinc mine supply was insufficient to replace closures of the Brunswick and Perseverance mines in 2013; Lisheen was winding down and Century and Skorpion would close in 2015/16.

Chinese mine supply, which might have upside supply surprises, would determine the fate of the zinc market.
Copper demand is balanced in the near-term, with structural deficits expected to emerge again after 2015.

The lack of high-quality copper projects beyond 2015 are expected to shift the market back to deficit given the mine closures forecast in the second half of the decade.

“We are confident about our future,” Glasenberg said, adding that the company was in strong and improving commodity cost curve positions.

It was expecting further cost reductions from merger synergies already at $2.4- billion and was on a capital expenditure reduction trajectory.

The company was helped in the 12 months to end December by a strong trading performance that offset mining decline and helped the company to beat its earnings forecast.

In its first set of full-year results since the merged group was formed, the mining and trading company reported adjusted earnings before interest, tax, depreciation and amortisation of $13.1-billion, up on the $12.3-billion forecast.

The board recommended a final distribution of $0.111 a share, taking the full-year total to $0.165 a share, up 4.8% on 2012 and reflecting continued confidence in prospects.

Production growth was sturdy with copper output rising 26%, to 1.5-million tons overall, and African copper output rising 43% as both Mutanda and Katanga each reached capacity of 200 000 t/y at year-end. Copper production growth at Collahuasi was 58%.

Ferrochrome production in South Africa rose 32% to 1.2-million tons on higher smelters and furnace use and the successful commissioning of the Tswelopele pelletising plant.

Coal output rose 4% to 138.1-million tons on expansions at Prodeco and in Australian thermal coal.

Glencore’s dividend yield of 3.2% lagged the 3.9% yield of BHP Billiton and Rio Tinto, London mining analyst company Liberum said, adding that its attraction lay in offering more exposure to copper than its diversified peers.

Glencore marketing did well across the board, London investment bank SP Angel said.

“The dividend increase is a positive indicating management’s intention to return cash when possible,” Investec Securities said.

Operating cash flow generation was slightly ahead of 2012 at $10.4-billion.

SOUTH AFRICAN INDEXATION 

GlencoreXstrata is committed to driving its South African listing to full local indexation status.

“We would like to see more investors from South Africa buying the stock. It hasn’t got to the levels that we would like,” Glasenberg commented to Mining Weekly, adding that the company had not yet reached its targeted 5% level.

“That’s very much set as the goal. There is clearly the investment appetite and the knowledge, and it’s going to get there,” GlencoreXstrata CFO Steve Kalmin added to Mining Weekly.

It is expected to be achieved either by the company accelerating the factors under its control or as a result of the gradual week-to-week build-up already under way.

On the day the company listed on the JSE in November, nearly 52-million shares changed hands in more than 8 000 transactions as the R732-billion-valued global diversified natural resources trader and miner, with more ships at its disposal than the Royal Navy, took up position as the JSE’s third-largest share, closing on R53.87 a share.

The next day another six-million shares changed hands in the same price range, but, while fund managers require expo- sure to indexed companies, they are not required to buy the shares of nonindexed companies, which results in insufficient liquidity.