JOHANNESBURG (miningweekly.com) – Mining and bulk commodity trading giant GlencoreXstrata, which listed highly successfully on the Johannesburg Stock Exchange (JSE) on Wednesday, finds it acceptable that the South African government has stated unequivocally that it wants a 20% free-carried interest in oil and gas ventures.
“I don’t mind if a government wants a 10%, 20% or 30% free carry and royalties and taxes. As long as you know upfront what the rules are, it’s acceptable,” South African-born GlencoreXstrata CEO Ivan Glasenberg said.
Glasenberg was responding to Mining Weekly Online on the chances of the company engaging in oil and gas investments in South Africa.
“Would we look at hydrocarbons in South Africa? We don’t know enough about South Africa yet. We’ve been focused on West Africa, where we understand the hydrocarbons world.
“We have a very good geological team who understand Equatorial Guinea, Cameroon and Chad. We see a lot of opportunities there, with hubs we can feed into should we have other discoveries.
“So we’re not going big on looking outside of that area, but if something crops up in South Africa, sure, we'll look at it,” Glasenberg told Mining Weekly Online at a media conference to mark the company’s debut on the JSE, which augments its main London and Hong Kong listings.
On the first day of listing, nearly 52-million GlencoreXstrata shares changed hands in more than 8 000 transactions as the R732-billion-valued global diversified natural resources major took up position as the JSE's third-largest share, closing on R53.87 a share.
The investment decisions of companies, he said, had to be based on the rules that governments laid down and calculations would have to be made to determine whether an investment with a 20% free-carried interest remained justifiable.
“If it is, we’re happy. I'm happy with what the South African government is saying upfront. But what governments mustn't do is change the rules once we start investing,” he added.
GlencoreXstrata top brass were impressive in the balanced manner in which they fielded a wide range of media questions at the listing conference.
TRADING AS COMPARATIVE ADVANTAGE
Being a commodity trader and a miner was a comparative advantage for GlencoreXstrata over its mining peers, Glasenberg said in response to Mining Weekly Online.
The company deals with 7 000 third-party suppliers around the world and the rationale behind most of the assets it has bought over the years has been its relationships with its mining suppliers.
“Where we buy product from a supplier, we know when that supplier is thinking of selling,” he said.
GlencoreXstrata has pre-finance agreements with many mining companies, which at times decide to convert their debt to equity or present other opportunities.
“We see things before any other mining companies see them because we have third-party trading and they don’t.
“We also see and understand the performance of markets sooner than anyone else,” Glasenberg explained.
In coal alone, the company deals in Russia, Indonesia, Colombia and America, buying tonnage and gaining an insight into supply and price trends.
It knows then whether or not to expand or buy operations because of the breadth of its dealings.
“We only like to own assets in the commodities in which we trade and we can only trade bulk commodities because there are price arbitrages arising with bulk commodities. That’s where we make part of our money.
“That’s why we don’t trade diamonds, platinum and gold, although gold is a bit of a by-product of what we produce, but we don’t trade it.
“We’ve always said that at some stage we will dispose of our stake in Lonmin Platinum. We’ve just got to decide when is the right time,” Glasenberg said.
COAL IN SOUTH AFRICA
GlencoreXstrata said in September that the merging of the coal interests of the two companies would create the world’s leading seaborne thermal coal business, combining a multi-region, multi-quality production base of more than 120-million tons marketed through the group’s global support infrastructure.
The merger brought about a cost reduction of 15% across the business and a cost of $50/t free on board on average across the thermal business globally was being targeted.
Backing the business is a strong resource base with close on 35-billion tons of resources on a measured, indicated and inferred basis and 3.9-billion tons of reserves on a proven and probable basis.
The company will bring on additional production capacity if the returns are right, but, as with other divisions, brownfield projects are strongly favoured over greenfield projects.
In South Africa, 25-million tons of thermal coal is sold into the domestic market while 20-million tons is exported.
Glasenberg confirmed his bullishness on coal and said major consumers of coal like India and China were continuing to consume large volumes of coal.