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Secretive Swiss commodity trader Glencore moved a step closer to a multi-billion-pound flotation today after it spent $2.5 billion (£1.7 billion) buying back a South American coal mine from Xstrata.
Analysts said the fact that Glencore had exercised its option to buy back the Prodeco mine in Colombia added fuel to the idea that it was aiming for an initial public offering of shares towards the end of the year.
Glencore, which was founded by American oil trader Marc Rich, is owned by its partners under chief executive and coal trader Ivan Glasenberg. It has trading operations in London, Switzerland and Singapore. Many of its top traders who would become multi-millionaires in a float are under 40, such as Alex Beard on oils and Steven Blumgart and Gary Fegel on aluminium.
Last December Glencore raised $2.2 billion through a bond issue which valued the whole business at a staggering $35 billion.
Glencore is mining giant Xstrata's largest shareholder with a 34.5% stake, although it could not afford to take up its shares when Xstrata launched a £4.1 billion rights issue in January 2009.
In a deal which raised major corporate governance concerns Xstrata paid Glencore $2 billion for the Prodeco coal mine. This allowed Glencore to take up its rights, but gave Glencore an option to buy it back, which expired last night.
The commodity trader exercised that option but did not reveal whether or not it had brought in third-party finance to complete the deal.
“Glencore will finance the repurchase in a manner consistent with its commitment to maintain its investment grade ratings,” it said in a statement.
It is paying $2.25 billion for the mine plus any profits made there since the start of this year and any investment Xstrata has put into its infrastructure. That is likely to take the total purchase price to $2.5 billion while analysts say the mine is worth at least $3 billion.
Analysts at Liberum Capital said contrary to speculation Glencore had not brought in a strategic partner.
They said: “Our view is that with an IPO in mind, Prodeco attracts a higher valuation sitting within Glencore and therefore it has acted sensibly to exercise this option now and has not sold Prodeco immediately to an unrelated party.”
But the mining team at Bank of America Merrill Lynch said: “We would not be surprised if Glencore has agreed to a “back-to-back” sale of the assets. Watch this space.”
