Glencore puts faith in copper


Glencore’s $534m cash payment to increase its stakes in two Democratic Republic of the Congo (DRC) copper operations coincides with expectations that copper prices will continue to firm on rising demand and restricted supply.

Glencore’s shares, which added almost 8% to R55 on the JSE in the two days before the deal was announced, slipped 2% to R53.72 on Tuesday.

Glencore said it would increase its stake in Mutanda Mining to 100% from 69% and its stake in Katanga Mining, which is listed in Toronto, to 86.33% from 75.28% previously. It is buying shares from and taking over loans owing by Israeli billionaire Dan Gertler’s Fleurette Group.

The US Securities and Exchange Commission investigated Fleurette as part of a probe into Och-Ziff Capital Management Group, which pleaded guilty in 2016 and paid a fine for bribing officials in the DRC to acquire mining assets. Some of Fleurette’s projects in the DRC were funded by Och-Ziff, but Gertler has strongly denied paying bribes.

In a note, Investec’s global mining team said Glencore’s buyout of Fleurette’s minority stakes achieved two things: greater control of key assets and parting ways with Fleurette.

It was a good time for Glencore to do the deal because the operations were not running at full capacity and the price
paid compared well with Investec’s valuation.

“Given that we believe the risk to the copper price runs more to the upside than the downside this may prove to be an astute transaction longer term,” it said.

In its February commodities industries report, Afriforesight said copper prices were expected to rise steadily over the next two years as growth in copper demand would be supported by the development of renewable energy projects. Mined production would rise only gradually to meet it. Copper is used in photovoltaic panels, generator windings, power cables, transformers and control systems.

Afriforesight said the industry’s profitability over this period would be excellent, with gross profit margins for the world’s major producers likely to average 46% in the first quarter of 2017 and to remain at that level in the next two years.

Two years ago Glencore CEO Ivan Glasenberg decided to cut group production in coal, copper and zinc to help rebalance global supply with demand.

Mutanda is the biggest copper mine in the DRC, with annualised production of more than 200,000-tonnes of copper cathode and 24,000-tonnes of cobalt. Katanga, where processing operations were suspended in September 2015, has the potential to become the world’s biggest cobalt producer and Africa’s biggest copper mine.

Glencore said processing would resume at Katanga once its whole ore leach project was completed in the second half of 2017.


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