Glencore Xstrata’s diversity to attract JSE investors

Glencore Xstrata, the global metals producer and commodities supplier that started trading in Johannesburg on Wednesday, will draw strong demand for its stock from South African investors, according to Investec Asset Management.

"In terms of diversification, it offers something pretty unique," said Hanre Rossouw, Investec Asset Management's head of commodities for frontier and emerging markets. With Glencore's copper mining and marketing business, "you’ve got two-thirds exposure to something you don't really get in the South African market", he said.

Glencore's primary listing remains in London, with a further secondary one in Hong Kong. Johannesburg-born chief executive Ivan Glasenberg (56) won approval from Xstrata investors to combine the companies in a November 2012 vote, creating the world's fourth-largest mining group, with operations in more than 50 countries, including South African coal, chrome and platinum assets.

Glencore traded at R54.60 by 9.37am on the JSE after opening at R55. It was the most active share by value. It closed at 331.5 pence in London yesterday, valuing the company at about $70-billion.

The JSE listing "not only deepens our relationship with South Africa, it highlights our confidence in Africa as a place to invest", Glasenberg said on Tuesday. South African investors are able to buy Glencore’s Johannesburg stock without it counting toward foreign ownership limits imposed by local authorities.

Most diversified
Glencore's South African assets include the Goedgevonden thermal-coal complex in the Mpumalanga province, the Helena underground chrome mine on the eastern limb of the Bushveld Complex, the Wonderkop ferrochrome plant in the North West province and the Eland platinum mine near Pretoria. Glencore is the most diversified among the biggest mining "majors," the Baar, Switzerland-based company said in a November 11 presentation.

While iron ore accounted for 89% of first-half earnings before interest and taxation at Rio Tinto Group, 52% at BHP Billiton and 48% at Anglo American, Glencore's biggest-single contributor was copper at 30%, the presentation shows.

"We anticipate healthy demand" for Glencore stock from South African fund managers, Jeff Largey, an analyst at Macquarie Group in London, said on Monday. The JSE listing may have a negative impact on shares of Anglo American, which also trades in the city, Largey said. Local investors may switch to Glencore to further dilute their "South Africa risk", given the mining and commodities-trading group's lower overall reliance on the African country. South Africa accounts for about 45% of Anglo's revenue.

Peter Grauer, the chairperson of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata. – Bloomberg

Paul Burkhardt
Paul Burkhardt works from Johannesburg. Bloomberg reporter covering oil/gas, renewables, mining and unions in South Africa and sub-Saharan region. Retweets not endorsements. Paul Burkhardt has over 1431 followers on Twitter.

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