Ivan Glasenberg's Glencore runs out of luck as mining rout deepens

Glencore CEO Ivan Glasenberg looking on after the company's listing ceremony at the Stock Exchange in Hong Kong on May 25, 2011.
Glencore CEO Ivan Glasenberg looking on after the company's listing ceremony at the Stock Exchange in Hong Kong on May 25, 2011. PHOTO: AFP

LONDON (BLOOMBERG) - Ivan Glasenberg is running out of luck.

The South African-born accountant, whose Glencore Plc rode the China-fueled boom in commodities the past 10 years like no one else, is emerging as the most prominent casualty of the bust.

The descent has been so swift that many investors are now wondering where it will end. As Glencore's share price plunged by almost a third on Monday (Sept 28), bringing its losses since March to 76 per cent, the credit markets registered mounting worries about its debt load: Its bonds tumbled and derivatives traders started demanding upfront payments to protect against a default by the company, the first time that's happened since 2009.

"People smell blood, and they are circling," said Clive Burstow, who helps manage US$44 billion at Baring Asset Management in London. "The market is looking for someone to test and Glencore is in the sights."

While traders were at a loss to identify the catalyst for Monday's rout, the underlying reasons have remained constant: commodity prices are too low, Glencore's debt is too high and growth in China, the engine that drove prices for everything from copper to coal to oil is the weakest it's been in a quarter century.

In recent weeks, Glencore has sought to reassure investors by promising to prepare its finances for any doomsday scenario. Even after scrapping the dividend, raising US$2.5 billion in a share sale and vowing to sell assets, the selloff has continued.

"All of the miners, including Glencore, broke nearly every rule in the mining books these past 10 years - and that includes the holy books about debt," said Peter Major, a mining analyst at Cadiz Corporate Solutions in Cape Town. "Now almost all of them are paying the price."

At its height in 2014, Glencore was worth more than US$85 billion after its US$29 billion all-share takeover of Xstrata Plc, then the world's biggest coal exporter. Even as recently as August 2014, Glasenberg made an approach to buy Rio Tinto, the second-biggest miner. That was rebuffed. As of Monday in London, Rio's market capitalization was US$59 billion, almost four times Glencore's.

Glencore, based in Zug, Switzerland, trades everything from wheat to oil to cobalt. It's the world's biggest exporter of power-station coal, with more than 30 mines in Australia, Colombia and South Africa and is among the top three agricultural exporters in Russia, the European Union, Canada and Australia. The company controls more than 150 mining and metallurgical, oil production and agricultural assets and employs about 180,000 people.

For all that, Investec Plc, an investment bank, said Monday that there would be little left for shareholders should low prices persist. Goldman Sachs said last week that Glencore's steps to reduce debt and bolster its balance sheet were inadequate.

Mr Glasenberg, a former coal trader, honed his skills over more than 30 years in the commodity trading business since he joined a predecessor firm, Marc Rich & Co., in 1984. He was part of a US$1.2 billion management buyout from Rich in 1994, which saw the company renamed Glencore. The 2011 IPO made him a billionaire on paper with his stake worth almost US$10 billion.

Mr Glasenberg has also been one of the industry's most outspoken figures, railing against rivals for oversupplying the market and saying fellow executives had "screwed up" by building too many mines. He has also taken the lead on trying to remedy the problem, cutting output at its Australian coal mines and saying last month that it would close copper mines in the Democratic Republic of Congo and Zambia that account for about 2.2 per cent of global supply.

Glencore's rivals haven't been left unscathed. In London trading, BHP Billiton Ltd., the world's biggest mining company, has fallen 26 per cent this year, while Rio Tinto has declined 30 per cent. Anglo American, which like Glencore is highly leveraged, has slumped 53 per cent. The Bloomberg World Mining Index of producers has shed 32 perc ent this year.

The slide continued in Asia on Tuesday, with Rio's Sydney- traded shares losing 5.3 per cent to A$46.16 and BHP slipping 5.9 per cent to A$21.79 as of 10:30 am in Sydney.

Glencore announced a debt-cutting programme earlier this month in an attempt to reduce the company's borrowings to US$20 billion from US$30 billion. The company has also has hired Citigroup and Credit Suisse to sell a minority stake in its agricultural business, a person familiar with the situation said Friday. The company carries a heavier debt load than its rivals as it uses borrowings to help fund its trading operations though has also boosted debt with acquisitions including the C$6.1 billion purchase of Canadian grain trader Viterra Inc. in 2012.

Still, not everyone shares that doom.

"When you see this sort of fire sale, either a business is going bust or there are forced redemptions," said Mr Meyer "Funds are being forced to sell into a weak market. For me it offers an unparalleled opportunity."