Glencore says organic growth, buy-backs preferred to M&A

Gary Nagle, CEO, Glencore GLENCORE CEO Gary Nagle said this…

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Gary Nagle, CEO, Glencore

GLENCORE CEO Gary Nagle said this week the Swiss headquartered miner preferred to invest capital in organic growth and share buy-backs rather than M&A.

“If a company can’t build, like some who don’t have major projects, they have to buy if they want to grow in copper,” said Nagle at the Bank of America conference in Miami this week.

“With us, we have major organic growth projects so we weigh up ‘buy versus build’, but also against buying back our own shares,” he said. “We go for what creates the most value. Right now, it’s buy-backs.” Glencore has bought about 9% of its own stock in the last two-and-a-half years.

According to a Reuters report earlier this month, Glencore held initial dicussions regarding a possible bid for Anglo American. Despite this, a rival to BHP’s all-share takeover proposal is yet to emerge. An offer for Anglo may yet emerge from a third party, analysts have said.

They also said BHP may yet return with an improved third proposal for Anglo ahead of the May 22 ‘put up or shut up’ deadline imposed by the LSE.

Anglo rebuffed BHP’s second all-share offer of 0.8132 BHP share per Anglo share, worth about £27 per share on May 14, and outlined restructuring plans of its own.

Analysts think a £30 to £31 per share offer could materialise for Anglo. “We believe a scrip deal between 0.85 to 0.9x BHP for AAL (Anglo) represents fair value with potential for both investors to be happy with a merged outcome,” said Macquarie in a note titled ‘BHP Group: No dice’.

Nagle told the BoA conference the mining industry had been poor with capital spending on projects but his firm’s projects were low capital intensive “… so that becomes more compelling as prices go up”.

Nagle also said he didn’t want to commission new copper production into a market that “wasn’t ready”. Of projects considered ‘shovel ready’ Glencore’s Mutanda mine in the Democratic Republic of Congo was among the most likely.

An expansion at Mutanda could be turned on tomorrow, said Nagle. However, the mine also produced cobalt which the market didn’t currently need more of. Other projects such as its $1.5bn Coroccohuayco project, which is part of its Antapaccay mine in Peru could “come to the market quite quickly,” said Nagle. Studies were progressing, he said, adding the group was “not losing time on these, but not pressing the go ahead”.

Asked about recent speculation Glencore shareholders preferred the group to retain its enlarged coal portfolio, following the takeover of Teck’s mines, Nagle repeated previous comments that it would be sensitive to shareholder preferences.

“If they want to spin coal then will spin. Once [we] close [the] Teck deal [we] will immediately consult with shareholders. If majority say yes – then will immediately take to vote and then have 12-18 months of more back-end planning to do.

“If majority say no, then immediately [we] will say no to the spin and carry on.”

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