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Share watch: Global storm clouds cast shadow on mining giant


A worker at Glencore’s Altonore copper smelting facility in Chile

A worker at Glencore’s Altonore copper smelting facility in Chile

A worker at Glencore’s Altonore copper smelting facility in Chile

Ethics and compliance with strict disclosure rules is the first thing businesses sign up to when they get a stock market quote.

One thing is certain, however. If accusations of corruption, money laundering and doing dodgy deals with highly questionable regimes in hot countries are being hurled around - as they have been against the huge international mining group Glencore - and the accuser is a powerful institution like the US Department of Justice, you are bound to see it in the share price.

At the beginning of July, Glencore's stock fell sharply, wiping a staggering £5bn (€5.6bn) off the company's market value.

It also forced the Swiss-based group to set up a board sub-committee to investigate the accusations. In addition, its chairman quickly pledged a shares buyback this year of $1bn (€860m), no doubt to placate investors.

Glencore, clearly, is not an ordinary company and not just because it is by far the world's largest resource outfit. Figures show it to be more than four times bigger in revenue terms than its closest rival, BHP Billiton.

It is also the company that the Reuters news agency once called the "biggest company you never heard of".


Click to view full size graphic

Click to view full size graphic

Click to view full size graphic

Early last year, world sanctions were imposed on Russia following its invasion of Crimea and other Ukrainian adventures.

In spite of the sanctions, Glencore and Qatar Investments bought a 20pc stake in the oil group Rosneft from the Russian state. Glencore CEO Ivan Glasenberg received the Russian order of friendship from President Vladimir Putin for the investment. This did not go unnoticed in the US.

This year has been challenging for Glencore. The group and others were summoned to a meeting with President Joseph Kabila of the Democratic Republic of Congo (DRC). Mr Kabila informed the miners he planned to increase taxes, levies and royalties.

This left Glencore's focus on its important cobalt mining in the DRC in tatters because the African republic has half of the world's global supply of cobalt - used in battery production and essential for electric cars.

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But key product supply problems in Africa paled when the company received a subpoena from the US authorities.

Though Glencore has been assumed to have an undeniable competency when it comes to operating in disreputable markets and emerging with clean hands, the news put the skids under the share price.

The US requested -under the Foreign Corrupt Practices Act and other US money laundering laws - that the company explain its businesses in Nigeria, DRC and Venezuela.

Interestingly the probe is also focused on its relationship with Dan Gertler, an Israeli businessman sanctioned earlier by the US Treasury for his "corrupt and opaque" deals in DRC.

According to the US authorities, Mr Gertler used his close relationship with Mr Kabila to act as middle man for mining asset sales.

Glencore denied it secured any mining assets through deals with Mr Gertler. But it admits it did end up in business with him and paid substantial sums.

Interestingly, the subpoena was issued only weeks after Glencore settled a legal dispute over royalties with Mr Gertler.

The news got worse for Glencore when it became clear that the UK authorities are also showing an interest.

In spite of its struggles, the group's results last year were strong with revenues of £205bn (€230bn) thanks to higher prices for copper, cobalt and zinc. Operating profits sparkled at £8.6bn, double the previous year.

The group has a price earnings ratio of 10 and a market value of £47bn. The shares at £3.26 are way off the yearly high of £4.17 reflecting the present political trauma.

But while they look good value, recovery could take some time and there may be too many storm clouds overhead. An investment only for the brave at this time.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

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