Glencore’s top executives are sitting on paper profits of more than £600m from their audacious bet on the mining and trading giant during the depth of the commodities downturn.
Billionaire boss Ivan Glasenberg and a cadre of senior staff pumped £360m into an £1.6bn emergency fundraising in late 2015, struck at 125p a share.
Since then, a recovery in raw material markets has fuelled a 170% surge in the Glencore stock price, providing large windfall gains for management.
Glasenberg, who spent £138m acquiring shares in the capital raising to avoid diluting his 8.4% stake, has made a £235m profit on the deal.
Swiss-based Glencore will this week herald its resurgence — on the back of the rebound in prices of copper, coal and zinc — when it publishes first-half results. It is expected to report underlying profits of about $4bn (£3bn), against $875m last year, according to investment bank RBC.
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Glencore’s shares hit an all-time low of 67p in 2015 but have since bounced back and closed at 338p last week, valuing the company at £49bn. Nonetheless, the stock remains some way short of its 2011 float price of 530p.
The company will this week restore its dividend after a near two-year hiatus, with a $500m half-time payout for investors. It is expected to hand out a similar sum for the second half. That leaves Glasenberg, whose stake in Glencore is worth £4.1bn, in line to pocket $84m in dividends.
Other FTSE 100 miners have begun to power up their dividends. Rio Tinto last week reported a 152% surge in after-tax profits to $3.9bn in the first half of the year. The Anglo-Australian group has been buoyed by rising demand for iron ore — which China’s steel mills are buying in vast quantities, hoping to capitalise on higher prices. That enabled Rio to ramp up its dividend and unveil a further $1bn share buyback.
Glencore is unlikely to follow suit, analysts said. Glasenberg has regained his appetite for deal making and is expected to marshal his resources to fund future takeovers. “Glencore is clearly once again on the hunt for acquisitions,” said the stockbroker Liberum.
Glasenberg attempted, unsuccessfully, to hijack Rio’s $2.7bn sale of an Australian coal business to Chinese-owned Yancoal. However, he subsequently struck a deal to buy a stake in the mines, which are located in New South Wales.
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In May, Glasenberg made an approach to the American grain trader Bunge, which he wants to merge with Glencore’s agricultural trading arm. The FTSE giant was knocked back. However, Bunge’s chief executive last week cut profits guidance and signalled that he could be open to a deal, with Soren Schroder saying he would “evaluate the best path” for the company. But he insisted that Bunge was more likely to pursue regional tie-ups, rather than a merger or sale.
Power plays invited
Two power companies that supply back-up electricity from large batteries and gas turbines are being groomed for sale, writes John Collingridge.
UK Power Reserve and Green Frog Power are among a growing number of companies that have disrupted Britain’s power network. They supply electricity from small, decentralised plants that are closer to homes and businesses than traditional coal, gas and nuclear plants.
UK Power Reserve is owned by the private equity firms Inflexion and Equistone, while Green Frog is owned by the infrastructure fund InfraRed.
Founded in 2010, UK Power Reserve has a fleet of gas turbines that can respond rapidly to peaks in demand for electricity.
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Last year, in a government auction, it won 15-year contracts to supply 120 megawatts of battery storage power, which will also be used to balance out spikes in demand.
