By Karan Kumar – Exclusive to Cobalt Investing News
Analysts say that Swiss-based, commodities giant Glencore International Plc (LSE:GLEN), is poised to acquire the remaining 25.2 percent of copper and cobalt miner Katanga Mining Ltd. (TSX:KAT), of which it already owns 74.8 percent. The move will allow Glencore to take full control of the Congolese copper and cobalt producer to take advantage of falling prices.
“Cleaning up the minorities at Katanga is a possibility and would have strategic merit,” Patrick Jones, an analyst at Nomura, who covers the metals and mining sector, told Cobalt Investing News. “Glencore cleaned up the minorities at Minara/Murrin Murrin (a nickel/cobalt mining and refining project in Western Australia), so it is definitely possible.”
The UK Guardian reported recently that Glencore could bid up to 400 million pounds to take full control of Katanga. Katanga’s mines are located in the copper belt within the Democratic Republic of Congo. The Guardian reported that a leading Glencore shareholder said Katanga, which is forecast to produce 300,000 tonnes of copper by 2015, is “just the sort of asset that Ivan Glasenberg (Glencore’s’ chief executive) would like to take full ownership of. The potential is enormous even though there is political risk operating in DRC.”
A spokesman for Glencore told Cobalt Investing News: “Our position is that we don’t comment on speculation.” For the first nine months of 2011, Katanga’s copper in ore mined was 157,658 tonnes, a 96 percent increase from the year-ago period. In its third quarter earnings report, Katanga said it sees the increase of copper production to 270,000 tonnes per annum of LME Grade A copper and thereafter the expansion of copper production to 310,000 tonnes per annum which the company intends to proceed with utilizing anticipated cash flows from operating activities. However, a timeline for the goal of 310,000 tonnes per year was not stated in the earnings statement.
In November 2011, Katanga received a commitment from Glencore for two loan facilities of up to $635.5 million. Part of the money will be used to finance Katanga’s plans to beef up copper and cobalt production. At the end of September 2011, Katanga’s cash and cash equivalents stood at $57 million.
Last August Glencore launched a $280 million bid to acquire full control of Minara (ASX:MRE), of which it already held more than 70 percent. In the summer of 2011, Glencore was also forced to play down rumors that it was preparing a bid of 1.2 billion pounds for Kazakh-controlled ENRC. Also, in late August of last year, Glencore announced a bid for South Africa’s Optimum Coal that valued the company at 750 million pounds.
Glencore’s London-listing in May of 2011 was seen as the first step for the company starting its acquisition strategy. Reuters reported that the company had made no secret of the fact that “acquisition firepower is one of the main motivations behind its decision to go public after 37 years and it has no plans to abandon the opportunistic dealmaking that has made the company’s fortunes.” Speculation about Glencore’s plans to acquire Katanga, or Xstrata (LSE:XTA), a Swiss miner in which it already owns 34 percent, is making headlines again as Glencore becomes free to issue new shares following its float on the London Stock Exchange in May.
Securities Disclosure: I, Karan Kumar, hold no direct interest in the companies mentioned in this article.