Glencore Xstrata Considers Bid for ENRC Kazakhstan Manganese Assets
An insider statement has been released disclosing Glencore Xstrata’s recent considerations concerning the acquisition of manganese assets from Eurasian Natural Resources Corporation, after the Kazakh miner moved into the private sector by its shareholders. Looking to expand its empire further, Glencore stands as the world’s leading integrated commodities producer and marketer to date.
Selling mainly manganese concentrate for steel manufacturing, the sale of ENRC’s Zhairem product could earn the company between $100 million and $200 million. In the third quarter of 2013 alone, the company produced over 181,000 tons of material since the findings were last reported on the London stock exchange. This deal would propel Glencore to enhance its acquisition of manganese assets from Vale, with its Baar branch (its Switzerland-based operation) standing as the fourth-largest mining company. The organization bought Vale’s European manganese assets for $160 million in 2012 and produced 191,000 tons of metal in the last year alone.
ENRC operates primarily in: Kazakhstan, China, Russia, Brazil and Africa 9the Democratic Republic of Congo, Zambia, Mozambique and South Africa). As of late, the organization has been making strides in the DRC market, particularly in copper and cobalt assets, which are some of the most distributed assets from First Quantum by the DRC Government. The company currently employs over 72,000 people, with 65,000 located within Kazakhstan.
Speculations about the deal are already circulating, and tensions are running high between industry executives: “However ENRC's performance of late has been disappointing to its shareholders and has reportedly been the scene of major boardroom rows over corporate governance leading to the departure of two key non-executive directors last week who had clashed with the company's major shareholders, Aleksander Maskevitch, Patokh Chodiev and Alijan Abramigove who hold 14.59% of the company each. The Kazakh government owns 11.65% and would need to approve such a deal given its importance to the country's GDP and Kazakh miner, Kazakhmys, controls 26%,” reports Mineweb.
Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov and the Kazakh government decided to take the London-based mining powerhouse private in November 2013, as the founders looked ahead to increase profitability for the 2014 fiscal year.
A report from the Sunday Times followed-up on the issue saying, “The Sunday Times reckons Mashkevitch, in particular, was seeking greater control. He had originally wanted to be chairman, but was deemed ‘not fit and proper' to lead a U.K. quoted company at the time of ENRC's float and some recent bad publicity involving under-age prostitutes on a boat will not have improved matters in this respect.”
This three-man team raised approximately $1.6 billion to cushion the proposed deal, while the government contributed an additional 26 percent stake in the form of the ENRC shareholder, Kazakhmys Plc.
The selling of these assets would begin the process of debt closure for the organization, as the ENRC accrued a devastating debt of $6.1 billion as of last September, following a series of expensive acquisitions and project cost overruns.
Copper, iron ore surge as Chinese investors unleash demand
The reopening of major industrial economies is sparking a surge across commodities markets from corn to lumber, with tin climbing above $30,000 a tonne for the first time since 2011 on Thursday.
In the wake of mounting evidence of inflation fuelled by higher raw materials prices, investors are also increasingly focused on when the U.S. Federal Reserve might start throttling back its emergency support.
Many banks say the rally has further to run, particularly for copper, which will benefit from rising investment in new energy sectors. Copper is at the highest in a decade, fueling bets it will rally further to take out the record set in February 2011. Steel demand is surging as economies chart a path back to growth just as the world’s biggest miners have been hampered by operational issues, tightening ore supply.
“The long-term prospects for metals prices are ‘too good’ and point to higher prices in the next few years,” said Commerzbank AG analyst Daniel Briesemann. “The decarbonization trends in many countries, which include switching to electric vehicles and expanding wind and solar power, are likely to generate additional demand for metals.”
Trading house Trafigura Group and several major Wall Street banks including Goldman Sachs Group Inc. and Bank of America Corp. expect copper to extend gains.
Copper rose as much as 1.6% to $10,108.50 a ton on the London Metal Exchange before trading at $10,080 as of 4:07 p.m. in London.
Benchmark spot iron ore prices rose to a record, while futures in Singapore and China climbed.
The boom comes as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.
Spot iron ore with 62% content hit $201.15 a ton on Thursday, according to Mysteel. Futures in Singapore jumped as much as 5.1% to $196.40 a ton, the highest since contracts were launched in 2013. In Dalian, prices closed 8.8% higher.
Erik Hedborg, Principal Analyst, Steel at CRU Group commented: “Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise. Iron ore producers are enjoying exceptionally high margins as well, around two thirds of seaborne supply only require prices of $50 /dmt to break even.”
Still, some analysts including Commerzbank’s Briesemann expect a short-term correction as metals become detached from fundamentals. There’s also a risk that China could engage in policies that may cool demand for iron ore and copper.
The metals rally has boosted concerns about short-term Chinese demand. Some manufacturers and end-users have been slowing production or pushing back delivery times after costs surged, while weaker-than-expected domestic consumption has opened the arbitrage window for exports.
Tin climbed as much as 2% to $30,280 a ton on the LME, boosted by rising orders for the soldering metal. Tin is at the highest since May 2011, with a 48% gain this year making it the best performing metal on the LME.