JOHANNESBURG - The 60-year-old, pugnacious South African executive has emerged from the commodities crisis with a leaner company, unburdened by lots of debt, and ready to find the next big growth opportunity. While other mining giants are dishing out hefty dividends, a standard practice for a mature industry, Glasenberg is branching out to farming.
“We are always pragmatic and have patience, but we do want to grow the agricultural company,” he said in an interview after the company reported earnings that matched expectations.
Glasenberg has a long reputation as a major deal maker in mining, tying together Glencore with Xstrata in 2013 in a $43billion (R578.32bn) transaction that transformed the company from a trader to a miner with assets all over the world. While the agriculture side of the business is significantly smaller, the company is a major presence in grain markets outside the US.
On Thursday, the company opted not to increase its dividend plans for this year, instead using the extra cash to pay down debt and strengthen the balance sheet. “We continue to see Glencore’s potential to drive value through future mergers and acquisitions (M&A) and marketing volume additions as attractive in this current low-growth mining environment,” Tyler Broda, an analyst at RBC Capital Markets in London, wrote.
Glencore does plan to increase dividends next year, promising a minimum of $2.5bn if commodities prices remain at current levels.
Glencore is “balancing dividends and M&A,” Christopher LaFemina, mining analyst at Jefferies in New York, said. “Management is focused on growth and potential opportunistic M&A.”
Glencore cut borrowings to $13.9bn by the end of June, down more than 60percent from a peak in mid-2014 of $37.6bn and below a self-imposed cap of $16bn.
The company cut its preferred leverage ratio to 1.07, well below its target of 2, suggesting it can pursue acquisitions without stretching its balance sheet.
Steve Kalmin, the finance chief, said the balance sheet was “consistent” with a credit rating a notch higher than currently. S&P Global Ratings has Glencore on positive outlook with a BBB rating.
The focus on M&A comes as commodities markets recover on signs of stronger Chinese economic growth and supply cutbacks.
“I’m still pretty bullish on China,” Glasenberg said on Thursday. “Economic growth on a percentage basis is lower than a decade ago, but the size of the country’s economic base is today much larger.”