Glencore CEO Ivan Glasenberg that Glencore would invest elsewhere if the operating environment does not allow the company to make its targeted returns.

In a press conference in Johannesburg on Tuesday following the recent release of Glencore’s interim results, Glasenberg stated that the company is open to investment anywhere in the world where it can get decent returns for its shareholders.

“The country must make returns attractive to entice us to invest. In return we invest a lot of money, we employ a lot of people, pay royalties and taxes and the government gets an ongoing long-term benefit,” he said.

South Africa no longer “an attractive investment destination”

Concerns are rife that investors are losing interest in South Africa, spurred by the move by BHP Billiton to spin its South African assets into a separate company, and Anglo American’s announcement that the company intends to sell its older, more labour-intensive platinum mines.

Glasenberg argued that South Africa needs foreign investment to develop its coal sector, and Glencore will continue to make that investment while paying taxes and royalties. Over the past three years, the company has invested between R30 billion and R40 billion into its South African operations. Furthermore, Glencore took a secondary listing on the JSE last year and has increased its local shareholder base.

He added that South Africa has never been a problem for the group, commending the South African government for its support regarding the problematic labour situation. “There are certain issues such as empowerment, but you do what you have to do to address this,” he said.

No interest in Anglo American assets

Glasenberg also rebuffed speculation that his company might be interested in buying Anglo American assets, saying that Glencore will instead invest in asset types that it has already traded, such coal.

“With Anglo, we don’t trade diamonds, if that gives you a good idea, and we don’t trade platinum,” Glasenberg said. “We will only look at assets which we trade, which we market.”

He added that the company’s current assets would need to continue to offer attractive returns in order to remain part of the Glencore fold, as he discussed the plans South Africa has proposed regarding conditions around the export of coal in order to protect Eskom’s supply of the ‘strategic mineral.’

“The idea of a limit on exports or an export tax has been pushed for many years, but it cannot be pushed right now because there is not enough power. The reality is that you need to do something with the product. If you can’t smelt it, you must export it,” he explained.

Lonmin to go up for sale

Glasenberg said Glencore may sell its 25% or R6.1 billion stake in South Africa’s strike-hit Lonmin mine because platinum is not considered to be a core commodity for the group.

“There is no rush to do it. We don’t run the company, but we will monitor its performance closely and at some stage in the future we may get out of the company,” he said.

Glencore appointed two senior executives to Lonmin’s board last year in an effort to increase its influence at the mine, but Glasenberg added that management was improving at Lonmin so Glencore would wait for platinum prices to rise before considering a sale of its stake.

“We’ll watch the platinum price and at some stage in the future try to get out of our investment,” Glasenberg said.

Commodity super cycle

Glasenberg believes that the commodity super cycle is not over. Rather, over-production of some resources, especially thermal coal from Indonesia, has driven down prices and investors need to consider supply levels of individual commodities.

“The super cycle is not over. The demand for resources is better than it has ever been. The Chinese economy may be growing at 7% as opposed to 14%, but it is off a much higher base. China is consuming between 40% and 50% of world’s commodities and the demand is very strong,” he said.

“The world is not oversupplying zinc for example. Iron is being attacked at the moment, not because of demand is bad, but because there is an increase in supply. You have Fortescue, BHP Billiton, Rio Tinto and Vale who are adding tons (to production) and this overproduction is killing the super cycle.”

Expansion and replacement projects

Glencore, the world’s biggest exporter of power-station coal, produced 21.7 million tonnes of coal from SA in the six months to June and completed the $29 billion all-share takeover of Xstrata last year to add coal, copper and nickel mines.

The company is focusing on a number of expansion and replacement projects to spur on its production and increase output both for export and for Eskom, but has no interest in shale gas assets. Glasenberg did suggest that offshore oil and gas exploration around South Africa could be on the cards for the company in future.

Top Stories:

Glencore warns of SA divestment if target returns aren’t met
Sundance secures A$40 million with new investor
DRDGOLD gold production up 13%, boosting revenue