Investor Tribeca pitches Glencore on ideas to boost shareholder value | Wilnesh News

Business: Headquartered in Switzerland Glencore Limited Produces and markets a variety of metals and minerals, including copper, cobalt and zinc. It also sells aluminum/alumina and iron ore from third parties. The company is a coal producer and marketer with mines in Australia, Africa and South America. In addition, Glencore sells crude oil, refined petroleum products and natural gas. The company physically purchases goods and products from its global supplier base, then transports the goods by sea, rail and truck and sells them to customers around the world. Additionally, Glencore is involved in the recycling of copper and precious metals.

March 13, British “Financial Times” report Tribeca has written to Glencore’s board calling on them to (i) shift the company’s primary listing from London to the ASX; (ii) increase its dividend by halting share buybacks; (iii) spin off its trading unit ; (iv) maintain control of its coal business. Tribeca has been a Glencore shareholder for seven years and has been engaged with management for one year.

Glencore is a diversified mining company registered in Switzerland with operations in more than 35 countries. It is mainly engaged in the production and marketing of metals and minerals, energy resources and commodity trading. The company has excellent core asset quality of copper, zinc and coal, as well as the world’s leading bulk commodity trading business.The consensus forecast for Glencore’s EBITDA in FY25 is to be approximately 25% copper, 18% commodity trading, and 18% metallurgy. Coal, 17% is thermal coal, 22% is zinc, nickel, alloys, etc. Despite its core asset quality, strong financial position and excellent management team, Glencore has delivered a total shareholder return of 36% since listing on the London Stock Exchange last year In May 2011, performance significantly underperformed compared to peers BHP Billiton (+295%) and Rio Tinto (+218%). Furthermore, despite quadrupling EBITDA, Glencore’s enterprise value has grown by only 15% and has continued to decline, from a peak EV/EBITDA of 11.5x in the early 2010s to 5x today.

Glencore’s relationship with its coal business has been rocky for years. Given its London listing and the general attitude of ESG-minded investors across Europe, there has been an atmosphere of hostility towards fossil fuels.Notably, Bluebell Capital Partners has pushed hard for a spinoff Glencore’s thermal coal business 2021. Chief Executive Gary Nagle countered that he believed scaling back the company’s mining operations over a 30-year time horizon was a smarter strategy.However, in 2023, after Glencore acquired 77% of Teck Steel’s coal business, it stated that it divisive intentions Its combined coal and carbon steel businesses. Tribeca thought that was impossible. From a financial perspective, the company believes the coal business provides strong and stable capital returns amid other cyclical earnings profiles of its heavy metals portfolio and should generate a diversification premium. Tribeca has noted the shift in the ESG movement over the past few years and is keenly aware that part of this shift is that fossil fuel businesses are best left in the hands of responsible managers who will try to optimize ESG factors rather than being spun off to a single owner. These factors are not considered in its operations.

Tribeca also strongly advocated the company’s relisting from London to Australia, believing that this would accelerate net capital inflows and provide selectivity for corporate activities. The company argued that London was no longer the home of the mining industry, with the exchange attributing just 7% of its capital to mining, compared with 16% on the ASX. Additionally, there are few coal miners in London and valuations for diversified mining operations are much higher on the ASX. Tribeca made some excellent arguments about Australia’s need for dividends, copper and Glencore’s increased ability to make equity acquisitions in Australia. However, Tribeca cites similar moves by its peers to be more convincing.When BHP Billiton dismantled its dual-listing structure In 2022, Tribeca initially opposed the move but later saw the benefits as BHP eliminated a 20% gap between its London Stock Exchange (LSE) and Australian Securities Exchange (ASX) listed shares. Currency adjusted the discount and increased its forward EV/EBITDA multiple from less than four times to nearly six times. Even more strikingly, Rio Tinto remains dual-listed, with its London-listed shares still trading at a significant discount to those trading in Australia. Tribeca believes a move to the ASX could add $13 billion to Glencore’s market value.

On the dividend front, Tribeca pointed out that between 2018 and 2022, BHP Billiton and Rio Tinto peers’ dividend payout ratios have remained between 60% and 80%, while Glencore’s is 30%. Even though Glencore has begun share buybacks – something neither of its peers have done in the past four years – Glencore’s share price has lagged. Tribeca believes this is the result of natural resource investors focusing on actual capital returns rather than artificially boosting earnings per share.This is the same as incorporating franking credit Combined with an ASX listing, it will make the company attractive to Australian retail and superannuation investors and continue to close the valuation gap.

Tribeca is also calling for the sale of a minority stake in its trading business, which is a world-class business with peer-leading returns on invested capital but has lost its way in diversification. It’s a bit of a tricky question because there are so many positives and negatives about the trading business that it’s unclear what a divestment would do for Glencore shareholders. On the plus side, cash flow from the trading business is critical to the capital-intensive operations of Glencore’s other companies and goes a long way toward mitigating cyclical damage. On the downside, Tribeca attributes much of the letter of credit required for the trading business to Glencore’s poor performance. Tribeca proposed a possible solution, but it sounds more like a fantasy: sell 20% of the trading business to Berkshire Hathaway for 10 to 15 times (currently trading at 4.8 times) , assuming Berkshire Hathaway will agree to use its balance sheet to maintain the status quo. Behind the trading business.

Tribeca is a long-term shareholder and friendly partner of Glencore. It’s clear that the company has great respect for management and is pursuing constructive efforts to close the valuation gap. Tribeca’s detailed letter shows the company has put a lot of thought into how to create shareholder value and offers many different paths. Tribeca does understand that the company is unlikely to adopt all of its recommendations, but clearly Glencore should adopt some of them to increase shareholder value. The simplest would be to keep the coal business: divesting it would require a shareholder vote, and Tribeca believes many shareholders and company CEOs favor keeping it. Tribeca made clear it was “opening the door” to discussions with major shareholders, including former CEO Ivan Glasenberg and senior management who collectively own 20% of the company.

Listing recommendations are not that simple. As part of its listing on the ASX, Tribeca discussed a partial secondary listing on the London or New York Stock Exchanges, recognizing potential issues around institutional investors and share index ownership. Glencore clearly needs to do more work before reaching a conclusion. The same goes for the divestiture of the trading business. The dividend issue is somewhat simple, but to get full value from it would require moving from London to Australia.

Tribeca believes that following its recommendations could result in an increase of at least 30% from the stock’s current trading price, and possibly more than 100%. The company has made compelling recommendations, some of which we hope the company will adopt. However, much of Tribeca’s valuation is based on re-ratings, multiple expansions, conjecture and speculation: the company uses words like “potential,” “implied,” “assumed” and “foreseen” more than we do here at Activist There is more to see in it. letter. So while we believe this is a well-crafted, well-reasoned activist movement with significant upside potential, we have reservations about the high end of the Tribeca spectrum.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in activist 13D portfolios.