The local downstream oil investments of diversified mining and marketing company Glencore are expected to be concluded in the near future.
Talking during a media conference after the Johannesburg- and London-listed company posted outstanding half-year results that won analyst applause, Glencore CEO Ivan Glasenberg said in response to Mining Weekly Online that the company was awaiting closure on the transaction involving Chevron Corp's oil refining and fuel service stations in South Africa, which is seen as a strong vote of confidence in South Africa’s new political dispensation.
In addition, Glencore Coal COO Murray Houston reported that the company had concluded coal transactions with new Eskom new leadership, but that Optimum colliery remained bond by the business rescue process it was undergoing.
In reiterating the company’s intention to develop downstream in oil, Glasenberg said the company was anticipating third-quarter Chevron deal closure, which would follow similar oil transactions concluded by the company in Brazil and Mexico.
“Hopefully we’ll close in the third quarter. It provides the short for the trading business and the head of our oil division believes it gives him a benefit on the trading side to be able to have the outlets in his various countries.
“We’ve got a downstream business in Mexico, G500, we have it in Brazil now and when we close in South Africa, we’ll have three very good areas on the downstream part of the business.
“How much we grow that in the future? I think we’ve first got to consolidate these businesses, see that we can run them well, how much they do give us benefit on the downstream part of the trading business, and then we’ll look further, but at the moment we’re happy with the areas we’re in, we want to grow in these areas, and stay in that particular situation for the moment.
In June, Glencore Energy signed an agreement to acquire 78% of Ale Combustíveis, Brazil’s fourth-largest fuel distributor, which has a network of 1 500 gas stations in 22 states and about 260 convenience stores.
It follows the investment in the Mexican downstream sector through G500 and the $1-billion deal to buy Chevron Corp's oil refining and fuel service stations in South Africa.
COAL AND ESKOM
On the company’s coal mining and marketing in South Africa, Houston said the company had seen a marked change at Eskom, with the relationship described as being “very good”.
“The paralysis that we experienced for quite a significant period is gone. We’ve actually done a couple of deals this year with Eskom and we have a number of things under discussion at the moment. Generally we’re negotiating for a fixed period of time, based on a fixed price, taking the market fundamentals into account,” he said.
“Optimum is tied up in a business rescue process at the moment but we are looking at things from a fresh perspective. If we felt there was an opportunity in terms of shareholder value, we would consider that, but it’s very long and drawn out and at the moment they are really just trying to survive month to month and there has been no due diligence in terms of actually acquiring the asset at this stage from the market or any interested party,” Houston added.
US TARIFFS AND IRANIAN SANCTIONS
On the global tariff tick-tack and the imposition of sanctions on Iran by the US, Glasenberg said a close eye was being kept on the extent to which aluminium is tariffed.
“Let’s first see the affect that these tariff are going to have. Unfortunately, tariffs create uncertainty. People are expecting a decrease in the growth in the world economy and that’s having a negative effect on commodity prices. Where it ends up, we’re waiting to see,” he said.
“On the trading side, there’ll be arbitrage opportunities. We’ve just got to wait and see what gets the tariffs and what does not.
“We’re all sanctioned against taking Iranian products or selling into Iran and that creates other opportunities. Let’s wait and see where it all ends up,” he advised.
Meanwhile, the strength of Glencore’s business model and its commodity mix has produced sharp increases in earnings and net income in the six months to June 30.
The earnings before interest, taxes, depreciation and amortisation of the 146 000-employee group rose 23% to $8.3-billion and net income attributable to equity holders was 13% higher at $2.8-billion, buoyed by impressive mine cost and margin performance.