Glencore in new deal to buy 18.91% Kazzinc stake
Sept 25. MarketWatch. LONDON
By Alex MacDonald
Glencore International PLC (GLEN.LN, 0805.HK) entered Monday into a new transaction under which the giant commodities company will purchase a smaller stake in Kazakhstan’s largest integrated zinc producer, Kazzinc, from partner Verny Capital in a deal that involves less cash.
The revised terms have been agreed to at a time when mergers-and-acquisition activity in the mining sphere has ebbed, due in part to a recent drop in commodity prices and concerns about the health of the global economy.
Glencore’s M&A appetite, however, has been an exception to this trend, evidenced by the company’s plan to purchase Canada-based grain company Viterra Inc (VT.T) for 6.1 billion Canadian dollars (US$6.2 billion) and its announced merger with Xstrata PLC to create a massive mining company with a market capitalization of more than $70 billion. Both deals are expected to close before the end of the year.
The Baar, Switzerland-based commodities trader and producer said it has now agreed to boost its stake in Kazzinc to 69.61% from the current 50.7% for no more than $1.395 billion in shares and cash, the final mix of which will be determined by Glencore.
This marks a change from its previously announced deal in the first half of 2011 whereby Glencore agreed to buy Kazzinc shares from Verny in a deal that would have boosted Glencore’s Kazzinc stake to 93% for a total of $3.2 billion, including $2.2 billion in cash and $1 billion in new shares issued at Glencore’s May 2011 IPO price. The transaction also included an option that would have boosted Glencore’s Kazzinc stake to 99.4%, conditional upon the successful spinoff of Kazzinc’s gold assets.
Glencore didn’t provide a reason for terminating the original agreement and signing a new one. A Glencore spokesman declined to comment on the matter.
Under the new deal, Glencore has agreed to issue 176.2 million Glencore shares to Verny Capital at the value of Glencore’s shares close to when the deal is finalized. Glencore also agreed to pay an additional sum of Glencore shares and/or cash that will be capped at a value of $400 million. Glencore has sole discretion to determine the mix of cash and shares to be paid.
The commodities titan said it won’t pay more than $1.395 billion for the additional 18.91% Kazzinc stake, meaning the extra sum of up to $400 million could be less depending on the value of the 176.7 million Glencore shares at the time the deal closes.
The deal is expected to close before the end of the year, subject to certain conditions, including approval from the Kazakh government.
Kazzinc has an annual production capacity of 300,000 metric tons of zinc, 130,000 tons of lead and 240,000 tons of copper concentrate. It also can produce 1.5 million ounces of gold and 45 million ounces of silver annually.