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Glencore’s profit and IPO

November 24, 2010

“Swiss commodities company Glencore International AG Thursday said its third-quarter net profit rose 45% from a quarter earlier on higher metal prices and a particularly strong performance in its agricultural division.

Net profit rose to $979 million for the three months ending Sept. 30, compared with $677 million in the second quarter. Earnings before interest, taxes, depreciation and amortization, or Ebitda, rose 21.5% to $1.51 billion in the third quarter, compared with $1.24 billion in the second quarter.”

Source: Wall Street Journal, November 19 2010

Observations:

  • EBITDA Margin for 2010 (3.7%) is not yet at the level of 2007 and 2008 (around 5%). However, the company seems to have recovered from the dramatic first part of 2009.
  • Glencore is said to be one of the bidders for the Drummond coal assets in Colombia, which will cost approx. $6bn-$8bn.

Implications:

  • Glencore requires strong financial performance to strengthen its case for an IPO next year, which would give it access to capital to grow. It is still not clear whether the management will choose to merge with Xstrata or pursue a stand-alone IPO. The fact that current strong performance is mainly driven by the agricultural division does not help to convince Xstrata’s management to strike a deal.

©2010 | Wilfred Visser | thebusinessofmining.com

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