Glencore Share Price Drops Amidst Mixed News

on May 27, 2013

Mining and commodities trading giant Glencore Xstrata (LON:GLEN), saw its shares drop on Thursday, May 23, as investors considered the potential implications of a string of news related to the group formed earlier this month through the merger of Switzerland-based commodities trader Glencore International and Anglo-Swiss miner Xstrata.

On Thursday, Glencore Xstrata announced its first bond sale as a combined entity, sources named a potential new head of the group’s aluminium division, and the UN was reported to have said that Glencore could have breached international sanctions against Iran.
$5 Billion Bond Sale Demonstrating New Financial Power
Glencore Xstrata, now the world’s biggest zinc miner and exporter of coal for power stations, said it has launched its first bond sale as a merged company, borrowing $5 billion from the buoyant public markets. The three-year, five-year and 10-year paper was larger than any bond issued by either of the companies alone, reflecting the new financial power of the combined group as well as the strong credit markets.

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According to the announcement, the transaction covered $1 billion 1.7 percent guaranteed notes due May 2016, $1.5 billion 2.5 percent guaranteed notes due January 2019, $1.5 billion 4.1 percent guaranteed notes due May 2023, as well as $500 million guaranteed floating-rate notes due May 2016 and $500 million guaranteed floating-rate notes due January 2019.

Glencore further revealed that the money would be used to repay outstanding debt and for “general corporate purposes”. According to bankers working on the deal, demand was strong with the order book coming in at $14 billion.
**Andrew Caplan Reportedly Set to Head Aluminium Unit**
Reuters reported on Thursday that according to an unnamed inside source, trader Andrew Caplan was set to become the new head of Glencore Xstrata’s aluminium division. Caplan would replace Gary Fegel, a Glencore veteran and the ninth largest Glencore Xstrata shareholder, who is due to step down this summer, marking the first senior Glencore executive to leave the commodities titan since it first listed its shares in 2011.

A relative newcomer by Glencore standards, Caplan joined the group in 2007 from rival Trafigura as an alumina trader, and now runs the firm’s global trading book for the commodity. He is also a director of Century Aluminum, a primary aluminium producer part-owned by Glencore.
**UN Looking into Potential Glencore Connection to Iran’s Nuclear Programme**

Trades by Glencore and Swiss peer Trafigura could have breached international sanctions by supplying raw material to a company linked to Iran’s nuclear programme, Reuters reported on Thursday, citing a confidential report on Iran prepared by a UN panel of experts and seen by the newswire.
Earlier this year it emerged that Glencore might have supplied thousands of tonnes of alumina to an Iranian firm linked to the country’s nuclear programme (click here). A Reuters report claimed at the time that according to a “Western intelligence report”, the commodities giant “provided Iralco [Iranian Aluminum Company] with thousands of tonnes of alumina last year in exchange for a lesser amount of aluminium metal.” Alumina is used to produce aluminium, which in turn can be used to make aluminium tubes for uranium enrichment gas centrifuges.


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