Wednesday tips round-up: Glencore, ICAP
It has been a bad time for the big beasts in mining since Glencore and Xstrata started their attempt to merge a year ago. RIP Tom Albanese, forced to quit as chief executive of Rio Tinto after massive writedowns. The global mining industry was never prone to high-level defenestrations, but many of the global majors misread the commodities cycle and overspent on acquisitions or were gung-ho at opening huge new projects. Xstrata and Glencore have had their own problems at key assets, but these have been down to operational issues.
Furthermore, the fourth quarter saw the two getting to grips with the problems. There is a deal with the local power company to upgrade supply in the Democraic Republic of Congo (DRC); Glencore is building a new port on the Colombian coast to allow coal to be loaded directly on to vessels. Taking a broader view, the merged group will be the fourth-largest miner of copper, a metal increasingly hard to source, and will get a quarter of earnings from this. The cash-flow from Xstrata will be used to fund Glencore’s acquisition programme — since the merger process kicked off, it has paid £4bn for Viterra, the Canadian grain business. The two will update the market on earnings on March 5th and will be under pressure to give a clearer idea of acquisition policy. I tipped Glencore shares for 2013 and they have comfortably outpaced the market. I suspect they are due for another lift once the deal finally closes, The Times´s Tempus says.
“I suggested last week that it might be best to avoid Icap, if, like me, you took a cautious view of the outcome of the Libor scandal,” Tempus comments. The shares lost another 5 1/2p to 352 1/4p after suggestions that American authorities were taking an interest. This should be no surprise, but, as a note from Numis Securities makes clear, until the uncertainty is cleared up and there are clearer signs that US interest rates are rising, there seems no compelling reason to own the shares, Tempus adds.
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