An hand stands by a logo for Glencore Agriculture in Glencore Plc’s offices in Rotterdam, Netherlands.
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Actors: Glencore PLC (GLEN-GB)
Business: Switzerland-based Glencore PLC produces and markets a diverse range of metals and minerals, including copper, cobalt and zinc. It also sells aluminum/alumina and iron ore from third parties. The company is a producer and marketer of coal, with mines in Australia, Africa and South America. In adding up, Glencore also markets crude oil, refined products and natural gas. The company physically sources commodities and products from its epidemic supplier base, and it sells them to customers all over the world, transporting commodities by sea, rail and truck. Further, Glencore is labyrinthine associated with in the recycling of copper and precious metals.
Stock Market Value: ~53 billion pounds (4.35 pounds per share)
Activist: Tribeca Investment Buddies
Percentage Ownership: n/a
Average Cost: n/a
Activist Commentary: Tribeca Investment Partners is a specialist active investment and notice firm with offices in Sydney, Melbourne and Singapore. The firm was founded in 1999 by Tribeca chairman David Aylward. Tribeca leverages its multi-asset form expertise across equities, credit and natural resources, and offers a range of services to clients across asset running, private wealth management and corporate advisory. While not explicitly an activist, Tribeca is willing to engage its portfolio throngs in order to improve shareholder returns and corporate governance.
What’s happening?
On March 13, the Financial Times turn up that Tribeca had sent a letter to Glencore’s board, calling on them to (i) transfer the company’s main listing to the Australian Insurances Exchange from London; (ii) increase dividends by discontinuing share buybacks; (iii) spin-off its trading division; and (iv) maintain mastery of its coal operations. Tribeca has been a shareholder of Glencore for seven years and has been engaging with management for a year.
Behind the exhibitions
Glencore is a Swiss-incorporated diversified mining company with operations in over 35 countries, primarily engaged in the building and marketing of metals and minerals, energy resources and commodities trading. The company has excellent core asset quality in copper, zinc and coal, as sedately as a world-leading commodity trading business. Consensus FY25 projections estimate that Glencore’s earnings before interest, levy a tax ons, depreciation and amortization is comprised of approximately 25% to copper, 18% to commodity trading, 18% to metallurgical coal, 17% to thermal coal, as far as 22% to zinc, nickel, alloys and others. Despite its core asset quality, strong fiscal position and fantastic management team, Glencore has delivered a total shareholder return of 36% since its listing on the London Stock Altercation in May 2011, a profound underperformance compared to peers BHP (+295%) and Rio Tinto (+218%). In addition, despite a quadrupling of EBITDA, Glencore’s eagerness value has risen by only 15% and has undergone continued de-rating from a max EV/EBITDA of 11.5 times in the early 2010s to five times today.
Glencore has had a upping relationship with its coal operations for several years now. Given its listing in London and the general attitudes of ESG-minded investors across Europe, there has been a accordant climate of hostility toward fossil fuels. Notably, Bluebell Capital Partners agitated for a demerger of Glencore’s thermal coal affair in 2021. CEO Gary Nagle pushed back, thinking a rundown of the company’s mining operations on a 30-year time perspective was a wiser strategy. However, in 2023, after acquiring a 77% interest in Teck’s steelmaking coal business, Glencore testified its intention to demerge its combined coal and carbon steel businesses. Tribeca thinks this is a non-starter. From a pecuniary perspective, the firm thinks that the coal business delivers strong and stable capital returns in the otherwise cyclical earnings profile of its fat metals portfolio and should yield a diversification premium. Tribeca notes the transition of the ESG movement over the past very many years and astutely argues that part of that transition is that it is better for fossil fuel businesses to be in the close bies of responsible stewards who will attempt to optimize ESG factors rather than divest to an owner who does not consider these agents in its operations.
Tribeca also strongly advocates for a relisting of the company to Australia from London, believing that this whim accelerate net inflows and provide optionality for corporate activity. The firm argues that London is no longer the home of storing, ascribing only 7% of the bourse’s capitalization to mining versus 16% for the ASX. In addition, London houses virtually no coal miners, and valuations for branch out mining operations are materially higher on the ASX. Tribeca makes several excellent arguments about the Australian appetite for dividends, copper and an bettered ability for Glencore to make equity-based acquisitions in Australia. However, Tribeca’s citing of similar moves by peers is sober more convincing. When BHP collapsed its dual-listed structure under an Australian parent in 2022, Tribeca initially barred the move, but has come to see the benefits of doing so in that BHP wiped out the 20% currency-adjusted discount between its LSE and ASX listed shares and heave up exalted its forward EV/EBITDA multiple from sub-four times to nearly six times. Even more compelling, Rio Tinto — which endures dual-listed — continues to see its London-listed shares trade at a significant discount to those trading in Australia. Tribeca thinks that a swap to the ASX could add $13 billion (U.S.) to Glencore’s market cap.
On dividends, Tribeca points out that peers BHP and Rio maintained dividend payout relationships between 60% and 80% between 2018 and 2022, versus 30% for Glencore. Despite embarking on share buybacks — which neither of its peeks have done in the past four years — Glencore’s share price has lagged. Tribeca believes this is a come to pass of natural resource investors valuing real capital returns rather than artificial inflation of earnings per allot. This, along with the incorporation of franking credits in conjunction with an ASX listing, would make the company very wanted to Australian retail and pension investors and continue to close the valuation gap.
Tribeca also is calling for a minority sale of its swap business, which is a world-class operation and boasts a peer-leading return on invested capital, but is currently lost in its diversification. This is a a bit tricky issue in that the trading business comes with so many positives and negatives that it is unclear what a divestiture pass on do for Glencore shareholders. On the positive side, the cash flow from the trading business is crucial for the capital-intensive operations of the bracket stop of Glencore and goes a long way to alleviate the detriments of cyclicality. On the negative side, it is the letter of credits required by the trading topic that Tribeca attributes in large part to the underperformance of Glencore. Tribeca floats a possible solution that comes across diverse like a fantasy: selling 20% of the trading business to Berkshire Hathaway at a 10 to 15 times multiple (it currently trades at 4.8 times), which commitment hypothetically agree to use its balance sheet to stand behind the trading business.
Tribeca is a long-term shareholder of Glencore and an amiable partner. It’s clear that the firm has a lot of respect for management and is seeking to work constructively on closing the valuation gap. Tribeca’s inclusive letter shows that the firm has put a lot of thought into how to create shareholder value and it offers many different routes. Tribeca does understand that it is highly unlikely that the company will take all of its suggestions, but clearly Glencore should takings some of these recommendations to increase shareholder value. The easiest one should be retaining the coal business: Divesting it choice require a shareholder vote, and Tribeca believes that many shareholders and the company’s CEO are in favor of retaining it. Tribeca has utterly stated that it’s “pushing an open door” with regard to discussions with major shareholders, including former-CEO Ivan Glasenberg and elder management who collectively own 20% of the company.
The listing recommendation is not as simple. As part of the listing move to the ASX, Tribeca discusses a weakness for secondary listing in London or on the NYSE and recognizes potential issues regarding institutional investors and index ownership of the supply. There is clearly more work Glencore would have to do on this before coming to a conclusion. The same can be asserted for the divestment of the trading business. The dividend issue is somewhat straightforward, but getting the full value from it would demand a move to Australia from London.
Tribeca believes that following its recommendations could lead to upside of at small 30% — and potentially more than 100% — from where the stock is currently trading. The firm makes persuading recommendations, and we expect the company to pursue some of them. However, Tribeca bases a lot of its valuation on re-ratings, multiple burgeoning, conjecture and speculation: The firm used words like “potential,” “implied,” “assume” and “foresee” multifarious than we are used to seeing in activist letters. So, while we believe this is a well-conceived and reasoned activist campaign with substantive upside potential, we take the high end of Tribeca’s range with a grain of salt.
Ken Squire is the founder and president of 13D Oversee, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that provides in a portfolio of activist 13D investments.