Glencore: crime probe provision marks break with flamboyant past

Scars have the strange power to remind us our past is real, wrote Cormac McCarthy. For a time, Glencore chose to turn its back on its colourful history as a miner and trader active in countries where corruption is rife. Now newish boss Gary Nagle is attempting to recognise and atone for that past.

The London-listed miner has provisioned $1.5bn for potential fines and settlements. These could result from official probes into allegations of bribery and market manipulation.

Glencore no longer portrays itself as a gung-ho adventurer. Its narrative now describes a sustainable miner producing materials for electric vehicles and even backing UK battery-maker Britishvolt. It has convinced the City that holding on to dirty thermal coal assets enables a sensible rundown. Simply selling them would only sweep the carbon under the rug, it suggests.

That tale jars with the image of a miner under investigation for bribery and market manipulation by the US Department of Justice and relevant agencies in the UK, Brazil, Switzerland and the Netherlands. Formally owning up to the potential for fines and settlements reduces the dissonance, pointing to years of quiet negotiations with watchdogs and prosecutors. Glencore says $1.5bn is its best estimate. Some analysts anticipated potential costs of two to three times that amount.

Glencore can afford to put money aside given a huge increase in profits and cash flow last year. The group more than trebled free cash flow to $13bn after dividends, leaving room for extra returns to shareholders. Payouts of $4bn, including buybacks, were above the Visible Alpha consensus. That, combined with the modest provision, boosted the shares on a day when stocks of rivals were faltering.

What made the difference was Glencore’s mining side. This doubled ebitda to $17.1bn. The trading arm increased ebitda by just over a tenth. Viterra, the agricultural business owned in a joint venture with two Canadian pension funds, is not consolidated in Glencore group accounts. Last year, it generated roughly $2.2bn of ebitda, worth about $11bn of enterprise value even on the miner’s current low multiple, points out RBC. Bankers will hope for an initial public offering worth even more.

That would give shareholders an upbeat announcement to look forward to. The findings of official probes will make less cheerful reading. They may include detail more damaging to the group’s reputation than to its finances. Until these documents have been published, Glencore cannot claim to have drawn a line under its past.

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