HOTTER ON METALS: The Glencore succession begins

Since its merger with Xstrata, Glencore - previously a trading and marketing firm - has become a mining firm whose earnings before interest, taxes, depreciation and amortization is dominated by earnings from its industrial activities. The recent appointment of Peter Freyberg as head of the company’s industrial mining assets, a newly created position with oversight and responsibility for all Glencore industrial mining assets, underscores that.

“Glencore's business has continued to transition over the last number of years to the extent that... the majority of our earnings now come from our industrial assets and not the pure trading part of the business,” Glencore chief executive officer Ivan Glasenberg said during the company's earnings call last week. 

“So we believe that the business requires a head of industrial mining assets to work alongside me and the rest of the senior management team who can focus his attention on coordinating better aspects of the mining assets and delivering on our goals of productivity, safety and sustainability,” he added.

Freyberg's new role, described by Glasenberg as a promotion after proving himself over the years, will begin next year. Freyberg has a wealth of industrial experience, having first come to Glencore when it bought Duiker Mining from Lonmim in 2000 before selling it to Xstrata in 2002. Before that, he’d worked around the world, in Indonesia, Brazil, Australia and Columbia, having attended the Johannesburg-based University of the Witwatersrand, as did Glasenberg.

The creation of the position makes sense, given Glencore’s focus on mining. It also sparked a reshuffle due to Freyberg’s replacement in coal by ferro-alloys assets head Gary Nagle and coincided with the departure of two of the company’s most long-serving managers, Telis Mistakidis and Stuart Cutler.

Their departures were inevitable at some point; as Glasenberg pointed out, there had been talk since the company listed in 2011 that its management would leave, something that - with the exception of the aluminium and iron ore departments - hadn’t really happened to date.

But, “there comes a time where the younger generation needs to take over,” Glasenberg said.

Traders Ruan Van Schalkwyk and Jason Kluk will take over as joint heads of the ferro-alloys marketing department when Cutler leaves; Mistakidis will be replaced by Nico Paraskevas. They’re clearly marked as rising stars within the group, which also counts a number of other young executives such as Nagle and head of nickel marketing Kenny Ives.

More of the senior managers appear likely to retire in the coming years; Glasenberg said he doesn’t know whether it will happen in the next two to three years or whether “some guys may want to stay longer.”

But the door has now been opened for a series of transitional departures of executives in their mid-50s, such as Daniel Mate and Tor Peterson, and possibly even 51-year old Alex Beard, whose oil department is under scrutiny as part of the US Department of Justice investigation into money laundering for which the company has been asked to provide documents.

The question is, when will the succession of Glasenberg, the man whose name is synonymous with Glencore, finally happen?

For the past few years, Glasenberg has been telling investors who asked that he would like to leave around the age of 65-67. He turns 62 in January, making that date in the next three to five years. It’s not a new declaration, but it’s become a lot more public, particularly amid the departures of Cutler and Mistakidis.

Ruling out Freyburg as his replacement for being “a bit long in the tooth,” Glasenberg has made his criteria for the person he passes the baton to clear.

“I hope he looks like me. I hope he has experience, has a knowledge of trading, has a knowledge of the assets. I hope he comes with an all-around knowledge of the business, and there are many candidates,” he said.

“When I go, it hopefully will be a 45-year-old who can take over and run the company for a lengthy period of time. It will come from that younger generation with an all-round knowledge of the business,” he added.

The transition has likely added petrol to the competitive fire that already burns intensely within the company, a spirit that has always been encouraged by senior management. Some of the recently promoted younger talent may need to get some more mining experience if they’re to pass muster as Glasenberg’s replacement when the time comes.

If and when he does walk away, Glasenberg says he thinks he’ll keep his shares in the firm, a vote of confidence for his successor and the team he leaves behind.

Backdrop
Yet so much can happen in the next few years. Looming large over the company is the Department of Justice investigation, which is reported to focus on Nigeria, Venezuela and the Democratic Republic of Congo. Glencore has oil activities in the first two countries and copper and cobalt activities in the third.

Aside from a spat in the DRC with Dan Gertler, an Israeli businessman with sanctions against him and his businesses since December, there were also problems with Katanga Mining prior to the subpoena.

Mistakidis and two other executives stepped down from the board of Katanga earlier this year after the completion of two investigations.

One was an independent review into the accounting practices of Katanga covering the financial years ended December 2014, 2015 and 2016 that ultimately concluded that various financial line items were misstated during those years. The second was an internal review by the Glencore board that led to the resignations of various Katanga executive directors, including Mistadikis.

Although Glencore implemented various structural and internal control changes across the copper department to enhance and strengthen its financial processes and procedures, it still faces an investigation into Katanga by the Ontario (Canada) Securities Commission (OSC).

That inquiry is looking into whether Katanga’s previously filed periodic public disclosures contain statements that are misleading in a material respect, along with the adequacy of Katanga’s corporate governance practices - and the related conduct of “certain directors and officers.”

Katanga has also been advised that OSC enforcement staff are reviewing Katanga’s risk disclosure in connection with applicable requirements under certain international bribery, government payment and anti-corruption laws, Glencore said in its 2017 annual report.

Whether Mistakidis would have left the company without this scrutiny is anyone’s guess; for whatever reason, the 57-year old obviously decided that, after 25 years, the time was right.

Glasenberg said that the DRC situation and a lack of full value ascribed by the market to its coal business were the reasons why the company’s stock is so undervalued. According to Deutsche Bank, Glencore’s share price has seen a roughly 25% underperformance through 2018.

Add to the mix the Department of Justice situation and the sanctions on UC Rusal - in which Glencore has an 8.75% stake - and there’s a mix of issues that Glencore’s management team will need to clean up in the coming months. Fresh blood in the form of a younger generation unconnected to the old guard might be just what Glencore needs.

Andrea Hotter

ahotter@fastmarkets.com

Published

Andrea Hotter

December 13, 2018

22:04 GMT

New York