Tuesday, March 8, 2011

The biggest company you never heard of

On Christmas Eve 2008, in the depths of the global financial crisis, Katanga Mining accepted a lifeline it could not refuse.
The Toronto-listed company had lost 97 percent of its market value over the previous six months and was running out of cash. Needing to finance its mining projects in the Democratic Republic of Congo -- a country which has some of the world's richest reserves of copper and cobalt -- Katanga's executives had sounded the alarm and made a string of calls for help.

Global credit was drying up, the copper market had fallen 70 percent in just five months, and Congo -- still struggling to recover from a civil war that killed some five million people - was the last place an investor wanted to be.

One company, though, was interested. Executives in the wealthy Swiss village of Baar, working in the wood-panelled conference rooms in Glencore International's white metallic headquarters, did their sums and were prepared to make a deal. Their terms were simple.

They wanted control.

For about $500 million in a convertible loan and rights issue, Katanga agreed to issue more than a billion new shares and hand what would become a stake of 74 percent to Glencore, the world's biggest commodities trading group. Today, with copper prices regularly setting records above $10,000 a tone, Katanga's stock market value is nearly $3.2 billion.

Deals like Katanga have helped turn Glencore into Switzerland's top-grossing company and earned it comparisons with investment banking giant Goldman Sachs.

In the world of physical trading -- buying, transporting and selling the basic stuff the world needs -- Glencore is omnipresent and controversial, just as Goldman is in banking. Bigger than Nestle, Novartis and UBS in terms of revenues, Glencore's network of 2,000 traders, lawyers, accountants and other staff in 40 countries gives it real-time market and political intelligence on everything from oil markets in Central Asia to what sugar's doing in southeast Asia. Young, arrogant, and often brilliant, its staff dominate their market. The firm's top executives have forged alliances with Russian oligarchs and well-connected African mining magnates. Like Goldman, Glencore uses its considerable heft to extract the best possible terms in every deal it does.

Some might add that Glencore also fits the description that Rolling Stone magazine gave to Goldman: "a great vampire squid wrapped around the face of humanity".

Special report: The biggest company you never heard of
Fri, Feb 25 2011
Eric Onstad, Laura MacInnis and Quentin Webb

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