Xstrata wit Glencore..............large players inna Commodities especially Chrome!

Just da way I see dat!

HardRock

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http://www.bloomberg.com/apps/news?p...

Glencore Parries Attacks on Secrecy as Debt Rises (Update1)

By Saijel Kishan and Simon Casey

Ivan Glasenberg, president of Glencore International AG

July 30 (Bloomberg) -- The two truckloads of metal that rolled out of Glencore International AG's Mopani Copper Mines in Zambia in February never made it to their destination at the Indian Ocean port of Durban, South Africa. Hijackers got to the trucks first, overcoming both the drivers and the satellite tracking system designed to disable the vehicles remotely in the event of an emergency.

``It's a growing problem,'' says Shaun Sinden, general manager of ESO Trucking in Johannesburg, which has been moving minerals across Africa for 30 years. Glencore, the world's largest commodities trader, faces risks ranging from robbery to strikes to government confiscation. The closely held Baar, Switzerland-based company operates on six continents and produces and trades billions of dollars of oil, coal, metals and grain every day.

Glencore also owns a controlling stake in publicly traded Xstrata Plc, the world's fifth-biggest mining company by revenue, and 12 percent of Moscow-based United Co. Rusal, the biggest aluminum producer.

``Glencore is probably one of the best-run companies that, really, no one has ever heard of,'' says Phil Roantree, who helps manage 24.8 billion pounds ($50.4 billion), including Glencore debt, at New Star Asset Management in London.

Glencore was founded in 1974 by former fugitive financier Marc Rich, who sold out to the current owners in 1994. Rich was indicted in 1983 by U.S. Attorney and future New York City Mayor and presidential candidate Rudolph Giuliani for tax evasion and buying oil from Iran in violation of U.S. sanctions. He was pardoned in 2001 by President Bill Clinton, whose wife, Hillary, is also running for president.

Tin Mine Seized

Earlier this year, the 10,000 miners Glencore employs at Mopani went on strike to demand a pay raise. Around the same time, the Bolivian government seized a Glencore tin mine. In Russia, one of Glencore's partners in a $1 billion oil venture is under investigation for ``illegal business activity.'' And Glencore, after being accused in 2005 by a United Nations commission of paying ``illicit surcharges'' to Saddam Hussein for Iraqi oil in 2001-02, is awaiting the conclusion of a Swiss criminal investigation into such payments. The company denies any wrongdoing.

Glencore, which is now owned by a corps of senior executives, has, for most of its history, kept public disclosures to a minimum. As recently as 2003, its Web site consisted of a single page bearing its logo and address. Ivan Glasenberg, a coal trader under Rich who has been chief executive officer of Glencore since 2002, gave his last published interview -- to an industry publication called Metal Bulletin -- in 2003. He refused to allow any of his employees to be interviewed for this article and denied access to his trading floors and industrial plants.

Close to the Vest

``Glencore is a company that plays its cards close to its chest,'' says Jonathan Pitkanen, an analyst at Aviva Plc's Morley Fund Management Ltd. unit in London, which oversees 55 billion pounds in fixed-income assets, including Glencore debt. ``The fact that they don't give out that much information is a negative.''

The veil, however, is now lifting because Glencore is eager to secure its sources of metal, coal and oil by buying commodity producers -- and it is issuing debt to do so. Glencore has raised $6.5 billion in the bond markets since 1996, when it first sold debt, forcing it to disclose financial details to investors and rating companies.

Moody's Investors Service and Standard & Poor's both give Glencore bonds and bank loans their lowest investment-grade rating, citing the risks it takes in Russia, the company's continuing penchant for secrecy and the allocation of most of its earnings to a company profit-sharing plan that is a drain on cash flow. The profit-sharing plan now holds $12.6 billion, according to a May Glencore earnings report, up from $10.9 billion in 2006.

$116 Billion in Revenue

The fund has grown along with Glencore's profits. Net income in the first quarter surged 84 percent to $1.9 billion, according to the May report. Revenue in the quarter rose 21 percent to $30 billion. Net income for 2006 was $5.3 billion on sales of $116 billion. Glencore's annual profit has increased more than fivefold since Glasenberg, 50, took the helm five years ago.

Glencore -- the name is an abbreviation of ''global energy commodity resources'' -- has 2,000 employees in 50 offices in more than 40 countries, according to the company's Web site. Most of them work out of Glencore's trading offices in Baar, Switzerland; London; Singapore; and Stamford, Connecticut. Its Baar headquarters is in the Swiss canton of Zug, home to many global commodity companies taking advantage of the canton's low taxes and Swiss secrecy laws.

50,000 Workers

Glencore's industrial subsidiaries employ 50,000 people in 14 countries, according to a February presentation to prospective bond buyers. In addition, the company operates more than 100 ships and runs 50 oil tank farms worldwide. Glencore says on its Web site that 3 percent of the world's oil is sold by its traders. Customers for its metals include Sony Corp., the world's largest video-game console maker, and Volkswagen AG, Europe's biggest carmaker.

The fact that Glencore is a private company allows it to make fast trading and acquisition decisions. ``They don't spend much time in shareholder meetings,'' says Morgan Stanley CEO John Mack. ``They spend their time doing business. They can move very quickly with zero bureaucracy.'' Mack, 62, has known South African-born Glasenberg since Mack was CEO of Zurich-based Credit Suisse Group from 2001 to '04.

Last year, Glencore formed a commodity derivatives trading unit with Credit Suisse, through which the two firms are trading oil and metals futures contracts.

Youth Corps

The executive team under Glasenberg is notable for its youth. Chief Financial Officer Steven Kalmin is 36 and joined the company in 1999. The co-heads of the aluminum division, Steven Blumgart and Gary Fegel, are both 34. The oil unit is run by Alex Beard, 39.

``The management at Glencore are among the most savvy and intelligent people around,'' says Dwight Anderson, 40, founder of Ospraie Management LLC, a $7 billion commodities hedge fund in New York that trades in the same markets as Glencore. ``They have a culture that doesn't put up with mediocrity.''

Glencore doesn't take job applications for senior positions. ``They tend to grow their own talent, and all are steeped in the shared corporate culture,'' says David Sassoon, who worked with Glencore Chairman Willy Strothotte as a metals trader in the 1970s and now runs Chempro, a metals company in Lucerne, Switzerland. ``On the occasions where executives leave or retire, the replacement appears to be conducted with the minimum of fuss, and the business appears to continue to hum along.''

Grueling Schedules

Former employees say Glencore traders maintain a grueling schedule, traveling constantly to every corner of the globe, organizing shiploads of metals and tanker fleets of oil. When they're not traveling, they're on their BlackBerries at all hours, negotiating prices and moving shipments from one location to another, says one former Glencore trader who now runs his own commodities firm and who can't be identified because he signed a confidentiality agreement when he left Glencore.

Another ex-Glencore trader says that the long days and constant pressure to do deals drove him out of Glencore in the early 1990s at the age of 40.

For a decade, Glencore's top priority has been to buy up assets to use in trading. It has spent $10 billion on acquisitions since 1995 and has been especially busy in the past year. In August 2006, it paid an undisclosed amount for a 51 percent stake in a 75,000-barrel-a-day oil refinery in Colombia. Colombian partner Ecopetrol SA said in April that it would invest $2 billion in the plant along with Glencore to double production. The price of crude oil has almost tripled in the past five years and traded at $76.67 a barrel on the New York Mercantile Exchange today.

From Russia to Congo

In March, Glencore agreed to merge its aluminum assets in Russia with those of OAO Russian Aluminium and OAO Sual Group, forming United Co. Rusal, which is headed by Russian billionaire Oleg Deripaska.

In June, Glencore paid 150 million pounds for 25 million shares, or 12 percent, of Nikanor Plc, a London-listed company that owns and plans to rehabilitate an abandoned mine in the Congo. Glencore agreed to buy all of the mine's copper and cobalt.

Glencore's sister company, Zug-based Xstrata, which mines coal, copper, gold, vanadium, zinc and other metals in 18 countries, has also been on a buying spree. In the past four years, Xstrata has spent $30.7 billion on acquisitions. Its biggest purchase: $18 billion to acquire Canadian nickel-mining company Falconbridge Ltd. last year.

Glencore holds a 34 percent stake in Xstrata, worth $20.6 billion as of July 27. Glencore Chairman Strothotte, 63, is also chairman of Xstrata, and Glasenberg is a member of Xstrata's board. Xstrata CEO Mick Davis, 49, was a lecturer at the University of the Witwatersrand in Johannesburg when Glasenberg was a student there in the 1970s.

Political Risk

Xstrata's stock has risen five-fold in value since its 2002 initial public offering in London. On July 27 it closed at 3,077 pence, up 21 percent this year.

In 2004 Standard & Poor's lowered Glencore's corporate credit and bank loan rating one level to BBB-, the lowest investment grade, citing political risk the company had taken in Russia as one reason. Moody's also gives Glencore debt its lowest investment-grade rating, Baa3. In a March report, Moody's said it wanted to see more transparency in Glencore's financial reporting.

After taking a new look at Glencore in September 2006, S&P refused to raise its rating, saying one factor was the company's ``aggressive'' profit-sharing plan, which awards most profits to the approximately 450 employees with an equity stake in the company.

Under that program, 85 percent of net income is allocated to the owners, according to a March presentation to bondholders. Glencore's top 12 managers own 31 percent of the $12.6 billion fund, with none holding more than 10 percent. The rest is held by other managers.

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