Glencore acquisition of Chevron assets on track
Resources giant expects to own Chevron refinery and distribution assets by end-June
Glencore expects to finalise its acquisition of Chevron SA's assets by the end of June 2019, the diversified natural resource company said on Wednesday.
“We are going through the process there and expect it to be concluded in the first half of the year,” said Glencore’s SA-born CEO, Ivan Glasenberg.
He said he foresaw no issues in finalising the transaction, and it was not possible for Chevron SA, which has been renamed Astron Energy, to back out of the deal either.
Glencore lent Chevron SA’s empowerment partner, Off The Shelf Investments 56, $1bn to acquire a 75% stake in the company on condition that the stake was transferred to Glencore. The assets include a 110,000 barrel-a-day refinery, a lubricants plant, 820 petrol stations and oil storage facilities.
Off The Shelf’s acquisition was approved by the Competition Tribunal in September 2018. But in a report the Competition Commission said Glencore’s later acquisition of the stake would also require approval from the competition authorities.
Commission spokesperson Sipho Ngwema said the proposed transaction is now before the commission.
In its results for the year ended December 2018 Glencore’s net profit dived 41% to $3.4bn with earnings per share down $17c to $24c per share. This was due mainly to noncash impairments of $1.4bn at copper operations Mutanda and Mopani in the Democratic Republic of Congo and Zambia respectively.
Net debt rose $4.5bn to reach $14.7bn. This was partly because of costs related to mergers and acquisitions, the $1bn loan to Astron Energy included.
Operating profit, measured as earnings before interest, tax, depreciation and amortisation, reached a record high of $15.8bn – up 8% on the previous year.
Through share buybacks, Glencore returned $5.2bn to shareholders, about 36c per share. Further distributions will continue into 2019 with $2bn in expected buybacks to be completed by December.
New mining codes that came into effect in the Congo in January had a big impact on the company’s costs in the country. Under the new code, Glencore is paying higher royalties on minerals production. “We are paying under protest,” said CFO Steven Kalmin.
Glencore is seeking to negotiate the matter, now that a new government has been elected, but Glasenberg said Glencore was prepared to go to arbitration if need be.
The group also announced a move away from coal despite the higher coal prices bringing in strong cash flows for the year and accounting for 33% of the group’s operating profit.
This does not mean the company will divest from coal operations in SA, Australia and Colombia, but rather it is committed to capping annual production of 150,000 tons a year, Glasenberg said.
The company is “rebalancing” the portfolio towards commodities that support the transition to a low-carbon economy. The company is well placed to do so already being invested in commodities like cobalt, zinc, nickel and copper, which are key components for new low emissions technologies.
There was no update on the probe by the US justice department, which in July 2018 subpoenaed Glencore for documents under US antimoney laundering and corruption laws. The news took R100bn off the stock’s market value and the share price is yet to recover. Glencore said it has created board committees to oversee the group’s response to the US investigation and its key ethics, compliance, culture and governance matters.