Picture: REUTERS
Picture: REUTERS

Glencore’s share price fell the most in three months on Monday on news of yet another investigation into the mining and trading group’s dealings, this time by the office of the attorney-general of Switzerland.

The company, which is headed by SA-born billionaire Ivan Glasenberg, notified the market on Monday that the office had opened a criminal investigation into the group “for failure to have the organisational measures in place to prevent alleged corruption in the Democratic Republic of the Congo”.

The announcement comes as Glencore grapples with a tough macroeconomic environment, which has been worsened by the Covid-19 pandemic and global lockdowns. Due to corporate governance concerns the share has halved in value since mid-2018 and it trades at a discount to its peers in part because they have iron ore in their portfolios while Glencore does not.

The company’s share price slid 6.48% to R35.36 on Monday.

Glencore is already the subject of a probe by the US department of justice, which became publicly known in July 2018 when the group was subpoenaed to produce documents and other records relating to its activities in the Democratic Republic of the Congo (DRC), Venezuela and Nigeria and with respect to compliance with the Foreign Corrupt Practices Act and US money laundering statutes.

The probe is ongoing, while others have since been launched into the group by the US Commodity Futures Trading Commission and UK’s Serious Fraud Office.

Switzerland has been supporting governance efforts in natural resources in recent years. A low tax jurisdiction, Switzerland has become the world’s largest commodity trading hub and is home to the headquarters of many major trading companies such as Glencore, Vitol and Trafigura.

In response to questions, the office of the attorney-general said it had conducted extensive investigations into extractive industries and after receiving a criminal complaint in December 2017, it initiated criminal proceedings in May 2019 on suspicion of bribery of foreign officials against unknown perpetrators and not certain natural or legal persons.

Within this “thematic context”, the office said it opened a second case in June this year, this time against Glencore.

“The presumption of innocence applies to all parties to the proceedings,” the office said, noting it would not provide further information.

Ben Davis, analyst at Liberum Capital, said the muted market reaction is because the Swiss probe adds only incremental uncertainty, given that there are other investigations on the go.

Thishan Govender, equity analyst at Truffle Asset Management, said that before the Covid-19 pandemic there was an expectation in the market that the investigations against Glencore would culminate in a fine towards the end of 2020 or in early 2021. Glasenberg, who is known to be mulling a succession plan, is likely to retire shortly thereafter.

“That said, I don’t think we are likely to see a rerating [of the share price] back to long run averages,” Govender said. “The lower rating going forward will be a function of corporate governance issues that, in my opinion, will always be an overhang as the market will never get full comfort of how their marketing trading business works.”

When that is coupled with the group’s large exposure to coal, which is increasing under pressure as climate change concerns mount, “Glencore falls out of the investable universe for some large institutional and sovereign wealth fund investors”, Govender said. “In my opinion there will always be a discount now built in to its own history” because of environmental, social and governance (ESG) concerns.

Davis said he does not think it is possible for Glencore’s reputation to change without a major company restructuring. “As it is today it will always be seen through this lens of alleged corrupt practises in the DRC and its coal exposure,” he said.

steynl@businesslive.co.za