Morningstar's Take on Glencore's IPO

There's a lot to like in Glencore's mining portfolio but many questions and concerns remain

Daniel Rohr, CFA 18 May, 2011 | 12:57PM Elizabeth Collins, CFA
Facebook Twitter LinkedIn

Executive Summary
Commodities trading giant Glencore recently released its IPO prospectus with an eye towards a public equity offering in London and Hong Kong later this month. The majority of this massive filing, a daunting 1,600+ page document, consists of third-party technical reports on key properties including Prodeco (Colombia thermal coal), Katanga (DRC copper), Mopani (Zambia copper), Mutanda (DRC copper), and Kazzinc (Kazakhstan).

While we think the independent assessments are, in most cases, a bit too aggressive in their valuation of Glencore's key properties, they're nonetheless very useful to investors, given the extensive detail provided therein. By contrast, the level of detail provided by Glencore itself on its globe-spanning trading and marketing operations left much to be desired. Investors seeking a better understanding of just how much of the marketing arm's profits are attributable to basic supply chain activities and arbitrage—as opposed to speculative directional bets—won't find much hard data on which to base a conclusion. Given the critical importance of this issue to valuing Glencore as a whole, we'd encourage prospective investors to exercise caution.

Key Takeaways
-- Glencore shares offer an interesting way to play secular commodities demand growth. In addition to the high-beta mining cash flows that investors can obtain from any number of mining stocks, Glencore also offers exposure to lower-beta marketing cash flows that should suffer less in a sharp and sustained commodity price slump.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Daniel Rohr, CFA  is a senior equity analyst at Morningstar.