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Glencore Spinning Off Lonmin Stake, Cutting CapEx

Posted by February 11, 2015

Lonmin shares down 6 pct, Glencore (GLCNF) shares little changed.

By Silvia Antonioli

CAPE TOWN, Feb 11 (Reuters) - Miner and commodities trader Glencore will spin-off its stake in troubled platinum producer Lonmin and cut capital spending to help it cope with a plunge in commodity prices, it said on Wednesday.

Like peers, Glencore has been hit by a rout in prices of commodities such as copper, coal and oil in recent months. Its shares have fallen by about 9 percent this year.

"What this feels like to me is that Ivan (Glasenberg, Glencore's CEO) is trying to get ahead of the story again, to make himself look proactive and everyone else reactive," said Bernstein analyst Paul Gait, who rates Glencore "outperform".

"Both of those measures fit the same strategic goal from a Glencore perspective: to show leadership, like they did with the buyback."

Last year Glencore was the first mining firm to deliver on promises to return cash to shareholders.

Responding to what it called a "volatile market backdrop," Swiss-based Glencore said it would cut "sustaining and expansionary" capital spending for this year to $6.5-$6.8 billion, with reductions across its businesses. In December, it had forecast spending of $7.9 billion this year.

"(This) suggests the slowdown in commodity prices has surprised them," Citi analysts said in a note. They have a "buy" rating on Glencore shares.

Glencore also said it would distribute its 23.9 percent stake in Lonmin to its shareholders in the first half this year. It had already signalled it would divest the stake, inherited through the purchase of Xstrata (XSRAF.PK) in 2013, as platinum is not one of the commodities it trades.

"Our desire to distribute the Lonmin shares reflects our philosophy not a view on Lonmin or platinum," Glasenberg said.

Lonmin has been battered by a 5-month industry strike, rising costs and weak platinum prices in the last year and its stock has lost about half of its value.

Glencore said a spin-off, which is subject to approval by its shareholders, was a better option than a sale at this point. Platinum prices have been stubbornly low in the last year, weighing on producers' stocks and asset values.

Lonmin said separately it was encouraged Glencore senior managers had indicated they did not currently intend to sell Lonmin shares they will receive in the spin-off.

However, Lonmin shares fell about 6 percent on concerns other Glencore shareholders might do so. Glencore shares were up 0.7 percent at 272.9 pence.

Glencore reported a 4 percent rise in annual copper production, a 6 percent increase in coal output and flat zinc production for 2014, roughly in line with analysts expectations. It said its closely-watched trading unit also performed in line with expectations.

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