Glencore Xstrata Kicks Off £4bn Mining Sale
The mining and commodities group created by the recent merger of Glencore and Xstrata is kicking off the sale of a £4bn Peruvian project demanded by China’s government to secure approval for their deal.
Sky News understands that Glencore Xstrata has appointed BMO Capital Markets and Credit Suisse to identify potential buyers of the Las Bambas project, which is one of the largest copper-mining prospects in the world.
The banks have begun canvassing possible bidders after a commitment made by Glencore Xstrata to launch a sale of Las Bambas by the middle of July. Estimates of its value range among analysts from between £2.6bn to £5.2bn.
The approval from Beijing in April was one of the last remaining obstacles to the merger of Glencore and Xstrata, which created one of the biggest resources groups in the world.
In a statement in April, Glencore said:
“If Glencore fails to enter into a binding sale and purchase agreement by 30 September 2014 or fails to complete the transfer of its ownership interest in Las Bambas by 30 June 2015 then, unless otherwise agreed by MOFCOM [Beijing's Ministry of Commerce], Glencore must appoint a divestiture trustee to sell by way of auction its ownership interest in one of [copper assets in] Tampakan, Frieda River, El Pachón or Alumbrera, as designated by MOFCOM, at no minimum price within three months from 1 October 2014 or 1 July 2015.”
Two other investment banks will also be appointed to supervise the Las Bambas mine during the sale process.
The Chinese government’s insistence on the disposal underlines Beijing’s heightened awareness of consolidation in the natural resources sector as its economy demands increasing volumes of commodities to support its expansion.
Glencore Xstrata has had a turbulent start to life as a combined company, with Sir John Bond, the former Xstrata chairman, ousted at last week’s annual meeting. Investors were dismayed by an agreement to pay hundreds of millions of pounds to senior Xstrata managers to keep them at the merged company, a plan that was eventually modified.
This week, Glencore Xstrata launched a $5bn bond issue to help pay down debts.
A Glencore Xstrata spokesman declined to comment on the appointment of BMO and Credit Suisse.
Gas: UK ‘Was Six Hours From Running Out’
Britain was six hours from running out of gas in March, it has been reported.
High demand during record cold temperatures during the month combined with a pipeline fault to drive stores of gas “dangerously low”, the Crown Estate said.
But National Grid, which pipes gas around the UK, insisted the nation has “substantial resilience” and diverse supply sources, including access to imports of liquefied natural gas (LNG).
At the time, reports said Britain was two days from running out of stored gas, but the Crown Estate, which manages the Queen’s property portfolio – including vast underground gas caverns – said it came even closer to supply interruptions.
The supply squeeze will raise concern over Britain’s increasing reliance on energy imports as domestic production falls, and add to fears over rising energy bills.
Rob Hastings, energy and infrastructure director at the Crown Estate, was reported by the Financial Times as saying: “We really only had six hours’ worth of gas left in storage as a buffer.
“If it had run any lower it would have meant … interruptions to supply.
“The bottom line is that in the UK we are in a place where the gas supply is dangerously low.”
The Crown Estate owns the rights to gas storage caverns under the UK seabed. Energy firms use these caverns to build up supplies of natural gas during warmer months.
While Britain’s storage capacity has increased in recent years, energy watchdog Ofgem says it still lags behind other major European economies on gas storage because of its historic role as a producer.
The March supply squeeze was caused by problems at a processing plant in Norway that supplies gas to Britain through the Langeled pipeline, plus disrupted supplies between Belgium and the UK.
Gas storage levels were already low after an exceptionally cold winter.
However, Nick Winser, executive director of National Grid, said: “It is true that there wasn’t a huge amount of storage left – but there never is at the end of winter.
“The UK has low storage levels by international standards, but there is a large diversity of (supply) sources. Our gas supply resilience is quite substantial.”
Energy giant SSE this week warned higher wholesale power prices will push up household bills as it reported a 5.6% rise in underlying annual profits to £1.4bn.
It said: “Unless there is a sustained reduction in prices in wholesale gas and electricity markets, it is highly likely that these additional costs will eventually have to be reflected in higher prices for household customers.”
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Tory MP Garnier Challenges Barclays Reforms
A member of the Parliamentary Commission on Banking Standards has launched a blistering attack on Barclays’ efforts to rehabilitate its reputation under its new chief executive, Antony Jenkins.
In comments to Sky News, Mark Garnier, a Conservative MP whose earlier career included a stint as an investment banker, said the bank was failing to deliver on a pledge to become a more customer-focused business.
Mr Garnier said he would be writing to Mr Jenkins on behalf of a constituent to complain about an unspecified service matter, and that it reflected an ongoing concern about the way that British banks dealt with ordinary customers.
“I am shocked about the way that Barclays appears to be ignoring the interests of its customers. I would question whether Mr Jenkins’ Transform programme is having anything like the desired effect,” he said.
Mr Garnier added that Barclays had not replied to his constituent’s complaint directly and that he had been forced to take up the matter on their behalf.
Transform was the name given by Mr Jenkins in February to his efforts to overhaul Barclays, and includes a new set of values aimed at improving the bank’s dealings with customers.
Barclays has also closed some of the business areas which caused reputational damage to the bank, such as the unit which created complex tax-structuring transactions for clients.
Mr Garnier’s remarks are significant because they come just weeks before the PCBS is due to publish its final report, which will include a series of recommendations for reforms to Britain’s banking sector.
Chaired by Andrew Tyrie, another Conservative MP, the Commission was set up by George Osborne, the Chancellor, in the aftermath of Barclays’ £290m fine last summer for fixing the Libor benchmark interest rate.
The PCBS is expected to say that Britain’s retail banking sector remains too concentrated despite plans for both Lloyds Banking Group and Royal Bank of Scotland to offload nearly 1000 branches between them.
Barclays declined to comment, saying it had not seen the details of any complaint.
Co-op Bank To Stop Issuing New Business Loans
The Co-operative Bank says it will stop lending to new corporate customers as it seeks to repair a major hole in its finances.
The move comes after credit ratings agency Moody’s downgraded the bank to junk status, forcing it to issue a statement that it did not need to be rescued by the taxpayer.
The Co-op is seeking to rebuild capital strength amid reports it faces a £1bn shortfall as regulations forcing banks to hold larger cash reserves take effect.
It has recently begun trying to shore up its finances by disposing of assets such as its life and general insurance businesses.
Last month, it pulled out of a deal to buy more than 600 Lloyds banking branches.
Today it emerged that it had gone a step further by stopping its lending to new corporate customers for the rest of 2013.
Loans for existing business clients would continue to be serviced, it said.
A statement from the bank said: “Following the appointment of (CEO) Euan Sutherland, the group started a review of the Co-operative Bank, its capital and lending position and its commercial strategy.
“That review is ongoing, however an early decision was to confirm that the primary focus of the banking business is to be directed at serving and expanding our presence amongst retail customers whilst continuing to support our existing business customers.
“This is in line with our previously taken commercial, strategic decision that we would focus our energies and capital on these sectors of the market and would not, at this time, grow our corporate lending business.
“We are, therefore, no longer lending to new corporate customers.”
The move will be viewed as a setback for Government policymakers keen to stimulate the economy by encouraging banks to lend to small and medium-sized enterprises (SMEs).
Recent Government initiative the Funding For Lending Programme was intended to channel public money through banks to SMEs, but capital requirements for banks imposed by regulators have precluded the Co-operative Bank from participating fully.
The Co-operative Bank has been dragged down by its 2009 rescue of Britannia, then Britain’s second-biggest building society.
It inherited toxic commercial property and home loans that dragged it to losses of £662m in 2012.
It is reported to be in talks with City watchdog the Prudential Regulation Authority about splitting itself into a good bank and bad bank, with toxic assets hived off from the healthy business.
BAT Smokes Out E-Cigarette Rivals
British American Tobacco (BAT) is preparing to launch its biggest assault to date on the electronic cigarette market as it attempts to bolster sales of tobacco substitute products.
Sky News understands that the world’s second-biggest tobacco company by sales is to launch Vype, a new e-cigarette brand, in the UK, France and Germany in the coming months.
The launch, which will be backed by a multimillion pound marketing budget, follows BAT’s acquisition last year of CN Creative, a Manchester-based company that specialises in e-cigarette products.
It comes as the major tobacco companies continue to face growing clampdowns on their ability to package and market conventional cigarette products, even in markets where they have previously enjoyed the freedom to do so.
Nicandro Durante, BAT chief executive, has previously forecast that tobacco alternatives could make up 40% of the company’s revenue in 20 years’ time, which would probably make them responsible for at least £10bn of annual sales based on current growth rates.
Insiders said that Vype would be a renamed CN Creative product rather than an entirely new launch.
The push into a category dubbed ‘safer cigarettes’ has angered some campaigners who believe they are a public relations exercise whose real purpose is to encourage young consumers to become familiar with the habit of smoking.
The row over cigarette packaging recently intensified with the Government’s decision to drop legislation that would have forced manufacturers to use only plain packaging to sell their products.
BAT declined to comment on Vype.