I’m quite an admirer of Glencore. Regular readers will recall that a while ago, my colleague, Anthony Lipmann, wrote an article describing the way the company cleaned up the sulphur emissions from it’s (recently-acquired) Mufulira copper plant - and that’s after the British and Zambians had failed to do anything about the pollution for generations. It cost them a lot of money, but it was the right thing to do. The basis of my own respect for the company comes from the way they still behave like a genuine physical trader - they deliver material on time to their customers’ plants. That may sound obvious, but amongst all the games to play - the warehousing, the pricings - they, unlike some of their competitors, remember the importance of this end result. Yes, they make fortunes out of the games as well, but unhappy customers - as far as I am aware - are unusual. That’s important, in this world where the click of a mouse on an electronic screen is often seen as the essence of ‘trading’. It’s a lesson to be remembered.
But the Share Price...
However, there is one area where things have perhaps not gone as well as one could have hoped. I am, of course, talking about the share price. It has broadly dropped ever since flotation back in May 2011, taking in the merger with Xstrata two years or so later. One could give two equally cogent reasons for this, one innocent and the other imputing conspiracy.
First, it would be legitimate simply to observe that commodities have fallen out of favour since the glory days of the ‘super-cycle’ and that as price of industrial raw materials have dropped, so the share price of those who produce them has done the same. After all, BHP Billiton, Anglo and Rio have all seen their stock price wallowing around. Why would miners not suffer when the world doesn’t want to pay so much for their products?
Dark Forces and Sorcery
But that simple logic is not good enough for the naysayers. No, they cry, dark forces are at work. Glasenberg and his (no doubt) black-cloaked fellow conspirators are sorcerers who must have seen something in their crystal ball and picked their moment to get out and leave the gullible investors to take the pain. Quite a few newspaper column inches and screen pixels have been used to put forward this take on events. There are problems with that theory, though; first, although I have obviously no insight into the finances of the Glencore powerbrokers, I would hazard an intelligent guess that they are as interested as any other investor in seeing the value of the company as high as possible - let’s face it, in general, they still hold more than they sold. Secondly, although I take my hat off to them as smart traders, foreseeing the particular co-incidence of events that has caused the world for the moment to fall out of love with commodities is probably asking a bit much. And anyway, surely if you were able to make that prediction, you would have chosen a different moment to jump into bed with a major mining company; perhaps waiting first for a further decline in its value?
On balance, I think we have to go with the first premise - yes, it was reasonable to act at roughly the top of the cycle (which many were saying at the time), but no, it wasn’t a trap for unwary speculators.
However, there may be an opportunity coming. Contacts of mine in the coal business are suggesting that the price of thermal coal is looking like it’s close to bottoming out. Thermal coal is important to Glencore. Perhaps it’s time to look again, and if - by keeping an eye on the directors’ interests and the share register - we can see signs that the sorcerers of Zug are buying more, that may be the signal.
On an unrelated topic, last week I wrote about the imbalance between the rewards in the banking industry between employees and shareholders (and thank you to all who pointed out that it is not only in the banking industry). Two stories that one could see as related appeared during the week. First, Bloomberg reported that Jamie Dimon has ‘become a billionaire’. That’s Jamie Dimon, as in the CEO of JP Morgan. Now, I don’t think anyone would deny that he has navigated JP Morgan through the storms of the last years with a consummate skill which has led many of his competitors floundering. John Pierpont Morgan, effectively the founder of the company that bears his name, was undoubtedly a billionaire in today’s money. But am I alone in seeing a difference? John Pierpont put the company together with his own fortune at risk; Jamie took a job. It’s a strange evolution of the world.
The other story was from Deutsche Bank, where the two co-heads have quit. Why? Because they felt they had presided over a failure to see adequate performance for shareholders.