Glencore Entrepreneurialismfullypriced

Glencore
BASIC MATERIALS
0805.HK 805 HK
EQUITY RESEARCH
Initiating at NEUTRAL with TP of HKD70.40
May 31, 2011 Rating Starts at Target price Starts at70.40 Closing price May 30, 2011 Potential upside
Entrepreneurialism fully priced
Neutral
HKD 70.40 HKD 67.40 +4.5%
Action/Valuation: Expensive relative to mining peers; NEUTRAL Glencore is evolving from a trading house whose mining assets principally served to feed its marketing business into one whose mining assets become the key driver of group earnings. Although we find Glencore's management to be the most entrepreneurial team in the sector, we think valuations are expensive relative to mining peers. Our HKD70.40 TP represents a 10% holding company discount to our SOTP NPV valuation. Mining assets: higher volume growth, but with higher risk and costs Excluding Xstrata, we estimate an attributable copper equivalent CAGR for Glencore of 7.5% over 2011-2015E (vs an average of 5.2% for the diversified miners). Glencores high growth is partly offset by higher geographical risk and a higher cost profile, with average costs mostly in the third quartile of industry cost curves. A high-quality and counter-cyclical marketing business Glencores marketing business has dominant market shares, high barriers to entry and counter-cyclical cash generation, and we believe it should trade in line with or at a small discount to Noble (because of Nobles greater exposure to agriculture, which tends to be less cyclical, and its faster earnings growth, offset to some extent by Glencores higher RoCE). M&A strategy: Xstrata merger unlikely for now We would be surprised to see Xstratas board recommend a nil-premium merger of equals while Glencore trades at a relative valuation premium. Also, we dont think Glencore would pay a large takeover premium for Xstrata, given Glencores opportunistic M&A history.
31 Dec Currency (USD) FY10 Actual Old FY11F New Old FY12F New Old FY13F New
Anchor themes We expect the mining sector to outperform in 2011, with thermal coal being our preferred commodity pick. Nomura vs consensus Coverage on the street is currently sparse.
Research analysts
Singapore Basic Materials Tanuj Shori - NSL tanuj.shori@nomura.com +65 6433 6981
European Metals & Mining Paul Cliff - NI plc paul.cliff@nomura.com +44 20 7102 4349 Patrick Jones - NI plc patrick.jones@nomura.com +44 20 7102 5486 European Steel Jeff Largey - NI plc jeff.largey@nomura.com +44 20 7102 0021
Revenue (mn) Reported net profit (mn) Normalised net profit (mn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
Source: Nomura estimates
144,978 3,751 3,751 0.5 129.7 16.9 14.3 3.1 na 20.7 146.2 N/A N/A N/A N/A
198,108 7,340 7,340 1.1 95.7 8.6 6.8 1.7 1.7 26.4 55.1 N/A N/A N/A N/A
224,543 9,547 9,547 1.4 30.1 6.6 5.6 1.3 1.7 23.7 42.3 N/A N/A N/A N/A
215,161 9,132 9,132 1.3 -4.3 6.9 5.4 1.1 1.8 18.8 25.8
See Appendix A-1 for analyst certification and important disclosures. Analysts employed by non US affiliates are not registered or qualified as research analysts with FINRA in the US.
Key company data: See page 2 for company data, and detailed price/index chart. Rating: See report end for details of Nomuras rating system.
Nomura | ASIA Glencore
May 31, 2011
Key data on Glencore

Incomestatement(USDmn)
Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (USD) Norm EPS (USD) Fully diluted norm EPS (USD) Book value per share (USD) DPS (USD)
FY09 106,364 -103,057 3,307 FY10 144,978 -139,688 5,290 FY11F 198,108 -187,430 10,677 FY12F 224,543 -211,480 13,063 FY13F 215,161 -202,556 12,605 Notes
Strong earnings growth to last through FY11-12F, in our view
3,307 3,929 -622 3,307 -587
5,290 6,201 -911 5,290 -936
10,677 11,664 -987 10,677 -1,602
13,063 14,104 -1,041 13,063 -1,114
12,605 13,538 -934 12,605 -1,059
2,720 -238 2,482 -96 -753 1,633 1,633 0 1,633
4,354 -234 4,120 -355 -14 3,751 3,751 0 3,751
9,076 -758 8,318 -978 0 7,340 7,340 -1,000 6,340
11,949 -1,193 10,756 -1,209 0 9,547 9,547 -1,040 8,507
11,545 -1,177 10,368 -1,236 0 9,132 9,132 -1,082 8,050
38.8 40.8 36.7 na na 3.6 21.0 25.0 3.1 3.7 3.1 1.5 8.8 0.0 1.0 1.8 na na
16.9 17.7 16.0 na 571.0 3.1 14.3 16.7 3.6 4.3 3.6 2.6 5.4 0.0 1.3 2.1 20.7 7.4
8.6 9.1 8.2 1.7 37.4 1.7 6.8 7.5 5.4 5.9 5.4 3.7 8.4 13.6 1.0 2.1 26.4 12.8
6.6 7.0 6.3 1.7 19.1 1.3 5.6 6.0 5.8 6.3 5.8 4.3 10.0 10.9 0.7 1.4 23.7 13.9
6.9 7.3 6.6 1.8 8.6 1.1 5.4 5.8 5.9 6.3 5.9 4.2 10.2 11.8 0.6 1.3 18.8 12.6
Priceandpricerelativechart(oneyear)
(HKD) 67.5 67 66.5 66 65.5 65 64.5 Price Rel MSCI HK 100.5 100 99.5 99 98.5 98 97.5
na na na na na
36.3 57.8 60.0 129.7 129.7
36.6 88.1 101.8 95.7 95.7
13.3 20.9 22.3 30.1 30.1
-4.2 -4.0 -3.5 -4.3 -4.3
(%) Absolute (HKD) Absolute (USD) Relative to index Market cap (USDmn)
1M
3M
12M
59,656.3
0.24 0.24 0.22 2.41 0.00
0.54 0.54 0.51 2.83 0.00
1.06 1.06 1.00 5.20 0.14
1.38 1.38 1.30 6.43 0.15
1.32 1.32 1.25 7.59 0.16
Estimated free float 20.0 (%) 52-week range (HKD) 67.3/64.55 3-mth avg daily turnover (USDmn) Major shareholders (%) Ivan Glasenberg 57.99
15.7
May 31, 2011
Cashflow(USDmn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY09 3,929 -5,279 -1,660 -3,010 -1,116 -4,126 -251 FY10 6,201 -4,484 -1,606 111 -1,890 -1,779 -1,112 -507 843 -2,089 -4,644 -2 0 5,952 283 -986 5,247 603 860 1,463 28,669 FY11F 11,664 -3,286 -6,681 1,696 -2,039 -343 -3,421 0 11 2,748 -1,006 -1,000 10,033 0 0 0 9,033 8,028 1,463 9,491 19,816 FY12F 14,104 -3,140 -7,638 3,326 -1,489 1,837 -4,214 0 11 3,578 1,212 -1,040 0 0 0 0 -1,040 172 9,491 9,663 18,819 FY13F 13,538 1,114 -7,323 7,329 -1,197 6,132 -3,938 0 11 3,289 5,494 -1,082 0 0 0 0 -1,082 4,412 9,663 14,075 13,582 Notes
Positive operating cashflow expected from FY11-13F
203 -4,174 -2 0 3,087 1,915 -792 4,208 34 826 860 23,131
Balancesheet(USDmn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
FY09 860 75 15,189 15,073 6,179 37,376 18,083 6,845
FY10 1,463 66 18,994 17,393 6,100 44,016 19,204 12,088
FY11F 9,491 66 23,021 19,190 6,100 57,868 22,625 13,141
FY12F 9,663 66 26,093 21,751 6,100 63,673 26,840 13,589
FY13F 14,075 66 25,002 20,842 6,100 66,086 30,777 13,853
Notes
Stable cash cycle; gearing to come down
3,972 66,276 7,186 11,482 11,913 30,581 16,403 1,348 48,332 1,258 0 46 4,395 12,245 16,686 66,276
4,479 79,787 11,881 16,145 8,812 36,838 18,251 2,191 57,280 2,894 0 46 5,378 14,189 19,613 79,787
4,479 98,113 11,881 18,683 8,812 39,376 17,426 2,202 59,004 3,123 0 61 21,736 14,189 35,986 98,113
4,479 108,580 11,881 21,176 8,812 41,869 16,601 2,213 60,683 3,405 0 61 30,243 14,189 44,493 108,580
4,479 115,195 11,881 20,291 8,812 40,984 15,776 2,224 58,984 3,668 0 61 38,293 14,189 52,543 115,195
1.22 5.6
1.19 5.7
1.47 6.7
1.52 11.7
1.61 11.9
5.89 138.6
4.62 146.2
1.70 55.1
1.33 42.3
1.00 25.8
na na na na
43.0 42.4 36.1 49.4
38.7 35.6 33.9 40.4
40.0 35.4 34.5 41.0
43.3 38.4 37.4 44.4
May 31, 2011
Contents
5
Executive summary: NEUTRAL, HKD70.40 TP Valuation (NEUTRAL, TP HKD70.40)

12
Research analysts
Singapore Basic Materials Tanuj Shori - NSL tanuj.shori@nomura.com +65 6433 6981 Tushar Mohata - NFASL tushar.mohata@nomura.com +91 22 6723 4042
The marketing business
12
The industrial business listed assets
13
The industrial business unlisted assets
European Metals & Mining Paul Cliff - NI plc paul.cliff@nomura.com +44 20 7102 4349 Patrick Jones - NI plc patrick.jones@nomura.com +44 20 7102 5486 Ashraf Khan ashraf.khan@nomura.com +91 22 3053 3231
14
Earnings summary & sensitivity

16
Marketing: cyclical earnings, counter-cyclical cash flow
17
M&A: Xstrata merger unlikely for now Marketing division

19
18
European Steel Jeff Largey - NI plc jeff.largey@nomura.com +44 20 7102 0021 Neil Sampat - NI plc neil.sampat@nomura.com +44 20 7102 1808
Noble-Glencore: a closer comparison
22
Industrial division
25
Zinc
25
Copper
26
Nickel and alumina
27
Energy
28
Agriculture
29
Glencore financial summary
30
Xstrata financial summary
31
Appendix
31
Share lockups, indexation, and key management
33
Appendix A-1
May 31, 2011
Executive summary: NEUTRAL, HKD70.40 TP

We initiate coverage of Glencore with a NEUTRAL recommendation and HKD70.40 target price. Our target price is set at a 10% discount (at enterprise level) to our NPV, which includes Glencores stake in Xstrata at our GBP 22/share NPV. Our in-market SoTP valuation, which includes Glencores listed stakes at market value and peer group valuation multiples for Glencores other mining and marketing businesses, suggests a value for Glencore of HKD57.50/share. Although we think Glencore boasts one of the most entrepreneurial management teams in the sector, we struggle to find value in Glencore relative to its mining and marketing peers. However, our target price still leaves modest upside potential in absolute terms. On balance, we believe the most appropriate valuation methodology for Glencore is an enterprise value SoTP with a holding company discount. RMIs should not be deducted from net debt, in our view. Peer group EV/EBITDA multiples avoid any distortions attributable to Glencores relatively high net debt/EBITDA ratios in its unlisted mining and marketing businesses (unlisted net debt/EBITDA of 3.8x compared with 3.0x and 0.4x for Noble and Xstrata, respectively). We apply a 10% holding company or SoTP discount as a large proportion of Glencores value lies in separate listed entities, particularly its noncontrolling stake in Xstrata. In addition, we believe that only 15% of Glencores marketing volumes (ex oil) originate from Glencore controlled production assets, which suggests to us that the marketing business could be viewed as separate to the mining business rather than one vertically integrated structure from mine to customer. Lastly, we do not deduct RMIs from net debt to value Glencores equity, as RMIs represent working capital for a physical commodity trading business.
Fig. 1: Glencore valuation summary: NPV and in-market
2011E Att EBITDA EV/EBITDA Multiple In-Market Value
$mn Industrial Total Listed Unlisted Managed operations Goldstream Russneft, oil Total unlisted Total Industrial Marketing Total Discount Discounted EV Proforma Net Debt Convertible Debt Equity Value
NPV
Comments
6,876
44,712
29,878
3,169
12,963 5,208* 3,620
4.2x
13,462 Xstrata multiple (last reported net debt) 5,208* Attributable 744 koz x $7,000/oz (Russian EV/produced oz average) 3,485 oil-related loans: $2.9 bn, Guinean oil resources: $560 mn 22,155 52,033
3,169 10,046 3,185 13,231
21,792 66,504 31,751 98,255 10% 88,429 -24,387 2,132 66,174 558 70.40 9.7x
30,989 83,022 10% 74,720 -24,387
Noble Group multiple (last reported net debt)
Holding company discount
Excluded for in-market valuation 50,333 449 57.50
Equity value (GBP/sh) Equity value (HK$/sh)

Source: Company data, Nomura estimates
*Management intends to spin out the goldstream of Kazzinc; thus we value it at an average EV/produced gold ounce of Russian miners
Glencore is evolving from a trading house in physical commodities into a company whose mining assets increasingly drive group earnings. This is both a function of a prolonged cycle of high commodity prices and an expansion strategy that increasingly focuses on mining. Glencore plans to use its USD7.9bn primary share issue to fund the
May 31, 2011
USD2.2bn cash portion of the USD3.2bn proposed acquisition of additional stakes in Kazzinc from 51% to 93%, and approximately USD5bn towards capex over the next three years to expand its major mining assets Kazzinc, Mopani, Prodeco and various oil E&P assets in West Africa. We forecast Glencores mining activities, including stakes in listed assets, to account for 76% of attributable EBITDA, on average, over the next five years. We expect Glencore to deliver strong earnings growth over the next two years, buoyed by best-in-class organic growth from its own managed operations as well as from Xstrata. We forecast Glencores attributable EBITDA to grow by 63% in 2011 y-o-y and by nearly 92% by 2012, from 2010 levels. We expect Glencores marketing division to account for 24% of group attributable EBITDA, on average, over the next five years with mining, including Xstrata, accounting for the remainder.
Fig. 2: Glencore attributable EBITDA 2010-2015E
$mn 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Marketing
Xstrata
Industrial ex Xstrata
2010
2011E
2012E
2013E
2014E
2015E
Note: Glencore does not disclose attributable EBITDA; figures are based on our estimates. Source: Company data, Nomura estimates
Excluding Xstrata, we estimate an attributable copper equivalent CAGR for Glencore of 7.5% over 2011-2015, compared with an average of 5.2% for the diversified miners. Glencores high growth is partly offset by higher geographical risk and a higher cost profile, with average costs mostly in the third quartile of industry cost curves. However, as projects such as Mutanda come online and Prodeco ramps up, Glencores copper and coal divisions will have the potential to move down the cost curve.
May 31, 2011
Fig. 3: Copper equivalent organic growth 2010-2015E

Investing during the downturn has given Glencore first-mover advantage
AAL 170 160 150 140 130 120 110 100 2010 2011E 2012E 2013E 2014E 2015E BHP XTA RIO GLEN Industrial
Fig. 4: GLEN managed operations 2011 cost curve positions

Positions are approximate
Source: Brook Hunt, AME Company data, Nomura estimates.
Valuation (NEUTRAL, TP HKD70.40)

Our HKD70.40 target price for Glencore is set at a 10% discount to our SoTP NPV, which includes Glencores stake in Xstrata at our GBP 22/share NPV. Our in-market SoTP valuation suggests a value for Glencore of HKD57.50/share. We view Xstrata as the closest peer for Glencores mining business owing to a similar mix of copper, coal and zinc. We view Noble as the closest peer for Glencores marketing business owing to a similar mix of metals & minerals, energy, and agriculture exposure (although Glencore is more exposed to metals & minerals while Noble is more exposed to agriculture).
May 31, 2011
Fig. 5: Glencore valuation summary NPV vs EV/EBITDA

2011E Att EBITDA EV/EBITDA Multiple In-Market Value
$mn Industrial Listed Xstrata Other Total Listed Unlisted Managed operations Goldstream Russneft, oil Total unlisted Total Industrial Marketing Total Discount Discounted EV Q4 10 Net Debt Primary issue 43% Kazzinc Acq Proforma Net Debt Convertible Debt Equity Value Basic Shares Dilutive shares Total Shares GBP-USD
NPV
Comments
6,007 870 6,876
37,076 7,636 44,712
23,383 6,495 29,878
3,169
12,963 5,208* 3,620
4.2x
13,462 Xstrata multiple (last reported net debt) 5,208* Attributable 744 koz x $7,000/oz (Russian EV/produced oz average) 3,485 oil-related loans: $2.9 bn, Guinean oil resources: $560 mn 22,155 52,033
3,169 10,046 3,185 13,231
21,792 66,504 31,751 98,255 10% 88,429 -29,087 7,900 -3,200 -24,387 2,132 66,174 6,923 403 7,326 1.62 558 70.40 9.7x
30,989 83,022 10% 74,720 -29,087 7,900 -3,200 -24,387
Noble Group multiple (last reported net debt)
Holding company discount
Excluded for in-market valuation 50,333 6,923 Excluded for in-market valuation 6,923 1.62 449 57.50
Equity value (GBP/sh) Equity value (HK$/sh)
*Management intend to spin out the goldstream of Kazzinc; thus we value it at an average EV / produced gold ounce of Russian gold miners
May 31, 2011
Fig. 6: SOTP: NPV valuation
Fig. 7: SOTP: In-market EV/EBITDA valuation
Marketing 32% Listed 46%
Marketing 37%
Listed 36%
Unlisted 22%
Unlisted 27%
On balance, we believe the most appropriate valuation methodology for Glencore is an enterprise value SoTP with a holding company discount. RMIs should not be deducted from net debt for valuing equity, in our view. We view Xstrata and Noble as the closest peers for Glencores mining and marketing businesses, respectively. Peer group EV/EBITDA multiples avoid distortions attributable to higher net debt/EBITDA ratios in Glencores unlisted mining and marketing businesses relative to Noble and Xstrata. For example, we estimate 2010 net debt to 2011E EBITDA of 3.8x for Glencores combined unlisted mining and marketing business, compared with net debt/EBITDA multiples for Noble and Xstrata of 3.0x and 0.4x, respectively. We recognise that our enterprise value methodology is not without its flaws. We think the main issue is the volatility in Glencores working capital, which is proportional to changes in commodity prices. This may lead to a volatile net debt which, when deducted from our estimated enterprise value, would also lead to a volatile equity valuation. However, we point out that Nobles net debt would also be influenced by the same factors, and the market should adjust Nobles EV/EBITDA multiple accordingly. Any change in Nobles EV/EBITDA would then be reflected in our in-market SoTP valuation for Glencore. Lastly, we also point out that volatility is hardly new to the mining sector, and Glencores inmarket valuation will also reflect any volatility in Xstratas share price. We apply a 10% holding company or SoTP discount as a large proportion of Glencores value lies in separate listed entities, particularly as the stake in Xstrata is a minority one. In addition, we believe that only 15% of Glencores marketing volumes (ex oil) originate from Glencore-controlled production assets (around 40% including volumes (ex oil) from associates and investments), which suggests to us that the marketing business could be viewed as separate to the mining business rather than one vertically integrated structure from mine to customer. Lastly, we do not deduct RMIs from net debt to value Glencores equity, as RMIs represent the working capital of a physical commodity trading business regardless of how liquid they are or whether price risk has been hedged. For the purposes of valuing the equity of the company, we believe working capital (ie, RMIs) should not be treated as (ie, converted to) cash unless the business is no longer a going concern. We think most of the confusion over whether to treat Glencores RMIs (USD14.3bn as at end-2010), as cash stems from whether one is trying to measure balance sheet liquidity or to value the equity of the company. Historically, Glencores quarterly financials have been used by credit analysts to assess balance sheet liquidity. When assessing Glencores ability to meet future debt obligations, credit analysts typically treat 80% of RMIs as cash, as inventories are liquid assets and prices have been hedged either on exchange or with a highly rated counterparty.
May 31, 2011
Fig. 8: Glencore and other supply chain companies

We regard Noble as the best comparable with regard to Glencore
Market Presence Agriculture Oil/Oil Prod. Coal Zinc/Copper Aluminium Ferroalloys Industrial asset base
Glencore
ADM
Bunge
Noble
Wilmar
Olam
Source: Company data, Nomura research
Glencore is positioned somewhere between the diversified miners and the supply-chain managers/commodity traders. Our forecast 2011 attributable EBITDA for Glencore is split roughly three-quarters for its mining assets and one-quarter for marketing. Therefore, we think Glencores valuation multiples should sit closer to the miners. We note that Glencores marketing business is skewed towards metals & minerals (55% of 2011 EBITDA for marketing, on our estimates), while the Singapore listed commodity traders tend to be skewed more to agriculture (eg, agriculture represents 42% of our 2011 trading+midstream EBITDA estimate for Noble). Agriculture-related earnings tend to be less cyclical and command a valuation premium (eg, Wilmar and Olam).
Fig. 9: Mining valuation sheet: Nomura commodity forecasts
Mkt Cap Company Xstrata Rio Tinto BHP Billiton Anglo American Glencore Kazakhmys Antofagasta First Quantum Vedanta Norsk Hydro ENRC $66,205 $132,147 $213,177 $57,788 $58,819 $10,938 $19,505 $11,624 $9,748 $15,642 $17,432 Rating Buy Buy Reduce Buy Neutral Reduce Reduce Buy Neutral Reduce Current Price 13.91 41.48 23.44 28.81 HK$64.90 12.56 12.16 CAD 132 20.80 8.32 Target Potential Price Upside 22.00 61.00 24.00 46.00 HK$70.40 15.00 15.00 CAD 137 25.00 9.50 58% 47% 2% 60% 8% 19% 23% 4% 20% 27% 14% Base Growth NPV Options 18.1 47.8 19.0 35.2 5.6 13.9 12.0 CAD 75 22.1 NOK 53.0 8.3 4.4 9.5 5.1 9.1 n/a 0.3 2.5 CAD 62 2.4 1.3 Total Price/ NPV Total NPV 22.5 57.3 24.1 44.3 5.6 14.2 14.5 CAD 137 24.5 9.5 0.62 0.72 0.97 0.65 0.82 0.89 0.84 0.96 0.85 0.79 0.87 0.74 0.82 P/E 12E 5.3 5.5 6.3 4.7 6.5 4.1 6.9 7.0 4.0 12.1 5.3 5.4 6.0 EV/EBITDA 11E 12E 13E 4.0 3.7 3.9 3.7 6.0 2.2 3.7 4.5 4.3 6.2 3.9 3.8 4.1 3.1 2.8 3.0 3.0 5.0 1.7 3.2 3.0 3.7 5.3 3.3 3.0 3.2 2.8 2.5 2.7 2.9 5.0 1.5 4.0 3.3 3.8 5.0 3.0 2.7 3.0 FCF Yield 11E 15.2% 14.8% 15.0% 17.2% 15.8% 20.5% 13.2% 11.4% 16.0% 2.0% 16.8% 15.6% 15.0%
11E 6.5 6.3 7.3 5.3 8.5 4.1 6.9 8.5 5.3 14.5 5.8 6.4 7.0
13E 5.7 5.9 6.8 4.9 6.8 5.0 8.9 9.6 4.4 10.7 5.3 5.8 6.4
Neutral NOK 41.74 NOK 53.00
n/a NOK 53.0
Average Diversified Mining Sector Weighted Average Mining Sector
Source: Datastream, company data, Nomura estimates
Fig. 10: Mining valuation sheet: Spot commodity prices

Mkt Cap Company Xstrata Rio Tinto BHP Billiton Anglo American Glencore Kazakhmys Antofagasta First Quantum Vedanta Norsk Hydro ENRC $66,205 $132,147 $57,788 $58,819 Rating Buy Buy Buy Neutral Current Price 13.91 41.48 23.44 28.81 HK$64.90 12.56 12.16 CAD 132 20.80 8.32 Target Potential Price Upside 22.00 61.00 24.00 46.00 HK$70.40 15.00 15.00 CAD 137 25.00 9.50 58% 47% 2% 60% 8% 19% 23% 4% 20% 27% 14% Base NPV 29.9 100.1 29.7 56.0 8.9 18.6 17.3 36.9 NOK 57.5 11.7 Growth Options 10.4 36.0 11.6 25.3 n/a 3.5 9.4 2.4 1.8 Total Price/ NPV Total NPV 40.3 136.1 41.3 81.3 8.9 22.1 26.7 CAD 235 39.2 13.5 0.35 0.30 0.57 0.35 6.42 0.57 0.46 0.56 0.53 0.73 0.62 0.39 1.04 P/E 12E 6.7 5.6 6.3 5.3 7.5 4.4 8.3 7.8 4.2 11.7 5.4 6.0 6.2 EV/EBITDA 11E 12E 13E 4.7 3.7 4.0 4.2 6.4 2.6 4.6 5.7 4.8 6.1 3.7 4.1 4.3 3.9 3.1 3.0 3.4 5.5 2.0 4.1 3.6 4.0 5.2 3.3 3.3 3.5 3.8 2.4 2.3 2.8 4.8 1.4 3.4 2.8 3.6 4.9 2.6 2.8 2.8 FCF Yield 11E 13.1% 15.5% 14.8% 15.4% 14.4% 17.8% 11.4% 8.9% 14.8% 1.8% 17.6% 14.7% 14.7%
11E 7.8 6.2 7.4 6.0 9.5 4.8 8.7 10.6 5.8 14.1 5.6 6.9 7.3
13E 5.9 5.1 5.8 4.8 6.3 4.4 7.4 7.6 4.0 10.4 4.7 5.4 5.6
$213,177 Reduce
$10,938 Reduce $19,505 Reduce $11,624 $9,748 $15,642 Buy Neutral
99.0 CAD 136
Neutral NOK 41.74 NOK 53.00
n/a NOK 57.5
$17,432 Reduce
Average Diversified Mining Sector Weighted Average Mining Sector
Source: Bloomberg, Datastream, company data, Nomura estimates
10
Nomura | ASIA
Fig. 11: Asian midstream/integrated producers valuation sheet

P/E Nomura rating Market cap (US$mn) Closing price P/B EV/EBITDA PEG (CY11 CY12F P/E vs CY10- CY10 12F CAGR) 14.1 8.9 10.8 7.0 10.2 7.7 7.3 8.7 9.5 9.8 8.6 2.8 2.7 9.9 8.2 7.8 10.4 na na 7.5 7.8 8.1 8.3 0.7 0.6 0.8 1.7 0.9 0.6 0.3 0.5 0.7 0.6 0.5 0.4 0.3 0.3 1.3 0.4 0.6 0.8 (1.1) 0.6 1.9 0.6 0.6 1.3 1.3 1.5 2.2 1.6 2.5 2.9 2.1 2.8 3.2 2.7 1.1 1.0 2.0 1.9 1.2 2.0 3.4 na 0.3 1.3 5.2 2.1 Div yld (%)
Name MIDSTREAM / INTEGRATED Wilmar (WIL SP) Noble (NOBL SP) Olam (OLAM SP) Mewah (MII SP) Singapore Average Itochu (8001 JP) Mitsui (8031 JP) Marubeni (8002 JP) Mitsubishi (8058 JP) Sumitomo (8053 JP) Japan traders average Ruchi Soya (RSI IN) KS Oils (KSO IN) China Agri (606 HK) ADM (ADM US) Bunge (BG US) Petra Foods Ltd (PETRA SP) Graincorp (GNC AU) Sri-Trang Agro Industry (STA TB) Kernel Hdg (KER PW) Cosan (CSAN3 BZ) Thai Vegetable Oil (TVO TB) MIDSTREAM AVERAGE
Country
CY10
CY11F
CY12F
CY10
CY11F
CY12F
CY10
CY11F
CY11F
CY12F
Glencore
Singapore Hong Kong Singapore Singapore Japan Japan Japan Japan Japan India India Hong Kong United States United States Singapore Australia Thailand Ukraine Brazil Thailand
NEUTRAL BUY BUY BUY BUY BUY NEUTRAL BUY BUY BUY BUY BUY N.R. N.R. N.R. N.R. NEUTRAL N.R. N.R. BUY
27,362 10,369 4,848 1,179 15,953 30,196 11,472 41,894 16,083 732 232 4,317 19,775 10,636 843 1,620 1,125 2,043 5,952 663
5.33 2.02 2.83 0.98 825.00 1,353.00 541 2,023 1,054 99.85 25.70 8.32 31.03 72.24 1.72 7.76 26.75 78.00 23.80 26.25
24.1 19.2 21.4 10.5 18.8 7.0 7.9 7.6 8.1 6.8 7.5 8.7 5.4 12.8 10.0 19.2 21.3 15.0 7.0 10.8 15.1 13.5 12.6
17.4 14.5 17.4 10.9 15.1 6.0 6.1 6.4 7.0 6.0 6.3 7.2 4.8 9.5 9.2 11.7 15.4 11.2 8.7 8.9 14.9 10.8 10.2
15.5 12.3 14.5 9.3 12.9 5.7 5.7 6.0 6.7 5.6 6.0 6.1 3.9 7.6 8.8 11.0 13.6 11.5 8.2 8.4 12.9 9.6 9.2
2.3 2.4 3.1 2.0 2.5 1.1 1.1 1.3 1.2 0.8 1.1 1.0 0.8 1.8 1.3 1.0 2.9 1.2 2.5 2.9 1.6 3.3 1.8
2.1 2.0 2.7 1.9 2.2 1.0 1.0 1.1 1.1 0.8 1.0 0.9 0.6 1.6 1.2 0.9 2.6 1.1 2.5 2.3 1.4 2.9 1.6
1.9 1.8 2.3 1.6 1.9 0.9 0.9 1.0 1.0 0.7 0.9 0.8 0.5 1.3 1.1 0.8 2.3 1.1 2.1 1.9 1.3 2.6 1.4
20.2 13.8 13.6 9.8 14.3 10.3 9.3 10.9 12.3 11.9 10.9 4.1 3.7 18.0 9.0 10.5 14.6 na na 9.9 7.7 12.5 11.2
14.0 9.7 11.5 8.4 10.9 8.4 7.7 9.5 10.1 10.5 9.3 3.4 3.3 12.4 8.2 8.4 12.0 na na 7.9 7.4 9.1 9.0
1.5 1.5 1.6 na 1.6 3.0 3.7 2.4 3.3 4.1 3.3 1.3 1.2 2.9 2.0 1.2 2.6 4.2 na 0.7 1.9 6.5 2.5
1.7 2.1 2.0 na 1.9 3.1 4.0 2.6 3.4 4.5 3.5 1.5 1.4 3.6 2.1 1.3 2.7 4.1 na 1.0 2.7 7.3 2.8
Note: STA TB and TVO TB estimates are provided by Capital Nomura Securities analyst Ploenjai Jirajarus. Source: Bloomberg, company data, Nomura estimates
May 31, 2011
11
Nomura | AEJ Glencore
May 31, 2011
The marketing business

Our NPV (firm value) for Glencores marketing business is USD32bn and is included in our NPV-based target price for Glencore. Our in-market SoTP valuation for the marketing business suggests an enterprise value of USD31bn. We believe Glencores marketing business should trade in line with or at a small discount to Noble group (our inmarket valuation assumes a 2011E EV/EBITDA multiple of 9.7x, in line with Noble). This is because of Nobles greater exposure to agriculture, which tends to be less cyclical, and to Nobles faster earnings growth, offset to some extent by Glencores higher returns on capital employed (Please see a detailed comparison between the two businesses later in this report).
Fig. 12: Marketing business valuation: NPV vs EV/EBITDA
EV/EBITDA Multiple 9.7x 9.7x 9.7x 9.7x In-Market Value 15,045 9,282 6,661 30,989
$mn Metals & Minerals Energy Agriculture Total
EBITDA 1,546 954 685 3,185
NPV 14,577 10,369 6,805 31,751
Comments Metals marketing earnings more cyclical Agricultural marketing earnings less cyclical
Source: Bloomberg, company data, Nomura estimates
The industrial business listed assets

Our NPV (equity value) for Glencores listed industrial assets is USD44bn while the current market value for these assets is USD30bn. Glencores single largest listed asset is its 35% stake in Xstrata. Xstrata remains our top pick in the mining sector with an NPV target price of GBP 22/share. We believe Xstratas organic project pipeline remains undervalued, with the market still sceptical on Xstratas execution capability. The successful delivery of a suite of major projects in 2012 offers a re-rating catalyst for Xstrata shares, in our view (see our report - Xstrata: Monetizing an undervalued project portfolio, dated 14 April 2011).
Fig. 13: Listed industrial assets
Glencore's share of current market cap is used for our valuation for the minor listed stakes
Listed Assets Century Aluminium Recylex UC Rusal Xstrata Katanga Mining Minara Resources Nystar Volcan Biopetrol Industries Chemoil Polymet Mining (US) Total
Source: Bloomberg, company data, Nomura estimates
Value in Stake % model ($mn) 44% 32% 9% 35% 74% 82% 8% 4% 60% 52% 6% 641 71 2,148 37,076 2,583 1,574 178 176 28 220 17 44,712
Market Cap ($m) 641 71 1,944 23,383 2,467 753 178 176 28 220 17 29,878
Comment Included at market cap in both valuations Included at market cap in both valuations Included at Nomura price target (15.1 HKD/sh) Included at Nomura price target (22/sh) Included at NPV Included at NPV Included at market cap in both valuations Included at market cap in both valuations Included at market cap in both valuations Included at market cap in both valuations Included at market cap in both valuations
12
May 31, 2011
The industrial business unlisted assets

Our NPV (firm value) for Glencores unlisted industrial assets is USD22bn while the current in-market value for these assets is also USD22bn, assuming EV/EBITDA valuation multiples in line with Xstrata. Once Glencore increases its stake in Kazzinc from 51% to 93% (expected to complete later this year), Kazzinc will become Glencores most valuable unlisted mining asset, on our estimates. We have included Kazzincs gold assets at a valuation of USD5.2bn (based on peer group multiples for Russian gold assets) in both our NPV and in-market valuation methodologies. This is because gold assets tend to trade well above their NPVs and so we expect management to create value by spinning out the gold assets into a separate listed vehicle.
Fig. 14: Unlisted mining assets
2011E Att EBITDA 1,001 1,258 76 738 0 96 EV/EBITDA Multiple 4.2x 4.2x 4.2x 4.2x 4.2x In-Market Value 4,252 5,345 5,208* 322 3,135 3,485 408
$mn Copper (ex KAT) Zinc Spun out gold Alumina Coal Oil & loans Agriculture
NPV 4,632 3,401 5,208* 565 3,842 3,620 523
Comments Xstrata multiple (last reported net debt) Xstrata multiple (last reported net debt) Attributable 744 koz x $7,000/oz (Russian EV/produced oz average) Xstrata multiple (last reported net debt) Xstrata multiple (last reported net debt) oil-related loans: $2.9 bn, Guinean oil resources: $560 mn Xstrata multiple (last reported net debt)
Total 3,169 21,792 22,155 *Management intend to spin out the goldstream of Kazzinc; thus we value it at an average EV / produced gold ounce of Russian gold miners
13
May 31, 2011
Earnings summary & sensitivity

We expect Glencore to deliver excellent earnings growth over the next two years, buoyed by best-in-class organic growth from its managed operations as well as from Xstrata. We forecast Glencores attributable EBITDA to grow by 63% in 2011 y-o-y and by nearly 92% by 2012, from 2010 levels. We also expect capex levels to stay elevated over the next several years as the group finances its best-in-class organic growth platform.
Fig. 15: Glencore earnings summary
$ mn Group revenue Attributable EBITDA Glencore Reported EBITDA Net Income Undiluted EPS Diluted EPS Capex
2010 144,978 8,126 6,201 3,751 n/a n/a 1,657
2011E 198,108 13,231 11,664 7,340 1.06 1.00 2,039
2012E 224,543 15,573 14,104 9,547 1.38 1.30 1,489
2013E 215,161 14,542 13,538 9,132 1.32 1.25 1,197
2014E 214,769 13,698 13,256 9,052 1.31 1.24 876
2015E 207,305 12,549 12,443 8,597 1.24 1.17 912
2016E 205,628 11,320 11,554 8,284 1.20 1.13 651
Note: Attributable EBITDA is Nomura estimate as it is not reported by the company. Source: Company data, Nomura estimates
We expect earnings from Xstrata to continue to be the largest portion of the groups attributable EBITDA over the next several years. We expect marketing earnings will be less volatile than industrial earnings.
Fig. 16: Attributable EBITDA by business division
$mn 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2010 2011E 2012E 2013E 2014E 2015E
Xstrata 45% Industrial ex Xstrata 31% Marketing 24%
Fig. 17: 2011E attributable EBITDA by commodity segment

Industrial ex XTA includes copper, coal, zinc, nickel, and other
Marketing
Xstrata
Industrial ex Xstrata
Note: 2010 attributable EBITDA is Nomura estimate and not reported by the company. Source: Company data, Nomura estimates
Note: 2011 attributable EBITDA is Nomura estimate and not reported by the company. Source: Company data, Nomura estimates
14
May 31, 2011
Fig. 18: Earnings sensitivity to commodity price changes

10% Change in Price of BHP Base metals: Copper Zinc Nickel Aluminum Lead Molybdenum Ferrochrome Manganese Bulks and oil: Iron ore Thermal Export Co Met Coal Oil Precious metals: Gold Platinum Palladium Rhodium 3% 0% 1% 1% 0% 0% 0% 1% Rio 2% 0% 0% 3% 0% 0% 0% 0% Xstrata 7% 1% 1% 0% 0% 0% 1% 0% Glencore 6% 2% 2% 0% 0% 0% 0% 0% % Change in CY2011E EPS of Anglo 5% 0% 1% 0% 0% 0% 0% 0% Anto 14% 0% 0% 0% 0% 1% 0% 0% Kaz 9% 1% 0% 1% 0% 0% 4% 0% FQM 17% 0% 0% 0% 0% 0% 0% 0% ENRC 0% 0% 0% 3% 0% 0% 11% 0% Vedanta 4% 2% 0% 7% 0% 0% 0% 0%
6% 1% 2% 2%
11% 1% 1% 0%
0% 6% 3% 0%
0% 3% 1% 0%
4% 4% 4% 0%
0% 0% 0% 0%
2% 0% 0% 0%
0% 0% 0% 0%
7% 0% 0% 0%
4% 0% 0% 0%
0% 0% 0% 0%
0% 0% 0% 0%
0% 0% 0% 0%
1% 0% 0% 0%
1% 2% 0% 1%
0% 0% 0% 0%
1% 0% 0% 0%
2% 0% 0% 0%
0% 0% 0% 0%
0% 0% 0% 0%
15
May 31, 2011
Marketing: cyclical earnings, counter-cyclical cash flow

Although we expect earnings from Glencores marketing business to be less cyclical than mining, its real attribute is counter-cyclical cash flow. As commodity prices fall, Glencores working capital shrinks and this more than offsets any decrease in EBITDA. We calculate that a 20% fall in commodity prices from our estimates would increase operating cash flow by 40% or USD1.3bn in 2012. Alternatively, in a period of rising commodity prices, more capital is tied up in working capital, so the inverse impact is felt. We have assumed that working capital is roughly three-quarters of marketing capital employed (readily marketable inventories averaged 72% of marketing capital employed between 2008 and 2010).
Fig. 19: Marketing segment 2012 sensitivity analysis
Impact from across-the-board changes to our commodity price assumptions
% EBITDA Operating cash flow $mn EBITDA Operating cash flow

-20% -16% 40% -20% -530 1,281
-10% -8% 20% -10% -265 641
+10% 8% -20% +10% 265 -641
+20% 16% -40% +20% 530 -1,281
Fig. 20: Glencore marketing EBITDA 2010 - 2014E
$mn 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 -500
Metals & Minerals
Energy
Agriculture
Other
2010
2011E
2012E
2013E
2014E
16
May 31, 2011
M&A: Xstrata merger unlikely for now

We would be surprised to see Xstratas board recommend a nil-premium merger of equals for as long as Glencore trades on a relative valuation premium. On our estimates, Xstrata and Glencore trade on 2011 P/E multiples of 6.5x and 8.5x, respectively. Equally, we are sceptical of the view that Glencore would be prepared to pay a significant takeover premium for Xstrata, as Glencores M&A history is much more opportunistic (eg, increasing its stake in Katanga during the global financial crisis). In practice, we think that any potential merger between Xstrata and Glencore may be difficult to consummate, for the same reason that Xstratas merger proposal to Anglo American was never consummated one party is perceived as the target and wants a full takeover premium, while the other party is not prepared to pay one. Any potential merger between Xstrata and Glencore may run the risk of diluting the marketing business (12% of combined 2011E EBITDA), to such an extent that the market would simply de-rate the marketing earnings to a mining multiple. If no merger agreement can be reached between the two parties, then we would expect Glencore to eventually sell its stake in Xstrata as we see the current ownership structure as unsustainable. With Glencore now armed with an acquisition currency, we see the potential for increasing tension between the two companies who may end up bidding for the same assets (eg, Drummond Coals Colombian operations). Any synergies from a potential merger between Xstrata and Glencore would likely originate from feeding Xstratas production volumes through Glencores marketing business (as opposed to synergies at the asset level). Glencore is the exclusive marketing agent for Xstrata alloys and takes an advisory fee on Xstratas coal exports from Australia and South Africa. Glencore also distributes Xstratas nickel, cobalt and ferronickel. The Relationship Agreement regulates the relationship between the two parties, but we think the associated bureaucracy may actually hinder Glencores ability to add value. If any potential marketing synergies are very large then we think they could be realised by broadening the scope of current marketing agreements and terminating the Relationship Agreement by selling the stake in Xstrata.
Fig. 21: XTA-GLEN NewCo 2011E attributable EBITDA
Glencore's marketing business could potentially be de-rated as part of NewCo
Other 6% Marketing 12% Copper 40% Coal 25%
Nickel 6%
Zinc 11%
17
May 31, 2011
Marketing division
Glencores marketing business is a supply-chain management business rather than a proprietary commodities trading business. This flow business produces high-quality earnings that are not purely dependent on the direction of commodity prices. Profitability is enhanced through three key arbitrage strategies: geographical (regional price differentials), product (price differentials between grades, and blends, among others) and timing (price differentials across different delivery dates). Glencores business model benefits from high barriers to entry, such as its global logistics network, financing and risk management skills, and long-term supplier/customer relationships. Although Glencore will sometimes take proprietary positions on the direction of commodity prices, we believe that this normally accounts for less than 10% of earnings from the marketing division. However, this percentage is not disclosed by Glencore. Recent press comments suggest a growing interest by politicians and regulators in the influence of commodity price speculators on commodity prices. However, we think this is unlikely to have a large impact on Glencores core logistics business. With the possible exception of cobalt, Figure 27 shows that Glencores total market shares, which we think are more relevant to global commodity markets than addressable market shares, are not particularly dominant. In addition, as we believe Glencore only controls around 16% of its marketing volumes via its own production, we think it would be difficult to prove that Glencore was the price setter in these markets (price is set by supply and demand). However, any proprietary-based earnings may be more at risk from greater regulation, while the potential for greater regulation and disclosure on inventories held in warehouses owned by Glencore and other commodity traders could also reduce the profitability of arbitrage strategies related to time differences (ie, carry trades).
Fig. 22: Commodity value chain
Glencore plays a part at every step of the value chain
Extraction Marketing/Distribution Consumers
Inputs processed from own production & 3rd party sources
Inland storage & logistics
Shipped
Warehouse
Delivered to final consumers
Purchase: $12/MT
Freight: $22/MT + Rent: $4/MT + Freight: $20/MT Insurance/financing over 30 day period:$15/MT
Sale:$100/MT
Profit: $27/MT
18
May 31, 2011
Noble-Glencore: a closer comparison

We believe that Glencores marketing division should trade in line with or at a modest discount to Noble group. This is because of Nobles greater exposure to agriculture, which tends to be less cyclical, and to Nobles faster earnings growth, offset to some extent by Glencores higher returns on capital employed. Earnings mix: How much is supply-chain (marketing) versus upstream? The key difference between Noble and Glencore is the break-up of their earnings mix. Glencores earnings are mostly driven by its upstream assets (which comprise its stakes in various mines and listed entities such as Xstrata), whereas Noble is still primarily a trader, evolving gradually into an asset manager. We estimate that for FY11, Nobles mix would be ~17% upstream (ie, asset-based) as compared with Glencores 73%. Please note that we are including Nobles midstream businesses with supply chain as they have an element of processing value addition in them, and as a result earnings from that segment are not significantly correlated to commodity prices.
Fig. 23: Noble: earnings mix Fig. 24: Glencore: earnings mix
Noble Industrial 100% 80% 60% 40% 20% 0% 12% FY09 13% FY10 88% 87%
Noble Marketing
Glencore Industrial 100% 80% 41% 38%
Glencore Marketing
27%
24%
83%
83%
60% 40% 59% 20% 62% 73% 76%
17% FY11F
17%
0%
FY12F
FY09
FY10
FY11F
FY12F
Note: Noble does not disclose earnings mix by function; these are based on our estimates. Source: Nomura estimates
Fig. 25: Noble marketing: earnings mix

$mn 2,500 2,000 1,500 1,000 500 0 FY09 FY10 FY11E FY12E Agriculture Energy Metals & Minerals
Fig. 26: Glencore marketing: earnings mix

Agriculture 4,000 3,000 2,000 1,000 0 -1,000 FY09 FY10 FY11E FY12E Energy Metals & Minerals Other
19
May 31, 2011
Glencores scale and market shares are much larger than Nobles in metals, energy; Noble dominates agriculture trading Glencore and Noble have three operating segments in common: metals and minerals, energy, and agriculture. (Noble historically reported a fourth logistics segment, which it merged with the other three from 1QFY11.) Glencore offers much greater scale and scope than Noble, with Glencores marketing volumes (and market share) for most commodities (except agriculture) materially higher than Noble's.
Fig. 27: Glencore and Noble: relative presence
FY10 volumes (mn mT)
Unit
Glencore
Glencore approximate addressable market share
Glencore total market share
Noble
Comment
Metals and minerals Zinc metal Zinc concentrates Copper metal Copper concentrates Lead metal Lead concentrates Alumina Aluminium Nickel Cobalt Ferrochrome
mt mt mt mt mt mt mt mt mt kt kt mt
20.5 1.7 2.4 1.4 1.8 0.3 0.6 6.7 3.9 200.0 18.0 1.5 60% 50% 50% 30% 45% 45% 38% 22% 14% 23% 16% 13% 10% 7% 4% 3% 10% 8% 9% 14% 23% 16%
22.1
Noble is much larger in iron ore, iron related alloys and aluminium. However its presence in other commodities is very small
Energy products Oil Thermal coal Met coal
mt mbpd mt mt
226 (ex-oil) 2.5 196 30 3% 28% 12% 3% 4% 4%
85.2
Noble and Glencore deal in similar commodities, however Noble has much smaller scale.
Agricultural products
mt
27.0
23.1
Noble has a larger presence in oilseeds and sugarcane, but a smaller presence in grains. Noble is - One of the top 5 oilseed crushers in Argentina - One of the top 5 sugarcane crushers in Brazil - A large trader of coffee and cocoa - One of the top 5 oilseed crushers in China
Grains Oils and oilseeds
mt mt
19 8
9% 4%
1% 1%
Note: Nobles volumes are not consolidated. Noble does not disclose volumes by commodity. Source: Company data, Nomura estimates
20
May 31, 2011
Glencores supply chain business is much more focused on metals and minerals, in contrast to Noble's growth in agriculture and energy For Glencore, roughly 55% of the total supply chain earnings correspond to the metals and minerals segment, compared with 23% (Nomura estimate) in metals for Nobles midstream and supply chain earnings combined. Agriculture and energy occupy a much smaller share of earnings for Glencore at 19% and 26%, respectively. Nobles dominant exposure is agriculture, which accounts for over half of earnings (midstream+supply chain), which is generally less cyclical owing to its relative price inelasticity. This suggests that Glencores earnings growth may face greater headwinds as metals prices eventually return to mid-cycle levels.
Fig. 28: Noble 2010 marketing earnings mix Fig. 29: Glencore 2010 marketing earnings mix
Metals & Minerals 23%

Metals & Minerals 55%
Agriculture 26%
Energy 23%
Agriculture 54%
Energy 19%
Fig. 30: Glencore marketing summary

$mn Total Revenue growth % EBITDA Metals Energy Agriculture Other Total EBITDA margin % Total EBIT Capital employed Metals Energy Agriculture Other Total EBIT ROCE Marketing NPV Summary Metals & Minerals Energy Agriculture Total Marketing 2010 133,977 37% 2011E 182,810 36% 2012E 206,745 13% 2013E 197,635 -4% 2014E 197,242 0% 2015E 190,410 -3%
1,401 470 659 -163 2,367 1.8% 2,337
1,546 954 685 0 3,185 1.7% 3,175
1,572 1,133 646 0 3,351 1.6% 3,351
1,512 1,082 612 0 3,206 1.6% 3,206
1,533 1,066 680 0 3,279 1.7% 3,279
1,543 1,007 721 0 3,271 1.7% 3,271
9,304 4,522 3,958 275 18,059 12.9%
10,103 5,864 4,676 0 20,642 15.4%
9,842 6,460 4,568 0 20,870 16.1%
9,183 5,994 4,471 0 19,648 16.3%
8,972 5,729 4,711 0 19,412 16.9%
8,839 5,371 4,853 0 19,062 17.2%
14,577 10,369 6,805 31,751
21
May 31, 2011
Industrial division
Excluding Xstrata, we estimate an attributable copper equivalent CAGR for Glencore of 7.5% over 2011-2015E compared with an average of 5.2% for the diversified miners. Glencores high growth is partly offset by higher geographical risk and a higher cost profile, with average costs mostly in the third quartile of industry cost curves.
Fig. 31: Big 5 copper equivalent organic growth
Investing during the downturn gives Glencore organic growth ahead of its peers
AAL 170 160 150 140 130 120 110 100 2010
BHP
XTA
RIO
GLEN Industrial
Glencore boasts the most impressive growth profile of the diversified miners.
Katanga is expected to expand to 308ktpa copper in 2015 from 58ktpa in 2010. The greenfield Mutanda project is set to come online in 2011 and ramp up to 103ktpa copper and 23ktpa cobalt by 2012. Prodeco is set to ramp up from around 10mtpa thermal coal production in 2010 to 21mtpa by 2015. The Alen and Aseng Guinean oil projects are due to come online in 2014 and 2012, respectively, and achieve peak production of 75kbpd in 2014.
2011E
2012E
2013E
2014E
2015E
Although Glencores managed industrial assets offer the best growth profile among the major diversified miners, their relative cost position is less attractive. Glencores assets sit mostly in the third quartile of industry cash costs, but the relative positions of copper and coal should improve with the commissioning of Mutanda and the ramp up of Prodeco. The other diversified miners have a much greater concentration of assets in the first and second quartiles. Also, Glencores strategy of targeting return on equity means that owning low-cost assets is not as crucial as attaining assets at a cheap valuation to achieve high returns on equity.
22
May 31, 2011
Fig. 32: Glencore generic 2011 cost curve position for managed operations
Cost curve positions are approximate
We estimate the groups average coal cost to be midthird quartile, but the division should move down the cost curve as Prodeco ramps up. Alumina and nickel both reside in the mid third-quartile of industry cash costs Glencores copper assets occupy the fourth quartile of the cost curve, on average, although they have scope to reduce unit costs as production ramps up. Kamoto, Nkana and Mufulira are high-cost mines. Mutanda enjoys significant cobalt by-products that help it achieve a first-quartile position.
Source: Brook Hunt, AME, company data, Nomura estimates
Fig. 33: Glencore industrial EBITDA (attributable)

Associates are included on an attributable basis (35% of Xstrata's EBITDA)
$ mn 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Metals & Minerals Agriculture
Energy Corporate (inc associates)
2011E
2012E
2013E
2014E
2015E
23
Nomura | ASIA
Fig. 34: Glencore managed industrial operations

$mn Copper Katanga Mopani Country DRC Zambia Stake 74% 73% Mined Copper Cobalt Mined Copper Copper Metal Cobalt Mined Copper Cobalt Mined Copper Copper Metal Mined Zinc Mined Lead Mined Zinc Mined Lead Mined Zinc Mined Lead Mined Zinc Mined Lead Mined Copper Mined Gold Mined Silver Zinc Metal Lead Metal Nickel Cobalt Aluminium Alumina Unit kt kt kt kt kt kt kt kt kt kt kt kt kt kt kt kt kt kt koz koz kt kt kt kt kt mt mt mt kbpd Sunflower oil mt Production 2011 121 5 101 236 2 41 6 63 183 119 24 44 14 103 8 260 42 45 620 6 108 0 28 3 2015 308 15 134 242 2 103 23 102 183 119 24 44 14 103 8 183 34 20 599 3 126 0 39 3 Growth Capex 902 635 2011E Cash costs Gross 245 c/lb 276 c/lb Net 182 c/lb 241 c/lb C1 Quartile 4 4 Status WACC ramping up ramping up 16% 16% Attributable NPV 2,583
Glencore
1,320
Mutanda Cobar Pasar Smelting Zinc Los Quenuales AR Zinc Sinchi Wayra Kazzinc
DRC Australia Philippines Peru Argentina Bolivia Kazakhistan
40% 100% 78% 97% 100% 100% 94%
460 140
260 c/lb 135 c/lb n/a 92 c/lb 83 c/lb 80 c/lb n/a
33 c/lb 135 c/lb n/a 37 c/lb 54 c/lb 49 c/lb n/a
1 3
start-up: 2011 operating operating operating operating operating operating
16% 8% 12% 11% 11% 11% 12%
706 2,518 88 423 347 370 7,351*
0 0 0 0
3 3 2 2
Portovesme Smelting Nickel Murrin Murrin Aluminium Columbia Falls Sherwin Alumina Coal & Coke Prodeco Shaduka Coal Oil & Gas Aseng & Alen Agriculture Moreno
Italy
100%
n/a
n/a
operating
8%
117
Australia
82%
$7.5 /lb
$5.9 /lb
operating
8%
1,574
United States United States Colombia South Africa Guinea Argentina
100% 100% 100% 70% 24%, 25% 100%
1.4 12 13 0 1.3
1.4 19 13 68 1.3
0 1,104 0 705 0
$306/t $63/t $46/t $12/boe $1,758/t
$306/t $63/t $46/t $12/boe $1,758/t
3 3 2 n/a n/a
idled operating ramping up operating start-up: 2012 operating
8% 8% 11% 10% 16% 11%
565 3,365 477 695 523 23,024
Total *Management intend to spin out the goldstream of Kazzinc; thus we value it at an average EV / produced gold ounce of Russian gold miners
Source: Brook Hunt, AME, company data, Nomura estimates
May 31, 2011
24
Zinc
The groups largest zinc asset is Kazzinc, which operates a fully integrated zinc business in Kazakhstan. Glencore owns 51% of Kazzinc and expects to increase its ownership to 93% with USD2.2bn in cash from the IPO proceeds and USD1bn in issued share capital, for a total consideration of USD3.2bn. Glencore also possesses options to increase its stake to 99.4%. Kazzinc produces around 300ktpa of zinc metal (which includes between 200ktpa and 250ktpa mined zinc production, topped off with purchased concentrate). It also produces around 40ktpa mined lead and around 30ktpa mined copper. Mined gold production is set to increase from around 326koz in 2010 to 636koz in 2014 with the ramp-up of the greenfield Vasilkovskoye gold mine. Management has indicated that it intends to list the goldstream via an IPO (totalling around 800koz refined gold output). Based on a Russian gold producers average of EV/produced ounce of USD7,000, the spun-off Altyntau Gold would be valued at around USD5.2bn. This appears to be a positive strategy for the assets, in our view, as gold operations normally fetch a multiple to NPV in the market and tend to be de-rated within a diversified mining structure. Glencore owns and manages four major operations in zinc across South America and Kazakhstan. In South America, Glencore owns 97% of Los Quenuales, which owns and operates the Yauliyacu and Isyacruz zinc mines in Peru. Together, they produce around 120ktpa of zinc, 24ktpa of lead, and around 3.5moz of silver. Glencore also owns Sinchi Wayra, which operates five Bolivian zinc mines that produce around 100ktpa of zinc, 7ktpa of lead and around 2.5moz of silver. Lastly, the group also operates AR Zinc (Aguilar) in Argentina, which produces around 40ktpa of zinc, 14ktpa of lead and around 1moz of silver.
Copper
Glencores copper operations lie predominantly in the Copperbelt along the border of Zambia and the Democratic Republic of Congo (DRC). The largest and most notable of these is Glencores 74.4% owned, publicly-listed subsidiary, Katanga Mining, which is 75% owner of the Kamoto-KOV copper complex (DRC state mining company, Gecamines owns the other 25%). Located in the Katanga province of the DRC, KCCs copper production is expected to ramp up from 58ktpa in 2010 to more than 300ktpa by 2015. The operation is also expected to delivery cobalt production of 15ktpa by 2015 (from 3ktpa in 2010). The current Katanga Mining was created out of the merger of Nikanor and Katanga Mining, in both of which Glencore held a stake. Also in the DRC, Glencore owns a 40% stake in and is operator of the Mutanda coppercobalt project. The project will eventually ramp up through several stages to 104ktpa by 2013. Cobalt production will reach 23ktpa by 2013. The adjacent Kansuki deposit is expected to deliver a 100ktpa copper project. Glencore management expects synergies between Kansuki and Mutanda and is expediting the project. Across the Zambian-Congolese border lies Glencores third Central African copper investment, Mopani Copper Mines. The group owns 73.1% of the complex, which includes the Nkana and Mufulira mines. Together, the two produce around 100ktpa mined copper and around 2ktpa mined cobalt. Mopani is to deliver total metal production of around 240ktpa through both own mined production and tolled concentrate from Mutanda and Katanga. Lastly, Glencore is 100% owner and operator of the Cobar copper mine in New South Wales, Australia. Cobar produces around 90ktpa copper-in-concentrate. The construction of a hoisting shaft extension (USD139m capex) to increase production by around 30ktpa copper-in-concentrate by 2013 is in the final stages of the feasibility study.
25
Nickel and alumina

Glencore possesses an effective 82% holding in the Murrin Murrin integrated nickelcobalt operation in Western Australia through a 71% stake in Minara Resources and a 40% ownership in Murrin Murrin (Minara owns the other 60%). The laterite nickel operation utilises high-pressure acid leaching technology for extraction. Murrin Murrin produces around 36ktpa nickel and around 3ktpa cobalt. Murrin Murrin occupies the third quartile of the 2011 Brook Hunt nickel cost curve. Glencore is 100% owner and operator of the Sherwin Alumina refinery located in Corpus Christi, Texas, US. It has refining capacity of 1.6mtpa, but has averaged around 1.3mtpa production since 2008 (average capacity utilisation of around 81%). Sherwin utilises natural gas for power, which has helped contain costs. The refinery occupies the third quartile of the 2011 Brook Hunt alumina cost curve.
Fig. 35: Industrial metals & minerals segment summary
Mined production includes by-products $mn Consolidated production Copper (kt) Cobalt (kt) Zinc (kt) Lead (kt) Gold (koz) Silver (koz) Nickel (kt) Alumina (kt)
Revenue Costs EBITDA Copper Zinc Nickel Aluminium EBITDA margin % Depreciation EBIT Capex by operation Capex by type Sustaining Expansionary 2011E 372 16 525 88 620 12,634 28 1,400 10,741 6,777 3,964 2,222 1,330 336 76 36.9% 1,103 2,862 1,422 1,422 527 895 2012E 391 31 471 97 542 11,956 36 1,400 12,019 7,524 4,495 2,625 1,407 375 88 37.4% 1,044 3,451 1,074 1,074 554 520 2013E 540 38 518 97 614 11,798 37 1,400 11,647 7,373 4,274 2,717 1,152 316 88 36.7% 872 3,402 958 958 470 488 2014E 615 46 508 90 636 11,564 38 1,400 11,462 7,195 4,268 2,886 1,050 251 80 37.2% 716 3,552 648 648 433 215 2015E 679 43 448 79 599 10,083 39 1,400 11,350 7,198 4,152 2,907 909 256 80 36.6% 736 3,416 734 734 505 229
Total NPV Total attributable NPV
16,998 17,963
Source: Brook Hunt, company data, Nomura estimates
26
Energy
Glencore is developing two key organic growth projects in the energy division. The first of these is the brownfield expansion of Prodeco in Colombia. This thermal coal operation is scheduled to expand from 10mtpa in 2010 to 21mtpa by 2015. Glencore exercised its call option on Prodeco from Xstrata in early 2010 after selling it to Xstrata as part of Xstratas rights issue in early 2009. Glencores second coal asset is Shanduka, located in South Africa, which has production capacity of 13mtpa of thermal coal. Around two-thirds of Shandukas production is sold to Eskom and one-third is sold on the seaborne market through Richards Bay Coal Terminal. Glencores second major project in the energy division are the Guinean oil blocks Alen (25% ownership) and Aseng (24% ownership). These two operations are due to achieve first oil in 2014 and 2012 respectively, reaching peak production of around 75kbpd in 2014 on a consolidated basis. Glencore also holds interests in a number of exploration blocks in the vicinity of Alen and Aseng.
Fig. 36: Industrial Energy segment summary
$mn Consolidated production Coal (kt) Oil & Gas (mboe pa) Revenue Coal & Coke Oil & Gas Costs Coal & Coke Oil & Gas EBITDA Coal & Coke Oil & Gas EBITDA margin % Depreciation Coal & Coke Oil & Gas EBIT Coal & Coke Oil & Gas Capex by operation Coal & Coke Oil & Gas Capex by type Sustaining Expansionary 2011E 25,480 0 2,175 2,175 0 1,388 1,388 0 787 787 0 36.2% 225 225 0 562 562 0 598 598 0 598 34 564 2012E 27,080 18 3,397 2,890 506 1,712 1,656 56 1,684 1,234 450 49.6% 303 249 54 1,381 985 397 395 278 118 395 39 356 2013E 28,920 18 3,498 3,151 347 1,724 1,671 53 1,774 1,480 294 50.7% 311 257 54 1,463 1,223 240 219 102 118 219 38 181 2014E 31,270 21 3,683 3,285 399 1,809 1,748 61 1,875 1,537 338 50.9% 314 252 62 1,561 1,285 276 208 138 71 208 55 153 2015E 31,630 25 3,163 2,703 460 1,790 1,719 70 1,373 984 389 43.4% 303 232 71 1,070 752 318 158 135 24 158 58 100
Total NPV Total attributable NPV
7,667 7,463
Source: Noble Energy, AME, company data, Nomura estimates
27
Agriculture
Glencores main agricultural industrial asset is the Moreno sunflower oil plant. It has annual production capacity of around 1.9mtpa and has average capacity utilisation over the past three years of 66%. Glencore also holds various stakes in wheat and rice mills, farms, and sugar-processing facilities.
Fig. 37: Industrial Agriculture segment summary
$mn Revenue EBITDA EBITDA margin Depreciation EBIT Capex Total NPV Total attributable NPV
2011E 2,382 96 4.0% 40 56 20 523 523
2012E 2,382 96 4.0% 40 56 20
2013E 2,382 96 4.0% 40 56 20
2014E 2,382 96 4.0% 40 56 20
2015E 2,382 96 4.0% 40 56 20
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Glencore financial summary

Fig. 38: Glencore summary sheet
$ mn Commodity prices Zinc ($/tonne) Copper ($/tonne) Nickel ($/tonne) Gold ($troy ounce) Colombian Thermal Coal FOB ($/t) Industrial - Zinc (inc Altyntau) Mined zinc production (kt) Revenue Costs EBITDA Industrial - Copper (inc Katanga) Mined copper production (kt) Mined cobalt production (kt) Revenue Costs EBITDA Industrial - Coal Mined coal production (kt) Revenue Costs EBITDA Industrial - Other Share of Xstrata EBITDA (as reported) Other industrial EBITDA Total Industrial EBITDA Marketing Revenue Growth y-o-y EBITDA EBITDA margin Capital Employed Growth in Capital Employed EBIT Return on Capital Employed Glencore Reported EBITDA Net Income Diluted EPS Net Debt Net Debt/EBITDA Capex Total attributable firm NPV ($mn) 10% Discounted firm NPV ($mn) Net Debt Q4 2010 ($mn) Primary issuance ($mn) Cost of 42% Kazzinc Stake ($mn) Less Proforma Net Debt ($mn) Convertible debt ($mn) NPV of Equity ($mn) NPV per diluted share (GBp) Current share price (GBp) Target Price (GBp) 2010 2,158 7,536 21,795 1,225 75 462 2,756 1,716 1,040 215 4 3,431 2,831 600 19,052 1,246 921 325 1,500 369 3,834 2011E 2,200 11,023 25,000 1,400 122 525 3,323 1,994 1,330 326 13 6,114 3,892 2,222 25,480 2,175 1,388 787 3,573 566 8,479 2012E 2,200 10,582 22,509 1,300 153 471 4,048 2,641 1,407 361 28 6,561 3,936 2,625 27,080 2,890 1,656 1,234 4,402 1,085 10,753 2013E 2,250 7,937 21,010 1,150 153 518 3,995 2,842 1,152 509 35 6,295 3,578 2,717 28,920 3,151 1,671 1,480 4,113 870 10,332 2014E 2,300 7,165 18,739 1,000 135 508 3,733 2,683 1,050 585 43 6,448 3,562 2,886 31,270 3,285 1,748 1,537 3,664 840 9,978 2015E 2,100 6,614 18,739 950 108 448 3,547 2,638 909 660 40 6,503 3,597 2,907 31,630 2,703 1,719 984 3,476 897 9,172 2016E 2,100 6,063 18,739 950 85 493 3,481 2,389 1,091 652 40 5,896 3,464 2,432 33,700 2,363 1,750 613 3,251 853 8,240
133,977 37% 2,367 1.8% 18,059 12.4% 12.9% 6,201 3,751 n/a 29,087 4.7x 1,657 98,255 88,429 29,087 7,900 3,200 24,387 2,132 66,174 558 522 550
182,810 36% 3,185 1.7% 20,642 14.3% 15.4% 11,664 7,340 1.00 20,234 1.7x 2,039
206,745 13% 3,351 1.6% 20,870 1.1% 16.1% 14,104 9,547 1.30 19,237 1.4x 1,489
197,635 -4% 3,206 1.6% 19,648 -5.9% 16.3% 13,538 9,132 1.25 14,000 1.0x 1,197
197,242 0% 3,279 1.7% 19,412 -1.2% 16.9% 13,256 9,052 1.24 9,319 0.7x 876
190,410 -3% 3,271 1.7% 19,062 -1.8% 17.2% 12,443 8,597 1.17 4,132 0.3x 912
189,786 0% 3,314 1.7% 18,943 -0.6% 17.5% 11,554 8,284 1.13 -410 0.0x 651
NPV of firm Marketing Industrial Xstrata UC Rusal Minor listed stakes Other industrial
98,255 31,751 66,504 37,076 2,148 1,332 25,949
Target Price (HK$)
70.40
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Xstrata financial summary

Fig. 39: Xstrata summary sheet
$ mn Coal Shipments (Mt) Hard coking coal Semi Soft Coking coal Export Thermal Coal Domestic Coal Prices ($/tonne) Hard coking coal Semi Soft Coking coal Export Thermal Coal Revenue Total Operating Costs per Tonne Coking coal Thermal coal EBITDA Copper Mined Production (kt) Copper Price ($/tonne) Revenue Cost of production EBITDA Nickel Mined Production (Kt) Nickel Price ($/lb) Revenue Operating Costs EBITDA Other segment EBITDA Zinc Ferrochrome Other Xstrata Consolidated EBITDA Net Income Diluted EPS Net Debt Net debt/EBITDA Capex Total attributable firm NPV Less net debt NPV of equity ($ mn) NPV per share (GBp) Value of growth options (GBp) Total NPV per share (Gbp) Share Price (GBp) Target Price (GBp)
2010
2011E
2012E
2013E
2014E
2015E
2016E
8 7 54 13 206 137 83 7,788 4,727 92 49 3,061 913 7,536 14,004 8,952 4,693 61 9.89 2,738 1,765 973 1,327 337 (2) 10,386 5,152 1.74 7,750 0.7x 6,117 93,493 7,750 85,743 1,806 440 2,247 1,391 2,200
8 7 59 14 279 199 124 11,830 6,186 107 56 5,644 978 11,023 19,426 10,485 8,940 80 11.34 3,212 1,920 1,292 1,614 810 308 18,608 10,387 3.48 3,538 0.2x 7,041
8 8 66 15 260 186 159 15,195 6,862 107 56 8,333 1,083 10,582 20,242 10,692 9,537 91 10.21 3,107 1,919 1,187 1,618 987 368 22,031 12,795 4.28 (4,900) -0.2x 6,337
8 9 81 16 230 164 159 17,520 8,035 104 56 9,485 1,204 7,937 15,851 8,851 6,958 121 9.53 3,439 1,993 1,447 1,343 879 396 20,509 11,956 4.00 (15,494) -0.8x 4,180
8 9 81 16 190 136 142 15,421 7,747 99 54 7,674 1,282 7,165 14,637 8,316 6,341 151 8.50 3,606 2,043 1,562 1,298 775 422 18,072 10,651 3.56 (25,778) -1.4x 3,447
8 9 81 16 160 114 114 12,613 7,324 95 52 5,289 1,363 6,614 16,300 8,815 7,595 153 8.50 3,606 2,051 1,555 1,035 780 421 16,675 10,104 3.38 (36,388) -2.2x 2,457
8 9 81 16 160 114 92 10,681 6,989 95 50 3,692 1,545 6,063 16,156 8,731 7,613 157 8.50 3,661 2,094 1,566 1,028 780 420 15,100 9,449 3.16 (46,370) -3.1x 2,447
NPV of firm: breakup Coal Copper Nickel Zinc Other
93,493 30,091 41,042 7,393 7,308 7,658
30
Appendix
Share lockups, indexation, and key management
Fig. 40: Share lockups
Share lockup arrangements Lockup duration on all shares Board and 5 years executive directors Four year 4 years locked-up managers Two years locked-up 2 years managers Other existing 360 days shareholders Glencore Cornerstone investors Kazzinc minority investors Convertible bondholders 180 days
Lock up overview Staggered lockups Both sales and hedging transactions prohibited Includes all commodity department heads Staggered lockups Both sales and hedging transactions prohibited Staggered lockups Both sales and hedging transactions prohibited Both sales and hedging transactions prohibited Further primary issuance by Glencore prohibited (excluding employee share option programme awards in the ordinary course, issuances of shares with an aggregate value of up to $1bn to fund an acquisition, merger or takeover, and other customary carve-outs) Lockup from admission, subject to certain customary exceptions Non-cash consideration to be issued in accordance with planned acquisition of Kazzinc stake (42.3%) Lockup duration starting from completion of transaction Bonds converted into shares after the IPO are restricted from sale until 90 days post listing
180 days 180 days 90 days
Fig. 41: Indexation

Indexation FTSE Fast entry to FTSE 100 and FTSE All-world indices on close of business of first day of unconditional trading Immediately post IPO, Glencore's index investability weighting will be 12% FTSE will consult with market practitioners on the appropriate approach for future weighting changes as the free float increases to more closely reflect the availability of shares Classification under Basic Material industry, Basic Resource super sector, Mining sector and General Mining subsector MSCI Early inclusion into the Large Cap segment of the MSCI Global Standard Indices on an accelerated basis (expected to become effective on 1 June 2011) Foreign Inclusion Factor (index free float weight) will be 12% Global Industry Classification Standard (GICS) is Diversified Metals & Mining STOXX Review for fast-track addition to STOXX 'blue chip' indices at next quarterly review (Sept. 2011) Eligibility for inclusion anticipated after increase in free-float
31
Fig. 42: Key management

Glencore Board of Directors and management team Aged 71 Simon Murray Executive Chairman of GEMS Independent Non Board member of Richemont and Essar Energy Executive Chairman Executive Directors Aged 53 Ivan Glasenberg BoD Member since 2002 CEO CEO of Glencore since 2002 27 years with Glencore Aged 40 Steven Kalmin CFO of Glencore since 2005 CFO 12 years with Glencore Independent Non Executive Directors Aged 53 Anthony Hayward Former CEO of BP Board member of TNK-BP and partner of AEA Investors Aged 65 Peter Coates 40 years of experience in the resource industry Member of the Boards of Santos and Amalgamated Holdings Aged 48 Leonhard Fischer CEO of RHJ International and former CEO of Wintherthur Member of the Boards of Julius Baer Gruppe, AXA Konzern and Arecon Aged 65 William Macaulay Chairman and CEO of First Reserve Chairman of Dresser-Rand Aged 54 Li Ning Executive Director of Henderson Land Development Company Director of Hong Kong (Ferry) Holdings
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Appendix A-1
Analyst Certification
We, Tanuj Shori, Paul Cliff and Patrick Jones, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

Mentioned companies
Issuer name Glencore Xstrata plc Ticker 805 HK XTA LN Price 67.40 HKD 1424 Price date 30-May-2011 27-May-2011 Stock rating Neutral Buy Sector rating Not rated Bullish Disclosures 49
Disclosures required in the U.S.

49 Possible IB related compensation in the next 3 months Nomura Securities International, Inc. and/or its affiliates expects to receive or intends to seek compensation for investment banking services from the company in the next three months.
Previous Rating
Issuer name Glencore Xstrata plc Previous Rating Not rated Rating Suspended Date of change 30-May-2011 20-Oct-2009
Glencore (805 HK)

Chart Not Available
67.40 (30-May-2011)
Valuation Methodology Our HKD70.40 price target is based on SoTP of net present values, discounted back to the last reporting period (FY10). We utilise different WACCs for different segments of the business to account for different geopolitical risks in the various locales (eg different WACCs for Katanga and agricultural marketing). We take a 10% discount from enterprise value to account for the difficulties encountered by companies that derive significant proportions of their value from either non-controlling stakes in other companies (eg Glencores interest in Xstrata) and from disparate businesses (production and marketing). Risks that may impede the achievement of the target price Glencore is exposed to commodity price risk, particularly copper, coal, and zinc. It is also exposed to operational and geopolitical risk in both its mining and marketing business. The marketing business is exposed to counterparty risk.
33
Xstrata plc (XTA LN)

Rating and target price chart (three year history)
1424 (27-May-2011) Buy (Sector rating: Bullish)

Date 09-Jan-2011 06-Jan-2011 10-Sep-2010 02-Mar-2010 04-Dec-2009 20-Oct-2009 20-Oct-2009 23-Jul-2009 28-Apr-2009 11-Mar-2009 22-Jan-2009 17-Nov-2008 17-Nov-2008 Target price Closing price 2200.00 1500.50 1800.00 1515.00 1700.00 1135.50 1500.00 1098.00 1400.00 1066.00 1300.00 1002.00 BUY 1002.00 SUSPENDED 778.90 770.00 563.50 630.00 346.25 1630.00 408.71 1350.00 496.17 BUY 496.17 Rating
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our 2200p target price is based on DCF valuation (WACC=8.5%, terminal growth 0%). We discount back to the latest reporting period (FY 10). The benchmark index for this stock is the FTSE 350 Mining Index. Risks that may impede the achievement of the target price Xstrata is exposed to commodity price risk (especially coal, copper, chrome, nickel and zinc), various operational risks common to all mining companies, and political risks in different parts of the world.
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Important Disclosures
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The distribution of all ratings published by Nomura US Equity Research is as follows: 38% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 4% of companies with this rating are investment banking clients of the Nomura Group*. 55% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 1% of companies with this rating are investment banking clients of the Nomura Group*. 7% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 March 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Distribution of ratings (Global)

The distribution of all ratings published by Nomura Global Equity Research is as follows: 49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with this rating are investment banking clients of the Nomura Group*. 40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 March 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (exAsia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
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STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%.
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A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008)
STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
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37

Glencore Entrepreneurialismfullypriced

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Glencore Entrepreneurialismfullypriced

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Glencore

Initiating at NEUTRAL with TP of HKD70.40

Entrepreneurialism fully priced

Nomura | ASIA Glencore

May 31, 2011

Key data on Glencore

Strong earnings growth to last through FY11-12F, in our view

3,307 3,929 -622 3,307 -587

5,290 6,201 -911 5,290 -936

10,677 11,664 -987 10,677 -1,602

13,063 14,104 -1,041 13,063 -1,114

12,605 13,538 -934 12,605 -1,059

2,720 -238 2,482 -96 -753 1,633 1,633 0 1,633

4,354 -234 4,120 -355 -14 3,751 3,751 0 3,751

9,076 -758 8,318 -978 0 7,340 7,340 -1,000 6,340

11,949 -1,193 10,756 -1,209 0 9,547 9,547 -1,040 8,507

11,545 -1,177 10,368 -1,236 0 9,132 9,132 -1,082 8,050

36.3 57.8 60.0 129.7 129.7

36.6 88.1 101.8 95.7 95.7

13.3 20.9 22.3 30.1 30.1

-4.2 -4.0 -3.5 -4.3 -4.3

0.24 0.24 0.22 2.41 0.00

0.54 0.54 0.51 2.83 0.00

1.06 1.06 1.00 5.20 0.14

1.38 1.38 1.30 6.43 0.15

1.32 1.32 1.25 7.59 0.16

Nomura | ASIA Glencore

May 31, 2011

Positive operating cashflow expected from FY11-13F

203 -4,174 -2 0 3,087 1,915 -792 4,208 34 826 860 23,131

FY09 860 75 15,189 15,073 6,179 37,376 18,083 6,845

FY10 1,463 66 18,994 17,393 6,100 44,016 19,204 12,088

FY11F 9,491 66 23,021 19,190 6,100 57,868 22,625 13,141

FY12F 9,663 66 26,093 21,751 6,100 63,673 26,840 13,589

FY13F 14,075 66 25,002 20,842 6,100 66,086 30,777 13,853

Stable cash cycle; gearing to come down

43.0 42.4 36.1 49.4

38.7 35.6 33.9 40.4

40.0 35.4 34.5 41.0

43.3 38.4 37.4 44.4

Nomura | ASIA Glencore

May 31, 2011

Executive summary: NEUTRAL, HKD70.40 TP Valuation (NEUTRAL, TP HKD70.40)

The marketing business

The industrial business listed assets

The industrial business unlisted assets

Earnings summary & sensitivity

Marketing: cyclical earnings, counter-cyclical cash flow

M&A: Xstrata merger unlikely for now Marketing division

Noble-Glencore: a closer comparison

Nickel and alumina

Glencore financial summary

Xstrata financial summary

Share lockups, indexation, and key management

Nomura | ASIA Glencore

May 31, 2011

Executive summary: NEUTRAL, HKD70.40 TP

12,963 5,208* 3,620

3,169 10,046 3,185 13,231

30,989 83,022 10% 74,720 -24,387

Noble Group multiple (last reported net debt)

Holding company discount

Excluded for in-market valuation 50,333 449 57.50