Glencore International plc

Aleksander | Alvin | Quyet Thang | Ying Ling | Zhao Yu

1

Agenda
Were the decisions made by Glencore in line with its business strategy?

Why choose IPO?

Was the timing of IPO correct? Was the decision of re-acquiring Prodeco a good move?

Introduction

Company Background
Leading integrated producer and marketer of

commodities
Metals and minerals, energy products and agriculture products Operates in 30 different countries Multiple interest in business related firms

Biggest IPO in LSE and HKEX

Introduction

Company Background | Business Segments | Operations | Business

Business Segments
Metals & Minerals Marketing Activities Industrial Activities Energy Products Marketing Activities Industrial Activities

Main assets: Xstrata (34.5%), Katanga (74.4%), Kazzinc (50.7%), Mopani (73.1%) Agricultural Products Marketing Activities Introduction

Main assets: Prodeco (100%)

Industrial Activities
Source: Glencore Annual Report

Company Background | Business Segments | Operations | Business Strategy 5

Worldwide Operations

Introduction

Company Background | Business Segments | Operations | Business

Geographical Footprint

Introduction

Source: Glencore Company Report; Bloomberg

Company Background | Business Segments | Operations | Business

Geographical Footprint

Source: Glencore Company Report; Bloomberg

Introduction

Company Background | Business Segments | Operations | Business

Business Strategies
Increasing geographic scope and diversification of operations

Capitalizing on strategic investments in business related

assets Using additional capital and liquidity to grow the business Focusing on cost management and further enhancing logistical capabilities Maintaining conservative financial profile and investment grade ratings

Introduction

Company Background | Business Segments | Operations | Business Strategy 9

IPO Listing

10

Overview of IPO
Issuer: Glencore International Plc

Date: 19th May 2011

Securities offered: Ordinary shares

Offer price: 530 pence

Free float: 18.3% Glencores valuation based on IPOs share price: $60 billion
IPO Listing
Overview | Rationale | Timing | Dual Listing | Analysis of IPO
11

Initial Intentions to Float Earlier

Glencore had the intention to float in 2008 Commodity price peaked in June 2008 but dropped

thereafter

Souce: Bloomberg. Only include IPOs of amount larger than $10 million.

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

12

Impact of the Financial Crisis

Glencore also faces financial distress during this period High CDS price means higher chance of bankruptcy Glencore would raise less capital in 2008 than they did in 2011

Souce: Bloomberg

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

13

Impact of the Financial Crisis

Significant fall in the number of IPOs during 2008 and 2009
Number of IPOs 250 200 150 100 50 0 180 160 140 120 100 80 60 40 20 0

2006

2007

2008

2009

2010

2011

IPO on LSE (all industries)

IPO Worldwide (Basic Material)

Souce: Bloomberg. Only include IPOs of amount larger than $10 million.

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

14

Rationale for IPO in 2011

Changing business structure - a shift from marketing to industrial activities
Required huge capital expenditure
(US $'million) Adjusted EBITDA preexc. Marketing Activities % Shares Industrial Activities 2008 6,787 3,215 47% 3,572 2009 3,929 1,606 41% 2,323 2010 6,201 2,367 38% 3,834 Projected 2011 7927.2 2,616 33% 5,311

% Shares

53%

59%

62%

67%

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

15

Rationale for IPO in 2011

Why was IPO the best choice at the time?

Internal Financing
Not enough to fund billion-dollar acquisitions

Debt financing
Possible credit rating downgrade

IPO
Right timing Decreases the financial leverage IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

16

Right Timing
US$ Million Total revenue Operating profit Net profit 2010 144,978 4,340 3,751 2009 106,364 1,967 1,633 2008 152,236 1,336 1,044
200 150 100 50 0 $200,000 $150,000 $100,000 $50,000 $-

2006 2007 2008 2009 2010 Total Revenue Commodity Price Index

Net profit in 2010 increased 118% to $3.7 billion

Glencores financial performance is linked to the commodity market - With the commodities price rally in 2011, Glencore was at its best performance at the time of the IPO

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

17

Right Timing
April 14 Announceme nt May 19 Global Offer

IPO Listing

Commodities have been on the rally since 2009 The value of Glencores assets is highly correlated with the commodity prices High commodities prices led to high analyst valuations
Overview | Rationale | Timing | Dual Listing | Analysis of IPO

Souce: Thomson CRB Index

18

Dual Listing of IPO

Dual listing
London Stock Exchange (LSE)
The primary listing place US$8.8 billion

Hong Kong Stock Exchange

Attract global initial offering volume US$2.2 billion

Lock-up period Board and Executive directors Senior managers

IPO Listing
Overview | Rationale | Timing | Dual Listing | Analysis of IPO
19

IPO Performance
530 pence and HKD 66.53 per share

Oversubscription
Four to five times; orders well above $32 billion Reflects the economic situation Cornerstone investors (including Singapore GIC) were allocated 31% of the global offer

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

20

Post Performance

14th June: 500pp 10% lower 24th May-24th August530pp - 347.95pp (35%lower)
IPO Listing
Overview | Rationale | Timing | Dual Listing | Analysis of IPO
21

Post Performance
14th June: 500pp 10% lower 24th May-24th August 530pp - 347.95pp (35%lower)

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

22

Post Performance

IPO Listing

Overview | Rationale | Timing | Dual Listing | Analysis of IPO

23

Capital Structure

24

Business Risk

GLENCORE
Diversified business
Metals and Minerals
Energy Products Agricultural Products Xstrata (34.5%) Katanga (74.4%) Kazzinc (50.7%) Mopani (73.1%) Prodeco (100%) Grains, oils, cotton, sugar, etc.

Marketing Activities (Trading)

Capital Structure

Industry Activities (Mining)

Source: Glencore company report

Business Risk & Financial Risk | Capital Structure Analysis | Equity

25

Business Risk
Strong exposure to the commodity market
200 180 160 $120,000 140 120 100 80 60 $40,000 40 20 0 $20,000 $$ 000,000 $160,000 $140,000

$100,000
$80,000 $60,000

2006

2007 Total Revenue

2008

2009 Commodity Price Index

2010

Capital Structure

Source: Glencore company report http://www.indexmundi.com

Business Risk & Financial Risk | Capital Structure Analysis | Equity

26

Financial Risk
Increased Debt
$35,000 $30,132 180% 160% 140% $25,000 $20,405 $18,316 $16,755 $15,000 80% 60% $10,000 40% $5,000 20% 0% $23,589 120% $30,000

$20,000

100%

$-

2006
$ 000,000

2007
Total Borrowings

2008

2009
Debt/Equity Ratio

2010

Capital Structure

Source: Glencore company report Business Risk & Financial Risk | Capital Structure Analysis | Equity 27

Implication

Uncertainty in economy

Rising debt levels

Economy

Debt

Capital Structure

Business Risk & Financial Risk | Capital Structure Analysis | Equity

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Capital Structure in 2011

Lower debt Higher cost of capital Higher financial flexibility

$3.6bn
Tax Shield

1H2011 Debt/Equity Ratio (long-term debt only) Debt/Equity Ratio WACC

Capital Structure

2010 0.93 1.54

2009 0.98 1.41

2008 0.85 1.19

2007 0.64 1.30

2006 0.69 1.53

0.60 0.83 8.73%

6.68% 6.42% 7.76% 8.11% 7.30%

Business Risk & Financial Risk | Capital Structure Analysis | Equity

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Implications of Sticking With Old Structure

High Debt/Equity ratio

Possible downgrade of credit rating

Higher cost of capital
1H2011E
Debt/Asset Ratio Debt/Equity Ratio WACC 0.50 2.23 Higher Higher

2010
0.38 1.54

2009
0.36 1.41

2008
0.30 1.19

2007
0.34 1.30

2006
0.36 1.53

6.68% 6.42% 7.76% 8.11% 7.30%

Capital Structure

Business Risk & Financial Risk | Capital Structure Analysis | Equity

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Change in Equity Structure

Source: Glencore company report

Capital Structure

Business Risk & Financial Risk | Capital Structure Analysis | Equity

31

Convertible Bonds
$2.142 billion convertible bonds were issued in 2009 5.5% (403,435,000 shares) of Glencores equity

Capital Structure

Source: Glencore report Business Risk & Financial Risk | Capital Structure Analysis | Equity

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Convertible Bonds
Cornerstone investors
Tor Peterson

5%

4% 5% 6% 6%

Alexander Beard Telis Mistakidis Daniel Mate Badenes New shareholder (ex. Cornerstone investors) Ivan Glasenberg Other Glencore partners

47%

Exercise price of at least 361 pence Cornerstone investors

5% 5% Tor Peterson 4% 4% Alexander Beard Telis Mistakidis 6%

11%
16%

6% Daniel Mate Badenes 45% 11% New shareholder (ex. Cornerstone investors) Ivan Glasenberg 15%

Other Glencore partners

Shares from convertible bond

Capital Structure

Business Risk & Financial Risk | Capital Structure Analysis | Equity

33

Re-acquisition of Prodeco

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Overview
Fully owned subsidiary of Glencore 3rd largest exporter and thermal coal producer in Colombia Explores, produces and transports high-grade coal Market Europe & North America
2 opencast mines Operation Port facilities s Railway
Re-acquisition of Prodeco
Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |
35

Timeline of Prodecos Acquisition

1995 1998 March 2009 March 2010
Purchase of Prodecos operations in coal development project Establishment of Glencore coal Acquisition by Xstrata plc Re-acquisition by Glencore

1995

2009

2010 present

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

36

Analysis of Prodecos Acquisition by Xstrata

To provide Glencore with sufficient funds for participating in Xstratas rights issue Largest stakeholder of Xstrata with 34.5% ownership interest
Cashstrapped during rights issue

US$504m net income in 1Q 2009

Sale of Prodeco at $2.023bn to provide sufficient funds for participation in rights issue

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

37

Analysis of Prodecos Acquisition by Xstrata

Issue price = 2.10 Closing price = 6.23

No. of outstanding shares before rights = 488,000,000

No. of outstanding shares after rights = 2,448,000,000
No. of Shares Outstanding Share Ownership Before Rights Participation After Rights Before Rights After Rights Dilutio n

3,529,764,00 0.00% 0 1,176,588,00 Without Participation 338,100,000 1,048,882,800 338,100,000 -66.67% 0 Total Outstanding 10,231,200,0 980,000,000 3,040,240,000 2,940,000,000 00 Shares 338,100,000 1,048,882,800 1,014,300,000 Re-acquisition of Prodeco
Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |
38

Analysis of Prodecos Acquisition by Xstrata

Possible consequences of not participating in rights issue:
Share dilution of 66.67% with the 2-for-1 rights issue Smaller share of the pie for dividends distributed No longer the largest stakeholder

Sale of Prodeco
Call option granted to re-acquire within 12 months at a premium price

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

39

Re-acquisition of Prodeco
Call option exercised on 5th March 2010

US$2.25bn including other notional profits accrued from 1 Jan 2009 & net balance of cash invested by Xstrata

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

40

Why Exercise Call Option?

High valuation of Prodeco at $4 to $5 billion
Increase in Prodecos revenue by 20.75% between 2009 to 2010 Expansion in coal production 2013 2010 19.9m 10m tonnes tonnes 2015 20.7m tonnes

Important driver for Glencore to continue generating growth in mining sector

Re-acquisition of Prodeco
Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |
41

Why Exercise Call Option?

Prospective IPO
Prodeco would be able to attract a high valuation during the IPO Glencore intended to channel 13% of IPO ($919m) proceeds to Prodeco for investments in infrastructure
13% 4% 6%

Debt repayment IPO expense Kazzinc additional stake

12%
32%

Capex (expansion project in Kazzinc) Capex (expansion project in Mopani) Capex (expansion project in Prodeco)
8% 12%

13%

Capex (expansion project in West African Oil Assets) Capex (expansion project in Glencore's other industrial assets)

Distribution of Proceeds from IPO

Source: Glencore IPO Prospectus

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

42

Why Exercise Call Option?

Greater dividends from Xstrata
Flexibility for Xstrata to deliver 50% volume growth by 2014 (CAPEX) Growth in Xstrata greater dividends for Glencore shareholders

Future of Coal
Increase in coal price by 20-30% during re-acquisition Demand for coal likely to increase in future

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

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Implications of Re-acquisition
Sources of finance for re-acquisition
Net cash generated from operations
Sale of $1bn worth of assets for $400 million
Desirable?

Increase in net debt from US10.2bn in 2009 to US$13.6bn in 2010

US$2.4bn accounted for exercising call option

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

44

Implications of Re-acquisition
Business was considerably unaffected as increased earnings and operating cash flow compensated for the increase in net debt
Debt coverage ratio remained largely unchanged

Investment ratings remained unchanged (BBB-)

Re-acquisition of Prodeco

Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |

45

Challenges Ahead

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Challenges Ahead
Fall in commodity prices is likely to negatively impact Glencores financial position
Possible excalation of the sovereign debt crisis Increasingly strict environmental regulations

Challenges Ahead

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Conclusion & Outlook

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Conclusion
Were the decisions made correct?
IPO Listing

Allows investment in other industries Expansion in current businesses Allows further acquisitiondriven growth

Reacquisitio n of Prodeco

Helps Glencore strengthen its position in mining industry Improve financial position of Glencore
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Conclusion
Conclusion | Future Outlook

Future Outlook
Use cash obtained from IPO to buy shares of related companies at discount Decrease in reliance from metal & minerals business segment
Purchase stakes in companies in the research and production of biodiesel

Focus on emerging markets (e.g. China & India)

Conclusion
Conclusion | Future Outlook
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