Glencore Rows Back on $1.4 Billion Kazakh Zinc Deal

Commodities trader Glencore will buy a smaller stake in Kazakh zinc producer Kazzinc than it had planned in a $1.4 billion deal.

Zinc ingots, used to coat galvanized nails, sit stacked in a warehouse.
Bloomberg|Getty Images
Zinc ingots, used to coat galvanized nails, sit stacked in a warehouse.

When the commodities trader announced that it was suspending trading in its Hong Kong listing on Tuesday, speculation that it was about to announce a completed deal with miner Xstrata reached fever pitch. However, the deadline of October 1 for Xstrata’s board to agree to revised takeover terms still stands.

Glencore already owns 50.7 percent of Kazzinc, and had planned to buy a further stake which would raise its shareholding to around 93 percent. On Tuesday, it announced that it would in fact just buy a further 18.91 percent of the company, raising its stake to 69.61 percent.

The reduction is believed to have come down to less favorable market conditions. Earlier this year, ratings agency Moody’s said that the planned large cash component could be a concern.

The deal, worth up to $1.4 billion, is mainly in Glencore stock, with a cash component of up to $400 million to be decided by the time the deal completes at the end of the fourth quarter. The cash element will be fixed based on how Glencore’s share price is performing at that stage. A major part of that share price performance is likely to be based on whether it has sealed the deal to take over Xstrata, which would be the biggest acquisition worldwide this year if it goes ahead.