Glencore FP&A notes- The Bringer of War

Ivan Glasenberg joined the company just as Mark Rich fled the United States to Switzerland and renounced to its American citizenship.

Glasenberg first post was coal trader in Johannesburg. At that time, the company’s core business was supplying oil to the apartheid regime of South Africa before and during the UN embargo.

In 1991 Ivan Glasenberg had caught Mark Rich attention and was brought to Switzerland.

Over the next decade Ivan Glasenberg became a trusted member of the inner circle.

In 1994 Marc Rich stepped down as a CEO and sold its 51 percent shares to the management. The company was renamed Glencore





The deck’s target audience is anyone who trades commodity markets on a daily basis, the banking community and Glencore Management.

Reading the deck is not essential for everyone, but do know that putting it together helped us understand Glencore to the core and reach the conclusions summarized below

  • When you look at Glencore, you look at a $50 billions total indebtedness company using $2.74 for every $1 of capital making 1.7¢ on a net basis. 
  • The more Glencore trade, lend or buy assets, the greater the potential to make a profit. This is leverage.
  • Will Glencore leverage more ? -likely.
  • The dividend rather looks artificial once Glencore pays to maintain its asset base. Ironically, Glencore’s first ‘future Acquisitions’ in 2018 will be to own its 2017 dividend.Distribute $2.9B ? how ? while the business made $2.3 “net basis”, where will come the 600M deficit for 2017; debt funding – the quintessential byproduct of Glencore.
  • Glencore has now 7 pages of non-IFRS Alternative performance measures (“APMs”), that Glencore uses to assess the performance and to reconciled with what they called the “underlying IFRS measures”.
  • Glencore International Bank AG has lost its steps.
  • The Chad State National Oil Company restructuring Libor+200 on 12 years… revealed by the management only the day after Glencore 2017 Corporate Earnings announcement, it has been cowardly swept under the carpet.












‘Glencore’s activities are subject to extensive laws and regulations. There is a nice interplay between Glencore extensive indebtedness and the banking sell-side. Glencore daily funding depends not only on its financial surface but also on the financial institutions continued legal basis to clear between 500M and 1B of US dollars per day’.


Last September a U.S asset manager discussed on Glencore’s ‘future Acquisitions’.

In a plebiscite for Glencore live on the television he said (quote) ” and don’t forget 30 to 40% of their EBIT comes from their very stable sound trading business”.

What’s the other 70% to 60% ?- Before studying the financial surface of the Zug-based trader we must recognize that legal basis of the Glen’s “CORE” Copper and Cobalt earning base is challenged.

The paradise papers have shed light on how  corporations and malign actors worldwide can take advantage of tax havens and their secrecy to make controversial deals.

On a night of November, at a prime time hour, the French have learnt about GLENCORE, one of Appleby’s biggest customers.

France 2 glencore.png

France 2 zeroed in on Glencore

  • In 2012, Glencore lends US$45,000,000 facility to Lora Enterprises Limited, an offshore company associated to Mr. Gertler.
  • Gertler acts as a middleman for mining asset sales in the DRC, requiring multinational companies to go through Mr. Gertler to get the deals.
  • As a result, between 2010 and 2012 alone, the DRC reportedly lost over $US1.36 billion in revenues from the underpricing of mining assets that were sold to offshore companies linked to Gertler. 
  • The failure of the DRC to publish the full details of one of the sales prompted the International Monetary Fund to halt loans to the DRC totaling US$225,000,000. 
  • Glencore is under  pressure to explain steep discounts obtained on contract fees related to the these assets it acquired through joint ventures.
  • Why Glencore bought out Mr. Gertler mines in Congo for 530M cash if they had no existing relationship in the cobalt/copper negotiation.
  • Why using all these offshore complicated accounts structures instead of Switzerland ?

On or about November, 2010,  Och-Ziff Capital Management Group LLC in two separate transfers through CML, extended $US110,000,000 margin loan to Lora Enterprises Limited.

In 2016, Och-Ziff recognize its participation in a corruption scheme and settles for $US412,000,000 with the U.S Department of Justice.

By an executive order expedited by the President of the United States, the U.S Treasury department has sanctioned the Glencore key relationship asset and tango dancer, stopping short of mentioning the swiss trader but stating that Mr. Gertler amassed a fortune in corrupt deals.


Public Eye, the Lausanne-based NGO, has filed a criminal complaint with the Office of the Attorney General of Switzerland against Glencore.

The silent war on Glencore











A complaint against Glencore International AG alleged that the companys Zambian subsidiary Mopani Copper Mines Plc. has manipulated its financial accounts in order to evade taxation.

A 2009 audit conducted by Grant Thornton concluded that Glencore employs various techniques in order to avoid paying taxes in Zambia, noting that prices seem to be determined by the parent company, e.g the purchaser. This, concluded the auditor, was not in accordance with the OECD arms-length principle.

In other words, Glencore in Switzerland appeared to have been manipulating copper prices, overestimated operating costs, underestimated the production volumes and as a result reduced its tax bill in Zambia.

More precisely, the report concludes that Mopani is resorting to various techniques in order to avoid paying taxes in Zambia:

• Overestimates the operating costs
Comparative analysis reveals that Mopani’s costs are much higher than those of comparable mining companies operating in Zambia. Mopani’s operating costs in 2007 stood at $804.91 million, a full $381.21 million higher than the auditing team’s previsions.No single factor appears capable of justifying such a discrepancy, since Mopani’s activities had gone on normally between 2005 and 200, without significant change or development. Production didn’t go up, and actually remained relatively steady.

Underestimates of production volumes
Extensive revenue analysis revealed cobalt extraction rates twice inferior to other producers of the same area – a difference deemed unlikely by the auditorsand which indicates that some of the ore extracted by Mopani could remain undeclared.

Transfer pricing manipulation and breach of the Arm’s Length principle
The company’s production is sold, both locally and internationally, via its main buyer Glencore International AG, who also happens to be Mopani’s parent company.
After careful revenue analysis, it appears that thesales from Mopani to Glencore fail to comply with the OECD “Arm’s Length” principle: minerals are sold to Glencore under conditions that would not apply to a third-party buyer.

According to the auditors, the hedging strategy used by Mopani appears to be incoherent, even bordering on counter-productive. A standard hedging strategy would involve selling ore at time T whenever price P is at its highest, in order to maximize profits. However, according to the audit, Mopani seems to prefer selling its production to Glencore whenever prices are at their lowest, something a buyer, not a seller, would be likely to do.

Group-wide, the effective tax rate on the continued operations is 19.75%. Depreciation and Amortization accounts for nearly half of Glencore’s APM, NON-IFRS. Operating Cash-flows and 112% of Glencore’s Net Cash Generated by operating activities (OCFs).

Whether it is enacted by pricing transfers or by accelerated asset depreciation- taxwise Glencore appeared overgeared.

The social critique of Glencore bears fruit.

While Glencore hasn’t experienced nationalisation or expropriation of any of its assets it continues to do business in locations where it is exposed to a risk of  an effective expropriation or various ‘in-kind sanctions’.

The transactions of Glencore for the asset acquisitions can also be rescinded on the basis of a law.

The antipathy toward Glencore is in the foreign policy, international law enforcement,  and within international finance institutions realm

Under pressure of a tax regime change in DRC, the profitability of Glencore on all angles is at-risk.

 ▪the ‘Tax glitch’ alone will likely cost GLENCORE consolidated financials 900 bps on a full year basis.

 ▪On the GLENCORE’s so-called stable ‘Non-Trading earnings base’ 2250 basis points.

It reveals the disproportional effect of a taxed-engineered EBIT base at works.

Glencore’s legal challenges in the UK

Glencore Energy UK has a  terminalling operation in the UK where they import gasoil and gasoline cargoes via vessels that they sell and distributed by trucks to TESCO and others, shipping back the profit to Switzerland at a lower tax-rate.

As part of UK government attempts to increase accountability of corporations who have used offshore arrangements to avoid paying tax, from 1 April 2015, HMRC was handed new powers in FA 2015 to prevent corporations based in the UK from hiding their profits offshore.

The UK Revenue and Customs Commissioners determinedthat Glencore Energy UK was liable to pay diverted profit tax (DPT) on profits arising from oil trading which had been allegedly channelled via its Swiss parent company, Glencore International AG, under a risk and services agreement (RSA) between the two companies.

Glencore International Bank AG (Switzerland)

As commodity traders business started to depart from ‘pure commodity trading desks built on perceived arbitrages to the pre-export financing, lending project financing, structured commodity solutions became de-facto doctrine of commodity trading, the ‘new-cool’. The pivotal role of the commodity traders as financiers came with new risks.

As alluded here, beyond the traditional exposure to price and currency risk, commodity traders become increasingly exposed to:

  • Credit
  • Liquidity, funding risks (the convexity)
  • Negative carry (incoming cashflows that are smaller than the offsetting position obligations).

Glencore Rosneft


Glencore and Chad have agreed to restructure a more than $1bn cash-for-crude loan.

Glencore lent the African country $1.4bn in 2014 through a cash-for-crude deal, but the oil price crash later that year left Chad struggling to meet payments.

The agreement will extend the term of the loan beyond 10 years. (2030) and it will slash the margin from 750 above Libor to 200 Basis points.

Glencore International Bank AG’ has restructured their cash-for-oil loans made to Chad in 2013 not once but twice.

By a lack of courage, this agreement was revealed by the management only the day after Glencore Corporate 2017 Earnings announcement.

After a review of the contracts by the IMF, Congo-Brazzaville has appointed investment bank Lazard to help it renegotiate US$549 millon worth with Glencore contingent to the future receipt of oil contractually (oil prepays) due from SNPC.




The trader has now seven pages of non-IFRS Alternative performance measures (“APMs”). The management uses the APMs to assess the performance for Accounts reconciliation with what they called the “underlying IFRS measures”.


Alternative Performance Measurements.png

Glencore unveilling the Alternative Performance Measures.

The more GLENCORE trade, lend and buy assets, the greater the potential to make a profit. This is leverage. Will Glencore leverage more ? probably… / what’s its real leverage ?

Glencore International AG is a $50 billions total indebtedness company using $2.74 for every $1 of capital making 1.7¢ on a net basis.

▪GLENCORE nominal debt ‘not the trader APMs ‘Alternative Performance Measures’ is > between $49 – 54B depending on average funding requirement for the period.

“We’re generating $10 billion of free cash flow on current commodity prices,” – Ivan Glasenberg.

▪Funds from Operations are up to $11,5B but Glencore is required to put cash to maintain/expand its asset-base so the company must account for other unit costs namely, CAPEX charges & changes in net working capital.

▪This translates into cash-flows readily and available of only $2,3B, (not $10 billion) which, in our opinion provide a more accurate representation of the cash available at a trader/miner than the readily marketable inventory since Glencore is using RMI as secured-funding.

▪The $2.9B distribution is already an omen that Glencore will grow its debt to drive the next Ivan Glasenberg M&As run.

▪Depreciation and Amortization also accounts for 1/3 of Glencore EBITDA and nearly half of Glencore’s Operating Cash-flows.

▪Glencore  commands an incremental 500bps tax-print company-wide and conservatively requires total ‘debt-like borrowings in the range of $50B annually to fund its asset base plus its working capital.

GLENCORE ‘nouveau riche’, as suggested, is only an interlude.


Glencore Model.png


The latent problem with the analysts or what we read about Glencore is simple; when you look the core business, Glencore on paper looks fine, but once you’ve added the profile, it’s tanking.

How does this factor into forward valuation forecasts ? About how much metal markets enthusiam is justified by the Glencore value developments. We did one back to the envelope calculation and based on market appropriate metric of EV/EBITDA,  assumptions of LME Copper hovering at 3.40 USD/lb and then percolated, over the multi-years timeframe expected metal earning-base: You could have an equity worth 150 GBp a share. Yes 400 GBp is, it seems, extremely aggressive.

The Bringer of War

As some take the role of preferred financier of a regime, the point of compliance is the financial institution, not the buy-side.

A series of sanctions on Russia have specially targeted Rosneft Trading SA and by extension Glencore International AG. This is ain’t just a faux pas, this is an extraordinary bringer of war.

In the deal dubbed Glencore Bank AG and Intesa Sanpaolo near miss, the structure had a totally different substance than the simple refinancing of an oil company-  it was an in-kind bail-out of the Russian Federation government. 

Only in Glencore’s ‘Alternative Performance Measures reality’ it’s a winner. The trader has to reverse $5.3 billion of ring-fenced assets acquired at $315M 17:1 on the balance sheet plus contingencies.

In July 2016, H.R.3364 – Countering America’s Adversaries Through Sanctions Act was introduced by the U.S Congress and since August 2 the bill became a public law.


(a) In General.—The President shall impose five or more of the sanctions described in section 235 if the President determines that a person, with actual knowledge, on or after the date of the enactment of this Act, makes an investment of $10,000,000 or more (or any combination of investments of not less than $1,000,000 each, which in the aggregate equals or exceeds $10,000,000 in any 12-month period), or facilitates such an investment, if the investment directly and significantly contributes to the ability of the Russian Federation to privatize state-owned assets in a manner that unjustly benefits.













A famed Swiss muses that the Baar, Switzerland-trader, should consider, at least a delisting to crystallize its value, hinting “untenable business-model incompatibilities with the exchange-based rules”.

“During YEARS, Glencore Grain has Bribed, Karel Bruf, EU commission official, with money and bills expenses to get inside information on the EU tax export refunds. Glencore was fined 500,000 euro fine for bribing.

Glencore treated Brus with a one week vacation at a luxury resort in the French Rivera. Glencore operatives also brought a secret telephone to Brus, Brus would call Glencore just minutes before bids deadlines…

A Belgium court found a Glencore guilty of bribing and Glencore Agriculture was fined 500,000 euro fine for bribing. The inside information allowed Glencore to win million dollars cereal contracts.

None of their traders got jail .

“Since then ERBD (The European Bank for Reconstruction and Development) has said involvement or “Glencore Finance”

No thanks.

The EU will get even, will do obstruction on them”.

In the U.S the hell also broke loose when a GLENCORE Stamford employee allegedly misrepresented the trader compliance to the RVO program by submitting fake/invalid Rins certificates with the EPA.

Around the same period, Chemoil Corporation, a Glencore subsidiary exported at least 48.5 million u.s gallons of biodiesel from 2011 to 2013, but failed to retire the more than 72 million RINs that were generated for the exported fuel according to the U.S DOJ. Chemoil has been forced to retire $73M worth of RINs plus pay $27 million civil penalty in the largest settlement in the history of the EPA’s fuel programs

PDVSA US Litigation Trust

Firms including Glencore are accused of funneling bribes through several shell companies that were set up by a pair of Venezuelan nationals. The suit alleged that Swiss Banks EFG international A.G. and Credit Suisse, through accounts in the U.S and Switzerland have been used by the traders co-conspirators to facilitate for illicit money movements between the shelf companies and Pdvsa.

In a suit was that was filed by a group called “PDVSA US Litigation Trust, two of the highest senority Glencore associates are alleged to be participants in the corruption scheme : Luiz Alvarez: an Ivan Glasenberg London Lieutenant and Gustavo Gabaldon, a Glencore Stamford, CT regular.

The founder of Glencore was several times sought by the FBI for having circumvented the embargos.

When a crush of agencies law enforcement began to untangle the trader, millions of dollars in Marc Rich+CO AG assets were frozen in the U.S. 

Rich, pardoned decades later by Bill Clinton, fled to Switzerland and was sentenced in absentia on 65 criminal counts of tax evasion, wire fraud and racketeering.  

One of the most serious allegations was that Mr. Rich had misrepresented crude oil origin he sold in 1980 and 1981. Under complicated regulations then in place, newly found oil fetched a higher price than older oil.

By illegally marking up the price of old oil and passing it through a bewildering chain of transactions, Mr. Rich sold oil at a markup of up to 400 percent, making more than $100 million from the scheme, avoiding paying $48 million in United States taxes.

The company pleaded guilty to the charges. Marc Rich+CO had to do a closing in 72 hours to salvage the rest of the operations and bank lines located outside the U.S.

For those comprehending how commodity trading co-exists with the banking mile, the Marc Rich 84′ denouement, per se, in today’s reality would not be possible. No entity, no matter how complex it is, can assume to be at an arm’s length of the U.S Justice.

BNP Paribas is a case study. In addition to being fined $8.9 Billion, a New York based regulator has suspended the French IB from clearing USD transactions in energy trade finance for the whole of 2015.

Artfully dodging the Sanctions

Glencore hid its relationship with Geneva-based SwissMarine that Glencore co-owned with Greek shipping magnate Victor Restis, who was alleged by a US lobby group in court to have been part of a sanction-breaking scheme to ship oil from Iran in 2013.

Forced to address a number of issues stemming from the massive leak of 13.4m files, mainly from corporate law firm Appleby, Glencore admitted its investment in SwissMarine was previously “not widely disclosed.” This was “for commercial reasons”.

“We represent an entity by the name of Sidhalu which is ultimately connected with Glencore,” wrote an Appleby lawyer in January 2009. “But the fact of and nature of this connection is extremely hush hush and we must never disclose this in any communications…in any way which may become public.”

Years before, Glencore was so unwilling to disclose its relationship with SwissMarine that it decided against using the Bermuda branch of banking giant HSBC to avoid that bank’s questions about SwissMarine’s true ownership. (see Glencore Hush Hush)

Cyclically, it looks compelling but structurally Glencore doesn’t appeal. 

Circumstantial evidences suggest renewed concavity in Glencore-related companies, relationship assets & in its underlying financial instruments.

Glencore daily funding depends not only on its financial surface but also on the financial institutions continued legal basis to clear between 500M and 1B of US dollars per day’.

Today, a targeting the powerful U.S Department of the Treasury OFAC would effectively stop the lake Zug trader from operating on an ongoing basis on six continents.

The pardon of Rich by the U.S Government never included the company itself.


Simon Jacques

Calgary | Houston | Genève













Navigating the commodities markets with Freight and Spreads © 2018

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