Glencore Xstrata’s share price trades at a premium to most other miners in recognition that the firm is more than a simple miner.
Indeed, part of the rationale for the merger between trader Glencore and miner Xstrata was that the sum of the parts would be worth more as a whole than individually; that the marriage of Glencore’s trading skills to Xstrata’s assets would add more value to the assets than they were previously worth – come good times or bad.
Miners have traditionally been disparaging of trading houses and this rationale, as Financial Times Commodities Editor Neil Hume points out in a recent Commodities Briefing Note; miners have subconsciously linked physical trading to the business of outright price speculation.
But maybe due to their discussions in the past with Glencore about a possible takeover, or maybe with an envious eye on the oil majors’ very significant profits earned from their trading divisions, one miner is about to change.
Anglo American, the FT tells us, has consolidated its nine export and marketing offices into two regional hubs and reviewed all its sales activities in an effort to increase earnings and fully leverage its assets and operations. The result has been the creation of a new commercial unit, which is promising to add $400 million to the company’s profits by 2016.
It plans to do this by selling Anglo’s output – which includes coal, platinum and iron ore – in a more intelligent way and adopting some of the sophisticated strategies used by the big commodity trading houses. One will be forming its own ship-chartering department which can leverage its multiple supply sources and customers to maximize the more efficient use of vessel space and voyages.
Some of the shine has come off Glencore Xstrata’s share price over the last six months – the same can be said for all miners – but the reality is the firm’s ability to maximize the value of its assets with its deep marketing knowledge and expertise is and will remain a powerful advantage.
Who can blame Anglo American from emulating that success, and who else among the major miners may begin, quietly, to follow suit?