Former MF Global CEO Jon Corzine sued by bankruptcy trustee Louis Freeh, charging he and top lieutenants are to blame for collapse of commodities trader.
Visit link: Jon Corzine sued by MF Global trustee
The Top Penny Stocks newsletter for active penny stocks investors looking for penny stocks and pink sheet stocks
Richemont chairman Johann Rupert to take 'grey gap... Billionaire 62-year-old to take 12 months off from Cartier and Montblanc luxury goods groupRichemont's chairman and founder Johann Rupert is to take a year off from September, leaving management of the...
Cambodia: aftermath of fatal shoe factory collapse... Workers clear rubble following the collapse of a shoe factory in Kampong Speu, Cambodia, on Thursday
Spate of recent shock departures by 50-something CEOs While the rising financial rewards of running a modern multinational have been well publicised, executive recruiters say the pressures of the job have also been ratcheted upOn approaching his 60th birthday...
UK Uncut loses legal challenge over Goldman Sachs tax... While judge agreed the deal was 'not a glorious episode in the history of the Revenue', he ruled it was not unlawfulCampaign group UK Uncut Legal Action has lost its high court challenge over the legality...
Eurozone crisis live: Japan's strong growth figures... PM Shinzo Abe's stimulus package could generate feelgood factor needed to end two decades of stagnant growthPhillip Inman
Former MF Global CEO Jon Corzine sued by bankruptcy trustee Louis Freeh, charging he and top lieutenants are to blame for collapse of commodities trader.
Visit link: Jon Corzine sued by MF Global trustee
Company says it ‘ceased transactions prior to EU sanctions’ when it learned of links with Atomic Energy Organisation of Iran
One of Britain’s biggest companies has made millions of pounds selling goods to Iran, including to a state-owned firm that supplies the regime’s nuclear programme.
Glencore, a commodity trading house run by the billionaire Ivan Glasenberg, traded $659m (£430m) of goods, including aluminium oxide, to Iran last year, the Guardian has established.
The company, which is one of the biggest businesses in the FTSE 100 and has a market value more than three times that of Marks & Spencer, has admitted that some of its aluminium oxide ended up in the hands of Iranian Aluminium Company (Iralco).
Trafigura, another commodity trading house, has also admitted to trading an unspecified aluminium oxide (also known as alumina) with Iralco in the past.
The International Atomic Energy Agency has named Iralco as supplying aluminium to Iran Centrifuge Technology Company (Tesa), which is part of the Atomic Energy Organisation of Iran (AEOI). Aluminium oxide is an important material in gas centrifuges used to enrich uranium.
At the time of the Glencore and Trafigura trades with Iralco, it was not illegal or a breach of sanctions to supply Iran with alumina. It is unknown whether Glencore or Trafigura’s alumina passed from Iralco to Tesa, or whether it was used in centrifuge construction.
Since 2006, AEOI has been subject to UN sanctions designed to prevent Iran’s nuclear armament ambitions. Trading with Tesa has been specifically banned under US, EU and UK sanctions since July 2010. Iralco was added to the EU sanctions list in December 2012.
Glencore said it “ceased transactions” with Iralco immediately when it learned of its links with Tesa, and the last trade was in October 2012. “Prior to EU sanctions in December 2012, we were not aware of a link/contract between Iralco and Tesa,” the company said in a statement.
Glencore said it is “reliant on the relevant regulatory bodies/governments to advise us on developments in who we can/can’t do business with”.
Tehran, which some experts say already has enough enriched uranium to make several nuclear weapons, is in the middle of upgrading its stock of more than 10,000 centrifuges. The IAEA said Iran is replacing outdated centrifuges with thousands of more powerful IR-2m models.
Experts at the Institute for Science and International Security (Isis) in London said: “Iran is trying to replace maraging [super-strong] steel end-caps with high strength aluminium end-caps.”
Mark Fitzpatrick, director of Isis’s nonproliferation and disarmament programme, said the new centrifuges could enrich uranium four to five times faster than the existing ones. Iran insists its enriched material is for peaceful use, not for nuclear weapons, but it has refused to allow IAEA inspectors into several of its atomic facilities.
The question surrounding Glencore’s role in unintentionally potentially helping arm a nuclear Iran comes as Obama ramps up pressure on Tehran to end its atomic weapons programme. This month, the US secretary of state, John Kerry, said: “We understand the nature of the threat of Iran. And as the president has said many times – he doesn’t bluff. He is serious. We will stand with Israel against this threat and with the rest of the world, who have underscored that all we are looking for is Iran to live up to its international obligations.”
Mark Wallace, a former US ambassador to the UN, said Glencore’s dealings with Iran were “completely unacceptable”, adding: “We might expect this from a Russian or Chinese company, but the truth is that even those companies usually stay away from this sort of exposure.”
Glencore said it “complies with applicable laws and regulations, including applicable sanctions. We closely monitor all new legal developments to ensure that we continue to be in compliance with applicable laws and regulations, including applicable sanctions.”
Details of the firm’s dealings with Iralco were leaked to the media in February, but the company declined to specify how much the deals were worth.
The Guardian has learned that Glencore traded $659m worth of metals, wheat and coal with Iranian entities during 2012. Buried deep in its annual report, one of Glencore’s US affiliates, Century Aluminium, 46% owned by Glencore, states: “During 2012 non-US affiliates of the largest stockholder of the company [Glencore] entered into sales contracts for wheat and coal as well as sale and purchase contracts for metal oxides and metals with Iranian entities, which are either fully or majority owned by the GOI [government of Iran].”
Glencore declined to state how much of the $659m it dealt with Iran in 2012 was related to alumina/aluminium. The trades were not illegal or against sanctions at the time. It is not the first time Glencore’s activities have attracted controversy. Last year the head of its food trading business said the worst drought to hit the US since the 1930s would be “good for Glencore” because it would lead to opportunities to exploit soaring prices. It has also attracted attention by selling more than £50m worth of wheat to the World Food Programme.
Trafigura, which came to global political attention when it was revealed that a licensed independent contractor of a ship it had chartered dumped tonnes of toxic oil slops in Ivory Coast, said: “We can confirm that Trafigura has traded with Iralco in the past. In October 2011, a physical swap agreement was reached whereby Trafigura provided alumina to Iralco in return for aluminium for Trafigura to export worldwide. No deliveries have been made or exports received since new EU sanctions were published in December 2012. Trafigura Group companies are compliant with national and international law where applicable.”
The decade-long bull market in the precious metal is over, after hectic selling drags down silver and copper
The biggest plunge in the gold price for more than 30 years has wiped $1 trillion off the value of global reserves of the precious metal, leaving small investors reeling as popular funds have lost a fifth of their value in just a matter of weeks.
In hectic selling that began last Friday, the price has dropped from $1,580 an ounce to $1,380, dragging other metals down. Silver has sunk from $28 to $23, while copper is down from $7,500 to $7,100 a tonne.
Small investors in widely-held funds such as BlackRock Gold & General have suffered. The BlackRock fund, which has £1.6bn under management, has lost 21% of its value over the past month and 36% over the past six months. It invests in the shares of gold and metal mining companies – and these have fared even worse than the gold price.
Barrick Gold, the world’s biggest gold miner, has seen its shares slump on the Toronto stock market from C$55 to just C$19 since last September. Newcrest Mining, an Australian gold miner that is the biggest holding in the BlackRock fund, has fallen from A$30 last September to A$17 this week.
But Richard Davis, managing director of BlackRock’s Natural Resources team, says the fall has to be seen in the context of the long rise in the gold price, which rose 405% between January 2000 and January 2011.
“We don’t see this sell-off as the beginning of a bear market for the metal,” he added. “Longer term, the factors that have driven the bull market in gold have not gone away. We are yet to see the real ramifications of quantitative easing, in terms of inflation.
“At the same time, we expect jewellery demand to pick up at these lower prices, especially in China. The recent sell-off has been largely indiscriminate, which has presented us with some excellent buying opportunities for the longer term. We have been adding to several positions in the Gold & General Fund.”
But it might be expected for a fund manager to talk up his fund. Another gold market expert, who preferred to remain anonymous, said: “For a long time the gold price was outperforming the price of shares in gold mining companies, and fund managers were saying the two had to converge. But it just hasn’t happened. Very few of them pay a dividend, the costs of extraction have risen sharply, and they are leveraged to the gold price on the way down.”
But why has the gold price fallen so far and so suddenly? Some say it was prompted by investment bank Goldman Sachs, which, last Friday, recommended its clients go “short” on gold, slashing its longer-term forecast for the price of gold to $1,270 by end 2014 – a target it has nearly hit already. It marks a U-turn from the end of 2011, when Goldman Sachs was telling investors that gold would hit $2,000 an ounce.
More bearish commentators, such as Viktor Nossek, head of research at exchange traded fund provider Boost, wrote before the recent price crash that gold was heading into a two-decade long bear market. “We are possibly entering a stage of prolonged weakness in the price of gold,” he says.
Some predict that gold is heading back below $1,000 an ounce, and point to charts that suggest similarities with the last crash, between 1980 and 1983, when it fell in price by half and stayed low for another decade. But others suggest darkly that the market has been temporarily rigged by short-sellers.
Direct selling of gold by British investors has been relatively muted, says Adrian Ash of Bullion Vault, which stores 33m tonnes of gold worth more than £1bn on behalf of 45,000 investors. He says sellers have dumped only 1% of their holdings and that customers turned net buyers by Wednesday this week.
He blames a range of factors for the sell-off, including the US Federal Reserve’s indication that it is less inclined to print more money; news that Cyprus may sell its reserves, possibly followed by other European governments; and a slowdown in Chinese growth. However, he believes fundamentals, remain supportive: “While we don’t see the price suddenly going back up, neither do we see it in the long term falling substantially from the current level.”
The good news for the vast majority of people whose only connection with gold is their teeth or their wedding ring, is that the sell-off in commodities has been across the board. The price of oil has also fallen, from $110 a barrel at the beginning of April to $99 this week, finally giving some relief to motorists, with all the major supermarket chains cutting pump prices by 2p-3p a litre.
China approves the merger of commodities trader Glencore and mining group Xstrata, clearing the final big hurdle in completion of the deal.
Read more here: China approves Glencore Xstrata deal
China Q1 GDP falls to 7.7% versus expectations of 8%, with industrial production 8.9% against expected 10.1%
Economic benefits countered by environmental damage and fears over lopsided nature of trade relations with Beijing
These recent reports of environmental degradation in Latin America may be thousands of miles apart in different countries and for different products, but they have a common cause: growing Chinese demand for regional commodities.
The world’s most populous nation has joined the ranks of wealthy countries in Europe, North America and east Asia that have long consumed and polluted unsustainably. This has led to what author Michael T Klare calls “a race for what’s left” and its impact is particularly evident in the continent with much of the untapped, unspoiled natural resources.
Even more than Africa, Latin America has become a major focus of Beijing’s drive for commodities. A study last year by Enrique Dussel Peters, a professor at the National Autonomous University of Mexico, found that the region has been the leading destination for Chinese foreign direct investment – mostly for raw materials and by big government-run companies such as Chinalco and CNOOC.
Since the 2008 financial crisis, China has also become the main lender to the region. In 2010, it provided $37bn (£24bn) in loans – more than the World Bank, Inter-American Bank and the US Import-Export Bank combined. Most of this has gone to four primary exporters – Venezuela, Brazil, Argentina and Ecuador – for mining or transport infrastructure.
The economic benefits have been enormous. Trade between China and Latin America was just $10bn in 2000. In 2011, it had surged to $241bn. While the distribution has varied enormously from country to country, this helped Latin America avoid the worst of the financial and economic crises that gripped much of the developed world and provided extra revenue for poverty alleviation programmes that have eased the region’s notorious inequality. It also played a major part in bolstering left-leaning governments that are seeking an alternative to neo-liberal prescriptions from Washington and Wall Street.
Venezuela and Ecuador, which have been unable to access international capital markets since defaulting, have received hefty loans from China. Argentina is seeking similar treatment.
But giving up one kind of dependency can lead to another. Repayments to China are guaranteed by long-term commodity sales, which means a commitment to push ahead with resource exploitation – often with dire consequences for the environment and indigenous communities.
“China is shopping worldwide for natural resources. We’re in the midst of a process of commodity accumulation by them. In that context, they lend money to Ecuador and the government pays with oil through anticipated sales. We have committed sales to them up until 2019,” said Alberto Acosta, who served as energy minister but has since challenged the government of President Rafael Correa. He estimates his country’s debts to China at $17bn.
The lopsided nature of China-Latin America trade is also questioned because while it is good in terms of GDP quantity, it has not been so beneficial in developmental quality. Commodity suppliers are delighted at the Chinese demand for their exports, but manufacturers complain of a flood of cheap Chinese imports that undermine their competitiveness.
The Brazilian president, Dilma Rousseff, wants to change the nature of her country’s relationship with China by putting more emphasis on science, technological and educational co-operation as well as soy, iron and oil. This follows signs that Brazil’s recent economic growth masks a de-industrialising trend as primary producers account for a rising share of GDP.
Mexico, which has fewer commodities to sell but a big domestic market, has made some of the sharpest criticisms of the trend, albeit in private.
“We do not want to be China’s next Africa,” Neil Dávila, head of ProMéxico, a foreign trade and investment promotion agency, was quoted as saying in a diplomatic cable released by WikiLeaks. “We need to be owners of our own development.”
Pollution and heavy resource extraction are not new to Latin America, which has been carved up and exploited since the arrival of Christopher Columbus and Vasco de Gama. Nor are the Chinese state firms necessarily any worse than private western companies (Chevron faces a $19bn lawsuit for its pollution of the Ecuadorean Amazon), but they are an additional source of pressure on a region that already looks strained by the environmental weight of the world.
Thousands seize chance to profit from abandoned wells in spirit of enterprise denied under former military regime
At the end of the last dirt road in Thayet, Maung Ko Oo, 25, is standing thigh-deep in a pit of crude oil, his longyi tied up high around his waist, a sweaty vein of black tar streaked across his forehead. His boss – a round-faced man sporting a baseball cap and ruby ring – is standing over him, shouting out orders to the half-dressed men relaying oil-filled buckets to the huge barrels lining their station.
As the early afternoon sun arcs high over these dusty hills in central Burma, the men climb atop the barrels and pour in the oil bucket by bucket, then roll the filled barrels up a ridge and into the back of a truck. All around them, thousands of workers are doing the same – digging for oil, drilling for oil, collecting the oil, and selling it off to local refineries – in unregulated, artisanal pits which they claim can fetch up to 300 barrels of crude oil a day, worth $3,000 (£2,000) at local market prices.
“This is easy money,” says boss Ko Win Shwe, a former miner who moved hundreds of miles to this settlement of huts and tents to find his fortune. He waves his hands to take in the barren earth stilettoed with oil-blackened drills and bares a toothy grin. “See all this land?” he says, his rubies glinting in the sun. “I bought all of it for $4,000 six months ago and struck lucky last week. Now I get 200 barrels a day. It’s easy! Such easy money.”
About 2,000 people already live here, but many more are arriving daily in search of opportunity, entrepreneurship and independence – all denied under the military regime that ruled the country for nearly 50 years. Oil was first discovered by the British in the 19th century, but the wells were abandoned, and now it is the enterprising locals who have tapped into this plentiful resource – some of whom claim to have earned millions of dollars doing so.
“We have our eyes and ears open, always, because wherever and whenever the government stops drilling, then we move in,” says Aung Win, a self-styled “oil boss” in a purple dress shirt, cowboy hat, flipflops and wraparound sunglasses. “Sometimes it can take a year for the oil to come out, so you just wait, and sometimes you have to move on. In my 24 years doing this, I’ve had to move 49 times to follow the oil.”
Here in Thayet, a township caked in dust about seven hours north of Rangoon, the oil rush began in 1989 after a farmer found crude near his land. Soon thousands of people had flooded the village, including students whose classes were cut short after the 1988 uprising. Those who have remained here since – along with a handful of wives and a fair few children – clamber under wooden derricks fashioned from bamboo and rope, the drills between them squelching out crude oil that runs into large open pits lined with tarpaulin.
Everywhere one looks, there is oil: in the fumes floating up in the midday heat, in the black rivulets snaking down the hillside, in the old barrels littering the land. But this is not the biggest “oil town”, says Aung Win: just a few hours away, roughly 20,000 drillers dig for crude at Su Win, and another 10,000 are in the neighbouring Khing Taung village.
Prospecting is a costly gamble. Land costs about $4,000 an acre, drills are $2,000, and permits – whose prices vary – must be purchased from the local refineries. Most drillers pool their resources and their profits, says boss Ko Win Shwe, as many start out drilling by hand until they can afford a generator and engine. “But it’s really paying off the officials that’s expensive,” says Aung Win, shaking his head. “They want to be taken out to sing karaoke and drink all night – it can cost $1,500 just for the bribe!”
The opportunities for wealth may be great, but there are no health and safety rules here, no environmental protection, no employee regulations.
Work continues 24 hours a day, seven days a week, and fires are a common hazard: earlier this month five men were killed when a cooking flame rollicked across the hills and nearly spread into the pits themselves.
Up at the local refinery small no-smoking signs, weathered and curling from the sun, dot the bamboo fence, but barrels of oil are stored in thatched huts and men drill nearby with cheroot (local cigars) at their lips.
“There are oil fields to the left and right all along the Irrawaddy river, and still so many basins all over [Burma] that we haven’t explored or developed yet – but the problem is that there is no good estimate of how much oil is in place,” says oil and gas expert KK Hlaing of Smart Technical Services, which helps local and international companies drill for oil. “There are around 14 basins in [Burma] but only three or four have been properly commercialised.”
As Burma has opened up under the presidency of Thein Sein, whose quasi-civilian government ended five decades of military rule in 2011, about 18 onshore blocks are now up for grabs by foreign and local firms looking to cash in on the nation’s great oil and gas reserves.
That alone may explain why government officers trailed the Guardian to various drilling sites and demanded to see travel visas, and why a very different oil rush is taking place in Rangoon.
At the Myanmar oil and gas summit earlier this month – which cost £1,500 a person to attend and was sponsored by Halliburton and the Malaysian oil firm Petronas, among others – executives spoke of the pros and cons of investing in Burma. “There is a boom here but, like in many other countries in the region, we’re the bad guys,” said one, warning that “big business can be blamed” for anything that goes wrong. He pointed to Burma’s lack of arbitration, dodgy track record in policing and the suspended Myitsone dam project as lessons to be studied.
For those drilling for oil near Thayet, however, short-term gains far outweigh any long-term fallout. Aung Win claims he lost $2m last year because of faulty drilling and dodgy business practices, and just last week lost another $70,000 at a well a few hours away. “But this is the only industry in Burma where you can lose $70,000, let alone make it,” Aung Win explains. “Nothing else in this country gives you money like this.”
Nearly everyone agrees. “It’s easy to lose the money if you don’t invest it in other areas, because sometimes you win and sometimes you lose,” says Zaw Min Tun, 37, a former farmer who has built a new house for his family and pipes his oil earnings into carwash businesses. “We just lost $50,000 because we drilled and couldn’t find any oil. But I would still recommend this business to anyone, with no reservations.”
It is impossible to verify the wealth of these seeming gamblers, but KK Hlaing says that it is highly unlikely any of them are able to tap more than 30 barrels a day due to the fact that most are drilling between 300 metres and 762 metres (1,000ft and 2,500ft), “and most of the good oil is 10,000ft or below”. In Thayet, many houses are painted in bright greens and blues and the women wear emerald and ruby earrings – but much of the village life still seems impoverished, with most villagers choosing to work at the local weapons and concrete factories instead of in the oil fields.
Still, the richest driller in this “oil town” is Kyi Nai, 41, a lithe man with a crew cut and betel-stained teeth who says he has earned $300,000 in the past six months alone. “I’ve been doing this for over 20 years, and I’ve never hit oil like that,” he says with a grin. “My hard work finally paid off. My wife is happy – she likes money.”
Commodities trader says it immediately ‘ceased transactions’ with Iralco after learning of its deal with Iranian programme
The commodities trader Glencore supplied thousands of tonnes of alumina to an Iranian firm that has provided aluminium to Iran’s nuclear programme, intelligence and diplomatic sources have told Reuters.
The previously undisclosed barter arrangement between Glencore, the world’s biggest commodities trader, and the Iranian Aluminum Company (Iralco) illustrates how difficult it is for western powers to curb Iran’s ability to trade with the rest of the world. Even as the west imposes stringent restrictions on banks that do business with Iran, United Nations diplomats say that Tehran keeps finding new ways to do business with willing partners.
Reuters first learned about Glencore’s barter deal with Iralco, and an aluminium supply contract that Iralco had with Iran Centrifuge Technology Co (TESA), from a western diplomatic source in early November. That was about six weeks before the EU’s December 2012 decision to levy sanctions on Iralco for supplying aluminium to TESA, which is a subsidiary of the Atomic Energy Organisation of Iran. The source showed Reuters a western intelligence report concerning Glencore’s arrangement with Iralco. It described how Glencore, based in Baar, Switzerland, provided Iralco with thousands of tonnes of alumina last year in exchange for a lesser amount of aluminium metal. The report’s authenticity was confirmed by UN diplomats.
It is not known whether any of the aluminium produced by Iralco from Glencore’s alumina raw material actually ended up with TESA. As part of AEOI, TESA has been subject to UN sanctions in place since 2006.
In a statement to Reuters, Glencore said it first learned about the TESA-Iralco relationship in December and immediately “ceased transactions” with Iralco. It said its last trade as part of the barter arrangement was in October 2012, two months before the EU move.
Glencore acknowledged that it did sign the barter deal with Iralco in August 2011, saying it was legal, and denied wrongdoing or attempts to help Iran bypass sanctions.
It declined to provide details about the barter deal, the value of which is unclear.
Iralco did not respond to an emailed request for a comment. Iran’s UN mission said it was not in a position to comment.
Iran denies allegations by western powers and their allies that it is seeking atomic weapons and has refused to stop enriching uranium. As a result, in addition to four rounds of UN sanctions, Iran has faced much tougher US and EU measures, specifically targeting its financial and energy sectors.
Separately on Friday Glencore pushed back the date to complete its £50bn takeover of Xstrata for the third time, as it waits for regulatory approval from the Chinese authorities. The company warned shareholders on Friday that it would not now be possible to complete the deal by 15 March, which it said in January was the “long stop date” for finalising the deal.
Fancy financial footwork over the bailout suggests that the government is anxious to offload some of its shareholding
There is no fixed timetable for selling any shares in Lloyds and Royal Bank of Scotland, says the Treasury. Perfectly true, as far as it goes. But you can tell the government is champing at the bit, eager to offload a few, by the fancy financial footwork used on Friday to explain the price at which the state rescued Lloyds in 2009.
In the past, this territory has been straightforward. UK Financial Investments, the body that “manages” the state’s investments in the bailed-out banks, provides the arithmetic in its annual reports. Its text is clear: the Labour government invested in Lloyds in three tranches and “the gross cost of these investments is £20.3bn, at an average cost per share of 73.58p”. There’s even an admirably clear table to explain the workings.
So what’s this 61p figure that appeared on Friday? Apparently, it is “the average price at which the equity support provided to Lloyds Banking Group is recorded in the public finances”. But how can that be different from UKFI’s calculation?
It seems the Office for National Statistics used the average price in the market for Lloyds shares on the day of the investments, not the actual price paid by the state.
It calls the overpayment a “capital transfer”, explaining that it’s all to do with permanent and temporary effects and that £3.4bn of the £20.3bn has been booked on the national debt.
Forget the ONS’ weird methodology. Common sense says you only show a profit on an investment when you sell at a price higher than the one you paid. The threshold for a profit on the Lloyds shares therefore remains 73.6p.
Yes, the Labour government paid more than the market price at the time, but the Treasury shouldn’t ignore that fact.
Lloyds, to its credit, is not pushing the 61p figure. Indeed, it seems embarrassed that it has been obliged to use it in setting a condition for chief executive António Horta-Osório’s £1.5bn bonus – he’ll get his money if the state sells a third of its stake above that price. It was the Treasury’s idea to use 61p. The goalposts have started to move. So did Lloyds’ share price – it was down 2% to 53p. But, if and when 62p is seen, expect to hear the government declare victory, and a profit, far too early.
Glasenberg and the black kettles
“I hope CEOs have learned their lesson. The big guys really screwed up.” So said Ivan Glasenberg, multibillionaire chief executive of Glencore, this week in a blast against the mining industry’s record in recent years of overbuilding and overinvesting.
He makes a fair point, of course, since there have been some spectacular writedowns in asset values at big miners. But is Glasenberg really the man to preach?
He has also been a director of Xstrata – where Glencore hopes soon to complete its takeover – since 2002. There have been no big writedowns (yet) at Xstrata but few would describe the company, circa 2006-08, as a model of level-headed financial sobriety in a room of excitable fools.
Xstrata aggressively pursued a takeover of platinum producer Lonmin, to the point of bagging 29% of the shares, in late 2008, long after the whistle had blown on the commodities price boom. A humiliating 2-for-1 rights issue followed (causing a little difficulty for Glencore itself in the midst of the credit crunch) to repair a balance sheet overburdened with debt.
OK, Glasenberg was only a non-executive director of Xstrata, but he was definitely a big guy: Glencore owned 35% of the shares and had two, and then three, boardroom seats.
And, as we’re on the subject of overoptimism, spare a thought for investors who invested in Glencore’s flotation in May 2011 at 530p a share. That price has never been seen since and the shares now stand at 377p, down a little yesterday as completion of the Glenstrata deal was delayed again (maybe the Chinese competition authorities noticed that part of Glasenberg’s speech about the importance of miners not building in order to keep the market “tight”).
Among London’s big five mining stocks, only ailing Anglo-American’s shares have done worse than Glencore’s since the latter’s IPO.
That wasn’t meant to be the script. Wasn’t being big in trading commodities, as opposed to merely digging the stuff out of the ground, meant to offer shareholders protection? All will be explained in inimitable style with Tuesday’s results, one assumes.
It may be galling, but it’s probably time to get less exercised about Centrica’s booming profits and start to worry about something more important – like how will the UK keep the lights on.
There have now been two serious warnings in a fortnight. The first was from Alistair Buchanan, chief executive of regulator Ofgem, who said there was “horrendous serendipity” in a large chunk of the UK’s power generation (mainly coal) going offline just as global supplies of gas, the easiest power source to turn on in a hurry, could be squeezed.
Sam Laidlaw, Centrica’s chief executive, then said he wouldn’t be building more gas-fired plants until new market legislation is in place, which could take another two years. He told the FT he thinks there is a possibility of rolling blackouts by 2017-18 if there are nuclear or other outages.
Is Laidlaw trying to make himself even more unpopular by refusing to invest now? Not really. It is reasonable for Centrica to want to know how the government intends the market to work before it commits. That’s just how the privatised energy industry works these days, as the government knows. The rate for having gas-fired plants on stand-by, for example, is vital commercial information.
Buchanan and Laidlaw may not be disinterested parties in this debate, but warnings from high places about energy shortages in three and four years’ time should not be ignored. The questions for the department for energy are clear. Now that new nuclear is delayed until 2020 at the earliest, what is the contingency plan? Is there one?
From Bumi to bust despite Bakrie win
Shares in Bumi have fallen almost 20% in the six trading days since the board triumphed over Nat Rothschild (above) in the battle to control the boardroom. Bumi is an illiquid stock, of course, but the old theory was that victory for the board would be “good” for the share price in that divorce from the Indonesian Bakrie family would be more likely to happen. On this argument, a raging Rothschild at the helm would have created more uncertainty.
Corporate divorces, even ones planned months ago, don’t happen overnight. And a week of radio silence from Bumi is perhaps a welcome novelty by recent standards.
All the same, bruised investors in Bumi might welcome some reassurance soonish that all is well with the Bakrie unwind.
British Gas, the biggest energy supplier in the UK, unveiled an 11% increase in profit as campaigners warn of rising fuel poverty
The acrimonious debate over soaring energy bills and mounting fuel poverty reignited when British Gas – the biggest energy supplier in the UK – unveiled an 11% increase in profits and its parent group, Centrica, promised a £1.3bn handout to its shareholders just months after pushing through an increase in household bills.
Campaign groups warned that 160,000 children had been dragged into fuel poverty by the actions of the big six energy suppliers since 2010, while trade union bosses accused energy chiefs of “creaming off” profits. Dividends of more than £3.5bn have now been paid out by Centrica over the last five years. Anger was exacerbated by confirmation that Phil Bentley, British Gas’s managing director, will stand down with a combined pay and pension package worth more than £10m.
British Gas imposed a 6% price rise last November, adding £80 to the average annual gas and electricity bill for the 8.4 million households it serves.
Centrica argued that the average profit figure of £50 per British Gas household represented a profit margin of only 5%, which it said was a similar return to supermarkets.
The company said the profits had allowed the energy group to invest £50bn to secure new wholesale gas supplies from countries such as Norway and Russia.
“It’s important that Centrica makes a fair and reasonable return so that we can continue to make our contribution to society and to invest,” said Sam Laidlaw, the chief executive of Centrica. “Last year we incurred a tax charge of over £1bn and invested over £2bn to secure new sources of energy for the UK, well in excess of our profits.”
But the campaign group Fuel Poverty Action warned that the British Gas profit of more than £600m would send a “shiver down the spine” of customers, with some facing the choice between heating and eating due to recent price hikes.
“These profits were made on the back of forcing millions into fuel poverty and from a ‘dash for gas’ that will send bills even higher as well as contributing to rising food prices through climate change,” said the campaign’s spokesman, James Granger. “People are angry and want the alternative to the big six’s monopoly: cheaper, clean, renewable energy under the control of communities, not greedy energy tycoons.”
Centrica reported operating profits of £2.7bn – up 14% – and announced plans to hand an additional £500m to shareholders this year by buying back, and then cancelling, its own shares. The process should increase the share price.
Nick Luff, the finance director, said it was fair to give back cash to investors because Centrica had raised £2bn from them in 2008 to invest in new nuclear power stations. It has now dropped those plans.
He urged customers to “take action” by installing more efficient boilers, improving insulation and utilising new technology such as smart meters.
The Energy Bill Revolution, a campaign group formed by charities including Barnardo’s plus old age and disability groups, warned that an extra 160,000 children had been forced to live in homes in fuel poverty over the last two years.
The organisation warned that a further 25% increase in power bills could double the total number of people affected from 1.6 million to 3.2 million. It called on the prime minister to end the “growing scandal” of cold homes by using a carbon tax to make all UK homes super energy efficient.
Meanwhile Dave Prentis, general secretary of the Unison union, said it was a scandal that so many children were now living in freezing homes while shareholders and directors were “creaming” off profits.
“The rise in fuel poverty is a blight on this country with hundreds and thousands of people joining the growing numbers now spending more than 10% of household income on energy costs. Without action we are sleepwalking into a very cold and dark future,” he warned.
The issue of soaring energy bills combined with fines for doorstep mis-selling and other abuses by the gas and electricity suppliers has triggered a raft of initiatives by the industry regulator, Ofgem, but campaigners and even politicians believe they are not nearly tough enough. The Labour party has said it will scrap Ofgem while a report by the all-party House of Commons energy and climate change select committee in December attacked the regulator’s timidity. “We find it unsatisfactory that Ofgem should be so hesitant about launching preliminary investigations into potentially anti-competitive behaviour,” it said.
The general climate of unease has not been helped by a Financial Services Authority inquiry into concerns about irregular trading in the wholesale gas market. Centrica and the other large energy companies such as RWE npower and E.ON have all instigated their own internal inquiries and say they are convinced none of their traders are at fault.
Bentley, the 54-year-old former BP executive who has been at the centre of previous rows over the scale of big six energy company earnings, plans to leave British Gas by the end of the year and is apparently hoping to become a chief executive elsewhere. But it was also revealed that the energy boss will be able to retire in four years time with an annual pension of £225,000 after working for the company for little over 12 years.
A statement from Centrica paid tribute to his role in “profit improvement”.
It said: “In his most recent role he [Bentley] has been instrumental in restructuring, reinvigorating and materially improving the performance of the business by raising customer service standards, lowering costs, increasing productivity and creating significant value from profit improvement.”