Glencore Xstrata set to strike Russneft deal despite war fear

(Bloomberg via Getty Images)

The world’s biggest commodities and mining group Glencore Xstrata today looked set to strike a near-$1 billion deal in Russia despite the threat of war in Ukraine.

Glencore Xstrata’s vote of confidence in the region came as stock markets and the rouble looked to bounce back from yesterday’s slide as the Kremlin appeared to de-escalate the conflict by ending military manoeuvres close to the border.

The company said it would take an equity stake in the Russian oil company Russneft in a deal that highlights how the world’s mining and trading giants take the long-term view on geopolitical crises. Glencore Xstrata’s revenues, at more than a quarter of a trillion dollars last year, are 30 per cent larger than Ukraine’s entire GDP.

The deal comes as part of an out- standing loan agreement between the two companies. Russneft has repaid $1.2 billion of loans to the London-listed giant over the past year but Glencore Xstrata is now going to convert at least $900 million of the balance into equity.

The deal emerged in the small print of the first set of full-year results since the giant merger of Glencore and Xstrata. Chief executive Ivan Glasenberg also said he had identified bigger savings than were anticipated at the time of the deal, hiking up the total amount of cost-cuting to an expected $2.4 billion from the $2 billion identified last year.

The improved results mean yet more riches for Glasenberg and his famously wealthy top executives who own a quarter of the company, as he pledged to pay a dividend of more than $2.1 billion for the year, up 4.8 per cent. Glasenberg alone will get a dividend of $182 million.

Sources at the company, whose business ranges from iron and copper to wheat, said it was too early to form a view on the longer term impact of the Ukraine crisis. Glencore said it had only two assets in Ukraine which had not yet suf- fered any disruption from the politi- cal crisis.

Glencore Xstrata’s profit figures beat City analysts’ forecasts; underlying profits before a number of big one-off costs came in at $13.1 billion, flat on the companies’ combined figures for 2012 before the merger.

Factoring in big exceptional items, including a previously-announced $7.5 billion writedown on the goodwill for the Xstrata deal, it reported a net loss of $7.4 billion, as revenues for the year rose 9 per cent to $232.6 billion.