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Glencore, headquartered in Baar, Switzerland is one of the world's leading integrated producers and marketers of commodities that industries around the world need. Glencore has worldwide activities in the production, sourcing, processing, refining, transporting, storage, financing and supply of metals and minerals, energy products and...

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Mining winners & losers 2012: Glenstrata – a merger of sequels

The Glencore/Xstrata saga would have done justice to a TV soap opera

Mining stocks have ended the year the way they started it, on a charge.

Unfortunately, from about February to June the sector was stuck mostly in reverse gear, as doubts festered about the ability of the Chinese economy to continue growing at a breakneck pace.

The second half of the year was characterised by a painfully slow recovery until China’s economy started showing signs of recovering its mojo in November, since when mining shares have come back into fashion.

One of the big stories of the year was the marriage of commodities trader Glencore (LON:GLEN) and miner Xstrata (LON:XTA), following a courtship period which would have done justice to a TV soap opera.

What started out as a merger of equals became a bit more of an old fashioned takeover when the original deal thrashed out between the pair met with resistance from disgruntled Xstrata shareholders.

They were unhappy with the offer terms of 2.8 Glencore shares for every one Xstrata share.

Glencore upped the ratio to 3.05 shares per Xstrata share but coupled it with a change to the proposed management structure.

The original plan had been for Glencore chief executive officer (CEO) Glasenberg to be the deputy CEO to Xstrata’s Mick Davis, but the raising of the offer saw Glencore propose Glasberg as the CEO of the entity wags dubbed “Glenstrata”.

A face-saving deal was agreed whereby Davis will be CEO of Glenstrata for six months before making way for Glasenberg.

That was not the end of the horse trading, however.

Shareholders also cut up rough over the lucrative “pay to stay” deal offered to senior management. It was only when the “pay to stay” deal was decoupled from the merger vote that the marriage was finally approved.

Shareholders voted against the “pay to stay” arrangement and, sure enough, some senior personnel, including Xstrata chairman Sir John Bond and Xstrata chief financial officer Trevor Reid have signalled their intention to jump ship.

The deal did not do much for either company’s share price performance: Glencore shed 11.1% and Xstrata underperformed the Footsie, rising 6.9%.

From farce to tragedy

If the Glenstrata story was a farce, then Lonmin’s (LON:LMI) was a tragedy.

The platinum miner’s operations at Marikana were severely disrupted by violent and fatal clashes between striking miners and the South African authorities.

On August 16th 34 miners were killed at Marikana yet somehow the bitter dispute was eventually brought to an end, but not before Lonmin signalled it had to raise US$800mln through a right issue to avoid breaking banking covenants.

Shares in Vedanta fell 45% this year.

Other big beasts such as BHP Billiton (LON:BLT), up 17% over the last year, and Rio Tinto (LON:RIO), up 13%, did all right, but they were left to eat the dust of smaller, nimbler players.

The sector’s star was West African Minerals (LON:WAFM). Indeed, had the year ended in June, it would have been the runaway best performer of the whole market, not just the mining sector.

It started the year at 10.13p, and the shares were up 507% at 61.5p by December 13, when we took our share price snapshot.

Not many people would grumble at a “five-bagger” but its high point for the year was 92.25p, which means had you timed it right, you could have cashed in with more than an 800% improvement.

Positive results from an aeromagnetic survey of its six exploration properties in Cameroon were responsible for the share price excitement.

Talking of China, as we were earlier, Chinese mining and energy consultant CIC Mining Resources was the second best performer in the sector, racking up a gain of 165%.

In April and again in May the company put out stock exchange announcements saying it knew of no reason why the share price had gone moon-bound.

That put a stop to some of the irrational exuberance in the market, but the speculators were back at it again a couple of months later, pushing the price back up again.

Unfortunately for those hoping to turn a quick profit, the shares have been suspended since July 31 because it has not been in a position to release audited accounts for the year ended 31 January 2012, thanks to the expanded Canadian audit scrutiny process of Chinese subsidiaries.

If the reasons for CIC’s meteoric rise remains a bit of a mystery, it is not hard to work out why Oxus Gold (LON:OXS) has been such a strong performer, rising 115% on the year.

The firm, effectively a shell company, is currently tied up in a legal battle with the Uzbek government and if it wins it could receive hundreds of millions of dollars. Not bad for a company with a market cap of £12mln.

Calunius Capital, an investment group run by lawyers and legal experts, reckons Oxus has a good case and it has pledged to gives Oxus sufficient financial backing to pursue its case.

Calunius will be paying the costs related to the legal battle in return for a material portion of any settlement.

Returning to the subject of Rio Tinto, only this time the Spanish mine of the same name, EMED Mining is the company which is attempting to get the mine up and running again.

The market has applauded management’s progress in getting the iconic copper mine up and running again, with the shares up 32% on the year.

It has certainly been a long old process – the company has been around for eight years – but the project now only requires two key approvals to move forward. 

Angel falls to earth

Despite rising 27% over the last month, Angel Mining (LON:ANGM) picks up the wooden spoon in the mining sector, having slumped 84% this year.

The penny stock rose as high as 3.3p in January after the Greenland-focused gold miner after announcing the largest single gold pour to date at its Nalunaq project.

Six months later the shares fell below a penny (they are now at 0.66p) after the company postponed the development of the South Block area of Nalunaq, following a decline in the grade of the processed material.

The recent recovery has been prompted by news that gold production had been less than it should have been because of dodgy cathodes on the electrolysis unit used in the gold pour process.

These cathodes have now been replaced, resulting in a boost to production. 

It has been a year to forget for Triple Plate Junction (LON:TPJ), the holder of two non-operated stakes in gold exploration projects in Papua New Guinea.

The company is considering the implications for the Morobe gold project in Papua New Guinea after partner Newmont cut its development budget for 2013.

Newmont said it will work with TPJ to try to ensure that the next steps for the Morobe project are successful and result in its continued development.

 

Winners

1. West African Minerals (+507%); 2. CIC Mining (+165%); 3. Oxus Gold (+115%); 4. Central Asia Metals (+64%); 5. Anglo Asian Mining (+61%); 6. Sierra Rutile (+52%); 7. Rambler Metals (+45%); 8. UMC Energy (+33%); 9. EMED Mining (+32%); 10. Hochschild Mining (+27%)

 

Losers

1. Angel Mining (-84%); 2. Triple Plate Junction (-84%); Noventa (-83%); 4. Creat Resources (-83%); 5. Astar Minerals (-83%); 6. Anglesey Mining (-78%); 7. Sunkar Resources (-73%); 8. Fluormin (-73%); 9. Ariana Resources (-73%); 10. Beacon Hill Resources (-72%)

 

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