Reuters reported that Glencore expects Bolivian moves to take more control of mines to be resolved soon without a major financial hit but the world's biggest commodities trader is worried by growing resource nationalism.
Glencore's concerns over the dangers of expropriation appear in a prospectus published on Wednesday ahead of its planned USD 11 billion flotation later this month. The massive document also outlines how the Swiss based group limits political and trading risks from its global operations.
Glencore appears to have managed its relationship in Bolivia effectively saying that it had weathered the 2007 nationalization of its Vinto tin smelter. In that instance, no material losses were sustained and Glencore continues to do business in Bolivia. Through its Sinchi Wayra subsidiary, Glencore has said it can produce up to 205,000 tonnes of zinc concentrates, 15,000 tonnes of lead concentrates and 6,000 tonnes of tin concentrates a year at its 5 Bolivian mines.
The company said in its prospectus that a resolution of the issue is expected to be announced by the government in the near future. Glencore does not expect this resolution to have a material economic impact on the group. It sees resource nationalism as an increasing threat as a strong rally in commodity prices sparks moves by many countries to raise taxes and demand stakes in mines. Despite this continues to do business in locations where it is exposed to a greater than average risk of overt or effective expropriation or nationalization.
The group revealed that it takes out insurance policies to cover risks to its assets and liability with the majority underwritten by Lloyds's and other major companies. Its political risk insurance however only covered oil in storage and transit. The prospectus also detailed its commodities trading risk which were higher than for major banks such as Goldman Sachs.
During last year there was potential for Glencore to lose an average of USD 43 million a day in trading, calculated by a measure called value at risk. The group has set a maximum limit of USD 100 million for VaR which estimates potential losses as a result of movements in prices and other factors.
(Sourced from Reuters)
