Ann: Entitlement Issue Results, page-41

Ha, ha. Thanks kindly, mate. It’s hard to believe that we have been in the investment trenches together for well over a decade now. Let’s see how this one plays out for us. Happy to be on another investing journey with both you & Trifke.

As we have discussed offline for some time now, the EV/electrification thematic is real & happening. It is the greatest industrial change in our lifetimes. There aren’t going to be enough battery and electrification metals to meet demand in the future. And supply will require a lot of time & capital to bring online anyway.

The big boys are well aware of this and are positioning themselves accordingly for the endgame.

Without wanting to sound presumptuous, I can only assume many of us are here because we want exposure to/are bullish on copper in the coming years. There are plenty of informative posts in the copper price news thread on the LT outlook for Cu. Bison8’s excellent posts come to mind.

That Baz and Co have managed to bring Glencore to the table is a major coup for Cyprium. Saying that, we mustn’t forget that Glencore aren’t here outta benevolence.

I’ve just arrived home from some late evening meetings in Tokyo and have done some digging. Here is what I have found.

Glencore produced 510.2kt of Cu in H1 2022 alone & that was 15% down from H1 2021 due to geotechnical constraints at Katanga, the sale of Ernest Henry, etc.

In fact, most of their copper metal is coming out of Katanga & Mutanda in the DRC, with some metals & concentrates from South America (mainly Chile & Peru). In terms of OZ, they have some production coming outta their Mount Isa ops as well. But, they have been divesting of their Aussie assets of late. They sold Ernest Henry in January 2022 & announced in March 2022 that they were selling their CSA Mine in Cobar (NSW) to an American company, MAC, for US$1.05 billion in cash. Here is the interesting part.

Glencore then announced that they would be taking a small equity stake (US$50m) in MAC, plus a 1.5% smelter royalty. And importantly - they entered into an off-take agreement for 100% of the Cu concentrate produced at the CSA Mine. In other words, they are selling the mine, but still want its copper.

In the announcement at the time, Glencore said:

“The sale of the CSA Mine is consistent with delivering our strategy of simplifying and aligning our global portfolio of over 150 operating sites to focus on lower-cost, long-life assets. Glencore will continue to be a leading marketer, producer and exporter of the Australian metals and minerals that will underpin the global transition to a low-carbon future”.

After some further digging, I’ve just learnt that the Glencore & MAC deal has yet to be finalised. Refer to the following AFR article (can't link - coz).

A bit still to play out there.

Divesting from some of their Aussie copper assets augurs well for us from a t/o perspective. It informs me that they are preferring to focus (operationally speaking) on their African assets, but still want exposure to Aussie copper assets. Happy to take the copper, but let others do the grunt work from an operational perspective. I think it would be fair to assume that they just want our copper metal in the near future and aren’t interested in us as a potential t/o target. It doesn’t fit in with their current divestment activities. Of course, that may change down the track if the crew successfully build to mid-tier copper producer status (100,000t Cu per year). And it may actually be a good thing by then if a decent premium is involved.

As for today, the shortfall may go to the broker/s, but who knows? It was never underwritten in the first place. Here is clause 2.6 of the entitlement issue prospectus as it pertains to the shortfall offer.

It may include parties who are not currently shareholders. It could technically go to Glencore - $8m is peanuts for them. They just posted a gargantuan $18.9bn in adjusted earnings for the first half - ironically with a large portion coming from coal. They were quick to remind the market that they view themselves as a “decarbonising transition company” - with a future focus on copper, cobalt, nickel, etc. Anyway, I don’t think the shortfall is a huge deal. Right now, it is imperative that they finalise the binding off-take with Glencore and satisfy any other requirements - as outlined by the senior debt providers. Perhaps, a bit of work to do, but they are inching closer IMO.

Thanks for all the kind comments earlier. RhysD, peter63, Bunn-Wackett, BrucieKibbutz & you, slammer81.

p.s. On a slight tangent, anyone interested in learning more about how the big commodity traders operate might like to check out the brilliant book 'The World For Sale’ by Javier Blas & Jack Farchy, 2021. There is a great section on Glencore.