Glencore – the power behind the Xstrata throne

A look at Glencore, the private Swiss-based company which effectively controls top miner, Xstrata with a 34.6 percent strategic holding.

LONDON (Reuters) - 

As global mining firms circle London-listed Xstrata, behind the headlines is one of the most powerful commodities companies in the world and two men seen among the sharpest in the business.

Holder of a strategic 34.6 percent stake in Xstrata is privately-owned trading firm Glencore International, which from the Swiss lakeside town of Zug controls a multibillion-dollar pipeline of oil, coal and crops as well as metals, and has almost $15 billion in shareholder funds in its coffers.

Glencore began life in 1974 as a commodity trading firm set up by secretive billionaire commodities merchant Marc Rich, who sold out to management in 1994.

The men who run Glencore now, Chairman Willy Strothotte and Chief Executive Ivan Glasenberg, may not be as famous but they have arguably been as successful.

Their strategy has been to hold stakes in mines and production facilities as well as selling their products, a strategy that has paid off handsomely as prices for copper, coal, oil and grains have shot up in the past five years.

Glencore's strategy is unlikely to be changed by any deal to sell its stake in Xstrata, according to traders, market analysts and industry executives who have long observed the company.

With fewer reporting requirements than a publicly traded company, Glencore is notoriously tight-lipped.

Neither Strothotte nor Glasenberg would be interviewed by Reuters, and Glencore employees refused to talk about possible overtures for Xstrata by Brazil's Vale, the China Development Bank or others.

But one industry executive, with long experience of the markets in which Glencore operates, said that even if it swaps its stake in Xstrata for a reduced shareholding in a larger firm, it shows no signs of exiting commodity markets.

"Glencore has no intention to sell its stake in Xstrata for cash," said the executive, who spoke on condition of anonymity. Instead, it would consider exchanging it for a smaller stake in the merged company, he said.

Even then, Glencore is likely to insist on holding the marketing rights for some or all of the merged company's products, a move that could actually increase the amount of metal that Glencore controls.

EYES AND EARS

Over the years, Glencore has built up a network of traders and agents in 54 countries where its commodities are produced or consumed.

These eyes and ears at the factory, harbour and mineshaft keep Glencore up to speed with the tiniest changes in supply and demand. Armed with this information, Glencore can respond quickly by buying or selling as the market dictates.

Glencore has been described as opportunistic, its traders rewarded for spotting investment opportunities before rivals. It also takes decisions more quickly than publicly traded firms.

Strothotte, 63, who is chairman of Xstrata in addition to Glencore, began his career working for Rich and others as a metals trader in the 1970s.

"He could be very charming. He knew exactly where he was going, you could tell he was destined for great things," a former colleague said.

Glasenberg, 51, who began his career as a coal merchant for Rich in South Africa, is a hands-on chief executive with the power to decide which businesses and commodities to trade.

Strothotte, Glasenberg and others at Glencore are regarded by some as the guiding hand behind Xstrata's aggressive acquisitions since the start of the decade. It has operations in 18 countries and is a major player in copper, coal, ferrochrome, nickel, vanadium and zinc.

Whatever the outcome of the interest in Xstrata, commodity markets will take note of what Glencore does.

"You buy metal when Glencore, the most bullish of all, is buying metal," said Robin Bhar, who analyses commodity markets for investment bank UBS.

"Nine out of ten times they've been right." (Reporting by Daniel Magnowski; Editing by Peter Blackburn)

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