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Important notice! JTVIR provides independent research reports to institutional clients for fixed and subscription fees. JTVIR's affiliate, JTVIO, provides advisory services to entities in connection with financing deals, mergers and acquisitions, mine services, valuations, fairness opinions, strategy, corporate services and capital raising. For its advisory services, JTVIO may be compensated up to a year after the termination of JTVIO's services or advisory agreement. It is JTVIR's policy not to provide research reports or updates to such reports for any entity that has engaged JTVIO's services.
Company ProfileJOHN TUMAZOS VERY INDEPENDENT RESEARCH, LLC (JTVIR LLC) is registered as an investment advisor in the State of NJ. We have 30-odd institutional clients in New York, CT, Massachusetts, California, Wisconsin, Minnesota, North Carolina, and Florida. We do fundamental research on commodities markets and common stocks in the metals and forest products sectors. For example, in the second-half of 2007 we traveled abroad five times to visit mines and smelters, and published 92 investment reports. We collected our first revenue on September 20, made our first email communications seeking revenue September 4 and 10, became registered August 27, filed for registration August 10, formed our LLC on July 6 and "changed course" on June 6, 2007 when the former Prudential Equities Group shut down. We sent reports "developmentally" to our former mailing list from July 8 to August 27, 2007 "not for compensation" while we completed registration and through mid-November in a "grace period" as our clients engaged us.We are regulated like a money manager, but we manage no client funds as our business is to advise active money managers. We are not a broker-dealer, but deliver the same basic research services that we had since 1981 as an employee at major brokerage firms. In our business model we sell our research direct payments and deliver it via email and our www.veryindependentresearch.com web site. Our clients pay us via direct checks, wire transfer, commission sharing agreements or soft dollar payments. Initially we have had no sales force, and our clients learn of us from our existing reputation, existing relationships and "word of mouth." Please click on the "Become a Subscriber Member" button to the left or simply phone or email us if you want to buy our research Special Events Webcast link for Nov, 29-30, 2011
February 2, 2012
Dear Friend,
The mechanics of a Glencore merger with
Xstrata are a difficult transaction owing to the $22 billion net
debt of Glencore and the roughly $8 billion net debt of Xstrata,
diverse antitrust approval paperworks, shareholder approvals and
"fairness considerations" as Glencore owns 34.5% of Xstrata.
However, the "next deal" opportunities
are among the best we have ever witnessed, including Anglo American,
settlement of the Anglo American dispute with Codelco, a possible
Codelco copper joint venture surrounding the disputed location, a
full merger with Codelco or many other opportunities. There are
plenty of "big fish to fry," and too many "small fry" opportunities
to consider such as 35%-owned PolyMet Mining for example. We
envision the merged $85+ billion company undertaking two or three
similar large transactions to grow to more than $200 billion. It
vast contacts will position the new Glencore-Xstrata company to
privatize state mining companies around the world too.
The potential exchange ratio, which we estimate at 3.25 to 3.75 GLNCF for each XSRAF share, is one hurdle. Combined debt levels, thin initial cost synergies, fairness opinions, shareholder approvals, antitrust clearances for thermal coal, copper, lead and zinc, and lots of other details await approval too. Shareholder approval is sensitive in the case of Glencore, where its employees will own 40% to 45% of the new firm. Xstrata will be obliged to obtain appropriate fairness opinions, where Glencore owns 34.5%. Xstrata CEO Mick Davis is in a sensitive position, where Glencore was his source of seed capital a decade ago, but legally he is a fiduciary for his shareholders. Mick Davis was right to insist that Glencore go public in its own right to prepare the ground for a fair common share exchange ratio between the two companies, but could question whether the seven month trading history of Glencore is long enough. The complex transaction could take another year to complete antitrust revenue in four or more commodities and antitrust authorities in several continents. After all, International Paper will need almost a year for a three virgin containerboard mills in a U.S.-only context for Temple-Inland. We have not gotten too far in our financial modeling of the pending two way transaction, or possible doodling of a three-way with Anglo American or addition of Codelco for some extra Latin spice. Tax consolidation will be very important, as both Glencore and Xstrata have below average income tax rates during the most hostile era of third world resource nationalism ever. For the record, we own shares of Xstrata, Anglo American and PolyMet Mining. We have Overweight ratings on each, and rate Glencore Underweight owing to its $22 billion debt level, insufficient 9% income tax rate and our concerns that it needs to pay a generous price to acquire a cash generator to help pay off its debt burden. Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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