Swiss-based commodities giant Glencore has taken a punt on embattled junior iron ore miner Atlas Iron.
Street Talk can reveal Glencore bought out one of Atlas’s major debt holders, Fortress Investment Group, late last year for between 40¢ and 50¢ in the dollar.
Atlas is working to get all of its lenders to agree to a plan to cancel a large portion of its onerous debt pile. When the deal was announced just before Christmas, Atlas said more than 75 per cent of lenders had agreed to the move and it is understood Glencore is one of them.
…Glencore has a reputation for savvy strategic plays. The guessing game is on as to whether they’re taking a calculated bet on the value of the debt and iron ore prices or it’s something else.
H&H has done a good job of illustrating the strategic blunders of Glencore, that is, coupling extreme leverage with an implicitly volatile underlying earnings stream but if you want a metaphor for just how out of step with reality this firm is then a snippet from the AFR today does it nicely:
Atlas is as stuffed as the Dodo and to put it mildly MB struggles to see the logic of this. Look at the wider sector, from The Australian:
Chinese rivals Ansteel and Baosteel have both in recent weeks decided to scale back the funding of their Australian ventures, leaving billions of dollars of investment and more than 1000 local jobs under a cloud.
Ansteel’s local partner in the Karara project, Gindalbie Metals, this week told investors there were doubts about its ability to continue as a going concern should Ansteel withdraw its support for the mine. Karara’s chief executive sent a memo to the mine’s 1000 workers last week warning that Ansteel was unable to continue to provide funding due to the “economic and industry slowdown”.
…And Perth-based junior Sundance Resources yesterday became the latest local company to suffer from the impact of the funding freeze affecting Chinese iron ore investments.
Sundance, which wants to develop the Mbalam-Nabeba iron ore project in the African nations of Cameroon and Congo, yesterday revealed that the Chinese state-owned construction company that had agreed to build the project’s port and rail infrastructure had unexpectedly been unable to secure funding.
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One is supposed to buy distressed assets at the bottom but not halfway down and not those assets that won’t survive.