Glencore-Entrepreneurialismfullypriced

7/27/2019 Glencore-Entrepreneurialismfullypriced

1/37

Key company data: See page 2 for company data, and detailed price/index chart.

Rating: See report end for details of Nomuras rating system.

Glencore 0805.HK 805 HKBASIC MATERIALS

EQUITY RESEARCH

Initiating at NEUTRAL with TP of HKD70.40

Entrepreneurialism fully priced

May 31, 2011

RatingStarts at

Neutral

arget price

Starts at70.40HKD 70.40

Closing price

May 30, 2011HKD 67.40

Potential upside +4.5%

Action/Valuation: Expensive relat ive to mining peers; NEUTRAL

Glencore is evolving from a trading house whose mining assets principallyserved to feed its marketing business into one whose mining assetsbecome the key driver of group earnings. Although we find Glencore's

management to be the most entrepreneurial team in the sector, we thinkvaluations are expensive relative to mining peers. Our HKD70.40 TPrepresents a 10% holding company discount to our SOTP NPV valuation.

Mining assets: higher volume growth, but with higher risk and costs

Excluding Xstrata, we estimate an attributable copper equivalent CAGRfor Glencore of 7.5% over 2011-2015E (vs an average of 5.2% for thediversified miners). Glencores high growth is partly offset by highergeographical risk and a higher cost profile, with average costs mostly inthe third quartile of industry cost curves.

A h igh-qual ity and counter-cyclical market ing business

Glencores marketing business has dominant market shares, high barriers

to entry and counter-cyclical cash generation, and we believe it shouldtrade in line with or at a small discount to Noble (because of Noblesgreater exposure to agriculture, which tends to be less cyclical, and itsfaster earnings growth, offset to some extent by Glencores higher RoCE).

M&A strategy: Xstrata merger unlikely for now

We would be surprised to see Xstratas board recommend a nil-premiummerger of equals while Glencore trades at a relative valuation premium.Also, we dont think Glencore would pay a large takeover premium forXstrata, given Glencores opportunistic M&A history.

31 Dec FY10 FY11F FY12F FY13F

Currency (USD) Actual Old New Old New Old New

Revenue (mn) 144,978 198,108 224,543 215,161

Reported net profit (mn) 3,751 7,340 9,547 9,132

Normalised net profit (mn) 3,751 7,340 9,547 9,132

Normalised EPS 0.5 1.1 1.4 1.3

Norm. EPS growth (%) 129.7 95.7 30.1 -4.3

Norm. P/E (x) 16.9 N/A 8.6 N/A 6.6 N/A 6.9

EV/EBITDA 14.3 N/A 6.8 N/A 5.6 N/A 5.4

Price/book (x) 3.1 N/A 1.7 N/A 1.3 N/A 1.1

Dividend yield (%) na N/A 1.7 N/A 1.7 N/A 1.8

ROE (%) 20.7 26.4 23.7 18.8

Net debt/equity (%) 146.2 55.1 42.3 25.8

Source: Nomura estimates

Anchor themes

We expect the mining sector tooutperform in 2011, withthermal coal being our

preferred commodity pick.Nomura vs consensus

Coverage on the street iscurrently sparse.

Research analysts

Singapore Basic Materials

Tanuj Shori - NSL

[email protected]+65 6433 6981

European Metals & Mini ng

Paul Cliff - NI plc

[email protected]+44 20 7102 4349

Patrick Jones - NI plc


European Steel

Jeff Largey - NI plc


See Appendix A-1 for analystcertification and importantdisclosures. Analysts employed

by non US affiliates are notregistered or qualified asresearch analysts with FINRA inhe US.


2/37

Nomura | ASIA Glencore May 31, 2011

2

Key data on GlencoreIncomestatement(USDmn)Year-end 31 Dec FY09 FY10 FY11F FY12F FY13F

Revenue 106,364 144,978 198,108 224,543 215,161

Cost of goods sold -103,057 -139,688 -187,430 -211,480 -202,556

Gross profit 3,307 5,290 10,677 13,063 12,605

SG&A

Employee share expense

Operating profit 3,307 5,290 10,677 13,063 12,605

EBITDA 3,929 6,201 11,664 14,104 13,538

Depreciation -622 -911 -987 -1,041 -934

Amortisation

EBIT 3,307 5,290 10,677 13,063 12,605

Net interest expense -587 -936 -1,602 -1,114 -1,059

Associates & JCEs

Other income

Earnings before tax 2,720 4,354 9,076 11,949 11,545

Income tax -238 -234 -758 -1,193 -1,177

Net profit after tax 2,482 4,120 8,318 10,756 10,368

Minority interests -96 -355 -978 -1,209 -1,236

Other items -753 -14 0 0 0

Preferred dividends

Normalised NPAT 1,633 3,751 7,340 9,547 9,132

Extraordinary itemsReported NPAT 1,633 3,751 7,340 9,547 9,132

Dividends 0 0 -1,000 -1,040 -1,082

Transfer to reserves 1,633 3,751 6,340 8,507 8,050

Valuation and ratio analysis

FD normalised P/E (x) 38.8 16.9 8.6 6.6 6.9

FD normalised P/E at price target (x) 40.8 17.7 9.1 7.0 7.3

Reported P/E (x) 36.7 16.0 8.2 6.3 6.6

Dividend yield (%) na na 1.7 1.7 1.8

Price/cashflow (x) na 571.0 37.4 19.1 8.6

Price/book (x) 3.6 3.1 1.7 1.3 1.1

EV/EBITDA (x) 21.0 14.3 6.8 5.6 5.4

EV/EBIT (x) 25.0 16.7 7.5 6.0 5.8

Gross margin (%) 3.1 3.6 5.4 5.8 5.9

EBITDA margin (%) 3.7 4.3 5.9 6.3 6.3EBIT margin (%) 3.1 3.6 5.4 5.8 5.9

Net margin (%) 1.5 2.6 3.7 4.3 4.2

Effective tax rate (%) 8.8 5.4 8.4 10.0 10.2

Dividend payout (%) 0.0 0.0 13.6 10.9 11.8

Capex to sales (%) 1.0 1.3 1.0 0.7 0.6

Capex to depreciation (x) 1.8 2.1 2.1 1.4 1.3

ROE (%) na 20.7 26.4 23.7 18.8

ROA (pretax %) na 7.4 12.8 13.9 12.6

Growth (%)

Revenue na 36.3 36.6 13.3 -4.2

EBITDA na 57.8 88.1 20.9 -4.0

EBIT na 60.0 101.8 22.3 -3.5

Normalised EPS na 129.7 95.7 30.1 -4.3

Normalised FDEPS na 129.7 95.7 30.1 -4.3

Per share

Reported EPS (USD) 0.24 0.54 1.06 1.38 1.32

Norm EPS (USD) 0.24 0.54 1.06 1.38 1.32

Fully diluted norm EPS (USD) 0.22 0.51 1.00 1.30 1.25

Book value per share (USD) 2.41 2.83 5.20 6.43 7.59

DPS (USD) 0.00 0.00 0.14 0.15 0.16


Notes

Strong earnings growth to last

through FY11-12F, in our view

Priceandpricerelativechart(oneyear)

(%) 1M 3M 12M

Absolute (HKD)

Absolute (USD)

Relative to index

Market cap (USDmn) 59,656.3

Estimated free float(%)

20.0

52-week range (HKD) 67.3/64.55

3-mth avg dailyturnover (USDmn)

57.99

Major shareholders(%)

Ivan Glasenberg 15.7

64.5

65

65.5

66

66.5

67

67.5

97.5

98

98.5

99

99.5

100

100.5

Price

Rel MSCI HK(HKD)


3/37


3

Cashflow(USDmn)Year-end 31 Dec FY09 FY10 FY11F FY12F FY13F

EBITDA 3,929 6,201 11,664 14,104 13,538

Change in working capital -5,279 -4,484 -3,286 -3,140 1,114

Other operating cashflow -1,660 -1,606 -6,681 -7,638 -7,323

Cashflow from operations -3,010 111 1,696 3,326 7,329

Capital expenditure -1,116 -1,890 -2,039 -1,489 -1,197

Free cashflow -4,126 -1,779 -343 1,837 6,132

Reduction in investments -251 -1,112 -3,421 -4,214 -3,938

Net acquisitions

Reduction in other LT assets -507 0 0 0

Addition in other LT liabilities 843 11 11 11

Adjustments 203 -2,089 2,748 3,578 3,289

Cashflow after investing acts -4,174 -4,644 -1,006 1,212 5,494

Cash dividends -2 -2 -1,000 -1,040 -1,082

Equity issue 0 0 10,033 0 0

Debt issue 3,087 5,952 0 0 0

Convertible debt issue 1,915 283 0 0 0

Others -792 -986 0 0 0

Cashflow from financial acts 4,208 5,247 9,033 -1,040 -1,082

Net cashflow 34 603 8,028 172 4,412

Beginning cash 826 860 1,463 9,491 9,663

Ending cash 860 1,463 9,491 9,663 14,075

Ending net debt 23,131 28,669 19,816 18,819 13,582


Balancesheet(USDmn)As at 31 Dec FY09 FY10 FY11F FY12F FY13F

Cash & equivalents 860 1,463 9,491 9,663 14,075

Marketable securities 75 66 66 66 66

Accounts receivable 15,189 18,994 23,021 26,093 25,002

Inventories 15,073 17,393 19,190 21,751 20,842

Other current assets 6,179 6,100 6,100 6,100 6,100

Total current assets 37,376 44,016 57,868 63,673 66,086

LT investments 18,083 19,204 22,625 26,840 30,777

Fixed assets 6,845 12,088 13,141 13,589 13,853

Goodwill

Other intangible assets

Other LT assets 3,972 4,479 4,479 4,479 4,479

Total assets 66,276 79,787 98,113 108,580 115,195

Short-term debt 7,186 11,881 11,881 11,881 11,881Accounts payable 11,482 16,145 18,683 21,176 20,291

Other current liabilities 11,913 8,812 8,812 8,812 8,812

Total current liabilities 30,581 36,838 39,376 41,869 40,984

Long-term debt 16,403 18,251 17,426 16,601 15,776

Convertible debt

Other LT liabilities 1,348 2,191 2,202 2,213 2,224

Total liabilities 48,332 57,280 59,004 60,683 58,984

Minority interest 1,258 2,894 3,123 3,405 3,668

Preferred stock 0 0 0 0 0

Common stock 46 46 61 61 61

Retained earnings 4,395 5,378 21,736 30,243 38,293

Proposed dividends

Other equity and reserves 12,245 14,189 14,189 14,189 14,189

Total shareholders' equity 16,686 19,613 35,986 44,493 52,543

Total equity & liabilities 66,276 79,787 98,113 108,580 115,195

Liquidity (x)

Current ratio 1.22 1.19 1.47 1.52 1.61

Interest cover 5.6 5.7 6.7 11.7 11.9

Leverage

Net debt/EBITDA (x) 5.89 4.62 1.70 1.33 1.00

Net debt/equity (%) 138.6 146.2 55.1 42.3 25.8

Act ivi ty (d ays)

Days receivable na 43.0 38.7 40.0 43.3

Days inventory na 42.4 35.6 35.4 38.4

Days payable na 36.1 33.9 34.5 37.4

Cash cycle na 49.4 40.4 41.0 44.4


Notes

Positive operating cashflow expected

from FY11-13F

Notes

Stable cash cycle; gearing to come

down


4/37


4

Contents

5 Executive summary: NEUTRAL, HKD70.40 TP

7 Valuation (NEUTRAL, TP HKD70.40)

12 The marketing business

12 The industrial business listed assets

13 The industrial business unlisted assets

14 Earnings summary & sensitiv ity

16 Marketing: cyc lical earnings, counter-cyclical cash flow

17 M&A: Xstrata merger unlikely for now

18 Marketing division

19 Noble-Glencore: a closer comparison

22 Industrial division

25 Zinc

25 Copper

26 Nickel and alumina

27 Energy

28 Agricu lture

29 Glencore financial summary

30 Xstrata financial summary

31 Appendix

31 Share lockups, indexation, and key management

33 Appendix A-1

Research analysts

Singapore Basic Materials

Tanuj Shori - NSL

[email protected]+65 6433 6981

Tushar Mohata - NFASL


European Metals & Mini ng

Paul Cliff - NI plc


Patrick Jones - NI plc


Ash raf K han -


European Steel

Jeff Largey - NI plc


Neil Sampat - NI plc



5/37


5

Executive summary: NEUTRAL,HKD70.40 TPWe initiate coverage of Glencore with a NEUTRAL recommendation and HKD70.40

target price. Our target price is set at a 10% discount (at enterprise level) to our NPV,

which includes Glencores stake in Xstrata at our GBP 22/share NPV. Our in-market

SoTP valuation, which includes Glencores listed stakes at market value and peer group

valuation multiples for Glencores other mining and marketing businesses, suggests a

value for Glencore of HKD57.50/share. Although we think Glencore boasts one of themost entrepreneurial management teams in the sector, we struggle to find value in

Glencore relative to its mining and marketing peers. However, our target price still leaves

modest upside potential in absolute terms.

On balance, we believe the most appropriate valuation methodology for Glencore is an

enterprise value SoTP with a holding company discount. RMIs should not be deducted

from net debt, in our view. Peer group EV/EBITDA multiples avoid any distortions

attributable to Glencores relatively high net debt/EBITDA ratios in its unlisted mining and

marketing businesses (unlisted net debt/EBITDA of 3.8x compared with 3.0x and 0.4x for

Noble and Xstrata, respectively). We apply a 10% holding company or SoTP discount as

a large proportion of Glencores value lies in separate listed entities, particularly its non-

controlling stake in Xstrata. In addition, we believe that only 15% of Glencores marketingvolumes (ex oil) originate from Glencore controlled production assets, which suggests to

us that the marketing business could be viewed as separate to the mining business

rather than one vertically integrated structure from mine to customer. Lastly, we do not

deduct RMIs from net debt to value Glencores equity, as RMIs represent working capital

for a physical commodity trading business.

Fig. 1: Glencore valuation summary: NPV and in-market

*Management intends to spin out the goldstream of Kazzinc; thus we value it at an average EV/produced gold ounce of Russian miners

Source: Company data, Nomura estimates

Glencore is evolving from a trading house in physical commodities into a company

whose mining assets increasingly drive group earnings. This is both a function of a

prolonged cycle of high commodity prices and an expansion strategy that increasingly

focuses on mining. Glencore plans to use its USD7.9bn primary share issue to fund the

$mn NPV Comments

Industrial

Total Listed 6,876 44,712 29,878

Unlisted

Managed operations 3,169 12,963 4.2x 13,462

Goldstream 5,208* 5,208* Attributable 744 koz x $7,000/oz (Russian EV/produced oz average)

Russneft, oil 3,620 3,485 oil-related loans: $2.9 bn, Guinean oil resources: $560 mn

Total unlisted 3,169 21,792 22,155

Total Industrial 10,046 66,504 52,033

Marketing 3,185 31,751 9.7x 30,989 Noble Group multiple (last reported net debt)

Total 13,231 98,255 83,022

Discount 10% 10% Holding company discount

Discounted EV 88,429 74,720

Proforma Net Debt -24,387 -24,387

Convertible Debt 2,132 Excluded for in-market valuation

Equity Value 66,174 50,333

Equity value (GBP/sh) 558 449

Equity value (HK$/sh) 70.40 57.50

EV/EBITDA

Multiple

In-Market

Value

2011E Att

EBITDA

Xstrata multiple (last reported net debt)


6/37


6

USD2.2bn cash portion of the USD3.2bn proposed acquisition of additional stakes in

Kazzinc from 51% to 93%, and approximately USD5bn towards capex over the next

three years to expand its major mining assets Kazzinc, Mopani, Prodeco and various

oil E&P assets in West Africa. We forecast Glencores mining activities, including stakes

in listed assets, to account for 76% of attributable EBITDA, on average, over the next

five years.

We expect Glencore to deliver strong earnings growth over the next two years, buoyed

by best-in-class organic growth from its own managed operations as well as from

Xstrata. We forecast Glencores attributable EBITDA to grow by 63% in 2011 y-o-y andby nearly 92% by 2012, from 2010 levels. We expect Glencores marketing division to

account for 24% of group attributable EBITDA, on average, over the next five years with

mining, including Xstrata, accounting for the remainder.

Fig. 2: Glencore attr ibu table EBITDA 2010-2015E

Note: Glencore does not disclose attributable EBITDA; figures are based on our estimates.


Excluding Xstrata, we estimate an attributable copper equivalent CAGR for Glencore of

7.5% over 2011-2015, compared with an average of 5.2% for the diversified miners.

Glencores high growth is partly offset by higher geographical risk and a higher cost

profile, with average costs mostly in the third quartile of industry cost curves. However,

as projects such as Mutanda come online and Prodeco ramps up, Glencores copper

and coal divisions will have the potential to move down the cost curve.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2010 2011E 2012E 2013E 2014E 2015E

Marketing Xstrata Industrial ex Xstrata$mn


7/37


7

Fig. 3: Copper equivalent organic growth 2010-2015E

Investing during the downturn has given Glencore first-mover advantage


Fig. 4: GLEN managed operations 2011 cost curve posit ions

Positions are approximate

Source: Brook Hunt, AME Company data, Nomura estimates.

Valuation (NEUTRAL, TP HKD70.40)Our HKD70.40 target price for Glencore is set at a 10% discount to our SoTP NPV,

which includes Glencores stake in Xstrata at our GBP 22/share NPV. Our in-marketSoTP valuation suggests a value for Glencore of HKD57.50/share. We view Xstrata as

the closest peer for Glencores mining business owing to a similar mix of copper, coal

and zinc. We view Noble as the closest peer for Glencores marketing business owing to

a similar mix of metals & minerals, energy, and agriculture exposure (although Glencore

is more exposed to metals & minerals while Noble is more exposed to agriculture).

100

110

120

130

140

150

160

170

2010 2011E 2012E 2013E 2014E 2015E

AAL BHP XTA RIO GLEN Industr ial


8/37


8

Fig. 5: Glencore valuation summary NPV vs EV/EBITDA


$mn NPV Comments

Industrial

Listed

Xstrata 6,007 37,076 23,383

Other 870 7,636 6,495

Total Listed 6,876 44,712 29,878

Unlisted

Managed operations 3,169 12,963 4.2x 13,462

Goldstream 5,208* 5,208* Attributable 744 koz x $7,000/oz (Russian EV/produced oz average)

Russneft, oil 3,620 3,485 oil-related loans: $2.9 bn, Guinean oil resources: $560 mn

Total unlisted 3,169 21,792 22,155

Total Industrial 10,046 66,504 52,033

Marketing 3,185 31,751 9.7x 30,989 Noble Group multiple (last reported net debt)

Total 13,231 98,255 83,022

Discount 10% 10% Holding company discount

Discounted EV 88,429 74,720

Q4 10 Net Debt -29,087 -29,087

Primary issue 7,900 7,900

43% Kazzinc Acq -3,200 -3,200

Proforma Net Debt -24,387 -24,387

Convertible Debt 2,132 Excluded for in-market valuation

Equity Value 66,174 50,333

Basic Shares 6,923 6,923

Dilutive shares 403 Excluded for in-market valuation

Total Shares 7,326 6,923

GBP-USD 1.62 1.62

Equity value (GBP/sh) 558 449

Equity value (HK$/sh) 70.40 57.50*Management intend to spin out the goldstream of Kazzinc; thus we value it at an average EV / produced gold ounce of Russian gold miners

EV/EBITDA

Multiple

In-Market

Value

2011E Att

EBITDA

Xstrata multiple (last reported net debt)


9/37


9

Fig. 6: SOTP: NPV valuation


Fig. 7: SOTP: In-market EV/EBITDA valuation


On balance, we believe the most appropriate valuation methodology for Glencore is an

enterprise value SoTP with a holding company discount. RMIs should not be deducted

from net debt for valuing equity, in our view.

We view Xstrata and Noble as the closest peers for Glencores mining and marketing

businesses, respectively. Peer group EV/EBITDA multiples avoid distortions attributable

to higher net debt/EBITDA ratios in Glencores unlisted mining and marketing businesses

relative to Noble and Xstrata. For example, we estimate 2010 net debt to 2011E EBITDA

of 3.8x for Glencores combined unlisted mining and marketing business, compared with

net debt/EBITDA multiples for Noble and Xstrata of 3.0x and 0.4x, respectively.

We recognise that our enterprise value methodology is not without its flaws. We think the

main issue is the volatility in Glencores working capital, which is proportional to changes

in commodity prices. This may lead to a volatile net debt which, when deducted from our

estimated enterprise value, would also lead to a volatile equity valuation. However, we

point out that Nobles net debt would also be influenced by the same factors, and the

market should adjust Nobles EV/EBITDA multiple accordingly. Any change in NoblesEV/EBITDA would then be reflected in our in-market SoTP valuation for Glencore. Lastly,

we also point out that volatility is hardly new to the mining sector, and Glencores in-

market valuation will also reflect any volatility in Xstratas share price.

We apply a 10% holding company or SoTP discount as a large proportion of Glencores

value lies in separate listed entities, particularly as the stake in Xstrata is a minority one.

In addition, we believe that only 15% of Glencores marketing volumes (ex oil) originate

from Glencore-controlled production assets (around 40% including volumes (ex oil) from

associates and investments), which suggests to us that the marketing business could be

viewed as separate to the mining business rather than one vertically integrated structure

from mine to customer.

Lastly, we do not deduct RMIs from net debt to value Glencores equity, as RMIs

represent the working capital of a physical commodity trading business regardless of

how liquid they are or whether price risk has been hedged. For the purposes of valuing

the equity of the company, we believe working capital (ie, RMIs) should not be treated as

(ie, converted to) cash unless the business is no longer a going concern. We think most

of the confusion over whether to treat Glencores RMIs (USD14.3bn as at end-2010), as

cash stems from whether one is trying to measure balance sheet liquidity or to value the

equity of the company. Historically, Glencores quarterly financials have been used by

credit analysts to assess balance sheet liquidity. When assessing Glencores ability to

meet future debt obligations, credit analysts typically treat 80% of RMIs as cash, as

inventories are liquid assets and prices have been hedged either on exchange or with a

highly rated counterparty.

Listed

46%

Unlisted22%

Marketing32% Listed

36%

Unlisted27%

Marketing37%


10/37


10

Fig. 8: Glencore and other supply chain companies

We regard Noble as the best comparable with regard to Glencore

Source: Company data, Nomura research

Glencore is positioned somewhere between the diversified miners and the supply-chain

managers/commodity traders. Our forecast 2011 attributable EBITDA for Glencore is

split roughly three-quarters for its mining assets and one-quarter for marketing.

Therefore, we think Glencores valuation multiples should sit closer to the miners. We

note that Glencores marketing business is skewed towards metals & minerals (55% of

2011 EBITDA for marketing, on our estimates), while the Singapore listed commodity

traders tend to be skewed more to agriculture (eg, agriculture represents 42% of our

2011 trading+midstream EBITDA estimate for Noble). Agriculture-related earnings tend

to be less cyclical and command a valuation premium (eg, Wilmar and Olam).

Fig. 9: Mining valuation sheet: Nomura commodity forecasts

Source: Datastream, company data, Nomura estimates

Fig. 10: Mining valuation sheet: Spot commodity prices

Source: Bloomberg, Datastream, company data, Nomura estimates

MarketPresence Glencore ADM Bunge Noble Wilmar Olam

Agriculture Oil/Oil Prod. Coal Zinc/Copper

Aluminium Ferroalloys Industrial asset base

Mkt Cap Current Target Potential Base Growth Total Price/ FCF Yield

Company Rating Price Price Upside NPV Options NPV Total NPV 11E 12E 13E 11E 12E 13E 11E

Xstrata $66,205 Buy 13.91 22.00 58% 18.1 4.4 22.5 0.62 6.5 5.3 5.7 4.0 3.1 2.8 15.2%

Rio Tinto $132,147 Buy 41.48 61.00 47% 47.8 9.5 57.3 0.72 6.3 5.5 5.9 3.7 2.8 2.5 14.8%

BHP Billiton $213,177 Reduce 23.44 24.00 2% 19.0 5.1 24.1 0.97 7.3 6.3 6.8 3.9 3.0 2.7 15.0%

Anglo American $57,788 Buy 28.81 46.00 60% 35.2 9.1 44.3 0.65 5.3 4.7 4.9 3.7 3.0 2.9 17.2%

Glencore $58,819 Neutral HK$64.90 HK$70.40 8% 5.6 n/a 5.6 0.82 8.5 6.5 6.8 6.0 5.0 5.0 15.8%

Kazakhmys $10,938 Reduce 12.56 15.00 19% 13.9 0.3 14.2 0.89 4.1 4.1 5.0 2.2 1.7 1.5 20.5%Antofagasta $19,505 Reduce 12.16 15.00 23% 12.0 2.5 14.5 0.84 6.9 6.9 8.9 3.7 3.2 4.0 13.2%

First Quantum $11,624 Buy CAD 132 CAD 137 4% CAD 75 CAD 62 CAD 137 0.96 8.5 7.0 9.6 4.5 3.0 3.3 11.4%

Vedanta $9,748 Neutral 20.80 25.00 20% 22.1 2.4 24.5 0.85 5.3 4.0 4.4 4.3 3.7 3.8 16.0%

Norsk Hydro $15,642 Neutral NOK 41.74 NOK 53.00 27% NOK 53.0 n/a NOK 53.0 0.79 14.5 12.1 10.7 6.2 5.3 5.0 2.0%

ENRC $17,432 Reduce 8.32 9.50 14% 8.3 1.3 9.5 0.87 5.8 5.3 5.3 3.9 3.3 3.0 16.8%

Average Divers ifi ed Mini ng Sector 0.74 6.4 5.4 5.8 3.8 3.0 2.7 15.6%

Weighted Average Mining Sector 0.82 7.0 6.0 6.4 4.1 3.2 3.0 15.0%

P/E EV/EBITDA

Mkt Cap Current Target Potential Base Growth Total Price/ FCF Yield

Company Rating Price Price Upside NPV Options NPV Total NPV 11E 12E 13E 11E 12E 13E 11E

Xstrata $66,205 Buy 13.91 22.00 58% 29.9 10.4 40.3 0.35 7.8 6.7 5.9 4.7 3.9 3.8 13.1%Rio Tinto $132,147 Buy 41.48 61.00 47% 100.1 36.0 136.1 0.30 6.2 5.6 5.1 3.7 3.1 2.4 15.5%

BHP Billiton $213,177 Reduce 23.44 24.00 2% 29.7 11.6 41.3 0.57 7.4 6.3 5.8 4.0 3.0 2.3 14.8%

Anglo American $57,788 Buy 28.81 46.00 60% 56.0 25.3 81.3 0.35 6.0 5.3 4.8 4.2 3.4 2.8 15.4%

Glencore $58,819 Neutral HK$64.90 HK$70.40 8% 8.9 n/a 8.9 6.42 9.5 7.5 6.3 6.4 5.5 4.8 14.4%

Kazakhmys $10,938 Reduce 12.56 15.00 19% 18.6 3.5 22.1 0.57 4.8 4.4 4.4 2.6 2.0 1.4 17.8%

Antofagasta $19,505 Reduce 12.16 15.00 23% 17.3 9.4 26.7 0.46 8.7 8.3 7.4 4.6 4.1 3.4 11.4%

First Quantum $11,624 Buy CAD 132 CAD 137 4% 99.0 CAD 136 CAD 235 0.56 10.6 7.8 7.6 5.7 3.6 2.8 8.9%

Vedanta $9,748 Neutral 20.80 25.00 20% 36.9 2.4 39.2 0.53 5.8 4.2 4.0 4.8 4.0 3.6 14.8%

Norsk Hydro $15,642 Neutral NOK 41.74 NOK 53.00 27% NOK 57.5 n/a NOK 57.5 0.73 14.1 11.7 10.4 6.1 5.2 4.9 1.8%

ENRC $17,432 Reduce 8.32 9.50 14% 11.7 1.8 13.5 0.62 5.6 5.4 4.7 3.7 3.3 2.6 17.6%

Average Diversi fied Mi ning Sector 0.39 6.9 6.0 5.4 4.1 3.3 2.8 14.7%

Weighted Average Mining Sector 1.04 7.3 6.2 5.6 4.3 3.5 2.8 14.7%

EV/EBITDAP/E


11/37

11

Fig. 11: Asian midst ream/integrated producers valuation sheet

Note: STA TB and TVO TB estimates are provided by Capital Nomura Securities analyst Ploenjai Jirajarus.

Source: Bloomberg, company data, Nomura estimates

Name CountryNomura

rating

Market cap

(US$mn)

Closing

priceCY10 CY11F CY12F CY10 CY11F CY12F CY10 CY11F CY1

Wilmar (WIL SP) Singapore NEUTRAL 27,362 5.33 24.1 17.4 15.5 2.3 2.1 1.9 20.2 14.0 14.

Noble (NOBL SP) Hong Kong BUY 10,369 2.02 19.2 14.5 12.3 2.4 2.0 1.8 13.8 9.7 8.9Olam (OLAM SP) Singapore BUY 4,848 2.83 21.4 17.4 14.5 3.1 2.7 2.3 13.6 11.5 10.8

Mewah (MII SP) Singapore BUY 1,179 0.98 10.5 10.9 9.3 2.0 1.9 1.6 9.8 8.4 7.0

Singapore Average 18.8 15.1 12.9 2.5 2.2 1.9 14.3 10.9 10.Itochu (8001 JP) Japan BUY 15,953 825.00 7.0 6.0 5.7 1.1 1.0 0.9 10.3 8.4 7.7Mitsui (8031 JP) Japan BUY 30,196 1,353.00 7.9 6.1 5.7 1.1 1.0 0.9 9.3 7.7 7.3Marubeni (8002 JP) Japan NEUTRAL 11,472 541 7.6 6.4 6.0 1.3 1.1 1.0 10.9 9.5 8.7Mitsubishi (8058 JP) Japan BUY 41,894 2,023 8.1 7.0 6.7 1.2 1.1 1.0 12.3 10.1 9.5Sumitomo (8053 JP) Japan BUY 16,083 1,054 6.8 6.0 5.6 0.8 0.8 0.7 11.9 10.5 9.8Japan traders average 7.5 6.3 6.0 1.1 1.0 0.9 10.9 9.3 8.6Ruchi Soya (RSI IN) India BUY 732 99.85 8.7 7.2 6.1 1.0 0.9 0.8 4.1 3.4 2.8KS Oils (KSO IN) India BUY 232 25.70 5.4 4.8 3.9 0.8 0.6 0.5 3.7 3.3 2.7China Agri (606 HK) Hong Kong BUY 4,317 8.32 12.8 9.5 7.6 1.8 1.6 1.3 18.0 12.4 9.9ADM (ADM US) United States N.R. 19,775 31.03 10.0 9.2 8.8 1.3 1.2 1.1 9.0 8.2 8.2Bunge (BG US)

United States N.R. 10,636 72.24 19.2 11.7 11.0 1.0 0.9 0.8 10.5 8.4 7.8Petra Foods Ltd (PETRA SP) Singapore N.R. 843 1.72 21.3 15.4 13.6 2.9 2.6 2.3 14.6 12.0 10.Graincorp (GNC AU) Australia N.R. 1,620 7.76 15.0 11.2 11.5 1.2 1.1 1.1 na na naSri-Trang Agro Industry (STA TB) Thailand NEUTRAL 1,125 26.75 7.0 8.7 8.2 2.5 2.5 2.1 na na naKernel Hdg (KER PW) Ukraine N.R. 2,043 78.00 10.8 8.9 8.4 2.9 2.3 1.9 9.9 7.9 7.5Cosan (CSAN3 BZ) Brazil N.R. 5,952 23.80 15.1 14.9 12.9 1.6 1.4 1.3 7.7 7.4 7.8Thai Vegetable Oil (TVO TB) Thailand BUY 663 26.25 13.5 10.8 9.6 3.3 2.9 2.6 12.5 9.1 8.1MIDSTREAM AVERAGE 12.6 10.2 9.2 1.8 1.6 1.4 11.2 9.0 8.3


12/37

Nomura | AEJ Glencore May 31, 2011

12

The marketing business

Our NPV (firm value) for Glencores marketing business is USD32bn and is included in

our NPV-based target price for Glencore. Our in-market SoTP valuation for the

marketing business suggests an enterprise value of USD31bn. We believe Glencores

marketing business should trade in line with or at a small discount to Noble group (our in-

market valuation assumes a 2011E EV/EBITDA multiple of 9.7x, in line with Noble). This

is because of Nobles greater exposure to agriculture, which tends to be less cyclical,

and to Nobles faster earnings growth, offset to some extent by Glencores higher returns

on capital employed (Please see a detailed comparison between the two businesses

later in this report).

Fig. 12: Marketing business valuation: NPV vs EV/EBITDA


The industrial business listed assets

Our NPV (equity value) for Glencores listed industrial assets is USD44bn while the

current market value for these assets is USD30bn. Glencores single largest listed asset

is its 35% stake in Xstrata. Xstrata remains our top pick in the mining sector with an NPV

target price of GBP 22/share. We believe Xstratas organic project pipeline remains

undervalued, with the market still sceptical on Xstratas execution capability. The

successful delivery of a suite of major projects in 2012 offers a re-rating catalyst for

Xstrata shares, in our view (see our report - Xstrata: Monetizing an undervalued project

portfolio, dated 14 April 2011).

Fig. 13: Listed industrial assets

Glencore's share of current market cap is used for our valuation for the minor listed stakes


EBITDA NPV Comments

Metals & Minerals 1,546 14,577 9.7x 15,045 Metals marketing earnings more cyclical

Energy 954 10,369 9.7x 9,282Agriculture 685 6,805 9.7x 6,661 Agricultural marketing earnings less cyclicalTotal 3,185 31,751 9.7x 30,989

EV/EBITDA

Multiple

In-Market

Value$mn

Listed Assets Stake %

Value in

model ($mn)

Market Cap

($m) Comment

Century Aluminium 44% 641 641 Included at market cap in both valuations

Recylex 32% 71 71 Included at market cap in both valuations

UC Rusal 9% 2,148 1,944 Included at Nomura price target (15.1 HKD/sh)

Xstrata 35% 37,076 23,383 Included at Nomura price target (22/sh)

Katanga Mining 74% 2,583 2,467 Included at NPV

Minara Resources 82% 1,574 753 Included at NPV

Nystar 8% 178 178 Included at market cap in both valuations

Volcan 4% 176 176 Included at market cap in both valuations

Biopetrol Industries 60% 28 28 Included at market cap in both valuations

Chemoil 52% 220 220 Included at market cap in both valuations

Polymet Mining (US) 6% 17 17 Included at market cap in both valuations

Total 44,712 29,878


13/37


13

The industrial business unlisted assets

Our NPV (firm value) for Glencores unlisted industrial assets is USD22bn while the

current in-market value for these assets is also USD22bn, assuming EV/EBITDA

valuation multiples in line with Xstrata. Once Glencore increases its stake in Kazzinc

from 51% to 93% (expected to complete later this year), Kazzinc will become Glencores

most valuable unlisted mining asset, on our estimates. We have included Kazzincs gold

assets at a valuation of USD5.2bn (based on peer group multiples for Russian gold

assets) in both our NPV and in-market valuation methodologies. This is because gold

assets tend to trade well above their NPVs and so we expect management to createvalue by spinning out the gold assets into a separate listed vehicle.

Fig. 14: Unlisted mining assets


NPV Comments

Copper (ex KAT) 1,001 4,632 4.2x 4,252 Xstrata multiple (last reported net debt)Zinc 1,258 3,401 4.2x 5,345 Xstrata multiple (last reported net debt)

Spun out gold 5,208* 5,208* Attributable 744 koz x $7,000/oz (Russian EV/produced oz average)Alumina 76 565 4.2x 322 Xstrata multiple (last reported net debt)Coal 738 3,842 4.2x 3,135 Xstrata multiple (last reported net debt)Oil & loans 0 3,620 3,485 oil-related loans: $2.9 bn, Guinean oil resources: $560 mn

Agriculture 96 523 4.2x 408 Xstrata multiple (last reported net debt)

Total 3,169 21,792 22,155*Management intend to spin out the goldstream of Kazzinc; thus we value it at an average EV / produced gold ounce of Russian gold miners

$mn

EV/EBITDA

Multiple

In-Market

Value

2011E Att

EBITDA


14/37


14

Earnings summary & sensitivityWe expect Glencore to deliver excellent earnings growth over the next two years,

buoyed by best-in-class organic growth from its managed operations as well as from

Xstrata. We forecast Glencores attributable EBITDA to grow by 63% in 2011 y-o-y and

by nearly 92% by 2012, from 2010 levels. We also expect capex levels to stay elevated

over the next several years as the group finances its best-in-class organic growth

platform.

Fig. 15: Glencore earnings summary

Note: Attributable EBITDA is Nomura estimate as it is not reported by the company.


We expect earnings from Xstrata to continue to be the largest portion of the groups

attributable EBITDA over the next several years. We expect marketing earnings will be

less volatile than industrial earnings.

Fig. 16: Attributable EBITDA by business division

Note: 2010 attributable EBITDA is Nomura estimate and not reported by the company.Source: Company data, Nomura estimates

Fig. 17: 2011E attribu table EBITDA by commodi ty segment

Industrial ex XTA includes copper, coal, zinc, nickel, and other

Note: 2011 attributable EBITDA is Nomura estimate and not reported by the

company.


$ mn 2010 2011E 2012E 2013E 2014E 2015E 2016E

Group revenue 144,978 198,108 224,543 215,161 214,769 207,305 205,628

Attributable EBITDA 8,126 13,231 15,573 14,542 13,698 12,549 11,320Glencore Reported EBITDA 6,201 11,664 14,104 13,538 13,256 12,443 11,554

Net Income 3,751 7,340 9,547 9,132 9,052 8,597 8,284

Undiluted EPS n/a 1.06 1.38 1.32 1.31 1.24 1.20Diluted EPS n/a 1.00 1.30 1.25 1.24 1.17 1.13

Capex 1,657 2,039 1,489 1,197 876 912 651

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2010 2011E 2012E 2013E 2014E 2015E

Mar ket ing Xs tr at a Indus tr ial ex Xs tr ata$mn

Marketing

24%

Xstrata45%

Industrial

ex Xstrata31%


15/37


15

Fig. 18: Earnings sensitivity to commodity pri ce changes


10% Change in Price of % Change in CY2011E EPS of

BHP Rio Xstrata Glencore Anglo Anto Kaz FQM ENRC Vedanta

Base metals:

Copper 3% 2% 7% 6% 5% 14% 9% 17% 0% 4%

Zinc 0% 0% 1% 2% 0% 0% 1% 0% 0% 2%

Nickel 1% 0% 1% 2% 1% 0% 0% 0% 0% 0%

Aluminum 1% 3% 0% 0% 0% 0% 1% 0% 3% 7%

Lead 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%Molybdenum 0% 0% 0% 0% 0% 1% 0% 0% 0% 0%

Ferrochrome 0% 0% 1% 0% 0% 0% 4% 0% 11% 0%

Manganese 1% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Bulks and oil:

Iron ore 6% 11% 0% 0% 4% 0% 2% 0% 7% 4%

Thermal Export Co 1% 1% 6% 3% 4% 0% 0% 0% 0% 0%

Met Coal 2% 1% 3% 1% 4% 0% 0% 0% 0% 0%

Oil 2% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Precious metals:

Gold 0% 0% 0% 1% 1% 0% 1% 2% 0% 0%

Platinum 0% 0% 0% 0% 2% 0% 0% 0% 0% 0%

Palladium 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Rhodium 0% 0% 0% 0% 1% 0% 0% 0% 0% 0%


16/37


16

Marketing: cyclical earnings, counter-cyclical cash flow

Although we expect earnings from Glencores marketing business to be less cyclical than

mining, its real attribute is counter-cyclical cash flow. As commodity prices fall,

Glencores working capital shrinks and this more than offsets any decrease in EBITDA.

We calculate that a 20% fall in commodity prices from our estimates would increase

operating cash flow by 40% or USD1.3bn in 2012. Alternatively, in a period of rising

commodity prices, more capital is tied up in working capital, so the inverse impact is felt.

We have assumed that working capital is roughly three-quarters of marketing capital

employed (readily marketable inventories averaged 72% of marketing capital employedbetween 2008 and 2010).

Fig. 19: Marketing segment 2012 sensit ivit y analysi s

Impact from across-the-board changes to our commodity price assumptions


Fig. 20: Glencore marketing EBITDA 2010 - 2014E


% -20% -10% +10% +20%

EBITDA -16% -8% 8% 16%

Operating cash flow 40% 20% -20% -40%

$mn -20% -10% +10% +20%

EBITDA -530 -265 265 530

Operating cash flow 1,281 641 -641 -1,281

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2011E 2012E 2013E 2014E

Metals & Minerals Energy Agriculture Other $mn


17/37


17

M&A: Xstrata merger unlikely for nowWe would be surprised to see Xstratas board recommend a nil-premium merger of

equals for as long as Glencore trades on a relative valuation premium. On our estimates,

Xstrata and Glencore trade on 2011 P/E multiples of 6.5x and 8.5x, respectively.

Equally, we are sceptical of the view that Glencore would be prepared to pay a

significant takeover premium for Xstrata, as Glencores M&A history is much more

opportunistic (eg, increasing its stake in Katanga during the global financial crisis). In

practice, we think that any potential merger between Xstrata and Glencore may bedifficult to consummate, for the same reason that Xstratas merger proposal to Anglo

American was never consummated one party is perceived as the target and wants a

full takeover premium, while the other party is not prepared to pay one.

Any potential merger between Xstrata and Glencore may run the risk of diluting the

marketing business (12% of combined 2011E EBITDA), to such an extent that the

market would simply de-rate the marketing earnings to a mining multiple. If no merger

agreement can be reached between the two parties, then we would expect Glencore to

eventually sell its stake in Xstrata as we see the current ownership structure as

unsustainable. With Glencore now armed with an acquisition currency, we see the

potential for increasing tension between the two companies who may end up bidding for

the same assets (eg, Drummond Coals Colombian operations).

Any synergies from a potential merger between Xstrata and Glencore would likely

originate from feeding Xstratas production volumes through Glencores marketing

business (as opposed to synergies at the asset level). Glencore is the exclusive

marketing agent for Xstrata alloys and takes an advisory fee on Xstratas coal exports

from Australia and South Africa. Glencore also distributes Xstratas nickel, cobalt and

ferronickel. The Relationship Agreement regulates the relationship between the two

parties, but we think the associated bureaucracy may actually hinder Glencores ability to

add value. If any potential marketing synergies are very large then we think they could

be realised by broadening the scope of current marketing agreements and terminating

the Relationship Agreement by selling the stake in Xstrata.

Fig. 21: XTA-GLEN NewCo 2011E attr ibu table EBITDA

Glencore's marketing business could potentially be de-rated as part of NewCo


Copper40%

Zinc11%

Nickel6%

Coal

25%

Marketing12%

Other6%


18/37


18

Marketing divisionGlencores marketing business is a supply-chain management business rather than a

proprietary commodities trading business. This flow business produces high-quality

earnings that are not purely dependent on the direction of commodity prices. Profitability

is enhanced through three key arbitrage strategies: geographical (regional price

differentials), product (price differentials between grades, and blends, among others) and

timing (price differentials across different delivery dates). Glencores business model

benefits from high barriers to entry, such as its global logistics network, financing and

risk management skills, and long-term supplier/customer relationships.

Although Glencore will sometimes take proprietary positions on the direction of

commodity prices, we believe that this normally accounts for less than 10% of earnings

from the marketing division. However, this percentage is not disclosed by Glencore.

Recent press comments suggest a growing interest by politicians and regulators in the

influence of commodity price speculators on commodity prices. However, we think this is

unlikely to have a large impact on Glencores core logistics business. With the possible

exception of cobalt, Figure 27 shows that Glencores total market shares, which we think

are more relevant to global commodity markets than addressable market shares, are

not particularly dominant. In addition, as we believe Glencore only controls around 16%

of its marketing volumes via its own production, we think it would be difficult to prove that

Glencore was the price setter in these markets (price is set by supply and demand).However, any proprietary-based earnings may be more at risk from greater regulation,

while the potential for greater regulation and disclosure on inventories held in

warehouses owned by Glencore and other commodity traders could also reduce the

profitability of arbitrage strategies related to time differences (ie, carry trades).

Fig. 22: Commodi ty value chain

Glencore plays a part at every step of the value chain


Extraction Consumers

Inputs processed Inlandfrom own production & storage & Shipped Warehouse Delivered to final consumers

3rd party sources logistics

Pu rchase: $12/MT + Fr eight : $22/MT + Ren t: $4/MT + Frei gh t: $20/MTInsurance/financing over 30 day period:$15/MT

Marketing/Distribution

Profit: $27/MTSale:$100/MT


19/37


19

Noble-Glencore: a closer comparison

We believe that Glencores marketing division should trade in line with or at a modest

discount to Noble group. This is because of Nobles greater exposure to agriculture,

which tends to be less cyclical, and to Nobles faster earnings growth, offset to some

extent by Glencores higher returns on capital employed.

Earnings mix: How much is supply-chain (marketing) versus upstream?

The key difference between Noble and Glencore is the break-up of their earnings mix.

Glencores earnings are mostly driven by its upstream assets (which comprise its stakesin various mines and listed entities such as Xstrata), whereas Noble is still primarily a

trader, evolving gradually into an asset manager. We estimate that for FY11, Nobles mix

would be ~17% upstream (ie, asset-based) as compared with Glencores 73%. Please

note that we are including Nobles midstream businesses with supply chain as they have

an element of processing value addition in them, and as a result earnings from that

segment are not significantly correlated to commodity prices.

Fig. 23: Noble: earnings mix

Note: Noble does not disclose earnings mix by function; these are based on

our estimates.


Fig. 24: Glencore: earnings mix


Fig. 25: Noble marketing : earnings mix


Fig. 26: Glencore marketing: earnings mix


12% 13% 17% 17%

88% 87% 83% 83%

0%

20%

40%

60%

80%

100%

FY09 FY10 FY11F FY12F

Noble Industr ial Noble Market ing

59% 62% 73% 76%

41% 38% 27% 24%

0%

20%

40%

60%

80%

100%

FY09 FY10 FY11F FY12F

Glencore Industrial Glencore Marketing

0

500

1,000

1,500

2,000

2,500

FY09 FY10 FY11E FY12E

Agr icu lture Energy Metals & Min erals$mn

-1,000

0

1,000

2,000

3,000

4,000

FY09 FY10 FY11E FY12E

Agri cul ture Energy Metals & Minerals Other


20/37


20

Glencores scale and market shares are much larger than Nobles in metals,

energy; Noble dominates agriculture trading

Glencore and Noble have three operating segments in common: metals and minerals,

energy, and agriculture. (Noble historically reported a fourth logistics segment, which it

merged with the other three from 1QFY11.) Glencore offers much greater scale and

scope than Noble, with Glencores marketing volumes (and market share) for most

commodities (except agriculture) materially higher than Noble's.

Fig. 27: Glencore and Noble: relative presence

Note: Nobles volumes are not consolidated. Noble does not disclose volumes by commodity.


FY10 vo lumes (mn mT) Unit Glenco re

Glencore

approximate

addressable

market share

Glencore

total

market

share

Noble Comment

Metals and minerals mt 20.5 22.1

Noble is much larger in iron or e, iron related alloys and

aluminium. However its presence in other commodities

is very small

Zinc metal mt 1.7 60% 13%

Zinc concentrates mt 2.4 50% 10%

Copper metal mt 1.4 50% 7%

Copper concentrates mt 1.8 30% 4%

Lead metal mt 0.3 45% 3%

Lead concentrates mt 0.6 45% 10%

Alumina mt 6.7 38% 8%

Aluminium mt 3.9 22% 9%

Nickel kt 200.0 14% 14%

Cobalt kt 18.0 23% 23%

Ferrochrome mt 1.5 16% 16%

Energy products mt 226 (ex-oil) 85.2Noble and Glencore deal in similar commodities,

however Noble has much sm aller scale.

Oil mbpd 2.5 3% 3%

Thermal coal mt 196 28% 4%

Met coal mt 30 12% 4%

Agri cultural products mt 27.0 23.1

Noble has a larger presence in oils eeds and

sugarcane, but a smaller presence in grains. Noble is

- One of the top 5 oilseed crushers in Argentina

- One of the top 5 sugarcane crus hers in Brazil

- A large trader of co ffee and cocoa

- One of the top 5 oils eed crushers in China

Grains mt 19 9% 1%

Oils and oilseeds mt 8 4% 1%


21/37


21

Glencores supply chain business is much more focused on metals and minerals,

in contrast to Noble's growth in agricultu re and energy

For Glencore, roughly 55% of the total supply chain earnings correspond to the metals

and minerals segment, compared with 23% (Nomura estimate) in metals for Nobles

midstream and supply chain earnings combined. Agriculture and energy occupy a much

smaller share of earnings for Glencore at 19% and 26%, respectively. Nobles dominant

exposure is agriculture, which accounts for over half of earnings (midstream+supply

chain), which is generally less cyclical owing to its relative price inelasticity. This

suggests that Glencores earnings growth may face greater headwinds as metals prices

eventually return to mid-cycle levels.

Fig. 28: Noble 2010 marketing earnings mix


Fig. 29: Glencore 2010 marketing earnings mix


Fig. 30: Glencore marketing summary


Agr ic ul tu re54%

Energy23%

Metals &Minerals

23% Agr ic ul tu re26%

Energy19%

Metals &Minerals

55%

$mn 2010 2011E 2012E 2013E 2014E 2015E

Total Revenue 133,977 182,810 206,745 197,635 197,242 190,410

growth % 37% 36% 13% -4% 0% -3%

EBITDA

Metals 1,401 1,546 1,572 1,512 1,533 1,543Energy 470 954 1,133 1,082 1,066 1,007

Agriculture 659 685 646 612 680 721

Other -163 0 0 0 0 0

Total 2,367 3,185 3,351 3,206 3,279 3,271

EBITDA margin % 1.8% 1.7% 1.6% 1.6% 1.7% 1.7%

Total EBIT 2,337 3,175 3,351 3,206 3,279 3,271

Capital employed

Metals 9,304 10,103 9,842 9,183 8,972 8,839

Energy 4,522 5,864 6,460 5,994 5,729 5,371

Agriculture 3,958 4,676 4,568 4,471 4,711 4,853

Other 275 0 0 0 0 0

Total 18,059 20,642 20,870 19,648 19,412 19,062

EBIT ROCE 12.9% 15.4% 16.1% 16.3% 16.9% 17.2%

Marketing NPV Summary

Metal s & Mi neral s 14,577

Energy 10,369

Agri cul tur e 6,805

Total Marketing 31,751


22/37


22

Industrial divisionExcluding Xstrata, we estimate an attributable copper equivalent CAGR for Glencore of

7.5% over 2011-2015E compared with an average of 5.2% for the diversified miners.

Glencores high growth is partly offset by higher geographical risk and a higher cost

profile, with average costs mostly in the third quartile of industry cost curves.

Fig. 31: Big 5 copper equivalent organic growth

Investing during the downturn gives Glencore organic growth ahead of its peers

Glencore boasts the most impressivegrowth profile of the diversified

miners.

Katanga is expected to expand to

308ktpa copper in 2015 from 58ktpa

in 2010. The greenfield Mutanda

project is set to come online in 2011

and ramp up to 103ktpa copper and

23ktpa cobalt by 2012.

Prodeco is set to ramp up from

around 10mtpa thermal coal

production in 2010 to 21mtpa by

2015.

The Alen and Aseng Guinean oil

projects are due to come online in

2014 and 2012, respectively, and

achieve peak production of 75kbpd in

2014.


Although Glencores managed industrial assets offer the best growth profile among the

major diversified miners, their relative cost position is less attractive. Glencores assets

sit mostly in the third quartile of industry cash costs, but the relative positions of copper

and coal should improve with the commissioning of Mutanda and the ramp up of

Prodeco. The other diversified miners have a much greater concentration of assets in the

first and second quartiles. Also, Glencores strategy of targeting return on equity means

that owning low-cost assets is not as crucial as attaining assets at a cheap valuation to

achieve high returns on equity.

100

110

120

130

140

150

160

170

2010 2011E 2012E 2013E 2014E 2015E

AAL BHP XTA RIO GLEN Industr ial


23/37


23

Fig. 32: Glencore generic 2011 cost cu rve positi on for managed operations

Cost curve positions are approximate

We estimate the groups average coal cost to be mid-

third quartile, but the division should move down the

cost curve as Prodeco ramps up.

Alumina and nickel both reside in the mid third-quartile

of industry cash costs

Glencores copper assets occupy the fourth quartile of

the cost curve, on average, although they have scope

to reduce unit costs as production ramps up. Kamoto,

Nkana and Mufulira are high-cost mines. Mutanda

enjoys significant cobalt by-products that help it

achieve a first-quartile position.

Source: Brook Hunt, AME, company data, Nomura estimates

Fig. 33: Glencore indust rial EBITDA (attribu table)

Associates are included on an attributable basis (35% of Xstrata's EBITDA)


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2011E 2012E 2013E 2014E 2015E

Metals & Minerals Energy

Agr icul ture Corporate (inc associates)$ mn


24/37

24

Fig. 34: Glencore managed indus trial operations

Source: Brook Hunt, AME, company data, Nomura estimates

$mn Country Stake Unit C1 Qua

Copper 2011 2015 Gross Net

Katanga DRC 74% Mined Copper kt 121 308 902 245 c/lb 182 c/lb

Cobalt kt 5 15

Mopani Zambia 73% Mined Copper kt 101 134 635 276 c/lb 241 c/lb

Copper Metal kt 236 242

Cobalt kt 2 2

Mutanda DRC 40% Mined Copper kt 41 103 460 260 c/lb 33 c/lb Cobalt kt 6 23

Cobar Australia 100% Mined Copper kt 63 102 140 135 c/lb 135 c/lb

Pasar Smelting Philippines 78% Copper Metal kt 183 183 n/a n/aZinc

Los Quenuales Peru 97% Mined Zinc kt 119 119 0 92 c/lb 37 c/lb

Mined Lead kt 24 24

AR Zinc Argentina 100% Mined Zinc kt 44 44 0 83 c/lb 54 c/lb

Mined Lead kt 14 14Sinchi Wayra Bolivia 100% Mined Zinc kt 103 103 0 80 c/lb 49 c/lb

Mined Lead kt 8 8

Kazzinc Kazakhistan 94% Mined Zinc kt 260 183 0 n/a n/a

Mined Lead kt 42 34

Mined Copper kt 45 20

Mined Gold koz 620 599

Mined Silver koz 6 3Portovesme Smelting Italy 100% Zinc Metal kt 108 126 0 n/a n/a

Lead Metal kt 0 0

Nickel

Murrin Murrin Australia 82% Nickel kt 28 39 0 $7.5 /lb $5.9 /lb

Cobalt kt 3 3Aluminium

Columbia Falls United States 100% Aluminium ktSherwin Alumina United States 100% Alumina mt 1.4 1.4 0 $306/t $306/t

Coal & Coke

Prodeco Colombia 100% mt 12 19 1,104 $63/t $63/t

Shaduka Coal South Africa 70% mt 13 13 0 $46/t $46/t Oil & Gas

Aseng & Alen Guinea 24%, 25% kbpd 0 68 705 $12/boe $12/boeAgr icul ture

Moreno Argentina 100% Sunflower oil mt 1.3 1.3 0 $1,758/t $1,758/t

Total

*Management intend to spin out the goldstream of Kazzinc; thus we value it at an average EV / produced gold ounce of Russian gold miners

Growth Capex 2011E Cash costsProduction


25/37

25

Zinc

The groups largest zinc asset is Kazzinc, which operates a fully integrated zinc business

in Kazakhstan.

Glencore owns 51% of Kazzinc and expects to increase its ownership to 93% with

USD2.2bn in cash from the IPO proceeds and USD1bn in issued share capital, for a total

consideration of USD3.2bn. Glencore also possesses options to increase its stake to

99.4%.

Kazzinc produces around 300ktpa of zinc metal (which includes between 200ktpa and

250ktpa mined zinc production, topped off with purchased concentrate). It also producesaround 40ktpa mined lead and around 30ktpa mined copper. Mined gold production is

set to increase from around 326koz in 2010 to 636koz in 2014 with the ramp-up of the

greenfield Vasilkovskoye gold mine. Management has indicated that it intends to list the

goldstream via an IPO (totalling around 800koz refined gold output). Based on a Russian

gold producers average of EV/produced ounce of USD7,000, the spun-off Altyntau Gold

would be valued at around USD5.2bn. This appears to be a positive strategy for the

assets, in our view, as gold operations normally fetch a multiple to NPV in the market

and tend to be de-rated within a diversified mining structure.

Glencore owns and manages four major operations in zinc across South America and

Kazakhstan. In South America, Glencore owns 97% of Los Quenuales, which owns and

operates the Yauliyacu and Isyacruz zinc mines in Peru. Together, they produce around

120ktpa of zinc, 24ktpa of lead, and around 3.5moz of silver. Glencore also owns SinchiWayra, which operates five Bolivian zinc mines that produce around 100ktpa of zinc,

7ktpa of lead and around 2.5moz of silver. Lastly, the group also operates AR Zinc

(Aguilar) in Argentina, which produces around 40ktpa of zinc, 14ktpa of lead and around

1moz of silver.

Copper

Glencores copper operations lie predominantly in the Copperbelt along the border of

Zambia and the Democratic Republic of Congo (DRC).

The largest and most notable of these is Glencores 74.4% owned, publicly-listed

subsidiary, Katanga Mining, which is 75% owner of the Kamoto-KOV copper complex

(DRC state mining company, Gecamines owns the other 25%). Located in the Katanga

province of the DRC, KCCs copper production is expected to ramp up from 58ktpa in

2010 to more than 300ktpa by 2015. The operation is also expected to delivery cobalt

production of 15ktpa by 2015 (from 3ktpa in 2010). The current Katanga Mining was

created out of the merger of Nikanor and Katanga Mining, in both of which Glencore held

a stake.

Also in the DRC, Glencore owns a 40% stake in and is operator of the Mutanda copper-

cobalt project. The project will eventually ramp up through several stages to 104ktpa by

2013. Cobalt production will reach 23ktpa by 2013. The adjacent Kansuki deposit is

expected to deliver a 100ktpa copper project. Glencore management expects synergies

between Kansuki and Mutanda and is expediting the project.

Across the Zambian-Congolese border lies Glencores third Central African copperinvestment, Mopani Copper Mines. The group owns 73.1% of the complex, which

includes the Nkana and Mufulira mines. Together, the two produce around 100ktpa

mined copper and around 2ktpa mined cobalt. Mopani is to deliver total metal production

of around 240ktpa through both own mined production and tolled concentrate from

Mutanda and Katanga.

Lastly, Glencore is 100% owner and operator of the Cobar copper mine in New South

Wales, Australia. Cobar produces around 90ktpa copper-in-concentrate. The

construction of a hoisting shaft extension (USD139m capex) to increase production by

around 30ktpa copper-in-concentrate by 2013 is in the final stages of the feasibility

study.


26/37

26

Nickel and alumina

Glencore possesses an effective 82% holding in the Murrin Murrin integrated nickel-

cobalt operation in Western Australia through a 71% stake in Minara Resources and a

40% ownership in Murrin Murrin (Minara owns the other 60%). The laterite nickel

operation utilises high-pressure acid leaching technology for extraction. Murrin Murrin

produces around 36ktpa nickel and around 3ktpa cobalt. Murrin Murrin occupies the third

quartile of the 2011 Brook Hunt nickel cost curve.

Glencore is 100% owner and operator of the Sherwin Alumina refinery located in Corpus

Christi, Texas, US. It has refining capacity of 1.6mtpa, but has averaged around 1.3mtpaproduction since 2008 (average capacity utilisation of around 81%). Sherwin utilises

natural gas for power, which has helped contain costs. The refinery occupies the third

quartile of the 2011 Brook Hunt alumina cost curve.

Fig. 35: Industr ial metals & minerals segment summary

Mined production includes by-products

Source: Brook Hunt, company data, Nomura estimates

$mn 2011E 2012E 2013E 2014E 2015E

Consolidated production

Copper (kt) 372 391 540 615 679

Cobalt (kt) 16 31 38 46 43

Zinc (kt) 525 471 518 508 448

Lead (kt) 88 97 97 90 79

Gold (koz) 620 542 614 636 599

Silver (koz) 12,634 11,956 11,798 11,564 10,083

Nickel (kt) 28 36 37 38 39

Alumina (kt) 1,400 1,400 1,400 1,400 1,400

Revenue 10,741 12,019 11,647 11,462 11,350

Costs 6,777 7,524 7,373 7,195 7,198

EBITDA 3,964 4,495 4,274 4,268 4,152

Copper 2,222 2,625 2,717 2,886 2,907

Zinc 1,330 1,407 1,152 1,050 909

Nickel 336 375 316 251 256

Aluminium 76 88 88 80 80

EBITDA margin % 36.9% 37.4% 36.7% 37.2% 36.6%

Depreciation 1,103 1,044 872 716 736

EBIT 2,862 3,451 3,402 3,552 3,416

Capex by operation 1,422 1,074 958 648 734

Capex by type 1,422 1,074 958 648 734

Sustaining 527 554 470 433 505

Expansionary 895 520 488 215 229

Total NPV 16,998

Total attributable NPV 17,963


27/37

27

Energy

Glencore is developing two key organic growth projects in the energy division.

The first of these is the brownfield expansion of Prodeco in Colombia. This thermal coal

operation is scheduled to expand from 10mtpa in 2010 to 21mtpa by 2015. Glencore

exercised its call option on Prodeco from Xstrata in early 2010 after selling it to Xstrata

as part of Xstratas rights issue in early 2009. Glencores second coal asset is Shanduka,

located in South Africa, which has production capacity of 13mtpa of thermal coal. Around

two-thirds of Shandukas production is sold to Eskom and one-third is sold on the

seaborne market through Richards Bay Coal Terminal.Glencores second major project in the energy division are the Guinean oil blocks Alen

(25% ownership) and Aseng (24% ownership). These two operations are due to achieve

first oil in 2014 and 2012 respectively, reaching peak production of around 75kbpd in

2014 on a consolidated basis. Glencore also holds interests in a number of exploration

blocks in the vicinity of Alen and Aseng.

Fig. 36: Industr ial Energy segment summary

Source: Noble Energy, AME, company data, Nomura estimates

$mn 2011E 2012E 2013E 2014E 2015E

Consolidated production

Coal (kt) 25,480 27,080 28,920 31,270 31,630

Oil & Gas (mboe pa) 0 18 18 21 25

Revenue 2,175 3,397 3,498 3,683 3,163

Coal & Coke 2,175 2,890 3,151 3,285 2,703

Oil & Gas 0 506 347 399 460

Costs 1,388 1,712 1,724 1,809 1,790

Coal & Coke 1,388 1,656 1,671 1,748 1,719

Oil & Gas 0 56 53 61 70

EBITDA 787 1,684 1,774 1,875 1,373

Coal & Coke 787 1,234 1,480 1,537 984

Oil & Gas 0 450 294 338 389

EBITDA margin % 36.2% 49.6% 50.7% 50.9% 43.4%

Depreciation 225 303 311 314 303

Coal & Coke 225 249 257 252 232

Oil & Gas 0 54 54 62 71

EBIT 562 1,381 1,463 1,561 1,070

Coal & Coke 562 985 1,223 1,285 752

Oil & Gas 0 397 240 276 318

Capex by operation 598 395 219 208 158

Coal & Coke 598 278 102 138 135

Oil & Gas 0 118 118 71 24

Capex by type 598 395 219 208 158

Sustaining 34 39 38 55 58

Expansionary 564 356 181 153 100

Total NPV 7,667

Total attributable NPV 7,463


28/37

28

Agriculture

Glencores main agricultural industrial asset is the Moreno sunflower oil plant. It has

annual production capacity of around 1.9mtpa and has average capacity utilisation over

the past three years of 66%. Glencore also holds various stakes in wheat and rice mills,

farms, and sugar-processing facilities.

Fig. 37: Industrial Agriculture segment summary


$mn 2011E 2012E 2013E 2014E 2015E

Revenue 2,382 2,382 2,382 2,382 2,382

EBITDA 96 96 96 96 96

EBITDA margin 4.0% 4.0% 4.0% 4.0% 4.0%

Depreciation 40 40 40 40 40

EBIT 56 56 56 56 56

Capex 20 20 20 20 20

Total NPV 523

Total attributable NPV 523


29/37

29

Glencore f inancial summary

Fig. 38: Glencore summary sheet


Target Pr ice (HK$) 70.40

$ mn 2010 2011E 2012E 2013E 2014E 2015E 2016E

Commodity pricesZinc ($/tonne) 2,158 2,200 2,200 2,250 2,300 2,100 2,100

Copper ($/tonne) 7,536 11,023 10,582 7,937 7,165 6,614 6,063

Nickel ($/tonne) 21,795 25,000 22,509 21,010 18,739 18,739 18,739Gold ($troy ounce) 1,225 1,400 1,300 1,150 1,000 950 950

Colombian Thermal Coal FOB ($/t) 75 122 153 153 135 108 85

Industrial - Zinc (inc Altyntau)

Mined zinc production (kt) 462 525 471 518 508 448 493Revenue 2,756 3,323 4,048 3,995 3,733 3,547 3,481

Costs 1,716 1,994 2,641 2,842 2,683 2,638 2,389

EBITDA 1,040 1,330 1,407 1,152 1,050 909 1,091

Industrial - Copper (inc Katanga)

Mined copper production (kt) 215 326 361 509 585 660 652

Mined cobalt production (kt) 4 13 28 35 43 40 40

Revenue 3,431 6,114 6,561 6,295 6,448 6,503 5,896

Costs 2,831 3,892 3,936 3,578 3,562 3,597 3,464

EBITDA 600 2,222 2,625 2,717 2,886 2,907 2,432

Industrial - Coal

Mined coal production (kt) 19,052 25,480 27,080 28,920 31,270 31,630 33,700

Revenue 1,246 2,175 2,890 3,151 3,285 2,703 2,363

Costs 921 1,388 1,656 1,671 1,748 1,719 1,750

EBITDA 325 787 1,234 1,480 1,537 984 613

Industrial - Other

Share of Xstrata EBITDA (as reported) 1,500 3,573 4,402 4,113 3,664 3,476 3,251

Other industrial EBITDA 369 566 1,085 870 840 897 853Total Industrial EBITDA 3,834 8,479 10,753 10,332 9,978 9,172 8,240

Marketing

Revenue 133,977 182,810 206,745 197,635 197,242 190,410 189,786Growth y-o-y 37% 36% 13% -4% 0% -3% 0%

EBITDA 2,367 3,185 3,351 3,206 3,279 3,271 3,314EBITDA margin 1.8% 1.7% 1.6% 1.6% 1.7% 1.7% 1.7%

Capital Employed 18,059 20,642 20,870 19,648 19,412 19,062 18,943Growth in Capital Employed 12.4% 14.3% 1.1% -5.9% -1.2% -1.8% -0.6%

EBIT Return on Capital Employed 12.9% 15.4% 16.1% 16.3% 16.9% 17.2% 17.5%

Glenc ore Rep ort ed EBITDA 6,201 11,664 14,104 13,538 13,256 12,443 11,554

Net Income 3,751 7,340 9,547 9,132 9,052 8,597 8,284Diluted EPS n/a 1.00 1.30 1.25 1.24 1.17 1.13

Net Debt 29,087 20,234 19,237 14,000 9,319 4,132 -410Net Debt/EBITDA 4.7x 1.7x 1.4x 1.0x 0.7x 0.3x 0.0x

Capex 1,657 2,039 1,489 1,197 876 912 651

Total attributable firm NPV ($mn) 98,255

10% Discounted f i rm NPV ($mn) 88,429Net Debt Q4 2010 ($mn) 29,087

Primary issuance ($mn) 7,900

Cost of 42% Kazzinc Stake ($mn) 3,200 NPV of firm 98,255

Less Proforma Net Deb t ($mn) 24,387 Marketing 31,751

Convertible debt ($mn) 2,132 Industrial 66,504NPV of Equity ($mn) 66,174 Xstrata 37,076

NPV per diluted share (GBp) 558 UC Rusal 2,148

Current share price (GBp) 522 Minor listed stakes 1,332Target Price (GBp) 550 Other industrial 25,949


30/37

30

Xstrata financial summary

Fig. 39: Xstrata summary sheet


$ mn 2010 2011E 2012E 2013E 2014E 2015E 2016E

Coal

Shipments (Mt)

Hard coking coal 8 8 8 8 8 8 8

Semi Soft Coking coal 7 7 8 9 9 9 9

Export Thermal Coal 54 59 66 81 81 81 81

Domestic Coal 13 14 15 16 16 16 16

Prices ($/tonne)

Hard coking coal 206 279 260 230 190 160 160

Semi Soft Coking coal 137 199 186 164 136 114 114

Export Thermal Coal 83 124 159 159 142 114 92

Revenue 7,788 11,830 15,195 17,520 15,421 12,613 10,681

Total Operating Costs 4,727 6,186 6,862 8,035 7,747 7,324 6,989

per Tonne

Coking coal 92 107 107 104 99 95 95

Thermal coal 49 56 56 56 54 52 50

EBITDA 3,061 5,644 8,333 9,485 7,674 5,289 3,692

Copper

Mined Production (kt) 913 978 1,083 1,204 1,282 1,363 1,545

Copper Price ($/tonne) 7,536 11,023 10,582 7,937 7,165 6,614 6,063Revenue 14,004 19,426 20,242 15,851 14,637 16,300 16,156

Cost of production 8,952 10,485 10,692 8,851 8,316 8,815 8,731

EBITDA 4,693 8,940 9,537 6,958 6,341 7,595 7,613

Nickel

Mined Production (Kt) 61 80 91 121 151 153 157

Nickel Price ($/lb) 9.89 11.34 10.21 9.53 8.50 8.50 8.50

Revenue 2,738 3,212 3,107 3,439 3,606 3,606 3,661

Operating Costs 1,765 1,920 1,919 1,993 2,043 2,051 2,094

EBITDA 973 1,292 1,187 1,447 1,562 1,555 1,566

Other segment EBITDA

Zinc 1,327 1,614 1,618 1,343 1,298 1,035 1,028

Ferrochrome 337 810 987 879 775 780 780

Other (2) 308 368 396 422 421 420

Xstrata Consolidated EBITDA 10,386 18,608 22,031 20,509 18,072 16,675 15,100

Net Income 5,152 10,387 12,795 11,956 10,651 10,104 9,449

Diluted EPS 1.74 3.48 4.28 4.00 3.56 3.38 3.16

Net Debt 7,750 3,538 (4,900) (15,494) (25,778) (36,388) (46,370)

Net debt/EBITDA 0.7x 0.2x -0.2x -0.8x -1.4x -2.2x -3.1x

Capex 6,117 7,041 6,337 4,180 3,447 2,457 2,447

Total attributable firm NPV 93,493

Less net debt 7,750

NPV of equity ($ mn) 85,743 NPV of firm: breakup 93,493

NPV per share (GBp) 1,806 Coal 30,091

Value of growth options (GBp) 440 Copper 41,042

Total NPV per share (Gbp) 2,247 Nickel 7,393

Share Price (GBp) 1,391 Zinc 7,308Target Price (GBp) 2,200 Other 7,658


31/37

31

Appendix

Share lockups, indexation, and key management

Fig. 40: Share lockups


Fig. 41: Indexation


Share lockup arrangementsLockup duration

on all shares

Board and Staggered lockupsexecutive directors Both sales and hedging transactions prohibitedFour year Includes all commodity department headslocked-up Staggered lockupsmanagers Both sales and hedging transactions prohibitedTwo years locked-up Staggered lockupsmanagers Both sales and hedging transactions prohibitedOther existingshareholders

Glencore 180 days

Further primary issuance by Glencore prohibited (excluding employee shareoption programme awards in the ordinary course, issuances of shares with anaggregate value of up to $1bn to fund an acquisition, merger or takeover, andother customary carve-outs)

Cornerstone

investors

Kazzinc minori ty

Non-cash consideration to be issued in accordance with planned acquisition ofKazzinc stake (42.3%)

investors Lockup duration starting from completion of transactionConvertiblebondholders

5 years

Lock up overview

4 years

2 years

360 days Both sales and hedging transactions prohibited

180 days Lockup from admission, subject to certain customary exceptions

180 days

90 daysBonds converted into shares after the IPO are restricted from sale until 90 dayspost listing

IndexationFTSE

Fast entry to FTSE 100 and FTSE All-world indices on close of business of first day ofunconditional trading

Immediately post IPO, Glencore's index investability weighting will be 12%

FTSE will consult with market practitioners on the appropriate approach for future weighting

changes as the free float increases to more closely reflect the availability of sharesClassification under Basic Material industry, Basic Resource super sector, Mining sector andGeneral Mining subsector

MSCIEarly inclusion into the Large Cap segment of the MSCI Global Standard Indices on an

accelerated basis (expected to become effective on 1 June 2011)Foreign Inclusion Factor (index free float weight) will be 12%

Global Industry Classification Standard (GICS) is Diversified Metals & Mining

STOXX

Review for fast-track addition to STOXX 'blue chip' indices at next quarterly review (Sept. 2011)

Eligibility for inclusion anticipated after increase in free-float


32/37

32

Fig. 42: Key management


Glencore Board of Directors and management team

Simon Murray Aged 71

Independent Non Executive Chairman of GEMS

Executive Chairman Board member of Richemont and Essar EnergyExecutive Directors

Ivan Glasenberg Aged 53

CEO BoD Member since 2002CEO of Glencore since 200227 years with Glencore

Steven Kalmin Aged 40CFO CFO of Glencore since 2005

12 years with GlencoreIndependent Non Executiv e Directors

Aged 53Former CEO of BPBoard member of TNK-BP and partner of AEA Investors

Aged 6540 years of experience in the resource industryMember of the Boards of Santos and Amalgamated Holdings

Aged 48CEO of RHJ International and former CEO of WintherthurMember of the Boards of Julius Baer Gruppe, AXA Konzern and Arecon

Aged 65Chairman and CEO of First Reserve

Chairman of Dresser-RandAged 54Executive Director of Henderson Land Development CompanyDirector of Hong Kong (Ferry) Holdings

Peter Coates

Leonhard Fischer

William Macaulay

Li Ning

Anthony Hayw ard


33/37

33

Appendix A-1

Analyst Cert ificat ion

We, Tanuj Shori, Paul Cliff and Patrick Jones, hereby certify (1) that the views expressed in this Research report accurately

reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of

our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this

Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by

Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory DisclosuresMentioned companies

Issuer name Ticker Price Price date Stock rating Sector rating Disclosures

Glencore 805 HK 67.40 HKD 30-May-2011 Neutral Not rated 49

Xstrata plc XTA LN 1424 27-May-2011 Buy Bullish

Disclosures required in the U.S.

49 Possible IB related compensation in the next 3 monthsNomura Securities International, Inc. and/or its affiliates expects to receive or intends to seek compensation for investment banking

services from the company in the next three months.

Previous Rating

Issuer name Previous Rating Date of change

Glencore Not rated 30-May-2011

Xstrata plc Rating Suspended 20-Oct-2009

Glencore (805 HK) 67.40 (30-May-2011)Chart Not Available

Valuation Methodology Our HKD70.40 price target is based on SoTP of net present values, discounted back to the lastreporting period (FY10). We utilise different WACCs for different segments of the business to account for different geopolitical

risks in the various locales (eg different WACCs for Katanga and agricultural marketing). We take a 10% discount fromenterprise value to account for the difficulties encountered by companies that derive significant proportions of their value fromeither non-controlling stakes in other companies (eg Glencores interest in Xstrata) and from disparate businesses (productionand marketing).

Risks that may impede the achievement of the target priceGlencore is exposed to commodity price risk, particularly copper,coal, and zinc. It is also exposed to operational and geopolitical risk in both its mining and marketing business. The marketingbusiness is exposed to counterparty risk.


34/37

34

Xstrata plc (XTA LN) 1424 (27-May-2011)Rating and target price chart (three year history)

Buy (Sector rating: Bullish)

Date Rating Target price Closing price

09-Jan-2011 2200.00 1500.50

06-Jan-2011 1800.00 1515.00

10-Sep-2010 1700.00 1135.50

02-Mar-2010 1500.00 1098.00

04-Dec-2009 1400.00 1066.00

20-Oct-2009 1300.00 1002.00

20-Oct-2009 BUY 1002.00

23-Jul-2009 SUSPENDED 778.90

28-Apr-2009 770.00 563.50

11-Mar-2009 630.00 346.25

22-Jan-2009 1630.00 408.71

17-Nov-2008 1350.00 496.17

17-Nov-2008 BUY 496.17

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our 2200p target price is based on DCF valuation (WACC=8.5%, terminal growth 0%). We discountback to the latest reporting period (FY 10). The benchmark index for this stock is the FTSE 350 Mining Index.

Risks that may impede the achievement of the target priceXstrata is exposed to commodity price risk (especially coal,copper, chrome, nickel and zinc), various operational risks common to all mining companies, and political risks in different partsof the world.


35/37

35

Important DisclosuresOnline availability of research and additional con flict-of-interest disclosuresNomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG andTHOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS andBLOOMBERG.Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/researchorrequested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please [email protected] technical assistance.The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities.Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for thesales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content ofresearch reports in which their names appear.Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarilyresponsible for marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may alsocontribute to research reports in which their names appear and publish research on their sector.Distribution of ratings (US)The distribution of all ratings published by Nomura US Equity Research is as follows:38% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 4% of companies with thisrating are investment banking clients of the Nomura Group*.55% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 1% of companies with thisrating are investment banking clients of the Nomura Group*.7% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with this

rating are investment banking clients of the Nomura Group*.

As at 31 March 2011.*The Nomura Group as defined in the Disclaimer section at the end of this report.Distribution of ratings (Global)The distribution of all ratings published by Nomura Global Equity Research is as follows:49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with thisrating are investment banking clients of the Nomura Group*.40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies withthis rating are investment banking clients of the Nomura Group*.11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies withthis rating are investment banking clients of the Nomura Group*.

As at 31 March 2011.*The Nomura Group as defined in the Disclaimer section at the end of this report.Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America forratings published from 27 October 2008The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.

Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited managementdiscretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriatevaluation methodology such as discounted cash flow or multiple analysis, etc.STOCKS

A rating of 'Buy',indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months.A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months.A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulationsand/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transactioninvolving the company.Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks(accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-

As ia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.SECTORS

A 'Bullish'stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.A 'Neutral'stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months.A 'Bearish'stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months.Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI EmergingMarkets ex-Asia.Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan publi shed from30 October 2008 and in Japan from 6 January 2009STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc.

A 'Buy'recommendation indicates that potential upside is 15% or more.

A 'Neutral'recommendation indicates that potential upside is less than 15% or downside is less than 5%.


36/37

36

A 'Reduce'recommendation indicates that potential downside is 5% or more.A rating of 'Suspended'indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/orfirm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving thesubject company.Securities and/or companies that are labelled as 'Not rated'or shown as 'No rating'are not in regular research coverage of the Nomura entityidentified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/orcompanies.SECTORS

A 'Bullish'rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation.

A 'Neutral'rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a

Documents

Glencore-Entrepreneurialismfullypriced