Swiss to the rescue of Henry Walker - but at a cost

By Barry FitzGerald
December 24, 2004

Glencore, the secretive Swiss-based commodities trader and major Xstrata shareholder, is set to deepen its roots in the Australian mining market by supporting a $100 million rescue plan for troubled mining contractor and civil engineering group Henry Walker Eltin.

Unable to rely on the support of its banking syndicate for extensions of its short-term debt facilities, Henry Walker has turned to Glencore to provide it with funding for the capital expenditure programs required to meet its contract obligations.

The sharemarket had concerns that Henry Walker had given away too much in securing Glencore's support but, in the absence of an alternative rescue plan, pushed Henry Walker 8¢ a share higher to 51¢. That compares with the group's 52-week high in happier times of $1.15.

Glencore's support comes in the form of it underwriting a $40 million rights issue (one for every 2.18 shares held at 40¢ each) and it taking up a $60 million private placement of five-year convertible notes (convertible at 40¢ each and carrying a preferential cumulative cash dividend of 6.5 per cent a year).

Despite its status as global commodities trader, the privately held Glencore has been little known in the Australian market. That has changed due to its major shareholding in Xstrata, the group that has bid $7.4 billion for WMC Resources.

Glencore's move on Henry Walker comes as its Xstrata offshoot begins a long wait on Federal Government approval for its WMC tilt under national interest and foreign investment guidelines. The $6.35-a-share bid has been rejected by WMC - which does not use Henry Walker as a contract miner - as grossly inadequate.

WMC closed on Thursday at $7.14 a share and it claimed to its its shareholders, by letter, that Xstrata had "reserved its right to reduce its offer" by as much as 50¢ a share, being a combination of WMC's proposed capital return of 30¢ a share and final dividend payment of 20¢ a share.

Through its stake in Xstrata, Glencore is exposed to a big chunk of Australia's coal production and copper/zinc production, the latter a result of the group's successful takeover of Queensland mining icon MIM.

Glencore's move on Henry Walker - it will end up with a stake of at least 32 per cent - will give the commodities trader unmatched intelligence on what is happening at the "coal face" at a range of mining operations at which it is the contract miner.

The group's influence at Henry Walker is to be cemented by it taking three seats on a seven-person board, and being involved in Henry Walker's search for a chief executive officer. The former CEO left after the revelation that, despite the mining boom, it would break even or report a loss for fiscal 2005.