The oligarchs of Zug « Mining Blog

The oligarchs of Zug

13. May 2011,

You would need to be a hermit to miss the proposed float (IPO) of Glencore on the London Stock Exchange. Valuing a company at up to $73 billion, which will be catapult it straight into the FTSE 100, is enough to catch the attention of every financial hack. There has been a constant under-current of accusations associated with a company founded by Marc Rich, the oil trader who was indicted in the US for tax evasion (and subsequently pardoned by President Bill Clinton).

The most recent scandal accuses Glencore of potentially speculating on the price of corn, and means (as Alex Evans has it) that “campaigners have found the villain they’ve been looking for on speculation and food prices. Watching them saddle up and prepare for battle is likely to be reminiscent of the air cavalry scene in Apocalypse Now.” (At last – the speculator villain that NGOs have been looking for on food prices).

There is not even room to mention the appointment of non-executive directors (Tony Hayward, the former BP chief executive who resigned following the Deepwater Horizon disaster, anyone?) or the number of bankers with their snouts in this particular IPO trough. Although there are future blog postings there…

No, what promises to make the man on the proverbial Clapham omnibus spit out his morning coffee is the likely wealth that will accrue to individuals who own Glencore as a private company. Many of these figures are estimates, and may well be much less if the current nose-dive in commodity prices continues (although Glencore Chief Executive Officer Ivan Glasenberg has called these calls merely “froth” in the market and claims they will note affect demand for the company’s IPO – see IPO demand not affected by commodity price fall – Glencore CEO).

Those estimates are still shocking, especially at a time when people are crying out for the great money-makers to show some restraint. According to a report in the Mining Journal, Glencore International AG has reportedly paid its senior staff US$146 million in salaries and US$938 million in bonuses during 2010 (which it is calculated was shared between 65 key staff, and therefore the calculated average was an annual bonus payment of US$14 million each).

But all of that was before the float. After the float Glencore International AG’s initial public offering may value Chief Executive Officer Ivan Glasenberg’s stake at $9.6 billion, more than Google’s founders reaped in their IPO (according to Bloomberg). The IPO is set to make at least four more senior executives billionaires. It is true that much of this wealth will be tied into the company over time, and a fall in share price will see much of this paper wealth disappear. However, that level of wealth is staggering for an individual.

I was chatting the other night with a colleague who pointed out how we had all been used to the idea of the rise of the Russian oligarchs. Many had become obscenely rich (if you measure buying London mansions and football clubs as obscenely rich) on the back of what appear to be dubious deals around commodities. My colleague rightly expressed his shock that these gnomes of Zug, had been the real oligarchs; discretely building up fortunes the like of which we cannot even really comprehend.

Aside from those fortunes, to me they truly represent the idea of oligarchy, as given to us by the Ancient Greeks. Oligarchy is a form of power structure in which power effectively rests with a small number of people. The secrecy with which those private company traders have effectively controlled commodity markets, speaks of true power.

It may well be that if a public listing in London shines a spotlight of publicity onto the actions of these money-makers, then despite the billions they’ll receive, it will have done some good.

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