Glencore becomes top shareholder in Australia's Atlas Iron via debt-to-equity deal

[SYDNEY] Glencore has emerged as the top shareholder of embattled Australian iron ore miner Atlas Iron after a debt-to-equity transaction, giving the global mining and trading company its only direct exposure to production of the steelmaking ingredient.

Glencore has acted as an intermediary in buying and selling iron ore for third parties since 2008 but has mostly avoided, either by design or circumstances, the production side of the sector, which is dominated by Vale, Rio Tinto and BHP Billiton.

Glencore subsidiary Maru Sky earlier this year acquired a portion of Atlas debt as the small Australian miner negotiated with creditors to fend off collapse brought on by weak iron ore prices.

Atlas told the Australian Securities Exchange that Maru Sky had converted its debt ownership for 8.47 per cent in equity, making it the single biggest shareholder. The next biggest is Commonwealth Bank of Australia with 6.36 per cent.

Glencore in a statement emailed to Reuters said it did not produce any iron ore on its own, but holds rights to sell a portion of Atlas production under a supply contract.

Atlas in late April agreed to a financial restructuring that transferred 70 per cent of lower-grade iron ore a year to its creditors in exchange for a 48-per cent reduction in debt.

The closest Glencore has come to mining its own iron ore has been through its subsidiary Sphere Minerals, which was aiming to develop a mine in Mauritania yielding 7.5 million tonnes per year - about half the projected output of Atlas. But construction work was suspended indefinitely last year due to low ore prices.

Glencore also owns 50 per cent of the undeveloped Zanaga iron ore prospect in the Republic of Congo.

Iron ore prices zoomed to nearly US$200 a tonne in 2011, but have since fallen to as low as US$37. The price stood at US$57.70 on Monday.

Glencore has a track record of swooping on distressed assets, snapping up copper and coal assets a few years ago in Africa at prices regarded at the time as below market.

The Swiss-based company was best known as a commodity trader until it acquired mining group Xstrata in 2013, yet its strategy of buying up mining assets dates back to the 1980s.

But since posting an US$8-billion loss for 2015 and vowing to reduce debt, Glencore has set the stage more for divestment than buying new companies.

REUTERS