August 26, 2010 / 12:29 PM / in 7 years

UPDATE 3-Glencore to spin off gold unit, H1 profit surges

* To spin off or float gold assets in 2011

* Gold assets worth more than $5 bln - source

* Drops idea of having strategic partner for Prodeco

* H1 EBITDA jumps 69 pct to $2.63 bln

(Adds comments from source on valuation, Prodeco, CDS)

By Martin de Sa‘Pinto and Eric Onstad

ZURICH/LONDON, Aug 26 (Reuters) - Glencore [GLEN.UL] unveiled plans on Thursday for spinning off or listing its gold assets, which may be worth over $5 billion, as it reported a surge in first-half profits due to strong metals prices.

Swiss-based Glencore, the world’s biggest commodities trader, has also dropped the idea of finding a partner for its Prodeco coal assets, a source close to the situation said.

Glencore said in a statement it planned a partial spin-off or initial public offering of its Kazzinc gold unit next year.

Privately held Glencore, which is preparing to become a listed company after issuing a $2.2 billion convertible bond last year, said the sale would help meet $1 billion of planned disposals, of which $400 million had already been agreed.

A source close to the situation, who declined to be named, said the gold assets were worth more than $5 billion, based in part on the market capitalisation of London-listed gold firms.

African Barrick Gold ABGL.L, which produces about the same amount of gold as Kazzinc, is valued at $3.6 billion. Randgold Resources (RRS.L), which produces less, is worth $8.0 billion.

Kazzinc owns Kazakhstan’s biggest gold mine, while the combined gold assets produce about 700,000 to 800,000 ounces per year.

Details have not been decided on the size of the stake that might be spun off, but it could range from 25-60 percent, the source said.

Other options were also a possibility, such as selling Kazzinc’s gold operations to another gold company, he added.

In June, a source close to the situation told Reuters Glenocre was considering putting its gold mines on the market. [ID:nLDE6561J9]

NO PARTNER FOR PRODECO

Glencore has dropped the possibility of finding a partner for its Prodeco coal operations in Colombia, the source said.

Glencore promised the $1 billion in disposals in March after it bought back Prodeco for around $2.5 billion from mining group Xstrata XTA.L. At the time, it said the disposals could include selling a stake in Prodeco to a strategic partner.

It had held talks with four possible partners for Prodeco -- Brazil’s Vale (VALE5.SA) (VALE.N), U.S. coal miner Alpha Natural Resources ANR.N, Singapore’s sovereign wealth fund GIC and U.S. private equity fund First Reserve Corp.

The divestment news came as Glencore posted a 42 percent jump in first-half net profit to $1.56 billion. Revenues leapt more than half to $70 billion thanks to a threefold increase in industrial activities, while trading revenues rose slightly.

The Glencore results round off a solid first half for mining companies, helped by a rebound in the price of industrial metals such as aluminium and copper. Average first-half prices for copper, for instance, rose 76 percent compared with 2009.

Other miners to report strong numbers include Potash Corp (POT.TO) suitor BHP Billiton (BLT.L), which on Wednesday posted its best half-year earnings in two years, and Rio Tinto (RIO.L) (RIO.AX), which reported record profit this month. [ID:nSGE67O017] [ID:nSGE6740N5]

Glencore said earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 69 percent to $2.63 billion.

EBITDA is a key metric for heavily indebted companies like Glencore as it helps measure their ability to service debt.

Net debt rose to $13.6 billion from $10.2 billion, while debt coverage ratios were largely unchanged due to increased earnings and operating cash flow, the company said.

In the credit markets, the cost of insuring Glencore’s debt against default fell.

Five-year credit default swaps fell 10 basis points to 373 basis points, according to Markit -- meaning it costs 373,000 euros a year to insure 10 million euros of Glencore debt against default. The move outpaced a small rally in the wider market. (Additional reporting by Alex Chambers and Quentin Webb; Editing by Michael Shields)

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