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The next commodities king Add to ...

Trained at Phillips Bros. (later Philbro) in the 1960s, he and his partner, Pincus (Pinky) Green, struck out on their own in the mid-1970s and created Marc Rich + Co. in Zug. According to an investigation done by BusinessWeek magazine in 2005, Mr. Rich was known as "El Matador" for his ruthless style. He pioneered "combat trading" - nailing the trading rights to commodities from pariah states or countries in turmoil.

Marc Rich + Co. traded with Iran during the hostage crisis, South Africa during apartheid and Libya and Cuba during the U.S. trade embargoes. In 1983, he was indicted by U.S. federal prosecutor Rudy Giuliani (later New York mayor) for racketeering, tax evasion, making false statements and trading with the enemy - Iran. His companies pleaded guilty to some charges and paid $200-million in fines, taxes and other penalties. But the Justice Department called off the posse only after Mr. Clinton interceded.

Mr. Rich, who is 75 and lives in Switzerland, appears to have left the commodities game. But his former partners and employees are everywhere, trading commodities in businesses they launched after Mr. Rich sold his company 17 years ago.

The biggest of them all is Glencore, the name given to the business formed by the management buyout of Mr. Rich's trading operations. Even back then it was a force in commodities, with more than $20-billion a year in revenues.

Mr. Glasenberg and Willy Strothotte, who is now chairman of both Glencore and Xstrata, were two of the Rich boys who joined the buyout. At the time, Mr. Glasenberg was head of the coal operations. By 2002, he had replaced Mr. Strothotte as Glencore's CEO and expanded the company's size, reach and profits. By 2008, it had revenues of $152.2-billion, well more than double those of BHP Billiton, the world's biggest mining company. Revenues last year sank to $106-billion and profit fell 43 per cent to $2.7-billion. "Ivan Glasenberg is an extremely smart, driven guy," said the CEO of a large mining company. "They have been a powerhouse for years and years."

Glencore makes money in two main ways. The first is from its collection of mining, smelting and refining assets, among them Toronto-listed Katanga Mining Ltd., a copper producer in the Democratic Republic of Congo. Like any mining company, it digs the stuff out of the ground and sells it on the commodities market. This is the most volatile side of the business, because of the cyclical nature of prices.

The other side, which the outside world knows little about, is the high-volume, low-margin marketing and trading business. (Each side contributes roughly 50 per cent of earnings.) Glencore will sign a contract to, say, buy Australian coal for delivery to European power plants. The profit comes from what it calls "value-added" services, such as transporting the coal in the 170 ships it leases or owns, insuring the cargo and storing it in warehouses. Any price risk is hedged. Glencore also does some unhedged commodity trading.

Financing mine development, or working-capital needs, is a big part of its strategy. In exchange for the financing, it receives the rights to market the commodity. Glencore's competitive edge, according to people who know the company, is its long experience, diversity of services and intimate knowledge of supply, demand and pricing, thanks to its vast network. It has some 2,000 employees in 40 countries.

Under Mr. Glasenberg and Mr. Strothotte, Glencore made headlines a few times for the wrong reasons. In 2001, the United Nations Security Council reported that Glencore had bought one million barrels of Iraqi crude destined for the United States, allegedly paying some $3.2-million in surcharges to Saddam Hussein's regime for the privilege. Glencore denied paying the surcharges or any inappropriate dealings with Iraq outside the oil-for-food program.

Glencore now seems extra wary about political risk. A few months ago, it ceased supplying gasoline to Iran to avoid running afoul of U.S. fuel sanctions against the country. As it gears up for a public listing, Glencore knows it has to temper its natural inclination to trade anything, anywhere, at any time.

Why go public?

Theories abound as to why Glencore wants to jeopardize its cherished secrecy by going public. Why is it willing to ditch a model that has worked so brilliantly for so long?

Some consultants and mining executives suspect Glencore's brain trust believes the company's glory days are behind it, as marketing rights to commodities become harder to obtain, and they want to secure a listing while the valuation is still high. A decade ago, China was not a big player on the global commodities market. Now Glencore has to compete with well-financed Chinese companies that are locking up supplies in the developing world. "This may be the 'greater fool theory' at work," said a mining company director who knows some top commodity traders. "You're dealing with a very, very shrewd trader in Ivan."

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