UPDATE 3-Glencore sees healthy global demand for commodities

Wed May 9, 2012 10:18am EDT

* Major growth projects on schedule "overall"

* Copper output rises; zinc, gold dip

* Brushes off calls for inquiry into Congo deal

* Shares outperform broader mining sector

By Clara Ferreira-Marques and Martin de Sa'Pinto

LONDON/ZUG, Switzerland, May 9 (Reuters) - Glencore reported "robust" trading in the first quarter, reassuring investors with its view of broadly healthy demand for the commodities it mines, farms and drills, in a week when renewed fears over Europe's debt crisis dominate markets.

The world's largest diversified commodities trader, which spans oil, grains and metals, gave no profit or revenue numbers in the statement, published ahead of its maiden shareholder meeting on Wednesday.

"Overall Chinese demand continues to be healthy," Glencore said referring to the world's largest consumer of the commodities it trades, adding it saw stronger physical demand in auto and aerospace sectors in the United States, although Europe remained weaker.

Glencore said major mining projects that it hopes will drive production growth were on schedule and budget "overall" despite power outages, rain and equipment hitches that took bites out of its production of copper and coal in the first three months.

The company gave no substantial update on its planned takeover of miner Xstrata, which is nearing the final stages. It told shareholders at its meeting in the Swiss town of Zug that the deal was the "logical next step" for both sides.

Glencore, still controlled by its management and employees, has been a lightning rod for protest groups since it listed on the stock market in last May. It faced calls on Wednesday for greater transparency on tax and around its deals in Congo, one of the most promising, but most controversial jurisdictions.

In a 45-minute low-key shareholder meeting - short and uneventful by comparison to the "investor Spring" that has swept other UK-listed companies - it brushed off calls from anti-corruption group Global Witness for an independent report into its deals in Congo.

"We have shareholdings in the Katanga, Mutanda and Kansuki projects in the DRC... We are confident that these transactions were entirely proper," Glencore Chairman Simon Murray said.

The Global Witness memo, which examined the issues of mining stakes sold by the Congo state, does not accuse Glencore of corruption. But its demands come at an awkward time for the group, trying to woo wavering Xstrata shareholders - some of whom argue they are not being offered a premium to compensate for the combined company's higher risks.

"They have created what I consider to be a governance discount. The question is do you fix that by ensuring that the board is truly robust and independent, or do you fix it by doing this deal?" said one top-20 Xstrata investor, speaking ahead of Wednesday's annual meeting.

"I'm sure that if you put those reputation questions to (Glencore Chief Executive Ivan) Glasenberg, he answers them convincingly, and he is doing a good job in allaying some of those more extreme concerns... but I don't think he's doing enough to convince people to let this deal pass at nil premium."

Glencore, which already owns almost 34 percent of Xstrata, is currently offering 2.8 new shares for every Xstrata share held. Glencore's shares were up 1.8 percent at 399 pence at 1230 GMT, valuing the takeover at around $35 billion.

ROBUST TRADING, MIXED OUTPUT

Glencore said on Wednesday that its trading division, which accounted for more than a third of operating profit last year, saw improved fundamentals in the oil market, grains, oilseeds and healthy premia for its core metals in the first quarter.

The division was also recovering from its cotton market hit last year, when the trader saw heavy losses from the combination of a roller coaster market and fixed-price contracts. Its restructured operations there delivered "modest profitability".

Over the quarter, Glencore's output of gold, nickel and zinc dipped, while copper output was hit by a mill failure and power cuts in Congo and the temporary closure of a treatment plant in Zambia over what authorities said were pollution violations.

Copper production from its own sources rose to 84,500 tonnes from 76,100 tonnes - but that was dented by an increase of just 2 percent from its Congolese Katanga operation, hit by a mill failure and power outages, a major concern for producers in the country. Total copper output was 126,900 tonnes.

"The headline is likely to be a weak first quarter at Katanga," Liberum analysts said in a morning note. "We had expected execution risk at Glencore's Central African copper... this slow start to the year is likely to present downside risk to our 616,000 tonne full-year estimate."

Copper production was also hit by a 7 percent drop in metal from its own sources coming out of its Mopani operation in Zambia, due to a temporary suspension of a treatment plant.

Gold production from its Kazzinc operations in Kazakhstan rose 24 percent as recovery rates increased. Glencore confirmed it is expecting to complete a deal to increase its stake in the asset to 93 percent from 50.7 percent in the third quarter.

Production of its own coal from its Prodeco operation in Colombia rose 10 percent to 4.2 million tonnes in the quarter, despite difficult weather and heavy winds that hit the port and sales volumes. Expansion plans are on schedule, Glencore said.

In oil, where Glencore has recently emerged as a producer, the company said production at its Aseng field in Equatorial Guinea was at the planned rate of 60,000 barrels per day.