JOHANNESBURG (miningweekly.com) – The share price of diversified mining and marketing company Glencore rose in Johannesburg on the news that the company is in final-stage negotiations to buy 19.5% of Russia’s privatised oil company Rosneft for $11-billion together with the Qatar Investment Authority, which is Glencore’s largest shareholder.

Glencore, headed by CEO Ivan Glasenberg, won applause from Bank of America Merrill Lynch analysts on receiving “lots of oil for few dollars”.

By mid-afternoon, its share price had jumped by nearly 6% to R53.15 a share.

Backed by equity of $323-million, the deal delivers an additional 220 000 barrels of oil a day to the Glencore’s marketing business, as well as offering partnering opportunities in infrastructure, logistics and global trading.

“We view the transaction positively,” said Bank of America Merril Lynch research analysts Jason Fairclough, Cedar Ekblom, James Bell, Timna Tanners, Duncan Simmonds, Matty Zhao, Karen Kostanian and Anton Fedotov in a note in which they reiterate a buy on Glencore shares.

“We like this deal,” was the comment of Bernstein analysts Paul Gait, Marion de Floris and Jonathan Absolon, who remarked on the positivity of the large oil volume involved.

“It's not about the equity stake, it's about the new five-year oil offtake agreement,” they added.

Analysts calculate that the 80-million additional barrels of oil that Glencore will receive a year from the transaction represents a 10% uplift in the company's oil volumes.

Against the backdrop of Rosneft being subject to western sanctions, Glencore has ensured that it is ring-fenced from exposure to the Russian state company, outside of the 0.54% indirect equity interest.

The bank financing in the deal will not have recourse to the Glencore balance sheet.

Glencore last week delivered on its commitment to cut debt and structurally increase the strength of its balance sheet.

It also committed itself to keeping net debt at twice underlying earnings and announced a new dividend policy of a minimum yearly distribution to shareholders of $1-billion from marketing strength plus 25% of free cash flow from the industrial side of the business.

In the latest deal, the $11-billion that Rosneft will receive from the transaction reflects the total current market price of its shares, which were worth $80-billion when it floated a minority stake in 2006.

The Russian government, which will retain a controlling stake in Rosneft in which British oil company BP is also a shareholder, will reportedly convert the proceeds into roubles gradually to avoid destabilising the currency as it increases state coffers.

The transaction was made on an upward trend in oil prices, Russia's president Vladimir Putin said in a meeting with Rosneft CEO Igor Sechin, which was broadcast on state television.

Rosneft, which produces nearly five-million barrels of oil a day, reportedly held talks with more than 30 potential buyers from Europe, America, Asia and the Middle East before deciding on Glencore and the Qatar Investment Authority.

Glencore already owns 49% of Russneft, another Russian oil producer, and the Qatar Investment Authority has a stake in St Petersburg’s airport.

Qatar, as a member of Opec, reportedly acted as a go-between in the recent joint decision of Opec countries and Russia to cut oil output by 300 000 barrels a day to add onto the 1.2-million barrels a day that the oil-producers group settled on earlier.

In Russia, the Rosneft privatisation is an important roleplayer in reducing the country's budget deficit and the rouble gained against the dollar after the deal was announced.