Glencore clinches Xstrata take-over with Chinese copper deal
Published by MAC on 2013-04-22Source: Bloomberg, Reuters, Mining.com
Ivan "the terrible" wins his two-year battle
Glencore, the world's largest minerals trader, is to sell the Las Bambas copper mine in Peru, thus satisifying conditions imposed by the Chinese government, and removing the fnial obstacle to its takeover of Xstrata plc.
As a result, Xstrata's founder and CEO, Mick Davis, has been ousted, along with a number of his company's divisional managers.
This is a triumph for Glencore's top-dog, Ivan Glasenberg, in his quest to forge one of the world's top mining companies since the firm was listed on the London Stock Exchange in 2011. See: http://www.minesandcommunities.org/list.php?r=333
However, as noted by Reuters on 16 April 2013: "Glencore...has made no secret of its desire to slash the number of Xstrata mines being built from scratch", instead relying on increased output from already-productive pits.
This stands in marked contrast to the position adopted by Rio Tinto at its AGM, just two days after the Glencore-Xstrata merger was cleared.
The world's second largest mining conglomerate, along with the industry leader, BHP Billtion, are Glencore's closest competitors in the global minerals' grab.
But - perhaps partly triggered by Glencore's recent annoucement - Rio Tinto is refusing to relinquish its most controversial new projects, although these face stiffening civil society resistance. See: London Calling sees the Grey Man Cometh
Glencore clinches China approval with copper deal
Clara Ferreira-Marques
Reuters
16 April 2013
LONDON - China's antitrust authorities removed the last obstacle to Glencore's $30 billion takeover of miner Xstrata on Tuesday after the commodities trader agreed to sell a $5.2 billion mining project to ease its grip on copper.
Xstrata's Las Bambas mine in Peru had been expected to be sacrificed to secure the approval of China's Ministry of Commerce, but Glencore also agreed 8-year commitments covering the supply of copper, zinc and lead to China.
Chinese regulators have rarely demanded asset sales to improve competition after a major tie-up, but the importance of the metals that Glencore mines and trades for China's economy meant the merger was unlikely to go through without changes.
In particular, Glencore had already signalled that Chinese authorities were focused on its hold on the copper market, and specifically copper concentrate. Glencore and Xstrata combined account for roughly 7 percent of global copper supply.
Glencore, which is now on track to complete the industry's biggest ever deal in two weeks, has to begin the process of selling Las Bambas within three months, and find a buyer by the end of August 2014.
If it does not find a buyer for the asset - a major mine expected to produce an annual 400,000 tonnes of copper for at least four years from 2015 - it will have to find alternatives.
Glencore, which has made no secret of its desire to slash the number of Xstrata mines being built from scratch, will have three months to offer up one of the miner's longer-dated projects instead - namely Tampakan in Peru, Frieda River in Papua New Guinea, El Pachon or Alumbrera in Argentina.
"Them being willing to sell Las Bambas shows there are no sacred cows in the eyes of the Glencore management. It shows they think a little differently - they've always shied away from greenfield projects," analyst Jeff Largey at Nomura said.
"If they can pull value forwards on Las Bambas by selling it - rather than taking on all the operational and execution risk associated with building it (and) bringing it to production - I think the market will reward them."
Satisfying China's appetite for concentrate, an intermediate product that feeds refineries and smelters, Glencore agreed to supply a minimum of 900,000 tonnes of copper to Chinese clients a year for 8 years from 2013. The price for at least 200,000 tonnes will be priced in accordance with the benchmark level.
Glencore also agreed to supply zinc and lead concentrate on "fair and reasonable" terms.
Xstrata Departures
China's green light on Tuesday paved the way for Glencore to tie up at last its long-desired acquisition of Xstrata by next month - 15 months after it was first announced.
But separate news on Tuesday of a stream of departures from Xstrata's management team highlighted the challenges during what will be Glencore's biggest integration to date.
Xstrata announced chief executive Mick Davis would not take up the role at the combined group for six months, as initially agreed. It also announced the departure of divisional heads including copper boss Charlie Sartain and nickel chief Ian Pearce, along with Thras Moraitis, Xstrata's head of strategy and a close associate of Davis.
"This clearly turned into a takeover rather than a merger. We all knew (Glencore chief executive) Ivan Glasenberg was going to be the top dog, it was just a matter of time," Nomura's Largey said.
Glencore has already cleared regulatory hurdles including the European Union, which instead of copper focused on the group's concentration in zinc.
Glencore had agreed to scrap a European zinc sales with producer Nyrstar, and said on Tuesday it had struck a deal and a termination fee. Nyrstar will buy out Glencore's almost 8 percent equity stake for 3.39 euros a share - below the current price - for a total of 44.9 million euros.
Glencore takeover gets greenlight from Chinese regulators
Michael Allan McCrae
Mining.com
16 April 2013
Glencore's multi-billion takeover of Xstrata received the go ahead from Chinese regulators in return for shedding a copper mine.
The Ministry of Commerce of the People's Republic of China gave approval subject to conditions. Xstrata must give up the $5.2 billion Las Bambas copper mine in Peru. Sale completion must occur by June 2015. The company also agreed to eight years of supply commitments to Chinese customers covering copper, zinc and lead.
Glencore CEO Ivan Glasenberg will become head of the combined entity. Xstrata's CEO, Mick Davis, will step down in May but will act as a consultant.
A number of other Xstrata executives will be leaving, such as Trevor Reid who was Xstrata's chief financial officer. Other people leaving are division heads of Xstrata's copper, nickel, and alloys divisions.
Xstrata CEO says Peru mine sale brings 'surprise, sadness'
Firat Kayakiran
Bloomberg
19 April 2013
Mick Davis, chief executive officer of Xstrata Plc, said the sale of the Las Bambas copper mine, a step required by China for the takeover by Glencore International Plc to proceed, prompts "surprise and sadness."
"It is hard for all those involved in its inception and who would have liked to see the project ramp up into operation, however it is a necessary step that we must accept," Davis told staff this week in a letter, seen by Bloomberg News.
China's Ministry of Commerce agreed April 16 to the takeover on the condition the combined company sells Las Bambas. The Zug, Switzerland-based company is building the mine at a cost of $5.2 billion. The site is expected to produce 400,000 tons of copper a year starting 2015 for at least the first five years.
This week's clearance in Beijing removed the last obstacle to completing the 14-month-old, $29-billion deal, allowing Baar, Switzerland-based Glencore to create the fourth-largest mining company by adding coal, copper, nickel and zinc mines to its commodities-trading empire.
"I appreciate that the relief that is felt across the business that the merger is drawing to a close is tinged with surprise and sadness that it has come at the price of the divestment of a flagship project and the departure of the majority of the Xstrata management team who have built the company over the past decade," Davis wrote.
The 55-year-old CEO won't serve six months in the role at the new company as previously announced, the companies said this week. Glencore CEO Ivan Glasenberg will take control when the acquisition is completed, expected on May 2.
Departing Executives
Senior Xstrata executives including Charlie Sartain, head of copper, nickel chief Ian Pearce and Loutjie Smit, interim CEO of Xstrata alloys, will also leave. Strategy and corporate affairs head Thras Moraitis and chief legal counsel Benny Levene will depart after acting as consultants for six months.
Xstrata Chief Financial Officer Trevor Reid said in December he won't stay on at the combined company, while Chairman John Bond said in November he won't take on the role at the new group as originally planned.
The agreement with China requires Glencore to pursue the sale of Las Bambas to a buyer approved by MOFCOM by Sept. 30.
Should Glencore fail to sell Las Bambas, it would be required to auction its interest in one of four projects -- Tampakan, Frieda River, El Pachon or Alumbrera -- within three months of Oct. 1, 2014. Glencore also agreed to supply China with set amounts of copper, zinc and lead concentrate for eight years.
--Editors: John Viljoen, Alex Devine