Glencore Xstrata outlines integration initiatives

3rd May 2013 By: Natalie Greve - Creamer Media Contributing Editor Online

JOHANNESBURG ( – The newly formed Glencore Xstrata has confirmed that integration initiatives are under way, with clear leadership and reporting lines already in place and an industrial asset portfolio review currently in progress.

The combination of commodities trader Glencore and producer Xstrata created a mining and trading powerhouse with more than 100 mines around the world, some 130 000 employees, and made it the largest exporter of thermal coal and the third-largest producer of mined copper.

The group had assigned a $500-million budget to “synergise” the two entities, with $450-million allocated for marketing optimisation and $50-million for associated merger costs.

The “roadmap for integration” has seen CEO Ivan Glasenberg and the integration team visit Xstrata’s major assets and meet with key operational personnel, as well as the establishment of a steering committee to oversee merger implementation.

The LSE-listed diversified miner announced that its decision to streamline management would eliminate possible bureaucracy and duplication, enhance flexibility and optionality and improve procurement strength.

Sir John Bond had been appointed chairperson and Steven Kalmin had been appointed CFO.

In addition, the group planned to close the Xstrata corporate headquarters in Zug and London, and establish a single head office in Baar, Switzerland, with shared regional centres in Sydney, Johannesburg, Toronto, Stamford and Singapore.

Glencore Xstrata would use targeted potential return on investment as its primary factor in allocating capital and would focus on retaining diversification by geography and commodity and avoiding high-risk and high capital cost projects.

“We will adopt a brownfield project focus for faster payback and a more reliable development process, while avoiding projects that have material and protracted negative cash flows,” the company said on Friday.

Material growth was expected between 2013 and 2015, as existing organic growth projects were commissioned and full earnings were realised from recent return-delivering acquisitions, such as those of fertiliser group Viterra and coal producer Optimum Coal Holdings.

Meanwhile, Glencore Xstrata expected capital expenditure (capex) to decline materially from 2015, as Xstrata’s capex commitments for 2013 and 2014 came to an end.

“We anticipate a total capex guidance of $13-billion for 2013, $9-billion for 2014 and $7-billion for 2015, of which the ongoing Las Bambas copper project is allocated $3-billion over 2013 and 2014. Sustaining capex should settle in at between $4-billion and $5-billion,” the company advised.

Any excess capital would be returned to shareholders, with a marginal preference for dividends as the return mechanism.

Normal dividends would be supplemented by special returns reflecting the cyclical nature of the group’s business, while buy-backs would also be considered.

The company expected to release a joint interim management statement and first-quarter 2013 production report on May 13, with an investor update event planned for the third quarter of the year.