Tuesday, 10 September 2013

Glencore Raises Xstrata Cost Savings Estimate to $2 Billion

By Jesse Riseborough - Sep 10, 2013 1:53 PM GMT+0400
Glencore Xstrata Plc (GLEN), the global commodity trader and metals producer run by billionaire Ivan Glasenberg, raised its estimate of savings from the takeover of Xstrata Plc to at least four times the initial forecast.
The acquisition Glencore completed in May will generate a minimum of $2 billion in synergies next year, the Baar, Switzerland-based company said today in a statement. That includes $450 million from marketing operations and $175 million of financing savings.
Glencore Headquarters A logo sits on a sign outside Glencore Xstrata Plc's headquarters in Baar, Switzerland. Photographer: Gianluca Colla/Bloomberg
The $29 billion purchase of Xstrata created the world’s fourth-biggest mining company, adding coal, nickel, zinc and copper mines to Glencore’s trading empire. The deal was expected to generate annual cost savings “well above” the stated $500 million plan, Glasenberg, who is chief executive officer, said in May. Morgan Stanley estimated $800 million of savings, it said yesterday in a report.
“With a beat to cost savings and sizable capex reductions, this release is likely to be well received by the market,” Citigroup Inc. analyst Heath Jansen said in a note to clients. There will be “more to come” in future savings, Glasenberg told investors today in London.
Glencore advanced as much 5.5 percent to 338.95 pence in London trading, the highest intraday level in more than three months. It was 3.6 percent higher at 332.7 pence at 10:14 a.m. The FTSE All-Share Mining Index rose 0.3 percent.

‘Rapid’ Integration

“We have successfully and rapidly completed the integration of Xstrata,” Glasenberg, 56, said in the statement. “A significant portion of the synergies are in overhead costs at head and regional offices. We are only just starting to comprehensively look at the combined mining and metallurgical operations.”
Glencore last month wrote down the value of assets acquired in the takeover by $7.7 billion to reflect “the broader negative mining industry environment.” The company, the world’s biggest exporter of power-station coal, reported a first-half net loss of $8.9 billion on the writedowns.
Most metal markets are experiencing a “supply shock” and won’t start to tighten until the middle of the decade, Barclays Bank Plc analysts said last week.
BHP Billiton Ltd. (BHP), Rio Tinto Group and Vale SA are among rival producers cutting costs, selling assets and reducing spending to counter lower prices and weaker profits. Glencore today said it is likely to pursue further asset sales, in addition to the Las Bambas mine in Peru, once it completes a portfolio review.

‘New Reality’

Glencore reduced its capital-spending budget for the three years through 2015 by $3.5 billion from $29 billion. “Sustaining” annual spending is then estimated at $4 billion, from an earlier forecast of $4 billion to $5 billion.
Glencore has interests in about 35 coal mines in Colombia, Africa and Australia, accounting for about 10 percent of global seaborne supplies of the fuel. The company said it has had to adjust to a “new reality” in coal markets since the takeover was announced in February 2012 as prices slumped on waning demand.
The company today said it has put 10 coal projects on hold, seven of them in Australia. These includes the Wandoan mine, port and rail project in Queensland state, where Xstrata had previously estimated a A$6 billion ($5.5 billion) operation starting in 2014 to produce 30 million tons a year.
Glencore said it’s now the third-biggest producer of mined copper, third-largest in nickel and biggest in zinc and lead. It employs about 190,000 people in more than 50 countries across industrial and trading divisions.
The company is 25 percent owned by management. Glasenberg, who holds an 8.3 percent stake, reaped a $173 million dividend for 2012.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata.
To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net