Ivan Glasenberg / Getty
Glencore Xstrata Plc is the giant mining and commodity trading company that arose from the merger, on May 2nd, 2013, of predecessor company Glencore Plc with its then 34% held affiliate, Xstrata Plc. Yesterday the “new” Glencore held an investor day in London to provide a detailed update to investors in the company, and to financial analysts, on the progress being made to integrate the two companies.
CEO Ivan Glasenberg first outlined the results of the mining asset portfolio review that has been ongoing by management since the merger, detailed the synergies that have been identified to achieve major cuts in costs in the short term, and preached the newly combined company’s disciplined approach to capital allocation.
Glencore’s goal with this meeting was clearly to put some “wow” back into investor sentiment, in a year in which many basic metal prices which Glencore mines itself, or trades on behalf of others, have continued to fall. In its first half year results to June 30th 200, announced previously in August, Glencore had already taken almost US$9billion in impairment charges on its balance sheet, including writing off all the goodwill attributed to Xstrata when the merger took place just two months earlier.
So it was important to make a good impression, and the company’s senior management from Ivan Glasenberg down certainly put on a full court press, with over 200 slides going up on the wall during the day to accompany their presentations.
Since the merger Glencore’s shares have been on something of a roller coaster ride. Initially there was an early ten percent gain, followed by a tumble of 25% over the next two months in May and June as investors worried about metal prices generally. Then the shares staged a recovery in July and August bringing the price back today to close to where they were when the deal closed, helped by a 3% lift today alone – with the presentations at yesterday’s investor day no doubt having achieved their purpose.
Highlights of Ivan Glasenberg’s message to his shareholders and to the wider financial community are as follows:
• Management integration of the two companies has been completed within three months, with no operational disruption;
• At least US$2 billion of synergies, a.k.a. cost savings, are estimated for 2014, materially exceeding the company’s original initial merger guidance of US$500 million;
• There will be a reduction of US$3.5 billion, or about 12%, in now planned capital expenditures during 2013 to 2015;
• Sustaining capital expenditures are expected to cost US$4 billion annually, i.e. at the lower end of previous guidance of US$4-5 billion annually;
• Xstrata’s green-field projects have been “deprioritized” with a material reduction in scope and costs. Deprioritized is a polite word for cancelled I guess.
• Glencore now intends to make an application to the Johannesburg Stock Exchange for a secondary listing.
• The Group’s primary listing will nevertheless remain the London Stock Exchange.
• Ivan Glasenberg, CEO, summed up at the end: ”Glencore will have a diversified and defensive asset base with an increasingly strong cost curve position. With our strong balance sheet and cash flow, I am pleased to remind investors of our commitment to return cash to shareholders.
Glencore is likely now in better shape than a number of other major mining companies, and he pulled back in good time to avoid over-extending the company. In the harsher economic climate of today that can only be a good thing. Mining remains, as it always has been, a very long term business but one regularly interrupted, at irregular intervals, by short term boom and bust cycles of over-enthusiasm and regret.