Glencore Xstrata Plc (GLEN), the world’s fourth-biggest mining company, is studying separate deals with Rio Tinto Group (RIO) and BHP (BLT) Billiton Ltd. in Australia to reap cost savings at struggling coal and nickel operations.
The company is assessing a bid for BHP’s Nickel West assets in Western Australia, which are near a Glencore nickel project, Chief Executive Officer Ivan Glasenberg said yesterday. The sale also has attracted rival Mick Davis, former CEO of Xstrata Plc, whose X2 Resources has studied bidding, said a person familiar with the matter who asked not to be named as it’s not public.
Global mining companies are looking to make cost savings after a decade-long boom in metals prices waned amid increased supply and slower Chinese economic growth. A combined Glencore-Rio coal business on the east coast of Australia would save more than $500 million, Credit Suisse Group AG said last week. The price of power-station coal is trading near a four-year low.
“There’s a lot to be done where we can get substantial synergies,” Glasenberg, 57, told analysts in London yesterday regarding the possible coal tie-up. “We’re talking to Rio Tinto, but it takes time for both sides to assess each other’s assets. We’ve been talking to them for a long time. How far we’ll get and how soon we can reach an agreement, I don’t know. But it’s something that clearly makes a lot of economic sense.”
Glencore rose for the first time in nine days in London trading yesterday, advancing 1.7 percent to close at 331.85 pence. Rio gained 0.9 percent to 3,381.5 pence and BHP climbed 1.2 percent to 1,927 pence in the city.
Glencore yesterday reported 2013 pro-forma adjusted net income of $4.58 billion, described by Citigroup Inc. as an “exceptionally strong” result, exceeding its $4.01 billion estimate, even as year-earlier earnings were 23 percent higher.
The world’s biggest exporter of power-station coal owns the Ravensworth, Mount Owen and Liddell coal operations in Australia’s Hunter Valley. It has held talks with Rio on ways to share mines and infrastructure to cut costs, two people with knowledge of the matter said in June. Rio’s interest in the region is via its Coal & Allied unit, which runs three mines.
“A material level of synergies are potentially on offer should the two companies look toward a joint-venture structure,” Credit Suisse analysts said in a Feb. 27 report. “Glencore is highly likely to want marketing rights over combined production and these could prove an issue with Rio.”
Glasenberg said he’s interested in the BHP nickel assets given their proximity to the Murrin Murrin mining and refining project, controlled by Glencore’s Minara unit. Glencore yesterday took a $454 million impairment charge on Murrin Murrin in the northeastern Goldfields region of Western Australia.
BHP has booked impairment charges on the Nickel West assets of almost $1.6 billion in the past two fiscal years after prices for the metal fell. A BHP spokeswoman in London declined to comment.
“We will kick the tires,” Glasenberg said in a telephone interview from London. “It’s something that would make sense, but it is an asset that’s had its problems.”
X2 studied an offer of less than $1 billion, said the person with knowledge of the matter. Australian nickel producer Western Areas Ltd. also has looked at the assets, according to two people familiar with the situation who asked not to be identified. A spokesman for Perth-based Western Areas declined to comment.
The Nickel West operations produced 103,300 metric tons of the metal in fiscal 2013. The assets include the Mount Keith open-cut mine and concentrator, two underground mines and smelting plants at Kalgoorlie and Kwinana.
Glasenberg, Glencore’s largest shareholder with an 8.3 percent stake, completed the $29 billion takeover of Xstrata in May to add coal, copper, zinc and nickel mines to his trading empire. Glencore expects the transaction to generate cost savings of as much as $2.4 billion this year, it said yesterday. That compares with an estimate of $2 billion in September.
The company agreed to sell its Las Bambas copper mine in Peru as part of a deal to win Chinese regulatory authorization for the Xstrata purchase. Glencore remains in talks with a group led by China Minmetals Corp. and negotiations are focused on price, Glasenberg said this week.
“If we can get the right price we will go ahead and sell it,” he said. “There is a leading bidder, the Chinese, that’s no secret, so we are continuing to have discussions with them. There’s no roadblock in the talks.”
The Minmetals-led group is nearing an accord to buy Las Bambas for more than $5 billion, people with knowledge of the matter said last month. Proceeds may be returned to shareholders, Glencore Chief Financial Officer Steve Kalmin said in September.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata.
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