Glencore Xstrata Stock Debut Values Group at $70 Billion

Glencore Xstrata Plc, the world’s biggest zinc miner and exporter of coal for power stations, rose on its first day of trading as a combined company in London, with the share market valuing the group at about $70 billion.

The stock gained 3.3 percent to 342.2 pence by 10:49 a.m. London time, giving the company a market value of 45 billion pounds. The $29 billion takeover by Glencore International Plc of Xstrata Plc was completed yesterday and its Hong Kong-listed shares will start trading on May 6.

The combined group 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 Baar, Switzerland-based company will be the fourth-biggest producer of mined copper and third-largest in nickel.

“Glencore Xstrata is uniquely positioned to continue sustainably supplying the world with the raw materials which are essential to everyday life,” Chief Executive Officer Ivan Glasenberg wrote yesterday in a letter to employees. “The key long-term drivers of commodity growth remain solidly in place, driven principally by the desire for improving living standards in emerging markets.”

Glencore plans to supplement its normal dividend payments with special returns to shareholders, it said on its website today. Share buybacks will also be considered as they have “immediate impact and zero execution risk,” the company said.

Spending Reduced

The combined group sees capital spending on new projects of $29 billion over the next three years. After 2015, spending is expected to “materially decline” to $4 billion to $5 billion, it said.

The world’s fourth-biggest mining company by market value will employ about 190,000 people in more than 50 countries across its industrial and trading divisions. The takeover of Xstrata was completed almost two years after Glencore’s $10 billion initial public offering that ended more than three decades of it operating as a closely-held company.

A previously announced cost savings target of $500 million a year is expected to be “comfortably met,” Glencore said. It plans to close Xstrata’s Zug and London offices, and plans regional office centers in Sydney, Johannesburg, Toronto, Stamford and Singapore.

Trading Arm

The Xstrata acquisition will reduce the trading arm’s contribution to earnings to 28 percent from 63 percent, Deutsche Bank AG analysts Rob Clifford and Grant Sporre wrote yesterday in a report. The copper and coal divisions will be the biggest contributors to profit this year, according to Deutsche Bank.

Glencore last month cleared the final regulatory hurdle in a 15-month battle to complete a transaction that will see a number of senior Xstrata executives depart. Glencore will start notifying managers of job losses following yesterday’s completion of the deal, according to the letter from Glasenberg.

“By restructuring and refocusing, we will be better able to take advantage of the opportunities that will inevitably present themselves over the coming years to the benefit of all,” Glasenberg wrote. “Those who will be affected within the various management structures will be notified directly and as soon as practicable.”

Austerity Age

Glasenberg “has set the tone for the new ‘age of austerity’ for miners,” Bank of America Merrill Lynch analysts Jason Fairclough and Peter O’Connor wrote in a note today. “In our view, his firm embodies the culture of owner-managers that other CEOs may seek to emulate.”

Glencore may save $150 million a year by eliminating Xstrata’s London office, Credit Suisse Group AG analysts said.

The company has retained two former Xstrata executives as division heads amid the departure of a number of senior managers.

Xstrata’s Peter Freyberg, who headed the acquired company’s coal unit, will run the coal mining operations of the group with Tor Peterson continuing to lead coal trading. Mark Eames, who was chief operating officer of Xstrata’s iron ore division, will lead the new company’s iron ore mining unit.

Telis Mistakidis, Glencore’s existing head of copper, will lead both trading and mining of the metal in the new company. Former Minara Resources Ltd. CEO Peter Johnston will head the nickel mining business. Peter Coates, who steps down as chairman of Australian oil and gas producer Santos on May 9, is asset integration adviser.

Mick Davis

Mick Davis, the 55-year-old who headed Xstrata from its inception in 2001, will act as a consultant until June 30. Other senior management including Charlie Sartain, head of copper, nickel chief Ian Pearce and Loutjie Smit, interim CEO of Xstrata alloys, were scheduled to leave yesterday.

Glencore has “announced the new leadership team, along with clear lines of reporting and responsibility,” Glasenberg, 56, wrote in the letter. “For the vast majority of employees, particularly those involved in key front-line processes of production and marketing, there should be little impact on your day-to-day activities.” The letter didn’t specify how many jobs would be cut.

Thras Moraitis, Xstrata’s head of strategy and corporate affairs, and Benny Levene, its chief legal counsel, will also depart after acting as consultants for six months, Xstrata said last month.

“We expect Glencore senior management to dominate the new board and we expect them to impose Glencore’s leaner corporate structure,” Credit Suisse analysts Liam Fitzpatrick, Michael Shillaker and James Gurry wrote in a report. The new company could cut duplication and management costs by $200 million to $300 million a year at copper, coal and zinc units, they said.

Glencore was advised by Citigroup Inc. and Morgan Stanley. Xstrata hired Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc.