Glencore Xstrata shares jump 5.5% as it signals $2bn synergies from takeover

Glencore Xstrata will realise $2 billion in synergies next year from its takeover of Xstrata, it said on Monday September 9, boosting its shares by as much as 5.5% when London markets opened on Tuesday.

Glencore Xstrata will realise $2 billion in synergies next year from its takeover of Xstrata, it said on Monday September 9, boosting its shares by as much as 5.5% when London markets opened on Tuesday.

The $2 billion figure is four times larger than the company estimated when it announced plans to merge with Xstrata in February 2012.

The additional synergies will be created primarily through $1.4 billion in cost savings, while the producer and trader also identified financing synergies of at least $175 million.

“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 ceo Ivan Glasenberg told investors on Monday.

The company has identified major cost savings as part of its comprehensive cost review of the Xstrata assets, which will involve a “deprioritisation” of the group’s greenfield pipeline.

Glencore will also cut capital expenditure by $3.5 billion between 2013 and 2015, excluding the capex reductions that will come from the sale of Las Bambas in 2014.

“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,” Glasenberg said at the start of the company’s first investor day since the acquisition was completed.

This is an interesting time for the sector, and an exciting one for Glencore. There is sound demand for commodities, and we see positive signs of financial discipline across the sector. This provides an environment in which Glencore’s owner-manager philosophy will thrive,” he said.

Glencore has come under pressure to justify the price it paid for Xstrata after it was forced to make a $7.6 billion writedown in its first-half results last month, which were the first since the takeover was completed.

Liberum analysts said at the time that in order to plug the gap left after the writedown the company would need to realise another $616 million in synergies, over and above the $500 million it originally identified.

Glencore Xstrata shares jumped sharply as it signalled the quadrupling in synergies, with its London-listed stock trading at £3.353 at 9:08 BST, up 4.36% and showing the largest intraday gains in the FTSE 100. The shares had earlier hit an intraday high of £3.3895.

Glencore Xstrata also used the investor day to announce plans to list secondarily on the Johannesburg Stock Exchange to support its business in South Africa and on the African continent as a whole.

“Africa is an important and growing market for the group and South Africa has a strong institutional investor base. The group’s primary listing will remain the London Stock Exchange,” the company said.

Mark Burton 
mburton@metalbulletin.com
Twitter: @mburtonmb

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