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The news that Glencore and Xstrata are in merger talks would only come as a surprise to someone living under a rock, and only then if said rock did not contain any valuable minerals.
But now that talks of a tie-up of the world’s largest metals trader and its fourth largest miner have finally moved into the boardroom, hypothetical questions have become real, and the answers are far from certain.
No one has ever successfully put together, or even tried to put together, a mining company and a trading company on such a global scale.
The potential is huge. An acquisitive, cash-rich trading company with a global marketing network that can appreciate and leverage nuances in regional markets and a large, diversified miner focused on organic growth. If successful, it would be hard to find a corner of the metals and mining industry that won’t in some way be affected by such an entity.
Almost a year ago, former Metal Bulletin chairman Trevor Tarring wrote of the big names before and just after the second world war, such as Metallgesellschaft, British Metal Corp and the Japanese zaibatsu, all having a foot in both the mining and trading sectors.
Later, in the 1970s, several of the vertically integrated aluminium majors (Alcan, Kaiser, Pechiney) added in-house trading capabilities and produced some successful traders; but they all ended up in genuine trading companies and the majors went back to producing, while Metallgesellschaft and British Metal Corp are no longer around.
But if it can be shown that a Glencore-Xstrata behemoth can not only succeed, but can become more than the sum of its parts, what will then become of the other large trading companies and large, diversified miners?
If what is being called Glenstrata can be shown to significantly improve the profitability of each of its parts through the benefits of the other, how long before the shareholders of Rio Tinto or BHP Billiton start calling for their own tie-ups with global – and independently developed – trading businesses?
When Goldman Sachs bought Metro in February 2010, it did not take long for others to appreciate the possibilities of a large financial institution owning a warehousing company.
When the tie-up of Glencore and Xstrata finally happens, all the hypotheticals become realities, and other companies will be watching closely to see if it becomes a tale to caution or inspire.
If successful, it will change the industry.
Jethro Wookey jwookey@metalbulletin.com Twitter: @jethrowookey_mb