Miners Xstrata, Glencore agree to $90B merger

Mining company Xstrata and commodities dealer Glencore agree to a $90 billion US merger that will create the world's fourth-largest natural resources company, including control of former Falconbridge operations in Sudbury, Ont.

Mining giant would control former Falconbridge nickel operations in Sudbury

Swiss commodities trader Glencore is headquartered in Baar, near Zurich, Switzerland. It will soon control the former Inco and Falconbridge nickel operations in Sudbury, Ont. (Romina Amato/Reuters)

Mining company Xstrata and commodities dealer Glencore agreed to a $90 billion US merger Tuesday that will create the world's fourth largest natural resources company.

The announcement of the terms of the deal comes just a few days after the revelation that the two companies were in discussions about a long-mooted tie-up — merger discussions, codenamed "Everest," have gone on for years.

The mining giant would operate around the world, including major nickel mining and refining businesses in Canada, where Xstrata subsidiary Xstrata Nickel owns the former Falconbridge nickel company in Sudbury, Ont.

The combined company will control a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper and corn.

Under the terms of the deal, Xstrata shareholders would receive 2.8 Glencore shares for each of their shares. That represents a premium of 15.2 per cent based on Monday's closing prices. Glencore already had a 34 per cent stake in Xstrata.

The merger is projected to yield cost savings of $500 million in the first full year, primarily in marketing, while creating the world's fourth largest global diversified natural resource company, with operations in 33 countries. It will also give the combined company greater leverage to borrow money for its operations — a key advantage in the high-volume, low-margin commodities business.

The new company would be the world's third-largest copper producer, fourth-largest nickel producers and the global leader in thermal coal, ferrochrome and integrated zinc production.

"The commodities value chain is becoming longer and more complex, creating opportunities for a company that can pre-emptively participate at every stage," said Xstrata Chief Executive Mick Davis, who will become CEO of the merged company.

"Glencore Xstrata would be well positioned to do just that, creating value from resource extraction to customer sales and services, at a time when demand for our combined products continues to grow," Davis said.

Davis told a conference call that he expects the merger to complete in the third quarter of this year, assuming regulators give the deal the all-clear.

Xstrata Nickel, a Toronto-based subsidiary has about 1,000 employees in Sudbury and 850 at its mine and concentrator in northern Quebec.

A union leader representing 850 mine and smelter workers in Sudbury said last week he didn't expect much change if Xstrata merged with Glencore International.

"The rock ain't moving," said Richard Paquin, president of the Canadian Auto Workers Local 598, said Thursday.

"For us it is not a new venture," he told The Canadian Press. "It is a matter of co-operating with the new employer if it every happens and trying to get the best we can for our workers."

He said the Sudbury operation has already been through the uncertainty of Xstrata's takeover of Canadian nickel and copper producer Falconbridge in 2006 after a takeover battle that lasted nearly two years.

Glencore CEO Ivan Glasenberg, who will take the titles of deputy CEO and president, said the merger represents "a fantastic opportunity to create a new powerhouse in the global commodities industry."

Xstrata reports $5.7B profit

Xstrata shares were down 1.7 per cent at 1,240 pence in early trading in London; Glencore shares were up 1.1 per cent at 466 pence.

The merger agreement was announced as Xstrata reported a 22 per cent gain in full-year profit to $5.7 billion, compared to $4.7 billion a year earlier. Revenue was up 11 per cent to $33.9 billion.

Xstrata, based in Zug, Switzerland, was formed in 2002 when it bought Glencore's coal assets. The company mines copper in the Americas, zinc in Spain and ferrochrome and vanadium in Australia and South Africa.

Glencore extracts, ships and refines raw materials from coal, to copper, to corn. It is based in the Swiss town of Baar but has its main listing in London.

Glencore was founded in 1974 by Marc Rich, the fugitive trader who was controversially pardoned in 2001 by then U.S. President Bill Clinton just hours before he left office. Rich sold the company to its employees in 1994, and the firm has been at pains to distance itself from its founder and any whiff of improper activity. Environmental groups, however, have since targeted the company for its mining practices.