Xstrata confirms long-rumored merger talks with Glencore

International miner Xstrata plc, which has coal mining operations in countries like Colombia, confirmed Feb. 2 that it has received an approach from and is in discussions with Glencore International plc on an all-share merger of equals which may or may not lead to an offer being made by Glencore for Xstrata.

“There can be no certainty that any offer will be made,” Xstrata said. Reports said this possible merger would have a value of roughly $80bn.

In accordance with Rule 2.6(a) of the United Kingdom’s City Code on Takeovers and Mergers, Glencore is now required, by no later than March 1 to either announce a firm intention to make an offer for Xstrata in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer. The deadline can be extended. The Xstrata announcement was made with the agreement of Glencore.

Xstrata is primarily a mining company, while newly-public Glencore is a major commodities trader that also has interests in coal mining operations. The combination of Xstrata and Glencore would create a huge player in the seaborne coal market.

Xstrata, in which Glencore already has minority ownership, is one of the top five global producers of copper, thermal and metallurgical coal, ferrochrome, zinc and nickel and it also produces silver, lead, platinum, gold, cobalt and vanadium. Founded in 2002 and headquartered in Switzerland, Xstrata now operates in over 20 countries and employs over 70,000 people at more than 100 operations and projects around the world. Xstrata has interests in coal mining operations in Australia, South Africa, Canada and Colombia.

Glencore is a public company, listed in London and Hong Kong, registered in Jersey, and headquartered in Baar, Switzerland. Glencore, through its subsidiaries, is both a significant producer of coal from its assets in South America and South Africa and is itself a market leader in the marketing of coal to global industrial consumers.

Glencore already has a market advisory agreement with Xstrata with respect to its export coal sales. Other sources of steam coal for Glencore are based on purchase contracts and agency agreements with major mining companies. Glencore’s website said the company has purchase contracts with the major coal and coke producers in Australia, South America, Indonesia, South Africa and Russia and supplies many of the world’s power utilities, steel mills, cement producers and chemical plants.

Glencore has investments in coal mining operations in Colombia, where its subsidiaries own 100% of the Prodeco Group. That makes any combination with Xstrata especially interesting, since Xstrata owns a one-third share in the big Cerrejon mine in Colombia. Glencore has investments in coal mining operations in South Africa, where its subsidiaries own 70% of Shanduka Coal.

Glencore currently owns 34.4% of Xstrata, said the Glencore website.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.