Glencore squeezes $2 billion out of Xstrata deal

Tue Sep 10, 2013 12:02pm EDT
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By Clara Ferreira-Marques

LONDON (Reuters) - Glencore (GLEN.L: Quote) will cut spending, shelve dozens of projects and squeeze more than expected from its record-breaking purchase of mining group Xstrata, lifting benefits from the deal to at least $2 billion in 2014.

Commodities trader Glencore has been at pains to defend its $46 billion takeover of Xstrata, a blockbuster for the mining sector that came just as the commodities cycle turned.

The increase in the deal's headline benefits was expected, given Glencore's conservative targets. But the company's promise of more to come, plus a commitment to capital discipline in a sector that squandered billions during the mining boom was taken positively by the market.

Glencore's shares, which have underperformed the UK mining sector by around 7 percent since the merger completed in May, were up 2.4 percent in London at 1500 GMT at 329 pence.

The commodities trader had forecast $500 million of synergies when the acquisition was first announced last year - but that included only the benefit of channeling more of Xstrata's output through Glencore's marketing machine.

In its first detailed presentation since closing the deal, Glencore said it now planned for synergies to exceed $2 billion for 2014, including marketing and financing benefits but also $1.4 billion through cost savings alone, more than many analysts had forecast.

"As we delve deeper into the assets ... I am sure there is more to go - to pinpoint what that number is, is difficult," Chief Executive Ivan Glasenberg said on Tuesday, adding the additional cuts would come from both trading and operations.

"We have to get mine managers to understand what Glencore needs, and how many people it needs to implement it. By the end of this year, we will have that in place."   Continued...

The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012. REUTERS/Arnd Wiegmann