Glencore agrees to Chinese demands, more execs out

GLENCORE International will have to sell a $US5.2 billion ($A5 billion) Xstrata development project in Peru to win Chinese approval for the proposed mega-merger, while Mick Davis and other key Xstrata executives will depart the enlarged entity immediately.

Kristie Batten
Glencore agrees to Chinese demands, more execs out

Chinese approval had been the only thing delaying the $51 billion deal but late yesterday the Chinese Ministry of Commerce (MOFCOM) had given the nod, subject to several commitments being met.

The most significant is the sale of the Las Bambas copper development project in Peru by September 30 next year.

The sale must be for a pre-determined price based on either the fair market price of Glencore’s ownership interest in the project, as assessed by two independent investment banks, or the total of all costs incurred by Glencore and Xstrata in Las Bambas.

If Glencore does not enter into a binding deal by the deadline, it must appoint as divestiture trustee to auction its interest in either the Tampakan, Frieda River, El Pachon or Alumbrera copper assets.

MOFCOM also stipulated that Glencore continue to offer to supply Chinese customers with a minimum volume (900,000 tonnes) of copper concentrate annually under long-term contracts for at least eight years, though if Glencore increases or lowers annual production, the minimum will be altered pro rata.

Glencore will also have to continue to supply Chinese customers with zinc and lead concentrate through long-term and spot contracts.

The company will be required to report to MOFCOM within 15 days of the end of each quarter to demonstrate it is complying with requirements.

The conditional approval allows the merger to be completed by May 2.

However, Xstrata boss Mick Davis, who was to head up the merged company for six months, will now depart immediately, allowing Glencore chief executive officer Ivan Glasenberg to take up his top post earlier.

Davis said he looked back on his 11 years at the helm of Xstrata with enormous satisfaction.

“My executive team and I are pleased to hand over to the new Glencore Xstrata a company with a strong legacy for value creation and growth, a high quality portfolio of operations and growth options, supported by a very healthy balance sheet,” he said.

“As importantly, we are certain that each of our 84,000 employees and contractors will bring to the new merged entity the unique set of capabilities and values which have made Xstrata so successful and, in particular, an approach to sustainability which is looked to as the model for the industry.”

Davis will still be entitled to six months of pay and entitlements equating to 4.6 million pounds, in addition to the previously agreed sum of a year’s salary, 2011 bonus and other benefits and pension.

He will act as a consultant until the end of June, though will not be paid consultancy fees – instead he will be entitled to up to 30 hours of private use of an Xstrata aircraft.

Davis will take a sub-lease of Almack House, Xstrata’s former London offices, until March 15, 2017, at the same rent Xstrata pays, with a rent-free period up to the end of March next year, though he will pay the company the book value of the furniture and IT equipment at the end of the lease.

As previously announced Trevor Reid will no longer take up his role of chief financial officer, while a number of other key executives will also join the exodus.

Brisbane-based Xstrata Copper CEO Charlie Sartain will depart, as will Xstrata Nickel CEO Ian Pearce and Xstrata Alloys interim CEO Loutjie Smit.

Xstrata strategy and corporate affairs executive general manager Thras Moraitis and chief legal counsel Benny Levene will also step down but will act as consultants for up to six months.


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