LONDON: Glencore 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 $2bn in 2014.
Commodities trader Glencore has been at pains to defend its $46bn 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 seven 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 $500m of synergies when the acquisition was first announced last year — but that included only the benefit of channelling 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 $2bn for 2014, including marketing and financing benefits but also $1.4bn 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, 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.”
Glencore did not say how much it expected to squeeze from the next phase of cost saving and synergies, to be outlined in the next six months, though analysts at Sanford Bernstein said it could be as high as another $1bn.
Much of the savings so far came from cutting corporate costs - Glencore has closed 33 offices in three months and slashed almost half Xstrata staff in headquarters or divisional offices.
But up to $576m of the $2bn total — the largest slice of the current savings — has already come from the coal division, where Glencore like other miners is struggling with weak prices and oversupply.