Glencore Xstrata mining merger produces USD 2.4 billion in synergies

Glencore Xstrata has done an excellent job in finding synergies through the mining giants’ USD 29 billion merger in May 2013, the combined group’s first set of annual results shows.

Mr Ivan Glasenberg CEO of Glencore Xstrata said that “The group had increased the synergy benefits of the merger from the original estimate of USD 2 billion a year by 2014 to USD 2.4 billion and there was scope for further cost savings.

Mr Hanre Rossouw head of commodities for frontier and emerging markets at Investec Asset Management said that “Despite a USD 7.5 billion write down on the value of Glencore Xstrata assets since the takeover on May 2 last year, the merger was a good decision and the additional realized cost savings show Glencore has done an excellent job.”

Mr Rossouw said that “Because it was an all-share deal, the impairment is really an accounting issue related to the share price movements since the date the transaction was finalized and the allocation of fair value to Xstrata assets. It is not a cash flow item.”

Mr Glasenberg said that in addition to finance and headcount savings about 8,000 jobs have been shed across the global operations since the takeover the Xstrata deal had improved the group’s cost position by moving it down the cost curve with higher quality assets.

The Xstrata write down contributed to the group’s loss of USD 7.4 billion down from a profit of USD 1 billion in 2012. Revenue rose marginally to nearly USD 240 billion about 60% of South Africa’s gross domestic product. The fortunes of Glencore Xstrata, which listed on the JSE in November to deepen its relationship with South Africa and to highlight its confidence in Africa as an investment destination,are tied to the copper and coal markets and its marketing division.

He added that “Its marketing business is seen as a big plus in diversifying its earnings, as its success is not closely tied to commodity prices. The division continues to be resilient no matter what movement we have in the commodity prices.”