The Sudbury Star is the City of Greater Sudbury’s daily newspaper.
“But, let’s remember, Sudbury still has enormous geological potential, is
polymetallic — copper, platinum group metals, cobalt and others — in addition
to nickel, has established mining infrastructure, skilled workforce and is
one of the top, politically risk-free and mine-friendly jurisdictions in a
resource-starved world.” (Stan Sudol – Mining Analyst/Columnist/Blogger)
Though the talks of a merger between two enormous mining giants has been going on for many years in secret, it wasn’t until Feb. 7 that mining company Xstrata and commodities dealer Glencore agreed to a $90B US merger that will create the world’s fourth largest natural resources company.
The combined company will control a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper and corn.
Under the terms of the deal, Xstrata shareholders would receive 2.8 Glencore shares for each of their shares. That represents a premium of 15.2% based on recent closing prices. Glencore already had a 34% stake in Xstrata.
The merger is projected to yield cost savings of $500 million in the first full year, primarily in marketing. It will also give the combined company greater leverage to borrow money for its operations — a key advantage in the high-volume, low-margin commodities business. The new company would be the world’s third-largest copper producer, fourth-largest nickel producers and the global leader in thermal coal, ferrochrome and integrated zinc production.
“The commodities value chain is becoming longer and more complex, creating opportunities for a company that can pre-emptively participate at every stage,” said Xstrata Chief Executive Mick Davis, who will become CEO of the merged company.
And while this news is certainly interesting for shareholders — what does it mean for the Sudbury? As an employer of more than 1,000 people in the area, Xstrata is a well-known, major economic force.
Stan Sudol, mining analyst and columnist, runs one of the top ten mining blogs in the world, www.republicofmining.com. He is fairly confident that this merger will not mean much change at first for the City.
“The immediate impact of the Xstrata/Glencore merger on Sudbury would probably not be significant,” says Sudol, “however, the combined companies will have more financial capacity and they do want to grow. And they certainly will be able to fund more acquisitions and exploration and development around the world, including the mineral-rich Sudbury basin.”
But as with most things in life, the good will always come with the bad: “On the downside, the Sudbury operations will be a much smaller part of an enormous corporation and have to work much harder to get global competition for exploration and development money.”
Of course, Sudbury is a city that knows how to be patient, and also a city that knows what it has to offer. It has already been through the tumultuous two years of Xstrata’s takeover of nickel and copper producer Falconbridge in 2006, as well as many other company mergers and buyouts.
“But, let’s remember, Sudbury still has enormous geological potential, is polymetallic — copper, platinum group metals, cobalt and others — in addition to nickel, has established mining infrastructure, skilled workforce and is one of the top, politically risk-free and mine-friendly jurisdictions in a resource-starved world.”