With Glencore deal on verge of collapse, Xstrata ponders growth options – by Clara Ferreira-Marque (Reuters/National Post – September 6, 2012)

The National Post is Canada’s second largest national paper.

LONDON — With Glencore’s US$34-billion takeover bid set to collapse on Friday, Xstrata boss Mick Davis will have to woo back disgruntled shareholders in the miner and push ahead alone with ambitious growth plans.
Chief Executive Davis aims to steer the fourth-largest diversified miner from its acquisition-fuelled first decade into a phase of organic, or self-generated, growth, which the miner hopes will boost volumes by 50% by the end of 2014 and cut average operating costs by a fifth.
The broad, bespectacled South African who has led Xstrata for the past decade has major hurdles ahead – unhappy minority shareholders demanding changes at the top and an even unhappier situation in Xstrata’s platinum investment Lonmin, the South African miner hit by a strike and soaring costs.
Davis will also have to find new working relationships with 34-percent shareholder Glencore – increasingly a competitor as the commodity trader’s mining presence grows – and with Qatar.

Typically a discreet investor, Qatar has shattered its “dumb money” reputation by threatening to sink the latest effort to merge Xstrata with its top shareholder with a decision to vote against the bid at a meeting on Friday. It has a 12% stake it is expected to increase over time.
Certainly, Xstrata’s position has advantages.
It is the only one of the five large diversified mining companies without exposure to steelmaking ingredient iron ore, where prices have slumped. It also has the biggest proportional exposure to copper – a metal expected to benefit from scarce supply and where the value of undeveloped resources is rising, not falling, as for some commodities.
“Companies with big copper resources, with copper growth are somewhat unique – at one point, Xstrata had 20% of probable global production growth for the next 10 years,” analyst Chris LaFemina at Jefferies said.
“The asset quality is mixed, but they have substantial growth, and diversified peers do not.”
Xstrata – which began its current incarnation in a JP Morgan basement, with the US$2.5-billion acquisition of Glencore coal assets – was dreamt up as a new-style, nimble miner that would scoop up unwanted deposits from majors and turn them into lean, profitable enterprises.
Now, at a time when major projects are fraught with delays, cost overruns and trouble with local communities, Xstrata will have no room for error as it delivers some 20 projects by 2014. That encompasses four major greenfield sites set to start production by 2014, including the US$5.2-billion Las Bambas copper mine in Peru, and Koniambo nickel mine in New Caledonia.

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