MAC: Mines and Communities

Glenstrata - what's the nature of the "beast"?

Published by MAC on 2012-11-25
Source: Statements, Reuters, Telegraph (2012-11-25)

The deal is finally done. Last week's merger between the world's biggest commodities trader and Xstrata plc has birthed a conglomerate worth roughly £50 billion.

The market capitalisation of this newly created "monster" puts it well behind that of  BHP Billiton, Vale of Brazil or Rio Tinto.

However, the terms of the merger, the furore surrounding bonus payments, and still-unanswered questions over how this new "Glenstrata" will function in practice, may make this deal seem more significant than it really is.

Time will doubtless tell...

[Comment by Nostromo Research, 25 November 2012].

Peaceful demonstrators accuse Xstrata of polluting the environment

http://www.zug4you.ch/peaceful_demonstrators_accuse_xstrata_of_polluting_the_environment.html

21 November 2012

Some 30 masked activists gathered outside the Theater-Casino in the city between 10 am and 11 am on Tuesday where the Xstrata mining company was holding its AGM. The demonstrators were protesting about the company's alleged infringement of human rights and pollution to the environment in Peru and Colombia as a result of its activities there.

Board members arrive at merger meeting protest
Board members arrive at merger meeting protest.
Source: zug4you

The peaceful demonstrators, some of whom had flown in specially from South America, belonged to the German-based Society for Threatened Peoples (GfbV), the MultiWatch organisation and the Swiss-Colombia working group, both of which are based in Bern.

According to its website, the GfbV is an independent human rights organisation, which, "does not turn a blind eye" to issues it feels need highlighting to the public at large. The MultiWatch group is made up of various non-governmental organisations, trade unions, political parties and other organisations all critical of globalisation. It specialises, it seems, in looking out for infringements against human rights by Swiss multi-national companies and has previously focussed on "shortcomings of the Nestlé company in Colombia". The Swiss-Columbia working group has been operational since 1987 and is aiming "for political and non-violent structural changes in Switzerland and Colombia, not least in fair trade".

This is not the first time that the Xstrata company has been the focus of demonstrations with a group protesting only last October against the conditions which prevail in Peru, where copper and gold is mined. Indeed last November, Oscar Mollohuanca, the 50-year-old governor of the Espinar province in the Andes, brought charges against the company because of alleged pollution to the environment and endangering the health of local people.

On Tuesday he joined the demonstrators "to tell the shareholders about the deplorable situation in his home country". According to the activists, independent enquiries have revealed that the levels of heavy metals in drinking water are much higher than what it is regarded as acceptable. Furthermore, higher-than-normal levels of miscarriages and deformities in animals have been recorded in the area. Indeed one protester held a placard which asked, "What about the llamas born without heads in our area?"

The activists also referred to the Cerrejon mine in Colombia, in which Xstrata has a 33% stake, where local people have been lured into giving up traditional hunting, fishing and agriculture to work in the mines, and where pollution is also an issue. It seems the locals have not been kept informed about enforced re-settlement caused by the company's expansion plans.

Shortly before 11 am, members of the Xstrata board began to arrive with chairman Sir John Bond, (on the left in the photograph) and CEO Michael Davis (on the right). They walked by the demonstrators but acknowledged them with a polite "Thank you" in English as they accepted their leaflets.

However, José Marun, general manager of Xstrata's South American division, took time to talk with the demonstrators in Spanish and explained to them that the company adhered to all the local regulations at its mines.

At the meeting, Mollohuanca and the three representatives of the non-governmental organisations were invited by the company to sit on the front row.

As to the AGM itself, this went swimmingly under the leadership of Sir John Bond with various members of the board re-elected. Afterwards Mollohuanca took the opportunity to make his point directly to the board. "We are no longer prepared to accept your company in our province if you continue to pollute the environment and show no respect for the rights of the local inhabitants," he said.

In his reply, Michael Davis said emphatically, "We do indeed adhere to all regulations in the area. Furthermore, our investment there makes a considerable contribution to the development of the region and to the prosperity of the people who live there," adding that since 2003 Xstrata had invested some USD 70 million in the Espinar area. As to the protection of the environment, the company had set itself higher standards than the local regulations called for.

The meeting finished shortly before 12 noon with drinks for the shareholders while Mollohuanca and the other activists headed for the Café Plaza on Bahnhofstrasse. "We are sticking to our guns," said the governor defiantly. "We cannot ignore the deleterious effects on the local people and the environment despite the economic development."

The Swiss-British Xstrata company is currently in negotiation with the Baar-based Glencore company with regard to a possible merger. If successful, the Glencore-Xstrata International company would then be among the biggest mining and commodity-trading companies in the world.


London Mining Network reaction to merger proposal of Glencore and Xstrata

London Mining Network press release

19 November 2012

On Tuesday 20 November, shareholders of mining giant Xstrata are due to vote on the proposed $33 billion takeover by Glencore. London Mining Network, a civil society group that monitors the impacts of London-listed mining companies is raising concerns over the environmental and human rights impacts of the two companies, and asking if the newly merged "mining monster" will be able to act with even great impunity in future.

Richard Solly, the coordinator of London Mining Network issued the following statement:

"Both Glencore and Xstrata have extremely poor environmental and human rights records. Glencore's Colombian subsidiary, Prodeco, is associated with paramilitary land-grabbing and the violent repression of civil society. In Zambia its mining and smelting operations have been criticised for illegal toxic pollution of air and water which has resulted in the hospitalisation of numerous local people, while the company has done its best to avoid paying taxes. There are more such controversies associated with the company in Peru, the USA and the Democratic Republic of Congo.

Xstrata's operations have a similarly blemished record. At the Cerrejon coal mine in Colombia it has benefitted from unjust removals of agricultural communities to make way for mine expansion, while in Peru it is embroiled in violent conflict with the local community at Tintaya over fears of pollution from its copper mine. Protests have led to killings and illegal detention of mining opponents. In the Philippines, the wife and children of a local tribal leader who is opposing the entry of the company's Tampakan mine have been killed while they slept by army elements who have been sent in to 'restore order' and protect the mine.

Glencore and Xstrata are each already huge companies in their own right. Together, they will combine metals production and metals trading, exerting control all along the mining value chain (particularly in the production and trading of thermal coal). At a time when there are concerns that banks have become too big to fail, mergers within the mining industry are creating beasts of companies who have enough market muscle to exert monopolistic tendencies. In May this year, Glencore's Chief Executive Ivan Glasenberg talked about how the mining industry can counter growing attempts by developing countries to get a better share of mining tax revenue. How much of a better position will the new Glenstrata be in to get its own way?

If Glencore succeeds in swallowing Xstrata our fear is that the combined company's approach to human rights, community rights, worker rights, Indigenous rights, environmental pollution and taxation will be a combination of the lowest standards applied in each company - a real Frankenstein's monster of a company, but with a less developed conscience."

** ENDS **

For more info on Glencore's controversial environmental and human rights record, see: http://www.minesandcommunities.org/list.php?r=333

For more info on Xstrata's controversial environmental and human rights record, see: http://www.minesandcommunities.org/list.php?r=851


Xstrata ensures a vote for Glencore merger is also a vote for greed

Xstrata is, after all, a mining company. So nobody should be surprised that its potential final act as an independent outfit is to come up with a shareholder vote that's as clear as mud.

By Alistair Osborne, Business Editor

Telegraph

12 November 2012

On Tuesday next week, Xstrata investors vote on whether they should accept Glencore's offer of 3.05 new shares for each of theirs - and be subsumed into the £50bn extravaganza being put together by that sharp commodity trader, Glencore boss Ivan Glasenberg.

Last month, when the pair finally agreed new terms, Xstrata chairman Sir John Bond made much of how he had listened to shareholders and "decoupled" the vote on the merger from the one on a controversial, if not downright egregious, £140m of retention bonuses for Xstrata's 70 top managers.

It's down from £170m, incidentally, since it no longer includes the company's chief executive Mick Davis - a man who knows even more about bonuses than he does about mines, and namely that mine's a large one.

As the vote looms, however, it's becoming clearer by the hour what this "decoupling" actually means in practice. The split vote for Xstrata investors works out to no less than eight possible scenarios, four of which could bring down the entire deal. So mind-boggling are the permutations that even bankers involved have been told to shut up when explaining them to their sales desks.

Broadly, there are three votes, with Glencore unable to vote its 34pc stake. The first two are at a court meeting requiring 75pc approval and more than half the votes by number - the latter putting retail investors, about a third of the total, in a rare position of power.

Vote one is to approve both the deal and the bonus scheme. Vote two is for the deal but against the incentives. And then there is then a separate later vote at a general meeting on the bonus scheme. That needs a straight majority.

The big flaw is that investors may not know how to vote in the general meeting until they know the outcome of the court meeting. After all, even those who hate the bonuses might want to make a reluctant switch to save the deal.

That partly explains Xstrata's ad blitz, stressing a proxy vote doesn't "prevent a shareholder from attending and voting in person" - though it doesn't mention picking up the tab for the trip to the meeting in Zug, Switzerland. (OK, there is a satellite meeting in London, too).

The next problem is the votes must match up. So, you could get a situation where the court meeting votes for the merger with bonuses but then a majority votes "no" in the separate pay ballot.

Xstrata reckons that's unlikely. But, just to be on the safe side, it's urging investors to vote yes to everything. Which, of course, is just what Bond wants. He's the same former HSBC boss who was happy to roll over for just 2.8 new Glencore shares - before Xstrata's Qatari investors taught him a lesson in value. The suspicion remains that his priority has always been rewarding Xstrata's top brass. Indeed, if the deal is as good as he says it is, why the need for retention bonuses anyway?

David Cumming, head of equities at top 10 shareholder Standard Life Investments, said much the same thing on Monday, arguing the bonus scheme was the product of "a rather rapacious management team and a weak board".

Sure, the merger will probably go through. But, shareholders who want that outcome are likely to end up also voting, through gritted teeth, for the bonuses. Through sheer obfuscation, Bond has ensured a vote for Glenstrata is also a vote for another G - greed.


Xstrata shareholders vote for Glencore bid excl. bonuses

Clara Ferreira-Marques and Emma Farge

Reuters

20 November 2012

LONDON/ZUG, Switzerland (Reuters) - Shareholders in Xstrata dealt a blow to their board on Tuesday, ushering through a long-awaited $31 billion takeover by trader Glencore but vetoing a controversial executive pay plan that had been backed by the miner's directors.

The snub prompted Xstrata's current chairman John Bond, who will be chairman of the combined group, to announce he would step down once a replacement is found.

Tuesday's complex series of votes in the Swiss lakeside town of Zug, taking over more than two hours, brought to an end years of on-off merger talks between Xstrata and its largest shareholder and almost a year of often tense negotiations, creating what both sides hope will be a mining and trading powerhouse.

The tie-up, on the cards after Glencore listed last year, still needs to receive antitrust approval from European and Chinese regulators, but now looks set to become the largest deal in the sector since Rio Tinto's acquisition of Alcan in 2007.

Hours after Glencore's shareholders overwhelmingly backed the deal, almost 79 percent of Xstrata's voting shareholders gave their support - but without a "golden handcuffs" deal the board had insisted was key to keeping key managers.

The plan had been publicly lambasted by institutional investors.

Qatar, which became kingmaker in the deal as Xstrata's second-largest shareholder, had said it would back the main resolutions on the deal but would abstain on the retention, making it likely that vote would fail.

In the event, 78.4 percent of shareholders voted against pay awards described by one critical investor, activist fund Knight Vinke, as "egregious".

"Right now, there is $20 billion of your money invested in 20 projects and extensions. It is the Xstrata management team that is responsible for making sure these investments are made safely, soundly and profitably," Bond told investors gathered for the votes.

But Bond, formerly chairman of Vodafone and HSBC, was brushed aside as shareholders threw out the pay plan. His resignation announcement came soon afterwards.

The deal is a victory for active investors, who secured change on both the terms of the deal, thanks to Qatar, and on the retention plan, initially a key condition for the deal.

Analysts and advisers have already begun focusing on the next steps for the miner and trader that, with its spread of assets from mines, to oil wells to farms and more ships than Britain's Royal Navy, is expected to be a deal machine in frugal times.

Xstrata, whose growth over the last decade has been fuelled by deals, was set up with a $2.5 billion acquisition of Glencore coal assets. Glencore, for its part, joined the stock market last year with the intention of funding larger deals, including the bid for control of Xstrata.

"These companies have looked at doing significant acquisitions over the last year - the question is whether they buck the trend and provide more buoyancy in the industry," Alexander Keepin, partner and co-head of mining at law firm Berwin Leighton Paisner said.

Glencore and Xstrata have already proved a bright spot for the nine banks, law firms and countless other advisers, who will share some $200 million as a result of one of the sector's largest deals since Rio Tinto's acquisition of Alcan in 2007.

Depending on the combined group's final weighting, Glencore Xstrata could be the 13th largest company in Britain's FTSE 100 , representing more than 2 percent of the blue-chip index.

It could also sell some non-core assets - not least Xstrata's chrome and platinum, analysts say, and revise Xstrata's portfolio of mining projects, some of which are ambitious greenfield mines that Glencore does not prioritise.

Glencore, Xstrata's largest shareholder with a 34-percent stake, is offering 3.05 new shares for every Xstrata share.

Europe's antitrust regulators are due to give their verdict by Thursday.


Glenstrata, the new mining king, is born

Cecilia Jamasmie

Mining.com

20 November 2012

In what shouldn't come as a surprise for those following the recent events related to the touted and long delayed $66 billion merger between diversified miner Xstrata (LON:XTA) and commodity trader giant Glencore International (LON:GLEN), the Swiss company's shareholders have approved the deal.

Glencore shareholders had previously backed the merger and the company already owned 34% of Xstrata. The next largest shareholder, the sovereign wealth fund Qatar Holding, with a 12% stake in the diversified coal and copper miner, also voiced its support last week after drastically opposing the initial offer.

While the merger is a done deal, Xstrata's shareholders rejected the controversial retention bonus plan for Xstrata's executives by a resounding 78.4%.

Qatar Holding abstained from that vote, citing "the sensitivities concerning governance issues in the U.K."

When the deal was announced in February, Glencore was offering 2.8 shares for every one of Xstrata; but, in September. Glencore's CEO, Ivan Glasenberg, relented under pressure from Qatar and other major shareholders and upped the offer roughly to 3.05.

As part of the revised offer - the largest corporate deal of the year- Glasenberg, would lead the combined company and not current Xstrata CEO Mick Davis, who was earlier slated to lead a post-merger 'Glenstrata'.

According to the latest merger documentation Qatar would own 8.4% of Glenstrata based on the current terms while Glasenberg's stake in the combined entity would be just fewer than 8.3%.

Analysts quoted by FT.com believe the deal will close in early 2013, with consent from China's Ministry of Commerce still pending.


Glencore wins conditional EU clearance for Xstrata tie-up

Foo Yun Chee

Reuters

22 November 2012

BRUSSELS - Glencore closed in on its aim of becoming a mining and trading powerhouse on Thursday, as Europe's antitrust regulator announced it had approved the $33 billion takeover of Xstrata.

The deal, one of the biggest to date in the mining sector, was cleared with more modest concessions than had been expected.

The world's largest diversified commodities trader must scrap an exclusive zinc sales deal with Nyrstar and sell its 7.8 percent stake in the world No. 1 zinc producer, the European Commission said in a statement.

The move will cut the combined entity's share of the European zinc market to below 40 percent, the threshold which typically triggers antitrust regulatory concerns.

"The proposed remedy ensures that competition in the European zinc metal market is preserved, so that European customers such as steel galvanisers and carmakers can continue to produce valuable consumer goods at low prices and good quality," EU Competition Commissioner Joaquin Almunia said.

The EU antitrust authority said Glencore also pledged not to buy zinc, either directly or indirectly, from Nyrstar for 10 years, and agreed not to take any action to restrict Nyrstar's ability to compete with it in Europe during that period.

Such guarantees meant Glencore will not have to sell Xstrata's Nordenham zinc smelter in Germany. It offered up the smelter last week after the Commission said the Nyrstar proposal was not sufficient, sources familiar with the matter said.

"We are somewhat surprised by the leniency of the EC, but not at all surprised that this transaction has ultimately been approved by Brussels," Jefferies analysts said in a note.

"Today's EU approval brings this proposed merger one step closer to completion."

Glencore must now clear antitrust hurdles in China, and secure a final approval from South African authorities.

Investors gave their backing to the deal earlier this week.

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