MAC/20: Mines and Communities

Glencore signs deal to market Xstrata's nickel Trader has bigger customer base

Published by MAC on 2007-03-29

Glencore signs deal to market Xstrata's nickel Trader has bigger customer base

ANDY HOFFMAN, MINING REPORTER, Toronto Globe & Mail

29th March 2007

Xstrata Nickel is shuttering its own sales and marketing operations after striking a deal with Glencore International AG, the powerful metals trader that owns more than a third of the nickel miner's parent company Xstrata PLC.

Glencore will pay Xstrata's Toronto-based subsidiary a one-time fee of approximately $500-million (U.S.) for the pipeline of inventory.

Under the deal reached Tuesday evening, Glencore will offer Xstrata Nickel a guaranteed floor price for the 110,000 tonnes of nickel the company produces each year as well as "some upside participation above that level," Xstrata Nickel spokesman Ian Hamilton said.

Fifteen employees at offices in Tokyo, Brussels and Pittsburgh will lose their jobs. The Belgian office will stay open and the others will be closed.

Xstrata jumped into the nickel business last summer, becoming the world's fourth-largest producer with the $18-billion (Canadian) hostile takeover of Canada's Falconbridge Ltd.

It offered a number of guarantees to win approval for the takeover from the Canadian government, including a pledge to headquarter its nickel division in Toronto and not to eliminate any Canadian workers' jobs for three years.

None of the nickel sales and marketing layoffs are in Canada, Mr. Hamilton said.

Glencore, which is based in Zug, Switzerland, has a reputation as an aggressive contract negotiator and made of a profit of $5.3-billion (U.S.) last year.

Xstrata is also headquartered in Zug and Glencore already handles some of its coal and ferroalloys sales.

"It provides access to Glencore's customer base. They've got more than 50 offices, compared to our three. That greatly increases our expansion from a marketing perspective," Mr. Hamilton said.

Under its previous owner, Falconbridge, the sales and marketing division was an essential part of the business, giving it critical insight into the nickel market and securing crucial feed stock for its smelters and refinery, according to the former head of the company.

"It was a very vibrant and integral part of Falconbridge that allowed us to be one of the market leaders. It allowed us to be one of the leaders, not just in sales, but in where we invested and how we ran the company," said former Falconbridge CEO Derek Pannell.

He said the sales and marketing division was able to secure key supply agreements with producers in Africa and Russia, and offered Falconbridge an informed perspective on customers' operations and future plans. In turn, the company was able to decide whether to expand its operations or cut back.

"In my mind, it gave Falconbridge and it gave Canada a much broader view of the world," Mr. Pannell said.

Xstrata launched a friendly $4.6-billion takeover bid for LionOre Mining International Ltd. this week that will provide the miner an additional 30,000 tonnes of nickel a year if it succeeds.

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