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London - Glencore Xstrata told investors on Friday it would return cash, cut costs and sell off some assets, raising the possibility it would exceed planned synergies of $500m.
Glencore, now the world's fourth-largest diversified mining company, began trading in London a day after the group tied up the biggest acquisition in the sector to date. Shares rose 4% to value the group at almost $71bn.
It unveiled a Glencore-heavy management team, keeping most of its divisional heads in place. The group ended the 15-month takeover process with promises that its ability to cut back unnecessary staff, offices and projects will ensure success - even at a time of cooling prices.
"If we can cut costs enough, get rid of these corporate head offices, we can cut a lot of fat out of the system. These synergies and overhead reductions - that figure can ensure this merger is a success," Ivan Glasenberg said in an interview.
"The target of $500m is only the synergies on the trading operations. When we came up with that figure we had no idea what the overheads were in Xstrata... and it wasn't a takeover at that time."
Glasenberg said additional savings would be "substantial" as Xstrata itself had estimated it could cut $300m of administration costs, on top of trading savings.
In slides to accompany a presentation to investors on Friday, Glencore said its previously announced $500m of synergies in the first full year would be "comfortably met" - fuelling expectations of a substantial improvement. Analysts expect a final figure of at least double the original amount.
But, for all the talk of cuts and the potential for asset sales, Glencore and its management team face the biggest challenge since the trader was set up almost four decades ago, integrating a $46bn miner as the cycle turns - and running Xstrata's assets with only one of the group's key executives.
Leaving little doubt that what was a merger of equals has ended as a takeover, Glencore said only 2 of 14 top divisional jobs would be taken by Xstrata managers - Peter Freyberg running coal mining and Mark Eames in charge of iron ore projects.
Coal trading will remain the preserve of Glencore's Tor Peterson.
Glasenberg brushed off concerns about the Glencore team's ability to run Xstrata's mines, pointing to Xstrata's Freyberg at the head of the most complex division - coal.
Glencore's ebullient veteran Telis Mistakidis will run the key copper division, including mining and trading, while zinc will be split between Glencore's Daniel Mate on trading and Chris Eskdale, also an old Glencore base metals hand, on mining.
Copper alone accounted for more than half Xstrata profit.
Assets sales, dividends
The group, which will present to investors later on Friday, will now take 100 days - until the third quarter - to carry out a full review, which could result in the sale of non-core assets. Signalling its tough stance on value, Glencore set its target return on equity for new projects at 20% to 25%.
Glasenberg said it was not "an ideal time" to sell assets, however, and Glencore could keep projects that were not "sucking a lot of money out of the business". Most analysts, however, expect cuts to Xstrata's project pipeline.
It has not yet begun the process of selling Las Bambas, the Peruvian mine it has to divest to satisfy Chinese regulators, but the group's chief financial officer Steven Kalmin said he expected Chinese interest.
The group also promised it would return excess capital to shareholders through dividends or share buy-backs - a sensitive subject for investors who have long complained of mining companies' low dividend yields.
"We don't want excess capital to be sitting here, burning a hole, tempting us to go out and do something that is not consistent with what we have said on capital discipline," Kalmin said.
"The ability to increase payout ratios and cash is clearly going to be there once this current capex cliff begins tailing off... into 2015," he added, referring to a drop off in planned spending.
While Glencore remains opportunistic and Glasenberg did not exclude deals, he said there were no targets on the horizon.
"We just want to sit tight right now.
The priority is to get this integration in the right place."
