Xstrata seeks mega-merger

Posted By STAR STAFF

Posted 18 mins ago

Swiss metals company Xstrata is seeking a merger with Anglo American Plc to create a mining group that would rival BHP Billiton Ltd., the world's largest, Bloomberg News is reporting.

Xstrata said on the weekend it proposed to London-based Anglo a "merger of equals" that would lead to "substantial" cost savings.

The combined company would have sales of more than $54 billion, based on 2008 figures, and produce commodities including copper, coal, iron ore and zinc.

The company owns Xstrata Nickel, which operates mines, mills and a smelter in Greater Sudbury.

Combining with Anglo would also be the largest deal yet for Xstrata Chief Executive Officer Mick Davis, who has spent more than $27 billion in six years to add copper production in Chile, nickel mines in Canada, coal in Australia and platinum in South Africa.

"Xstrata cannot go six months without doing a deal," Bloomberg quoted John Meyer, head of natural resources at investment bank Fairfax I. S. Plc in London, as saying.

"The credit crunch put the brakes on them a bit, but here they are back again. This would be Mick Davis's biggest deal by far."

Talks are "at a very preliminary stage, and there is no certainty that any transaction will be forthcoming," Anglo said in a statement Sunday.

Marc Ocskay, a spokesman for Glencore International AG, Xstrata's largest shareholder, declined to comment, Bloomberg said.

Anglo closed at 1,623 pence on the London Stock Exchange on Friday, giving it a market value of 21.4 billion pounds ($35.2 billion).

Xstrata, which is based in Zug, closed at 681 pence, valuing it at 20.1 billion pounds. While Anglo has gained 5% this year, the worst-performing stock in the 14-member FTSE 350 Mining Index, Xstrata has advanced 88%.

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The combined sales of Xstrata and Anglo would almost match those of Londonbased Rio Tinto Group, the world's third-largest mining company. Melbourne-based BHP had sales of $63.7 billion in the year to Dec. 31.

COST SAVINGS

The merger may save as much as $700 million a year by combining copper operations in Chile and coal mines in South Africa, Paul Cliff, an analyst at Nomura Securities Co. Ltd. in London, wrote in a May report.

"A more aggressive approach to production discipline at Anglo Platinum could effectively rebalance the platinum market and help drive higher prices." he wrote. Iron ore and platinum are "top of Xstrata's wish list," he added.

Davis, 51, a South African, worked as an accountant before joining Eskom Holdings Ltd., Africa's largest power supplier, in 1986 as executive director. In 1994, Davis was hired as finance director of South African miner Gencor Ltd., which later became Billiton Plc. He joined Xstrata after Billiton agreed to be acquired by Australia's BHP Ltd. to create BHP Billiton.

Xstrata sold shares to investors in London in 2002. It paid A$5.1 billion ($4.1 billion) for Australian copper and zinc producer M. I. M. Holdings Ltd. in 2003. Three years later, it bought Canadian nickel producer Falconbridge Ltd. for $18.1 billion.

Other deals include the acquisition of a third of the Cerrejon coal mine in Colombia for $1.71 billion in 2006 and the Tintaya copper mine in Peru for $750 billion in 2006.