Glencore Xstrata's Investor Day Takeaway: Leg Up on Rio Tinto

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Glencore Xstrata held an Investor Day here in London yesterday to present progress made so far in the integration of mining giant Xstrata and trading supremo Glencore. The new entity is ranked somewhere around No. 4 as a global miner, but the takeaway from attending the presentation is that the merged group is anything but a miner.

Sure, it is ranked between No. 1 and No. 4 in many major base metals, plus coal and oil; but unique among miners, the group has the enormous asset of its marketing network.

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Investors were looking for detail on how the integration was going and the level of savings achieved through synergies. The news was good – exceptionally good, in fact – because back in May, CEO Ivan Glasenberg promised at least $500 million; yesterday, he and his team laid out detailed savings amounting to some $2 billion, with more to follow as savings made at the headquarters and divisional levels in Phases One and Two are driven down to the individual operations in a Phase Three, starting now.

The integration has apparently gone pretty much seamlessly, as you would expect for a firm used to trading assets around the world. Xstrata’s book is one more (admittedly huge) resource to feed into the Glencore marketing network.

And that, for me, is where the unquantifiable value will come – postponing capex, making hard yet necessary judgments on projects (some of which have been scrapped), slashing duplication between the two organizations, have delivered easily quantifiable savings that will delight investors.

But maximizing asset values through getting the best price for commodities is where Glencore-Xstrata will achieve something that the Rio Tintos, Anglo Americans and Vales of this world can’t. Ivan Glasenberg put a figure of $450m on better margins, improved freights rates and other benefits brought by Glencore’s marketing services but it’s the long term strategic aswell as day to day tactical advantages that the trading network will bring that may not be so readily quantifiable.

Time and again in presentations given throughout the day, it was clear Glencore’s marketing network has relationships in every industry in every country where commodities are consumed – relationships that give the commodities behemoth a unique insight into market movements, trends and opportunities.

How these advantages will reveal themselves will be harder to illustrate, apart from straight to the bottom line as a better net profit than competitors, but as presentations from individual commodity leaders showed, Glencore’s grasp of market dynamics is all the more profound for the knowledge gained through its marketing team than the sales teams of rival miners.

Check back with us for follow-up articles reporting on Glencore’s view of the market dynamics in base metals markets – copper, zinc and nickel – we hope will make as interesting reading as the original presentations.

Read more from Stuart Burns.

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