Mega-miner deal set to close soon
The mooted merger between commodities trader Glencore and mining company Xstrata is likely to face few regulatory hurdles in South Africa.
This is according to a competition expert.
The specialist, who preferred not to be named, said South Africa's competition authorities would likely give the go-ahead to the merger, which would create an $86-billion mega-miner with revenues of more than $200-billion. The merged entity would be the world's fourth-largest mining company, after BHP Billiton, Rio Tinto and Vale.
It would have massive exposure to base metals such as zinc, copper and lead and would have a substantial presence in thermal coal, because both companies own coal mines in South Africa.
Should the merger go ahead, it would be the number one producer of lead and zinc in the global market.
The mooted deal still needs regulatory approval from Europe, South Africa and China, and analysts suggest that China is the unknown in the equation.
The Mail & Guardian understands that the merger was lodged with the Competition Commission for consideration in April and its investigation is almost complete.
It has been suggested in competition analyses in Europe and South Africa that authorities have treated the two companies as one because a third of Xstrata is already owned by Glencore.
The competition expert said coal prices had risen because of the opening up of coal markets in India. The source pointed out that Europe's demand was for a much higher grade of coal, which meant it did not compete with Eskom, whereas India used similar coal grades to Eskom. As demand in India has picked up, this has, in turn, led to a rise in coal prices.
The expert said logistics and port costs in South Africa were also affecting the coal price.
Glencore first proposed the deal in February this year, offering Xstrata shareholders 2.8 Glencore shares for every Xstrata share. The deal has since been upped to 3.05 Glencore shares for every Xstrata share.
The deal is expected to be put to the vote at a shareholders' meeting in November, when the controversial retention payments to 70 Xstrata senior managers will also be decided.
Analysts predict the deal may be closed late this year or early in 2013.
Some analysts have speculated that the merged entity may look at off-loading its platinum interests, considering the recent turmoil in the sector. Xstrata owns a 25% stake in Lonmin.
One concern may be over control and access at the Richard's Bay coal terminal, but the competition expert said the government would be able to eliminate this potential stumbling block fairly easily.
Glencore is listed in London and Hong Kong and its headquarters are in Baar, Switzerland. It has a global network of 50 offices in 40 countries throughout Europe, as well as in the United States, Central and South America, Asia, Australia, Africa and the Middle East.
It has a 58 000-strong workforce and is run by South African chief executive Ivan Glasenberg.
Xstrata operates in more than 20 countries and employs more than 70 000 people. It has a presence in the US and South America, Africa, Asia, Australia and Europe.
Xstrata's website says it is one of the world's largest mining and metals companies and a major producer of seven commodities. The company has 19 projects in implementation and a significant number of them are at the feasibility, pre-feasibility or concept stages.