Glencore Xstrata CEO: Commodities key to success

Published: May 3, 2013 3:32 a.m. ET



JohnW. Miller

--Newly merged company's CEO says focus on integrating Glencore and Xstrata, squeezing out every ounce of profit

--The CEO says he expects to fire a "big amount" of Xstrata middle managers

--Also, the company will be on the lookout for the next deal, though it will probably go slow on major acquisitions

(Adds details from interview with Glencore's CEO throughout.)


As Glencore Xstrata shares start trading Friday, the focus is on integrating the two companies, squeezing out every ounce of profit, and watching for the next deal. "Not one glass of champagne will be opened," said the 57-year-old former coal trader and Glencore International PLC (GLNCY, GLEN.LN, 0805.HK) head in an interview with The Wall Street Journal. "It's easy to buy. Prove that you bought at the right time and the right price. I've never opened a glass of champagne on any acquisition. Bankers do that."

Instead, Mr. Glasenberg said he dreads the possibility that the Xstrata deal, years in the making, could prove to be an epic fail. A botched merger, such as the 2000 deal between AOL Inc. (AOL) and Time Warner Inc. (TWX), is "exactly what I fear ... every day," said Mr. Glasenberg, minutes after the merger formally cleared. "If commodity prices stay low, someone will say, he got it wrong."

In the interview, the South African left no doubt that the new company will retain all of the old Glencore's hard-charging DNA. He explained why he sees no difference between politically volatile nations that might seize assets and stable democracies that raise taxes. He defended the company's Darwinian culture, in which he said underlings "attack" their superiors if they perceive them to be slacking off.

And the trader showed both that he is trying to adjust to life heading a publicly traded company--and that it is hard. He extolled the new company's corporate governance, even as he made it clear that his team is in full control, saying Glencore "is still a private company in a way" thanks to its large employee stockholdings.

Mr. Glasenberg is even trying to tone down his in-your-face style a bit. "I'm a CEO of a public company," he said. "You have to show decorum."

Mr. Glasenberg said the success of the new company hinges on strength in commodity prices such as copper, zinc and coal, which have slumped since the merger was announced in February 2012, sending Glencore International's share price tumbling 38%. The two companies were pretty equal in terms of zinc and copper production but not coal, where Xstrata PLC (XTA.LN) was a bigger player.

"It's a big play on coal," Mr. Glasenberg said. "To really screw this up, the coal price has got to really tank."

Glencore Xstrata has a 100-day integration plan. Mr. Glasenberg said he has visited every major Xstrata operation, discovered a duplication of key tasks and expects to fire a "big amount" of Xstrata middle managers. At least six senior Xstrata managers have resigned, he said. "But all the mine managers are staying."

Mr. Glasenberg declined to give a figure for the layoffs. "It's going to be big," he said. "We don't see the necessary reason for these big business units."

Glencore Xstrata will stick to the combined company's committed capital expenditures until 2015 but will then reassess investments. Xstrata's new copper projects include Tampakan in the Philippines, Alumbrera or El Pachon in Argentina or Frieda River in Papua New Guinea.

"If it costs too much to maintain, we may have to sell them," he said, referring to all projects the company would have to build from scratch.

Meanwhile, the company will probably go slow on major acquisitions, although it has already been linked as possibly interested in mining companies such as Rio Tinto PLC (RIO, RIO.AU, RIO.LN) and Eurasian Natural Resources Corp. PLC (ENRC.LN).

"Glencore has a job to consolidate Xstrata," Mr. Glasenberg said. With $30 billion in net debt on the books as of Dec. 31, "you can't make massive cash acquisitions unless commodities prices really pick up. We always look at opportunities. We are not aggressively looking to buy something."

If it does buy something, Mr. Glasenberg said, the target would be determined by value rather that the price of the metal being produced. "Let's say you're bearish on nickel," he said. "You can buy a nickel asset cheap as hell, because people are so pessimistic on it, and then you put in your forward curve, your nickel price, it still gives you a 15 to 20% return, we'll buy that."

Mr. Glasenberg, who climbed to power as the chief executive of then-commodity-trading house Glencore in 2002, brokered the merger with Xstrata. He was slated to be deputy chief executive under Xstrata Chief Executive Mick Davis until Xstrata shareholder Qatar Holding LLC demanded a higher price for the deal. That led Glencore to increase the ratio it was offering to 3.05 Glencore shares per Xstrata share from 2.8, and to demand that Mr. Glasenberg take over the top job.

"We decided if we are paying more we want to run the show," said Mr. Glasenberg. "Do we feel better today that we're running this thing, that it's under our control? Yes." However, added Mr. Glasenberg, he was fully prepared to work with Mr. Davis.

Mr. Glasenberg owns 8% of the new, combined company, which has raised concerns that he might need a counterweight at the top of the firm. He said he would support a board that could keep him in check. "They're going to tell me if I'm wrong," he said. For example, if Qatar Holding wants to a member of the board and "own a big chunk of the company, subject to nominations, I'd have no problem with them being on the board."

Mr. Glasenberg said that in analyzing where to buy mines, he doesn't favor wealthier, more established mining locales such as Australia and Canada over emerging economies such as the Democratic Republic of Congo or Colombia. "They may be more risky countries, but they're giving me big returns," he said. "These big monster assets [such as those in Australia and Brazil] are not giving me the big returns because they've had big cost overruns."

One big reason the company prefers to invest in so-called frontier nations is that, in a place such as the DRC, "we're more important to the country, that we believe the country has less chance of hurting us that in some of the bigger countries where we're not that important," he said. Australia imposing a mining tax in 2010 is akin to an "expropriation," he said, a risk as bad as anything that might happen in the Congo.

"Once governments change the rules on you, whether it's expropriations, taxes, royalties, whatever it is, they're sucking the profits off you," he said. "I don't treat any of them different. They're all the same. They're taking the money off you in one form or another."

Whatever happens, he said, the new company wouldn't be wedded to any single path. "I don't do: 'Here's my vision for this company in the next 10 years,' " he said. "I don't have the vision of this company. I just want to do the right thing and get massive return on the equity, and I don't know where it's going to take me."

Write to John W. Miller at and Alex MacDonald at

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