Davis to get £4.6m payout as Xstrata deal approved

MINING magnate Mick Davis will retain the use of Xstrata’s company jet and receive £4.6m to leave the merged entity created from the company he has helped mastermind since 2001 and the world’s largest commodity trader, Glencore.

Port Elizabeth-born Mr Davis opted to step down once the takeover is effective on May 2 rather than serve as interim CEO of the merged group for six months as had been agreed. He hands over to fellow South African and Glencore CEO Ivan Glasenberg.

Mr Davis will be joined in his departure by six of his core lieutenants, including long-time associate and Xstrata chief financial officer Trevor Reid. Others include Xstrata copper head Charlie Sartain, nickel head Ian Pearce, and alloys division head Loutjie Smit.

Xstrata strategy head Thras Moraitis is also leaving.

“With the majority of the Xstrata executive committee now departing, it leaves the new company with a potentially difficult task of managing a number of complex projects and operations without the existing divisional heads,” said BMO Capital Markets’ Tony Robson.

Mr Davis may start a mining fund together with Mr Reid. There is speculation in the market that Mr Davis will keep his tried and trusted team with him.

Mr Davis will remain as an unpaid consultant to the combined group until end-June to assist in the handover. In exchange for not taking up the six-month CEO role, he will receive a £4.6m payment.

“He will be entitled to up to 30 hours of private use of an Xstrata aircraft, which has been previously approved by the remuneration committee of Xstrata and provided to him in connection with his current role as CEO of Xstrata,” Glencore said.

Mr Davis will sublet Xstrata’s London office, Almack House, up to March 2017. Glencore stipulated that he pay book value for the furniture and computers at the offices in a prestigious part of London.

Mr Davis stressed the values, approach to sustainability and quality of the portfolio he and his team were leaving behind at Xstrata.

“I look to my colleagues to keep this legacy alive within the new Glencore Xstrata for many years

to come,” he said yesterday.

The merger cleared a major hurdle yesterday when China’s commerce ministry gave its conditional approval to the deal, worth up to $35bn.

The merged entity must sell the $5.2bn Las Bambas copper mine being built in Peru by Xstrata by July 2015, and it has also agreed to eight-year supply agreements for copper, zinc and lead with Chinese customers.

“Glencore’s willingness to sell Xstrata’s most high-profile copper project, Las Bambas, demonstrates to us that there are no sacred cows for Glencore’s management and in our view reflects their differentiated management style versus traditional mining companies,” said the Macquarie Group.

Analysts value Las Bambas, which comes into production in 2015, at up to $6.5bn and the sale would be a welcome cash injection for the merged entity.

“The conditions attached to the commerce ministry’s merger approval are clearly intended to reduce Glencore Xstrata’s market position in copper by requiring the sale of a copper asset and ensuring an uninterrupted 900,000-tona-year supply of copper concentrates into the Chinese market,” Macquarie said.

If the 400,000-tons-a-year Las Bambas is not sold to a buyer approved by China’s commerce ministry, then Glencore must sell either Xstrata’s 62%owned copper and gold Tampakan project in the Philippines, or the 82%-held Frieda River copper and gold project in Papua New Guinea.

Otherwise, the company would have to sell the wholly owned El Pachon project in Argentina or Xstrata’s 50%held Alumbrera mine in Argentina.

Glencore and Xstrata combined account for roughly 7% of the global copper supply, and analysts and traders have estimated that Glencore controls between 10% and 14% of Chinese copper concentrate imports, Reuters reported.