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Last updated: March 5, 2013 8:43 pm
China is investigating the influence of the Glencore-Xstrata $76bn tie-up in the copper market, opening the door for Beijing to seek some remedies from the world’s largest trading houses and the miner before it approves the deal.
Ivan Glasenberg, Glencore chief executive, for the first time revealed that Beijing was looking at the market share that the combined company would have in a niche of the metals market: copper concentrates, the ore used to produce copper metal.
The powerful Chinese Ministry of Commerce, or Mofcom, is responsible for the review. “The Chinese, being a big importer of commodities, want to look at it carefully,” Mr Glasenberg said.
“We are trying to find a solution,” he said, adding that a deal in China could involve measures similar to the ones adopted to win the approval of European antitrust regulators. Brussels will force Glencore to break some supply contracts in zinc.
Glencore and Xstrata together control copper mines which account for just under 10 per cent of global supply, but that proportion could rise significantly over the next decade if the combined group follows through on planned investments.
Chinese copper smelters buy concentrates to produce copper metal, which in turn is transformed into anything from wire to air conditioning equipment. Glencore claims a 30 per cent share of the freely traded copper concentrates market.
The two companies announced a delay in the deadline for closing their long-awaited tie-up – the largest merger and acquisition of 2012. They said the so-called “long-stop date” had been extended to April 16.
The tie-up – originally announced in February 2012 – was renegotiated and restructured last year to win the support of several shareholders, causing delays to the first deadline at the end of October. But this latest extension – the fourth – underscores the complexity of the takeover, which requires clearance from a number of global regulators.
The merger delay came as Glencore and Xstrata reported lower annual net profits dragged down by a combined $2.6bn in writedowns in their aluminium, nickel and platinum businesses. Nonetheless, the results were stronger than expected, triggering a big rally in the share price of both companies.
Glencore, the world’s largest commodities trader, said its net income fell in 2012 to $1bn, down 75 per cent from $4.05bn the previous year after it took $1.6bn due to the need to account for lower value of its investment in Rusal.
The accounting change, although formally a writedown, does not reduce the equity value of Glencore, as it had been accounted for on the balance sheet in prior years.
Excluding the impact of the impairment, net income fell 25 per cent to $3.06bn as stronger profits from its trading division offset lower income from its industrial operations, which includes mines, oil production and farming.
Reduced copper and coal earnings saw pre-tax profits at Xstrata drop from $8.1bn to $2bn, including nearly $978m in writedowns and a further $636m in one-off costs. Tony Robson, an analyst at BMO Capital Markets, said Xstrata’s profitability suffered from having lower-margin mining operations.
Mick Davis, chief executive, said the company suffered due to the “the combined impact of falling commodity prices, inflationary pressure on operating costs and continued strong producer currencies relative to the US dollar”.
Glencore was also made to wait to complete last year’s acquisition of Toronto-based grain trader Viterra, which was announced in March but only given the nod by China’s Ministry of Commerce in December.
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