LONDON Almost a year after winning the battle for Xstrata, Glencore (GLEN.L) is set to show investors evidence of early successes, with costs to come down more than targeted, asset sales in hand and key staff retained.
Glencore Xstrata, which has yet to shed a reputation for opacity, will bring its entire management team to London on Tuesday to outline progress after four months in control of Xstrata, following the $46 billion takeover that became the mining sector's largest to date.
In its first major presentation on the deal since it was completed, analysts expect the trading and mining conglomerate to impress with tougher cost cutting targets. These are likely to include a significant improvement on the $500 million per year synergy goal provided at the time of the acquisition.
That covered only marketing benefits - not costs to be squeezed out of Xstrata's mines - and Glencore has already said it expects a final number "materially in excess" of that.
Analysts at RBC Capital Markets said this week they expected marketing synergies of $600 million - as more Xstrata products go through the Glencore trading machine.
In addition they saw further savings from the group's industrial side that could exceed an annual $1.2 billion, mostly from Xstrata's largest divisions, copper and coal.
"Glencore has spoken much about the corporate overheads to come out of Xstrata, but we also think that the company has done as much as possible to strip out additional costs at every level of the old Xstrata operations," the RBC analysts said in a note.
SELLING LAS BAMBAS
Glencore is expected to update investors on its review of the Xstrata portfolio of mines and projects. The main project under construction, the $5-billion-plus Las Bambas copper mine in Peru, is already for sale - its disposal was a condition of the Xstrata deal set by China's antitrust regulators.
A handful of suitors, including at least three Chinese mining groups, are expected to submit initial bids for Las Bambas, along with the investment firm set up by former Barrick Gold (ABX.TO) boss Aaron Regent.
Selling Las Bambas will boost cash inflows, both from the sale and from lower spending, while Glencore is also expected to divest undeveloped projects.
"The consensus is they always intended to dispose of greenfield projects," analyst Nik Stanojevic at Brewin Dolphin.
"They don't like them and recent history shows them to be right - there is large execution risk, a high chance of time and cost overruns, regulatory risk."
Glencore, whose shares have underperformed a volatile UK mining sector .FTNMX1770 by 7 percent since the merger completed, came under fire last month after it wrote $7.7 billion off the value of Xstrata's assets.
Although this was a paper hit, it raised questions over trading powerhouse Glencore's largest deal to date, sealed just as the commodity cycle turns.
Analysts say a strong performance on Tuesday could help perceptions of Glencore but the success or otherwise of the merger will take longer to determine.
It will depend on factors ranging from market prices to the ability to retain former Xstrata staff operating the mines.
"How do you prove it was a good deal? You prove it was a good deal by not only increasing the synergies, but delivering on them," said analyst Chris LaFemina at Jefferies.
"You prove it was a good deal by getting a better than expected price for whatever assets you are going to sell. You prove it was a good a deal over time by operating well."
(Reporting by Clara Ferreira-Marques; Editing by Anthony Barker)