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Regrets over Xstrata’s M&A? I’ve had a few, says Davis

Keywords: Tags  Glencore, Xstrata, Mick Davis, Lonmin, Marikana Mine, Jubilee Mines, Vale, Anglo American andrea hotter


NEW YORK — The majority of Xstrata Plc’s acquisitions were successful, but there are a few that its outgoing chief executive officer wishes it had not got involved with.

Mick Davis told AMM that out of the 40 transactions Xstrata did during his time at the helm, "90 percent were great successes; 10 percent were not."

"There are transactions I wish I hadn’t done," he said. "I wish I hadn’t bought the stake in (South African platinum producer) Lonmin—it hasn’t played out very well. I still believe in the business strategy underpinning the concept, but the timing was bad, and while we pulled back from the full takeover, we should not have acquired the blocking stake at that time."

Xstrata took a 24.9-percent non-management stake in Lonmin in October 2008, paying $1.8 billion and launching a failed takeover bid for the platinum miner.

Lonmin has struggled with operational and labor issues, culminating last August with a strike at its Marikana Mine in which 34 miners were killed and dozens injured after being shot by South African police (amm.com, Aug. 17).

Xstrata’s efforts in November to protect its Lonmin investment through a reverse takeover also were rebuffed by management.

"I wish I hadn’t bought the nickel assets in Australia," Davis said, referring to Cosmos and Sinclair, which it inherited as part of its 2008 Jubilee Mines acquisition.

Cosmos was placed in care and maintenance in September in response to adverse market conditions, while development of Sinclair’s underground mine was deferred in April 2009, also due to market conditions. Sinclair has been repositioned as a swing producer and acts as a satellite operation, leveraging the infrastructure and capacity available from Cosmos to limit overheads.

"But in terms of the dynamic of continuing to do transactions, I’m happy with the transactions that we did," he said.

A couple of deals got away. "I regret the fact that we couldn’t have sealed the Vale deal because I think that it would have been outstanding value creation for our shareholders," he said. Brazil’s Vale approached Xstrata in late 2007 but a proposed deal fell apart in March 2008 (amm.com. March 26, 2008).

Davis said he also regrets the fact that Xstrata’s approaches to London-listed Anglo American were rejected (amm.com, June 22, 2009). "It is a pity that the Anglo deal wasn’t done, but more for the reasons why it wasn’t done than the net economic effect of it not having been done," he told AMM.


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