Xstrata's CEO Discusses Preliminary 2011 Earnings And All-Share Merger Of Equals Of Glencore International PLC And Xstrata PLC Conference Call Transcript

Xstrata plc (XSRAY.PK)

Preliminary 2011 Xstrata PLC Earnings and All-Share Merger of Equals of Glencore International PLC and Xstrata PLC Conference Call

February 7, 2012 03:00 am ET


Trevor Reid - CFO, Xstrata plc

Mick Davis - CEO, Xstrata plc

Ivan Glasenberg - CEO, Glencore International plc

Steve Kalmin - CFO, Glencore International plc


Jason Fairclough - Bank of America/Merrill Lynch

Chris La Femina - Jefferies

Andrew Keen - HSBC

Myles Allsop - UBS

Robert Clifford - Deutsche Bank

Madhu Raghunath- Bank of America/Merrill Lynch

Heath Jansen - Citi


Good morning ladies and gentlemen and today we are announcing Xstrata’s preliminary results of 2011 and as previously indicated and we will also run through the key points of our performance for the year. And I know that the main focus of the presentation is the very exciting announcement of the recommended merger with Glencore that would transform both companies to create what we think is [super] powerhouse in the industry.

So I have asked Ivan Glasenberg, the Chief Executive Officer of Glencore you know well and Steven Kalmin, the CFO to join Trevor, Xstrata’s CFO in front of you. But as you know the Xstrata team is made up of the Chief Executives who run our businesses without whom the story which we are going to talk about a little bit later would not have been possible and they are with us in the order as usual. There’s most of them sitting in the front row, some are sitting elsewhere.

Santiago Zaldumbide, the Executive Director of Xstrata and Chief Executive of Xstrata Zinc, Ian Pearce, Chief Executive of Xstrata Nickel; Charlie Sartain, Chief Executive of Xstrata Copper, Peter Freyberg. Chief Executive Xstrata Coal and Peet Nienaber, Chief Executive of our Alloys Business and Thras who is known to you all is also in the audience.

But I am also particularly pleased to welcome David Rough, I think our quite outstanding Deputy Chairman and Senior Executive Director to the presentation. He is here in disguise, but if you want to talk to him I will sort of give you an idea of what he looks like.

So the agenda for today is this. I know that you are all keen for us to talk about the merger, but you are going to have to indulge me for a few minutes because I want talk about a little bit of Xstrata. It’s been a short while on our results which we announced today and look back very briefly on the first 10 years leading up to this point that we and my colleagues who I’ve just mentioned, they are with me in the audience have brought us to and then I am going to hand over to Trevor who is going to run you through the operation and financial review and then we will get on to the merger.

As you know our vision for Xstrata 10 years ago was based on a set of convictions about our industry and about the business model best placed to respond to the emerging trends we saw at that time. Those founding principals have served us well and our company’s rate of growth has been absolutely huge and prolific. Our market value today of around [Technical Difficulty] Xstrata’s value in the current management team joined the company in late 2011.

I don’t think that Santiago and I who were the initial protagonists could ever have dreamed together with Peet that this is the company that we have been involved in joined later by Charley, by Peter and by Ian. With the same management team in place, we have created superior value for our shareholders with total returns of some 370% since our IPO in March 2002 compared to about 54% of the FTSE 1000 Index overall.

And we have taken opportunities others haven’t taken and we have built and managed well and while we haven’t escaped hiccups entirely along the way, the businesses have created great value and I think these businesses stand as a testament to the fact that our strategies be both sound and our execution very good. Now as well as providing the vital commodity society needs, our growth in value creation have delivered value to a wide range of stakeholders in our business.

In addition to generating significant returns for shareholders in the past decade, we have paid wages and salaries of some $19 billion, taxes and royalties of some $16 billion and over $0.5 billion on the voluntary basis has been contributed to various communities and initiatives within those communities. We have invested a further $30 billion in sustaining or expanding operations and building modern efficient new mines and metallurgical facilities and infrastructure.

So the full scale of the economic benefit of our presence is of course much larger and extends to the many families, many communities, local businesses and other industries which indirectly benefit from our activities and along the way we have built up a strong track record and reputation for best-in-class sustainability practices. And Xstrata as you know has evolved three stages of transformation during its short life time. With the successful execution of each phase forming a solid launchpad for the next.

Back in 2002, our immediate focus by necessity was to embark on an intense period of acquisition defined to buy and integrate businesses that would deliver the scale and diversity of products and operating regions that would turn us in to one of the world’s leading mining companies.

Simultaneously, we improved the quality of our assets delivering year-on-year operating cost reductions, increasing productivity, extending the life of existing mines, expanding our resource base in the industry leading safety and social and environmental standards.

The companies we acquired provided us with a range of potential growth options as well as the scale to develop major new mining operations and we have successfully delivered 22 major projects since 2002, extending existing mines and developing new operations across five countries and of course, our major growth projects pipeline is well advanced with 20 major new operational expansions to increase production of volume significantly, currently and in construction. So the first ten years of our history culminated in a record year for Xstrata in 2011.

Operating EBITDA rose to $11.6 million, net earnings to just under $6 billion in each case exceeding our previous record in 2007. Net debt increased to $8.1 billion, with gearing at 15% with the successful refinancing of our bank revolver and our bond issue executed in the fourth quarter of last year.

The momentum of our organic growth pipeline continued apace with 10 projects and expansions completed including our Mangoola thermal coal operation in Australia which was commissioned on budget and ahead of schedule.

Our coal and nickel businesses, put in strong second half production performances with record annual production of Australia and South American Coal and nickel and an in the record second half production of coking coal.

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