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Xstrata still pressing for Anglo merger

Mick Davis,
CEO, Xstrata
London, England — MININGREVIEW.COM — 26 June 2009 – Swiss-based Xstrata – the fifth largest diversified metals and mining company in the world – is still pressing the directors of Anglo American plc – one of the world’s largest mining companies – to enter into negotiations over its proposed US$39 billion (R312 billion) “merger of equals,” saying talks would be in the interests of both companies’ shareholders.

The plan – rejected by Anglo as “totally unacceptable” on Monday this week – would save more than US$1 billion (R8 billion) annually by the third full year, Xstrata said in a statement. Anglo this year accelerated a plan to cut costs by US$2 billion (R16 billion) a year by 2011, after suspending dividends for the first time since the outbreak of World War II.

“Xstrata are hoping that through releasing detail like this they will put pressure on the Anglo board to engage with them to discuss this proposal,” Sam Catalano – an analyst at Macquarie Bank Limited in London, who rates Xstrata “outperform” – said today by phone. “The arguments seem to make a lot of sense, and could extract savings for both sets of shareholders,” he pointed out.

Xstrata said savings wouldn’t come from job losses in South Africa, and Anglo spokesman James Wyatt-Tilby declined to comment.

Xstrata CEO Mick Davis – who led more than US$33 billion (R264 billion) of acquisitions in six years to add copper, nickel, coal and platinum assets – is seeking to combine mining operations in Canada, Australia and South Africa next to Anglo sites. The merger, proposed on 17June, would create a company competing with BHP Billiton Limited – the largest mining group in the world.

“The combination of Xstrata and Anglo is a natural fit and the most compelling major transaction available in our industry,” Davis said in the statement. “It must surely be in the interests of both companies’ shareholders for Xstrata and Anglo to work together to test in more detail the attractive proposition we have put to the Anglo board.”

Anglo said on Monday that the merger plan was “unattractive” for shareholders. It would have the effect of ‘significantly diluting Anglo American’s unique exposure’ to platinum, iron ore and diamond markets,” Anglo added. The company said it had “regularly reviewed its strategic alternatives, including the rationale for a combination with Xstrata.”