Swiss commodities trader Glencore International Plc. (GLEN.L,GLNCY.PK,GLCNF.PK) Tuesday said the Ministry of Commerce of the People's Republic of China or MOFCOM has cleared its merger with miner Xstrata Plc. (XTA.L,XSRAY.PK,XSRAF.PK), subject to certain commitments.
Further, Xstrata's Chief Executive Officer Mick Davis has agreed not to take up the six month role of CEO and Executive Director of Glencore Xstrata Plc after the merger is completed.
As per MOFCOM directive, Glencore has to sell all its post-merger ownership interest in Las Bambas, a copper project currently being developed by Xstrata in Peru, to a purchaser approved by MOFCOM before September 30, 2014 for not less than the pre-determined price with completion to occur by June 30, 2015.
The pre-determined price should be the higher of the fair market price of Glencore's ownership interest in Las Bambas and the total of the costs incurred by Glencore and Xstrata in Las Bambas, as audited and confirmed by the monitoring trustee.
The fair market price of Glencore's ownership interest in Las Bambas should be as evaluated by two independent investment banks chosen by Glencore and confirmed by the monitoring trustee. Glencore has to start the sale process and publicly announce its offer to sell its ownership interest in Las Bambas within three months.
If Glencore fails to enter into a binding sale and purchase agreement by September 30, 2014 or fails to complete the transfer of its ownership interest in Las Bambas by June 30, 2015, it must appoint a divestiture trustee to auction its ownership interest in one of Tampakan, Frieda River, El Pachón or Alumbrera. This has to be at no minimum price within three months from October 1, 2014 or July 1, 2015.
Further, for eight years from January 1, 2013, Glencore will continue to offer to supply Chinese customers with a minimum volume of copper concentrate annually under long-term contracts.
Such minimum volume will be equal to the average volume of copper concentrate supplied to Chinese customers under long-term contracts by Glencore and Xstrata in 2011 and 2012, which was 900,000 dry metric tonnes.
The price for a minimum of 200,000 dry metric tonnes of copper concentrate will be offered as per applicable annual benchmark price agreed between major miners and major smelters during annual supply negotiations. Price for the remaining 700,000 dry metric tonnes will be offered with reference to the applicable annual benchmark price.
During this eight year period and beginning from January 1, 2014, if there is an increase or reduction in Glencore's forecast copper concentrate production, the minimum volume of copper concentrate to be offered for supply to Chinese customers will be adjusted pro rata.
For eight years from January 1, 2013, Glencore will continue to offer to supply Chinese customers with zinc concentrate and lead concentrate through long-term contracts and spot contracts on fair and reasonable terms.
Glencore today gave effect to the commitments required by the European Commission. After receiving the MOFCOM clearance and giving effect to the commitments required by the European Commission, completion of the merger is now only conditional upon the completion of the Xstrata court process.
It was in early February last year that Xstrata agreed for an all-share merger of equals with Glencore, to create a $90 billion natural resources group to be called Glencore Xstrata International Plc. The deal had won the approval of both companies' shareholders on November 20.
Further, Glencore said that Xstrata's CEO Mick Davis has agreed not to take up the six month role of CEO and Executive Director of Glencore Xstrata Plc after the merger is completed.Instead, on termination of the six-month term, he will receive a sum of 4,625,774 pounds.
Mick Davis will step down from Xstrata upon completion of the merger, currently expected to be May 2, allowing Glencore CEO Ivan Glasenberg to assume the role of Chief Executive Officer of the combined group.
GLEN.L is currently adding 3.6 percent at $332.55.
XTA.L is up 4.5 percent at 1,009.50 pence.
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