* Glencore begins "bottom-up review" of assets, projects
* Plans to update market in Q3 2013
* Unveils Glencore-heavy top team
(Updates with detail on incentives, dividends, shares; adds
By Clara Ferreira-Marques
LONDON, May 3 (Reuters) - Glencore Xstrata told
investors on Friday it would return excess cash, slash costs and
might sell unwanted assets, raising expectations it would easily
exceed planned synergies of $500 million from the deal that
created the new group.
Unveiling a management team packed with veteran Glencore
executives, the group promised to "cut bureaucracy and
duplication", vowing it would reduce administrative staff, cut
divisional offices and underperforming projects to ensure
success even at a time of cooling commodity prices.
Mining mega-deals have had a mixed record of success at best
over the past decade, but a day after Glencore sealed the
acquisition of Xstrata, the biggest ever takeover in the sector,
its shares soared 6 percent, helped by a jump in the copper
price. At current prices the group is worth $73 billion.
"If we can cut costs enough, get rid of these corporate head
offices, we can cut a lot of fat out of the system. These
synergies and overhead reductions - that figure can ensure this
merger is a success," CEO Ivan Glasenberg said in an interview.
"The target of $500 million is only the synergies on the
trading operations. When we came up with that figure we had no
idea what the overheads were in Xstrata ... and it wasn't a
takeover at that time."
He said additional savings would be "substantial" as Xstrata
itself had said it could cut $300 million of administration
costs on top of trading savings - a number Glasenberg referred
to as "low-hanging fruit".
In slides to accompany a presentation to investors on
Friday, Glencore said its previously announced $500 million of
synergies in the first full year would be "comfortably met".
Analysts expect a figure of at least double the original amount.
But for all the talk of cuts and the potential for sales,
Glencore and its management team face the biggest challenge
since the trader was set up almost four decades ago -
integrating a $46 billion miner as the cycle turns, and running
Xstrata's assets with only one of the group's key executives.
Leaving little doubt that what was a merger of equals has
ended as a takeover, just 2 of 14 top divisional jobs will be
taken by Xstrata managers - Peter Freyberg running coal mining
and Mark Eames in charge of iron ore projects. Coal trading will
remain the preserve of Glencore's Tor Peterson.
Glasenberg brushed off concerns about the Glencore team's
ability to run Xstrata's mines, telling analysts "no asset will
fall through the cracks", and pointing to Xstrata's Freyberg at
the head of the most complex division - coal. Freyberg joined
Xstrata after it bought Glencore's coal assets a decade ago.
Glencore's ebullient veteran Telis Mistakidis will run the
key copper division, including mining and trading.
Copper alone accounted for more than half Xstrata profit,
but Glencore dismissed concerns it could be over-stretching in
copper - given a high proportion of joint ventures - and brushed
off worries about further Xstrata departures at its mines.
Glasenberg said he had no plans to bring in retention
packages for key operating staff at Xstrata's mines and had no
concerns in an environment where most majors are cutting back.
"I am getting more CVs than I have ever seen in this
company," he said, adding performance would be "well rewarded".
The group will now take until the third quarter to carry out
a full 100-day review on Xstrata's mines and plants, which could
result in the sale of early-stage "greenfield" projects -
developments built from scratch where costs in recent years have
soared. Signalling its tough stance on value, Glencore set its
target return on equity for new projects at 20 to 25 percent.
Glasenberg said it was not an ideal time to sell assets and
Glencore could keep projects that were not "sucking a lot of
money out of the business".
"We are not desperate to sell assets," he said. "Glencore
will not be selling assets at the wrong time in the cycle."
Most analysts, however, expect cuts to Xstrata's pipeline.
It has not yet begun the process of selling Xstrata's Las
Bambas, the $5.2 billion Peruvian mine it has to divest to
satisfy Chinese regulators, but the group's chief financial
officer Steven Kalmin said he expected Chinese interest.
The group, almost 25 percent owned by its managers, also
promised it would return excess capital to shareholders through
regular and special dividends, or share buybacks - a sensitive
subject for investors who have long complained of mining
companies' low dividend yields.
"We don't want excess capital to be sitting here, burning a
hole, tempting us to ... do something that is not consistent
with what we have said on capital discipline," Kalmin said.
"The ability to increase payout ratios and cash is clearly
going to be there once this current capex cliff begins tailing
off ... into 2015," he added, referring to a drop off in planned
spending, which begins in 2013 and accelerates.
While Glencore remains opportunistic and Glasenberg did not
exclude the possibility of M&A deals, he said there were no
targets on the horizon.
"We just want to sit tight right now. The priority is to get
this integration in the right place."
($1 = 0.6447 British pounds)
(Reporting by Clara Ferreira-Marques; Editing by Janet McBride
and Will Waterman)