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

Mar. 8.12 | About: Xstrata Plc (XSRAY)

Xstrata plc (OTC:XSRAY) Preliminary 2011 Xstrata PLC Earnings and All-Share Merger of Equals of Glencore International PLC and Xstrata PLC Conference Call February 7, 2012 3:00 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.

Real cost savings have become a continuing characteristic of this performance and 2011 performance didn’t disappoint. Sustainable real cost saving of just under $400 million were achieved and now each of our commodity businesses are amongst the most cost competitive within their respective industries for the first and second quartile of cost positions. Our reserves and resource base continue to grow in scale and certainty during 2011 and we announced particularly significant increases to both copper resources particularly in South America, an important region for our future growth plans.

In total contained copper resources increased by 15% compared to 2010 to over 13 million tons. We also executed six bolt-on acquisitions during the year to supplement our growth, including first call corporation and the high perspective Hackett River Zinc Properties both in Canada.

Our safety performance in terms of total recordable injuries continued its progressive improvement. At the root level we reduced the frequency of total recorded injuries by 26% on 2010 levels with particularly strong performance in our coal, nickel and copper business.

Since 2002, the Group has reduced its total recordable injury frequency rate by some 84%. Our organic growth strategy is ramping up as planned supported by strong balance sheet that is bolstered by record cash generation of $11 billion, a successful refinancing our bank facilities and $3 billion from our US bond issued during the year.

We commissioned ten projects, five of which came online in the final quarter. I mentioned Mangoola Greenfield thermal coal operation which was commissioned ahead of its schedule and within budget and a base repetition. And with this low cost operation and the successful restart incidentally of the ferronickel operation have already have made significant contribution to volumes during the year.

The Kikialik expansion at the Raglan nickel mine, the Newlands underground, the ATCOM East coal operations were all commissioned in the second half and between October and beginning of this year, we have commissioned a capacity expansion at the Collahuasi joint venture, an extension to the Kidd operation’s mine life, the Black Star Deeps and Handlebar Hill zinc projects and an expansion at the Antamina copper/zinc joint venture, all of which are now contributing to volumes.

Despite total capital expenditure of $8 million, we ended 2011 with a very moderate gearing of 15%. Our strategy to execute the best growth options within our portfolio is now well underway and will reduce average operating costs, increase volumes and deliver significant value to our shareholders over the coming years to respond to the positive market outlook we see for commodities.

So with that as the background, I am going to hand over to Trevor to take you through the results and then of course we will get on to the main course.

Trevor Reid

Thanks Mick and good morning ladies and gentlemen. I am sure you are all very keen to get into the main course. So I am going to crack through our results pretty quickly and just highlight a few key points.

2011 was a record year for Xstrata and EBITDA, cash generation and net earnings all rose to the highest levels in our 10-year history. Average prices rose for all over commodities and ongoing demand from developing economies outweighed European debt concerns, the sovereign downgrade in the US and the impact of the Japanese tsunami.

Coal prices in particular remained firm and we had great thermal, coking and semi subcontracts at prices, which were around 30% to 40% higher than in the previous year. As a result group revenue increased by 11% to nearly $34 billion.

Record operational cash flow substantially funded the accelerating organic growth program and overall debt rose only modestly. Our effective tax rate increased by 1% to 26% reflecting the guidance I provided at our interim results. And given current strengthening prices for our commodities and our increasingly positive outlook for the rest of the year, I expect the tax rate will increase slightly to around 27% in 2012.

Attributable profit before exceptional increased by 12% to $5.8 billion and earnings per share before exceptional items for the year were $1.97.

Operating EBITDA rose by 12% to $11.6 billion with second half EBITDA performance of $5.8 billion; mirroring the first half performance as a strong second half operational performance offset the impact of significant weaker LME prices from the mid-year.

Coal contributed almost two-thirds of the increasing EBITDA as the business benefited from higher annual production, increased received prices and substantial real cost savings.

Average LME prices were in general higher than in 2010 as a strong first half offset weaker prices throughout the year. Strong coal contract and spot prices contributed $1.8 billion to operating profit, while higher copper prices at 17% added $700 million.

Overall volumes in particular from coal and nickel improved over 2010 levels to contribute a further $90 million to operating profit, as the impact of new lower cost volumes from recently delivered projects started to come through.

The contribution from our expansions and new mines more than offset the impact of significant flooding in Australia and Chili in the early part of the year and underground fire at Blakefield South coal mine and reduced ferrochrome production to respond to weaker demand and lower grades, which we were experiencing at the number of our ageing mines.

The volume and pace of capital projects across the industry continued to fuel excessive mining sector inflation as demand for key skills and equipment remained intense. Nevertheless, our teams again delivered a strong cost performance, trimming $391 million from the operating cost base in real terms.

Coal was one strong performer with Peter and his team achieving more than two-thirds of group cost savings from lower cost production from our New Mangoola operations, productivity improvement across our open-cut operations in New South Wales and from reaping the benefits of previous capital investments in the Cerrejón joint venture.

Zinc C1 cash cost continued to fall, reflecting productivity improvements, particularly in Australia where Santiago’s team managed $85 million of sustainable cost savings in 2011. despite the impact of weather related issues of the Queensland operations in the first quarter.

In copper, cost savings were $49 million, which were driven by improved bio-product credits from magnetite production at the Ernest Henry, optimization of our molybdenum plants at Alumbrera and the positive impact of the Kidd metallurgical facility closure, which took place in 2010.

Overall cost savings were offset by the negative impact of CPI inflation and higher prices in mining specific inputs, which together reduced our operating profit by just over $1 billion.

Adverse foreign exchange movements reduced earnings by $820 million as the Aussie dollar in particular strengthened against the US dollar.

Depreciation and amortization increased mainly due to high volumes in the nickel business and the higher capital base across the group.

Other income and expenses included the impact of severe wet weather conditions, the Blakefield South underground coal mine; which happened in the first half.

Our operations generated over a $11 billion of cash in 2011, 14% higher than in 2010 and allowing us to maintain a strong balance sheet, despite a 39% increase in expansionary capital. At the year end net debt stood slightly higher at $8.1 billion with gearing at 15% the same as the previous year end.

In September we renegotiated our syndicated loan facilities into a $6 billion five-year facility, which contains the option to extend the facility by further year on both the first and second anniversaries. This facility remained undrawn at year end. In November we also took the opportunity of a window in the debt market to launch and successfully price a $3 billion four tranche Yankee bond issue.

Investments in to our proved organic growth projects continue to ramp up during the year as a number of projects reached peak spending intensity and expansionary capital spending in total was $5.8 billion in the year. As expected our Koniambo and nickel projects had the highest capital expenditure and the monthly expenditure averaged almost a $100 million during the year.

The project is now tracking well against the revised budget. Productivity levels continue to improve and Koniambo remains on schedule to deliver first ore to furnace towards the end of the year.

Other major CapEx programs included $1.7 billion for the Mangoola and ATCOM east coal project in Australia and South Africa and the Antapaccay and Las Bambas copper project in Peru. We will commission Antapaccay in the second half of this year.

We will reach our peak of expansionary capital expenditure in 2012 and as usual I guide to number for this year, which is $6.8 billion of expansionary capital. I expect sustaining CapEx to moderate somewhat to more normal annual level of around $2 billion for the period.

Finally in line with our progressive dividend policy, the Board has proposed the final dividend of $0.27 per share, which will be paid on 23rd of May the shareholders on the register at 4th of May, which gives a total dividend for the year of $0.40 and represents a 60% increase on 2010.

I’ll now hand you back to Mick.

Mick Davis

Thank you, Trevor. I’ve learned in the last few days what the true definition of an advisor is. An advisor is somebody who gives you advice on what you would like to do and simultaneously advises the market on what you may do through the press. And so you have a transaction here which you all know about and this is almost a bit of an anticlimax, but let's try and put it into context.

If it can move, right. So what we have here is a $90 billion natural resource company, a super major with a unique business model and I think this is what I want to actually take you through. At 2.8 times Glencore shares for Xstrata shares, accretive to Xstrata shareholders from day one to at least $500 million worth of synergies. The logical next step for the business, a unique business model, governance and organization structure which is desired to maximize effect and give assurance to those who need to be assured that this company will go forward along the path of value creation.

The transaction summary is actually quite simple; it’s an all offer by Glencore for the remaining 65.92% of Xstrata at the ratio that we've agreed upon. It will give Xstrata fee for its shareholders on 45% of Glencore Xstrata, the new name for the company and as I said accretive from day one with at least $500 million worth of synergies.

The Chairman will be John Bond, I will be Chief Executive, Ivan will be the Deputy Chief Executive and Trevor will be the CFO and Steve Kalmin will be the Deputy CFO. It’s a scheme of arrangement to require a court approval. We've got regulatory approvals to go through and I expect to close in quarter three, 2012.

I am trying to get this thing to move, why isn't it moving on. Thank you. So let me have in front of you a picture is a global diversified natural resource super major with reach scale and diversity. And this picture represents you I think a story which no other mining company can actually tell you; of operations and offices right across the globe in every single significant sphere which as I will show you later match the trade flows and match the opportunities to develop production.

And I guess, I ask myself three questions about this transaction. Is this a value adding proposition; is it the larger mix; does it capture value, does it create an organization where the whole is greater than the sum of the parts and if it is a logical next step, is it the value added proposition. Then is this the best governance structure that we can put together to make sure that this promise turns into reality into the future. And are these the best terms that the Xstrata shareholder can look at it and expect to see the deal go forward on.

So let’s address the question, is this a value adding proposition. The logical next step as I said two businesses which have created enormous value operating in parallel in the same industry, different parts of the industry. The Xstrata’s TSR, as I said little earlier gone up by 370% since the IPO; tremendous compound annual growth rate in Glencore from the time of the management buyout in 1995-1996 to the IPO in 2011; huge value creation creating businesses of similar size and as I said that operating is slightly different segments.

The next step is to then take these businesses which have been part of so many things and put together them as one inherent unit as a whole to make sure that we can actually capture value and I think it’s going to be a, I said a positive industry dynamics for a changing industry. You will know that the secular change in demand and constrained supply remains a powerful, powerful vehicle for growth going forward.

In the emerging markets population growth, the urbanization of those populations, the increased wealth in those populations drives a demand for metals and energy products and food and resources which is actually unparalleled in the history of mankind. And at the same time, the lack of investment in infrastructure, ageing mines and falling grades, challenging new geographies, make the supply constraints very real and the organization which is well placed do not only supply commodities into these areas but they actually operate in that supply chain, I think is a unique proposition for value.

This enhanced scale is an important contributor to that value creation proposition. The fourth largest global diversified natural resource company, the 10th largest company at least in the FTSE; $90 billion market capitalization from day one; a sustainable new optionality with greater strategic flexibility springs to mind when I talks about this.

Greater liquidity, clarification of the ownership structure of Xstrata which has long been a source of topic and I have gone around to speak to shareholders. The improved risk profile; the strongly position for continuing access to the equity markets and well positioned to play an ongoing role in the global industrial consolidation. A power of diversification, no other resource company, no other company, in our industry has a diversification of product streams as we have, strongly focused in metal, strongly focused in energy and now strongly focused in the soft side as well.

And I think this is a tremendous strength which we’re going to have to build on. Greater diversification translates into more stable cash flows; lower earnings volatility, lower risk, lower weighted cost of capital and therefore higher returns and of that base, the optionality of this business will in fact develop.

So if you look at the business in combination on the 2011, results that have been announced in the trading state and that has been delivered by Glencore, an EBITDA of $16 billion on a combined basis, a net debt of $21 billion and spread around the commodity spread as you see there. It’s important to note that we retain our London and Hong Kong listings; we expect investment grade rating to be maintained and potentially improved overtime and just to say to it as a matter of comfort that we have sufficient back stop facilities to ensure that the existing debt facilities stay in place.

So there is a logical step but where can we capture the value? In the mid 1990s, the market commodities dominated by North America, Western Europe and some parts of Asia. It was a constraint slightly smaller universe than the one we operate in today; where the emerging markets now accounted, if we just look at copper, there is approximately 75% of copper demand. With the spread of supply chain right across the globe and the spread of demand right across the globe and into this type of trade flows where there has been a massive expansion of trade flows in steps Glencore Xstrata.

With key resources located in emerging geographies, with the reach, scale and diversity are key; and again, I’ll highlight you in a slightly different way, where our operations are and where our offices are, significantly placed in all those commodities, significantly able to deliver across that expanded value chain which we see in the earlier slide.

So the new business model which I think is required to maximize value is delivered in spades in Xstrata and Glencore Xstrata. Recognizing that these trade flows are changing fundamentally due to the migration of growth to the developing economies; value changes are no much longer, they are much more complex they take risk for both suppliers and people who demand the commodities. But it also increases opportunity to capture value; where there is risk, there are people who can take risk and people that capture value from taking that risk.

Access to new resources, I believe requires the ability to operate in potentially highly challenging geographies, but maintaining excellent sustainability and I believe that the Glencore-Xstrata model is able to capture the value from these trends. So we have this unique business model. Traditional miners on the left hand side in exploration, mining and production and processing refining. Traders involved in logistics, marketing and trading and Glencore-Xstrata a company of significant size being the only company of significant size involved in every single facet of that value chain and that is where the difference is and that is where the optionality comes and that is why this is a compelling transaction.

So capturing the value in practice and this is something which Ivan I think will talk to you later allows us to look at both the value coming from the top tier industrial assets that both companies bring to the table, the blending opportunities in terms of the range of products that we have and the ability to add value by blending those product ranges, by capturing the value from the logistical infrastructure chain and the arbitrage opportunities and economies of scale that this leads us allows a value creation potential which I think is unique to this combination which other companies are not in fact able to gather for themselves.

But where’s the short term value coming from, where’s the value coming from day one. I think that we are going to get based on the rigorous work that we've done at least $500 million of synergies per annum from year one. These synergies are predominantly market related and they relate to the fact that we are translating the huge production from Xstrata in full through the Glencore trading and marketing system.

And we believe based on this rigorous exercise that there are clear cases where value will be added and we've looked at clear examples where that is achievable. Short-term value also comes from the fact that we are both involved in significant growth expansion. Our growth as you know comes through round about 2013-2014 in a very significant way, Glencore’s growth comes through a little earlier. And so the combined entities are able to in fact achieve an 11% compound annual growth rate from 2011 to 2015 which is significantly ahead of our peer group which stands at 7%.

There is going to be significant capital expenditure, but if you look at the Glencore’s capital expenditure is highly efficient in terms of the growth that they generate. And I think this again is a value to the organization. If I look at the medium-term value proposition, asset optimization, project optimization to increase returns and increase the efficiency of capital expenditure abound.

Diversification into new commodities for Xstrata shareholders moving into agriculture on the one hand and further enhancing our exposure into the energy side, given the thesis of constrained supply and burgeoning demand is a really good story. We will apply operational excellence. I think Xstrata has excelled across the total entire portfolio of the asset base and we applied the franchise, the marketing and trading franchise of Glencore across the total production base.

And that will grow and the ability to pursue growth therefore in these geographies, I think is enhanced by that. We will play a decisive role in industry consolidation and I think that again that given that, putting this all together into one context provides this unique value proposition and I guess from my point of view, it is summarized by these six blocks.

And if you think about what are the aspects that one needs to succeed as a business, scale and diversity and optionality and global reach. This company has that. World-class operating assets and a project portfolio of reserves and resources. This company has that. Integration along the value chain, market customer and insight, this company has it better than any other company.

Financial depth and continuous access to the global capital markets to exploit opportunities, that is clear, it is clear from the way that credit markets have responded to the leaks already where the CDSs of both companies in fact know it quite significantly. The entrepreneurial culture which both companies have enjoyed and which have created growth, merge together to create a very powerful team motivated for value creation. And then the operational excellence and excellence in sustainability which we’ve developed will flow through to both organizations, a unique business model, access to new sources of growth, an entrepreneurial culture and devolved authority to maintain that strong momentum which has been the hallmark of Xstrata up to now and leadership in cost containment sustainability, I think this is a story which is powerful in terms of our ability to deliver this competitive advantage.

So if it is a compelling transaction, does the governance that we put in place ensure that that compelling transaction translates into a company that will continue to deliver value? We spent a lot of time thinking about the governance and we spent a lot of time discussing it and this is a governance which is supported not only by my board, but is supported not only by my board, but it is supported by the Glencore Board, it is supported by the Glencore management and supported by our management.

It’s the governance which makes sense. As you know, John Bond, the Chairman of Xstrata will be the Chairman of the combined company, Glencore-Xstrata. I will be Chief Executive. Ivan will be the Deputy Chief Executive. The industrial businesses, except for those few businesses where there infact is no crossover, will be run by the Chief Executives of Xstrata business. The marketing businesses will continue to be run by the Chief Executive of Glencore’s marketing businesses.

There will be an absolute synergy between these two businesses. They work closely together to find and maximize value. The Board of the company will be taken from John as I’ve mentioned, four directors from Glencore, four directors from Xstrata plus Ivan and myself.

And I think this management structure and this Board structure allows us to go with confidence and say to you that this is a transaction which is made to create value and a transaction with a sustained value as this merger is taking place right through integration, through interoperations and beyond. These limited integration risk, which I think is the last point that should be mentioned when takes into account this whole thing, we have long-standing commercial relationship with Glencore.

We know each other very well, we have a decade of working together and although I think there will challenges on the organizational structure because quite clearly people who produce products and people who trade products have a slightly different cultural bent, but I think we can make a virtue as we build the bridge of co-operation between these two cultures and make sure that one and one equals much more than three or four, one and one actually equals 11.

And we’ve agreed over here in terms of a governance mechanism that will make sense. The best terms, I am challenged on this question. I have read in the newspaper and I should actually look at this with some concern that there is a chance that I am going to be fired and voted off the board if I don’t produce the best terms for the company. So I will approach this topic with some trepidation obviously because who wants to lose their job. On day one we have announced such a fantastic deal and somebody thinks you screwed up in the terms.

Now we know that I am a lousy negotiator, but let’s look at the proposition from a Xstrata point of view and let’s see how badly I have done. Earnings accretive from day one, earnings accretive from day. My goal in negotiating this transaction was to make sure that the Xstrata shareholders saw uplift and saw value from the proposition. There is a potential ratings and value uplift from the combination and we have seen the market already speak to that post the leak.

Xstrata shareholders continue to benefit not only from the Xstrata growth story, but also from the value proposition that Glencore bring through their growth and diversification, their projects and their marketing and trading business.

The strong governance structure that I’ve spoken about and I think it aligns the strategies and clarifies the ownership structure of Xstrata in a way which gives us much greater financial flexibility to exploit the value propositions that are out there in the market place today. And in addition to that a premium has been achieved. What more can you ask for, these terms reflect the vigor, the rigor of the negotiations and universe of the possible.

I want to make this point to you. I did not go out to negotiate a premium with Ivan. I went out to negotiate a ratio with Ivan, a ratio which reflects the right sharing of the combined benefit for the Xstrata shareholders and the Glencore shareholders. I had to recognize that there was no cash in this deal. This was a share-for-share transaction and that's why I mentioned the universe of the possible.

A tough negotiator who could enforce his way and achieve dramatic premiums, for somebody who then is going to face massive dilution simply erodes the value proposition for himself. And that is something which I simply couldn’t allow to happen. We had to pitch this ratio in a way that both share prices would respond positively to the result of this transaction. And we achieved that and I think that's a great achievement.

And the result has been that, we have a 15% premium to the undisturbed price of Wednesday last week, when the news broke and now we have a 28% premium through our three months WACC.

So in combination of a great logic to the transaction, a great value-created proposition, a logical next-step, an unparallel company which will be unassailable in its stability to capturing in the marketplace, we have a great governance structure and we have a great set of economics with Xstrata shareholders and from that point of view I think that is a very exciting and satisfactory result.

So I am going to conclude now you’ve heard enough from me I am going ask Ivan to say a few words, and then we will open up to questions.

Ivan Glasenberg

Well, Mick has outlined all the details of the value of the transaction. There was just a point in one of the slides which he spoke about, we didn't give too much detail, but what I see the big value of the transaction is how we've operated Glencore in the past and we bring a big amount of value to the joint group, I think, in two main areas, number one area as you know Glencore deals with 8000 suppliers around the world.

We are talking to every supplier when I did the roadshow for Glencore and we met with all investors, this is what we had to get across. That Glencore deals different to the other mining companies. We deal with third party suppliers. We are talking to every third party supplier everyday of the week and our traders are talking to them and buying product from them. When we are doing that, we see opportunities, which no one else sees and if people look at the history of Glencore, we didn’t buy the major companies as Xstrata grew. They grew in their manner, we grew in our manner. That was a great combination that Mick always worked on.

We were chasing assets when we knew the mines. If you look at our operations in Columbia, look in the Congo, you look at even the regional Australian operations, we are dealing with small mines. The small mine on its own was not a great mine but understanding the reserves and dealing with the different mines in the area, like you see in Prodeco today just give you an example, if you look at Prodeco, it looks like one mine but that was an acquisition of about eight different mines. No one realized the low quality Calenturitas material, which is not a great quality but together with [Laguo Matero] where there is another mine just of the road, not far.

If you could buy those two, put those two together. You will create a tier one asset. So that is what Glencore is able to do. We don’t need to go and buy the tier 1 number assets. We are happy to buy tier 3 as Xstrata has also done with some of the assets and we bought assets, put them together and created tier 1 assets. Now this is what we bring to this merged group. We now have this massive power as company. You see the size and scale of it, that our traders out there are telling to these third party suppliers, looking at these potential assets can bring bigger opportunities to the company.

So that’s what I think brings a large amount of value different to the other mining companies, which makes us very different to all that companies that we are competing against. They don’t have this ability. They got to look at acquisitions, other large hostile takeovers or assets just come on the market on tenders or become available through a tender type process but most of the assets which Glencore has acquired over the years has been quite deals done with the suppliers we have a long-term relationship with.

The other part that Mick mentioned is the big value that we do bring and what is going to happen in this merged company, we get the flow of the Xstrata tons in to the Glencore system. In the past, if you ever look what we had with agency agreements, we had different type advisory agreements but we never got the clear flow of their commodities in to the Glencore system. Now the Glencore system composed a lot of our own production, it composed a lot of third party tons, which we bring in to the Glencore systems. Now we get the full flow of the Xstrata tons in to the system. That allows us to find price arbitrages that exist.

Within the bulk commodity sector, we’re not in precious metals, where commodity is price at different prices in different parts of the world at different times. We cannot take full advantage of that with the Glencore tons to ensure all our new shareholders get the benefit of it, which we didn’t get before.

An example, we’re loading tons of the South Africa coal, for example which was going to United Kingdom, suddenly there is demand in India. We couldn’t divert the extra order tons in to India in the past. Today we can and we can pull the tons, which we were meant to supply to the United Kingdom from tons which we get from Russia from our third party tons.

And then we can do the same with copper concentrates, which are going into the Xstrata smelters. We can divert it to other smelters and put third party concentrates into the Xstrata smelters. This is that what we bring.

So therefore the Chief Executives of the Xstrata production divisions will work very closely with the Chief Executives of the Glencore marketing division. They work close hand-in-hand, bringing opportunities, they bring the skill of us to helping us to assess the mines operations which we’re looking at. We can work swiftly on that but also the marketing side, the two groups or the blending of the concentrate side, what you can do with the smelters and abilities to utilize the smelters within the Xstrata system as a trading tool; the two Chief Executives can work a lot closer together with that.

So I think that is the real big value we are bringing to table on this and as we said the synergies are round about a $500 million, we just off the capacity, which we’ve looked, we have gone further detail, it could be high and also on the operational side and we haven’t gone into that. So that is really where I see the big benefit of these two operations and putting them together.

Mick Davis

And just to conclude before we open to question, you have got clearly a very significant global diversified company developing in the Glencore Xstrata model, but more importantly and this captures the point that I just made to you, the integrated producer and marketer where Xstrata is without doubt in a league of its own, on the right hand side they are reflected by the bubble which depict that beautifully for me. So the natural combination is the logical next step, the unique business model governance, governance and organization to support that and therefore that should inform the questions which you are now about to ask me.

Question-and-Answer Session

Jason Fairclough - Bank of America/Merrill Lynch

Jason Fairclough of Bank of America Merrill Lynch. Good morning Mick and congrats. Just you talked about merging the two cultures. Could you talk a little bit about who is going to run the different divisions, I guess in Glencore typically it is the head trader who runs the divisional businesses. Will it be the Xstrata divisional CEOs who run the different commodity businesses or will it be the Glencore traders or how is that going work?

Mick Davis

We basically have the existing Xstrata chief executives that are running business now and will continue to run those businesses and the Glencore production assets, which fall into those businesses will merge into those businesses and the marketing and trading flows from those businesses will be managed and processed through Glencore trading and marketing systems and chief executives of the existing marketing business will stay in place.

And the point that I have made is there will be an ongoing working relationship, close working relationship I have assumed between the Chief Executives of the actual operating businesses and the Chief Executives of the marketing businesses and that is what's going to continue. So from a structural point of view at the top both companies actually have very little disturbance.

Jason Fairclough - Bank of America/Merrill Lynch

So just to be clear, it’s a parallel structure then, so there will be a trading structure and an operating structure?

Mick Davis

Parallel structure working very closely together.

Ivan Glasenberg

Its no different how Glencore operates today and you mentioned that the head guys are trading there. How it works today; if you look at corporate division, you will have Aristotelis Mistakidis who heads up really the copper trading part and he has his counterpart alongside in the production guy Tim Henderson who looks after the production and they work very close very each other. But Tim really keeps total control of the production and the same as Mick said will be the Chief Executives of Xstrata will look after the production part of the business working closely with the marketing team.

Chris La Femina - Jefferies

Yeah, Chris La Femina from Jefferies. A question about M&A strategy for both Xstrata and Ivan for Glencore as well. Mick you talked about how the combined entity will have the lower cost of capital and obviously be much larger in scale; will this effect your M&A strategy from how you would approach M&A as Xstrata on its own? In other words you have to look at bigger deals or is there a different approach to risk around the M&A? And obviously as a bigger company, smaller acquisitions are going to do a lot less to move a needle than the bigger deal would?

Mick Davis

Well, I think two observations on this. First of all, I don't think it changes the way that we look at M&A, I mean the way that Xstrata has looked at M&A has been, a very, very clear idea of what creates value and then when opportunities present themselves so that we can capture that value; we tend to take those opportunities as decisively and as quickly as possible.

So we haven't been slaves to an idea, we’ve been slaves to value and the opportunities of marrying the two together and I don't think that changes it at all. I think that's the way we want to continue.

I think the next point about this is secondly that there is no doubt that the combined entity provides much greater financial capacity and a cleaner shareholder structure to facilitate us looking at deals which otherwise would have been challenging for us to do. And therefore does allow you to do larger transactions and it does allow you to grow in size and geographies which you might otherwise want to constrain yourself of the two companies that are operating separately.

So I think the advantages of scale give you the opportunity of taking perhaps on board more risk and therefore more opportunities in those geographies which you might have said, we will be there, but we will be there only within a particular size. And I think this say is the second value adding aspect of it.

On the issue of bolt-on transactions, we have made a virtue of encouraging our Chief Executives to constantly search out for growth opportunities. And were those growth opportunities to make sense to also go out there and capture them. And we have had what five or six bolt-on acquisitions.

Now every acquisition might be small in size, but as you add them together they become very significant and I have made the point, when you start at, you might start at something small, but when you buy something which is connected to it and you put something which is connected to on top of it and suddenly you have a big complex. And you translate something which is relatively small and relatively insignificant, something which is large and world class and that’s what we encourage our business to do because that’s how they get to add more value as well.

Andrew Keen - HSBC

Mick, good morning. It’s Andrew Keen from HSBC. Two questions on the premium, one specific and one more general. On the specifics, you quoted 15% premium using the Glencore closing price of 6th of February; if we go there and your undisturbed price of the 1st of February. If we go back and use both the undisturbed price of the 1st of February, isn’t the premium 8% rather than 15%?

Mick Davis

Well, the number is 8%, but I don’t think that’s a premium.

Andrew Keen - HSBC

Right. The second question is whether it’s 15% typical premiums in the mining industry, at typically around 30%. You paid more premiums than a lot of people and your own premium in hostile M&A is typically around 30% to 33%. Don’t you think that 15% is rather low?

Mick Davis

I am an expert in paying premiums that are paid in cash as well. So this is a share-for-share combination of two companies together where the shareholders remain in place together and are going to go together and going to share the value of this together. Why should one share a set of shareholders differentially be advantage of another set of shareholder. I had this debate when we looked at Anglo American. So it’s a topic which I thought about for a long time.

My job is to make sure that Xstrata shareholders got an adequate stake in this business and that we in fact, we maximize the stake that we could get take into account what was in the universe of possible and from that perspective, I think we have in fact done that effectively and we maximize what we can take and that has translated into I think, a very acceptable premium for the Xstrata shareholders.

Clearly, we can all say, we want more; everybody wants more. My son always wants more, but you know, sometimes you want more, you start eroding what you’re giving and you start ending up with getting less. So I think we’ve actually pitched it right.

Andrew Keen - HSBC

One last question; does this transaction trigger change for control closes in executive employment contracts?

Mick Davis

This transaction potentially does trigger change of control towards some executives depending on the jobs they get. From my perspective, it doesn’t trigger change of control. I am moving to the Chief Executive of the combined company. My job is pretty much the same. Just a bigger field to play which makes me very excited.

Myles Allsop - UBS

Myles Allsop, UBS. Just a couple of questions for Mick; why now, I mean back in December you were saying, you were on the cusp of delivering meaningful growth that comes through 2013-‘14, is it not better to wait and then sort of combine?

Mick Davis

I have to come back to the timing of the opportunity. This is not a transaction we just have thought about. This thing has been speculated about for years and Ivan and I have been talking about; does it make sense to merge these two companies, six to seven years ago already.

And I think it just comes back to you sort of the way that I look at things, I am sure the way that Ivan looks at things is that if you can reach a landing then you must act. What is the point of not acting? I understand the principle behind this is that this is a great opportunity; this is a great company. This merger will give us great capacity to enhance value for shareholders.

Having reached the landing in key terms, in governance on ratios, on management structure et cetera, why wait, why miss the opportunity, take wins available and that’s a way that I have always approached our acquisitions. It doesn’t in anyway diminish the growth that comes to Xstrata shareholders; in fact I think it gives an enhanced capacity to capture growth much early on by getting into the earlier capital efficient growth projects of Glencore.

Ivan I don’t know if you want to add?

Ivan Glasenberg

Yeah, I mean, you know you said wait later on, who knows what await later on. We value the companies and we make them accretion dilution effect of it is looked at, it hasn’t looked at it today; you look at the future DCF so what a different type valuations and that’s the value we get to.

So we also have growth projects within Glencore and the time came we looked at all different ways of valuing it to get the right ratios and it works today. And as Mick keeps emphasizing, you have to remember it is not a purchase for cash; it was a cash deal and people can talk about premiums because then shareholders are departing and are not getting the benefit of the combined unit; it is only getting to one set of shareholders the party who pays the cash.

This is a merger of only shares; all the shareholders are getting the same value. They are getting the benefits of the synergies. They get ready if say the shares are priced low today and some people have said why don’t you do it later; is it the bottom of the cycle; wouldn’t you want to do the merger late in the cycle? Sure; later in the cycle using high priced shares against high priced shares. Today, when you say it’s the bottom of the cycle, we are at the low part of the cycle, it’s low priced shares against low priced shares. So it really doesn’t make a big difference; it’s not cash to purchase the assets.

Myles Allsop - UBS

Maybe one second question to follow-up; on the synergies $500 million; could you just give us a bit more visibility on where they are going to be achieved? You say it’s kind off the cart; if there is significant upside you believe to those synergy numbers? And I am just thinking about, so your two organizations being very leanly run already and do you think this kind of CEO, Deputy CEO, CFO, Deputy CFO, I mean it seems that you are getting more bureaucratic at the top potentially, but just in terms of synergies and what upside there's will be helpful.

Ivan Glasenberg

I don't think. I mean firstly let’s talk about bureaucratic at the top, I think less bureaucratic at the top because the way the business is going to be run you now do have a bigger set of assets. Mick is definitely going to focus more on the asset side of the business and I am going to focus more on the trading side of the business. You know the trading side of the business means a lot of travel, being out of the office a lot of the time and these relationships with customers et cetera and so what I do in looking for opportunities being around the world. So therefore that gives me more freedom to do that easier, Mick running the company, being CEO of the company does release a lot of pressure from me to do more of what I do best.

So that's what we are getting. Now the leanness of the structures in both the trading and the assets will remain the same. In fact I think it will even get leaner because now we've got more assets we can put them together, we can utilize the skills of Xstrata’s CEOs and their production division to assist on the management of our divisions. We are lean and we are growing the assets and we do need outside skills to assist. I think that adds a lot of value. The other part of the synergies, yes the synergies we've looked at and as I am trying to explain to you with the arbitrages that we get on the pricing, the arbitrage that exist on the pricing, the blending opportunities, using smelters to bring in third party tons and utilizing third party tons within the system.

Those synergies we've looked at very carefully. We've analyzed what we've done in Glencore in the past. How we've made money with third-party tons. We didn't have that ability to do it with the Xstrata ton. So what we're going to do is look at how much value we've created on the third party tons which we buy and bring in to the Glencore system and putting that to the Xstrata tons, we've done that on the copper side, we've done that on the zinc side, we've done it on the coal and nickel side, it’s pretty easy to calculate. So the number has been pretty scientifically done, it’s being well done, it’s being processed through the system and that's I believe a conservative figure.

Mick Davis

I think the point to make about the synergies which we've not actually computed is clearly there are you a lot of synergies that come through from the tax and financial side which have not been factored into account.

And we haven’t factored into account the potential synergies that come through from the optimization of the asset base over the time.

So I think clearly the synergies fundamental which flow through, there is very few sort of head office type synergies that you get from other transactions, even reflecting the fact that we both run very lean head offices and the duplication effect is very, very small. I think there is, there is great complimentarity in the skills that are brought at the head office. And as Ivan says the key synergies come out of that and the dominant amount comes from copper and coal, but significant synergies from the other businesses as well.

Robert Clifford - Deutsche Bank

Hi Mike, just one question, you have grown Xstrata over a decade. You are comfortable operating in the regions you are in at the moment, how have you got comfortable potentially being the CEO of assets in a whole range of different regions that you haven’t been in before?

Mick Davis

Well look and let me be honest. There is basically two principal regions, it’s a former Soviet Union and Kazakhstan which in fact we have never had a difficulty in operating with. We just haven’t had opportunities to operate there. Activities out of Russia and of course the DRC, now again one of the values of bringing this merger together, is we bring skill sets of people who have operated very successfully in these areas. And my point was whenever I made the points about risk, is that I don’t want to take Xstrata into areas where we had no skill sets because to my mind that seems to be unquantifiable. You can raise returns, you can say we will get a high IRR. That sort of binary [archive] you comments is the risks you get zero because here we now are joining together with Glencore. In fact you had the benefit of risk capability of operating in these areas and done it very successfully. And again that I think is a value. That is an unquantifiable synergy of where we come from and the fact that they are you know sitting around about 40 countries around the world, has a tremendous value.

So I have been and looking at this transaction and getting myself comfortable about not only the asset mix but where the assets are. I’ve looked at how Glencore in fact have been able to position themselves in these geographies and we’ve taken a view that they do it in a way which mitigates risk and the way which as a risk mitigant which we could not have brought to the table and because we just haven’t been there in the past.

Ivan Glasenberg

I mean on that point, I can just add one. We talk about the risk in those countries and Xstrata today is in Columbia. A lot of these countries Glencore got in to, probably because we’re mining there. We’re trading in there. We were buying a lot of tons, whether you talk about DRC, whether you talk Kazakhstan, whether you talk Columbia. We got into those countries because we’re trading those countries for a long time. We had field officers in those countries and take for example and you asked Mick that question, we were in Columbia many years ago.

We started the Columbian coal operations and we’re the first mining company to go in to Columbia. You know, the Cerrejón projects, Cerrejón Norte, Cerrejón Centrale were our projects initially and we only got in to those countries and with Prodeco due to our trading base, we’re trading with those companies, companies ran short of cash, we eventually did pre-financed deals with those companies and eventually we converted some of those pre-financed deals in to equity and at the time we were a smaller company. The scale got too big for us and thus in fact, when we brought in Anglo American and finally we bought in BHP and we brought in Mick when he was at BHP at the time to come in as a partner to join us in those operations.

So that’s the same thing. There was a country. No one knew about it, everyone was scared to operate but we got there first. People saw what happened and they all arrived. The same is happening in the DRC. We got in the DRC early. We do have operations Katanga Mutanda and we’ve seen it. Other mining companies are all coming in to the Congo rapidly and they will all be there rapidly.

And Mick said Kazakhstan is a country we also developed there early on. We had a relationship with the producers there and we got our assets and people are today in Kazakhstan. The problem is there is just not enough assets. All the oil companies are running to Kazakhstan to try get into Kazakhstan and mining companies are starting more exploration. But these are not risky countries any more.

Mick Davis

You just reminded me, the first deal we actually had, the negotiation was on this very assets in Columbia. We didn’t do the deal.

Ivan Glasenberg

You came in later.

Mick Davis

Yeah, after you took all the value.

Ivan Glasenberg


Mick Davis

Effectively that’s what happened. You always get the value and I get the asset.

Unidentified Analyst

[Joshua Glickman, Scotland Capital], Do you anticipate create a new financing entity or would you continue to finance out of the separate Glencore and Xstrata entities?

Mick Davis

I may have to hand that over to Trevor.

Trevor Reid

Ultimately, once the deals are signed up, of course we would finance on a consolidated basis.

Unidentified Analyst

And then I guess with the existing debt, would you be looking to kind of consolidate that of the top or with guarantees or substitute it?

Trevor Reid

I am sure that’s going to be the most efficient to do it ultimately.

Madhu Raghunath- Bank of America/Merrill Lynch

Can you tell us anything that may come of the regulatory process that you envisage for the transaction?

Mick Davis

I can’t, but I think the primary of key process is the anti-trust approvals one has to get across the world and a have various amount of filings and going through these, going through the things that we have to file and I think the principal country we have to file is the United States. At the moment we think we have to file in individual, some individual countries in Europe, but we wait for the European Union to define on this. We have to file in China, we have to file in South Africa.

In terms of where the long-lead times are? I think they are basically in China and South Africa, that’s a slightly longer process. Then other jurisdictions and we sort of think that they anti-trust will probably be done for this to complete in the beginning of the third quarter or round about that period of time.

The other key regulatory filing I think is simply the Foreign Investment Review Board in Australia, which I think will not be an excessively taxing exercise. Both organizations have operated in Australia very successfully, we are well- known and I don't believe that will be a key issue and I think that's where the focus area is of the issues.

Heath Jansen - Citi

Just to follow-up on the anti trust, I mean is there any commodities in particular that you are concerned about on the anti-trust particularly in zinc and copper given your combined market shares going forward?

Mick Davis

No clearly the market shares are high but we don't have concerns. I just have to say to you in the past the European Union has always treated Xstrata and Glencore as one unit. So I mean I would take that as a precedent and I don't think that any of the volumes in itself actually causes a problem in different jurisdictions but they do trigger filing requirements.

Heath Jansen - Citi

And just the second question on your whole portfolio structure and makeup now, given that you are going to be a bigger organization going forward. Are there any commodities in there that are so sub scale and not going to make those requirements of bolt on activities, I guess the one that comes to mind is the PGM business?

And secondly just that in capital allocation and how are you going to think about capital allocation between growth projects now given you've got a lot more competition for capital, particularly on the assets and the marketing businesses as well?

Mick Davis

Those are both very good questions. On the issue of the first question, are the assets which we in fact we will take another look at, obviously we do that, we do the dynamically all the time and clearly who would get to this company without in fact having an official look at what the asset portfolios are, what the trading portfolios are and making decisions, is this the right mix, can we do something different, can we do something better.

But we've got to do it, we've got to do right, we've got to get the shareholders approval of transaction, we've got to integrate the businesses and then I think we can approach that but certainly its going to be done. We've had enough thoughts about that upfront.

On the issue of but how are we going to think about capital allocation, again I think we would have to focus on value creation. This is has got to drive where you allocate your capital and we have to make a judgment based on risk and opportunity to create value as to where we put our capital going forward whether it’s an acquisition, whether it’s a project. That is what we have done in Xstrata up to now, certainly that’s what Glencore have done in terms of my observations and I think we’d continue doing that. Value creation is the driving focus of this group, not building great edifices, not building great things. How do we create value? And that’s what we drive the way we are going to allocate our capital going forward.

Christopher La Femina - Jefferies & Co

Christopher La Femina with Jefferies again. Just a follow up question on M&A in general. If your cost of capital is indeed lower and obviously it’s a larger entity. I don’t think that Xstrata on its own probably would not be looking into oil and gas assets in terms of M&A but may be combined group especially with Glencore’s marketing business and energy may look at oil and gas assets. Is that something you would consider as a merged company, in large scale oil and gas assets?

Mick Davis

I think oil and gas asset has very exciting effect. Glencore have two very exciting projects that we are working on at the moment in Equatorial Guinea, and, Ivan, I don’t know if you have anything to talk about them, but certainly that’s an area which merit’s attention.

Ivan Glasenberg

Yeah. We have always said during the RPA phase and one of the reasons why we did the IPO which gave us the financial muscle to grow in that area. We do believe that’s an area we got expertise in that area and we would like to grow in that area. As you know in that area, Equatorial Guinea, we are developing that base in Cameroon, we got EMP projects. The existing project is already producing round about 60,000 barrels of oil a day. We own 23% of that and we will keep looking in that area and try and grow that area.

We do have our investments in Russia, in Russneft. It has had its problem but today we do own that asset. The asset has to deal with the current oil prices. It is paying down debt considerably. It was highly geared with Glencore debt and Sperbank debt, but it was highly geared. It is paying that debt rapidly at $110 dollar oil top prices. It has an asset which has an EBITDA of round about $1.6 billion per year. So yeah, that is an asset that could potential we grow further in that area. So yeah, we will look at those two areas or other opportunities in West Africa where we feel comfortable in that area if opportunities come, we will look at that.

Myles Allsop - UBS

Myles Allsop, just a few quick kind of follow up questions. Does the deal impact the timing of the lockup for the Glencore shareholders?

Ivan Glasenberg

I think the lock-up stays the same; there is no change in the lock-up. The existing lock-up applying to the Glencore shareholders remains. The first release of the lock-up is on the 18th of May, I think it is Steve and that’s when the first release of the partners who get their one-fifth or one-fourth release falls due then.

Steve Kalmin

If you open the page which show the pro-forma ownership structure which was as of May, which, what is still locked-up as at that particular point in time and what was released.

Myles Allsop - UBS

And then in terms of the Kazzinc transaction, is that impacted by this bigger obviously merger or is that still going ahead?

Ivan Glasenberg

Well, that is still going ahead. The deal is -- it just was waiting for the regulatory approval in Kazakhstan. I think we got that recently, Steve, so that should be going ahead. As you know, that’s a $1 billion issue of shares at the IPO price of $5.30 price and $2.2 billion in cash.

Myles Allsop - UBS

Again, then in terms of…

Steve Kalmin

That is expected closing in the second quarter.

Myles Allsop - UBS

Okay. In terms of the synergies, could you give us a split between, is it 90% marketing, 10% industrial; and just sort of get a sense of what the tax rate would be?

Steve Kalmin

I mean you can take of the synergies the $500 million worth of synergies. So round about 35 to 40 is, sorry, about 20 odd to 25 million is sort of corporate type synergies and the rest is just synergies in the marketing areas.

Myles Allsop - UBS

And that would be what 10% tax items in the marketing synergies?

Ivan Glasenberg

Marketing, yeah.

Myles Allsop - UBS

And then just finally, could you talk about the incentive program for employees, kind of the legacy Glencore and Xstrata employees?

Mick Davis

Well, I think the incentive program is actually pretty much the same as they are at the moment. What will happen is that Glencore have an existing incentive which the Xstrata people will migrate into. So there is no changes that we've implemented in relation to long term incentive plans, or, for that matter, salaries and bonus structures and stuff like that.

Well, if there are no further questions, let me first of all thank you very much for coming and listening to us. We really appreciate the fact that you’ve given us so much of your time. I apologize for the hassle it was to get into the building, but given the history of occupied level amounting to actually make the acquaintance with me perhaps they are a little bit more concern than they normally are.

I’ll a make point, we clearly has to note that our shareholders and speak them and take then through the transaction, they will have many questions that is the best that we can go through and we’re going to go diligently and we will be available to discuss any of these issues with all our shareholders and all of you as the time of this transaction takes place. It has been a long anticipation period; we recognize it. Speak to us if there are issues and we will be able to give you the answers.

And again, thank you very much for joining us this morning.

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