A year and half ago, I was part of a training short course by a global mining company for their employees. This company has a trading arm ( not as big as Glencore) and so the short course involved a presentation by the VP of their trading operation. Through the presentation, I was sitting by one of their mining managers, a mining engineer who started out in front line supervision in mines. At the end of the presentation, the mining guy turned to me and said, “all this makes me nervous – I don’t understand most of what they do…we are a mining company and should be doing mining.”
This week I have read a few articles about the announced merger between Glencore International PLC (a major commodities trader) and Xstrata PLC, the world’s fourth largest mining company. Two of the most insightful, for me, were by CP Chandrasekhar (at the Guardian) and Myra P. Saefong (at MarketWatch). Both articles pointed out Xstrata’s move to have such a powerful trading operation will force the other players to find trading operations for mergers and acquisitions (M&A). There are various implications if this predicted wave of M&A activity actually materializes. But there is one that I’m most interested in and is perfectly illustrated by my story above. How would the two cultures (mining and trading) be managed in a new company?
It appears Xstrata and Glencore have taken the approach of keeping the two units separate but together. This will save some of the headaches of change in management that, usually, occurs when the parent company tries to change the culture of the acquired company. However, when the quarterly and annual reports start coming out and employees on both sides start seeing how the performance (or lack) of the sister company affects the bottom line and their companies’ sustainability, they will realize they are significant stakeholders in each others business regardless of how separate they are. In rough times, the conflicting cultures may become the subject of discussion at all levels of each company.
Mining people are financially very conservative and tend to think conventional trading practices amount to “risky” behavior. The feeling expressed by the manager I was referring to above is not rare in the mining business. The interesting part is, after the presentation, I spoke to the VP of the trading operation and asked him whether he gets a lot of questions from the mining side on how risky their operation is. He admitted he does and is baffled by it. He told me, mining professionals in his opinion take higher risks in their business daily without realizing it. And there in my opinion lies the problem – two very different cultures with very different views of their risk profiles.
Whether my fear will materialize or not is yet to be seen. But there are immediate concerns too. If your mining company acquires or merges with a trading company how would that change how the mining side does business? Obviously, Xstrata is hoping to get rid of the middle man. But having a trading arm, means the mining business will be expected to cover commitments made by the trading arm to deliver products. Does that mean your mines have to operate with tighter deadlines and more last minute calls for product? Does that mean more pressure from corporate on your annual production numbers? How do you see your own job function being affected by such M&A activity? Share your comments here.