LONDON China's antitrust authorities removed the last obstacle to Glencore's (GLEN.L) $30 billion takeover of miner Xstrata on Tuesday after the commodities trader agreed to sell a $5.2 billion mining project to ease its grip on copper.
Xstrata's Las Bambas mine in Peru had been expected to be sacrificed to secure the approval of China's Ministry of Commerce, but Glencore also agreed 8-year commitments covering the supply of copper, zinc and lead to China.
Chinese regulators have rarely demanded asset sales to improve competition after a major tie-up, but the importance of the metals that Glencore mines and trades for China's economy meant the merger was unlikely to go through without changes.
In the event, the newest and least predictable of global regulators was also the toughest.
Glencore had already signaled that Chinese authorities were focused on its hold on the copper market, reflecting China's appetite for metal and the political side of the regulator's mission, as much as Glencore's own weight.
Glencore and Xstrata combined account for roughly 7 percent of global copper supply, and analysts and traders have estimated Glencore controls between 10 and 14 percent of Chinese copper concentrate imports.
Under Tuesday's deal, Glencore has three months to begin the process of selling Las Bambas, one of the group's biggest development projects, and must find a buyer by the end of August 2014. The trader set a minimum price, however, as the mine will be sold at the higher of either a fair market price as established by two investment banks, or total costs incurred.
If it does not secure a deal for the mine - expected to produce an annual 400,000 metric tons (407886 tons) of copper for at least four years from 2015 - it will have to find alternative sale candidates from among Xstrata's copper pipeline.
It would have three months to offer up one of longer-dated projects - namely mines in the Philippines, Papua New Guinea or Argentina. This would be unlikely to prove a wrench for Glencore, which has made no secret of its desire to slash the number of Xstrata "greenfield" mines, to be built from scratch.
"Them being willing to sell Las Bambas shows there are no sacred cows in the eyes of the Glencore management. It shows they think a little differently - they've always shied away from greenfield projects," analyst Jeff Largey at Macquarie said.
"If they can pull value forwards on Las Bambas by selling it - rather than taking on all the operational and execution risk associated with building it (and) bringing it to production - I think the market will reward them."
Cash from the sale will also help cut Glencore's debt pile - Liberum analysts said a sale could free up around $3 billion of capital over the next two years.
Satisfying China's appetite for concentrate, an intermediate product that feeds refineries and smelters, Glencore agreed to supply a minimum of 900,000 tons of copper to Chinese clients a year for 8 years from 2013. The price for at least 200,000 tons will be priced in accordance with the benchmark level.
Glencore also agreed to supply zinc and lead concentrate on "fair and reasonable" terms.
Analysts said the conditions reflected China's desire to avoid being subjected to price movements created by external factors such as financing deals, which are locking away increasing amounts of metal into warehouses.
China's green light on Tuesday paved the way for Glencore to tie up at last its long-desired acquisition of Xstrata by next month's deadline, more than a year after its plan to create a mining and trading powerhouse was first announced.
But separate news on Tuesday of a stream of departures from Xstrata's management team - all but one of its main business unit bosses - highlighted the challenges ahead during what will be Glencore's biggest integration to date.
Xstrata announced chief executive Mick Davis would not take up that role at the combined group for six months, as initially agreed. Davis, who leaves after investors complained about a retention deal, will receive just over 14 million pounds - 4.6 million relating to pay, bonus, benefits and pension for the six-month period he had initially agreed to work, and the rest relating to departure terms agreed before Tuesday.
He will leave on June 30, but will sublet the Xstrata offices until March 2017 - a detail likely to fuel expectations Davis will now set up a privately backed investment venture.
In a detail highlighting the strained relations between Davis and the Glencore bosses he is leaving behind, Davis will have to pay the combined group for the furniture and computers.
Among the divisional heads departing alongside Davis are Xstrata's copper boss Charlie Sartain, nickel chief Ian Pearce, along with Thras Moraitis, Xstrata's head of strategy and a close associate of Davis.
"This clearly turned into a takeover rather than a merger. We all knew (Glencore chief executive) Ivan Glasenberg was going to be the top dog, it was just a matter of time," Macquarie's Largey said.
Among those waiting in the wings to replace the divisional heads is veteran Glencore man Peter Coates, moved from a non-executive board role to an unspecified executive role last week.
Glencore has already cleared regulatory hurdles including the European Union, which instead of copper focused on the group's concentration in European zinc.
Glencore had agreed to scrap a European zinc sales agreement with producer Nyrstar (NYR.BR), and said on Tuesday it had agreed a deal. Glencore will pay Nyrstar a 44.9 million euro ($58.8 million) termination fee, which the producer will then use to buy out Glencore's almost 8 percent equity stake.
($1 = 0.6531 British pounds)
(The story corrects analyst's company in paragraphs 10 and 22)
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