Glencore Xstrata boosts Hackett River, looks to get lean

The recently merged Glencore Xstrata (GLEN-L) plans to have a leaner corporate structure, but its first resource estimate shows it will still be hefty in terms of minerals in the ground. And while the new company will be mostly guided by Glencore’s brain trust, it is a recent Xstrata acquisition that is bulking up the tonnage.

Glencore Xstrata updated resources at the Hackett River project, which Xstrata acquired from Sabina Gold & Silver (SBB-T) in 2011. The new estimate boosts overall resources by 34% since the last estimate, which was released in 2011.

Measured-and-indicated resources at the project, which lie within the Wishbone greenstone belt in southwestern Nunavut, now stand at 25 million tonnes grading 4.2% zinc and 130 grams silver, and inferred resources come in at 57 million tonnes grading 3% zinc and 100 grams silver per tonne.

This brings measured-and-indicated silver resources to 105 million oz. silver, with another 183 million oz. in the inferred category.

The increase is good news for Sabina shareholders, as the company stands to get 22.5% of silver production up to the first 190 million oz. produced at a future mine, and 12.5% of silver produced thereafter. The deal with Xstrata also gave Sabina $50 million in cash.

This cash component helped Sabina build one of the best balance sheets on the junior circuit, while still holding $104 million in cash. The capital is set to be deployed at its flagship Back River gold project, 50 km southwest of Hackett, where Sabina will have a prefeasibility study in hand by September.

Back River has measured-and-indicated resources of 24.2 million tonnes grading 6 grams gold for 2.3 million oz. gold, and another 7.7 million tonnes grading 7.8 grams gold for 1.92 million oz. gold in the inferred category.

Hackett River, meanwhile, is one of the largest undeveloped volcanogenic massive sulphide deposits in the world. It has been compared to the famed Kidd Creek deposit in Ontario.

The good news from Canada’s Far North came just a few days after Glencore Xstrata announced that it would have mainly Glencore executives at the helm of the merged entity.

The new senior management team is made up of 14 executives, and a full 12 of them come from Glencore — with the remaining two coming from Xstrata. And while some senior managers at Xstrata resigned after the deal was complete, the company says that all of its mine managers are staying on.

The merger fits well with the mood of the market, which has  a low-cost focus. By merging, the companies are expected to unleash $800 million in synergies, many of which will come from cost-cutting. The cuts will be aimed at eliminating job duplication, and centralizing operations at headquarters in Baar, Switzerland.

The company’s chief executive Ivan Glasenberg made no bones about the plan, telling analysts on a conference call that there would be “a large amount” of jobs cut.

These cuts are also associated with Xstrata taking on Glencore’s corporate structure. Unlike Xstrata, which was built on a model of business units governing separate divisions of the business, Glencore will reconfigure so that its global assets are accountable to head office, rather than to the heads of business units.

The company says it still plans to spend US$13 billion this year and US$9 billion next year on development. But this number would fall somewhat if it sells the Las Bambas copper project in Peru.

Chinese regulators wouldn’t approve the merger between Glencore and Xstrata unless Las Bambas mine was to be sold.