Pundits who dismiss Xstrata plc "as a bunch of deal junkies" have it all wrong, said Ian Pierce, chief executive officer of the company's Toronto-based nickel group.
Xstrata “is a company that is dedicated to mining and has come to the mining industry with a unique and exciting model,” he told members of the Canadian Institute of Mining and Metallurgy’s Sudbury branch in September.
Though ranked as the fifth largest mining company in the world, Xstrata has only 34 people at its corporate office, said Pierce, who was appointed CEO of Xstrata Nickel in August 2006.
“That’s 34 people between Zug, Switzerland and London. That includes secretaries, drivers and management.
Other companies have thousands of people in corporate offices, so the model is very much around a devolved structure.
“At Xstrata Nickel, we don’t have people in Toronto second-guessing what our operations are doing. I don’t have a chief mining engineer or a chief metallurgical engineer because we believe these skills need to reside at the operational level.”
The company’s bias in favour of decentralization also extends to health and safety, environmental sustainability, community support and procurement, said Pierce.
“How can I make decisions about Sudbury or Norway from Toronto?” he asked. “It’s impossible. We need to make sure that skills and resources reside at the operational level. A lot of people say that’s redundancy and that we’re paying for duplication. Mick Davis (the company’s chief executive) says ‘That’s fine. I’m prepared to pay for duplication. I want people to understand that they have the responsibility and accountability.’ We think this is a better model, a more empowering model. People feel they are more in charge of their own future.”
Another distinguishing characteristic of the company is its commitment to diversification, said Pierce. Its five commodity groups (zinc, copper, nickel, coal and alloys) and global footprint provide the company with a natural hedge against political risk, currency fluctuations and the ups and downs of commodity prices.
Bright future
Pierce predicts a bright future for nickel as the rapidly growing economies of Brazil, Russia, India and China continue to drive demand. However, supply will remain constrained because of the barriers to entry in the nickel market, he added.
Extracting and processing nickel requires a tremendous amount of technology and knowledge, said Pierce. “With coal, all you have to do is dig it up.”
Huge capital requirements to bring new nickel deposits to market will also act as a brake on supply.
“The capital required for these projects can run into the hundreds of millions or billions of dollars, so it’s not a business that any junior can jump into.”
Speculation years ago that Falconbridge would run out of ore by 2009 has been discredited, said Pierce.
“We feel the Sudbury Basin has massive potential and Nickel Rim is a good example. We’ve been mining in Sudbury for a century and Nickel Rim wasn’t discovered until recently.”
Given the green light in 2004 under Falconbridge ownership, the Nickel Rim Mine is on schedule to begin producing ore in 2009.
Availability of capital won’t be a problem under Xstrata ownership, Pierce assured his audience.
“In the old Falconbridge days, we were constrained. We were a small company. Now, we’re part of a $45 billion company, so there are no constraints. There is nothing stopping us.
“We have a large unexplored land base in the Sudbury area and a fantastic exploration team. If there’s nickel down there, we’ll find it.”
Synergies
Pierce also revealed that talks with CVRD Inco on taking advantage of synergies in the Sudbury Basin are proceeding well.
“We feel very positive about the talks. There’s a lot of history in Sudbury. We are aware of that history, but we are going to be persistent about trying to find value here,” he said.
Acknowledging the importance of introducing new technology and processes to boost productivity, Pierce laid out the red carpet for Sudbury suppliers.
“If you want to go visit my operations tomorrow and you have an idea to save money, go visit them. If they don’t want to listen, talk to me. There are no barriers for us to be able to improve our business. We’ve broken down the paradigms. We don’t have a corporate procurement office. We co-ordinate and find ways to reduce our costs by leveraging our purchasing power, but that happens naturally. It doesn’t come from corporate.”
As an example of Xstrata’s entrepreneurial mindset, Pierce pointed to the new mandate conferred on the company’s Process Support group, a Sudbury-based technology centre specializing in process mineralogy, extractive metallurgy, process control and material technology.
“There was a grave concern that Xstrata was going to (abandon) exploration and technology and that they were just out to make money, but the company saw the value it had in the technology centre.”
The Xstrata Process Support Group, he said, is now providing expertise to the company’s operations worldwide.
