Glencore Xstrata boosts Hackett River; looks to get lean

The recently merged Glencore Xstrata (GLEN-LSE) 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 predominantly 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) back in 2011. The new estimate boosts overall resources by 34% over the last estimate, which was released in 2011.

Measured and indicated resources at the project, which lies within the Wishbone Greenstone belt in southwestern Nunavut, now stand at 25 million tonnes grading 4.2% Zn and 130 g/t Ag and inferred resources come in at 57 million tonnes grading 3% Zn and 100 g/t Ag .

That brings total measured and indicated silver resources to 105 million oz of silver with another 183 million oz in the inferred category.

The increase is also 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 then 12.5% of silver produced thereafter. The deal with Xstrata also gave Sabina $50 million in cash.

That cash component helped Sabina build one of the better balance sheets on the junior circuit as it is currently holding $104 million in cash. That capital is set to be deployed at its flagship Back River gold project, roughly 50 km southwest of Hackett, where Sabina is looking to have a pre-feasibility study done by the third quarter of this year.

Back River has measured and indicated resources of 24.2 million tonnes grading 6 g/t Au for 2.299 million oz of gold and another 7.67 million tonnes grading 7.8 g/t Au for 1.92 million oz of gold in the inferred category .

As for Hackett River, it is one of the largest undeveloped volcanogenic massive sulphide (VMS) deposits in the world and is considered to be analogous to the famed Kidd Creek deposit in Ontario.

The good news from Canada’s Far North comes just a few days after Glencore Xstrata announced that it will be 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 remaining two coming from Xstrata. And while some senior managers at Xstrata resigned after the deal was completed, the company says all of its mine managers are staying on.

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

The company’s chief executive, Ivan Glasenberg, made no bones about the plan as he told analysts on a conference call that there will be “a large amount” of job losses.

The cuts are also tied to the fact that Xstrata will be inheriting Glencore’s corporate structure. Unlike Xstrata, which was built on a model of business units governing separate divisions of the business, Glencore will re-configure things so that its global assets will be directly accountable to head office, rather than to the heads of business units.

The company said it still plans to spend US$13 billion this year and US$9 billion next year on development. That number would fall somewhat, however, if it sells the Las Bambas copper project in Peru. Chinese regulators made it a condition of approving the merger between Glencore and Xstrata that the mine be sold.

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