Glencore slashes Xstrata buy
Its underlying profit fell to $US2.04 billion from $US3.36 billion a year earlier, Glencore said. Including the write-downs, the Switzerland-based Glencore reported a net loss of $US8.9 billion.
The write-down on Xstrata's "goodwill", reflected the fall in commodity prices seen in recent months as the Chinese economy has cooled.
The impairments reflect "the broader negative mining industry environment and sentiment which prevailed during the first half of 2013 and the heightened risks associated with greenfield and large-scale expansion projects", Glencore said.
Some investors may find the figure on the Xstrata write-down "somewhat jarring, especially given management rhetoric on capital allocation", Bank of America Merrill Lynch analyst Jason Fairclough said in a note to clients.
The $US29 billion all-share purchase of Xstrata created the fourth-biggest miner and added coal, nickel, zinc and copper output to Glencore's global commodity trading empire. BHP Billiton, Rio Tinto Group and Glencore are among producers cutting costs, selling assets, revaluing mines and reducing spending.
Glencore also posted a $US1.2 billion accounting loss on revaluing its 34 per cent interest in Xstrata at the time the transaction was completed, as well as a $US452 million impairment charge at its Murrin Murrin nickel operation in Australia and a $US324 million charge on its investment in United Co. Rusal.
The combined group has interests in about 35 coal mines in Colombia, Africa and Australia, accounting for about 10 per cent of global seaborne supplies of the fuel. It's the fourth-biggest producer of mined copper and third-largest in nickel. It employs about 190,000 people in more than 50 countries.
Glencore fell 1.6 per cent in early trade in London.
Frequently Asked Questions about this Article…
Glencore's first-half underlying profit fell from US$3.36 billion to US$2.04 billion after the company wrote down US$7.7 billion of assets acquired in the Xstrata takeover. Including those write-downs, Glencore reported a net loss of US$8.9 billion.
The US$7.7 billion write-down on Xstrata 'goodwill' reflected a fall in commodity prices amid a cooling Chinese economy and the broader negative mining-industry environment, as well as heightened risks for greenfield and large-scale expansion projects.
Glencore recorded a US$1.2 billion accounting loss when revaluing its 34% interest in Xstrata at completion, a US$452 million impairment at its Murrin Murrin nickel operation in Australia, and a US$324 million charge on its investment in United Co. Rusal.
The US$29 billion all-share purchase of Xstrata created the fourth-biggest miner, adding coal, nickel, zinc and copper output to Glencore’s global commodity trading business. The combined group has interests in about 35 coal mines (roughly 10% of global seaborne coal supply), is the fourth-biggest producer of mined copper and the third-largest in nickel, and employs about 190,000 people in more than 50 countries.
The impairments were driven by falling commodity prices, a cooling Chinese economy and weaker mining-sector sentiment. Producers including Glencore, BHP Billiton and Rio Tinto were cutting costs, selling assets, revaluing mines and reducing capital spending in response.
Yes. Bank of America Merrill Lynch analyst Jason Fairclough said the size of the Xstrata write-down could be 'somewhat jarring' to some investors, particularly given prior management comments on capital allocation.
Glencore shares fell about 1.6% in early trade in London following the announcement of the results and the large write-downs.
The results highlight how commodity-price volatility and weaker demand — particularly from China — can trigger large write-downs and hit miner profits. For investors, the announcement underscores sector risks such as revaluations, impairment charges and potential share-price volatility after major acquisitions.
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