News Column

Glencore Takes $7.7 Billion Hit on Xstrata

August 20, 2013

Newly formed mining empire Glencore Xstrata took a $7.7 billion (pounds sterling 4.9 billion) hit on the falling value of Xstrata's assets today as storm clouds grow over the global commodities sector.

Glencore bought Xstrata in a $29 billion deal in May, creating the world's fourth biggest miner and realising billionaire chief executive Ivan Glasenberg's dream of reuniting the companies. Xstrata was spun-out of Glencore as a collection of coal assets over a decade ago, but Glasenberg sought to win back control of the Switzerland-based group as its successes grew.

Glencore unveiled $8.5 billion in writedowns today in its maiden half-year results, but nearly all of them _ $7.7 billion _ are related to Xstrata's projects, particularly those in the risky early stage of development.

Metal prices fell by an average of 15 percent in the first half of 2013 amid fears over a slowing Chinese economy diminishing its voracious appetite for commodities. Assets written down are thought to include Xstrata's Koniambo nickel operation in New Caledonia, though Glencore had to reduce the value of some of its own assets, including the Murrin Murrin nickel mine in Australia.

Glasenberg has made a "clearing of the decks" at Xstrata, according to analysts at Citigroup. The group admitted to taking a "conservative approach" in valuing assets Glencore had inherited from Xstrata, although the results spooked investors as shares fell more than 3 percent to 291.65p.

But Glasenberg insisted that "excellent progress" had been made in integrating Xstrata, and predicted cost savings "materially in excess of previous guidance" of $500 million a year.

Glencore Xstrata also beat forecasts on its key profit measure when it excluded one-off costs like the write-downs. Underlying profits were down 9 percent to $6 billion, but this was better than the $5.8 billion expected by the City.

Glasenberg is also thought to have pocketed around $59 million from these first results, as he owns an 8.3 percent stake in the company and the board paid out a dividend of 5.4 cents a share.

The South African added a "detailed update" on its review of the group's enlarged portfolio of assets will be un-veiled at a investor day next month.

Andrew Mackenzie announced his first set of annual results as boss of BHP Billiton but did so in the shadow of possible US charges for potential breaches of anti-corruption laws.

The world's biggest mining company admitted the possibility of these actions, which involve corporate hospitality at the 2008 Beijing Olympics, last week. The news for BHP investors did not get any better today, as Mackenzie revealed net profit was down nearly 30 percent to $10.9 billion.

However, Mackenzie was upbeat that commodities demand in China would bounce back, with 250 million people expected to move from the countryside to major cities.


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Source: Copyright Evening Standard (London, England) 2013

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