Baar, Switzerland — 21 August 2013 – Glencore Xstrata plc’s first-half profit slid 39% as the world’s biggest exporter of power station coal wrote down the value of assets acquired in the Xstrata plc takeover three months ago by US$7.7 billion.
Adjusted net income fell to US$2.04 billion from US$3.36 billion a year earlier, Glencore revealed in a statement. That compares with the US$1.87 billion average estimate of six analysts surveyed by Bloomberg News. The Swiss-based company reported a net loss of US$8.9 billion.
The US$29 billion all-share purchase of Xstrata created the fourth-biggest miner in the world and added coal, nickel, zinc and copper output to Glencore’s global commodity trading empire. BHP Billiton Limited, Rio Tinto Group and Glencore are among producers cutting costs, selling assets and reducing spending as lower prices trim profits and force more than US$60 billion of industry write-downs.
The Xstrata 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 in the statement.
“A lot of the greenfield assets and certain assets which they had on their books, we didn’t put a large amount of value on,” CEO Ivan Glasenberg said in a phone interview from London.
The first half showed “tentative signs that we may be entering a period of increased capital discipline within the sector,” Glasenberg added.
Rio Tinto posted a US$14 billion write-down in January on previous acquisitions of aluminium assets from Alcan Inc. in 2007 and coal projects in Mozambique. Gold companies, led by the world’s biggest, Barrick Gold Corporation, have written down the value of mines by at least US$26 billion in the past two months.
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 wrote in a note to clients.
Glencore fell 1.6% in London trading to close at 297.15 pence. The company, 25% owned by management, reported an interim dividend of 5.4 cents a share.
The combined group has interests in about 35 coal mines in Colombia, Africa and Australia, accounting for about 10 percent 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 across its industrial and trading divisions.
Source: Bloomberg News. For more information, click here.