Glencore Xstrata hit by $7.7bn writedown

Glencore Xsrata net income on a pro-forma basis, without impairments and other exceptional items, fell 39 per cent to $2bn

Story highlights

  • In its first set of results as a combined group Glencore reported an $8.9bn loss after more than $8.8bn of impairments
  • Glencore took over Xstrata in May following a year-long acquisition process.
  • The hits to the value of Xstrata's mines show the gloom surrounding the mining industry

Glencore Xstrata knocked $7.7bn off the value of its mining assets following the complex merger that created the diversified commodities trader and miner this year.

The hits to the value of Xstrata's mines show the gloom surrounding the mining industry as prices for many key commodities have fallen amid oversupply and slowing growth in demand.

Glencore took over Xstrata in May following a year-long acquisition process. Ivan Glasenberg, chief executive, reiterated on Tuesday that Glencore believed it would be able to get more synergies and cost savings from the deal than the $500m originally promised.

In its first set of results as a combined group Glencore reported an $8.9bn loss after more than $8.8bn of impairments and revaluations linked to the acquisition of Xstrata, including almost $7.7bn of goodwill and more than $1.1bn through having to revalue the 34 per cent of the miner it already owned.

Analysts at Citigroup said "this is essentially a clearing of the decks by Glencore".

Adjusted earnings before interest, tax, depreciation and amortisation were slightly ahead of analysts' consensus estimates at $6bn on a pro-forma basis, compared with $6.6bn on the same basis for the first six months last year.

Net income on a pro-forma basis, without impairments and other exceptional items, fell 39 per cent to $2bn but was ahead of analysts' expectations.

    Mr Glasenberg told investors the lower earnings "inevitably reflect some of the impact which financial market pessimism has had on commodity prices". But he said after development projects were complete and within 18 months Glencore would have a "very competitive position" in its main commodities.

    "We continue to see ample scope for further operational efficiencies within the enlarged group, particularly in the former Xstrata businesses," he said.

    An unchanged interim dividend of $0.054 per share was declared.

    The shares fell nearly 3 per cent to 294p in early London trading after the writedown was bigger than investors had been expecting.