Glencore seeks fresh start with $7.7 billion hit to Xstrata

Tue Aug 20, 2013 10:25am EDT
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By Clara Ferreira-Marques

LONDON (Reuters) - Glencore Xstrata (GLEN.L: Quote) took a $7.7 billion hit on mining assets acquired in its takeover of Xstrata, drastically reducing the value of projects in the early stages of development.

The diversified trader and miner announced the writedown as it posted a 9 percent drop in core first-half profit in its first results since completion of a 16-month acquisition that coincided with falling commodity prices across the industry.

Miners have been pummeled by billions of dollars in writedowns since the start of 2013, with cooling mineral prices and demand prospects denting the value of mining projects and boom-year deals.

In absorbing the impact of a weaker market, Glencore wiped out all the goodwill value it had provisionally allocated to Xstrata's mines at the time of the merger.

"We just had to value the business with a blank sheet of paper," Chief Financial Officer Steven Kalmin said, adding that the group had taken a "fairly conservative approach".

Glencore did not break down the impairment, but much of the hit is expected have been down to early-stage projects and so-called greenfield operations - mines built from scratch, which have long been unpopular with Glencore management. These include the $5 billion nickel operation Koniambo in New Caledonia.

The company dismissed the idea that the writedown demonstrated poor timing or an excessive price paid in the all-paper deal for the Xstrata shares it did not already own.

"We took a decision at the time to pay that ratio based on what we knew on that day, and we were happy with it," Chief Executive Ivan Glasenberg said. "We do believe we are going to get it back in time and we do feel comfortable with the deal."   Continued...

A combination photo shows the logo of Glencore (L) in front of the company's headquarters in the Swiss town of Baar and the logo of Swiss mining company Xstrata (R) at their headquarters in Zug, both taken November 13, 2012. REUTERS/Michael Buholzer