Weak prices and costs associated with the mega merger hammered results
GENEVA—Glencore Xstrata Plc lost nearly US$9 billion in the first half of its current financial year, as the newly merged commodities and mining group wrote down the value of its mining assets by a hefty $7.66 billion.
The merger between Glencore and Xstrata, completed in May, created an industry giant that controls a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper, corn and grain.
Among its holdings are the former Toronto-based Falconbridge copper and nickel business that Xstrata bought several years ago and Regina-based Viterra Inc., one of Canada’s biggest grain handlers, acquired last year by Glencore.
“The integration of Viterra has proceeded relatively smoothly, with cost savings as anticipated and full integration and ramp up expected next year,” Glencore Xstrata said.
It says a sale of some of Viterra’s assets to Agrium Inc. are awaiting Canadian approval, expected in this quarter, but another sale of Viterra assets to Winnipeg-based Richardson International Ltd. was completed.
The Swiss-based company said Tuesday alongside half-year results, reflected “the broader negative mining industry environment” and the heightened risks of taking on some big projects during the January-to-June period.
The charge was more than the $7 billion expected by most analysts.
Overall, the company said its net income excluding exceptional items fell 39 per cent to $2.04 billion from the $3.36 billion it would have made a year earlier. However, when charges, including the write-down of the mining assets are incorporated into the results, the company reported an $8.9 billion loss, in contrast to a $2.3 billion profit last year.
The company said it was impacted by weaker prices in core commodities, but that was partially offset by improved production at many of its industrial operations. The production advance included a 20 per cent increase in copper production owing to improvements at some of its African and South American mines.
“We remain positive on the market outlook and continue to see solid end-use demand growth in our major commodities,” chief executive Ivan Glasenberg said.
The company’s nickel assets, which include a former Falconbridge operation in Sudbury, Ont., benefitted from improved grades at the Raglan mine in Northern Quebec, where production increased 24 per cent from a year earlier.
Commodities trader Glencore already was the world’s largest commodities trading company before it took over Xstrata, the world’s biggest exporter of thermal coal. Both were already based in the Swiss canton (state) Zug, a Zurich-area haven for multinational business drawn by low taxes and high living standards.