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Last updated: August 20, 2013 8:42 am
Glencore Xstrata’s chief executive defended the deal that created the commodities group as it revealed a $7.7bn writedown to the value of its mining assets after a deterioration in the outlook for the sector.
The impairments signalled Ivan Glasenberg’s intention to make a fresh start with many of the assets acquired from Xstrata. The all-share deal was initially billed as a merger but was subsequently revamped to leave Glencore, the trading house he led to an initial public offering in 2011, and its executives in control.
In its first set of results as a combined group Glencore valued assets acquired from Xstrata at $37bn, compared with more than $44bn paid for the assets based on the share price when the deal completed in May. The acquisition took more than a year after it was announced and was pushed through after Glencore raised its offer.
Since the deal was announced the world’s largest mining groups have taken billions of writedowns amid signs of the end of a long commodities boom powered by demand from China.
Glencore said pro-forma interim profits were down 39 per cent year-on-year while BHP Billiton, the world’s largest mining group by market value, on Tuesday reported a 30 per cent drop in annual net income.
Glencore reported an $8.9bn loss for the first half of 2013 after more than $8.8bn of impairments and revaluations linked to the acquisition, the mining industry’s largest. They included almost $7.7bn of goodwill writedowns and a $1.1bn revaluation of the 34 per cent of Xstrata it already owned.
“We took a decision . . . to pay that ratio [of shares for Xstrata] and we were happy with it,” said Mr Glasenberg. “We still feel comfortable with the deal. I do believe we will get it back . . . that is why we did the transaction.”
Glencore said the impairments were conservative and reflected the lower likelihood that it would develop some of the “greenfield” projects – those started from scratch – which Xstrata had on its books.
The company is offloading one greenfield project, the Las Bambas copper mine in Peru, at the behest of Chinese regulators. Mr Glasenberg said there was interest from Chinese groups and a sale could be concluded this year.
It also said the search for a permanent chairman was continuing under Tony Hayward, its interim chairman and former BP chief executive who is also chief executive of Genel, the oil explorer. While Mr Hayward was “a candidate” Glencore would “rather look for a new chairman”, Mr Glasenberg said.
Analysts at Bernstein said the writedown “clearly demonstrates Glasenberg’s dislike of large greenfield projects and is a signal of his desire to ‘wipe the slate clean’ post-merger”.
Citigroup said the results were “a clearing of the decks” that should allow Glencore to give investors better news at next month’s strategic update.
Integrating Xstrata was a “lot quicker and lot faster than we envisaged” and should bring significantly more annual synergies than the $500m promised at the time of the acquisition, Mr Glasenberg said.
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.
Glencore’s shares, which have fallen 44 per cent since the IPO in 2011, closed down 1.6 per cent at 297.15p. An unchanged interim dividend of $0.054 per share was declared.
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