$7.4bn Loss Casts Shadow Over Glencore Xstrata Merger

Wednesday, March 5th, 2014
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Swiss-based resources giant Glencore Xstrata has posted a staggering USD$7.4 billion loss for 2013 resulting primarily from a massive write down on the goodwill generated by the company’s recent history-making merger.

Glencore Xstrata has announced that its net loss attributable to shareholders was USD$7.4 billion (AUD$8.12 billion) in 2013, for a massive reversal compared to the net profit of USD$1 billion reaped by the company in 2012, when Glencore launched a concerted effort to takeover fellow Swiss-based commodities giant Xstrata.

The wild swing in Glencore Xstrata’s fortunes is chiefly the result of USD$11.1 billion in one-off charges, the bulk of which was comprised of a USD$7.5 billion writedown on the goodwill produced by the acquisition of Xstrata by Glencore via an all-share deal valued at USD$29.5 billion – one of the biggest ever witnessed by the global mining industry.

In August 2013 Glencore Xstrata indicated that the deal had been severely affected by a decline in the value of Xstrata’s mining assets resulting from waning expectations for commodities prices.

Ivan Glasenberg, Glencore’s chief executive as well as 8.3 per cent shareholder, remains adamant that the Xstrata takeover was a prudent decision, stating at the time of the release of the 2013 figures that he was “comfortable” about the deal.

The writedown does serve to obscure a fairly robust performance by Glencore Xstrata during the first year following the merger of the two commodities titans, with revenues rising by 9 per cent in 2013 to hit USD$233 billion.

Earnings before interest and taxes (EBIT) also surged an impressive 34 per cent last year to hit $5.97 billion, receiving a salutary boost from the inclusion of Xstrata’s profits as well as the health of the company’s commodities trading operations.

Glencore Xstrata now estimates that its earnings will enjoy an annual boost of USD$2.4 billion as a result of the merger, as Xstrata’s mining commodities can now in a position to be more effectively marketed by the company’s traders.

In spite of the huge net loss posted for 2013, the company declared a full-year dividend of USD16.5 cents for 2013, up 4.8 per cent year-on-year, signifying its optimism about the future prospects of the recently merged company.

Glasenberg also indicated that Glencore Xstrata is currently in discussions with a Chinese consortium led by China Minmetals for the purchase of the company’s USD5.9 billion Las Bambas copper development in Peru, the sale of which was a condition for regulatory approval from Beijing for the Xstrata acquisition.


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