Glencore Xstrata takes $7.7bn hit

Mining giant Glencore Xstrata has revealed a multi-billion-dollar writedown in its first set of results since its merger.

In its first set of results as a combined group, Glencore Xstrata revealed a $7.7bn writedown on the value of Xstrata's mining assets. That dragged net losses for the company to almost $9bn in the first half. The $44bn merger between Glencore, which specialises in commodities trading, and mining group Xstrata was only completed in May. Other miners have also struggled as the commodities supercycle has wound down. BHP Billiton this week revealed a 30% drop in annual net income to $10.9bn.

What the commentators said

The deal was a "foolish move" for a "supposedly sophisticated trader" like Glencore, said Ben Chu in The Independent. With commodity-hungry China slowing, metal prices have slumped. There was always a danger that Xstrata would later prove to be worth less than Glencore paid for it in May. The huge mergers "that get fee-hungry bankers and analysts excited" usually end up destroying value for the acquirer. Xstrata has "demonstrated this in double-quick time".

The entire sector hasn't exactly covered itself in glory in recent years, noted Nils Pratley in The Guardian. The capital invested over the past decade "has dwarfed returns to shareholders". The industry's compound annual growth rate of 13% in shareholder returns since June 2003 looks like "a squandered opportunity" during the China-led era of high raw materials prices. And the outlook for miners is uncertain: "executives still cling hopefully to the prospect" of 7.5% GDP growth in China. But they "don't seem to have a plan B if Beijing can't deliver".

Recommended

How to profit from India’s high-tech recovery
Share tips

How to profit from India’s high-tech recovery

Professional investor David Cornell of the India Capital Growth Fund, selects three of his favourite Indian stocks to buy now.
27 Sep 2021
Share tips of the week – 24 September
Share tips

Share tips of the week – 24 September

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
24 Sep 2021
Three strong Asian stocks trading at bargain prices
Share tips

Three strong Asian stocks trading at bargain prices

Professional investor Nitin Bajaj of the Fidelity Asian Values investment trust picks three stocks that dominate their industries, earn good returns o…
20 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021

Most Popular

A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021