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

Share tips of the week – 21 January
Share tips

Share tips of the week – 21 January

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
21 Jan 2022
Seven cheap defence stocks to buy now
Share tips

Seven cheap defence stocks to buy now

We’ve got used to a world without war between major powers, but that era is coming to an end as Russia threatens Ukraine and China eyes Taiwan. Buy de…
21 Jan 2022
Invest in VCTs: tax-free investments set to break records
Investment strategy

Invest in VCTs: tax-free investments set to break records

Generous tax breaks make VCTs – venture capital funds – an attractive supplement to pensions.
21 Jan 2022
HubSpot: a tech stock set to tumble
Trading

HubSpot: a tech stock set to tumble

US tech stocks have had a fantastic couple of years. But this year is unlikely to be so bullish for high-fliers that can’t turn big profits.
18 Jan 2022

Most Popular

Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022
Interest rates might rise faster than expected – what does that mean for your money?
Global Economy

Interest rates might rise faster than expected – what does that mean for your money?

The idea that the US Federal Reserve could raise interest rates much earlier than anticipated has upset the markets. John Stepek explains why, and wha…
6 Jan 2022