By Alex MacDonald
LONDON--Commodities company Glencore Xstrata PLC swung to a net
loss for 2013 amid a previously disclosed write-down on its
acquisition of Anglo-Swiss mining company Xstrata PLC, drawing
fresh scrutiny to one of the sector's largest deals to date.
Switzerland-based Glencore Xstrata said Tuesday its net loss
attributable to shareholders totaled $7.4 billion last year,
compared with a net profit of $1 billion in 2012. The weaker result
was largely because of $11.1 billion of one-time charges.
The charges included a $7.5 billion write-down on goodwill
generated when Glencore bought the 66% of Xstrata it didn't already
own last year in an all-share deal valued at $29.5 billion.
Glencore Xstrata Chief Executive Ivan Glasenberg, who has been a
vocal critic of wasteful investment by the mining sector, defended
the price of the Xstrata deal Tuesday. He said the benefits from
cost savings, lower financing costs and more marketing
opportunities for the company's traders would more than offset the
impairment charge, which Glencore Xstrata first disclosed in
August. Glencore Xstrata now estimates the annual earnings boost
from the deal to reach $2.4 billion.
"We are very comfortable with the acquisition," Mr. Glasenberg
said in an interview. "Assume you put a multiple of seven [on
earnings benefits], you are there, you cover your $7.5 billion
[impairment] by a long shot."
Glencore took the write-down on the deal mainly because of a
decline in the value of the mining assets it acquired from Xstrata
after the deal closed on May 3. Mr. Glasenberg said the charge
resulted in part thanks to the timing of the deal's closing, after
more than a year of talks led to it paying 3.05 shares for every
Xstrata share.
Had the deal closed "a few days later it would have been a
different impairment value because the Glencore share price was
down, so we would have paid less," he said. "The ratio was
right."
The company also declared a full-year dividend of 16.5 cents for
2013, 4.8% higher than for 2012, reflecting its confidence about
the group's future results. As the company's largest shareholder,
with an 8.3% holding, Mr. Glasenberg will net $182 million from the
payout.
Glencore Xstrata isn't the only mining company to have taken a
big hit on large deals. Rio Tinto has written down more than half
of its $38.5 billion purchase of Canadian aluminum smelter Alcan in
2007, while BHP Billiton has incurred billions of dollars in
impairment charges against its U.S. shale acquisitions.
Glencore Xstrata's write-down masked a reasonable performance by
the company's underlying business. Its revenue rose 9% to $233
billion last year while its closely watched adjusted earnings
before interest and taxes, or adjusted EBIT, increased 34% to $5.97
billion, largely because of the eight-month inclusion of Xstrata's
profit and a robust performance from its commodities-trading
business.
Mr. Glasenberg said talks are continuing with a consortium led
by state-controlled China Minmetals Corp. over the sale of
Glencore's $5.9 billion Peruvian Las Bambas copper project.
Glencore agreed to sell the mine to secure Chinese regulatory
approval for the company's tie-up with Xstrata.
Glencore also said it is in talks with other mining companies
over potential cooperation or joint-venture agreements where they
have nearby assets. Discussions are being held with Brazilian
mining company Vale SA regarding its Canadian nickel operations and
Rio Tinto over its Australian coal assets, Mr. Glasenberg said. He
declined to comment on whether the talks would result in an
agreement.
Write to Alex MacDonald at alex.macdonald@wsj.com
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