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Glencore Xstrata is expected to write down the value of assets inherited from Xstrata by as much as $7 billion when it reports first-half earnings on Tuesday — the first full set of results since the takeover that created the mining giant in May.
Glencore’s management, no strangers to Xstrata given the trader’s 34% stake in the miner, have been reviewing Xstrata’s assets as owners over the past three months and they had been expected to book a hit alongside maiden results.
Analysts and an industry source said the group writedown, mostly on the value of former Xstrata assets, would likely amount to $5 billion to $7 billion.
Nickel assets — including Xstrata’s $5 billion Koniambo operation in New Caledonia — are likely to take the brunt of the pain as nickel prices languish at less than a third of their 2007 highs and supply continues to exceed demand.
Glencore’s local operations, now officially known as the Sudbury Integrated Nickel Operations, include Fraser Mine and Nickel Rim South Mine, Strathcona Mill and the Sudbury smelter. Nickel and copper are its main products.
The company has been mining nickel since 1929, currently employing more than 1,300 permanent workers.
In addition, the company is on track to reopen two mines in Sudbury by 2016 that would employ more than 250 people at its peak.
The Errington and Vermillion mines, which have been closed for decades, are proving to be attractive again, with a number of large zinc mines closing around the world, says the company.
Parent company Glencore Xstrata is one of the world’s leading integrated producers and marketers of commodities, and is headquartered in Baar, Switzerland. It is listed on the London and Hong Kong stock exchanges.
In addition to nickel, the value of other assets including copper projects, which accounted for a large slice of Xstrata’s pipeline of future mines and expansions, could also be cut back.
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