A rise in profits from trading helped Glencore International PLC offset lower prices in 2012, with net income down by a quarter as the commodities group prepares to seal a $34-billion (U.S.) takeover of miner Xstrata PLC.
The drop, modest relative to a bruised sector, was in line with market expectations and a vindication for Glencore boss Ivan Glasenberg, who said on Tuesday he was optimistic on the imminent closure of the sector’s largest deal and ready to take advantage of the misfortunes of larger rivals.
A new generation of bosses at the helm of the world’s largest diversified players is preaching unrelenting austerity, under scrutiny from shareholders and as boom-time acquisitions sour, costing the industry billions.
This is expected to increase an already significant number of assets on the block, just as big players retreat from deals.
“Those opportunities will be there, that is something new in the industry,” Glasenberg told Reuters in an interview.
“Competition will be less fierce than before. A lot of the mining companies are reassessing their portfolios, they are hanging back, there are new CEOs and, like all of us, they are under pressure from investors.”
The market has been keenly awaiting a roadmap for the combined Glencore-Xstrata – set to be the world’s fourth-largest diversified mining company – and had hoped that Glencore would expand on its post-takeover strategy on Tuesday.
But the company, still waiting for Chinese regulatory approval, largely left investors guessing.
Questions include which assets Glasenberg and his team could jettison, with many of Xstrata’s greenfield growth assets, including some in tough jurisdictions such as Argentina and the Philippines, expected to be in the frame.
Glasenberg said only that the group would review the combined portfolio, but the potential mothballing or sale of some assets has already caused friction between the two management teams.
Glencore’s boss was sanguine on the potential effects, saying his focus was on the teams at the mines, not middle managers.
The comments are likely to fuel speculation over the departure of Xstrata divisional bosses, including its head of copper, Charlie Sartain. Glasenberg declined to comment.
“Immediately after the merger , you will see a structure in place, ideally the way Glencore would like it,” he said.
Glencore and Xstrata shares rose, as dividends also ticked higher, lifted as the sector recouped losses. Glencore was up 2.3 per cent and Xstrata up 3.1 per cent at 0925 GMT, outperforming a 1.6 per cent rise in the sector.
Neither, though, was immune to the impact of falling commodity prices throughout 2012.
Glencore’s net income fell 25 per cent to $3.06-billion, in line with expectations.
That excluded the impact of an impairment relating to a reclassification of its holding in Russian aluminium producer UC Rusal after losses in 2012.
Its adjusted operating profit, or earnings before interest and tax (EBIT), dropped 17 per cent.
A 27 per cent drop in Glencore’s industrial division accounted for the bulk of the weakness. Its trading division saw operating profit rise 11 per cent, as a jump in earnings from agricultural trading offset weaker activity in energy, where it suffered from poor trading conditions in oil and coal.
Xstrata, reporting separately from Glencore for what should be the last time before the two merge, wrote down the value of nickel, zinc and platinum assets, dragging its net profit almost 80 per cent lower.
The writedowns included a $978-million hit as Xstrata wrote down assets including its Australian nickel operations and platinum, but also a further $840-million hit from its investment in troubled South African platinum miner Lonmin.
Excluding the writedown, its profit dropped a smaller-than-expected 37 per cent.
Glencore raised its dividend by 5 per cent, netting top shareholder Glasenberg almost $174-million (114 million pounds), while Xstrata raised its dividend by 14 per cent.
Glencore expects to complete the Xstrata merger by April 16, a month later than a previous target of mid-March.