Glencore Says 2012 Profit Drops 25% Amid Waning Commodity Demand

Glencore International Plc, seeking to buy Xstrata Plc in a $33 billion all-share bid, said 2012 adjusted profit fell 25 percent as slowing global growth eroded demand for the raw materials it produces and trades.

Net income excluding significant items dropped to $3.06 billion from $4.06 billion a year earlier, the Baar, Switzerland-based company said today in a statement. That compares with the $3.14 billion median estimate of five analysts compiled by Bloomberg. Sales rose 15 percent to $214.4 billion. Net debt climbed 19 percent $15.4 billion.

Glencore joins the biggest mining companies BHP Billiton Ltd., Rio Tinto Group and Anglo American Plc in reporting declining profits. The Standard & Poor’s GSCI gauge of 24 raw materials rose 0.3 percent in 2012, its worst year in four. Goldman Sachs Group Inc. forecasts raw materials will gain 1.1 percent in 12 months, while Citigroup Inc. called an end to the commodities “super cycle” of rising demand last November.

“Despite the challenging environment faced by the mining industry, Glencore delivered organic growth in its industrial businesses which complemented a robust performance in its marketing operations,” Chief Executive Officer Ivan Glasenberg said in the statement. “As we look ahead to 2013, we remain focused on ensuring that we maximise the potential of the expanded Glencore platform irrespective of prevailing economic conditions.”

Glencore declined 1.9 percent to close at 369.95 pence in London yesterday. The stock has risen 5.3 percent this year, giving the company a market value of 26.3 billion pounds ($40 billion). It declared a final dividend of 10.35 cents a share.

Deal Deadline

Net income attributable to shareholders fell 75 percent to $1.004 billion, Glencore said.

The world’s biggest publicly traded commodities supplier last week pushed back a deadline to complete its acquisition of Xstrata as it awaits a ruling from China on the transaction. The takeover adds coal, nickel, copper and zinc mines to create the world’s fourth-largest mining company.

Approval from China is the final hurdle to completing the acquisition. Glencore today extended the deadline to April 16 from March 15. Separately, Xstrata, 34 percent owned by Glencore, today reported a drop in adjusted net income to $3.65 billion.

The combined company will have sales of about $250 billion this year, according to Sanford C. Bernstein & Co. analyst Paul Gait. It will get about 40 percent of an estimated $10.8 billion of earnings before interest and tax from its copper mining business this year, according to estimates from Macquarie Group Ltd. analysts Jeff Largey, Alon Olsha and Daniel Lurch.

Xstrata Savings

“A key focus for investors will be whether Glencore/Xstrata will increase targeted annual synergies or outline further cost savings initiatives,” the analysts wrote. “In addition to the already identified annual $500 million of earnings before, interest, tax, depreciation and amortization synergies Glencore/Xstrata could provide further details on possible additional synergy potential following the merger.”

The marketing or trading operations will be the second-biggest unit, providing about 26 percent of Ebit, Macquarie said in a Feb. 27 note. About 10 percent of Ebit will come from coal mining and 13 percent from zinc, it said.

The group will have interests in about 35 coal mines in Colombia, Africa and Australia, and make up about 10 percent of global seaborne exports of the fuel. It will also be the world’s third-biggest producer of mined copper, the largest zinc miner, and the biggest exporter of coal burned by power stations.

The company will have about 11 percent of the 13 million metric-ton global zinc market and about 40 percent of the 1.9 million tons of the metal produced in Europe. It will employ 130,000 people.

Net income excluding exceptional items shrank 26 percent to $1.8 billion in the first half. At the time, Glasenberg, 56, said the company didn’t anticipate “any material improvement in overall market or economic conditions in the near term.”

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