Glencore Xstrata Suffers Weak Commodity Prices in 2013, but Sees Progress Ahead from Projects

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a press release discussing preliminary findings for 2013, executives at mining giant Glencore Xstrata plc (LSE:GLEN) (Baar, Switzerland) stressed the optimistic outlook for many of the company's projects, while acknowledging that falling commodity prices had seriously affected performance during the year. According to preliminary results, net income for the year stood at $4.58 billion, a 23.23% decrease from 2012.

Total revenues for 2013 were reported to be $239.67 billion, a 1.45% increase from 2012. Despite the pummeling that the company's bottom line took on weak prices, production showed strength in numerous areas throughout the year. Ferrochrome production increased 32%, based in part on the completion of the Tswelopele pelletizing plant in South Africa, while copper production increased 26% after production ramped up at several African mines. Coal production grew on the heels of expansions in Africa and Australia, and the start-up of production at the Alen Offshore Natural Gas Production Field near Equatorial Guinea helped to boost oil production.

Industrial Info is tracking more than $30 billion in active projects involving Glencore, including the $5.2 billion construction of the Las Bambas aboveground copper mine and concentrator in Cotabambas, Peru. The project involves the construction of three open pit copper mines and a 140,000-ton-per-day concentrator plant to produce 400,000 tons per year of copper and 5,000 tons per year of molybdenum over the course of 18 years. Glencore executives say the Las Bambas project is now 56% complete, which is slightly ahead of schedule, and should be fully complete in the second half of 2015.

Glencore also benefited from selling off the pasta- and malt-related business it acquired when it purchased Viterra's agri-food businesses in a 2012 deal worth $6.2 billion. In September, Glencore sold the Dakota Growers Pasta Company in North Dakota to Post Holdings Incorporated (NYSE:POST) for $370 million.

However, Glencore incurred $7.5 billion in goodwill impairment charges due to its acquisition of Xstrata. Executives said in a press release that the impairment reflected "the broader negative mining industry environment/sentiment which prevailed during 2013," which also was evidenced by weaker commodity prices.

In a presentation, Glencore executives said that the high commodity prices were influenced by excessive capital spending in the global mining industry in recent years; from 2005 through 2013, major mining firms spent $429 billion on capital expenditures, with only $150 billion in net cash returns. This skyrocketing supply outpaced demand for most related commodities, which depressed prices, executives said.

Capital expenditures for 2013 totaled $12.82 billion, with $4.06 billion in sustaining expenditures and $8.76 billion in expansionary expenditures. Following a 2012-13 peak, Glencore Xstrata's capital expenditures for the next two years are on a downward trajectory, with $8.7 billion projected for 2014 and $6.6 billion projected for 2015. Glencore executives see this as a positive, as a majority of the company's project pipeline is now funded.

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