Glencore Shares Suffer from Expected $7bn Writedown of Xstrata Assets

Shares in Glencore Xstrata traded lower on Monday following reports that the commodity giant is expected to book a multi-billion pound loss on the value of Xstrata assets in its first-half results due on Tuesday.

After closing at 308.35 pence on Friday, the shares dropped as much as 3% in the morning in London. They are trading at 301.40 pence, down 2.25%, as at 14:39 BST.

Media reports, citing analysts and industry sources, said that Glencore Xstrata would write down the value of Xstrata assets by as much as $7bn (£4.5bn, €5.3bn) in its first half results. The write-down is primarily due to lower commodity prices.

Glencore acquired Xstrata assets following a $29bn "merger of equals". Following the merger, Glencore's management have been assessing the value of Xstrata's assets.

The company is slated to report its earnings on Tuesday for the first time as a merged entity.

The FTSE 100 constituent is expected to report earnings before interest, taxes, depreciation and amortisation (Ebitda) of $5.8bn and attributable profit of $1.7bn in the first half of 2013. While the mining business suffered from falling commodity prices, the trading business is likely to have helped the group.

The results will also indicate that the group suffered few disruptions at its operations from the merger, according to analysts. In its first-half production report, the group said the production of copper, nickel and gold improved, while that of zinc and lead declined.

Falling Commodity Prices

Nickel prices have tumbled by as much as a third from 2007, while a bump in supply is also weighing down. This will likely hit Xstrata's $5bn operation in New Caledonia. In addition, the value of the group's copper projects may also be cut down.

The mining sector has been writing down the value of their assets since the start of 2013 because of the recent falls in commodity prices.

Many high-profile projects suffered loss of value as prices fell. In January, Rio Tinto announced $14bn of impairment charges related to its underperforming Mozambican coal and Canadian aluminium operations.