LONDON â€" Glencore Xstrata, the mining giant, reported sharply lower results on Tuesday after it wrote down $7.7 billion on the value of assets it acquired as part of the merger that created the company.
BHP Billiton, another big mining company, also reported a drop in profit because of a decline in commodity prices amid slower worldwide demand.
Glencore Xstrata, whose merger this year combined a mining company, Xstrata, with a commodity trading house, Glencore International, said the write-down was due to “residual good will†from the acquisition of Xstrata that “could not be supported.â€
The company said it was “reflecting the broader negative mining industry environment†and the greater risk associated with larger expansion projects.
Glencore Xstrata also wrote down $452 million against the value of its nickel operations in Australia, citing the challenging market, and $324 million against the value of its stake in the Russian aluminum producer Rusal because of an accounting standards requirement, bringing the total write-down in the period to $8.47 billion.
Profit in the first half of the year at Glencore Xstrata, based in Baar, Switzerland, fell 39 percent, to $2.04 billion from $3.36 billion in the period a year earlier.
Paul Gait, a mining analyst at Sanford C. Bernstein, noted that even though the write-off was “pretty large,†Glencore Xstrata was right to take it in one stroke.
“It allows the new management to start with a clean slate,†Mr. Gait said. “There’s a huge incentive to take all the medicine up front.â€
Ivan Glasenberg, chief executive of Glencore Xstrata, said the company would “remain focused on the disciplined allocation of capital as well as robustly scrutinizing all pre-existing capital plans of the enlarged entity.â€
The first-half results were the first set of figures the company reported after the merger, which followed a yearlong battle that forced Glencore to raise its offer for Xstrata after a shareholder revolt over the price. The combined company agreed to buy Viterra, Canada’s largest grain handling firm, for $6.2 billion to expand its presence in agriculture.
To reduce costs, Glencore Xstrata has been reviewing its portfolio and has started to sell some projects. It agreed to sell Joe White Maltings, a maker of malt, a form of barley used in the brewing of beer and other alcoholic drinks, to Cargill earlier this month and has put its Las Bambas copper mine in Peru up for sale.
Shares in Glencore Xstrata fell 3.2 percent in early trading on Tuesday in London.
At BHP, the world’s largest miner, based in Melbourne, Australia, profit for the year ended June 30 fell 30 percent, to $10.9 billion from a year earlier.
Uncertainty about the speed of the economic recovery and weakening demand for key commodities forced many mining companies to focus on reducing costs and holding back on investments.
Many companies in the sector are struggling with relatively high fixed costs after making large investments when metals prices were high between 2009 and 2011. They are also seeking to win back investor trust, which suffered when some shareholders criticized relatively large executive pay and meager shareholder payouts.
Despite plans to reduce costs, BHP said on Tuesday that it would invest $2.6 billion in its Jansen potash project in Saskatchewan province in Canada, one of the world’s biggest potash-producing regions. BHP said it might be looking for partners for the potash venture.
BHP, under its new chief executive, Andrew Mackenzie, has continued with its focus on improving efficiency that started about a year ago. The company said on Tuesday that it expected overcapacity in aluminum and nickel to continue in the medium term but that, over the long term, urbanization and demographics should create demand for commodities in Asia and other markets.
BHP’s shares fell 1.35 percent in Sydney.
Mark Scott contributed reporting.
