08/21/2012 07:45 EDT | Updated 10/21/2012 05:12 EDT

Commodities giant Glencore profit drops in first half amid economic weakness

GENEVA - Commodities trader Glencore International PLC, which is following up a deal to acquire Canadian grain handler Viterra with an attempted purchase of Anglo-Swiss mining group Xstrata PLC, has seen its profit fall from a year ago.

The company, based in Switzerland, reported Tuesday that net profit in the first six months of 2012 was down eight per cent from the first half of 2011 amid falling prices for materials and global economic weakness.

Glencore said its first-half net income attributable to shareholders fell to $2.275 billion, down from $2.474 billion in the comparable period of 2011.

It reported revenue of nearly $108 billion, a 17 per cent increase from $92 billion in the first half a year ago.

The value of Glencore's stock dipped one per cent to 350 pence ($5.49) at the start of trading on the London stock exchange.

In its financial statement posted before the start of trading, Glencore says its drop in profits was a result of sluggishness of the global economy caused by "the European sovereign debt crisis and corresponding softening growth outlooks in many developed and emerging economies."

Added to this "challenging backdrop" was a decline in average prices for many key commodities of between 14 and 28 per cent, Glencore said, but that was offset in the first half by strong showings from metals, minerals and agriculture.

Its business model was showing "strength and resilience" for its diversification, sourcing of materials, marketing and logistics, the company added. It also highlighted its "abundant liquidity" in the billions of dollars spread across 100 banks globally and no material refinancing planned in the next 12 months.

"Looking forward, we neither anticipate nor assume any material improvement in overall market or economic conditions in the near term," said Chief Executive Ivan Glasenberg, who owns 15 per cent shares in Glencore. "We will continue to diligently look to our own growth pipeline and end markets to maximize performance for our shareholders."

Glencore, the world's largest publicly traded supplier of raw materials, is awaiting final approvals to acquire Canadian agribusiness giant Viterra Inc. for $6.1 billion. Shareholders and Canadian authorities have already agreed to the main deal.

As a followup, Glencore has signed a deal to sell a minority interest in Canadian Ferilizers for $915 million cash to U.S. fertilizer producer CF Industries. Glencore had earlier planned to sell the stake to Calgary-based fertilizer producer Agrium (TSX:AGU) as part of a plan to divest some of Viterra's assets.

Glencore has also been trying to persuade investors of the merits of a merger with Xstrata, one of the world's biggest mining companies. Xstrata has major operations in Canada, including the former Falconbridge nickel and copper business.

The all-share deal between the two European companies would involve Xstrata investors swapping each of their shares for 2.8 newly issued Glencore shares. A shareholder vote is scheduled for Sept. 7.

The deal, expected to be completed in the fourth quarter, will create a combined company to be called Glencore Xstrata with a market value of $90 billion. The company would control a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper and corn.

Glencore already holds a 34 per cent stake in Xstrata but cannot vote its shares on the deal. But Qatar Holding, the government-backed investment fund, wants a higher price for its 11 per cent stake in Xstrata and its position is crucial to the hopes of other Xstrata shareholders who are demanding improved terms.

The company made no mention of the deal in its statement Tuesday but did say it had incurred $1 million in selling and administrative expenses and anticipates $69 million of additional merger expenses.

— with files from The Canadian Press