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Glencore Xstrata $7.66 billion charge hits profit

John Heilprin, Associated Press

FILE - In this April 18, 2011 file photo shows the headquarters of Glencore in Baar, Switzerland. Commodities trader Glencore Xstrata Plc has reported a 39 percent drop in half-year profits as it booked a US dollar 7.6 billion write-down of assets following the merger of Glencore and Xstrata this year. The Swiss-based company, which supplies raw materials around the world and operates mines, plants and warehouses, said its net income slid to US dollar 2.04 billion from US dollar 3.36 billion from a year earlier. (AP Photo/Keystone, Martin Ruetschi)

GENEVA (AP) -- Newly merged commodities and mining group Glencore Xstrata Plc reported a sharp drop in profit Tuesday, while taking a first-half loss of almost $8.5 billion, mainly from the value of the mining assets it acquired.

The Swiss-based company wrote down the value of those assets by a hefty $7.66 billion. The charge was more than the $7 billion expected by most analysts and the company's share price fell 1.6 percent to 297.15 pence in London trading.

Though the merger between Glencore and Xstrata, completed in May, created an industry giant that controls a chain of businesses in mining, refining, storage and shipping of basic commodities like coal, copper and corn, trading conditions have been tough.

The write-down, the Swiss-based company said Tuesday, alongside half-year results, reflected "the broader negative mining industry environment" and the heightened risks of taking on some big projects during the January-to-June period.

Overall, the company said its net income excluding exceptional items fell 39 percent to $2.04 billion from the $3.36 billion it would have made a year earlier. However, when including charges such as the write-down of the mining assets, the company reported a $8.47 billion loss, in contrast to a $2.3 billion profit last year.

The company said it was impacted by weaker prices in core commodities, but that was partially offset by improved production at many of its industrial operations. The rise in output included a 20 percent increase in copper production owing to improvements at some of its African and South American mines.

"We remain positive on the market outlook and continue to see solid end-use demand growth in our major commodities," Chief Executive Ivan Glasenberg said.

Commodities trader Glencore already was the world's largest before it took over Xstrata, the world's biggest exporter of thermal coal. Both were already based in the Swiss canton (state) of Zug, a Zurich-area haven for multinational business drawn by low taxes and high living standards.