Extra Weight for Xstrata and Other "Cyclical" Firms

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Macroeconomics

Earlier this week, MetalMiner looked at recent Rio Tinto lay-offs; the company cut 14,000 jobs this week. Growing debt takes the blame for Rio Tinto’s recent actions, and yesterday, a writer at the Economist penned a piece looking at the growing debt across the board. And no, Rio Tinto isn’t the only metals company facing this problem headfirst. Several other companies, including some well-known players in the metals field, are struggling with similar demons.

Rio Tinto leads the way with $39 billion in debt, but ArcelorMittal, the world’s largest steel producer, is clearly second to bat. The Economist estimates the company’s net debt at $33 billion, possibly a result of the company’s “cash-and stock financed” merger. Mining favorite Xstrata hasn’t fared very well, either; their debt reaches a net $15 billion. Meanwhile, Tata Steel struggles with less debt than the others, but leaders at the company still can’t sleep easy. The Indian steel producer has $11 million in debt left to conquer.

In yesterday’s article, the Economist lists some previously published recommendations, but shares the inconvenient truth: there are no quick fixes. The best bet, they say, is to “ride out the recession,” but even this approach won’t work for everyone. “Companies can do this only if they have enough liquidity (cash and undrawn bank lines) to refinance maturing debts. Relying on debt markets would be foolhardy: ArcelorMittal has managed to roll over some of its French commercial paper in recent weeks, but the prospects of being able to borrow large amounts on normal terms are bleak,” the article shares. The article looks at other cyclical industries, too. For more information on metals companies battling excess debt, we would suggest a quick read.

–Amy Edwards

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