Xstrata in $5bn new mine spend after bumper earnings

Mining group Xstrata said it would pump over $5-billion into new mines and keep targeting organic growth rather than acquisitions, after more than doubling first-half earnings per share on higher metals prices.

Xstrata — the world’s biggest exporter of coal used in power plants — said it had approved $4,2-billion to build the Las Bambas copper mine in Peru and $1,1-billion for the Ulan West coal project in Australia. “In total, 15 major growth projects are now approved and in the construction phase, representing a total of $14-billion of capital investment,” chief executive Mick Davis said.

“These projects alone will deliver substantially all of our expected 50% increase in overall volumes by 2014.”

Davis said he was wary about the short-term, but bullish about the medium term outlook, echoing the views of peers.

“The short term outlook for macroeconomic conditions remains mixed, with a ‘three-speed’ global economy likely to persist for the foreseeable future,” he said.

“We remain very confident in the buoyant outlook for Xstrata’s commodities in the medium term … the developing economies, led by China, Brazil and India, are set to continue to provide the main driver of demand growth for our products.” Xstrata said EPS for the first six months of the year rose to 79 cents from 38 cents in the same period last year. This compared with a consensus forecast of 76 cents, based on estimates of 11 analysts compiled by the company.

Earnings before interest, tax, depreciation and amortisation (ebitda) gained 67% to $4,49-billion, slightly shy of the consensus at $4,56-billion.

The first two diversified mining groups that released results last week — Vale and Anglo American — benefited from a strong bounce in the metals market, posting soaring profits.

Xstrata posted slightly weaker first-half output than expected last week, including a 3% dip in copper output.

Higher prices were the main impetus in profit growth, however, with average copper prices in the second quarter surging 75% and zinc prices 63% compared with a year ago. Xstrata shares, which have lost about a fifth of their value since touching a high in early April, have underperformed the UK mining index by about 4% this year. – Reuters

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Clara ferreira marques
Clara ferreira marques works from Singapore. Columnist for Reuters Breakingviews in Singapore. All things commodities, SE Asia and more. Previously London, Milan, Moscow, Mumbai. Comments are my own. Clara ferreira marques has over 855 followers on Twitter.

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