LONDON--Anglo-Swiss miner Xstrata PLC (XTA.LN) Tuesday said it
has deferred some of its capital expenditure for this year after
reporting first-half earnings that were down by around a third, but
said that timing of its growth projects remains unchanged and
reaffirmed that its merger with Glencore International PLC
(GLEN.LN) is on track to close in the fourth quarter.
"Following a review of our project pipeline, we have resequenced
capital spending and deferred $1 billion of expenditure originally
planned for 2012," said Xstrata's chief Executive Mick Davis in a
statement. "The timing of approvals will be sequenced to maximize
returns and account for anticipated demand conditions," he
added.
Xstrata joins a chorus of large diversified miners including BHP
Billiton (BHP), Vale SA (VALE), Anglo American PLC (AAL.LN), and
Rio Tinto PLC (RIO) who have recently announced plans to review or
lower their capital expenditure plans. Many of those companies face
lower cash flow stemming from falling commodity prices as slower
Chinese economic growth and the European Union's sovereign debt
crisis hurt commodities demand.
The FTSE-100 miner, which is in the throes of a
multi-billion-dollar merger with commodity titan Glencore, reported
a 31% year-on-year drop in operating earnings before interest,
taxes, depreciation and amortization, or Ebitda, excluding
exceptional gains or charges, to $4.01 billion. This was ahead of
average expectations of $3.87 billion in a company consensus
forecast of 12 analysts.
Net profit fell 33% year-on-year to $1.94 billion. Revenue fell
7% to $15.55 billion.
Despite the fall in profits, Xstrata's board declared an interim
dividend of $0.14 a share, up 8% on the year.
"This increase marks our confidence in the medium-term outlook
for our business and prospects, and our robust financial position,"
Mr. Davis said. The company's gearing is at a comfortable 19%,
despite Xstrata being in its peak year for capital investment, he
said.
Earnings fell largely due to lower commodity prices as well as
higher mining costs and lower copper output as the company
transitions from older copper mines to newer mines. Xstrata plans
to commission ten new growth projects in 2012 and said it expects
to deliver higher output in the second half of the year compared
with the first half.
Mr. Davis made no significant comment on its merger with
Glencore, except to say that it expects the transaction to close in
the fourth quarter, as previously stated.
The two companies are currently seeking shareholder and
regulatory approval to create the world's fourth-largest mining
company, with a market capitalization of $62 billion. They are
under mounting pressure from some of Xstrata's largest shareholders
to sweeten the terms of the deal. The lower first-half earnings
could provide more weight to Glencore's view that the current
share-swap ratio of 2.8 Glencore shares for every Xstrata share is
an attractive valuation.
Sovereign wealth fund Qatar Holding LLC, Xstrata's
second-largest shareholder after Glencore with an 11.28% stake,
surprised the markets in June by announcing that it believed a 3.25
share-swap ratio was more appropriate. Another five shareholders
have pressured Glencore to bump up the share-swap ratio to keep the
deal alive.
Those six shareholders account for about 15.1% of Xstrata's
shareholder base, just shy of the 16.4% needed to vote against the
deal at an extraordinary meeting on September 7. Glencore, which
owns a 34% stake in Xstrata, is not allowed to vote on the
deal.
Xstrata's shares closed Monday up 0.4% at 883 pence a share,
resulting in a market capitalization of GBP26.51 billion.
-Write to Alex MacDonald at alex.macdonald@dowjones.com
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