By Alex MacDonald
LONDON--Anglo-Swiss miner Xstrata PLC (XTA.LN) expects to
deliver net real cost savings of around $390 million in 2012 as a
mix of higher output levels, lower input costs and greater
efficiencies help offset higher costs from lower ore grades and a
transition period from old to new mines, the company's chief
executive said Tuesday.
Xstrata expects to reduce costs by around $970 million in 2012,
Mick Davis told Dow Jones Newswires in a call. About 40% of that
will come from increased throughput and productivity, about 30%
from more efficient processing and better procurement methods, 17%
from lower input costs and the balance from improved energy
efficiency.
The savings are partly offset by $580 million of cost headwinds
that stem from grade degradation and the transitional nature of the
business, Mr. Davis said. Xstrata has faced lower copper grades as
it transitions from older mines to newer mines.
"A lot of that [$580 million], a significant part of that is
actually found in the first half [of the year] as a result of the
transitioning and we have less of that in the second half," he
said.
Mr. Davis declined to comment on how shareholders might vote in
upcoming Sept. 7 vote on the merger of equals with Glencore
International PLC (XTA.LN). Xstrata's second largest shareholder,
the sovereign wealth fund Qatar Holding LLC, has called on Glencore
to sweeten its offer to 3.25 Glencore shares for every Xstrata
share, up from 2.8 at the moment.
"It is now really up to the shareholders to decide whether they
want the merger to go ahead on these terms or if they prefer
Xstrata to continue as a standalone company," Mr. Davis said,
noting that Xstrata had "negotiated a deal in the universe of what
was possible at the time. We negotiated a ratio which I said at the
time was fair to both companies."
He said that either way, Xstrata is incredibly well positioned
to be a major contributor to the combined entity or alternatively
have real capacity to add value to shareholders if they decide for
it to stand on its own.
Write to Alex MacDonald at alex.macdonald@dowjones.com
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