Xstrata H1 output solid, but shares fall
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Xstrata H1 output solid, but shares fall UPDATED 28 Jul 2009 | 09:58  
Xstrata H1 output solid, but shares fall

By Eric Onstad

LONDON (Reuters) - Mining group Xstrata Plc, which is embroiled in a merger standoff with rival Anglo American, posted solid first-half production data that prompted investors to cash in on recent gains.

Output of coal, Xstrata's most profitable commodity, rose 11 percent while mined copper production increased by 1 percent, it said on Tuesday.

"The key divisions of coal and copper both performed well, underpinning our earnings forecast," analyst Sam Catalano at Macquarie Securities said in a note describing the production figures as "robust".

Xstrata's report made no mention of its contentious 'merger of equals' proposal to Anglo, and the numbers would not have changed the dynamic of relations between the two firms and their shareholders, a second analyst said.


"Xstrata's production, whilst positive, is a sideline as it continues to stalk Anglo American, which publishes results on Friday," said Charles Kernot at Evolution Securities.

Coal accounted for 49 percent of Xstrata's 2008 operating profit and copper made up 32 percent, while the alloys division, which makes ferrochrome, was responsible for 14 percent.

Shares in Xstrata -- which itself posts financial results next week -- shed 4.7 percent to 749 pence by 0932 GMT as investors took profits, lagging a 0.2 percent fall in the UK mining index. Anglo American shares fell 0.5 percent.

Kernot, who said the production figures were positive, still reiterated a "reduce" rating after the shares had surged 35 percent during the two weeks up to Monday.

They have doubled so far this year but are still about a third of their peak of 2,510 pence touched last year.

Xstrata, the world's fifth biggest diversified mining group by market value, began its standoff with Anglo after the latter quickly dismissed the merger approach when it was made public last month and Xstrata ignored calls by Anglo shareholders to offer a premium.


Analyst Nick Hatch at ING said investors' main focus would be on Anglo's interim results on Friday, when the group must show there is more value in a stand-alone company than in a merged one.

"I think the onus is on Anglo to show that they are meeting all of the targets they've promised and hopefully beating them."

Anglo is expected to post a 72 percent fall in underlying earnings per share.

Xstrata, the world's largest exporter of coal for power plants, said stronger output of coal in Australia more than compensated for weaker production in South Africa due to the planned closure of the Impunzi underground mine and strikes.

Copper production slid by more than half at Ernest Henry in Australia due to flooding, but higher results elsewhere left overall mined output up 1 percent.

Ferrochrome output tumbled by 60 percent, better than expected since the group had suspended 80 percent of capacity late last year due to low prices.

Mined nickel output rose 7 percent to 28,505 tonnes and zinc in concentrate production jumped 30 percent to 493,808 tonnes due to the restructuring and expansion of the Mount Isa operations in Australia.

Copper cathode production fell 13 percent and zinc metal output lost 3 percent, both mainly due to weak demand for sulphuric acid, a byproduct of the smelting process.


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