Despite profit drop, Xstrata pursues Anglo American merger

Despite reporting a decline in first-half profit yesterday, Swiss mining giant Xstrata has reiterated its stand that its proposed equal merger with larger rival Anglo American was highly compelling in order to compete with global mining giants.

One of the world's largest diversified mining groups and a leading producer of coking coal, nickel and zinc, Xstrata reported a 77-per cent fall in net profit to $643 million in first-half, down from $2.77 billion a year earlier and revenue decline of 41 per cent to $9.54 billion from $16.09 billion.

The miner said that its operating cash flows were robust at $1.6 billion, benefiting from capital conservation, cost cutting and restructuring activities. Its debt to equity ratio reduced to 28 per cent from 40 per cent at the year-end as a result of the successful $7-billion rights issue completed in March to repay a net debt of $3.7 billion.
Xstrata reduced operating costs by 1.1 per cent to save $119 million in the first half, the company said.

Chief executive officer Mick Davis said, ''The financial crisis and ensuing global economic slowdown, coupled with enormous uncertainty fundamentally changed our operating environment in a very short space of time in the latter part of 2008. As last year drew to a close, it was apparent that demand had collapsed and commodity prices were near all-time lows in real terms.''

''Xstrata is very well positioned in the current environment. Our portfolio is exposed to early-stage recovery commodities, a view supported by analysis that illustrates that demand for copper, lead and iron ore have historically shown the strongest correlation to growing industrial production, he said.

''It is very pleasing that our recent initiatives have further optimised Xstrata's competitive position, enabling our businesses to reap the maximum benefit from improving metal and coal market conditions. It seems to me that we have in this company a recipe for superior shareholder value creation and performance.''

Listed on the London and Swiss stock exchanges, Xstrata once again reiterated that its proposed $68-billion equal merger with London-based Anglo American was in the best interest of both companies in order to compete with the titans of the mining industry.