Xstrata Plc, the largest exporter of coal used for power, said annual profit surged 86 percent as rising demand in emerging markets pushed up prices, and forecast lower Asian growth this year.
Net income before exceptional items rose to $5.15 billion from $2.77 billion a year earlier, Zug, Switzerland-based Xstrata said today in a statement. That beat the $5.02 billion average estimate of nine analysts surveyed by Bloomberg.
“Developing economies and China in particular appear set to continue to achieve wholly respectable high single-digit growth rates in 2011,” Chief Executive Officer Mick Davis said in the statement. Growth will be below 2010 levels because of inflation and government measures to contain expansion to within “manageable levels,” he said.
Xstrata’s earnings advanced as commodity prices jumped. The average price of power-station coal at Australia’s Newcastle port, a benchmark for Asia, rose to $99 a metric ton in 2010 from $72 a year earlier, according to McCloskey Group. Copper, Xstrata’s other main product, averaged $7,558, up 45 percent.
“Overall these were a strong and impressive set of numbers,” David Butler, a London-based analyst at JPMorgan Cazenove, said in a note to investors, citing unit cost savings of $541 million.
Xstrata rose 25 pence, or 1.7 percent, to 1,492.5 pence by the 4:30 p.m. close of London trading.
Earnings before interest, tax, depreciation and amortization totaled $10.39 billion, compared with the $10.08 billion average estimate of 18 analysts. Xstrata posted earnings per share of $1.77, beating the $1.72 average projection of 21 analysts. Net debt fell 38 percent to $7.6 billion.
Xstrata plans to boost output 50 percent through 2014 to take advantage of Asian demand. China, the biggest coal user, raised purchases to a record 165 million tons in 2010, according to a Jan. 21 report by the General Administration of Customs. That may reach 210 million tons this year, Helen Lau, a Hong Kong-based analyst at UOB Kay Hian Ltd., said on Jan. 11.
Xstrata’s coal output fell 6 percent in 2010 to 79.9 million tons after planned closures and heavy rains in Australia curbed production. Mined copper output rose to 913,500 tons from 907,000 tons, contributing $2.2 billion to operating profit, while copper cathode, a finished form of the metal, declined 1.5 percent to 715,499 tons, the company said. Copper was the largest contributor to earnings last year, followed by coal.
The company retains 25 percent of Lonmin Plc after ending a hostile bid for the platinum producer in October 2008 as metal prices plunged. Xstrata is studying options for its Lonmin holding, including selling the stake, Davis said today in a telephone interview.
“There will be a rational solution to the Lonmin investment,” he said. “When the time is right we’ll try to do something which is very value-creating for our shareholders.”
Xstrata will continue to focus on organic growth projects, while not ruling out acquisitions, Davis said. The company’s growth projects are “as transformational as any significant transforming acquisition we’ve done in the past,” he said.
The company is interested in acquiring Drummond Co.’s Colombian coal assets, two people with knowledge of the matter said in December. Xstrata was the only bidder to submit a fully funded offer for the $8 billion unit by a deadline that month, the London-based Sunday Times said in January.
“Drummond has very good assets in Colombia but the decision on what to do with them really is Drummond’s, not ours,” Davis said today, declining to comment on whether Xstrata had negotiated on or bid for the unit.