Glencore Target Xstrata’s Coal Output Up as Mines Resume

Xstrata Plc, target of a $32.7 billion takeover bid by Glencore International Plc that’s partly driven by growing coal demand, said third-quarter output of the fuel used in power plants rose 6 percent as mines restarted.

Thermal-coal volumes climbed to 21.2 million metric tons from 20 million tons a year earlier, the Zug, Switzerland-based company said today in a statement. Total output, including semi-soft coal, advanced 1.7 percent to 24 million tons.

Xstrata resumed operations at the Blakefield South mine in New South Wales, it said. Early stage production volumes from the Ulan and Ravensworth North open-cut projects also contributed to the increase in coal output. In addition, the Mangoola thermal-coal mine in New South Wales and the Goedgevonden project in South Africa started up this year.

The company advanced 3.1 percent to 993.6 pence by the close in London, valuing it at 29.8 billion pounds ($48 billion).

Xstrata, seeking to boost production by 50 percent through 2014, on Oct. 1 recommended shareholders vote in favor of a sweetened Glencore offer after Qatar Holding LLC, with a 12 percent stake, said an original proposal was too low. Glencore raised its bid to 3.05 of its own shares for each one in Xstrata, up from 2.8. Xstrata gave no update on the deal today.

Xstrata settled annual thermal coal contracts with Japanese customers at $97 a ton, it said. The figure was $126.50 a year ago. Lower coking and spot thermal-coal prices hurt the coal division earnings in the period from July 1, the company said.

Below Estimates

“Thermal coal-prices received look relatively weak, between 4 percent to 7 percent below our estimates,” Liberum Capital Ltd. said in a note. “On balance key divisions were weaker than expected and we see scope for 5 percent to 10 percent downgrades to our second-half net earnings.”

Japan, Asia’s second-largest importer of thermal coal, may raise purchases 4 percent this year as nuclear power plants are shuttered, Australia’s Bureau of Resources and Energy Economics said last month.

Xstrata’s coal division has begun to restructure operations in Australia and will cut about 600 contractor and permanent jobs, according to the statement. Coal accounted for 34 percent of Xstrata’s operating income last year, and copper 47 percent.

Mined-copper output slid 16 percent to 187,849 tons as the company replaces older, end-of-life mines with new, lower-cost operations, it said. Production of copper cathode, a finished form of the metal, dropped to 156,864 tons from 163,683 tons.

Southern Peru

Copper production at the Tintaya mine declined 31 percent mainly because of planned lower copper grades in the final phase of operations, Xstrata said. Output at the Mount Isa underground mine fell 14 percent “due to localised geotechnical issues.”

The $1.47 billion Antapaccay project in southern Peru will begin production by the end of the month, Xstrata said. It will produce an average of 160,000 tons of copper annually over the first five years, it said.

Xstrata has still to set a date for shareholders to vote on the planned combination with Glencore. The vote was postponed on Sept. 7 when Glencore, the world’s biggest publicly traded commodities supplier, increased its offer.

Shareholders with a combined stake of as little 16.5 percent of Xstrata would be able to block the deal. U.K. takeover rules prevent Glencore voting its 34 percent Xstrata stake to approve the deal, which requires 75 percent consent.

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