Xstrata 2012 Profit Slumps 37% on Costs, Weaker Coal Prices

Xstrata Plc, the Swiss mining company whose $33 billion takeover by Glencore International Plc may be completed next month, said 2012 profit plunged 37 percent because of weaker commodity prices and higher costs.

Net income, excluding exceptional items such as impairment charges, fell to $3.65 billion from $5.79 billion a year earlier, the Zug, Switzerland-based company said today in a statement. That beat the $3.49 billion average estimate of eight analysts surveyed by Bloomberg. Sales at the world’s largest exporter of power-station coal slid 7 percent to $31.6 billion.

“The combined impact of falling commodity prices, ongoing inflationary pressure on operating costs and continued strong producer currencies relative to the U.S. dollar put pressure on our margins,” Chief Executive Officer Mick Davis said in the statement. Economic developments in China and the U.S. will support commodity demand in 2013, he said.

The average price for power-station coal at Australia’s Newcastle port, an Asian benchmark, dropped 19 percent to $90.65 a metric ton in 2012, according to McCloskey Group data and copper slid 9.9 percent.

Xstrata shares rose 6.8 percent to 1,174 pence by the close in London, the steepest gain since Sept. 14. The 21-member FTSE 350 Mining Index rose 3.5 percent.

Glencore in January won approval from South Africa’s antitrust regulator for its takeover of Xstrata, leaving Chinese agreement as the sole outstanding requirement for the deal. The Baar, Switzerland-based commodities trader today said that the companies agreed to extend the deadline to complete the deal to April 16.

Ball Rolling

“All eyes remain on merger completion to get the ball rolling on cost cuts and capex reviews, where we feel there’s scope for material upgrades to our forecast earnings and cash flow,” London-based Liberum Capital Ltd. analysts said in a note.

The full-year dividend rose 14 percent to 45.5 cents a share. Xstrata reported $136 million in costs related to the Glencore transaction.

Net income plunged to $1.18 billion from $5.7 billion, mainly because of impairment charges from its investments and operations. Xstrata wrote down $840 million of its stake in platinum producer Lonmin Plc, it said in the statement. It also wrote down $978 million from the valuation on the Brunswick zinc mine in Canada, the Cosmos nickel mine in Australia and its Eland operations.

Debt Ratio

The Swiss mining company spent $10.3 billion on expansions last year. Net debt rose to $14.7 billion in 2012 from $8.15 billion, helping to push the ratio of net debt to net debt plus equity to 24 percent from 15 percent a year earlier, Xstrata said.

Thermal coal production last year rose 7.2 percent to 90.4 million tons, while copper output declined 16 percent to 747,042 tons because of the transition from older mines to new ones and expansions, Xstrata said last month.

Xstrata, the fourth-largest producer of copper, began output at its $1.5 billion Antapaccay project in southern Peru in November. The mine will produce an average of 160,000 tons of copper annually in the first five years. The company is seeking to boost overall production by 50 percent through 2014.