Xstrata, the mining group in the midst of a merger with commodities trader Glencore, reported a sharp fall in earnings this week but emphasised its standalone growth prospects should the $65bn deal fail.
Mick Davis, chief executive, said he saw the combined company as a “more powerful business model” but added that “the inherent capacity of Xstrata to generate value as a standalone company remains very, very powerful indeed”.
But Xstrata’s operating profit fell 42 per cent for the first half to $2.5bn, despite the miner continuing its record for cost cutting, stripping out $105m through improved buying and productivity to help offset overall cost inflation.
Xstrata delayed its shareholder vote on the combination with Glencore to September after Qatar Holding, which owns 11 per cent of the miner, in June called for significantly improved terms, throwing the merger into doubt.
Mining companies are suffering as ailing demand for key commodities such as iron ore, copper and coal weighs on prices but costs continue to rise.
The uncertain outlook for the global economy has prompted calls from investors for miners to rein in spending on ambitious capital projects, which have been dogged by delays and cost overruns around the sector.
Xstrata said it would invest $1bn less than planned this year, in part due to slower than expected progress at its Las Bambas copper project, after Anglo American last month also ratcheted down its development and exploration spending.
But Rio Tinto, which reported this week a 30 per cent fall in earnings per share, stood by its commitment to spend $16bn this year on expanding its operations, pointing to signs that Chinese stimulus measures should start to take effect by the year’s end.
Tom Albanese, Rio’s chief executive, defended investing to boost output from the Pilbara in Western Australia to 353m tonnes a year but conceded that the market was in a “delicate position” after sharp falls in iron ore and steel-making coal in recent weeks.
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