Xstrata 2012 Coal Output Rises, But Copper Output Drops

By Alex MacDonald

LONDON-- Anglo-Swiss miner Xstrata PLC (XTA.LN) reported Tuesday a mixed performance in its key copper and coal businesses, which are typically its main earnings drivers.

Xstrata boosted coal production in 2012 on higher output from its Australian thermal coal mines, while copper output fell due to a poor performance at the Chilean Collahuasi mine and as it transitions from old mines to new mines.

Zug, Switzerland-based Xstrata, which is seeking final regulatory approval from China to merge with mining titan Glencore International PLC (GLEN.LN), said consolidated coal production rose 7% to a record 90.4 million metric tons, while mined copper output dropped 16% on the year to 747,042 tons as it transitioned from older, end of life mines to new mines and addressed production challenges at its Collahuasi joint venture.

By comparison, competitor Rio Tinto PLC (RIO) and Anglo American increased their share of coal and copper production in 2012.

Prices for thermal coal, which is used to fuel power stations, dropped in 2012 because of greater export availability from producers in Indonesia and Australia, partly due to climatic factors. In the United States, lower gas prices boosted natural gas consumption at power stations, leading to lower coal consumption and leaving more coal available for export.

Copper prices were also volatile in 2012 due to weaker-than-expected economic growth in China and the lack of economic recovery in Europe and the U.S., which resulted in sluggish copper demand.

Coal and copper accounted for 41% and 37% respectively of the company's first-half operating earnings before interest, tax, depreciation and amortization, or Ebitda.

The company said that thermal coal output from its Australian operations rose due to the restart or commencement of mining at four mines, which more than offset closures at two other mines. Meanwhile, Australian coking coal output fell 9% due in part to engineering challenges at Oaky Creek No. 1 mine.

South African and Colombian coal output rose, it said.

On the copper front, Xstrata said production at Collahuasi, in which it owns a 44% stake, decreased 38% in 2012 due to planned lower grades, adverse weather conditions, safety stoppages and an extended ball mill outage. The issues at the mine have been addressed and annualized production is expected to be restored to about 400,000 tons of copper a year in 2013. This will be buoyed by the continued ramp up of its Antapaccay copper mine in Peru in November.

Total zinc metal output was down 0.5% from 2011 at 734,370 tons, while total nickel output rose 0.9% on the year to a record 106,873 tons. Production of zinc metal and nickel accounted for 12% and 9% of first-half operating Ebitda.

Xstrata's shares closed Monday up 0.9% at 1,160 pence a share and are up 9.6% since the beginning of the year. The U.K. FTSE 350 mining index rose 3.6% in the same period.

Write to Alex MacDonald at [e-mail]

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