Xstrata starts reaping brownfield rewards

XSTRATA has begun to see the benefits of its low-cost brownfield coal projects coming onstream, with the Swiss-based diversified miner announcing a full-year net profit for 2006 of $US4.89 billion, a 119% rise on 2005 full-year results.
Xstrata starts reaping brownfield rewards Xstrata starts reaping brownfield rewards Xstrata starts reaping brownfield rewards Xstrata starts reaping brownfield rewards Xstrata starts reaping brownfield rewards


Angie Tomlinson

Boosted by strong copper and nickel prices, the net profit figure beat analysts’ forecasts of an adjusted profit of $4.6 billion, according to the average of a company poll.

Xstrata said that high cost inflation associated with inputs into the mining industry continued to impact the company's operations in the second half of the year.

“In particular, demand for contract labour, fuel, explosives and construction materials continued to outstrip supply, resulting in increased lead times for equipment delivery and rapidly escalating prices," the company said.

To counteract cost increases Xstrata continued to concentrate on containing real costs. For its fifth consecutive year the miner managed to make real operating cost savings.

“In particular, increased lower-cost production of thermal coal from Rolleston and longwalls in New South Wales and of coking coal from the Wollombi deposit, the commissioning of the highly efficient Lion ferrochrome smelter and increased production from the lower-cost Black Star zinc-lead openpit mine and McArthur River open test pit all contributed to this exceptional result,” Xstrata said.

On top of the benefits of brownfield projects Cerrejón, Rolleston and at some New South Wales operations, Xstrata is also beginning to reap the rewards from greenfield opportunities such as the 7 million tonnes per annum Goedgevonden Project in South Africa, the massive Wandoan coal project in Queensland and the Glendell project in New South Wales.

During 2006 Xstrata purchased a one-third interest in the Cerrejón coal operation in Colombia. The acquisition gives Xstrata additional exposure to high quality, premium thermal coal with access to the growing North American, South American and European markets.

According to Xstrata, 2006 was the third consecutive year that prices for every commodity produced by the group, with the single exception of vanadium, were higher at the end of the year than at the beginning.

“While average prices for coking and thermal coal were marginally lower, average prices for base metals were substantially higher than in the previous year," the company said.

“Base metals prices remain highly volatile, as evidenced in the first few months of 2007, but they remain significantly above long-run averages and comfortably ahead of any of the assumptions that underpinned our acquisitions in 2006."

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