Interim results promising for second half

FOR the first time since its emergence as a major global player in mineral commodities, Xstrata plc has reported on a full half year’s performance. The results are indicative of the consolidation undertaken over the last six months.
Interim results promising for second half Interim results promising for second half Interim results promising for second half Interim results promising for second half Interim results promising for second half

The Beltana highwall

Staff Reporter

For the six months ended June 2004, the diversified group reported pre-exceptional attributable profit up 413% to $405.5 million. In his chief executive’s report Mick Davis said the MIM acquisition meant the group had been well positioned to benefit from the stronger commodity markets that characterised the first six months of this year.

“Indeed, the purchase of the MIM Group contributed $338.2 million to the group’s earnings before interest and tax (EBIT) in the first half of 2004 – slightly over half of the total, and certainly more than we had expected in our original valuation model,” Davis said.

The company said for the first six months to December 2003 it focused attention on the performance of the Queensland coal assets. During the first six months of this year, the focus switched to the North Queensland base metal operations Mount Isa and Ernest Henry.

For the six months to June, coal turnover increased by 32% to $1,189.1 million due principally to higher received prices, with turnover from Australian and South African thermal operations up by 50% to $814.6 million and by 23% to $244 million respectively. A major achievement for Xstrata Coal was real cost savings of $12.2 million, despite increases in demurrage costs and accessing higher cost reserves.

The Australian thermal operations achieved consolidated production for the six months to 30 June 2004, of 17.7Mt, 1% lower than the corresponding period, attributable to the sell-down of Xstrata’s interest in the Queensland coal assets from 75% to 55%. Despite the sell-down, EBIT increased by 386% from $39 million in the first half 2003 to $189.5 million in 2004, due to significantly higher coal prices.

The new low-cost Beltana longwall mine in NSW operated at optimum capacity for the full period, contributing to improved mine site unit costs. The end of June 2004 marked the mine’s first full year of production and an excellent output of 5.8Mt ROM coal, exceeding expectations in terms of productivity and cost efficiency.

Xstrata’s Australian coking coal output for the six months to June 2004 was 2.5Mt, down 32% on the 3.7Mt produced in the corresponding period, mainly due to the effect of the sell down in Xstrata’s interest in the Queensland operations.

Coking coal turnover decreased by 20% to $130.5 million and production was down by 32%, mainly due to the sell-down of Xstrata’s interest in the Queensland coal assets. Higher export prices were the main reason coal EBITDA increased by 114% to $363.6 million.

Average realised price for calendar year 2004 for Xstrata Coal’s Queensland coking coal is expected to be in excess of $65 per tonne.

“The settlements of these coking contract prices reflect the positive outlook in the medium to longer term for prime quality hard coking coals, such as the coals from Xstrata’s Oaky Creek and Collinsville operations, on the back of continuing growth in demand from markets such as China and India,” the company said.

In Queensland, additional costs were incurred managing frictional ignition issues at the Oaky No 1 longwall mine, while increased production from the higher cost open cut operation to mitigate the impact of a roof fall at Oaky North also contributed to higher costs.

The re-configuration of the Oaky North longwall to enhance longwall face control is expected to increase productivity. The company said it expects an increase in coking coal production in the second half.

Capital expenditure for Xstrata Coal’s Australian operations totalled $65.6 million in the first half of 2004, split between NSW and Queensland. Projects include development of the open-cut Rolleston mine; continued development of the new Northern underground mine at the Newlands complex, with full production scheduled for late 2005; the purchase of open-cut equipment including a dragline for Newlands and seven new trucks for the Bulga open-cut; the new Ulan longwall face; and construction of a new drift conveyor at Ulan.

“The full benefit of price negotiations reached during the first half of the year in our coal and alloys businesses will also be seen in the second half of the year,” Davis said. “These factors, together with the prevailing commodity bull market, mean the Group is extremely well positioned to improve on the first half’s achievements and record even stronger results in the second half of 2004.”

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