Business
Xstrata ploughs on with deals drive
20th February 2008
Xstrata, the London-listing mining giant, vowed to press ahead with its acquisitions drive today despite the looming threat of an economic downturn in America and its knock-on effect in Europe.
Xstrata, the London-listing mining giant, vowed to press ahead with its acquisitions drive today despite the looming threat of an economic downturn in America and its knock-on effect in Europe.
Mick Davis, the chief executive, said the zinc, nickel and platinum miner had "emphatically demonstrated" its commitment to acquisitions over the past 12 months by spending more than $6 billion on financing bids and deals.
Xstrata told its investors in mid-December that it was in takeover talks with a number of unnamed parties as consolidation continued apace against a backdrop of soaring prices for commodities.
Today, Mr Davis confirmed for the first time from Xstrata's side that it was in ongoing takeover talks with Vale of Brazil.
“Discussions with Vale are ongoing and may or may not lead to an offer for Xstrata,” he said.
Vale, the world's largest producer of iron ore producer, said in late January that it was in bid discussions with Xstrata.
Vale is thought to have initially proposed a share-and-cash offer worth £40 a share, later increase to as much as £46.
At the same time today, Xstrata reported a 7 per cent rise in pre-tax profits to $11.3 billion for the year to the end of December, boosted by record production across its portfolio, including of nickel, thermal and coking coal and mined zinc.
It said it had strong free cashflow of $4.6 billion and had cut its net debt to $12 billion during the past financial year. Despite higher production costs, "real" cost savings of $253 million had been achieved, it said.
But Mr Davis gave warning that a slowdown in the US "now seems highly probable". He said the consequences for OECD (Organisation for Economic Co-operation and Development) countries would be "negative for short-term growth".
He said the impact on China, a booming economy that has driven demand for commodities, would probably be "muted".
He added: "The short-term outlook depends significantly on US and European monetary policy in the face of a slowdown and, naturally, on its impact on demand for commodities."
Xstrata shares closed at £39.60, valuing the group at £38.7 billion.
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