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Xstrata steps up spending plans

December 8, 2010

“Xstrata, the acquisition-built mining company, is once again stepping up spending on its internal portfolio, budgeting $23bn for new mines, smelters and other expansionary projects between 2011 and 2016. Expansionary capital expenditure – or spending exclusively on new projects, rather than the maintenance of old ones – for 2011 and 2012 is forecast at $6.8bn. That compares with expansionary capex of $4.5bn in 2010.

According to Xstrata, high spending in the two years to 2012 will put it over the hump in terms of funding construction of the projects expected to enter service this decade.”

Source: Financial Times, December 7 2010

Observations:

  • The $22.8bln CapEx to 2016 is the result of an increase of the 2011-2012 budget by $1.3bln to $13.6bln and investment plans of $5.0bln for 2013; $1.8bln for 2014; $1.5bln for 2015 and $0.9bln for 2016.
  • Projects expected to be approved in the near term are: Rolleston expansion; Oaky Creek expansion; Cerrejon expansion; Tweefontein; Fraser Morgan; Kabanga; Mt Isa Zinc expansion; and the MRM expansion. The bulk of the investments are in coal (36%) and copper (35%).

Implications:

  • Xstrata earmarks large amounts of cash of development projects, but preserves the flexiblity for further growth by acquisitions. Although the company has not benefited as much from high iron ore prices as major competitors due to lower exposure to the iron ore price, the gearing of 19% gives the company the flexibility to make significant acquisitions.
  • Just like for Rio Tinto the importance of good ties to the Chinese market becomes ever greater. As China is rising in importance as a copper and coal producer, Xstrata will be looking for access to the local market by partnering with Chinese players. Zijin might be a logical partner, although collaboration in the Tampakan deposit in Indonesia has not taken off.

©2010 | Wilfred Visser | thebusinessofmining.com

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