Profits tumble for Swiss mining company

Twelve month revenues declined 4.5 billion dollars for Xstrata, the world’s largest zinc producer and coal exporter, listed in London and Zurich.

The end of 2008 saw a “dramatic and rapid slowdown in industrial production,” according to a presentation by the company, which also produces copper and nickel.

It was “a creditable result in extremely challenging markets,” said chief executive, Mick Davis, in a statement.

Commodity prices slid as industrial output dropped during the downturn, with manufacturers using less energy and making fewer products in response to reduced demand.

Exchange rate problems added to Xstrata’s woes. The dollar tanked against the currencies of producer countries, making it expensive for US industry to import rocks and metals mined by Xstrata.

Davis also acknowledged in his results report that the company needs to improve safety, after nine employees died on the job last year.

The company began the year heavily in debt, but managed to reduce its gearing from 40 per cent to 26 per cent. Shareholders absorbed a rights issue – whereby a corporation issues the right to new shares sold beneath market value, in order to raise money for particular cash flow needs.

Xstrata also had to reduce its cost base by 5 per cent over twelve months, cutting more than 500 million dollars of overheads.

But the company is up-beat for 2010, announcing a dividend of 8 cents per share, unlike last year when stockholders were wanting.

Eight billion dollars worth of projects are currently in construction, but hopes pin on the approval of a further 9 billion dollars of business, said Davis, who expects China and other industrialising economies to provide new opportunities while the market waits for sluggish western economic growth to pick up again.

“The medium term outlook for commodity demand remains very promising,” said Davis.

Commodity giant Glencore, which owns 35 per cent of Xstrata, is expected to exercise an option to buy back mining assets in Prodeco, Columbia, netting the junior company around 250 million dollars.

Last year the mining industry was rife with speculation around a possible merger between Xstrata and Anglo-American. Newswires are now spreading rumours about a possible takeover by Glencore, although Davis denied a deal was on the table in comments made to Reuters on Monday.

Metals markets have already rebounded considerably since a turning point in March 2009. Zinc rose 220 per cent, with nickel and copper showing a similar recovery.

Prices slid during the second half of January, but the market is being supported by increasing money flows, according to metals industry expert, Bill Price.

“The fundamentals are still not great,” Price told Swisster from his offices near Lausanne, and there is a softening in a dollar-based and energy-intensive aluminium market.

But “there is interest in non-ferrous metals again,” said Price, who knows trading houses in Switzerland are fishing around for new traders, hoping that UK tax changes and US bank proprietary trading regulations may encourage some movements to new metals desks around Geneva, Lausanne and Zug. The trading houses are also on the hunt for acquisitions, according to Price.

London-based banker, broker and trader Ambrian Capital announced last week a new private equity fund based in Zug, which will target emerging market metals companies.

The new venture, Ambrian Resources AG, is led by Jean-Pierre Conrad, a former chief financial officer of Xstrata Group, Nicolas Rouveyre, a former Head of the Zinc and Lead Division at Glencore, and Kilian Carrarini, also formerly of Glencore.

Conrad and Carrarini left Nage Resources, another Zug-based miner, to spearhead Ambrian’s new entity.