Miner Xstrata said on Tuesday it would pump over $5 billion into new mines and keep targeting organic growth rather than acquisitions, after more than doubling first-half earnings per share on higher metals prices. The Anglo-Swiss group said it was cautious about the global economy in the near term, echoing the concerns of mining peers, but was optimistic about medium-term growth in metals demand, particularly from emerging economies such as China and Brazil.
Xstrata, the world's biggest exporter of coal used in power plants, said it had approved $4.2 billion to build the Las Bambas copper mine in Peru and $1.1 billion for the Ulan West coal project in Australia. The company, which built itself up as a formidable competitor to major mining groups through a series of acquisitions, has shifted focus and now has 15 major growth projects that will cost $14 billion in total.
"This project pipeline will deliver 50 percent growth in volumes and it's doing it at a rate of return of about 20 percent," Chief Financial Officer Trevor Reid told Reuters. "It's inconceivable that that sort of transformational growth could be achieved through an acquisition."
Xstrata was not looking at reviving last year's failed effort to merge with Anglo American. "There's no interaction between the companies. It was, we believe, a compelling idea at the time, but it's not something that we're working on or spending any time on," he said. Xstrata shares gained 0.2 percent to 1077 pence by 0830 GMT, against a 0.8 percent fall in the UK mining index. Credit Suisse said the results reinforced its view that Xstrata is its top pick among the major mining groups with an "outperform" rating and a target price of 1450 pence.