Xstrata to expand Canadian operations, sweeten payouts – by Brenda Bouw (Globe and Mail – August 3, 2011)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Brenda Bouw is the Globe’s mining reporter.

Global mining giant Xstrata PLC will use bulging profits to expand its Canadian operations and sweeten shareholder payouts, a sign of the industry’s rosy demand outlook despite global economic uncertainty alongside rising costs and government intervention.

Xstrata, based in Zug, Switzerland, said profits rose by about 30 per cent in the first half of the year, and the diversified miner more than doubled its dividend on the back of record-setting commodity prices.

“Our recovery has been swift and robust and we are now operating with good momentum to deliver a substantially stronger second half,” Xstrata chief executive officer Mick Davis told investors on Tuesday. He cited in particular strong demand from China, the world’s largest consumer of commodities, as the country continues its frenzied infrastructure build.

Xstrata, one of the world’s largest mining companies, also said Tuesday it has approved an investment of $649-million to move ahead with expansion of two Canadian nickel projects, including $530-million on the Raglan project in northern Quebec and $119-million on Fraser Morgan in Sudbury. The announcement came days after Xstrata said it plans to buy Canadian miner First Coal Corp. in a deal valued at $153-million.

Xstrata is the latest among the world’s largest mining companies to report rising profits from surging prices for commodities such as copper and coal, despite soaring costs for energy, labour and raw materials. Like other miners, Xstrata has lost production from strikes as well as natural disasters such as flooding in Australia and the nuclear crisis in Japan.

The disruptions in production have led to tighter global supply and higher commodity prices that have benefited mining firms. In fact, the price of such key commodities as copper and coal are near the record levels reached earlier this year despite what should be a dampening impact from debt troubles in the United States and Europe, a near-stagnant U.S. economy and rising inflation in China.

Concerns over ongoing and potential strikes in particular have helped push up the price of industrial metals in the past month, overshadowing the other macroeconomic issues, noted economist Ross Strachan of Capital Economics on Tuesday.

“In our view, the attention placed on these stoppages has been excessive and distracted focus from weakening global demand,” he said, predicting copper prices will fall from about $4.40 a pound today to $3.60 by early next year.

However, other analysts expect the price of copper and other key commodities to remain strong.

“We have a very positive outlook on the commodity cycle, and see absolute value in the mining sector and highly recommend exposure to mining equities,” a team of analysts at Scotia Capital said in a recent report.

For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/globe-investor/xstrata-to-expand-canadian-operations-sweeten-payouts/article2116939/