Miners take a loss – by Star Staff (Sudbury Star – August 7, 2012)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Global mining companies’ multi-billion dollar spending plans will be under scrutiny in the coming weeks when Xstrata and others look set to post their first decline in profits since 2009, hit by falling prices and high costs.
Stubbornly high costs and the impact of softer demand on the price of key commodities like iron ore have squeezed margins. Brazil’s Vale posted its worst second-quarter result in two years, while Anglo American saw interim profits drop by more than a third.
With the impact of weaker prices largely factored in, analysts say they and investors will be focused instead on companies’ cost-cutting plans. In particular, they will be looking at the impact of a deteriorating environment on the timing of major projects like BHP’s $20 billion expansion plan for Port Hedland in Australia or Olympic Dam in South Australia, one of the world’s largest mines.
BHP has already backed away from an $80 billion five-year spending plan announced in 2011, and has since signalled it would review its project pipeline and focus on cutting costs.
Xstrata, despite better-than-expected coal prices announced last week, is set to post a drop of more than 30% in first-half core profit, dented by lower copper output as it replaces aging operations.
The company reports its earnings Tuesday.
The miner’s interim EBITDA — earnings before interest, tax, depreciation and amortization — is set to drop to $4.02 billion, according to estimates compiled by Thomson Reuters I/B/E/S, with earnings per share virtually halving to 51 cents.
According to the company’s own consensus of analyst estimates, EBITDA is expected to drop to $3.87 billion, from $5.82 billion a year earlier.
Xstrata is in the throes of a $26- billion takeover by commodities trader Glencore, but is unlikely to provide a significant update on the deal, as Glencore is currently locked in talks with rival investor Qatar Holding on terms.
Glencore is offering 2.8 new shares for every share held, while the Gulf state’s sovereign wealth fund is seeking 3.25.
Weak results could strengthen Glencore’s case for holding firm at 2.8, but Xstrata’s profit drop is partly due to weaker copper production, which should reverse in the second half.
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