Xstrata Says First-Half Profit Falls 8.3% to $2.75 Billion

By Brett Foley
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Aug. 6 (Bloomberg) -- Xstrata Plc, the fourth-largest copper producer, said first-half profit fell 8.3 percent after copper and nickel production dropped.

Net income declined to $2.75 billion, from $3 billion a year earlier, Zug, Switzerland-based Xstrata said today in an e- mailed statement. That beat the $2.6 billion median estimate of six analysts surveyed by Bloomberg News.

Xstrata, led by Chief Executive Officer Mick Davis, has spent more than $28 billion in six years acquiring mines and smelters to become the fourth-largest nickel producer and the biggest exporter of power-station coal. Last week, the company said first-half copper output dropped 1.1 percent on lower grades and as poor weather disrupted production. Nickel prices slid 39 percent and zinc declined 36 percent in the same period.

The company mined ore with a lower metal content at Alumbrera in Argentina and Tintaya in Peru, Xstrata said last week. Lomas Bayas in Chile was also affected by the failure of a conveyor belt. Copper, used in pipes and wires, accounted for 45 percent of sales last year, while nickel contributed 18 percent.

Nickel output slid 6.1 percent to 26,610 metric tons because of lower ore grades at the Sudbury and Montcalm mines in Canada and after ``adverse weather'' and maintenance delayed expansion of the Raglan mine in the Canadian Arctic.

While the average copper price in the period was 20 percent higher, nickel for immediate delivery on the London Metal Exchange plunged to $27,290 a ton. The price of zinc, also mined by Xstrata, declined to $2,281 a ton.

Coal production rose in the first half by 3.9 percent, partly because of higher output from the Cerrejon mine in Colombia. Xstrata said last week second-half output would be ``significantly stronger'' because of improved copper and nickel production.

Credit Suisse Group AG yesterday lowered its estimate for Xstrata's 2008 earnings per share by 18 percent to $7.15 because of weak zinc and nickel prices in the first half.

To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net