Xstrata grows Alumbrera, earnings

Swiss-based, diversified base metal miner Xstrata (XTA-L) has boosted reserves by more than 10% at the Alumbrera copper-gold mine in Argentina

Ongoing drilling within the existing ore envelope and at depth, plus improvements in the ultimate pit slopes design, have confirmed an additional 40 million tonnes of reserves containing 170,000 tonnes of copper and 500,000 oz. of gold.

Proven and probable reserves at Alumbrera are now pegged at 390 million tonnes grading 0.47% copper and 0.51 gram gold per tonne, with nearly 95% of the tonnes classified as proven material.

Xstrata has reworked the mine plan to include the new material, and plans a US$15.5 million expansion of the project’s mill. The expansion will see the mill throughput increased by 8% to 40 million tonnes per year by the end of 2006.

In-pit resource definition will continue during the second half of 2005 with the aim of adding further reserves. Alumbrera is home to measured and indicated resources totalling 420 million tonnes running 0.47% copper and 0.5 gram gold.

During the first six months of 2005, mill throughput at Alumbrera increased by 8% from the year-earlier period to 18.3 million tonnes of ore running 0.53% copper and 0.57 gram gold. Production totalled 86,818 tonnes of copper in concentrate and 234,734 oz. of gold in concentrate; another 22,594 oz. of gold in dor were also poured. Cash costs net of byproduct credits rang in at US35.4 per lb. of copper.

Alumbrera is 50%-owned, and operated, by Xstrata; Goldcorp (G-T) owns a 37.5% stake, with Northern Orion Resources (NNO-T) holding the remaining 12.5%.

On the financial front, Xstrata saw its first-half earnings rise by 80% from the year-earlier period to US$763.8 million (before exceptional items) thanks to higher prices for all of its commodities. Revenue between the two periods climbed by 28% to US3.76 billion.

The company also managed to cut its operating costs by US$5 million thanks to an ongoing efficiency program, which helped offset a US$46 million rise in energy, fuel and freight costs. Free cash flow from operations amounted to US$700 million, despite a 53% increase in sustaining capital expenditures, with net-debt-to-equity reduced to 18.6% from 29.5%.

The miner added it remains “alert to acquisition opportunities that may have a profound positive impact on our scale and rating in the investment market” despite its failed attempt to acquire Australia’s WMC Resources earlier this year; that takeover battle was won by BHP Billiton (BHP-N). Since that defeat, Xstrata has been rumoured to be eyeing Melbourne-based copper and gold producer Oxiana Resources and Canadian nickel giant Inco (N-T). The company acquired Australian-based zinc and copper producer M.I.M. Holdings via a cash-and-debt takeover deal valued at A$4.9-billion in mid-2003.

Looking ahead, Xstrata CEO Mick Davis said in a prepared statement: “As we move into the second half of the year, demand remains strong across all our major commodities and in our bulk traded commodities this price strength is already extending well into 2006.”

Xstrata is held 24% by Credit Suisse First Boston Equities; privately owned Swiss commodity trader Glencore International owns 16%.