SINGAPORE Xstrata Plcs core earnings fell 30.4 percent year on year in 2012 due to lower commodity prices and stronger currencies.
"Our businesses faced difficult operating conditions during the year, as the combined impact of falling commodity prices, ongoing inflationary pressure on operating costs and continued strong producer currencies relative to the U.S. dollar put pressure on our margins," chief executive officer Michael "Mick" Davis said.
Earnings before interest, taxes, depreciation and amortization (Ebitda) fell to $8.1 billion from $11.7 billion in 2011 on revenue that dropped 6.7 percent to $31.6 billion. This excluded exceptional items of $2.6 billion for a write-down on Xstratas investment in London-based Lonmin Plc ($840 million), as well as the Brunswick zinc mine in Canada and the Cosmos nickel mine in Australia as they reached the end of their operational lives. Additional write-downs in response to adverse market conditions in South Africa totaled $978 million.
At the same time, 10 major projects entered commissioning in 2012. They included Xstrata Coppers Ernest Henry Mining, which processed its first ore in September and will add around 30,000 tonnes of copper concentrates production annually. The Antamina copper-zinc joint venture in Peru was also commissioned in the first half of 2012 and is expected to increase output this year.
"Despite a peak capital expenditure of $10.3 billion in 2012, our balance sheet remains robust, with net debt at year-end at $14.7 billion and gearing at 24 percent," Davis added.
The Zug, Switzerland-based company plans to commission a number of new projects in 2013, including the Fraser Morgan nickel mine and the Bracemac-McLeod zinc operation in Canada, it said.
Xstrata realized $176 million in cost savings last year, mainly through a combination of cost-efficiency initiatives and the benefit of increased volumes in its coal and zinc businesses.
Separately, Xstrata said the completion date for its merger with Baar, Switzerland-based Glencore International Plc has been pushed back to April 16.
"Completion of the merger remains conditional upon the receipt of the outstanding regulatory approval in China and completion of the Xstrata court process," the company said.
Looking ahead, "a gradual global recovery appears under way, particularly in China and the (United States)," Davis said. "Chinese fiscal policy easing and clear statements by the U.S. Federal Reserve regarding their intention to continue stimulating the U.S. economy have boosted confidence in these economies and are supportive of a marginally improved environment for commodity demand in 2013."
A version of this article was first published by AMM sister publication Metal Bulletin.