Xstrata profits soar 75 per cent as price of commodities bounces

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The mining giant Xstrata smashed expectations as it posted a 75 per cent rise in full-year profits on soaring metal prices and pledged a 50 per cent boost in volumes by the end of 2014.

The Anglo-Swiss miner, which is listed on the FTSE 100 index, saw operating profits leap to $7.7bn (£4.8bn) in 2010, said an overhaul the previous year paid off. The chief executive, Mick Davis, called 2010 an "exciting year" for Xstrata.

Revenues rose by a third to $30.4bn with record annual production in its coking coal and nickel operations. The miner also pointed to rising volumes of copper, chrome and lead. The group slashed costs for the ninth year in a row with savings of $541m, more than 3 per cent of total costs. Net debt was cut by 38 per cent to $7.6bn.

Mr Davis said yesterday: "The opportunities seized during the difficult market conditions of 2009 to restructure higher cost business, improve productivity and strengthen the balance sheet, together with ongoing initiatives to improve the quality and value of our underlying business positioned Xstrata to benefit from a more favourable operating environment in 2010."

He said Xstrata was "in the midst of a fundamental transformation of our portfolio" aiming to lift production by 50 per cent over 2009 levels within four years. The company also expects costs to fall by a fifth. David Butler, an analyst at JPMorgan Cazenove, said these were "a strong and impressive set of numbers".

Based on conservative estimates of commodity prices in the long run the company expects an average return of 22 per cent.

Xstrata said the industry was "fundamentally constrained and will struggle to meet burgeoning demand from populous industrialising nations over the medium term". The trend reversed in 2009 but returned last year. Mr Davis said countries including China, India, Brazil and other developing Asian economies would "continue to fuel the lion's share of growth in global commodity demand". Mr Davis pointed to the urbanisation and domestic consumption in the emerging markets as well as recovery in the US.

Commodity prices rose "substantially" in 2010 as market sentiment improved,Mr Davis added. The growth intensified in the second half as concerns over European sovereign debt issues eased and strong demand re-emerged from developing countries.

Xstrata lifted its final dividend to 20 cents a share "reflecting a return to pre-financial crisis levels and confidence in the medium term outlook".

The group is expanding and in 2010 successfully commissioned three new mines. It said "20 major expansions and new mines are currently in construction", including 10 which were approved during 2010.

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