Xstrata to net $85m from 'opportunistic' assets sale

The Swiss-based mining group Xstrata yesterday announced a partial sell-off of some of the assets it gained in the $2.1bn (£1.3bn) acquisition of Australian mining group MIM in June.

The company looks set to make a profit of approximately $85m from the $370m sale of part of its coal businesses and projects in Queensland to their joint venture partners. Xstrata will, however, retain a majority share in those businesses.

A spokesman for the company said the sale had been "opportunistic" and although initial advances had been rejected, a new, improved offer had been impossible to refuse.

He added that it did not represent a change in strategy but the company was now happy with the mix of its portfolio and that further acquisitions, although not ruled out entirely, were not high on the agenda at this stage.

The need for diversification particularly out of the volatile South African market, which was highlighted when the company was launched on the London Stock Exchange in March 2002, had now been satisfied, principally through the acquisition of MIM, he added. One analyst said that the proceeds from the sale were more likely to be used to pay down debt.

Xstrata also announced a 22 per cent drop in underlying profits for the first half of the year. The company, which is the world's fourth biggest exporter of coal, has suffered from the combined effects of weaker commodity prices and a strengthening in both the South African and Australian currencies. This contributed to underlying profits falling from $113m to $77m.

However the company offered better prospects for the future. Commodity prices have seen improvements this year, with coal prices having been as low as $24 per tonne now touching $35. Although most of the company's production this year has been contracted at the lower prices, the company is likely to see significant benefit from the price gains in 2004.

Xstrata has gone some way to protecting itself from further currency fluctuations by hedging against the Australian dollar but remains exposed to further strengthening in the South African rand, although most analysts expect the currency to weaken over the medium term.

The interim result was at the top of City expectations. One analyst said that although commodity markets were holding their breath after recent gains, the next direction is likely to be positive and Xstrata would benefit further from what could turn out to be a very well-timed acquisition of MIM. Xstrata's shares closed up 13p at 511.5p.