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Xstrata PLC (XTA)

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Tuesday 07 August, 2012

Xstrata PLC

Half Yearly Report part 1 of 2

RNS Number : 4307J
Xstrata PLC
07 August 2012
 



Key Financial Results

 

$m

Six months to

30.06.12

Six months to

30.06.11

%

Change

Revenue

15,550

16,777

(7)

Operating EBITDA*

4,007

5,820

(31)

Operating profit*

2,454

4,246

(42)

EBIT*

2,439

4,254

(43)





Attributable profit*

2,194

2,865

(23)

Attributable profit

1,941

2,916

(33)





Earnings per share (basic)*

$0.75

$0.98

(23)

Earnings per share (basic)

$0.66

$1.00

(34)





Dividends declared and paid per share

27.0¢

20.0¢

35

Dividends proposed per share

14.0¢

13.0¢

8





Net debt to net debt plus equity

19%

15%

27

Net assets

47,359

45,533

4

Net assets per share**

$16.03

$15.53

3

*
**

Excludes exceptional items
Excluding own shares

Highlights:

¡ Strong financial and operational performance despite cyclical downturn in commodity prices and ongoing cost inflation

¡ Good cost performance with real unit cost savings of $105 million. Significant additional cost saving opportunities identified in second half

¡ Improvement in second quarter volumes provides good momentum for stronger second half production as new projects are progressively commissioned

¡ $1.47 billion Antapaccay copper project reached commissioning on schedule and on budget with first copper on track for October

¡ Approval of $360 million (AUD360 million) Phase 3 expansion of Xstrata Zinc's McArthur River Mine to produce average of 380,000 tonnes of zinc from 2014 from conventional concentrate

¡ In total, 10 major projects will commence commissioning on schedule by the end of 2012 across every commodity business, transforming volumes, costs and asset quality

¡ Full review of current and future projects, with 2012 expansionary capital spending reduced by $1 billion while retaining growth targets and schedule

¡ Robust balance sheet with gearing at 19% in our peak year for capital investment, providing resilience and optionality

¡ Return on capital to normalise from increased cash flows from new growth projects

¡ Proposed interim dividend of 14¢ per share, 8% increase over the 2011 interim dividend

¡ Safety performance continues to improve to 5 total recordable injuries per million hours worked for the year to date, including contractors

Chief Executive Officer's Report

 

2012 is a landmark year for Xstrata and marks the tipping point of the strategy to transform our portfolio through organic growth that we have consistently pursued for the past five years.  That strategy has already delivered long-life, low cost operations with further embedded growth potential such as the Mangoola and Goedgevonden coal mines, Nickel Rim South and the expansion of the Antamina copper-zinc mine -  all producing at or above name-plate capacity.  By the end of the year, a total of ten major projects will reach commissioning during 2012 and accelerate our transition from certain legacy, end of life operations to new and expanded efficient operations.  Our business will be transformed in terms of asset quality, cost competitiveness and further capital-efficient growth potential.  Notwithstanding the impact of cost and other pressures on some of our projects, all of them are robust and the completion of our current organic growth strategy will be as important in the life of Xstrata as the initial acquisition-led growth of the first five years following our IPO.

First half performance

Our financial performance in the first half of the year reflected a cyclical downturn in commodity prices and the transition to our next generation of lower cost mines.  Commodity prices fell significantly, in particular for nickel and zinc, compared to the same period last year and were the major contributor to reduced profitability, while we were shielded from the full impact of lower spot prices by higher priced annual coal contracts.  EBITDA of $4 billion was 31% lower than the same period last year, while earnings per share fell to 75 cents, 23% lower than the first half of 2011 on a pre-exceptional basis. 

Safety performance continued to improve in terms of total recordable injuries which fell to 5 per million hours worked for the year to date, including contractors, a further improvement over the full-year rate for 2011.  Notwithstanding this overall improvement, tragically, one person died at our operations during the first half.  We continue to strengthen visible safety leadership and embed further a safety culture in the workplace to eradicate injuries and fatalities from our business.

Against the background of lower prices and ongoing cost inflation, our operational performance remained robust.  Second quarter volumes rose across the Group, providing us with good momentum to achieve our expectations of higher volumes in the second half.  Coal and nickel volumes rose in the first six months compared to the previous year. Zinc volumes were maintained, despite the imminent closure of Brunswick and Perseverance mines in Canada.  However, the Tintaya and Ernest Henry open pit copper operations contributed lower volumes as they reach the end of their lives.  First half copper sales volumes were also significantly impacted by Argentine government measures in April that prevented Alumbrera from selling to export customers in the second quarter, despite a strong operational performance at the mine.  Following the relaxation of restrictions, copper sales have resumed and the back-log will be fully recouped by the end of the year. 

The Collahuasi joint venture in Chile encountered further headwinds with a ball mill failure, lower recoveries and planned lower grades.  Recent performance at Collahuasi has been disappointing and this mine is not yet operating in a manner which will allow it to fulfil its vast potential.  We have therefore taken decisive action to bring Collahuasi directly under the joint management of Xstrata Copper and Anglo American for an interim period to ensure that our business improvement plans, approved by the Collahuasi board in June, are fully executed.  Multi-disciplinary task forces comprising Xstrata, Anglo American and Mitsui representatives are directly implementing operational and sustainable improvement initiatives at the mine and we expect to see performance improve steadily from the second half of this year.  In contrast, our experience at Antamina demonstrates that, while undoubtedly more challenging, non-managed joint ventures can be managed successfully and yield enormous value for their shareholders.  Antamina's recent expansion was completed on time and on budget in March and the operation is already running above its expanded nameplate capacity and enjoys further brownfield growth options.

CPI and mining sector-specific inflation continued to impact costs.  Inflationary pressures typically lag declining commodity prices but we expect costs to moderate over time as a number of capital projects are delayed and lower commodity prices start to flow through to key inputs.  Despite these headwinds and the challenges of operations reaching the end of their lives, our businesses cut unit costs in real terms by a net $105 million in the first six months of the year, led by the nickel and zinc business units which together accounted for $87 million of savings.  Our transition to lower cost operations has already commenced in our nickel and coal businesses. Recently commissioned world class projects positively influenced unit costs, including the Nickel Rim South, Fraser and Raglan mines in nickel and in coal, Mangoola, Goedgevonden and Blakefield South, which was recently restarted following an underground fire.  Our zinc business achieved incremental efficiency improvements at every operation, offsetting the impact of end-of-life mines.  Together with a strong cost performance from Xstrata Alloys, overall savings more than compensated for lower grades in the copper business.

The Board has declared an interim dividend of 14 cents per share, representing an increase of 8% over the prior year. This increase marks our confidence in the medium term outlook for our business and prospects and our robust financial position, with gearing at a comfortable 19% at the period end, in the midst of our peak year for capital investment.

Pro-active response to cyclical downturn

Recent falls in commodity prices have, as in late 2008, reignited suggestions that the recent era of elevated commodity prices, strong demand and the inability of the supply side to respond sufficiently to that demand is drawing to a close.  We have undoubtedly reached another cyclical downturn within that longer term trend.  Yet the fundamental drivers of the secular uplift in demand continue to exert their influence. The urbanisation and industrialisation of very large, young or working age populations is not yet complete and in some countries the inexorable process is only in its infancy.  Indonesia, Mexico and Russia are forecast to join China, India, and Brazil among the largest economies by 2050, implying significant growth from this point.  Looking back through history, seismic shifts in the world, such as the industrial revolution, the industrialisation of the US and Japan and post-war recovery period of the 1950s and 1960s have all endured for more than one decade.  The urbanisation of China and other emerging economies is following these familiar trajectories, with the distinction of being an order of magnitude greater in size, pointing to an even longer duration.  The economic cycle will, of course, continue to turn within these longer term trends.  Since mid-way through the first quarter of 2012, our proprietary 'radar' of leading economic and end-use indicators has pointed to a cyclical downturn in commodity demand.  The short-term trough we find ourselves in today arises from the combined impact of fiscal austerity in OECD economies, slower recovery in the US and tempered growth in China as the government reined in certain overheated elements of its economy.

Just as in the previous cyclical downturn of late 2008 and early 2009, we are once again taking pre-emptive action to ensure our business remains competitive and to defend margins.  Year-on-year delivery of real cost savings is a hallmark of our approach to managing our operations and an important indicator of our operational abilities.  Our cost performance in the first half continues our unbroken record of real cost savings at every reporting period since our IPO in 2002. In the early years, we cut costs primarily by turning around underperforming, higher cost acquired assets, but over the last few years, our operating teams have demonstrated their ability to reduce costs from a mature and more stable asset base - both in buoyant markets and tough operating conditions.

Our approach to reducing costs is firmly rooted in the belief that our operational management are best placed to determine how to run their sites more efficiently.  We do not impose top-down cost savings targets from the centre.  Instead, I ask every commodity business and every site manager to identify the incremental improvements they can make and I am constantly impressed by the commitment and drive of our people to find innovative ways to do things better tomorrow than they did today. 

As ever, our businesses have responded to the operating environment, identifying substantial additional cost savings to offset cost pressures and lower prices.  We now expect to reduce costs by around $970 million in total.  Identified savings will not only offset in full our expectations of non inflation increased unit costs of around $580 million for the full year resulting from the inevitable cost pressures of ageing operations reaching the end of their lives, including lower grades, but will reduce our operating cost base and improve our competitive position.  The resultant expected net real cost saving for the year of around $390 million is a creditable cost performance against the very complex operating environment in 2012, compounded by the transition phase of our growth strategy and the potential risk of distraction arising from the proposed merger with Glencore. I am pleased with the outcome so far.

Our two most energy-intensive businesses, Xstrata Alloys and Xstrata Nickel, have identified efficiency improvements that will yield over $55 million in 2012, including the shift to 100% procured power at Falcondo and optimising our ferrochrome furnace schedule to reduce the impact of higher winter power tariffs.  Xstrata Copper's reorganisation of its north Queensland division to structure the business with a more narrow focus on mine production will save $78 million.  Improved productivity and corporate savings at Xstrata Coal and an accelerated shift from third party service providers to in-house capabilities which together will realise $200 million of savings, while Xstrata Zinc continues to trim costs across its portfolio, including around $100 million of savings from increased productivity as new and expanded operations start up from the second half of this year and further savings from the more efficient use of consumables. The sustainable cost savings initiatives we are implementing today will yield an ongoing benefit for our shareholders, adding significant long-term value for our shareholders. 

Transformational growth

Over our first ten years, Xstrata's strategy has evolved through three distinct phases. First, we pursued rapid growth through a series of well-timed and integrated acquisitions.  We then transformed our assets through operational excellence and an ongoing focus on improving our sustainability performance - a process that continues today.  And for the past five years, we have embarked on an ambitious organic growth strategy to effect the third phase of our transformation, which reaches its pinnacle this year.  Ten major growth projects will reach commissioning by the end of 2012 across every commodity business, including the Antapaccay project in southern Peru, the Koniambo greenfield ferronickel operation in New Caledonia, the Ravensworth North stage one coal project and the George Fisher and Lady Loretta zinc-lead mines in Australia.  A further eleven projects will commence production in the next two years.  

The impact on the quality of our business is striking.  We will introduce seven new tier one, world class assets into our portfolio and expand another four.  We will realise significant reductions in real unit costs in every commodity - by way of example, over 85% of our copper production in 2016 will be amongst the most competitive in the industry, in the bottom half of the industry cost curve, compared to 42% today.  Average mine lives will be substantially extended, our projects will deliver robust returns on our investment throughout the commodity cycle and we will gain another raft of low capital cost, brownfield expansion options embedded within the world class assets we have developed.  It simply would not be possible to acquire assets of this quality and strategic fit without paying a substantially higher price than our capital investment. 

An entrepreneurial approach to value

A distinctive feature of Xstrata's approach, indeed one of our core five values, is our courage to challenge convention and find innovative ways to create value. There are many examples throughout our history, but the phase three expansion of McArthur River Mine (MRM) in the Northern Territory, Australia is a particularly striking case of almost a decade of perseverance, innovation and entrepreneurship.

Despite its scale, the characteristics of MRM's ore body means that only a commercially unpalatable combination of zinc and lead 'bulk' concentrate could be produced in any volume.  Indeed construction of a mine only became possible some forty years after the ore body's discovery, with the advent of advanced fine grinding technology and Imperial Smelter Furnaces in the early 1990s.  When Xstrata acquired the mine in 2003 through our Mt Isa Mines acquisition, the underground operation was only able to exploit two of the eight available ore bodies.  With an estimated mine life of less than five years and rising costs, the mine was uneconomic. 

Immediately, Santiago and his team searched for a way to exploit MRM's vast potential, despite the fact that Imperial Smelting Furnaces were closing, further reducing the commercial options to process MRM's ore. The conversion of MRM from underground operations to an open pit mine provided access to all eight ore bodies.  It was a difficult undertaking that involved protecting the pit from tropical seasonal rains and finding an environmentally acceptable way to redirect a section of the McArthur River to access the main deposit.  We finally received environmental approval for the open pit in 2009 and the following year completed the construction of an open pit mine with a 15 year life and run of mine production of 2.5 million tonnes per annum.

The final obstacle to unlocking MRM's potential - its bulk concentrate product - has now been overcome.  After trialling various innovations including the Albion process inherited from MIM, Xstrata Zinc's technology team has developed a proprietary advanced alternative leaching technology to separate zinc concentrate on site at MRM which has the dual virtues of being both capital- and power-light.  For a modest capital cost of $360 million, and subject to final approval from the Minister for Resources, the phase three expansion will commission in 2013 and increase production to 5.5 million tonnes run of mine per annum and an average of 380,000 tonnes of zinc in concentrate per annum at full production in 2014.  Zinc reserves increase by around 70 million tonnes to 115 million tonnes, making McArthur River the largest zinc reserve in the world and the project will deliver robust returns at conservative price assumptions. The McArthur River phase three project will earn Xstrata's cost of capital at a zinc metal price of $1,340 per tonne. Today's announcement highlights Xstrata Zinc's entrepreneurial approach to identifying and pursuing value, transforming a failing and unprofitable operation nine years ago into a low cost, large scale and long life open cut operation and one of the world's premier zinc mines. 

Similarly, in copper, the Antapaccay project which is now commissioning, highlights the significant value we have created from the acquisition of Tintaya six years ago.  We acquired Tintaya for $750 million with a short mine life.  Since that time, the mine has generated $2.5 billion of EBITDA, repaying its acquisition cost within 18 months of acquisition and the development of Antapaccay will create substantial additional value. Antapaccay has enjoyed a rapid development path - just five years from pre-feasibility study to commissioning - and highly competitive capital intensity.  Antapaccay will produce 160,000 tonnes of copper per annum with a mine life of over 20 years and first quartile cash costs, providing an important regional platform for further growth. Commissioning is now underway, first copper will be produced in October and the operation is expected to reach full production in 2013. Mineral resources have steadily increased to 1 billion tonnes at 0.49% copper and a second satellite deposit, Corroccohuayco, could provide a further, low-cost expansion to the mine.

It is a credit to Charlie Sartain and his team that Tintaya has built broad-based community support and strengthened its considerable commitments to and open engagement with communities in its area of influence over the past six years, in a sometimes volatile region for mining.  One of the only mines in Peru to contribute voluntarily a percentage of pre-tax profits for social development projects in the local Espinar region over and above significant tax, royalty and company voluntary social payments, over 72% of Tintaya's unskilled workforce is now drawn from the local population compared to less than 50% in 2006 and environmental performance is very good.  It is therefore deeply regrettable that demands by a group led by the Mayor of Espinar for Tintaya to increase voluntary community contributions from 3% to 30% of annual pre-tax profits and associated, unsubstantiated claims of environmental pollution led to violent protests by certain groups in May. Tragically, two protestors lost their lives and many members of the police and protestors were injured. Constructive dialogue has now recommenced between provincial, regional and national government authorities and we welcome the opportunity to engage with provincial authorities, led by Mayor Mollohuanca, in a moderated forum.

The neighbouring Las Bambas greenfield mine, 120 kilometres from Antapaccay, has started construction and almost 90% of the engineering work and over 50% of the procurement is complete. All large long lead order items have been received at our storage facilities in southern Peru. On this basis we are now able to determine the capital cost with more accuracy and the capital budget for Las Bambas has been established at $5.2 billion, a 7% increase on our previous estimate.  This includes a $130 million increase resulting from uncontrollable cost increases arising from permitting delays following the change in government and an additional amount related to community relocation, infrastructure costs and community agreements to mitigate the risk of further delays.  

In keeping with our approach to project development aimed at reducing technical, executional and cost risks, we have elected to do more of the planning work upfront, which will smooth capital expenditure this year and next and has allowed us to maintain a final commissioning date of towards the end of 2014.  Las Bambas will be a tier one asset, producing 400,000 tonnes per annum for at least the first five years at a very competitive capital intensity of $13,000 per annual tonne of copper equivalent production, first quartile cash costs and a life in excess of 20 years with further brownfield growth potential. The robustness of Las Bambas is apparent when one considers that it earns Xstrata's cost of capital at a life of mine flat copper price of $1.82 per pound. The project remains on track to commission at the end of 2014.

 

Prioritising highest return investments

By 2015, our major organic growth programme will be substantially complete, generating increased cash flows while our capital spending and return on capital revert to more normalised levels.  As our strategy reaches maturity, we will benefit from a range of flexible growth and strategic options to respond to market conditions.  The breadth of our unapproved and early stage organic growth projects means we can prioritise the highest return projects, balance growth investment with value-adding acquisition opportunities and maintain our commitment to a robust balance sheet.

Following a review of our project pipeline, we have resequenced capital spending and deferred $1 billion of expenditure originally planned for 2012.  Our 2013 budgeted spending will increase by $400 million, with $600 million deferred beyond that, without affecting the commissioning schedule of any of our approved projects.  Consequently, we expect capital spending in 2012 to reduce to $7.2 billion, $1 billion less than our previous guidance, smoothing the profile of capital spending across the next two years.

The experience we have gained in successfully delivering 23 organic growth projects since 2002 has provided some valuable insights.  During our ongoing review of unapproved projects, we have increased the engineering work and planning we do before approving capital projects and commencing construction. This will allow us to mitigate execution and technical risks and provide a greater level of certainty in capital cost estimates upon approval. 

We continue to invest judiciously in prospective near to medium-term projects such as Agua Rica and El Pachón (copper) in Argentina, Kabanga (nickel) and the Wandoan coal project to bring them towards an investment decision.  The timing of approvals will be sequenced to maximise returns and account for anticipated demand conditions.  We will also maintain a flexible portfolio of future growth options including Tampakan, Cerrejón phase two and Collahuasi's phases three and four expansions, while minimising study costs.

An exciting point in our evolution

The shareholder meetings to propose to shareholders the agreed merger with Glencore will now take place on 7 September and subject to shareholder and regulatory approvals, we expect the transaction to close in the fourth quarter.  If completed, the merger represents an opportunity to pursue the strategy I have outlined here as part of an enlarged group, with enhanced growth options and a unique, vertically integrated business model to capture value at each stage from mine to customer. 

The projects reaching commissioning this year provide a step change in the quality and average cost profile of our business and will establish a strong foundation from which to continue generating value for our shareholders for decades to come.  We expect the volume growth we are bringing to fruition to be well timed for a cyclical recovery.  Our pro-active response to the cyclical downturn will defend margins and ensure our business emerges in a stronger competitive position to capture the benefits of stronger global economic growth. And in the medium term, rising demand for commodities from emerging economies, coupled with ongoing industry underperformance from ageing operations, increasingly complex operating conditions and deferred capital projects will continue to support commodity prices in excess of historical averages.  The next stage of our transformation from modest beginnings ten years ago to one of the world's great mining companies is unfolding.

 

 

ML Davis



 

Financial Review

Basis of presentation of financial information

Financial information is presented in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The reporting currency of Xstrata plc is US dollars. Unless indicated to the contrary, revenue, operating earnings before interest, taxation, depreciation and amortisation (EBITDA) and operating profit are reported in the Chief Executive's Report and the Operating and Financial Review before exceptional items. Exceptional items are significant items of income and expense which, due to their nature or expected infrequency, are presented separately on the face of the income statement. All dollar and cent figures provided refer to US dollars and cents.  Operating profit excludes Xstrata's share of earnings from associates.

Consolidated operational results

CONSOLIDATED RESULTS

$m

Six months to

30.06.12

Six months to 30.06.11

Year ended

31.12.11

Alloys

753

992

1,689

Coal

5,221

4,381

9,981

Copper

6,255

7,705

15,037

Nickel

1,361

1,667

3,192

Zinc

1,781

1,937

3,756

Other

179

95

222

Total Group Revenue

15,550

16,777

33,877

Attributable Total Group Revenue

15,047

16,163

32,684

Alloys

113

182

294

Coal

1,647

1,584

3,853

Copper

1,498

2,550

4,915

Nickel

358

743

1,234

Zinc

465

750

1,223

Other

22

10

23

Corporate and unallocated

(96)

1

106

Total Group Operating EBITDA

4,007

5,820

11,648

Attributable Total Group Operating EBITDA

3,852

5,572

11,233

Alloys

52

115

153

Coal

1,110

1,090

2,810

Copper

1,066

2,065

3,924

Nickel

65

433

611

Zinc

240

537

814

Other

19

6

16

Corporate and unallocated

(98)

-

103

Total Group Operating profit

2,454

4,246

8,431

Attributable Total Group Operating profit

2,344

4,044

8,102

 



 

OPERATING PROFIT VARIANCES

 $m

Operating  profit 30.06.11

4,246

Sales price*

(1,141)

Volumes

(639)

Unit cost - real

105

Unit cost - CPI inflation

(193)

Unit cost - mining industry inflation

(193)

Unit cost - foreign exchange

261

Other income and expenses

(44)

Depreciation and amortisation (excluding foreign exchange)

52

Operating profit 30.06.12

2,454

* net of commodity price linked costs, treatment and refining charges

 

After a strong start to the year for commodities, renewed turmoil in the eurozone and a slowing growth rate in China severely affected commodity prices in the first half of 2012.  Lower prices across every commodity reduced operating profit by $1,141 million compared to the first half of 2011 and were the main driver of a 42% reduction in operating profit to $2,454 million.  Lower base metals prices accounted for the majority of the impact while the full impact of lower spot coal prices was partially mitigated by the carry-over of higher priced 2011 thermal coal contracts.

Increased production from newly commissioned coal mines, together with improved weather conditions compared to 2011 contributed to a 13% increase in coal volumes.  Nickel volumes benefited from improved grades in Canada and a full period of production from our Falcondo ferronickel operation, however this was more than offset by the processing of a greater proportion of lower margin third party custom feed resulting in a negative volume variance, while zinc production was in line with the prior period.  Copper volumes declined by 18% despite a stronger second quarter, as we commence the transition of our copper portfolio from predominantly mature, end of life operations to new, lower cost mines and expansions that will start to increase production from the second half of this year.  There was reduced capacity utilisation in the alloys business to comply with power buyback requests from Eskom. In total, lower overall sales volumes reduced operating profit by $639 million compared to the same period in 2011.

During the first half, our businesses achieved real unit cost savings of $105 million.  Efficiency improvements at our zinc operations, higher coal production from lower cost operations, increased production and improved head grades at Raglan and Sudbury nickel operations and lower power costs and higher production at our Falcondo ferronickel operations more than offset the impact of lower copper grades and volumes.

While the rate of CPI and mining industry inflation measured against externally verifiable indices has slowed compared to the first half of 2011, we continue to experience inflationary cost pressures on key inputs, in particular in regions such as Australia and South Africa.  The combined impact of CPI and mining inflation increased costs by $386 million in the first half of 2012 compared to the corresponding period of the prior year, representing a total annual inflation rate of 6.5%.  The inflation rate has decreased from the record levels seen in recent years and is expected to moderate further in the medium term as a result of mining companies delaying and cancelling investment decisions.

The stronger US dollar against the currencies of the commodity producing countries in which we operate added $261 million to operating profit compared to the comparable period, partially mitigating the impact of inflation.

 CURRENCY TABLE TO $

Average H112

Average H111

%
change

At
30.06.12

At
30.06.11

At
31.12.11

USD:ARS

4.39

4.05

8

4.53

4.11

4.31

AUD:USD

1.03

1.03

-

1.02

1.07

1.02

USD:CAD

1.01

0.98

3

1.02

0.96

1.02

USD:CHF

0.93

0.90

3

0.95

0.84

0.94

USD:CLP

493

475

4

501

469

520

USD:COP

1,793

1,837

2

1,783

1,770

1,938

EUR:USD

1.30

1.40

7

1.27

1.45

1.30

GBP:USD

1.58

1.62

2

1.57

1.61

1.56

USD:PEN

2.67

2.78

4

2.67

2.75

2.69

USD:ZAR

7.94

6.89

15

8.17

6.76

8.08

 

AVERAGE COMMODITY PRICES

Unit

Six months to 30.06.12

Six months to 30.06.11

%
Change

Ferrochrome (Metal Bulletin)

¢/lb

125.0

130.0

(4)

Ferrovanadium (Metal Bulletin)

$/kg

25.2

30.3

(17)

Platinum (LPPM cash price)

$/oz

1,555

1,789

(13)

Australian FOB export coking*

$/t

216.8

259.6

(16)

Australian FOB export semi-soft coking*

$/t

173.5

187.1

(7)

Australian FOB export thermal coal*

$/t

108.4

104.0

4

Americas FOB export thermal coal*

$/t

92.0

101.4

(9)

South African export thermal coal*

$/t

106.2

95.5

11

Copper (average LME cash price)

$/t

8,087

9,399

(14)

Nickel (average LME cash price)

$/t

18,438

25,565

(28)

Zinc (average LME cash price)

$/t

1,978

2,323

(15)

Lead (average LME cash price)

$/t

2,035

2,581

(21)

*

average received price

Earnings

A reassessment of tax payable estimates, following the lodgement of taxation returns and receipt of taxation assessments, led to a one-off reversal of prior year tax provisions which significantly reduced the income tax charge. The pre-exceptional items effective tax rate before this adjustment was 24% for the first six months of 2012, due to lower earnings in higher-tax jurisdictions compared to 26% for the comparable period of 2011. 

In the first half of 2012, we recognised a number of exceptional items in the income statement, which in total reduced earnings by $253 million. 

In April 2012, we entered into a joint venture agreement with Origin Energy Limited (Origin) whereby the Group sold a 51% interest in the Energía Austral hydroelectricity project in Chile. The retained interest has been measured at its estimated fair value, resulting in a non-cash exceptional loss of $162 million.

During the first half of 2012, we incurred costs of $21 million in relation to the recommended merger with Glencore.  

In March 2012, we announced that the Brunswick zinc mine will close by March 2013 and consequently we have incurred a $111 million impairment of goodwill, initially recognised from the Falconbridge Limited acquisition in 2006.

Following the release of Lonmin's 2012 interim results and the subsequent production guidance provided we have reassessed our valuation of the investment and recorded an impairment of $514 million.

An exceptional tax credit of $579 million was recorded upon the enactment of the minerals resources rent tax (MRRT) in Australia, effective from 1 July 2012.  Under the MRRT, companies are required to independently value their upstream operational assets in order to establish a starting depreciable tax base.  Under IFRS accounting rules, deferred tax is required to be recognised on the difference between this tax base and the carrying value of the upstream coal mining operations.

EARNINGS SUMMARY

$m

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Operating profit (before exceptional items)

2,454

4,246

8,431

Share of results from associates

(15)

8

29

Net finance costs

(73)

(212)

(315)

Income tax expense

(98)

(1,044)

(2,140)

Effective tax rate

4%*

26%

26%

Non-controlling interests

(74)

(133)

(220)

Attributable profit (before exceptional items) from continuing operations

2,194

2,865

 

5,785

Earnings per share (before exceptional items) from continuing operations

$0.75

$0.98

 

$1.97

Exceptional items:

 



Profit on sale of operations

-

58

48

Loan issue costs written-off on finance facilities

(6)

-

(19)

Restructuring and closure costs

-

-

15

Loss on establishment of a joint venture

(162)

-

-

Merger and acquisition costs

(21)

(1)

(4)

Impairment of assets

(111)

-

(6)

Available-for-sale assets write down

(16)

-

(43)

Impairment of investment in associates

(514)

-

-

Share of results from associates

(2)

-

12

Income tax

579

(6)

(75)

Net exceptional profit/(loss)

(253)

51

(72)

Attributable profit

1,941

2,916

5,713

Earnings per share

$0.66

$1.00

$1.95

*After adjustments (pre-exceptional items effective tax rate before adjustments was 24% for the first six months of 2012)

 

OPERATING PROFIT SENSITIVITIES

$m

Impact on H2 2012*

Indicative full year**

1¢/lb movement in ferrochrome price

6

11

$1/kg movement in ferrovanadium price

1

3

$1/t movement in Australian thermal export FOB coal price

6

46

$1/t movement in Australian coking export FOB coal price

3

8

$1/t movement in South African export thermal FOB coal price

-

13

$1/t movement in South American export thermal FOB coal price

3

10

1¢/lb movement in copper price

14

19

$10/oz movement in gold price

3

4

$1/lb movement in nickel price

89

165

1¢/lb movement in zinc price

14

20

$100/t movement in zinc treatment charge price

5

24

1¢/lb movement in lead price

4

5

$100/oz movement in platinum price

4

8

$100/oz movement in palladium price

2

4

10% movement AUD

229

768

10% movement CAD

96

192

10% movement EUR

27

36

10% movement ZAR

44

203

*
**

After impact of currency and commodity hedging, and contracted, priced sales as at 30 June 2012
Assuming current annualised production and sales profiles, no currency or commodity hedging and no contracted, priced sales and purchases

Cash Flow, Net Debt and Financing Summary

Net debt increased by 40% to $11,361 million, as we completed the first half of our peak year for capital spending on approved expansionary projects.  In the first half of 2012, cash expansionary and sustaining capital expenditure increased by 36% and 31% respectively.  Despite higher levels of investment, gearing (net debt to net debt plus equity) remained at a comfortable 19% compared to 15% at the end of 2011.

MOVEMENT IN NET DEBT

$m

Six months to 30.06.12

Six months to 30.06.11

Cash generated from operations

3,203

4,891

Net interest paid

(149)

(123)

Tax paid

(871)

(881)

Cash flow before capital expenditure

2,183

3,887

Sustaining capital expenditure

(1,233)

(938)

Disposals of fixed assets

3

30

Free cash flow

953

2,979

Expansionary capital expenditure

(3,346)

(2,463)

Cash flow before acquisitions

(2,393)

516

Purchase of assets

(500)

(216)

Purchase of subsidiaries and operations net of cash acquired

-

(69)

Proceeds from partial disposal

435

-

Other investing activities

-

22

Net cash flow before financing

(2,458)

253

Net disposal/(purchase) of own shares

60

(4)

Equity dividends paid

(797)

(586)

Dividends paid to non-controlling interests

(1)

(122)

Loan issue costs written off

(6)

(4)

Other non-cash movements

(10)

(30)

Movement in net debt

(3,212)

(493)

Net debt at the start of the year*

(8,149)

(7,638)

Net debt at the end of the period*

(11,361)

(8,131)

*

Includes derivative financial instruments that have been used to provide an economic hedge

 

RECONCILIATION OF EBITDA TO CASH GENERATED FROM OPERATIONS

$m

Six months to 30.06.12

Six months to 30.06.11

Operating EBITDA

4,007

5,820

Exceptional items

(21)

-

Share based compensation plans

81

40

Increase in inventories

(428)

(699)

Decrease in trade and other receivables

354

370

Increase in other assets

(113)

(241)

Decrease in trade and other payables

(605)

(333)

Movement in provisions and other non-cash items

(72)

(66)

Cash generated from operations

3,203

4,891

 

NET DEBT SUMMARY

$m

As at 30.06.12

As at 31.12.11

Cash

1,646

1,948

External borrowings

(12,818)

(9,893)

Finance leases

(189)

(204)

Net debt*

(11,361)

(8,149)

Net debt to net debt plus equity

19%

15%

* Includes derivative financial instruments that have been used to provide an economic hedge

 

WORKING CAPITAL

$m

As at 30.06.12

As at 31.12.11

Inventories

5,664

5,242

Trade and other receivables

3,400

3,742

Prepayments

247

347

Trade and other payables

(4,490)

(5,102)

Net working capital

4,821

4,229

Treasury Management and Financial Instruments

Our revenues are generally denominated in US dollars.  As a result, we typically source debt capital in US dollars, either directly or by borrowing in other currencies and swapping them into US dollars.

From time to time we also use currency cash flow hedging to reduce our short-term exposure to fluctuations in the US dollar against local currencies.  We realised currency hedging gains of $46 million in the first half of 2012, reflected in the income statement. These gains are related to coal sales for which prices were contractually fixed.  We did not enter into any strategic, long-term base metals hedging contracts in the period.

 

Consolidated Capital Expenditure

CAPITAL EXPENDITURE SUMMARY
(excludes deferred stripping expenditure)

$m

 

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Alloys

 

58

68

137

Coal

 

481

320

801

Copper

 

285

207

654

Iron Ore

 

-

-

1

Nickel

 

135

135

287

Zinc

 

247

172

504

Technology

 

2

2

3

Unallocated

 

9

1

5

Total Sustaining

 

1,217

905

2,392

Attributable Sustaining

 

1,190

890

2,335

Alloys

 

143

115

250

Coal

 

921

517

1,193

Copper

 

1,165

1,083

2,424

Iron Ore

 

89

78

171

Nickel

 

786

621

1,351

Zinc

 

284

104

381

Technology

 

4

-

3

Total Expansionary

 

3,392

2,518

5,773

Attributable Expansionary

 

3,053

2,227

5,170

Alloys

 

201

183

387

Coal

 

1,402

837

1,994

Copper

 

1,450

1,290

3,078

Iron Ore

 

89

78

172

Nickel

 

921

756

1,638

Zinc

 

531

276

885

Technology

 

6

2

6

Unallocated

 

9

1

5

Total

 

4,609

3,423

8,165

Attributable total

 

4,243

3,117

7,505

 

Total expansionary capital expenditure increased by 35% reflecting the peak year for capital investment in our organic growth programme and the commissioning of ten projects during 2012. 

Major items of expansionary capital spending in the first half of 2012 included:

·      $615 million at the greenfield Koniambo nickel project in New Caledonia where first ore is expected to be processed by the end of 2012;

·      $398 million to progress the greenfield Las Bambas copper project in Peru which will be completed by the end of 2014;

·      $303 million at the Antapaccay copper project in southern Peru, on track to commission in the second half of 2012;

·      $270 million in respect of the Ravensworth North brownfield project, on track to deliver first coal through existing coal preparation facilities in 2012, with commissioning of the expanded facilities in 2013; and

·      $230 million on the brownfield Ulan West project where longwall production is scheduled to start in 2014.

·      During the second half of 2012, we will also commission the Lomas Bayas II brownfield project which will extend current production rates until 2028.  By the end of 2012, the construction of the Tswelopele pelletizing and sintering plant is scheduled to be completed.

Acquisitions and disposals

On 8 March, Xstrata Coal acquired the Sukunka hard coking coal deposit from Talisman Energy Incorporated for $500 million in cash.  Sukunka is located in the Peace River Coalfield of northern British Columbia, contiguous with the First Coal Corporation and Lossan tenements acquired last year.

On 13 March, Xstrata Coal entered into a joint venture with JX Nippon Oil & Energy Corporation Group (JX) comprising Xstrata's contiguous metallurgical coal assets in the Peace River Coalfields in Western Canada, including Sukunka. JX paid $435 million in cash to acquire a 25% interest in the Peace River Coalfields in Western Canada.

In April, Xstrata Copper completed a joint venture agreement with Origin Energy Limited (Origin) whereby Xstrata sold a 51% interest in Energía Austral hydroelectric development in Chile.  Under the terms of the agreement, Origin will invest $75 million towards a final investment decision for the completion of a detailed project feasibility study and a further $75 million if the project is deemed feasible. The Group is entitled to cash consideration payments from Origin once the project is operational and if certain performance threshold targets are met.

Dividends

The Directors have proposed a 2012 interim dividend of 14¢ per share amounting to $414 million, an 8% increase over the 2011 interim dividend.  The dividend will be paid on 13 September 2012.  The final 2011 dividend of 27¢ per share amounting to $797 million was paid on 23 May 2012.

DIVIDEND DATES

2012

Ex-dividend date

29 August

Record date

31 August

Deadline for return of currency election form

3 September

Applicable exchange rate date

7 September

Payment date

13 September

 

As a Swiss tax resident company, Xstrata plc is able to return its share premium to shareholders free of Swiss withholding tax (35%).  To enable the payment of the 2011 final dividend and subsequent dividends without deduction of withholding tax, approval from shareholders to reduce the share premium account by a relevant amount was sought and obtained at the 2012 Annual General Meeting, and Court consent was also granted.  The interim and subsequent dividends will therefore be paid without deduction of withholding tax.

The interim dividend is declared and will be paid in US dollars. Shareholders may elect to receive this dividend in Sterling, Euros or Swiss francs. The Sterling, Euro or Swiss franc amount payable will be determined by reference to the exchange rates applicable to the US dollar seven days prior to the dividend payment date. Dividends can be paid directly into a UK bank or building society account to shareholders who elect for their dividend to be paid in Sterling. Further details regarding currency election and dividend mandate forms, are available from Xstrata's website (www.xstrata.com) or from the Company's Registrars.

Share Data

Under IFRS, own shares (treasury stock) are deducted from the total issued share capital when calculating earnings per share. During the period, 22,404,171 shares were disposed of and 1,119,976 purchased. 

SHARE PRICE

XTA LSE (GBP)

XTA SWX (SFR)

Closing price 31.12.11

9.78

14.20

Closing price 30.06.12

7.99

11.95

Period high

12.65

18.34

Period low

7.86

11.85

Period average

10.62

15.49

 

SHARES IN ISSUE FOR EPS CALCULATIONS

 

Number of shares (000s)

Weighted average for 6 months ended 30.06.12 used for eps calculation

2,944,445

Weighted average for 6 months ended 30.06.11 used for eps calculation

2,930,862

Weighted average for 12 months ended 31.12.11 used for eps calculation

2,931,448

Total issued share capital excluding own shares as at 30.06.12

2,954,201

 

As at 30 June 2012, the Company had been notified of the following interests representing 3% or more of issued ordinary share capital:

PUBLICLY DISCLOSED MAJOR SHAREHOLDERS

 

Name of shareholder

Number of Ordinary shares of US$0.50 each

at 30.06.12

% of Ordinary issued share capital

Glencore International plc*

1,010,403,999

33.64%

Qatar Holding LLC

311,038,653

10.36%

Blackrock, Inc

141,820,263

4.72%

*

The voting rights comprised in this interest are directly controlled by Finges Investment B.V., a wholly-owned subsidiary of Glencore International plc.

Principal risks and uncertainties

The Xstrata Group is exposed to a number of risks and uncertainties which exist in our business and which may have an impact on our ability to execute our strategy effectively in the future. The principal risks and uncertainties facing the Group, as outlined in the Annual Report 2011 in the Business review section on pages 22 to 27, remain appropriate for 2012.

 



 

Projects

Our portfolio of organic projects comprises 22 approved major projects in implementation and a number of projects in feasibility, pre-feasibility or concept stage that will provide future growth options across a range of geographies and commodities and increase capacity by 50% in copper-equivalent terms over 2009 levels by the end of 2014.

Since 2002, we have progressively commissioned 22 growth projects, but 2012 marks an important milestone in our organic growth strategy with ten major expansion projects on track to commence commissioning by the end of the year, representing the start of a significant growth trajectory in our copper, coal and nickel businesses.  Our approved projects will significantly reduce overall operating costs, increase volumes across copper, coal, nickel and alloys and replace end of life mines to maintain zinc volumes and provide robust returns even at conservative long-run prices.

Projects commissioning in 2012

Project and location

Xstrata interest

Annual project capacity/ commodity*

Antamina (plant expansion to 130ktpd ore), Peru

33.75%

40ktpa copper‡ ‡‡

  H1 2012

Ulan open cut, NSW, Australia

90%

1mtpa thermal coal

  H1 2012

Koniambo, New Caledonia

49%**

60ktpa nickel

  H2 2012

Ravensworth North (Stage I), NSW, Australia

90%

8mtpa thermal coal

  H2 2012

Antapaccay, Peru

100%

160ktpa copper

  H2 2012

Lomas Bayas II, Chile††

100%

75ktpa copper

  H2 2012

Tswelopele pellet plant, South Africa

79.5%

600ktpa chromite pellets

  H2 2012

Mount Margaret, Australia

100%

30ktpa copper

  H2 2012

Lady Loretta, QLD, Australia

100%

142ktpa zinc 

H2 2012

George Fisher expansion, QLD, Australia

100%

64ktpa zinc 

   H2 2012

*
**

††

‡‡

100% unless otherwise stated
Effective share of cash flows and financing 90%
Coal capacity stated as saleable production
Mine life extension
First five years' annual production
Xstrata share

 

Major projects continue to make good progress and remain on budget and on schedule. During 2012, we will commission ten projects:

·      During the first half of the year, the expansion of the concentrator and associated mine at our Antamina joint venture was successfully commissioned and throughput rates are now consistently exceeding the planned 38% capacity increase.

·      At the Ulan open cut mine in Australia, mining operations commenced in the first half of 2012and are on schedule to reach full production in 2013.

·      The Koniambo ferronickel project in New Caledonia is on schedule to process first ore through the plant in the second half of 2012.  Engineering and procurement are now 100% complete and construction is well progressed. Commissioning of key systems such as emergency diesel generators, ore handling systems and utilities such as power distribution, water and air have commenced. A number of key activities have already been handed over to operational teams and a trial to send 400 tonnes of ore was successfully delivered from the mine to the wet ore stockpile;

·      Construction work continues on all fronts at the 8 million tonnes per annum Ravensworth North thermal coal project in Australia. The project is being delivered in two stages.  Stage one is the upgrade and installation of infrastructure to allow coal to be delivered to the existing Ravensworth coal preparation plant and is on track for completion at the end of 2012.  Stage 2, the expansion of the existing Ravensworth coal preparation plant, is on schedule for completion in the second half of 2013;

·      Mining activities commenced in March at the Antapaccay copper project in Peru in preparation for the completion and commissioning of the new concentrator facilities during the second half of 2012. Processing plant commissioning commenced in early August and first concentrate production is scheduled for October;

·      We continued to progress procurement and site works for the development of the new Fortuna de Cobre pit and related infrastructure at our Lomas Bayas II project in north Chile.  The project remains on schedule for full system commissioning in the second half of 2012 and will sustain current levels of production until at least 2028;

·      Construction of the Tswelopele pelletizing and sintering plant is progressing well and commissioning is scheduled for the second half of 2012.  This plant will enable the increased use of UG2 ore and will further improve the energy and ore consumption efficiencies of our Rustenburg and Wonderkop ferrochrome smelters.  Additional cost savings are also expected from optimising the reductant mix when more pellets are available;

·      We began development during the first half of 2012 of our Mount Margaret mining project, strategically located near our Ernest Henry operation and commenced open-pit mining activities in July on time and within budget. Ore from Mount Margaret will be processed through Ernest Henry's concentrator to complement the ore feed from the Ernest Henry underground mine and first concentrate production is scheduled for the third quarter of this year;

·      Our development of the very high grade Lady Loretta zinc deposit is twelve months ahead of schedule and first ore will be mined by the end of 2012. Ore from the Lady Loretta operation will be processed by the Mount Isa concentrator; and

·     Our 1 million tonnes per annum mine expansion at George Fisher mine is six months ahead of schedule and first ore will be delivered by the end of 2012.  The surface crushing facility, a key component for reducing crushing costs for Mount Isa Mines' lead operations, has begun commissioning.

In implementation

Brownfield projects in implementation

Project and location

Xstrata interest

Annual project capacity/ commodity*

Start-up

Collahuasi (160kt ore per day - Phase II), Chile 

44%

10ktpa copper

2013

Ernest Henry underground and associated magnetite plant††, QLD, Australia

100%

50ktpa copper

2013

Fraser Morgan, Canada

100%

6ktpa nickel

2013

Lion II, South Africa

79.5%

360ktpa ferrochrome

2013

Rolleston Expansion Phase 1, Australia

75%

3mtpa thermal coal

2013

MRM phase III expansion**, Northern Territory, Australia

100%

380kpta zinc in concentrate

2013

Cerrejón (Phase I), Colombia

33.3%

3mtpa thermal coal

2014

Ulan West, NSW, Australia

90%

7mtpa thermal coal

2014

Qakimajurq and Mine 2 Lower Zone infrastructure and concentrator upgrade,  Raglan, Canada

100%

6ktpa nickel from mine (2014); 8ktpa nickel from mine and concentrator capacity (2016)

2014/
2016

Tweefontein††, South Africa 

79.8%

4mtpa thermal coal

2015

Eland mine and concentrator, South Africa

74%

300koz platinum

2016‡‡

*


††
**
‡‡

100% unless otherwise stated
Coal capacity stated as saleable production  
Xstrata share
Mine life extension
Pending government approval
Steady state production achieved in 2016

 



Greenfield projects in execution

Project and location

Xstrata interest

Annual project capacity/ commodity*

Start-up

Bracemac-McLeod, Canada

65%

90ktpa zinc

2013

Las Bambas, Peru

100%

400ktpa copper**

2014

*
**

100% unless otherwise stated
First five years of production

 

Projects in the execution phase continued to meet key milestones during the first half.

·      At Xstrata Copper:

We completed the commissioning of underground production from the Ernest Henry mine and production rates are now exceeding 2 million tonnes per annum. The shaft hoisting system is scheduled to commence commissioning at the end of 2013 enabling Ernest Henry to increase production to 6 million tonnes per annum;

Following the receipt of the final site construction permit in May, we commenced mass earth works and general construction activities at the Las Bambas project in June and continued the construction of camp facilities, access roads and the new town for the resettlement of the Fuerabamba community. Engineering and procurement activities are well advanced and continue to progress according to plan; and

The Collahuasi joint venture continued to progress engineering, procurement and construction works for a further plant expansion (phase II) to increase plant capacity to 160,000 tonnes per day to be commissioned in 2013.

·      At Xstrata Coal

At Ulan West, production of development coal commenced at the end of March this year and work is continuing towards scheduled longwall production in 2014; and

Phase 1 of the Rolleston expansion was approved for execution by Xstrata Coal in the first half of 2012.  The project is located within the existing mining lease and involves additional shovel and excavator pre-strip capacity to increase annual production to 12 million tonnes per annum

Early works on the Tweefontein project have commenced following receipt of regulatory approvals in May 2012; and

Phase 1 of the Cerrejón expansion commenced construction in the third quarter of 2011. Construction is scheduled for completion during 2013, with production scheduled to reach 40 million tonnes per annum by end 2015.

·      At Xstrata Nickel

The Fraser Morgan project in Sudbury, which remains on track and on budget to deliver first ore in the second quarter of 2013, began mine development two weeks ahead of schedule and we completed construction of the waste chutes in the first half; and

At Raglan, the project to increase nickel in concentrate production to 40,000 tonnes per year began underground development at Qakimajurq following portal construction. 

·      At Xstrata Zinc

At our Bracemac-McLeod joint venture in Canada, the decline works are progressing well and the electrical sub-station is nearly finished. Production remains on schedule for the first quarter of 2013; and

McArthur River Mine's Phase III expansion has been approved by the Xstrata plc Board in July and is now subject to final government approval.  The $360 million project will increase production by 120% to 5.5 million run of mine tonnes per annum and an average of 380,000 tonnes of zinc in concentrate per annum and extend zinc reserves by 70 million tonnes to around 115 million tonnes.  The operation will use proprietary advanced processing technology to produce widely marketable zinc concentrates.  The project is on track to commission in late 2013 and reach full production capacity in 2014.

 

·      At Xstrata Alloys:

Commissioning of Lion phase 2 is expected during the second half of 2013.  The smelter complex expansion and associated Magareng mine development has been slightly delayed due to labour unrest and construction work delays as a result of severe summer rains in the first half of 2012; and

At the Eland mine, the underground mine development project has commenced its production build-up, with the first sections already delivering ore to the concentrating plant.  We are undertaking a strategic review of the Eland project plan, with the aim of optimising the development of the mineral resource, while minimising near term funding requirements.

 

 

Markets | Copper

Copper prices rallied during the opening months of 2012 following disruptions to mine supply and record imports of copper into China. Prices rose to $3.93 per pound at the end of February, before the crisis in the eurozone and renewed fears over the economic outlook for the US and China began to dominate market sentiment.  Copper prices declined to a low of $3.29 per pound in early June.  Over the first half of the year prices averaged $3.67 per pound, 14% below last year's first half average price. 

High copper prices during the first quarter coincided with a rise in total global exchange stocks to a peak of 610,000 tonnes in mid-February, while the fall in prices during the second quarter was accompanied by a decline in exchange stocks to 445,000 tonnes at the end of the first half, 100,000 tonnes lower than at the end of 2011.

Global copper demand continued to grow but was impacted by uncertain macroeconomic conditions during the first half.  The crisis in the eurozone muted any potential recovery in Western Europe, while US manufacturing and automotive sectors recovered and supported copper demand during the first half, before slowing towards the end of the period.  In Japan the recovery from last year's earthquake was moderated by the weak conditions elsewhere which limited demand for exported goods.

Despite slower economic growth in China in the first half as a result of tighter monetary policy and the withdrawal of stimulus measures for the consumer goods sector at the end of 2011, first quarter Chinese imports of refined copper reached record average monthly levels of 352,000 tonnes per month, double last year's monthly average.  However, end-use demand was insufficient to absorb imported tonnages and by April, substantial inventory had built up on the Shanghai Futures Exchange, in bonded warehouses and with consumers. Some of this inventory was re-exported during the second quarter, leading to record levels of Chinese refined copper exports in May in excess of 100,000 tonnes.  Overall, net Chinese copper imports rose to 1.7 million tonnes during the first half of the year, 80% higher than over the same period in 2011.  Lower copper prices, easier credit availability, renewed government stimulus for the consumer goods sector and accelerated infrastructure spending during the second quarter had initiated a recovery in downstream copper demand by the end of the first half.

At least 400,000 tonnes of mine production was lost globally during the first half due to a combination of poor weather, low grades, power outages, security issues and technical difficulties. Rapid capital cost escalation and challenging financing conditions have also put pressure on a number of mine projects raising the likelihood of project delays and/or cancellations.

There was also disruption to smelter production during the first half of the year.  Two fires in January halted operations at the Saganoseki and Pasar copper smelters and the latter remained closed throughout the first half of the year.  While this eased some of the tightness in the concentrate market, spot treatment and refining charges remained at modest levels throughout the first half averaging around $25 per dry metric tonne and 2.5¢ per pound.  Mid-year contract negotiations concluded recently at levels in line with the annual benchmark of $63.5 per dry metric tonne and 6.35¢ per pound below last year's mid-year settlement of $85 per dry metric tonne and 8.5¢ per pound.

Outlook

A recovery in Chinese copper demand is expected in the second half of the year, which will lend support to copper prices although developments in the eurozone and concerns over future US growth may limit the upside.  Mine production is also expected to recover during the second half of the year, although supply is likely to lag demand resulting in a substantial market deficit.

In the medium to long term, urbanisation and industrialisation in developing markets remain the key drivers of future copper demand growth.  While many new mine projects could enter production over the next few years, rising development costs, infrastructure challenges, sovereign risk, and growing competition for labour and consumables will continue to constrain project development.   

Xstrata Copper

FINANCIAL AND OPERATING DATA

$m

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Revenue

6,255

7,705

15,037

Alumbrera, Argentina

454

820

1,522

North Queensland, Australia

925

1,171

2,722

Canada*

1,938

2,048

4,029

Collahuasi††, Chile

585

1,014

1,734

Chile

1,455

1,661

3,187

Antamina, Peru

654

615

1,121

Tintaya, Peru

244

376

722

Operating EBITDA

1,498

2,550

4,915

Alumbrera, Argentina

219

366

638

North Queensland, Australia

255

603

1,232

Canada*

79

178

486

Collahuasi††, Chile

283

573

995

Chile

118

205

384

Antamina, Peru

413

401

742

Tintaya, Peru

131

224

438

Depreciation and amortisation

(432)

(485)

(991)

Alumbrera, Argentina

(49)

(47)

(92)

North Queensland, Australia

(123)

(189)

(390)

Canada*

(36)

(20)

(48)

Collahuasi††, Chile

(90)

(93)

(181)

Chile

(48)

(50)

(98)

Antamina, Peru

(55)

(45)

(92)

Tintaya, Peru

(31)

(41)

(90)

Operating profit

1,066

2,065

3,924

Alumbrera, Argentina

170

319

546

North Queensland, Australia

132

414

842

Canada*

43

158

438

Collahuasi††, Chile

193

480

814

Chile

70

155

286

Antamina, Peru

358

356

650

Tintaya, Peru

100

183

348

Share of Group Operating profit

43.4%

48.6%

46.5%

Capital Employed

19,971

18,030

18,745

ROCE

14.3%

30.1%

29.0%

Capital Expenditure

1,450

1,290

3,078

Alumbrera, Argentina

44

31

92

North Queensland, Australia

274

256

587

Canada*

42

44

108

Collahuasi††, Chile

132

125

384

Chile

71

47

193

Antamina, Peru

113

83

220

Tintaya, Peru

774

704

1,494

  Sustaining

285

207

654

  Expansionary

1,165

1,083

2,424


††

*

Includes goodwill allocation on acquisition of Falconbridge
Xstrata's 44% share of Collahuasi
Canada includes Xstrata Recycling that operates businesses in Canada, the United States of America and Asia
Xstrata Copper's pro rata share of Xstrata's 33.75% interest in Antamina

 

OPERATING PROFIT VARIANCES

 

$m

Operating profit 30.06.11

2,065

Sales price*

(211)

Volumes

(792)

Unit cost - real

(20)

Unit cost - CPI inflation

(46)

Unit cost - mining industry inflation

(54)

Unit cost - foreign exchange

28

Other income and expenses

13

Depreciation and amortisation (excluding foreign exchange)

83

Operating profit 30.06.12

1,066

*

Net of commodity price linked costs, treatment and refining charges

Operations

2012 marks a transitional year for Xstrata Copper as production from the four projects commissioning this year and the ramp up of the Ernest Henry underground mine replace the end of life, lower grade and higher cost operations which have impacted first half performance relative to the corresponding period in 2011.  During the first half, volumes benefited from the expansion of the Antamina joint venture and sustained volumes at Mount Isa mine and Lomas Bayas from the new Fortuna de Cobre mine, but lower overall production during the transition phase at Ernest Henry and Tintaya, production-related sales reductions at Collahuasi, and temporary restrictions on physical concentrate sales at Alumbrera and Tintaya, impacted sales volumes during the period.  When combined with softening commodity prices and cost inflation impacts operating profit was reduced by 48% to $1.07 billion in the first half of the year compared to the same period in 2011.

Mined copper production of 355,000 tonnes was 18% lower than the corresponding period in 2011, reflecting planned lower copper output at Ernest Henry as the operation transitions from the completion last year of an open cut mine to an underground mine, at end of life Tintaya pit where challenging conditions were exacerbated by a geotechnical event and at Collahuasi due to adverse weather conditions, lower grades and an extended ball mill outage.

Mined copper sales were 25% lower than the corresponding period last year. Sales were down partly as a result of the flow through effect of the lower production. The overall earnings impact of these production-related lower volumes was $530 million.  The sales were also impacted by lower sales volumes from Alumbrera, following the introduction of a government resolution in Argentina that delayed scheduled concentrate exports and therefore reduced the first half operating profit by a net amount of $262 million.  Concentrate shipments from Alumbrera resumed in July after the government issued a revised resolution allowing for repatriation of sales revenues over a more practical period.

The stronger US dollar against local currencies predominantly in Canada, Argentina and Chile increased operating profit by $28 million compared to the same period of 2011, offsetting a net real unit cost increase of $20 million. The cost increase was driven primarily by lower grades that were partially offset by $37 million in cost improvements through a combination of management initiatives and operating efficiencies.

Increased labour and energy costs across the industry in Australia, Argentina and North Chile decreased operating profit by $54 million, with CPI inflation further reducing operating profit by $46 million.

Lower export taxes at Alumbrera resulting from reduced sales volumes contributed to increase operating profit by $13 million. Lower depreciation, primarily due to the closure of the end of life Ernest Henry open pit mine in December 2011, contributed $83 million to operating profit.

Argentina

In April 2012, the Argentine government issued a resolution that shortened the term for exporters to repatriate export revenues to 15 days which prevented our Alumbrera operation from selling product under its standard terms. The resolutions applicable to Alumbrera were revised in late June to 120 days and again in mid-July to 180 days enabling Alumbrera to reschedule shipments and recommence sales in July. The first half impact of lower sales volumes as a result of the resolution, combined with inflationary pressures associated with high fuel and labour costs decreased operating profit by 47% compared to the corresponding period in 2011 to $170 million. Lower sales volumes were partially offset by lower export taxes and a positive local exchange rate impact.

Higher ore throughput at Alumbrera together with improved head grades and recoveries increased copper production by 13% to 67,300 tonnes in the first half as the mine regained access to higher copper grade ore zones after a geotechnical event restricted access last year and a new waste rock facility enabled the optimisation of hauling cycles.

Gold production was 11% lower primarily due to lower head grades partially offset by higher throughput and improved recoveries.

Australia

Operating profit from our North Queensland operations decreased by 68% to $132 million due to planned lower production at the Ernest Henry underground mine following the closure of the open pit in December, lower copper prices and increased labour and energy costs.

The North Queensland copper mining operations, comprising the Mount Isa and Ernest Henry mines, produced around 81,500 tonnes of copper in concentrate in the first half of 2012, a 33% reduction compared to the same period in 2011.  Production from Ernest Henry was 73% lower compared to the previous year as the operation transitioned to underground mining, initially at a lower rate and grades. Underground annualised ore mining rates are scheduled to increase to around 3 million tonnes by the end of the year and ore production from the new neighbouring Mount Margaret project will further add to Ernest Henry's production profile in the second half of the year.

Our Mount Isa operation produced 66,500 tonnes of copper in concentrate, in line with the same period in 2011, as higher volumes of ore mined offset lower head grades.

The Mount Isa smelter produced 89,400 tonnes of anode, a 19% decrease on the corresponding period in 2011, due to lower concentrate production from Ernest Henry, partially offset by the processing of third party concentrates.

The Townsville refinery produced 140,300 tonnes of cathode from a mixture of North Queensland mined production and Altonorte anode, an 8% increase on the previous year, primarily due to improved plant availability at the Townsville refinery which experienced a shutdown during the first half of 2011 due to a severe cyclone event in north Queensland.

Canada

Our Canadian operations achieved an operating profit of $43 million in the first half of 2012, a 73% reduction on the corresponding period of 2011. Higher treatment charges and metal gains on concentrates processed at the Horne smelter, improved copper production and sales at the CCR refinery and favourable local exchange rate impacts against the US dollar were more than offset by planned lower production at Kidd mine, weaker prices, higher labour costs and increased depreciation associated with closure planning. 

Copper in concentrate production at Kidd Mine decreased by 22% to 17,300 tonnes, primarily due to lower grades as a result of re-sequencing of underground ore extraction in response to seismic events in the mine in 2011.

The Horne smelter produced 89,200 tonnes of copper anode, slightly above the same period last year.

Production from the CCR Refinery increased by 5% to 133,400 tonnes as a result of improvement initiatives to increase throughput enabling additional anodes from Altonorte to be processed.

Chile

Collahuasi

Our 44% shareholding in Collahuasi generated an operating profit of $193 million, a 60% decrease on the corresponding period in 2011. Lower production and sales, softer commodity prices and higher labour, energy and consumables costs were only partially offset by favourable local currency exchange rates against the US dollar.

Our share of copper production decreased by 38% to 64,000 tonnes compared to the corresponding period in 2011 due to planned lower grades and recoveries, together with adverse weather conditions, geotechnical issues in one of the production phases at the Rosario pit, safety stoppages and an unplanned extended ball mill outage that began in March.

Following Collahuasi's disappointing performance and departure of its chief executive officer, Xstrata initiated a business improvement plan in conjunction with the other shareholders.  Collahuasi's shareholders are now directly managing the operation and have in place a taskforce to identify and implement operational improvements.  Collahuasi's copper production is expected to improve in the second half of the year as equipment availability increases following completion of repairs to the ball mill in August, recoveries improve and a business improvement plan initiated by the joint venture partners in June takes effect.

Lomas Bayas

The Lomas Bayas open pit mine generated an operating profit of $62 million, a 51% reduction on the previous year due to lower commodity prices, lower grades, increased labour costs and higher energy and consumables consumption. Cathode production of 36,600 tonnes was in line with the corresponding period in 2011 as an extension to the irrigation cycle on the heap leach yielded higher recoveries but was offset by reduced plant availability due to maintenance activities and initial lower recoveries from the Lomas II ROM leach pad.

Declining mine production from the original Lomas Bayas pit is now being supplemented by ore from the new Fortuna de Cobre pit as part of the Lomas II project which is scheduled to be fully commissioned during the second half of this year enabling current levels of production to be sustained. A mine plan optimisation has resulted in the upgrade of mineral resources into reserves, extending the operation's life by four years to 2028.

Altonorte

Operating profit at Altonorte decreased to $8 million, a 71% reduction compared to the first half of 2011 due to lower production and sales, softer commodity prices and fuel price inflation, partially offset by cost savings achieved through management initiatives.

Copper anode production was 13% lower at 135,500 tonnes compared to the previous year. Lower feed grades and decreased throughput followed unscheduled maintenance at the acid plant and smelter which reduced plant availability, partially offset by higher copper recovery rates. Plant availability is expected to improve in the second half following a scheduled maintenance shutdown in July. 

Peru

Antamina

Xstrata's 33.75% attributable share of Antamina's financial performance is divided between Xstrata Copper and Xstrata Zinc on the basis of sales revenue of copper and zinc respectively. Xstrata Copper's share of Antamina operating profit increased to $358 million compared to the corresponding period of 2011 mainly due to higher production resulting from the commissioned expansion and associated sales, partially offset by an unfavourable depreciation, increased consumables costs and lower commodity prices.

Our share of copper production increased by 39% to 68,000 tonnes in the first half due to improved mill throughput as a result of the project to expand plant capacity to 130,000 tonnes per day, which was successfully commissioned in March, along with planned higher grades and recoveries.

Tintaya

Tintaya generated an operating profit of $100 million, a 45% decrease compared to the previous year, mainly due to reduced production and cost pressures as the operation enters its final year of mining. This was partially offset by cost improvement initiatives targeting consumables and reduced labour costs. Personnel from Tintaya are being progressively transferred to the adjacent Antapaccay project which remains on schedule to commence operations and plant commissioning in the third quarter of this year, expanding production from Tintaya and adding at least a further 20 years of operations.

Copper in concentrate production of 16,800 tonnes was 42% lower than the corresponding period in 2011. Pit wall instability issues following record rainfall in the first quarter impacted mined volumes and limited access to the remaining higher grade ore. Copper cathode production decreased by 74% to 3,100 tonnes compared to the previous year due to the planned processing of lower grade ore.

Gold in concentrate production was similarly impacted by the challenging pit and weather conditions with reduced grades and mined volumes decreasing production by 45% to 7,600 ounces.

 

SALES VOLUMES

Six months to 30.06.12

 

Six months to 30.06.11

 

Year ended

31.12.11

Argentina - Alumbrera




Copper in concentrate (t) inter-company (payable metal)

-   

-  

2,512  

Copper in concentrate (t) third-parties (payable metal)

34,356  

57,800  

111,806  

Total copper (t) (payable metal)

34,356  

57,800  

114,318  

Gold in concentrate (oz) inter-company (payable metal)

-  

-  

7,166  

Gold in concentrate (oz) third-parties (payable metal)

81,732  

175,906  

320,806  

Gold in doré (oz) (payable metal)

10,018  

14,324  

29,344  

Total gold (oz) (payable metal)

91,750  

190,230  

357,316  

Australia - North Queensland

 

 

 

Refined copper - mined copper (t)

74,502  

111,207  

234,122  

Refined copper - inter-company and third party sourced (t)

60,289  

17,773  

41,504  

Copper in concentrate (t) (payable metal)

13  

5,049  

 17,547  

Total copper (t) (payable metal)

134, 804  

134,029  

293,173  

Gold in concentrate and slimes (oz) (payable metal)

33, 370  

48,617  

136,425  

Magnetite (t) (payable metal)

158,597  

25,869  

258,689  

Canada

 

 

 

Copper in concentrate (t) (payable metal)

(470)  

-  

4,354  

Refined copper - mined copper (t)

13,105  

20,938  

42,724  

Refined copper - inter-company sourced (t)

41,301  

41,233  

71,112  

Refined copper - third party sourced (t)

80,173  

64,595  

152,398  

Total copper (t) (payable metal)

134,109  

126,766  

270,588  

Gold in concentrate and slimes (oz) (payable metal)

262,366  

173,212  

419,897  

Chile - Collahuasi††

 

 

 

Copper in concentrate (t) inter-company (payable metal)

9,213  

21,731  

47,978  

Copper in concentrate (t) third-parties (payable metal)

46,271  

64,980  

134,442  

Copper cathode (t) (payable metal)

8,101  

7,886  

 15,909  

Total copper (t) (payable metal)

63,585  

94,597 

198,329  



 

SALES VOLUMES

Six months to 30.06.12

Six months to 30.06.11

 

Year ended

31.12.11

Chile - Lomas Bayas and Altonorte

 

 

 

Copper cathode (t) (payable metal)

36,059   

37,094   

73,727   

Copper anode (t) inter-company  (payable metal)

57,638   

29,654   

64,201   

Copper anode (t) third parties (payable metal)

74,420   

117,830   

231,925   

Total copper (t) (payable metal)

168,117   

184,578   

369,853   

Gold in concentrate and slimes (oz) (payable metal)

17,737   

24,836   

52,867   

Peru - Antamina

 

 

 

Copper in concentrate (t) inter-company (payable metal)

16,435   

-    

8,771   

Copper in concentrate (t) third-parties (payable metal)

46,930   

49,622   

100,749   

Total copper (t) (payable metal)

63,365   

49,622   

109,520   

Peru Tintaya

 

 

 

Copper in concentrate (t) third-parties (payable metal)

21,757    

27,438   

58,313   

Copper cathode - mined copper (t)

3,349    

11,387   

20,796   

Total copper (t) (payable metal)

25,106    

38,825    

79,109   

Gold in concentrate (oz) (payable metal)

6,834    

10,783    

21,449    

Mined copper sales (t) (payable metal)

309,621

415,132

873,750

Custom copper sales (t) (payable metal)

313,821

271,085

561,140

Inter-company copper sales (t) (payable metal)

(83,286)

(51,385)

(123,462)

Total copper sales (t) (payable metal)

540, 156

634,832

1,311,428

Total gold sales (oz) (payable metal)

412,057

447,678

980,788

Average LME copper cash price ($/t)

8,087

9,399

8,826

Average LBM gold price ($/oz)

1,651

1,444

1,573


††

‡ 

100% consolidated figures
Including Xstrata's 44% share of Collahuasi
Including Xstrata Copper's pro rata share of Xstrata's 33.75% interest in Antamina

 

SUMMARY PRODUCTION DATA

Six months to 30.06.12

 

Six months to 30.06.11

 

Year ended

31.12.11

Total mined copper (t) (contained metal)

354,612

434,046

888,979

Total mined gold (oz) (contained metal)

197,139

275,165

517,861

Total copper cathode (t) (from mined and third party material)

321,568

313,641

650,917

Consolidated C1 cash cost - post by-product credits (US¢/lb)

143.4

96.4

96.4

 

 



 

Markets HTMLPIPESYMBOL Coal

Thermal Coal Markets

Global seaborne thermal coal demand continues to grow strongly in 2012 with annualised demand rising in excess of 60 million tonnes or 8% for the first half. However supply strength from all major traditional sources due to capacity expansions and limited weather related impacts plus US export growth, due to the displacement of coal by low cost gas, has shifted the market into surplus. Coupled with Chinese shipment deferrals, the supply surplus has resulted in price weakness throughout the first half of 2012.

In total, volumes from Australia, Indonesia, Russia, Colombia and South Africa have increased by more than 26.5 million tonnes in the first half of 2012 compared to the same period of 2011.  Fewer weather-related disruptions, further investment in mine expansions and improved infrastructure performance following the completion of rail and ports expansions has facilitated increased supply.

Low domestic US gas prices and weak electricity demand growth has resulted in US thermal coal exports increasing by over 50% year on year or by 9 million tonnes during the first half of 2012. Increased supply of US coal to the Atlantic market has displaced South African and Russian coal from Europe into the Indian and Pacific markets.

In Japan, only one nuclear power station has restarted post Fukushima. To cover the electricity supply shortfall, coal-fired plant utilisation capacity has increased, supporting thermal coal imports growth of 16% or 17 million tonnes compared to 2011, to an annualised rate of 127 million tonnes.

India remains on course to commission 20 gigawatts of new coal-fired electricity generation capacity in 2012, of which more than 6 gigawatts is located at coastal generators. Indian domestic coal production continues to underperform, leaving power stations critically short of coal. New bulk shipping import terminals are supporting India's imports, which have increased by approximately 11% year-on-year in the first half, equating to full year imports of 102 million tonnes compared to 91 million tonnes during 2011.

In Europe, despite the weak economic environment, higher gas prices as a result of high oil prices and the flow of spot LNG to Asia, in particular Japan, have supported coal imports. Coupled with low CO2 prices, coal remains the lowest cost fuel supply source for electricity generation and 2012 import coal demand is trending 5 million tonnes per annum higher than 2011, with growth spread broadly across the continent.

Chinese thermal coal imports during the first half of the year were 110 million tonnes, up by 46 million tonnes or 73% on the same period of 2011, due to the competitive prices of the international market compared to the domestic market during the last quarter of 2011 and first quarter of 2012. China's total electricity demand has grown just 4% in the first half of 2012 and growth in hydroelectric and nuclear generation has limited thermal electricity generation growth to just 2%. The strength of thermal imports and an 8% or 139 million tonnes increase in domestic supply, coupled with weak demand, led to rising inventories and domestic pricing weakness at the end of the first half of 2012.

A 28% decline in Chinese domestic spot prices in the first half has resulted in Chinese traders delaying commitments made earlier in the year at higher prices. Delays to contracted Chinese off take has exaggerated the oversupply in spot markets. Consequently, spot prices for South African (API4), Australian (Newcastle) and Indonesian volumes have fallen by 21%, 26% and 22% respectively from their levels of $105, $115 and $80 per tonne from the beginning of 2012. Increased US supply in the Atlantic has also driven API2 and Colombian spot prices 20% lower from their 2012 opening positions of $112 and $100 per tonne.

Xstrata's thermal coal contracts with Japanese utilities for the Japanese fiscal year contracts were settled in March at $115 per tonne. July to June contracts with Japanese power utilities were settled at $95 per tonne.

Outlook

Current spot market prices are trading significantly below marginal supply costs for Australian, Indonesian, Russian and US supply. Production cutbacks are expected to continue throughout the second half of 2012, returning the market to a balanced position. Further, an expected seasonal slowdown in Chinese hydro electricity generation during the fourth quarter will provide a recovery in Chinese domestic coal burn and renewed Chinese purchasing interest. In the longer term, demand for thermal coal continues to be driven by its position as the lowest cost fuel for power generation in most economies. Combined with the challenge of developing new coal production capacity, future demand growth is expected to result in a strong pricing environment.

Coking coal markets

A strong pricing environment for coking coal in prior years has supported supply growth, particularly of lower grade US coking coals, leading to an overall supply surplus and weaker prices.

Growth in demand for global seaborne coking coal is being limited by macro-economic concerns, particularly across Europe and in India and has declined by 2% compared to the first half of 2011.

Australian supply increased by 8 million tonnes, or 10% during the first half of 2012 compared to the same period in 2011 as a result of the severe impact on production from flooding in 2011.  However, Australian coking coal production fell to 86 million tonnes on an annualised basis, a decrease of 10 million tonnes below the second half of 2011, with particularly acute shortfalls from Australian premium hard coking coal.  Prolonged industrial action at BMA operations had an impact, together with some seasonal rainfall, although this rainfall was less significant than in previous years.  Volumes from Canada increased by 3.5 million tonnes compared to the second half of 2011, exports commenced from Mozambique and supply from Indonesia increased by the annualised equivalent of 1.5 million tonnes. The largest increase in supply came from US exports, where the annualised supply rate increased to 63 million tonnes in the first half, 4.5 million tonnes per annum higher than in 2011, with much of the increase from lower grade coking coals.

Despite considerable macroeconomic headwinds, global blast furnace pig iron production during the first half of 2012 increased to an annualised rate of 1.12 billion tonnes, nearly 3% higher than the first half of 2011. The increase was driven by China, where producers increased volumes by 10% compared to the same period last year. Outside China, pig iron production levels in coking coal importing countries were at a similar level to the first six months of 2011.

Total coking coal demand fell by 2% or 3.5 million tonnes compared to second half 2011, as a result of steel makers switching to coke imports and consuming accumulated stocks.  Substantial import demand reductions in Europe, Japan and Korea totalling 8 million tonnes annualised were offset by increased annualised Chinese demand of 10 million tonnes.

Oversupply in the first half of 2012 resulted in the hard coking coal contract price falling from $235 per tonne in the first quarter to $210 per tonne in the second quarter.  The shortfall of prime hard coking coals from Australia supported a third quarter price increase to $225 per tonne.  The increased availability of lower grade US coking coals also put pressure on semi-soft coking coal throughout the first half, leading to contract prices declining from $179 per tonne during the first quarter to $147 per tonne for the second and third quarters.

Outlook

Weak demand for steel in China is contributing to an increase in Chinese steel exports, while a poorer macro-economic outlook, particularly in Europe, is leading to further steel production cutbacks. In the short term, coking coal demand remains weak with prices of lower grade coking coals falling below marginal costs, meaning production cutbacks are likely. Longer term, demand for coking coal continues to be underpinned by planned blast furnace capacity growth in developing regions. Delays in delivering new coking coal supply capacity will support a stronger pricing environment. 

Xstrata Coal

FINANCIAL AND OPERATING DATA

$m

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Revenue: operations

4,766

4,184

9,470

Coking

825

894

1,902

Thermal Australia

2,742

2,249

5,260

Thermal South Africa

685

534

1,229

Thermal Americas

514

507

1,079

Revenue: other

455

197

511

Coking

86

11

22

Thermal Australia

275

151

408

Thermal South Africa

93

35

80

Thermal Americas

1

-

1

Total revenue

5,221

4,381

9,981

Coking

911

905

1,924

Thermal Australia

3,017

2,400

5,668

Thermal South Africa

778

569

1,309

Thermal Americas

515

507

1,080

Operating EBITDA

1,647

1,584

3,853

Coking

287

440

1,019

Thermal Australia

872

727

1,928

Thermal South Africa

245

185

380

Thermal Americas

243

232

526

Depreciation and amortisation

(537)

(494)

(1,043)

Coking

(70)

(58)

(130)

Thermal Australia

(328)

(279)

(596)

Thermal South Africa

(90)

(110)

(220)

Thermal Americas

(49)

(47)

(97)

Operating profit **

1,110

1,090

2,810

Coking **

217

382

889

Thermal Australia**

544

448

1,332

Thermal South Africa

155

75

160

Thermal Americas

194

185

429

Share of Group Operating profit

45.2%

25.7%

33.3%

Australia

31.0%

19.5%

26.3%

South Africa

6.3%

1.8%

1.9%

Americas

7.9%

4.4%

5.1%

Capital employed

16,382

14,947

14,616

Australia

11,238

9,922

9,986

South Africa

2,455

3,126

2,522

Americas

2,689

1,899

2,108

Return on capital employed*

14.0%

15.0%

20.4%

Australia

13.4%

17.3%

24.2%

South Africa

12.3%

4.9%

5.7%

Americas

19.7%

19.8%

23.4%

Capital expenditure

1,402

837

1,994

Australia

1,195

659

1,625

South Africa

127

121

252

Americas

80

57

117

Sustaining

481

320

801

Expansionary

921

517

1,193

*

**

ROCE % based on average exchange rates for the period
Includes purchased coal for blending with mine production
Operating profit for the six months ended 30 June 2012 includes US$6m of profit attributable to Joint Venture Partners

 

OPERATING PROFIT VARIANCES

 

 $m

Operating profit 30.06.11

1,090

Sales price*

(116)

Volumes

258

Unit cost - real

25

Unit cost - CPI inflation

(81)

Unit cost - mining industry inflation

(87)

Unit cost - foreign exchange

78

Other income and expenses

(1)

Depreciation and amortisation (excluding foreign exchange)

(56)

Operating profit 30.06.12**

1,110

*

**

Net of commodity price linked costs

Operating profit for the six months ended 30 June 2012 includes US$6m of profit attributable to Joint Venture Partners

Operations

Despite lower average received prices during the first six months of 2012, we achieved an increased operating profit of $1,110 million.  Increased production volumes and associated unit cost savings added $283 million to operating profit, offsetting the impact of lower average realised pricing and inflationary cost increases, which reduced earnings by $116 million and $168 million respectively.

Received Australian thermal coal prices remained broadly in line with the same period of 2011, whilst received Australian coking and Colombian thermal coal prices fell by 16% and 9% respectively. Coking coal prices were lower than those achieved in 2011 when supply chain constraints caused by flooding in Queensland resulted in significant contract price increases. Colombian thermal coal prices were lower in 2012 mainly due to increased competition from US exports, whilst carryover of higher priced sales in 2012 resulted in South African thermal coal price increases into 2012 versus the same period in 2011.

Total sales volumes increased by 6.2 million tonnes or 17%, due to increased production from newly commissioned mines Mangoola, Goedgevonden and ATCOM East, as well as early stage production tonnes from the Ulan West box cut, Ravensworth North and Ulan open cut operations. Increased production was also realised at the Rolleston open cut and Ulan underground operations, where flooding affected production in the first six months of 2011.

We realised real unit cost savings of $25 million mainly due to increased production from lower cost operations at Mangoola and Rolleston.

Our operating profit was positively impacted by $78 million due to the weakening of the South African rand against the US dollar.

Industry-wide inflationary pressures continued, reducing earnings by $168 million, whilst increased depreciation and amortisation costs reduced earnings by $56 million, due mainly to higher volumes produced in the first six months of 2012 compared to the same period in 2011.

Australian thermal coal

Our Australian thermal coal business achieved an operating profit of $544 million for the first six months of 2012, 21% higher than the same period last year due to increased production following the commencement of Ravensworth North and Ulan West box cut, recovery from water impacts at Ulan and flooding at Rolleston in early 2011, as well as a full six months of steady state production at Mangoola.

Increased tonnes from the low cost Mangoola and Rolleston mines contributed to real unit cost savings in the first half. The full impact of the favourable volume and unit cost variances were partly offset by inflationary cost increases and higher depreciation and amortisation costs associated with higher production.

Coking coal

Australian coking coal's operating profit decreased by 43% or $165 million to $217 million. Despite higher volumes in 2012, earnings were adversely impacted by lower average realised prices compared to 2011, when significant contract price increases were realised in response to supply constraints caused by the Queensland floods. Earnings were also impacted by unit cost increases resulting from geological issues encountered at the Oaky Creek Underground mining complex in 2012, as well as industry-wide inflationary cost increases predominantly for labour and fuel.

South African thermal coal

Our South African thermal coal business achieved an operating profit of $155 million, more than double first half earnings in 2011. Increased volumes and higher average realised prices as a result of a high proportion of 2012 sales being contracted in 2011, coupled with a greater proportion of export sales, contributed to increased earnings.  Both the large-scale open cut Goedgevonden and Impunzi complexes achieved higher sales as they ramped up towards steady state production in the first six months of 2012.

Inflationary pressures resulting from increased fuel and explosives cost increases, together with greater haulage costs, which were incurred to maximise production from available plant capacity, and a greater proportion of higher cost export sales, were partly offset by the impact of a weaker South African rand against the US dollar.

Americas thermal coal

Operating profit for the Americas division increased by 5% to $194 million in the first half of 2012, primarily driven by higher volumes and related unit cost savings. Production improvements mainly resulted from significantly less rainfall in 2012 than 2011. The favourable impact of higher volumes was partly offset by lower average realised prices due to increased US supply in the Atlantic thermal coal market, inflationary impacts from increased labour and consumable costs, and higher volume-related depreciation and amortisation costs. 

 

SALES VOLUMES

(million tonnes)

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

 

Total consolidated sales

43.4

37.2

84.3

 

Consolidated Australian sales total

29.3

24.2

55.3

 

Coking export

3.7

3.4

7.2

 

Semi-soft coking export

2.2

3.0

5.3

 

Thermal export

20.8

13.8

35.4

 

Thermal domestic

2.6

4.0

7.4

 

Consolidated South African sales total*

8.5

8.0

18.3

 

Thermal export

5.7

4.9

11.3

 

Thermal domestic

2.8

3.1

7.0

 

Consolidated Americas sales total

5.6

5.0

10.7

 

Total attributable sales

41.1

33.5

79.4

 

Attributable Australian sales total

28.2

22.0

53.2

 

Coking export

3.7

3.4

7.2

 

Semi-soft coking export

2.0

2.7

4.8

 

Thermal export

20.1

13.1

33.9

 

Thermal domestic

2.4

2.8

7.3

 

Attributable South African sales total*

7.3

6.5

15.5

 

Thermal export

4.8

3.9

9.4

 

Thermal domestic

2.5

2.6

6.1

 

Attributable Americas sales total

5.6

5.0

10.7

 

Average received export FOB coal price ($/t)

 



 

Australian coking

216.8

259.6

265.0

 

Australian semi-soft coking

173.5

187.1

202.5

 

Australian thermal

108.4

104.0

109.6

 

South African thermal

106.2

95.5

101.2

 

Americas thermal

92.0

101.4

101.0

*

2011 figures include sales from Mpumalanga which contributed 0.4 million tonnes of consolidated export and domestic sales for the first six months of 2011 and 0.9 million tonnes during the full year 2011

 

 

SUMMARY PRODUCTION DATA

(million tonnes)

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

 

Total consolidated production

43.4

38.5

85.3

 

Total thermal coal

37.9

32.4

72.4

 

  Australian thermal

22.4

18.9

44.5

 

  South African thermal

9.4

8.4

17.1

 

  Americas thermal*

6.1

5.1

10.8

 

Total coking coal (Australia)

3.3

3.1

7.6

 

Total semi-soft coking (Australia)

2.2

3.0

5.3

*

2011 figures include sales from Mpumalanga which contributed 0.5 million tonnes for the first six months of 2011 and 1 million tonnes during the full year 2011

 

 

Markets HTMLPIPESYMBOL Nickel

Demand for nickel in the first half of 2012 remained consistent with the first six months of 2011, recovering from the subdued environment of the second half of 2011.

Global stainless steel production for the first six months of the year was largely unchanged from a year earlier.  Output growth in developing countries, specifically China and India, continued in line with industrial growth and ongoing urbanisation but was offset by lower production in developed regions including Europe, North America and Japan. 

The proportion of nickel-bearing austenitic stainless steel in global output was slightly lower than for the first half of 2011, with reductions in China, Japan and South Korea.  This, together with a marginally higher scrap ratio, resulted in slightly lower primary nickel consumption in stainless steel for the first six months of 2012 compared to 2011.  This decline in stainless steel consumption was offset by increased demand for nickel in non-stainless steel applications as a consequence of growth in the aerospace, power generation, oil and gas and automotive sectors.

While demand remained unchanged from the prior year, global production of primary nickel increased over the first half of 2011.  Nickel prices in the first four months supported increased Chinese production of nickel pig iron, but output slowed toward the end of the period as nickel prices declined.  A number of new projects increased production, including Anglo American's Barro Alto and Vale's Onça Puma operations, which more than compensated for unanticipated delays and slower ramp-up elsewhere, including at Talvivaara and Vale New Caledonia.  Uncertainty concerning export policies in Indonesia, a key supplier of laterite ore, emerged during the period but has so far had limited apparent impact on nickel supply from dependant producers, principally in Japan and China, and prompted significant increases in ore stockpiles at Chinese ports.

The LME cash settlement nickel price increased by 19% from the start of the year to a high of $21,830 per tonne on 8 February, before falling 27% to a low of $16,025 per tonne on 1 June.  The average LME cash price for the period was $18,438 per tonne, 28% lower than the average price for the first half of 2011.  The market experienced a small surplus during the period and LME inventory increased by 20% from a low of 89,550 tonnes in early January to 107,826 tonnes at the end of May and ending the first half at 103,350 tonnes.

Outlook

Persistent macro-economic uncertainty and an unresolved European crisis cloud the outlook for the remainder of 2012.  With the exception of the far east, nickel demand in stainless steel is expected to remain relatively static during the second half.  However continued economic growth in Asia, together with further recovery in Japan, is expected to result in higher global nickel consumption in stainless steel for the second half of the year.  Coupled with relatively stable non-stainless steel nickel demand, this should lift total nickel consumption over the next six months.  Global primary nickel consumption in 2012 is consequently expected to surpass consumption in 2011.  Higher demand during the next six months, continued commissioning challenges at greenfield nickel projects and moderation in nickel pig iron production primarily due to lower nickel prices, are also expected to contribute to a more balanced market during the second half of 2012.

 

Xstrata Nickel

FINANCIAL AND OPERATING DATA

$m

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Revenue

1,361

1,667

3,192

INO

1,232

1,547

2,918

Dominican Republic

129

120

274

Operating EBITDA

358

743

1,234

INO

349

720

1,186

Dominican Republic

9

23

48

Depreciation and amortisation

(293)

(310)

(623)

INO

(286)

(303)

(607)

Dominican Republic

(7)

(7)

(16)

Operating profit

65

433

611

INO

63

417

579

Dominican Republic

2

16

32

Share of Group Operating profit

2.6%

10.2%

7.2%

INO

2.5%

9.8%

6.8%

Dominican Republic

0.1%

0.4%

0.4%

Capital employed

11,445

10,364

10,643

ROCE*

2.2%

14.3%

10.5 %

Capital expenditure

921

756

1,638

INO

298

192

459

Dominican Republic

1

9

15

South America

2

1

1

Africa

5

4

8

New Caledonia

615

550

1,155

Sustaining

135

135

287

Expansionary

786

621

1,351


*

Integrated Nickel Operations (INO) includes Canadian mines, Xstrata Nickel Australasia (XNA) mines in Western Australia, Sudbury smelter and Nikkelverk refinery

ROCE % based on average exchange rates for the period and excludes assets under development.

 

OPERATING PROFIT VARIANCES

$m

Operating profit 30.06.11

433

Sales price*

(417)

Volumes

(37)

Unit cost - real

46

Unit cost - CPI inflation

(12)

Unit cost - mining industry inflation

(12)

Foreign exchange

26

Other income and expense

21

Depreciation and amortisation (excluding foreign exchange)

17

Operating profit 30.06.12

65

*

net of commodity price linked costs, treatment and refining charges

 

Operations

Nickel prices decreased substantially compared to the same period last year, leading to a first half operating profit of $65 million compared to $433 million for the first half of 2011.  Combined with lower by-product prices, markedly lower average nickel prices reduced operating profit by $417 million. 

In the first half of the year, despite production from our own mines increasing, the timing of custom feed processing meant that our nickel smelting and refining business processed and sold a greater proportion of lower margin third party custom feed, impacting operating profit by $37 million as a negative volume variance.  This was mostly offset by the positive impact of higher sales volumes following the restart of Falcondo in February 2011 and higher by-product volumes from Sudbury.  The full benefit of higher own mine production volumes will be felt in the second half of 2012 and first half of 2013. 

Our results were also impacted by industry-wide and regional CPI inflationary pressures of $24 million.  In real terms, our operations delivered savings of $46 million as a result of higher production and nickel head grade at Raglan and Sudbury and the successful conversion to fully procured power and increased production at Falcondo.  The impact of lower metal prices and inflation was partially offset by a strengthening US dollar against our operating currencies, which positively impacted operating profit by $26 million. 

Other income and expenses included a positive variance of $21 million due to the elimination of Falcondo's standing charges recorded in 2011 during the care and maintenance period, and the lease payment on sharing of mine infrastructure received as part of synergy initiatives in Sudbury.  A positive variance of $17 million from depreciation and amortisation resulted from reduced production from Xstrata Nickel Australasia after the closure of the Prospero Mine at end of 2011.

Integrated Nickel Operations (INO)

Our Integrated Nickel Operations (INO) comprise the Sudbury mines and smelter and the Raglan mines in Canada, Xstrata Nickel Australasia (XNA) in Australia and the Nikkelverk refinery in Norway.  Nickel sales from INO were marginally higher in the first half of 2012, as a result of increased feed from third parties.  However, the use of third party feed drove up the cost of goods sold as a result of processing and selling a reduced volume of lower-cost own mine feed.

Copper in concentrate sales to Xstrata Copper increased by 12% compared to the same period in 2011, due to a period of higher copper volumes from our Sudbury mines.

Across our INO mines, nickel in concentrate production increased slightly to 31,142 tonnes, driven by a 13% increase in mined ore volumes and a 6% increase in grade at Raglan, primarily associated with the successful completion of the Kikialik mine project in the fourth quarter of 2011. Together with higher by-product volumes and revenues from Sudbury, operating improvements reduced INO cash costs by 42% to $1.25 per pound from $2.14 per pound in the same period last year.

Sudbury

Total mined nickel production from the Sudbury operations increased by 4% to 10,106 tonnes of nickel in concentrate compared to the first half of 2011, reflecting higher volumes of treated ore as well as an 11% improvement in nickel head grade as we entered higher grade ore zones at Nickel Rim South.  Our Strathcona mill processed 1,052,935 tonnes of ore, up 15% over the previous period.  We produced 32,795 tonnes of nickel in matte from the Sudbury smelter, 5% more than the same period last year.

Copper in concentrate production from Sudbury remained strong.  Volumes rose by 14% over the first half of 2011 to 26,780 tonnes, reflecting production from Fraser Mine's copper zone and a peak period of increased copper volumes from Nickel Rim South.

Raglan

Mined ore at Raglan increased by 13% to 639,746 tonnes in the first half of 2012, driven by the successful completion of the Kikialik project and commissioning of mine operations in the fourth quarter of 2011. Definition drilling at the Kikialik deposit identified several satellite lenses and extensions to the main ore body with a higher nickel head grade than planned, resulting in a 6% increase in overall grade from Raglan mines to 2.46%.  As a result, nickel in concentrate production of 13,957 tonnes was 9% higher than the same period last year.

Xstrata Nickel Australasia (XNA)

At our Xstrata Nickel Australasia (XNA) mines we treated 18% more ore to mitigate the impact of lower grades as we transition to mining disseminated ore bodies with inherently lower nickel content.  Average head grade fell to 2.18% from 2.89% in the first half of 2011.  At the Odysseus deposit at Cosmos we have identified an indicated resource of 4.0 million tonnes with a grade of 2.13% nickel with further delineation underway.

Nikkelverk

Our Nikkelverk refinery in Norway continued to produce at full capacity, in line with the previous period, refining 45,479 tonnes of nickel metal in the first half of 2012.  Full-year production is expected to reach capacity of 92,000 tonnes following a successful planned maintenance shutdown in the first half.  Increased copper content in our matte feed and continuous improvement in increasing copper capacity contributed to a 6% increase in production to 18,595 tonnes of copper metal.

Falcondo

Total nickel in ferronickel production from our Falcondo operation in the Dominican Republic rose 24% to 7,304 tonnes in the first half following the restart of mining activities in February 2011 to 50% of installed capacity.  We have successfully reduced Falcondo's operating costs by converting to fully procured power from the national grid.  Consequently, we have reduced cash costs by 14% compared to the first half of 2011.  The potential low capital cost expansion to 100% capacity remains in the feasibility stage and will involve converting the long-term energy source for the process plant from oil to natural gas.

SALES VOLUMES

Six months to 30.06.12

Six months to 30.06.11

Year ended

31.12.11

INO - Europe - Nikkelverk

 

 

 

        Refined nickel from own mines (t) (payable metal)

25,832

28,696

58,913

        Refined nickel from third parties (t) (payable metal)

19,779

16,496

33,748

        Refined copper from own mines and third parties (t) (payable metal)

19,638

17,899

35,725

        Refined cobalt from own mines and third parties (t) (payable metal)

1,347

1,326

2,915

INO - North America

 



        Nickel in concentrate (t) inter-company (payable metal)

56

51

113

        Copper in concentrate (t) inter-company (payable metal)

18,743

16,765

37,300

 

Falcondo - Dominican Republic

 

 

 

 

        Ferronickel (t) (payable metal)

7,433

5,005

12,880

 

Total nickel sales (t) (payable metal)

45,667

45,243

92,774

 

Total ferronickel sales (t) (payable metal)

7,433

5,005

12,880

 

Total copper sales (t) (payable metal)

38,381

34,664

73,025

 

Total cobalt sales (t) (payable metal)

1,347

1,326

2,915

 

Average LME nickel cash price ($/t)

18,438

25,565

22,831

 

Average LME copper cash price ($/t)

8,087

9,399

8,826

 

Average Metal Bulletin cobalt low grade price ($/lb)

13.92

17.23

16.01

 

SUMMARY PRODUCTION DATA

Six months to 30.06.12

Six months to 30.06.11

Year ended

31.12.11

Total mined nickel production (t) (contained metal) - INO

31,142

30,797

64,103

Total mined copper production (t) (contained metal) - INO

28,395

26,673

55,629

Total mined cobalt production (t) (contained metal) - INO

634

617

1,302

Total nickel production (t)

52,783

51,436

105,925

  - Total refined nickel production (t)

45,479

45,524

92,427

  - Total ferronickel production (t)

7,304

5,912

13,498

Consolidated nickel cash cost (C1) - post by-product credits ($/lb)

1.25

2.14

1.83

Consolidated ferronickel cash cost (C1) ($/lb)

7.47

8.65

8.09

 

 

Markets HTMLPIPESYMBOL Zinc

Zinc

Global demand for zinc reached record levels during the first half of 2012 despite ongoing macroeconomic concerns, increasing by 4% on the same period in 2011. Strong demand was seen from producers of galvanized steel, which consumes roughly half of all zinc produced each year and is used primarily in the construction, infrastructure and automotive sectors.

On the supply side, during the first half mined zinc production rose by 3% compared to the same period in 2011.  China continues to be a major zinc producer, responsible for 31% of global production in the first six months of the year.  Refined metal output was at a similar level to the same period in 2011 as a result of an 8% decline in Chinese production, as a number of Chinese smelters curtailed unprofitable production.

Benchmark treatment charge terms for 2012 were negotiated to $191 per tonne of concentrate with a price participation basis of $2,000 per tonne of zinc, below the average benchmark charges achieved in 2011 of $229 per tonne of concentrate at $2,500 per tonne of zinc basis.  During the first half of 2012, spot treatment charges remained well below contract treatment charges, but increased from $60 to $90 per tonne of concentrate, as a result of lower Chinese smelter availability.

LME zinc prices averaged $1,978 per tonne compared to $2,323 per tonne in the same period in 2011. Concerns over sovereign debt in Europe, and the slowing of the Chinese economy, as a result of measures taken by the government to counter inflation, impacted investors' appetite for investment in base metals and other commodities.  However, premiums were relatively well supported due to the strengthening US dollar and positive underlying demand for zinc.

Zinc metal inventories at London Metal Exchange and Shanghai Futures Exchange warehouses increased during the first half by 137,338 tonnes to a total of 1,323,224 tonnes at the end of June. Commercial and exchange stocks have returned to the peak levels seen during the mid-1990s, although today's consumption is over 70% higher. 

Outlook

Growth in zinc consumption rates during the remainder of 2012 are likely to slow, in line with the forecasted lower growth in global industrial production.   Zinc metal is expected to remain in surplus in 2012, although high cost zinc production may be suspended in response to any significant reductions in the zinc price. 

The medium to longer term outlook for zinc consumption remains robust, underpinned by the urbanisation of developing economies and consequent increased demand from the infrastructure and construction sectors. A resurgence in previously delayed infrastructure investment and the release of pent-up consumer and business spending will further support demand as the health of the global economy returns. At the same time, growth in mined zinc volumes is expected to remain subdued, due to slower project development and the potential for higher cost production to be curtailed in response to any extended period of lower zinc prices in the short term.

Lead

Global demand for refined lead during the first half rose 3% on the same period in 2011.  Over 80% of lead is used in the production of lead-acid batteries, most of which are installed in vehicles, including hybrid and electric vehicles, with China accounting for 40% of production. 

Demand for lead from vehicle producers started the year strongly in the US and China but slowed towards the end of the period as a result of the cooling of the global economy. There was strong demand from other end-use sectors, such as mobile power, industrial and standby power applications, which include telecommunication networks and alternative energy storage.

During the first half of the year, global mined lead production rose by 5% with China continuing to be the largest contributor to increases in lead mine and smelter volumes.  In addition, China continued to import significant volumes of concentrates to refine domestically, which maintained the downward pressure on spot treatment charges during the period.

Benchmark treatment charges for concentrates declined in the first six months of 2012 on those achieved for the same period in 2011, settling at almost $215 per tonne of concentrate with no price participation.  Spot treatment charges for imports into China during the first six months fluctuated between $80 and $100 per tonne.

Global supply of refined lead rose by 3% during the first half of 2012 as a result of increased output from primary refineries.  The processing of secondary and recycled materials remained flat on 2011 levels due to weakened profitability and to steps being taken by China to reduce pollution and inefficiency in the industry.

A roughly balanced lead market in the first half of 2012 resulted in a small decrease in warehouse stocks on the London Metal Exchange and Shanghai Futures Exchange, which fell by 9,952 tonnes to a total of 376,859 tonnes at the end of June.  LME lead prices fell alongside other commodities on worsening macroeconomic conditions despite firm global demand, averaging $2,035 per tonne during the half compared to an average of $2,581 per tonne in the same period of 2011.  Refined metal premiums in Europe weakened in line with demand.  In the US, however, premiums increased dramatically mid-year on steady metal demand and escalating scrap costs. 

Outlook

Rising demand from consumers and businesses in emerging markets is expected to drive demand for vehicles and battery powered equipment, supporting strong lead consumption growth rates. A balance between global supply and demand is expected to be reached by the end of 2012, which should force a drawdown on exchange inventories in years to come as secondary and concentrate sources are likely to be insufficient to meet metal demand.



 

Xstrata Zinc

FINANCIAL AND OPERATING DATA

$m

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Revenue

1,781

1,937

3,756

Zinc lead Australia

233

250

550

Lead Europe

339

310

602

Zinc Europe

756

820

1,605

Zinc North America

418

498

922

Zinc Peru**

35

59

77

Operating EBITDA

465

750

1,223

Zinc lead Australia

133

208

288

Lead Europe

18

9

20

Zinc Europe

93

159

282

Zinc North America

190

318

556

Zinc Peru**

31

56

77

Depreciation and amortisation

(225)

(213)

(409)

Zinc lead Australia

            (105)

(93)

(183)

Lead Europe

(1)

(1)

(2)

Zinc Europe

(22)

(24)

(46)

Zinc North America

(85)

(74)

(143)

Zinc Peru**

(12)

(21)

(35)

Operating profit

240

537

814

Zinc lead Australia

28

115

105

Lead Europe

17

8

18

Zinc Europe

71

135

236

Zinc North America

105

244

413

Zinc Peru**

19

35

42

Share of Group Operating profit

9.8%

12.6%

9.7%

Australia

1.1%

2.7%

1.2%

Europe

3.6%

3.4%

3.1%

North America

4.3%

5.7%

4.9%

Zinc Peru**

0.8%

0.8%

0.5%

Capital employed

6,532

6,140

6,100

ROCE*

9.5%

24.1%

18.9%

Capital expenditure

531

276

885

Australia

454

232

736

Europe

15

16

66

North America

62

28

83

Sustaining

247

172

504

Expansionary

284

104

381

*
**

ROCE % based on average exchange rates for the period
Xstrata Zinc's pro-rata share of Xstrata's 33.75% interest in Antamina
Includes goodwill allocation on acquisition of Falconbridge

 

 

OPERATING PROFIT VARIANCES

 

$m

Operating profit 30.06.11

537

Sales price*

(339)

Volumes

(29)

Unit cost - real

41

Unit cost - CPI inflation

(25)

Unit cost - mining industry inflation

(20)

Unit cost - foreign exchange

61

Other income and expenses

3

Depreciation and amortisation (excluding foreign exchange)

11

Operating profit 30.06.12

240

* net of commodity price linked costs, treatment and refining charges

 

Operations

Xstrata Zinc's operating profit of $240 million in the first half of 2012, compared to $537 million in the same period of 2011, reflected the $339 million negative impact of lower LME prices during the period.

Efficiency improvements drove real unit cost savings of $41 million, which along with the positive impact of a stronger US dollar against local currencies partially offset lower sales prices.

Total zinc in concentrate production in the first half remained at a similar level to the same period of the previous year.  A 6% increase in zinc in concentrate production at our Australian operations helped offset expected lower zinc production at Antamina, where the mine plan continues to operate in a predominantly copper ore zone, and lower grades at our Brunswick and Perseverance mines in Canada, where closure is imminent.  Improved lead ore grades in our Australian operations increased total lead in concentrate production by 8% in the first half of 2012 compared with the same period of 2011. 

C1 cash costs increased from 32.5¢ per pound in the first half of 2011 to 39.7¢ per pound in the first half of 2012.  Efficiency improvements and production increases across the business unit drove improvements in real unit cost savings of $41 million, but were offset by lower by-products revenue resulting from lower lead and silver prices. As a fully integrated zinc producer, Xstrata Zinc's integrated mine and smelter C1 costs in the first half of 2012 increased to 35.4¢ per pound from 23.5¢ per pound in the same period of 2011 due to lower by-products prices, despite the real unit cost savings achieved.

Zinc Lead Australia

Operating profit for our Australian operations of $28 million was 76% lower than in the same period of 2011 as significant cost savings and a stronger US dollar against the Australian dollar were offset by the negative impact of lower commodity prices.

The George Fisher underground mine produced a total of 1.6 million tonnes, during the period, an increase of over 54,000 tonnes on the comparable period in 2011. Zinc grades improved in comparison to the first half of 2011, though lower lead grades reflected less production from high lead areas.

Black Star Open Cut contributed 2.2 million tonnes in the first half, an 8% decrease compared to 2011.  Ore grades significantly increased mainly as a result of an improved ore definition. Handlebar Hill Open Cut increased production by 8% compared to the first half of 2011, though its mined grades were lower than the comparable period last year. The concentrator processed its target of 4.4 million tonnes of ore during the period and remains on track to increase future throughput to up to 10 million tonnes per annum by 2015, compared to current capacity of 9.1 million tonnes per annum, once a $68 million debottlenecking project begins commissioning at the end of 2013.

During the first six months of 2012, the Mount Isa lead smelter processed all of the concentrator's lead concentrate output and a further 10,000 tonnes of third party concentrates. We achieved significant advances in trialling and patenting new technology, which has the potential to significantly reduce air emissions while producing a saleable zinc product. Pilot plant trials are scheduled for the third quarter.

McArthur River Mine saw an overall increase of 9% in zinc metal in concentrate volumes due to higher grades, while ore mining and milling activities remained at similar levels to the first half of 2011. The construction of the heavy medium separation main plant and associated infrastructure to increase production to 3.2 million tonnes per annum at McArthur River was largely completed during the period with commissioning scheduled for the third quarter.

Zinc Lead Europe

Operating profit for our European operations decreased to $88 million in the first half of 2012 from $143 million in the same period of 2011, mainly as a result of lower metal prices which were partially offset by the positive impact of the strong US dollar against the Euro.

Zinc metal production at our San Juan de Nieva plant was at similar levels to the same period of last year, and the plant is producing at its maximum capacity. Our smelter also produced 341,000 tonnes of saleable sulphuric acid, a 3% increase on the same period of 2011. Our Nordenham plant produced 72,277 tonnes of saleable zinc in the first half of 2012, in line with the equivalent 2011 period. Britannia Refined Metals produced 80,841 tonnes of lead and lead alloys, 17% higher than the equivalent period of 2011 due to consistent bullion supply as a result of improved shipping schedules and an improved final stage of the refining process. Silver production of 3.6 million ounces was also higher than the first half of the previous year, mainly as a result of higher average silver content in the unrefined lead feed and increased lead production.

Zinc Lead Americas

Operating profit for our Canadian operations was $105 million in the first half of 2012, compared with $244 million in the same period of 2011. Lower commodity prices compared to the same period in 2011 resulted in a $133 million negative price variance and lower sales volumes mainly as result of lower head grades added a further $20 million when compared to the same period of last year. However this was partially offset by a positive foreign exchange variance as result of a weaker Canadian dollar versus the US dollar.

Brunswick mine is expected to deplete its ore reserves by March 2013 after almost 49 years of operation. During the period 70,000 tonnes of material from Trevali's Halfmile operation were milled to partially offset declining Brunswick Mine throughput, resulting in 1.6 million tonnes of processed ore, 3% lower than the same period in 2011. Zinc head grades and zinc metallurgical recoveries were maintained at 8.05% and 85.86% respectively, resulting in the production of 110,000 tonnes of zinc in concentrate, 3% lower than the first half of 2011. Operating efficiencies and further cost savings actions reduced Brunswick's operating costs and real unit costs by 5% and 2% respectively relative to the first half of 2011.

The Brunswick Smelter improved its performance in the second quarter after a challenging first quarter in which the treatment of unusual third party feeds impeded smooth processing. Lead production was equivalent to the same period of 2011 at 39,000 tonnes.  Costs were in line with the first half of 2011, mainly as a result of cost control initiatives.

Perseverance Mine entered its last full year of production in 2012 as the development of its associated Bracemac-McLeod project progressed from single face to multi-face development in the first quarter. Production remains on schedule to start as planned in the first quarter of 2013 at a run rate of 90,000 tonnes of zinc per year.  Bracemac-McLeod will benefit from using the nearby existing Matagami concentrator to process about 1 million tonnes of ore per annum, in line with Perseverance's current ore production.

Production at Perseverance increased marginally in the first half but was offset by slightly lower grades than the equivalent period last year at 12.74% in zinc, 5% lower than the first half of 2011 and 1% in copper, a 3% decrease. The concentrator produced 64,400 tonnes of zinc metal and 4,800 tonnes of copper metal, 7% and 1% lower than the first half of 2011 respectively.

At Antamina, Xstrata Zinc´s share of zinc metal in concentrate decreased by 21% in the first half of 2012 compared to the same period of 2011, due to a planned reduction in zinc volumes as the mine plan continues to mine predominantly copper ore.

Exploration work on the Hackett River and Wishbone properties was initiated early in 2012, following a review of work carried out by previous owners.

SALES VOLUMES

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Australia - Mount Isa




Zinc in concentrate (t) third party sales (payable metal)

72,717

90,961

215,503

Zinc in concentrate (t) inter-company sales (payable metal)

77,577

62,982

89,611

Total zinc in concentrate (t) (payable metal)

150,294

153,943

305,114

Lead in concentrate (t) third party sales (payable metal)

-

2,139

-

Lead in dross (t) third party sales (payable metal)

-

3

3,854

Lead in bullion (t) inter-company sales (payable metal)

72,921

65,510

131,808

Total lead (t) (payable metal)

72,921

67,652

135,662

Silver in concentrate (koz) inter-company sales (payable metal)

44

164

-

Silver in concentrate (koz) third party sales (payable metal)

50

92

337

Silver in bullion (koz) inter-company sales (payable metal)

3,619

2,887

6,293

Total silver (koz) (payable metal)

3,713

3,143

6,630

Australia - McArthur River

 

 

 

Zinc in concentrate (t) third party sales (payable metal)

59,634

39,732

117,572

Zinc in concentrate (t) inter-company sales (payable metal)

16,076

28,782

37,390

Total zinc (t) (payable metal)

75,710

68,514

154,962

Lead in concentrate (t) third party sales (payable metal)

12,138

8,662

19,549

Silver in concentrate (koz) third party sales (payable metal)

125

118

258

Europe - San Juan de Nieva

 

 

Refined zinc (t)

246,296

243,101

489,778

Europe - Nordenham

 

 

 

Refined zinc (t)

75,874

75,800

148,816

Europe - Northfleet

 

 

 

Refined lead (t)

78,842

64,360

127,753

Refined silver (koz)

3,684

2,512

5,452

North America - Brunswick

 

 

 

Zinc in concentrate (t) third party sales (payable metal)

82

6,686

31,675

Zinc in concentrate (t) inter-company sales (payable metal)

80,339

80,376

132,893

Total zinc in concentrate (t) (payable metal)

80,421

87,062

164,568

Zinc in bulk concentrate (t) third party sales (payable metal)

7,003

5,530

12,656

Lead in bulk concentrate (t) third party sales (payable metal)

2,410

3,720

6,420

Silver in bulk concentrate (koz) third party sales (payable metal)

89

155

289

Refined lead and alloys (t)

36,836

37,726

70,302

Silver doré (koz) inter-company sales

5,577

6,203

13,187

North America - CEZ *

 

 

 

Refined zinc (t)

32,986

34,236

66,706

Perseverance

 

 

 

Zinc in concentrate (t) third-party sales (payable metal)

3,191

4,858

16,224

Zinc in concentrate (t) inter-company sales (payable metal)

50,313

54,377

97,695

Total zinc (t) (payable metal)

53,504

59,235

113,919

 

SALES VOLUMES

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Peru - Antamina zinc**

 

 

 

Zinc in concentrate (t) third party sales (payable metal)

31,638

44,050

66,289

Total zinc (t) (payable metal)

31,638

44,050

66,289

Total zinc metal third party sales (t)

355,155

353,138

705,299

Total zinc in concentrate third party sales (t)

174,265

191,816

459,919

Total lead metal third party sales (t)

115,679

102,086

198,055

Total lead in concentrate third party sales (t)

14,548

12,385

29,823

Total silver metal third party sales (koz)

3,684

2,512

5,452

Total silver in concentrate third party sales (koz)

264

374

884

Average LME zinc price($/t)

1,978

2,323

2,190

Average LME lead price $/t)

2,035

2,581

2,399

*
**

Xstrata Zinc's pro rata share of CEZ sales volumes (25%)
Xstrata Zinc's pro rata share of zinc sales from Xstrata's 33.75% interest in Antamina
Includes goodwill allocation on acquisition of Falconbridge

 

SUMMARY PRODUCTION DATA

Six months to 30.06.12

Six months to 30.06.11

Year ended
31.12.11

Total zinc in concentrate production (t)

496,094

500,137

974,517

Total zinc in metal production (t)**

364,833

366,339

737,758

Total lead in concentrate production (t)

125,629

115,874

225,743

Total lead in metal production (t)

119,785

107,997

206,579

Consolidated Zinc cash cost (C1) - post by-product credits (US¢/lb)

39.72

32.47

33.19

**

Xstrata Zinc's pro rata share of zinc sales from Xstrata's 33.75% interest in Antamina

 

 

Markets HTMLPIPESYMBOL Alloys

Ferrochrome

Global consumption of ferrochrome reached 4.6 million tonnes in the first half of 2012 driven by stainless steel melt of 17.1 million tonnes, 2% higher than in the first half of 2011.  Strong growth in global production of stainless steel at the beginning of 2012 tailed off towards the end of the first half in response to weaker global economic growth as well as renewed concerns over sovereign debt in Europe and slowing growth in China. 

Global ferrochrome production in the first half of 2012 was 3% lower at 4.4 million tonnes.  China continues to dominate the industry, producing more than 40% of the world's stainless steel and 31% of global ferrochrome in the first half of the year.  The ongoing growth in Chinese ferrochrome production places it second in production volumes to South Africa, which produced 32% of the world's ferrochrome during the first six months of 2012.

South African ferrochrome production was severely constrained during the first half of the year as a result of forced electricity buybacks by Eskom, the South African power utility, to balance demand and supply and perform extended essential maintenance. 

The average European benchmark price for ferrochrome during the first half of 2012 of 125¢ per pound was 5¢ per pound lower than during the first half of 2011. Ferrochrome producers settled the European benchmark price for the second quarter at 135¢ per pound, an increase on the 115¢ per pound received during the first quarter.  The third quarter European benchmark price has been settled at 125¢ per pound.

Outlook

Despite the recent economic slowdown, stainless steel production is forecast to increase by 3% in 2012 to over 34.5 million tonnes, supporting continued growth in demand for ferrochrome globally.  While Chinese ferrochrome production increased during the first half of the year, availability is expected to remain tight in the second half of the year due to South African producers limiting all but essential production in response to expensive winter electricity tariffs and a drawdown in stocks due to the idling of capacity in response to ongoing Eskom power buybacks.  Ferrochrome produced in China is likely to be consumed domestically due to the Chinese government's 20% tax on ferrochrome exports.

Platinum Group Metals (PGM) 

After a promising start to the year, average platinum and palladium prices for the first half of the year declined by 13% and 15% respectively, while rhodium prices were down 39% compared to the same period last year. Platinum traded at an average price of $1,555 per ounce during the first half of the year and palladium and rhodium traded at $656 per ounce and $1,395 per ounce respectively.

Supply constraints in South Africa, the largest primary production country, as a result of industrial action at a major producer and continued regulatory safety interventions and concerns about Eskom's ability to supply uninterrupted power led to relatively steep, largely sentiment-driven gains in PGM prices in the early part of the year.  Platinum, palladium and rhodium prices peaked in February with strong economic data and vehicle sales from the US offsetting concerns over a slowing Chinese economy. However, sentiment turned negative when eurozone concerns resurfaced in March, growth forecasts were downgraded for China and the US in May and there were reports of oversupply in the platinum market. Platinum closed the period at $1,428 per ounce, marginally above its opening price at the start of the year. Palladium prices at the end of June were $578 per ounce, down $77 per ounce from the beginning of January.

During the first half of 2012, global autocatalyst demand continued to grow, albeit at a muted pace.  The US continued to underpin demand, with light vehicle sales 15% higher than for the same period in 2011. In China, light vehicle sales were lower than expected, increasing by 6% on the same period last year. In Japan, vehicle sales showed significant recovery from the earthquake and tsunami of 2011, increasing by 53%. Improved demand for platinum, as a result of growing vehicle sales from these regions will be largely offset by lower demand from Western Europe. Vehicle sales in Western Europe were 8% lower in the first half of 2012, negatively impacting the demand for platinum in autocatalysts. 

Jewellery sales, using trading on the Shanghai Gold Exchange as a barometer, performed very well during the first half of the year with consumers buying effectively on the dips. Year to date platinum volumes traded on the Shanghai gold exchange are at a similar level to the same period in 2011.

Global ETF holdings of platinum increased by 123,000 ounces in the first two months of the year, but have since fallen back with holdings only up 3% at 1.34 million ounces. Palladium ETF holdings, supported by strong vehicle sales in the US, outperformed platinum and net holdings rose 18% to 1.88 million ounces for the first half of the year, although 490,000 ounces below the peak recorded in 2009. 

Outlook

It is anticipated that South African supply will continue to be impacted through the remainder of 2012 by potential industrial action and the suspension or delay of platinum projects and mines due to lower prices. Despite lower expected primary production volumes, the market is not anticipated to move into significant deficit as European demand is expected to remain weak.

The medium to long-term outlook for platinum and palladium remains favourable. Demand is expected to continue to be underpinned by tightening emissions legislation in Europe and other regions ongoing demand growth from developing countries and from economic recovery in the OECD.




Xstrata Alloys

FINANCIAL AND OPERATING DATA

$m

Six months to 30.06.12

Six months to

 30.06.11

Year ended 31.12.11

Revenue

753

992

1,689

Operating EBITDA

113

182

294

Depreciation and amortisation

(61)

(67)

(141)

Operating profit

52

115

153

Share of Group Operating profit

2.1%

2.7%

1.8%

Capital employed

3,307

3,627

3,165

Return on capital employed*

3.1%

6.5%

4.9%

Capital expenditure

201

183

387

        Sustaining

58

68

137

        Expansionary

143

115

250

*

ROCE % based on average exchange rates for the period

 

OPERATING PROFIT VARIANCES

 

$m

Operating profit 30.06.11

115

Sales price*

(58)

Volumes

(39)

Unit cost - real

13

Unit cost - CPI inflation

(29)

Unit cost - mining inflation

(20)

Unit cost - foreign exchange

68

Other income and expenses

5

Depreciation and amortisation (including impairments of PPE and excluding foreign exchange)

(3)

Operating profit 30.06.12

52

*  Net of commodity price linked costs, treatment and refining charges

 

 

Operations

Xstrata Alloys recorded an operating profit of $52 million, compared to $115 million for the comparative period in 2011.  Our operations were impacted by weak commodity demand, lower prices and double digit inflation in key industry inputs, including energy and raw materials. 

Lower realised ferrochrome and average PGM prices reduced operating profit by $58 million.  We reduced operating capacity to an average of 65% of total operating capacity to respond to power buybacks by Eskom and weak market conditions.  Lower sales volumes further impacted operating profit by $39 million.

Despite significant inflationary pressures on key inputs which impacted the South African mining industry during the first half, measured against external indices, Xstrata Alloys achieved real unit cost savings of $13 million. Cost savings were realised at both our operations and from business-wide cost cutting initiatives.

The weakening of the rand against the US dollar during the period resulted in a positive impact of $68 million.

Ferrochrome

In the first half of 2012, ferrochrome volumes declined by 21% to 459,333 tonnes as our operations reduced capacity to meet electricity buyback arrangements put in place by Eskom, the South African power utility.  Through an agreement with Eskom, operations at some of our less energy efficient furnaces were suspended until the end of May to allow Eskom to perform extended essential maintenance. The compensation received by our operations for electricity not consumed was sufficient to cover the costs and lost profits incurred through reducing production volumes.

Cash production costs increased by 10% compared to the previous period mainly due to the impact of lower production volumes.  Cost saving and efficiency initiatives along with the operation of more efficient furnaces partially offset the impact of significant costs arising from mining inflation.   

Ferrovanadium production volumes were lower compared to the same period in 2011 due to increased demand for high quality vanadium pentoxide by the aerospace industry. This resulted in less vanadium pentoxide being available to be converted to ferrovanadium.

Platinum Group Metals (PGM)

During the first half of 2012, PGM volumes declined by 22% compared to the first half of 2011 to 65,742 ounces.

The Mototolo joint venture increased throughput by 73,441 tonnes compared to the first half of 2011, maintaining nameplate run of mine (ROM) production levels at around 200,000 tonnes per month.  The operation achieved record production of 1,206,723 tonnes for the first half of the year. 

ROM production at Eland decreased by 584,395 tonnes, predominantly due to the cessation of opencast mining activity during the second half of 2011.  Production was also negatively impacted by a steel supply shortage experienced at the end of 2011 which delayed the installation of critical mine infrastructure by four months for the ongoing development of the underground operation.

In light of current and expected near term market conditions, Xstrata Alloys is undertaking a strategic review of the Eland project plan, with the aim of optimising the development of the mineral resource, whilst minimising near term funding requirements.

SUMMARY PRODUCTION DATA

 

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Ferrochrome (kt)*

459

581

1,021

Vanadium**

 



        Ferrovanadium (k kg)

1,838

1,977

3,953

        V2O5 (k lbs)

9,946

10,093

21,039

Platinum Group Metals **

 



        Platinum (oz)

37,866

50,677

92,411

        Palladium (oz)

21,442

25,237

49,968

        Rhodium (oz)

6,434

8,178

15,049

Indicative average published prices (Metal Bulletin)

 



        Ferrochrome (¢/lb)

125.0

130.0

125.0

        V2O5 ($/lb)

5.7

6.8

6.6

        Ferrovanadium ($/kg)

25.2

30.3

28.7

Average (London Platinum and Palladium Market) prices ($/oz)

Platinum (London Platinum and Palladium Market)

 

1,555

 

1,789

 

1,720

Palladium (London Platinum and Palladium Market)

656

776

733

Rhodium (Johnson Matthey) rhodium price

1,395

2,307

2,022

*
**

Including Xstrata's 79.5% share of the Xstrata-Merafe Chrome Venture
100% consolidated

 



 

Xstrata Technology Services

FINANCIAL AND OPERATING DATA

$m

Six months to 30.06.12

Six months to 30.06.11

Year ended 31.12.11

Revenue

179

95

222

Operating EBITDA

30

14

34

Depreciation and amortisation

(3)

(4)

(7)

Operating profit

27

10

27

Capital  expenditure

6

2

6

 

Xstrata Technology Services provides expertise and technology to support the processes involved in mining and metallurgy. It comprises Xstrata Technology, based in Brisbane, a specialist technology solutions provider, and Xstrata Process Support, based in Sudbury, a separate division that provides highly specialised technological support both to Xstrata's operations and to third party customers.

Xstrata Technology

Xstrata Technology achieved a strong performance during the first half of 2012 as a result of increased demand for its products and services due to strong investment in mining projects.  During the first half of 2012, operating profit more than doubled due to an increased number of project utilising all of Xstrata Technology's technologies, and the successful completion of major projects utilising IsaMilland IsaKidd technologies.  These two technologies continue to be successful across a number of markets including Australia, Canada, China, the Democratic Republic of Congo, South Africa and South America.

Albion Process™

The Albion Process™ is a leaching technology that combines fine grinding in the IsaMillTM with leaching under atmospheric conditions to provide a robust method of treating refractory concentrates at low capital costs. The Albion Process business supplies specialist leaching equipment to enable the successful adoption of this technology, supported by the HyperSparge™ oxygen injection lance technology and the ZipaTank™ and ALR modular tank systems.

Xstrata Zinc is currently operating two Albion Process™ plants, at Nordenham in Germany and at San Juan de Nieva in Spain, to support improved zinc recovery from McArthur River Mine's concentrates.  A plant to treat refractory gold concentrates in the Dominican Republic was commissioned in June 2012 and is currently ramping up to full production. Xstrata Technology is completing the design and supply of an Albion Process™ Plant to the GPM gold project in Armenia for commissioning in March 2013.

Interest in the Albion Process™ technology continues to be strong.

IsaMill™

IsaMillTM Technology was originally developed for ultra-fine grinding applications and is now being successfully used for mainstream tertiary and regrind applications. It is being widely adopted for its high efficiency and process gains from inert grinding media. The technology continued to develop during the year with strong sales around the world in grinding, regrinding, and fine grinding applications.

ISASMELT™

ISASMELT™ is a Top Submerged Lance (TSL) smelting technology that was developed and has been operating in Mount Isa for over 25 years. It is distinguished from alternative technologies by low capital cost, rapid start up, high plant availability and low operating cost. It is attractive for both modernising existing operations and for building efficient and clean new smelters. More than 20 ISASMELT™ plants have been designed over the past 20 years, with operations in many countries including Belgium, China, Germany, India, Malaysia, Peru, the US and Zambia.

During the first half of 2012, construction continued on a lead ISASMELT™ plant in Kazakhstan and a lead ISASMELT™ plant in China. Xstrata Technology also completed basic engineering for a new greenfield copper smelter for Kansanshi Mining plc in Zambia that will be able to treat 1.4 million tonnes per year of copper concentrate. Detailed engineering and procurement activities are now underway. A variety of studies were also delivered to clients planning to modernise existing smelters or build new green field plants using TSL technology.

Bottom Blown Oxygen Cupel (BBOC)

The Bottom Blown Oxygen Cupel (BBOC) is a silver refining technology developed and used at Xstrata's Britannia Refined Metals lead refinery in England. It is a high intensity, cost-effective technology for silver refining. Xstrata Technology commissioned one BBOC unit in early 2012. A number of studies are currently being undertaken for various applications of the technology.

Jameson Cell

Jameson Cell Flotation Technology, a high intensity flotation technology, has traditionally been very successful in fine coal flotation and is now transferring this success to base metals applications globally, often in combination with the IsaMillTM to enhance concentrate quality and metal recovery.  This has led to strong demand in 2012 and a robust outlook.

Tankhouse Technology (ISA Process™ and KIDD Process™)

IsaKidd combines the Isa ProcessTM and Kidd ProcessTM copper refining technologies, developed at our operations in Townsville Australia and Kidd Creek Canada respectively.  In 2006 the strengths of both technologies were combined to offer comprehensive technology packages in electro-refining and electro-winning, and more recently for full solvent-extraction/electro-winning plants.

IsaKidd revenue in the first half of 2012 increased by around 11% compared to prior year, supported by continued strong demand for Xstrata Technology's unique specification stainless steel cathode plates (both 316L and Duplex).  The patented Xstrata Technology Duplex steel has demonstrated superior corrosion resistance and continues to gain market share.

Orders for IsaKiddTM technology continue to be strong from all of the major industry regions including China, Africa, India, South America, Asia and Europe.

Xstrata Process Support

Xstrata Process Support provides expert technical services to the minerals sector through five separate groups.  Demand for Xstrata Process Support's services continues to grow and revenues from external customers for 2012 represented 59% of total revenue compared to 43% in the first half of 2011.

Process Mineralogy

Our Process Mineralogy group, the combined discipline of mineral processing and quantitative mineral measurement, has continued to experience strong demand for ore characterisation, laboratory scale mineral processing testwork, mini flotation piloting, plant optimisation and process design services. Xstrata Nickel's Raglan mine and Strathcona mill along with Xstrata Zinc's Matagami mine, Errington-Vermillion and Hackett River projects are all utilising the technology.

During the first half of the year, demand from third party customers has continued to grow.  A strategy to deliver on capabilities in the sampling discipline and experience and acquisition of equipment to service gold and rare earth markets has contributed to the business' robustness. 

Plant Support

The Plant Support group is the newest business unit within Xstrata Process Support. It provides a range of services focusing on in-plant, hands-on technical assistance, commissioning and process optimisation. The group consists of a team of experienced metallurgists and contract services.

Demand for the services delivered by the Plant Support group has been strong from both Xstrata Nickel and external clients in the first six months of 2012.

Extractive Metallurgy

Extractive Metallurgy continued to provide pyrometallurgy and hydrometallurgy services to smelters and refineries in the areas of fluid bed roasting, thermal analysis and process modelling.  A product designed to audit and improve metal accounting systems has been implemented successfully for several external clients.  Several projects involving pre-treatment of refractory gold using roasting and pressure oxidation have been carried out.  The group is expanding its pyrometallurgical capabilities through the installation of a 300kW DC furnace for smelter pilot campaigns. 

Process Control

Demand continues to be strong for Process Control, a group of highly experienced engineers based in Sudbury, Canada, and at various Xstrata operations. The focus of this professional group is delivering best practice process control solutions to their clients and helping them to achieve operational performance excellence.   Within Xstrata the Process Control's services extended to improvements and developments at Xstrata Copper's Kidd concentrator and at Xstrata Nickel's Strathcona concentrator and Sudbury smelter in Canada. Developments continued at Xstrata's Sudbury and Timmins based mines in backfill processing, tracking systems for ventilation on demand and, in particular, for energy saving initiatives at Fraser mine.

Work for external clients continued to expand and included consultancy, instrumentation and process control feedback for one of Canada's largest coal processing plants.

Materials Technology

Our Materials Technology team provides asset integrity management services during the development and implementation stages of capital projects and on through the full equipment lifecycle. Plant inspections are specialised and are vital to minimise unexpected plant shutdowns.  In the first half of 2012, Materials Technology continued to work in Canada with Xstrata Nickel's Raglan and Sudbury operations, at Xstrata Copper's Horne smelter and at Xstrata Zinc New Brunswick operations.  Several smelter acid plant inspections were also completed for external clients during the year.

Materials Technology continues to experience strong demand for its services from external clients and expanded its workforce and services during the first six months of 2012.



 

Operations data

Name of Operation

Ownership

100% Production 2011

Accounting Status

Location

Xstrata Copper





Argentina





Alumbrera

50%

38.2mt ore

117kt Cu in conc

327koz Au in conc

28koz Au in dore

Subsidiary

Catamarca Province

Australia

 

 

 

 

Mount Isa

100%

5.9mt ore

149kt Cu in conc

238kt Cu in anode

Subsidiary

North West Queensland

Ernest Henry

100%

10.4mt ore

100kt Cu in conc

129koz Au in conc

Subsidiary

North West Queensland

 

Townsville Refinery

100%

277kt Cu cathode

Subsidiary

North Queensland

Canada

 

 

 

 

CCR

100%

264kt Cu cathode

Subsidiary

Quebec

Horne

100%

187kt Cu in anode

Subsidiary

Quebec

Kidd

100%

42kt Cu in conc

71kt Zn in conc

Subsidiary

Ontario

Chile

 

 

 

 

Altonorte

100%

311kt Cu in anode

Subsidiary

Antofagasta Region

Collahuasi

44%

47.8mt ore

417kt Cu in conc

36kt Cu cathode

Joint venture

Tarapacá Region

Lomas Bayas

100%

14.5mt ore

74kt Cu cathode

Subsidiary

Antofagasta Region

Peru

 

 

 

 

Antamina
(joint with Xstrata Zinc)

33.75%

37.6mt ore

334kt Cu in conc

Joint venture

Ancash Region

Tintaya

100%

7.3mt ore

74kt Cu in conc

21kt Cu cathode

Subsidiary

Espinar Province

 

 



 

Name of Operation

Ownership

100% Production 2011

Accounting Status

Location

Xstrata Coal

 

 

 

 

Americas

 

 

 

 

Cerrejón

33.3%

32,255kt

Joint venture

Colombia

Australia

 

 

 

 

Liddell

67.5%

4,603kt

Joint venture

Hunter Valley

Macquarie Coal JV

- West Wallsend

 

80%

 

2,760kt

 

Joint venture

 

Newcastle

Mt Owen

100%

9,227kt

Subsidiary

Hunter Valley

Ravensworth operations

100%

3,980kt

Subsidiary

Hunter Valley

Ravensworth Underground

70.2%

1,696kt

Joint venture

Hunter Valley

Oakbridge Group

- Baal Bone

- Bulga Underground

- Bulga Open Cut

 

74.1%

68.3%

68.3%

 

1,184kt

787kt

6,157kt

 

Subsidiary

Joint venture

Joint venture

 

Western Coal Fields

Hunter Valley

Hunter Valley

Tahmoor

100%

1,721kt

Subsidiary

Southern Coal Fields

Ulan

- Ulan Underground

- Ulan West box Cut

 

90%

90%

 

3,940kt

572kt

 

Joint venture

Joint venture

 

Western Coal Fields Western Coal Fields

Mangoola

100%

7,791kt

Subsidiary

Hunter Valley

Oaky Creek

55%

8,020kt

Joint venture

Bowen Basin

Newlands

- Thermal

- Coking

 

55%

55%

 

5,068kt

1,418kt

 

Joint venture

Joint venture

 

Bowen Basin

Bowen Basin

Collinsville

- Thermal

- Coking

 

55%

55%

 

2,747kt

1,210kt

 

Joint venture

Joint venture

 

Bowen Basin

Bowen Basin

Rolleston

75%

7,502kt

Joint venture

Bowen Basin

South Africa

 

 

 

 

Impunzi Division

79.8%

4,601kt

Subsidiary

Witbank

Tweefontein

- Opencast

- Underground

 

79.8%

79.8%

 

2,112kt

5,430kt

 

Subsidiary

Subsidiary

 

Witbank

Witbank

Goedgevonden

74%

5,293kt

Joint venture

Witbank



 

Name of Operation

Ownership

100% Production 2011

Accounting Status

Location

Xstrata Nickel

 

 

 

 

Australia

 

 

 

 

Cosmos

100%

437kt ore

11kt Ni in conc

Subsidiary

Mt Keith-Leinster, Western Australia

Sinclair

100%

341kt ore

6kt Ni in conc

Subsidiary

Mt Keith-Leinster, Western Australia

Canada

 

 

 

 

Sudbury:

Nickel Rim South mine

 

 

Mill and Smelter

 

100%

 

 

100%

 

1.3mt ore

18kt Ni in conc
39kt Cu in conc

1.9mt ore

122kt Ni-Cu matte

Subsidiary

Ontario, Canada

Raglan

100%

1.3mt ore

27kt Ni in conc

Subsidiary

Quebec, Canada

Dominican Republic

 

 

 

 

Falcondo

85.3%

1.1mt ore

13.5kt Ni in FeNi

Subsidiary

Bonao,
Dominican Republic

Norway

 

 

 

 

Nikkelverk

100%

92kt Ni

36kt Cu

3kt Co

Subsidiary

Kristiansand, Norway

 



 

Name of Operation

Ownership

100% Production 2011

Accounting Status

Location

Xstrata Zinc

 

 

 

 

Australia

 

 

 

 

McArthur River

100%

2.3mt ore

194kt Zn in conc

Subsidiary

Northern Territory,

 Australia

Mount Isa

100%

9.2mt ore

357kt Zn in conc

139kt Pb in bullion

204t Ag in bullion

Subsidiary

North West Queensland, Australia

Canada

 

 

 

 

Brunswick Mine

100%

3.1 mt ore

209kt Zn in conc

57kt Pb in conc

157t Ag in conc

9kt Cu in conc

Subsidiary

New Brunswick, Canada

Brunswick Smelting

100%

77kt refined Pb

418t Ag doré

Subsidiary

New Brunswick, Canada

CEZ Refinery

25%

290kt Zn

Associate

Quebec, Canada

Perseverance Mine

100%

1,087 Kt ore

135kt Zn in conc

10kt Cu in conc

Subsidiary

Quebec, Canada

General Smelting

100%

5kt Zn and Pb

Subsidiary

Quebec, Canada

Germany

 

 

 

 

Nordenham

100%

154kt Zn

148kt saleable Zn

Subsidiary

Nordenham, Germany

Peru

 

 

 

 

Antamina

(joint with Xstrata Copper)

33.75%

37.6mt ore

235kt Zn in conc

 

Joint venture

Ancash, Peru

Spain

 

 

 

 

San Juan de Nieva

100%

511kt Zn

489kt saleable Zn

Subsidiary

Asturias, Spain

Hinojedo

100%

39kt calcine

22kt SO2

Subsidiary

Cantabria, Spain

Arnao

100%

16kt ZnO

Subsidiary

Asturias, Spain

UK

 

 

 

 

Northfleet

100%

130kt primary Pb

167t refined Ag

Subsidiary

Northfleet, UK



 

 

Name of Operation

Ownership

100% Production 2011

Accounting Status

Location

Xstrata Alloys

 

 

 

 

Boshoek plant

79.5%

141kt

Joint venture

Boshoek,
South Africa

Lion plant

79.5%

302kt

Joint venture

Steelpoort,
South Africa

Lydenburg plant

69.6%

291kt

Joint venture

Lydenburg,
South Africa

Rustenburg plant

79.5%

183kt

Joint venture

Rustenburg,
South Africa

Wonderkop plant

79.5%

368kt

Joint venture

Marikana,
South Africa

Kroondal mine

79.5%

792kt

Joint venture

Rustenburg,
South Africa

Thorncliffe mine

79.5%

801kt

Joint venture

Steelpoort,
South Africa

Helena mine

79.5%

489kt

Joint venture

Steelpoort,
South Africa

Waterval mine

79.5%

210kt

Joint venture

Rustenburg,
South Africa

Rhovan

 V2O5

74%

21,039k lbs

Joint venture

Brits,
South Africa

FeV

74%

3,953k kg

Char Technologies

100%

27kt

Subsidiary

Witbank,
South Africa

African Carbon Manufacturers

100%

38kt

Subsidiary

Witbank,
South Africa

African Carbon Producers

100%

82kt

Subsidiary

Witbank,
South Africa

African Fine Carbon

100%

33kt

Subsidiary

Middelburg,
South Africa

African Carbon Union

74%

36kt

Subsidiary

Witbank,
South Africa

Mototolo

37%

198k oz

Joint venture

Steelpoort,
South Africa

Eland

73.99%

57k oz

Joint venture

Brits,
South Africa

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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