Xstrata posts 77 pct fall in first-half profit

GENEVA — Mining company Xstrata PLC said net profit fell 77 percent in the first six months of the year as a result of lower commodity prices, and reiterated that its merger offer to rival Anglo American PLC would be “highly compelling” to both sets of shareholders.

Xstrata’s profit tumbled to $643 million, compared with $2.78 billion in the same period last year. Revenue fell 39 percent to $9.87 billion.

“The financial crisis and ensuing global economic slowdown, coupled with enormous uncertainty, fundamentally changed our operating environment in a very short space of time,” said Xstrata Chief Executive Mick Davis. “As last year drew to a close, it was apparent that demand had collapsed and commodity prices were near all-time lows in real terms.”

Earnings for the Anglo-Swiss company based in Zug, Switzerland, reflect the adverse market conditions, as base metal prices slipped by up to 57 percent, he said.

Davis said thermal coal, mined nickel, zinc and copper held up better, somewhat offsetting closures of unprofitable, high-cost operations and lower demand for ferrochrome, ferronickel and coking coal.

Real costs were cut $119 million in the first-half of the year, and more savings will be made in the next six months as restructuring, productivity improvements and other initiatives take effect, he added.

Xstrata, which does not reduce quarterly results, restated why it is pursuing a merger with Anglo American, which reported its own 31 percent fall in first-half earnings last week. In May, Anglo American rejected the proposed combination that would have created a group worth $68 billion, ranking the combined company behind BHP Billiton and Rio Tinto.

“The value proposition of putting these two companies together is highly compelling and I continue to believe that it is in the best interests of Xstrata and Anglo American shareholders to examine the potential,” Davis said.

Xstrata, the world’s fifth largest mining company, says the deal would create $1 billion in improved operations while entailing costs of up to $500 million and ending after two years.

It reported six projects currently in construction, with the Goedgevonden coal mine in South Africa and the Nickel Rim South in Canada reaching full production by 2010.