Xstrata (XTA)

XSTRATA - FINAL

MAIN:
Being very big has its advantages – what natural predator does an elephant have, for example.
But being big can also lead to large-scale problems.
And so it is with mining giant Xstrata.
The Anglo-Swiss firm is the largest exporter of thermal coal in the world...
It’s a huge player in copper, nickel, zinc, ferrochrome, lead and vanadium – vital for hard steel – and operates in 19 countries.
Fair enough you might say, but despite encouraging half-year results, CEO of the firm, Mick Davis has admitted to some pretty big challenges ahead.
Davis, being, one, a South African, and, two head of a mining firm, is not a man given to whimsy.
In fact, even his mates describe him as ‘punchy’.
Hyperinflation, he said, was a problem.
Note – no ordinary inflation for Xstrata.
Labour was also pitted as a higher cost – up 40% in Australia since 2008, but most pronounced in Koniambo, its profitable nickel project in the Pacific Island of New Caledonia
Davis also mentioned a 70% rise in diesel costs and power prices in South Africa up 25% a year - and when your vehicles are this big...
(GFX of big earth mover etc) PAUSE
... that’s an impact.
A weak US dollar is not helpful, said Davis, but neither is a strong Aussie dollar.
Tricky, isn’t it?
Being big.
But he was upbeat about demand from China.
Just as well, since Xstrata has spent $100m on developing infrastructure in Western and Central provinces over there.
Investors have had a robust ride in the last three years.
After a disastrous share price dive, from £18 to less than £3, Davis has seen the stock clamber back over £15.
He’s also headed up a healthy stream of dividends.
This year, for example, the firm more than doubled its interim dividend from 5 to 13 p.
In March the main man hinted that Xstrata and Glencore, which owns 34% of the group, might merge, or that Glencore could sell its stake.
So with the prospect of M&A activity in the near future, investors could do worse than to sniff around this beast.
If it’s sheer size you want in your portfolio, better clear a space for some Xstrata.