Xstrata is set for strong growth

If all goes as chief executive Mick Davis expects, mining group Xstrata is poised for three or four years of exceptionally strong organic growth as current capital projects come on stream, and if demand for copper, iron ore and coal continues to strengthen.

Over the coming three years $14-billion will go to capital expenditure on 15 copper, coal and nickel projects to increase the group's overall volume production by half and contribute to a planned 20% reduction in average unit costs.

That progress will be largely predicated on Latin America with major copper projects, coal in Australia and nickel in Canada and New Caledonia.

In South Africa, Xstrata's R3.1-billion mining developments are centred on shifting thermal coal production from underground to lower-cost open-cast collieries.

During the six months to end-June, higher minerals prices and volume increases (driven largely by Chinese demand) contributed to group revenue rising to $13.6-billion from $9.5-billion the previous year. Interim operating profit doubled to $3.2-billion.

Xstrata has its fair share of organic growth projects on its plate and Davis played down growth possibilities through acquisitions.

The group has the cash flow and financial facilities to fund its organic growth developments and meet maturing debt obligations.

Davis side-stepped questions about the possibility of a merger with 34% shareholder Glencore. He said he had received no proposals along this line from Glencore.

Still, the relationship remains fluid. Talk last year in London was that Glencore had initiated the proposed merger with Anglo American. But that was overshadowed by disquiet with what several analysts saw as Glencore's use of Xstrata as something of a piggy bank.

What else explains the $2-billion sale in February last year and the $2.2-billion repurchase just over a year later of Colombian coal assets to Xstrata? Glencore needed cash to follow Xstrata's rights issue and could only raise it from its associate.

Platinum holds immediate promise. At present, attention is on developing the 65%-owned Eland Platinum mine with its 40-year life expectancy and production of an annual 310000 ounces of platinum in concentrate by 2015.

What will be done with the 25% stake in Lonmin, the stake that was achieved in a failed full bid some years back?

Lonmin is pulling itself together after years of difficulties and Xstrata does not need the cash from a sale of its holding. There could be a renewed approach to Lonmin's shareholders followed, perhaps, by an expansion of Lonmin's operations. Both companies say that no proposals have been made or received.