LONDON--Anglo-Swiss miner Xstrata PLC (XTA.LN) expects to deliver net real cost savings of around $390 million in 2012 as a mix of higher output levels, lower input costs and greater efficiencies help offset higher costs from lower ore grades and a transition period from old to new mines, the company's chief executive said Tuesday.
Xstrata expects to reduce costs by around $970 million in 2012, Mick Davis told Dow Jones Newswires in a call. About 40% of that will come from increased throughput and productivity, about 30% from more efficient processing and better procurement methods, 17% from lower input costs and the balance from improved energy efficiency.
The savings are partly offset by $580 million of cost headwinds that stem from grade degradation and the transitional nature of the business, Mr. Davis said. Xstrata has faced lower copper grades as it transitions from older mines to newer mines.
"A lot of that [$580 million], a significant part of that is actually found in the first half [of the year] as a result of the transitioning and we have less of that in the second half," he said.
Mr. Davis declined to comment on how shareholders might vote in upcoming Sept. 7 vote on the merger of equals with Glencore International PLC (XTA.LN). Xstrata's second largest shareholder, the sovereign wealth fund Qatar Holding LLC, has called on Glencore to sweeten its offer to 3.25 Glencore shares for every Xstrata share, up from 2.8 at the moment.
"It is now really up to the shareholders to decide whether they want the merger to go ahead on these terms or if they prefer Xstrata to continue as a standalone company," Mr. Davis said, noting that Xstrata had "negotiated a deal in the universe of what was possible at the time. We negotiated a ratio which I said at the time was fair to both companies."
He said that either way, Xstrata is incredibly well positioned to be a major contributor to the combined entity or alternatively have real capacity to add value to shareholders if they decide for it to stand on its own.
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(END) Dow Jones Newswires
August 07, 2012 05:05 ET (09:05 GMT)
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