Xstrata brings back dividends despite fall in profits

London-listed mining giant Xstrata today said it would resume dividend pay-outs as chief executive Mick Davis said he had "increased confidence in the medium-term outlook for commodities".

Shares in Xstrata shot up almost 5%, rising 49p to 997p.

Xstrata, which scrapped a £41 billion merger plan with rival Anglo American last year, saw its after-tax profits fall 41% $2.77 billion (£1.77 billion) in the year to December as demand for metals and coal slumped during the recession.

But the scale of the profits decline was well within analysts' forecasts and they were more interested in the strength of the recovery in the final quarter and Davis's outlook for the coming year.

The Xstrata boss said: "Robust economic growth and demand for commodities from industrialising nations is likely to continue.

"In my opinion, the medium-term outlook for commodity demand remains very promising."

Davis set his sights firmly on the East with China as the driving force in economic recovery, while he felt the developed nations of the West "seem set to experience low growth for a while".

He went on: "The drivers of demand sit with the developing world. I have just returned from China and I reckon any risks there are on the upside not the downside."

Davis said Xstrata had used the recession to change its portfolio — notably in nickel and zinc — so that its extraction costs now were much lower than before.

He added: "That means by 2014 our volumes will have increased by 50% at a time when demand for commodities is high, but our costs will be much lower than now."

But Davis played down any hopes that Xstrata might be back on the acquisition trail, saying it had now shifted "to a phase more dominated by organic growth" as "the supply of many commodities will struggle to keep pace with demand growth".

"I never rule out acquisitions but I want to concentrate on areas where I have control over our growth," he said.

Xstrata said it would pay a final dividend of 8 cents in May. It paid nothing in 2008.
Davis said he was pleased to return to dividend payments "but at a level which does not compromise our ability to invest in development".

Analysts said the profits were some 4% higher than average forecasts but the return to paying dividends had come earlier than expected.