Xstrata profit slumps ahead of merger vote

The Anglo-Swiss miner blamed the half-year profits contraction on a “cyclical downturn in commodity prices and ongoing cost inflation," and it prompted brokerage RBC Capital to cut its full-year cash profit forecast by 23 per cent to $8.4bn (£5.35bn).

The numbers are unlikely to sway those opposed to the existing terms of the merger, such as Qatar Holding, which has built its stake in Xstrata to around 11 per cent. The Qataris are aware that Xstrata is commissioning 10 major growth projects in 2012 that promise to cut real unit costs across a range of commodities, whilst providing the group with flexibility to "prioritise the highest return projects."

For instance, by the time its new copper projects come on stream in 2016, Xstrata maintains that 85 per cent of production will be at the lower end of the industry cost curve - double the present figure. The group's emphasis on paring back costs can also be gauged by the fact that it expects to implement net savings of $390m this year.

Like several industry peers, Xstrata has deferred around $1bn in new capital spending after group revenues were hit by an average fall in realised copper, nickel and zinc prices of 14, 28 and 15 per cent, respectively, over the corresponding half-year. Prices for the group’s thermal coal segment also fared badly this year, while at least 400,000 tonnes of copper production was lost due to factors such as poor weather, power outages, security issues and, most tellingly, lower grades.

Excluding exceptional items, group cash profits fell by nearly a third to $4bn, with the bulk of the profit reversal - over half, in fact - attributable to the copper segment.