Interesting read - AFR last nightXstrata will defer $US1 billion...

Interesting read - AFR last night

Xstrata will defer $US1 billion of capital spending that had been planned for this year amid falling commodities prices.

The Anglo-Swiss miner, which is subject to a takeover offer from its largest shareholder, Glencore, yesterday reported a 33 per cent fall in first-half profit to $US1.94 billion. But underlying earnings before interest, tax, depreciation and amortisation of $US4.01 billion was higher than market expectations of $US3.87 billion.

Xstrata chief executive Mick Davis said the cut in the capital spending budget to a revised $US7.2 billion target represented a “pro-active response” to a cyclical downturn in prices.

“[It] will defend margins and ensure our business emerges in a stronger competitive position to capture the benefits of stronger global economic growth,” Mr Davis said.

Despite the cuts, Xstrata said it would continue to invest “judiciously” in prospective near to medium-term projects, including studies of the $6 billion Wandoan thermal coal project in Queensland’s Surat Basin.

“The timing of approvals will be sequenced to maximise returns and account for anticipated demand conditions,” Mr Davis said.

Analysts have raised doubts over whether Xstrata was likely to approve Wandoan in the near term given that low thermal coal prices, a strong Australian dollar and the need for pricey new infrastructure make it look marginal on current prices.

However, Xstrata’s board did approve a $US360 million expansion to its McArthur River zinc mine in the Northern Territory yesterday, subject to final government approvals.

Other major miners, including BHP Billiton, are also increasingly focused on the sequencing of big projects now that cash flows are lower than they had expected when planning their budgets a year ago.

Anglo American cut its project spending budget by $US1.5 billion to $US5.5 billion when it announced its half-year results last month.

Rio Tinto is due to report its interim results today, but the market expectation is that it will leave its record $US16 billion spending budget intact based on approvals that have already been announced.

Xstrata declared an interim dividend of US14¢ a share, up 8 per cent from last year.

The miner also announced plans to cut $US970 million of costs from its business by initiatives such as a reorganisation of its Queensland copper mining business and an accelerated shift from using third-party service providers to undertaking more in-house work in its coal division.

Alongside its results, Xstrata declared a $US579 million deferred tax asset as a result of its accounting for the mineral resource rent tax’s impact on its coal division.

That figure will be updated every six months and is not a reflection of actual payments to be made by the miner. UBS analyst Glyn Lawcock has expressed doubt any coal miners will be paying MRRT in the near term amid lower coal prices and a higher Australian dollar. Rio is expected to announce a $US1 billion deferred tax asset today.