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Xstrata gets ready to spend $19.5 billion, but zinc is a sore spot (XSRAY)

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Global mining giant Xstrata PLC ( XSRAY , quote ) is allocating $19.5 billion to develop its assets over the next three years. However, zinc is the question mark in many of its plans. XSRAY has a net debt to equity gearing ratio of only 16%, so its balance sheet is strong enough to support its aggressive expansion plans.

However, Xstrata Zinc CEO Santiago Zaldumbide warns that higher zinc prices are needed to encourage the company to give many projects a green light. As it is, he says, the global zinc market will lose 1.5 million metric tons of annual mine production capacity starting in 2013 as 20 mine closures create a "significant market impact." Another 0.5 million tons a year will be lost through attrition at 14 mines like Xstrata's Antamina in Peru.

On the supply side, Zaldumbide estimates 0.7 millions tons of zinc production will be added globally through 10 new mines under construction and 1.1 million tons will be added through expansions at 52 existing mines around the globe. The net result is a shortfall of 200,000 tons of zinc a year. In the meantime, XSRAY is spending on nickel and copper. CFO Trevor Reid, told analysts during a recent investor day conference that near-term expansion plans will peak in 2012 with the completion of the Koniambo nickel project in New Caledonia, the Antapaccay copper project in Peru and the intensive spending on the Las Barnbas copper project in Peru.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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