Despite reporting a decline in first-half profit yesterday, Swiss mining giant Xstrata has reiterated its stand that its proposed equal merger with larger rival Anglo American was highly compelling in order to compete with global mining giants.

One of the world's largest diversified mining groups and a leading producer of coking coal, nickel and zinc, Xstrata reported a 77-per cent fall in net profit to $643 million in first-half, down from $2.77 billion a year earlier and revenue decline of 41 per cent to $9.54 billion from $16.09 billion.

The miner said that its operating cash flows were robust at $1.6 billion, benefiting from capital conservation, cost cutting and restructuring activities. Its debt to equity ratio reduced to 28 per cent from 40 per cent at the year-end as a result of the successful $7-billion rights issue completed in March to repay a net debt of $3.7 billion.
Xstrata reduced operating costs by 1.1 per cent to save $119 million in the first half, the company said.

Chief executive officer Mick Davis said, ''The financial crisis and ensuing global economic slowdown, coupled with enormous uncertainty fundamentally changed our operating environment in a very short space of time in the latter part of 2008. As last year drew to a close, it was apparent that demand had collapsed and commodity prices were near all-time lows in real terms.''

''Xstrata is very well positioned in the current environment. Our portfolio is exposed to early-stage recovery commodities, a view supported by analysis that illustrates that demand for copper, lead and iron ore have historically shown the strongest correlation to growing industrial production, he said.

''It is very pleasing that our recent initiatives have further optimised Xstrata's competitive position, enabling our businesses to reap the maximum benefit from improving metal and coal market conditions. It seems to me that we have in this company a recipe for superior shareholder value creation and performance.''

Listed on the London and Swiss stock exchanges, Xstrata once again reiterated that its proposed $68-billion equal merger with London-based Anglo American was in the best interest of both companies in order to compete with the titans of the mining industry.

Considered as the most aggressive mining company in acquisitions, Xstrata has made 16 acquisitions since 2003 under the helm of Davis, appointed as CEO in 2001 soon after the merger of BHP and Billiton, where Davis played a key role and was considered the architect of the deal in his capacity as Billiton's chief financial officer.

When he joined the company in October 2001, Xstrata was a small Swiss-listed mining company with a market capitalisation of around $500 million and largely reliant on ferroalloys and zinc operations in South Africa and Europe.

Eight years later, its market cap has grown to $33 billion and it is now the world's largest exporter of thermal coal, the largest producer of ferrochrome, the largest exporter of thermal coal, one of the top five producers of coking or metallurgical coal, the fourth largest global copper producers, the fifth largest global nickel producers and one of the world's largest miners and producers of zinc.

With the mining industry realigning itself with acquisitions, mergers and joint ventures due to global recession like the June announcement by Rio Tinto and BHP Billiton in consolidating the mining sector by joining hands for developing Western Australia's Pilbara mines and thus creating the single biggest iron ore exporter in the world, (See: Rio-BHP team up for mining venture) Xstrata thought it fit that it should merge with Anglo American in order to compete with global mining giants. 

In June, Davis wrote to the board of Anglo American to initiate talks about a possible merge as equals to become one of the world's leading mining and natural resources company. (See: Xstrata proposes $68 billion merger deal with Anglo American)

But the board of Anglo American rejected the merger proposal saying that it was "unattractive'' and ''totally unacceptable'' since its assets were far more lucrative and long lasting than those of Xstrata's. (See: Anglo American rejects Xstrata's $68-billion deal)

Urging the shareholders of both companies to consider the merger, Davis said yesterday, ''The value proposition of putting these two companies together is highly compelling and I continue to believe that it is in the best interests of Xstrata and Anglo American shareholders to examine the potential to create the value we have identified, for the benefit of both sets of shareholders.