Xstrata seen plunging, no new Anglo merger move

LONDON Thu Jul 30, 2009 11:31am EDT

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LONDON (Reuters) - Mining group Xstrata Plc XTA.L, due to post sharply lower first-half profits next week, is expected to hold back from using the occasion to launch a new initiative in its wooing of Anglo American (AAL.L).

Xstrata, the world's fifth-biggest diversified mining group by market value, was sharply rebuffed by Anglo after it approached its rival with a "merger of equals" proposal last month.

"We expect Xstrata to reiterate its belief in the strategic rationale of a combination with Anglo ... We do not anticipate any new information," said analyst Sam Catalano at Macquarie.

Most major Anglo shareholders have rejected Xstrata's proposal, saying a premium of 30-50 percent was needed, but Xstrata is not expected to offer a premium next week.

The company has said it was committed to the concept of a "nil premium" deal since it regards the two groups as similar in size and has said privately it was prepared for a long process.

Anglo is due to post results on Friday and both sides are expected to use their presentations to highlight how they have expertly navigated a downturn that has hammered earnings.

COAL MOST PROFITABLE UNIT

Xstrata is expected to post underlying earnings per share of 33.6 cents when it reports on Tuesday, according to the average forecast of nine analysts polled by Reuters.

That would be a drop of 89 percent from reported EPS of $2.95 last year or a fall of 80 percent when the previous figure is adjusted for the company's $5.9 billion rights issue.

Underlying earnings excludes discontinued operations and exceptional items.

The weak profits, on the back of a slide in commodity prices, is expected to see EBITDA (earnings before interest, tax, depreciation and amortization) decline 53 percent to $2.69 billion.

Coal is expected to be the starring division for Xstrata, accounting for 69 percent of underlying EBITDA, analyst Sylvain Brunet at Exane BNP Paribas said.

Demand from China has supported coal prices more than other commodities, most of which have seen sharp falls.

Xstrata, the world's biggest exporter of "thermal" coal used in power plants, said in its production report released on Tuesday that the price of its Australian thermal coal rose by 13.5 percent in the first half.

Its acquisition of the Prodeco coal operations in Colombia will also boost earnings in the coal unit.

The weakest performance is expected in the Zinc division, where an EBITDA loss of $34 million is expected, Liberium Capital said.

Here are the results of the poll of nine analysts. Figures are in millions of dollars except EPS in cents.

EPS EBITDA ATTRIB PROFIT

Average 33.6 2,692 841

Median 31.2 2,558 745

Highest 56 4,072 1,635

Lowest 23 2,088 515

---------------------------------------------

Last year 295 5,694 2,829

Change -89% -53% -70%

(Reporting by Eric Onstad; Editing by Rupert Winchester)

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