UPDATE 2-Power cuts, old mines hit Glencore-Xstrata output

Tue Feb 12, 2013 7:10am EST

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* Signs of improvement in past three months

* Details on future plans expected March 5

LONDON Feb 12 (Reuters) - Commodities trader Glencore and miner Xstrata, weeks from completing one of the sector's biggest tie-ups, posted a drop in combined 2012 production across key metals on Tuesday.

Hit by power cuts in Congo and a push to replace ageing operations, the companies' joint production numbers released by Glencore showed a 9 percent fall in total copper production - a number broadly in line with market expectations - while zinc dipped 1 percent.

Figures for the past three months, however, show signs of improvement, as Xstrata ramps up new and expanded operations to substitute depleted mines and Glencore tackles power woes that cost its Katanga operation more than two months of lost production.

Among diversified miners, the combined Glencore-Xstrata group will have the most significant exposure to copper, one of the best-performing industrial metals. Supply persistently fails to match demand and large copper finds have been rare.

"This does show that towards the end of 2012 production was on an upswing for both companies across their different commodities. So aside from a few problem areas such as Collahuasi and Cerrejon in Colombia, where they are currently experiencing a strike (by workers), production looks to be on a pretty firm footing going into 2013," Macquarie analyst Jeff Largey said.

Xstrata has struggled with poor performance and bad weather at Collahuasi, the world's third-largest copper mine, which it owns jointly with Anglo American. It has since replaced management and said on Tuesday that annual production there would be restored to about 400,000 tonnes this year.

"The fourth-quarter implied (copper) production shows volumes are in a recovery phase. They have some way to go, but it does look like in 2013 volumes will be better," Largey said.

Xstrata, the world's fourth-largest copper miner, said its own mined production of the red metal hit 747,000 tonnes in 2012, down 16 percent on 2011. The fourth quarter, however, was up almost 9 percent on the previous three months.

Glencore, for its part, said that its Katanga unit achieved a 2 percent increase in output over the year after power disruptions cost it 67 days of production.

Mutanda, a second Congo operation that Glencore hopes to merge with nearby Kansuki in the first half of this year, boosted production by 37 percent.

FUTURE PLANS?

Analysts and investors are keenly awaiting pronouncements from Glencore's management on plans for the combined group after the $36 billion takeover of Xstrata. This includes expected spending cuts, asset sales and the acquisitive Glencore team's appetite for further deals.

But neither side gave an indication of future direction on Tuesday, leaving the market to wait until March 5, when both sides publish full earnings for the year.

Shares in both Xstrata and Glencore traded down by about 1 percent at 1155 GMT, against a 0.7 percent drop in the broader mining sector.

Coal provided a brighter spot for the mining and trading giant, with combined production rising by more than a quarter despite a three-month strike at Glencore's La Jagua mine and engineering hiccups at Xstrata's coking coal operation in Australia.

In oil, where Glencore has been pushing to produce as well as trade, the trader said that first production from the Alen field in equatorial Guinea was scheduled for the third quarter, while its existing Aseng field produced at a rate of 61,700 barrels per day. Glencore's first operated exploration well, off Cameroon, will be appraised in the second half of the year.

Glencore is still awaiting final regulatory approval from China for its acquisition of Xstrata but is scheduled to complete the deal next month.

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