Xstrata bids $1 bln for Eland Platinum

LONDON (Reuters) - Xstrata Plc (XTA.L) met forecasts with a 47 percent rise in first-half profit on Tuesday and unveiled a $1 billion offer for South Africa's Eland Platinum ELDJ.J in a bid to tap booming demand for the metal from Asia.

The Swiss-based miner, which has failed to close two deals this year after a string of previous acquisitions, said it had secured the support of shareholders owning 51 percent of Eland.

Chief Executive Mick Davis told Reuters that deals were getting harder in the mining sector as cash-rich companies battle for assets, and that Xstrata was now mainly focused on delivering an investment pipeline which it estimated at around $28 billion -- higher than some analysts' had forecast.

But he said Xstrata would still look for deals, with a focus on iron ore, alumina and more platinum assets.

"We have every intention of building a substantial platinum business off its (Eland's) base," he said in a phone interview.

London-listed Xstrata, which is a specialist in copper, coal, ferrochrome, nickel, vanadium and zinc, reported net profit of $3 billion for the six months to June 30, in line with analysts' average forecast in a company poll.

Higher prices for almost all its metals and minerals offset rising costs and disruption to production from bad weather at Australian coal operations and strikes in Chile and Canada.

Xstrata said it expected a better operational performance in the second half, and forecast prices would remain strong, despite recent falls in copper and particularly nickel.

"Demand from ... developing Asian economies, the growing economies of the Middle East and the continued robust economic progress in Europe will more than offset slowing demand from the United States, where lower housing starts and tighter credit are likely to impact consumption of key commodities," it said.

GROWTH

Davis was particularly upbeat about prospects for platinum amid strong demand from industry in China and India.

Xstrata said its 105 rand-a-share cash offer for Eland was 14 percent above Eland's 30-day volume-weighted average price.

It also said it had agreed to buy Iluka Resources' (ILU.AX) 50-percent stake in the Narama thermal coal mine in Australia for 53 million Australian dollars ($45 million).

From a small, Swiss-domiciled producer of steel alloys known as Sudelektra Holding AG in the late 1990s, Xstrata has grown rapidly to challenge the world's biggest miners.

It made three big acquisitions last year, including Canadian nickel miner Falconbridge. But it has had less luck this year -- it lost a $6.4 billion battle for Canada's LionOre Mining (LIM.TO) to Russia's Norilsk Nickel (GMKN.MM) and shareholders in Australia's Gloucester Coal (GCL.AX) voted down a deal.

Xstrata said it would increasingly focus on its $28 billion investment pipeline, which it said could boost production by 12 percent a year to 2013 -- higher than some analysts' forecasts.

"Today's announcement is a doubling on our bullish expectations," Citigroup analysts wrote in a research note. "We believe the emergence of a growth pipeline in Xstrata will help narrow the value gap with their peers."

At 0855 GMT, Xstrata shares were up 2 percent at 2,989 pence, valuing the business at 29 billion pounds ($59 billion). The stock trades at 9.1 times forecast earnings, below rivals Rio Tinto (RIO.L) on 10.9, Anglo American (AAL.L) on 11.4 and BHP Billiton (BLT.L) on 11.7, according to Reuters Estimates.

Davis denied that Xstrata lacked the expertise to deliver its project pipeline and declined to comment on speculation it was an ideal merger partner for bigger rival Anglo American.

"Anglo American is one of the great mining companies, with a great fleet of assets and some of those assets we share with them," he said. "From that point of view, it's always something to think about. But our focus really is on this tremendous potential that is inherent in our own business."

Xstrata cut net debt by $3.6 billion in the first half to $10 billion and Chief Financial Officer Trevor Reid told Reuters he expected another "considerable repayment" in the second half. He declined, however, to say whether Xstrata would follow rivals by starting a share buyback program soon.

Xstrata, 36-percent owned by commodities giant Glencore GLEN.UL, proposed an interim dividend of 16 cents a share, up 38 percent on the same period last year.

(additional reporting by Marius Bosch in Johannesburg)