Stake Sale Would Help Xstrata – US-FOREX.US
Has Xstrata gone far enough to slash its debt burden? The copper-focused miner raised 5.9 billion from shareholders in March, most of which went towards paying down debt, but the company is still carrying a 13 billion debt pile in an uncertain trading environment. This could explain why Xstrata is currently considering asset sales to raise cash, as it also tries to woo Anglo American into a so-called “merger of equals” to save costs.Switzerland-based Xtrata
has received “expressions of interest” for a 70% stake in a Chilean mine called “El Morro,” which reports have valued at 700 million, but a spokeswoman for the company would not comment on Monday on whether they had been solicited or how they were received. She said that it would be “mistaken” to connect any deal with a desire to pay down debt, and that the company was comfortable with its current gearing levels of 28%.But Xstrata’s high debt position does remain “an issue,” according to Charles Kernot, an analyst with Evolution Securities. He cited debt concerns as a reason for his “reduce” recommendation on the stock, and said that the reported value of the stake-700 million-meant that an asset sale of that size would be a step in the right direction.Xstrata’s debt burden may also be the reason why it has not sweetened a rebuffed merger proposal with Anglo American. Xstrata proposed a 50-50 equity split in June, with expected annual synergies of 1 billion, even though Anglo American’s market capitalization is currently at 25 billion pounds , or around 1 billion pounds more than Xstrata’s.Shares of Xstrata sank 2.7%, or 22 pence , to 789.50 pence , during afternoon trading in London on Monday. Potential merger partner Anglo American
fell 1.7%, while rival BHP Billiton
lost 2.4%.Xstrata Chief Executive Mick Davis said earlier this month that the company had no significant refinancing requirements until 2011 and over 6 billion in existing credit facilities, but he still emphasized cost-cutting measures for the second half of the year. These included a “substantial” cut in capital expenditure on medium-to-long-term projects, and pushing managers to seek out “every opportunity” to drive down operating costs.