JOHANNESBURG (miningweekly.com) – Diversified miner Xstrata would spend $14-billion on capital projects over the next three years, CEO Mick Davis said Monday, when the group released its 2009 financial results.

The company would focus its capital expenditure on its nickel, coal and copper divisions.

The miner is currently spending $8-billion on projects under construction and Davis announced a further $9-billion would be approved for ten projects in 2010.

He said that these projects would prove Xstrata with significant volume growth to benefit from continued robust demand from Asian and other industrialising economies.

One of the projects that Xstrata would focus to bring online is the Koniambo nickel project on the New Caledonia island in the Pacific. The company is targeting first production in early 2012 with full production of 60 000 t/y by 2014. Output from this operation could be doubled or tripled, depending on market demand.

Davis said that Xstrata’s shift of emphasis to more organic growth was “timely” and coincided with the company’s view that the supply of several commodities would struggle to keep pace with demand growth.

“Prior to the crisis, our industry was already struggling to maintain or increase production in the face of declining grades, unplanned outages at aging operations and more stringent permitting requirements.”

Davis said that some of Xstrata’s key growth projects would reach production during a timeframe in which demand for commodities from industrialising nations would be robust, augmented by a return to demand growth from the Organisation for Economic Cooperation and Development (OECD) in due course, and ongoing structural constraints to the supply of several commodities.

He pointed out that forecasters were anticipating Chinese gross domestic product growth of around 9% in 2010, adding that many of the short- and medium-term leading indicators were showing signs of recovery in OECD countries, including improving manufacturing output and confidence.

“In my opinion, the medium-term outlook for commodity demand remains very promising. The secular trend in demand for commodities will continue to be driven by the ongoing urbanisation and industrialisation of high-growth, populous economies, with China and other industrialising nations taking active steps to rebalance their economies towards domestic consumption-led growth over the next decade.”

Davis added that in time, the return to a more normalised level of growth of the OECD economies would add further impetus to the growth of the global economy and commodity demand.

PROFIT DOWN 41%

Meanwhile, the Swiss-based diversified miner’s attributable profit slumped by 41% in 2009, as the global downturn and subsequent rapid destocking had a “dramatic” impact on the group’s markets.

The group’s attributable profit fell to $2,77-billion from $4,7-billion in 2008. Earnings a share for the year ended December 2009, had decline by 62% to $1,05 a share, compared with the $2,77 in the previous financial year.

Davis said that following depressed commodity markets and weak demand in late 2008, prices remained low in the first quarter of 2009, but signs of recovery had emerged during the second quarter and gained momentum in the second-half of the year.

He said that a number of commodity prices rose significantly through the second-half, as fiscal stimulus packages introduced in most major economies boosted physical demand and investment in commodities returned.

However, Davis noted that despite a recovery in prices throughout 2009, average prices remained significantly below 2008 levels. The net impact of lower commodity prices reduced operating profit by $2,7-billion, with a particularly significant impact of $1,2-billion from lower coal prices.

Earnings from the alloys business were $941-million lower, primarily owing to lower chrome prices as demand for ferrochrome from stainless steel producers remained “extremely low” in the first half of 2009, Davis said.

Average nickel, copper and zinc prices were 30%, 26% and 11% lower respectively than in 2008, despite the recovery in exchange traded metal prices during 2009.

“Although the full implications of the financial crisis and global recession have not yet fully played out, it is clear that the experiences of the past 18 months will have profound and long-lasting effects on the world in which we operate,” he added.