Exceptional items reduce earnings at mining giant Xstrata

Revenue fell seven per cent at FTSE 100-listed mining giant Xstrata in the year ended December 31st.

In its annual results, published on Tuesday morning, the company reported revenue of $31.6bn, down from $33.9bn one year earlier.

Operating EBITDA (earnings before interest, tax, depreciation and amortisation - a widely used measure of a company's operating profit) slid 30% to $8.1bn from $11.6bn a year earlier.

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Basic earnings per share excluding exceptional items fell 37% to $1.24 from $1.97 a year earlier whilst dividends per share rose 14% to 45.5 cents compared to 40 cents in the preceding year.

The group described the year as "transformational" and highlighted ten projects which were commissioned and reported two successful bond issues, raising $7.4bn.

The group further recorded real cost savings of $176m marking the 11th consecutive year it delivered sustainable, long-term reductions to operating costs.

Earnings hit by exceptional itemsThe group reported that during the year it recognised a number of exceptional items in the income statement, which in total reduced earnings by $2.6bn.

These were predominantly due to the impairment of assets, including the write-down of Xstrata's investment in Lonmin, worth $840m, the write downs of the Brunswick zinc mine in Canada and the Cosmos nickel mine in Australia as they reached the end of their operational lives and write downs in response to adverse market conditions for the Eland PGM operation in South Africa and the Africa Carbon Group, worth $978m.

Xstrata's company statement reported: "Our share of the exceptional items recognised by Lonmin in its 2012 annual results was $105m and consisted of employee strike related costs, impairments, net financing costs and related taxation credits.

"We accrued costs of $136m in relation to the recommended all-share merger of equals with Glencore International plc. Following the approval by our shareholders in November, the expected vesting date for all share-based compensation plan awards was revised forward resulting in an accelerated share-based compensation plan charge of $185m."

One-off reversal of prior year tax provisionsA reassessment of tax payable estimates, following the lodgement of taxation returns and receipt of taxation assessments, led to a one-off reversal of prior year tax provisions which significantly reduced the income tax charge, making Xstrata's effective tax rate in 2012 14%.

The pre-exceptional items effective tax rate before this adjustment was 24% for 2012, due to lower earnings in higher-tax jurisdictions compared to 26% for 2011.

The group reported that attributable profit and earnings per share both fell 37% mainly as a result of the reduced operating EBITDA.

CEO: 2012 a 'transformational' yearMick Davis, Chief Executive Officer of Xstrata, commented: "2012 was a transformational year for Xstrata across a number of fronts. Our organic growth strategy, the third phase of Xstrata's strategic development - following our acquisition and asset transformation stages - began in earnest in 2009 as we committed to grow our capacity by 50% in copper equivalent terms by the end of 2014.

"The development of our project pipeline reached its zenith in 2012, with ten major projects entering commissioning. This year also marked the peak of our expansionary capital expenditure programme at $7.6bn."

Pointing to the economic environment, he added that the group's businesses faced difficult operating conditions during the year, as the combined impact of falling commodity prices, ongoing inflationary pressure on operating costs and continued strong producer currencies relative to the US dollar put pressure on the group's margins.

MF