Xstrata steps up spending plans

Xstrata, the acquisition-built mining company, is once again stepping up spending on its internal portfolio, budgeting $23bn for new mines, smelters and other expansionary projects between 2011 and 2016.

On a day when the copper price hit an all-time nominal high above $9,000 per ounce, the Anglo-Swiss miner said it would focus its expansionary spending on projects in copper, coal and nickel.

Expansionary capital expenditure – or spending exclusively on new projects, rather than the maintenance of old ones – for 2011 and 2012 is forecast at $6.8bn. That compares with expansionary capex of $4.5bn in 2010.

According to Xstrata, high spending in the two years to 2012 will put it over the hump in terms of funding construction of the projects expected to enter service this decade.

Spending on these near-term projects will drop after 2012, although the miner has added $1.3bn to accelerate development of earlier-stage projects – such as a copper mine in the Philippines – that are due to enter service in the decade after 2020. Miners need to commit capital in the short term to projects that may take 10 or 15 years to start producing. On Tuesday Xstrata also approved construction of Ravensworth North, an Australian coal-mining project, that will cost $1.4bn.

Xstrata revealed its spending plans at a presentation for investors in London. Like rival miners, it tied its multibillion-dollar spending to an upbeat outlook for key commodities such as copper.

Rio Tinto, a larger London-listed mining group, expects to spend $11bn in 2011, a rise from $4bn this year. Like Xstrata, it expects to maintain capex around this elevated level in 2012. The spending is a recognition of rising demand for metals.

But many of the planned new projects will not come into production over the next five years. In copper and iron ore, new supply is needed in this period to mitigate a supply crunch that is the legacy of underinvestment in new mines through the 1990s and early 2000s