Miners are once more a key influence on the market's early gains, with Xstrata moving higher on confirmation that commodity trader Glencore - a shareholder in the mining group - would buy back its Prodeco coal operations in Colombia for $2.25bn.
Glencore sold the asset last year to raise cash but had an option to repurchase, which ran out last night. Alison Turner at Panmure Gordon said:
The repurchase removes some of Xstrata's near term growth - we estimate that the Prodeco asset would have added 5% to Xstrata's growth profile, and as a result Xstrata is now targeting 50% growth in production by 2014 (rather than 2013). We remain cautious on the ability of Xstrata to meet this ambitious target, with the bulk of the projects required in order to do so still pre-approval.
However, this does improve Xstrata's balance sheet position. We expect Xstrata's net debt to decline only slightly to $12.1bn at the end of 2010, however, had Glencore elected not to exercise its option, we estimate that net debt would have risen to $14.6bn.
Xstrata's shares have added 13.5p to £11.38 while other miners are benefiting from news that China confirmed its target of 8% growth this year. Anglo American added 21p to 2611.5p while Rio Tinto has risen 34.5p to £36.39.
