Mick Davis, chief executive of Xstrata, broke the hearts of investment bankers and lawyers across the City yesterday when he put the brakes on the mining company’s aggressive deal-making.

Xstrata has grown rapidly since it floated in 2002, acquiring 13 companies and, in the process, turning itself from a £2 billion business into one with a market capitalisation of £28 billion.

Mr Davis believes that Xstrata now has a sufficiently attractive internal pipeline for it to concentrate on organic growth.

Xstrata, therefore, will accelerate capital expenditure on development projects and expects to double its production over the next three years.

Mr Davis said: “Everyone thinks we are deal junkies. The market expects us to grow by acquisition every year, but these deals are becoming very expensive. Our project pipeline is ready to deliver a different type of growth.”

The company will spend $14 billion (£9 billion) by 2013 to bring new mines onstream, compared with $9 billion spent on organic growth during the past eight years.

Like most resources companies, Xstrata cut capital expenditure last year as the global economic downturn caused commodity prices to collapse. The Anglo-Swiss miner spent $3.8 billion in 2009, down 25 per cent on the year before, but this will rise to about $4.9 billion this year.

Mr Davis also cheered investors yesterday by restoring Xstrata’s dividend, saying that he was encouraged by the prospects of recovering demand for commodities in China. The company will pay a 0.08 cent per share final dividend in May — a yield four times higher than most analysts had expected.

Xstrata scrapped dividend payments in the first half of 2009 as the company was squeezed by mounting debt and falling demand for metals.

The company mounted a £4.1 billion rights issue last year to help to reduce net debt to $12.3 billion.

Xstrata also reported yesterday that pre-tax profits had fallen by 41 per cent last year to $4.3 billion while revenues fell 16 per cent to $23.5 billion. This was primarily due to falling metal prices in the early part of 2009. Although commodity prices rallied in the second half of last year, all the leading mining companies — many of which are reporting this week — are expected to reveal sharply reduced profits due to the downturn.

Although Mr Davis wants Xstrata to concentrate on organic growth, he did admit that the company would pursue deals if they became available. “We are generally an opportunistic bunch but only if we see the value in a particular deal,” he said.

Xstrata dropped a multibillion pound proposed merger with Anglo American last year and it still owns a large stake in Lonmin, the platinum miner, which it attempted to buy in 2008.

The miner may get a $2.25 billion windfall next month if Glencore, its largest shareholder, decides to buy back the Prodeco coalmine in Colombia.

Glencore gave up ownership of Prodeco to Xstrata last year in lieu of taking part in the miner’s rights issue. Glencore, the Swiss commodities trader, has an option to buy back the mine on March 4.

Xstrata’s share price rose 33¾p to 983¾p yesterday.

Anglo Platinum unveils $1.6bn cash call

Anglo Platinum, the world’s largest producer of the precious metal, said that it would raise $1.6 billion (£1 billion) in a rights issue in order to reduce its debts (David Robertson writes).

Anglo American, which owns about 80 per cent of AngloPlat, said that it would subscribe in full to its entitlement and underwrite the minority portion of the offer, whose proceeds would also settle AngloPlat’s debt with Anglo. Anglo faces another cash call this week as it expected to have to pump more than $450 million into De Beers to bolster the diamond producer’s balance sheet.

AngloPlat said that its rights issue would cut its net debt from $2.4 billion to about $880 million. A steep drop in metal prices led to a 95 per cent fall in AngloPlat’s earnings per share to $2.98 last year.

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