Xstrata (LON:XTA) Warns Commodities Volatility to Increase

London, Aug 6, 2009 AEST (ABN Newswire) - There has been some froth in commodity prices driven by sentiment rather than fundamentals, mining group Xstrata's (LON:XTA) chief executive Mick Davis has warned.

Mr Davis said the general growth trend was still positive and being driven by renewed demand from China. But the price volatility could increase in coming months.

Xstrata reported a 68 per cent fall in first-half profits to $US909 million mainly due to a collapse in metal prices at the start of the year.

Xstrata has provided a proposal to Anglo American (LON:AAL) in relation to a potential merger, which would create the world's biggest exporter of thermal coal and the biggest producer of zinc, copper, chrome and diamonds. But in current stage, both mining companies refused to change their stance on the proposed combination. Anglo shareholders are still demanding a premium while Xstrata insists against paying one.

The companies currently share joint-venture projects in northern Chile and northern Columbia, and most of the synergies would present themselves by combining operations at these two mines.

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Michelle Liang Asia Business News Asia Bureau Tel: +61-2-9247-4344 Email: michelle.liang@abnnewswire.net