Xstrata is to pay $2bn in cash for the Prodeco coal assets in Colombia from Glencore, its largest shareholder, as a result of a rights issue announced today.
The London-listed mining group is to raise $5.8bn (£4.1bn) as it looks to reduce its debt burden in the wake of a slump in ferrochrome prices. Chinese mills cut the price they pay for the alloy by 55pc. Xstrata operates the world's largest ferrochrome producer jointly with South Africa's Merafe.
The company will offer about 1.96 billion shares at 210 pence each. Net debt will fall to about $12.6 billion after the offer, down from $16.3 billion as of Dec. 31.
Glencore is to take up its 34 percent share of the stock, which will be at a discount of about 40 percent to the so-called theoretical ex-rights price based on yesterday’s close.
Global commodity companies are under growing pressure as the credit crisis has limited the availability of new funds and the creeping global recession has cut demand for metals, with production of products from white goods to cars falling sharply.
Mining rival Rio Tinto yesterday confirmed that it "did not rule out the potential to issue equity as one of the options it has available".
The company, which is reported to be looking at a rights issue of as much as $7bn, has almost $40bn of debts following its $38bn acquisition of Canadian aluminium producer Alcan in July 2007.
Analysts have been predicting that Xstrata would need to raise new capital for at least a month, arguing the company could have to renegotiate the terms of its bank loans if metal prices do not recover.
Xstrata has expanded rapidly in recent years, racking up more than $14bn of debts as of June last year after spending $17bn on Falconbridge, the Canadian copper, nickel and zinc miner, and £515m acquiring South African platinum miner Eland.
The mining company - which has seen its market value slump from £43bn in May last year to just £6.1bn at yesterday's close - also acquired a 25pc stake in platinum producer Lonmin.
Source: Daily Telegraph, London; Bloomberg
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