China sourcing hub benefits mining giant

05 Aug 2011


Swiss headquartered mining company Xstrata has claimed that the opening of a dedicated China sourcing hub has significantly improved performance, along with other key procurement initiatives.

The company, which is dual listed on the London and Swiss stock exchanges and has major interests in copper, zinc, coal, nickel and alloys, released positive H1 2011 results announcing profit increases of  27% on higher commodity prices. But the company also pointed to procurement as a significant contributor.

"While we do not have a centralised procurement function, regional collaboration between commodity businesses, for example in Canada or Australia leverage our regional scale," said chief executive Mick Davis in his executive summary to the H1 statement. "We benefit from volume discounts, shorter lead times and greater influence with major suppliers, for example of explosives and tyres. In Canada, these activities have constrained annual contract cost inflation to around 1% compared to average increases of over 3%."

On top of this, a proactive drive to increase sourcing from Asia has paid dividends, the company said, including through a new China-based procurement hub. "In total, despite the substantial headwinds of inflationary pressures and adverse foreign exchange rates, our businesses achieved real unit cost savings of $52m in the first half of the year and we maintained EBITDA margins at pre-financial crisis levels of around 35%.  Set against the inexorable creep of rising costs at ageing operations, including a $54m impact in the first half from lower nickel and zinc grades, this cost performance is all the more impressive," continued Davis.

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