Xstrata warns on currencies

Xstrata Plc cautioned that the buoyant rand was crimping margins, pushing its share price down over two per cent yesterday and drawing market warnings about the risk to mining profits from strengthening currencies.

"I think that's going to be the story for the second half, the decimation of margins by currencies," said analyst Peter Davey at Ambrian.

The Anglo-Swiss group also reported higher coal production in the third quarter, thanks to acquisitions, while lower ore grades cut copper output.

Analyst Charles Kernot at Evolution Securities, who downgraded Xstrata to "sell," was wary about rising currencies in operating countries like South Africa and Australia.

"We believe that the market is failing to take account of the negative effects of operating currency strength which, as Xstrata itself points out, detracts from U.S. dollar commodity price strength."

Xstrata said in its production report the South African rand was at 14-month highs.