Xstrata Plc offered 7.5 billion rand ($1.07 billion) for Eland Platinum Holdings Ltd., South Africa’s best-performing stock this year, and said first-half profit more than doubled.

Xstrata, based in Zug, Switzerland, bid about 105 rand a share in cash for Johannesburg-based Eland, according to a statement today. The offer values Eland at 8.99 rand, or 9.4 percent, more than its closing share price yesterday.

In 2006, Xstrata spent $22 billion on mining assets as nickel more than doubled and zinc gained for a sixth straight year. Profit rose 165 percent in the first half on revenue from Falconbridge Ltd., the Canadian nickel producer bought in November. Eland is building its first platinum mine, northwest of Johannesburg.

“This is very strong growth by acquisition,” Mark Tinker, a fund manager at AXA Framlington Ltd. in London who holds Xstrata shares, said in an interview.

Shares of Xstrata dropped 59 pence, or 2 percent, to 2,872 pence in London, giving the company a market value of 27.9 billion pounds ($56.4 billion). They have risen 13 percent this year, trailing the 15 percent increase of the nine-member Bloomberg Europe Metals & Mining Index.

Share Gain

Eland is due to start production at its Elandsfontein project in October. The mine has an estimated resource of 22.7 million ounces of platinum, palladium, rhodium and gold.

“This really represents the first time when we identified a meaningful entry point that can be converted to value,” Chief Financial Officer Trevor Reid said today in a phone interview from London.

Shares of Eland jumped as much as 5.49 rand, or 5.7 percent, to 101.50 rand in Johannesburg. They have risen more than five-fold in the past 12 months. Directors and shareholders owning 51 percent of Eland support Xstrata’s offer, Eland said in a statement to Johannesburg’s Stock Exchange News Service today. Merrill Lynch & Co. is advising Eland on the offer.

Xstrata will pay about $24.30 for each ounce of the 43 million ounces Eland has in all of its platinum-group metal reserves, said Fidelis Madavo, an analyst at Public Investment Corp. That’s higher than about $17.30 an ounce Lonmin Plc paid for Afriore Ltd. in November, and the $12.30 Impala Platinum Holdings Ltd. paid for African Platinum Plc in May, because Eland’s assets are close to production, Madavo said.

Impala and Lonmin are the world’s largest platinum producers, after Anglo Platinum Ltd.

Bauxite, Alumina

Xstrata is interested in adding bauxite and alumina operations, Chief Financial Officer Trevor Reid said today in a phone interview from London. Still, it hasn’t found an asset that would mark an entry point into the aluminum industry, Reid said.

Xstrata bought nickel and copper producer Falconbridge for C$17 billion ($16.2 billion) to add mines in South America and Canada and capitalize on soaring Chinese demand. Additional output from those assets and higher commodity prices helped to offset disruption at other operations.

Net income advanced to $3 billion, or $3.13 a share, from $1.13 billion, or $1.60, a year earlier, Xstrata said today. That lagged behind the $3.08 billion average estimate of five analysts compiled by Bloomberg News last week. Including Falconbridge, last year’s first-half net would be $2.04 billion. Sales were $14.2 billion. The company announced a first-half dividend of 16 cents, up from 11.6 cents a year earlier.

Nickel Increase

Nickel, mostly used in stainless steel, rose to a record in May on demand from China, the largest user of the metal. Average nickel prices for immediate delivery on the London Metal Exchange more than doubled in the first half to $44,557 a metric ton. The average price of copper was $6,803 a ton, 12 percent higher than a year earlier.

“The operational issues that impacted negatively on volumes in the first half are now behind us,” Chief Executive Officer Mick Davis said in the company’s earnings statement. “The outlook for the second half of the year is positive.”

Lead metal production fell 17 percent from a year ago to 99,533 tons because of lower output from Xstrata’s Mount Isa mine in Australia. Including Falconbridge, the company produced 449,136 tons of copper in the first six months, 12 percent down from a year ago partly because of a six-week labor dispute at the Montreal refinery. Nickel production rose 3.5 percent to 24,886 tons and ferronickel output expanded to 14,749 tons, from 14,367 tons a year ago.

Expansion Spending

Xstrata earmarked $28 billion, or about half of its market value, for expansion at existing assets, the company said, to meet with an annual growth rate projected at 12 percent to 2013. Of the total, $4.5 billion has already been approved, and another $7 billion is in the process of being approved.

The company’s copper output probably will double in between five and seven years as expansion takes place at the Collahuasi and Tintaya mines in South America and Tampaka in the Philippines, Davis said today in a presentation in London.

The Raglan nickel mine in Canada will expand by 30 percent to 1.3 million tons per year by end-2008, Davis said.

Xstrata will provide an update on its Koniambo nickel project in New Caledonia in the last quarter. The company said in March the project may begin production by the end of 2010, reaching full annual capacity of 60,000 tons by 2012.

Bloomberg
To contact the reporters on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net ; Antony Sguazzin in Johannesburg asguazzin@bloomberg.net