Xstrata profits leap as bid talks go on

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"Discussions with Vale are ongoing and may or may not lead to an offer for Xstrata," chief executive Mick Davis said. Earlier reports suggested those negotiations had foundered.

The Anglo-Swiss company said net profits for 2007 rose to $5.54 billion (£2.78 billion) from $4.89 billion in 2006.

Davis is the latest mining boss to benefit from strong demand for metals and energy, particularly in China.

The company enjoyed record production of most of its products and Davis joined his rivals at Rio Tinto and BHP Billiton in predicting little fallout in China from economic problems in the US.

"I expect any impact on Chinese GDP growth and emerging market demand for commodities, including metals, to be muted," he said.

Davis believes a slowdown in the US is now "highly probable, with likely negative consequences for short-term growth in the OECD countries". But he predicted growth would resume in Western countries within about two years.

Xstrata has been on a spending spree in the past year, having made acquisitions worth more than £3billion, and Davis signalled no let-up. "They continue to form an important element of our growth strategy and core capability," he said.

Purchases have included Australia's Jubilee Mines for $2.9 billion and Resource Pacific Holdings for about $1 billion.

Davis is more tight-lipped about any bid for Xstrata itself.

He said: "The momentum for consolidation in the global mining industry has undoubtedly accelerated following the announcement of an approach by BHP Billiton for Rio Tinto last year."

Xstrata has been the subject of intense bid speculation since it emerged last month that it was talking with Vale. That has driven Xstrata stock up to 3960p, 65% up on last year. Revenue grew 12% to $28.54 billion for the year, from $25.48 billion. The company is claiming real cost savings of $253 million in a difficult climate.

Davis admitted costs were a growing challenge as shortages drive up prices of everything from labour to truck tyres. But he said the company had a grip on the problems.