Mining group Xstrata reinstated dividends today, reflecting confidence about commodities demand and its finances after posting an expected 41 per cent fall in 2009 profit reflecting weaker metals prices.
The head of the company said he had not discussed a possible merger with its biggest shareholder, commodities trader Glencore, but said such a tie-up could create value.
Analysts said the decision to restart dividends after suspending them during the downturn to save cash was a surprise and helped push the shares higher.
"The group's decision to reinstate the dividend is evidence of the board's increasing confidence of the business outlook," Liberium Capital said in a note, repeating a "buy" rating.
"We continue to think Xstrata looks cheap at 10.6 times (forecast earnings for 2010) even on a bearish copper price assumption of $2.50/lb in 2010."
Xstrata shares gained 1.4 per cent to 963 pence earlier, outpacing a 0.2 per cent increase in the UK mining index. They have shed 23 per cent since hitting a peak on January 8th.
The shares were the fourth-biggest gainer in the blue chip FTSE 100 index last year, rising 209 per cent, and outperformed the UK mining index by 50 per cent.
Xstrata, the world's biggest exporter of thermal coal used in power plants, will pay a final dividend of 8 cents per share and planned to resume a progressive dividend policy, chief financial officer Trevor Reid said.
"With this large capital commitment coming down the pipe we didn't want to be slaves to an overly high level of dividends, so we started it an appropriate level and we'll seek to grow it from here," he said.
Xstrata, the first major diversified miner to post earnings this season, said Asia would be the main driver of metals demand as the pace of recovery in rich nations was uncertain.