Xstrata Plc (XTA), the largest exporter of power-station coal, said first-half profit climbed 27 percent after commodity prices advanced. The capital cost of the Koniambo nickel project leapt 30 percent to $5 billion.

Net income rose to $2.92 billion, from $2.29 billion a year earlier, the Zug, Switzerland-based company said today in a statement. Xstrata posted a 23 percent gain in sales to $16.8 billion and proposed an interim dividend of 13 cents a share.

“Average prices for all of Xstrata’s commodities rose above the first half of 2010,” Chief Executive Officer Mick Davis said in the statement. A stronger second-quarter performance countered production disruptions caused by weather in the first three months, he said.

The average price of power-station coal at Australia’s Newcastle port, a benchmark for Asia, rose to $124 a metric ton from $97 a year earlier, according to McCloskey Group. Copper, Xstrata’s other main product, jumped 30 percent to $9,401 a ton.

Xstrata raised the estimated capital cost of its Koniambo project in New Caledonia to $5 billion from the $3.85 billion it approved in 2007, according to today’s statement. The company’s share of the cost is $4.6 billion. Koniambo, which is 76 percent complete, will begin output in the second half of 2012, it said.

“The increased cost arises from productivity and contractor underperformance,” Xstrata said, also citing the “impact of hyper-inflation on the costs of labor, contractor rates and materials.”

Shares Fall

Xstrata declined 45.5 pence, or 3.6 percent, to 1,235.5 pence at the 4:30 p.m. close in London. That was the lowest level since Oct. 29.

Xstrata is seeking to increase overall output by 50 percent through 2014 to benefit from growing Asian demand for coal and metals. The company, which agreed last month to buy Canada’s First Coal Corp. for C$147 million ($154 million), will consider “bolt-on acquisitions,” while continuing to focus on organic growth, Davis said today in a telephone interview.

“Clearly our focus is on our projects, but we have a lot of skills” in mergers and acquisitions, he said. “When it makes sense we encourage our guys to go after them. M&A will always remain an option.”

Output Drops

On July 26, Xstrata reported an 18 percent decline in first-half production of coking coal following heavy rains in Australia. Copper output also fell as the metal content in ore dropped.

The company expects to report increased volumes in the second half as a result of higher copper grades, the recovery of flood-damaged mines, and the ramp-up of Australia’s Mangoola project and South Africa’s ATCOM East coal venture, it said.

“Substantially stronger production performance is expected,” Rob Clifford, a London-based analyst at Deutsche Bank AG, wrote today in a report. “This should drive higher margins, top line and cost improvement.”

While raw-material and power-price increases pushed up production costs in the first half, the company achieved $52 million of “real unit cost savings,” helped by lower expenses at new projects, Davis said.

Xstrata also said today it approved two Canadian nickel projects totaling $649 million. The company will proceed with development of the $530 million Raglan extension project in northern Quebec and the $119 million Fraser Morgan venture in Sudbury, Ontario, it said in a separate statement.

A further five projects are due to be commissioned in the remainder of the year, according to Xstrata. “That additional volume will help reduce our cost profile, so we expect our unit cost performance to continue,” Davis said.

Earnings before interest, tax, depreciation and amortization increased 30 percent to $5.82 billion in the first half, missing the $5.93 billion average estimate of 10 analysts surveyed by Bloomberg. Profit excluding one-time items climbed to $2.87 billion from $2.3 billion.