Mining group Xstrata Plc (XTA.L: Quote) posted a 7.7 percent rise in first-quarter production of coal, its most profitable commodity, but output of many other products declined amid weak demand and low prices.

The group, the world's fifth-biggest diversified miner by market value, reiterated it did not have any major debt repayments until 2011 due to its $5.9 billion rights issue in March.

The report by Xstrata, the last major diversified mining group to post production data for the quarter, was largely in line with rivals which have suspended operations at unprofitable mines.

Copper output by BHP Billiton (BLT.L: Quote) (BHP.AX: Quote) fell 14 percent, while Rio Tinto (RIO.L: Quote) (RIO.AX: Quote) posted a 15 percent decline in iron ore output.

Xstrata's production report was largely well received and its shares rose 8.2 percent to 691 pence by 0825 GMT.

The shares, which have climbed 90 percent this year after falling 82 percent in 2008, outperformed a 5.8 percent increase in the UK mining index .FTNMX1770 as copper prices gained.

The XTA 1Q09 production numbers were in line to slightly better than our forecasts...In all, we think a good set of numbers, said analyst Tim Huff at RBS in London, who has rated the stock hold.

Analyst Charles Kernot at Evolution Securities was cautious that a rebound in some metals prices this year might not last.

With the pricing environment still far from certain, and our belief that metals prices are failing to reflect underlying supply-demand fundamentals, we remain cautious about the group's outlook, said Kernot, who reiterated a reduce rating and a 465 pence price target.

He said although the rights issue gave Xstrata breathing space by cutting net debt by $3.7 billion to $12.6 billion, the firm still needed to be cautious about debt covenants due to an uncertain earnings backdrop.

COAL OUTPUT UP

Xstrata said production of coal, which accounted for 49 percent of 2008 operating profit, rose to 19.9 million tonnes due to the addition of its newly acquired Prodeco operations in Colombia. [ID:nL5514657]

Although most commodity prices have slumped due to the global downturn, Xstrata was still receiving high contract coal prices negotiated last year for the 12 months to April 1.

The group said the FOB price for Australian thermal coal was $103.50 per tonne in the first quarter, up from $65.30 in the same period last year. Weekly index spot prices last week, however, were reported at around $62 per tonne. [ID:nJAK465426]

Xstrata posted an 8.9 percent fall in copper cathode production, but mined copper output rose 1.3 percent.

Copper cathode production was constrained in the quarter as a consequence of flooding in North Queensland causing anode transport delays from Mount Isa to Townsville, as well as a global slump in demand for sulphuric acid, Xstrata said.

Sulphuric acid is a by-product of copper production.

A slowdown in industrial output has hammered the copper price, which averaged $3,428 per tonne, less than half of the $7,796 it commanded in the same period last year.

Attributable chrome production fell 76 percent after Xstrata suspended 17 of 20 furnaces due to a market surplus and low prices, which fell 35 percent.

Copper made up 32 percent last year's operating profit while the alloys division, which makes chrome, was responsible for 14 percent.

Refined nickel output fell 25 percent and zinc metal production declined 7.5 percent.

(For a table of production and price data, please double click on [ID:nL5514657]) (Reporting by Eric Onstad; editing by Simon Jessop and Andrew Callus)

© Thomson Reuters 2009 All rights reserved