Xstrata Annual Report 2008 Xstrata plc Bahnhofstrasse 2 PO Box 102 6301 Zug Switzerland Tel: +41 41 726 6070 Fax: +41 41 726 6089 www.xstrata.com Annual Report 2008 Cautionary Note Regarding Forward-Looking Statements The Business Review section of this report, comprising the Business, of future performance. Our actual results of operations, financial Strategy, Financial and Operating Reviews, has been prepared in condition, liquidity, dividend policy and the development of the accordance with the Accounting Standards Board Reporting Statement industries in which we operate may differ materially from the impression on Operating and Financial Review (January 2006), as applicable best created by the forward-looking statements contained in this Annual practice guidance for UK companies required to prepare a business Report. Important factors that could cause these differences include, but Xstrata is a global diversified mining group, review. The Chairman’s Statement, CEO’s Report and Business Review are not limited to, general economic and business conditions, commodity chapters, in particular the Strategy section, include an analysis of price volatility, industry trends, competition, changes in government and the main trends and factors likely to affect the future development, other regulation, including in relation to the environment, health and listed on the London and Swiss Stock performance and position of the business. This includes statements safety and taxation, labour relations and work stoppages, changes in that are, or may be deemed to be, ‘forward-looking statements’. political and economic stability, currency fluctuations, our ability to Exchanges, with its headquarters in Zug, We may also make written and oral forward-looking statements in: integrate new businesses and recover our reserves or develop new > our interim reports, our summary financial statements to shareholders, reserves and changes in business strategy or development plans and our offering circulars and our prospectuses; other risks, including those described in the Business Review section of Switzerland. Xstrata’s businesses maintain this Annual Report. Even if the results of operations, financial condition, > our press releases and other written materials; and liquidity and dividend policy and the development of the industries in a meaningful position in seven major > oral statements made by our officers, directors or employees which we operate are consistent with the forward-looking statements to third parties, including to financial analysts. contained in this Annual Report, those results or developments may not be indicative of our results or developments in subsequent periods. international commodity markets: copper, These forward-looking statements can be identified by the use of forward-looking terminology, including the words: ‘believes’, Forward-looking statements speak only as of the date they are made. ‘estimates’, ‘anticipates’, ‘expects’, ‘intends’, ‘plans’, ‘goal’, ‘target’, Other than in accordance with our legal or regulatory obligations coking coal, thermal coal, ferrochrome, ‘aim’, ‘may’, ‘will’, ‘would’, ‘could’ or ‘should’ or, in each case, their (including under the Listing Rules and the Disclosure and Transparency negative or other variations or comparable terminology and include all Rules), we do not undertake any obligation to update or revise publicly matters that are not historical facts. They appear in a number of places any forward-looking statement, whether as a result of new information, nickel, vanadium and zinc, with a growing throughout this Annual Report and include statements regarding our future events or otherwise. intentions, beliefs or current expectations and those of our officers, The Directors’ Report in this Annual Report has been prepared for the directors and employees concerning, amongst other things, our results platinum group metals business, additional members of the Company and its purpose is to assist shareholders to of operations, financial condition, liquidity, prospects, growth, strategies assess the Company’s strategies and the potential for those strategies and dividend policy and the industries in which we operate. exposures to gold, cobalt, lead and silver, to succeed and for no other purpose. The Company, its directors, By their nature, forward-looking statements involve risks and employees, agents and advisers do not accept or assume responsibility uncertainties because they relate to events and depend on circumstances for any other purpose or to any other person to whom this Annual recycling facilities and a suite of global that may or may not occur in the future and may be beyond our ability Report is shown or into whose access it may come and any such technology products, many of which are to control or predict. Forward-looking statements are not guarantees responsibility or liability is expressly disclaimed. industry leaders. The Group’s operations and projects span 19 countries. For more information visit www.xstrata.com Cover picture: Tintaya Design and production: Black Sun Plc, London, UK copper mine, southern Peru This report has been printed on Heaven 42 paper. This paper is made from virgin wood fibre from SGS-COC-1732 well-managed forests independently certified according to the rules of the Forest Stewardship Council (FSC). Printed at St Ives Westerham Press Ltd, ISO14001, FSC certified and CarbonNeutral® Contents 1. Overview 4. Governance 02 2008 Highlights 82 Board of Directors 04 Worldwide Operations 84 Executive Management 06 Performance by Business 85 Directors’ Report 08 Chairman’s Statement 91 Corporate Governance Report 98 Remuneration Report 2. Strategy 5. Financial statements 12 Chief Executive’s Report 110 Group Financial Statements 17 Strategy 110 Statement of Directors’ Responsibilities 21 Sustainable Development 111 Independent Auditors’ Report 25 Principal Risks and Uncertainties 112 Consolidated Income Statement 113 Consolidated Balance Sheet 115 Consolidated Cash Flow Statement 116 Consolidated Statement of Recognised Income and Expense 117 Notes to the Financial Statements 3. Performance 199 Parent Company Financial Statements and Related Information 199 Statement of Directors’ Responsibilities 32 Key Performance Indicators 200 Independent Auditors’ Report 37 Financial Review 201 Balance Sheet 45 Operating Review 202 Notes to the Financial Statements 45 Xstrata Alloys 208 Shareholder Information 49 Xstrata Coal IBC Cautionary Note 55 Xstrata Copper 63 Xstrata Nickel 69 Xstrata Zinc 75 Xstrata Technology Services 76 Operations Data Xstrata plc Annual Report 2008 1 Overview 2008 Highlights Record thermal and coking coal and ferrochrome contracts settled during 2008 and a robust copper price for the majority of the year helped Xstrata to generate EBITDA of $9.7 billion for 2008. Performance highlights > Despite economic downturn, EBITDA was > 2 for 1 rights issue to raise approximately $9.7 billion, 11% lower than the record $5.9 billion secures strong balance sheet, profitability achieved in 2007 maintains commitment to investment > Record annual production of platinum, grade and positions Xstrata to emerge coking coal, thermal coal, mined nickel, from downturn in position of strength zinc in concentrate and lead in concentrate > $2 billion acquisition of world-class Prodeco > Record thermal and coking coal and coal operations from Glencore concurrently ferrochrome contracts settled during 2008 with rights issue > Real cost savings of $184 million achieved > Net debt of $16.3 billion at end 2008 with from productivity improvements, despite gearing of 40%, improving to gearing of less ongoing cost pressures than 30% post-conclusion of the rights issue > Successful commissioning and ramp up of new, lower cost production and integration of Resource Pacific, Jubilee and Tahmoor acquisitions > $5.5 billion new revolving debt facility extends debt maturity with no significant refinancing requirements until 2011 > Proactive and decisive response to financial crisis: curtailment or suspension of marginal operations; substantial reductions in capital expenditure; and significant operating cost savings For more information see Financial Review p.37 2 Xstrata plc Annual Report 2008 Revenue* EBITDA* EBIT* 12000 10000 25,000 28,542 27,952 10,000 $27,952m 10,888 $9,657m 8,000 8,792 $7,261m 9,657 20,000 8,000 7,261 -2% -11% 6,000 -17% 15,000 6,000 4,000 10,000 4,000 2,000 5,000 2,000 0 0 0 07 08 07 08 07 08 Attributable profit* Earnings per share* Cash generated from operations 6000 6 12000 5,000 5,424 $4,698m 5 5.60 $4.90 10,000 11,046 $8,888m 4.90 4,698 4,000 -13% 4 -13% 8,000 8,888 -20% 3,000 3 6,000 2,000 2 4,000 1,000 1 2,000 0 0 0 07 08 07 08 07 08 Net assets per share** Dividends per share Total recordable injury frequency rate 30 60 18 (per million hours worked) 25 $25.51 50 18.0¢ 15 10.1 26.29 25.51 50.0 20 40 12 -3% -64% 12.3 -18% 15 30 9 10.1 10 20 6 18.0 5 10 3 0 0 0 07 08 07 08 07 08 * Excludes discontinued operations and exceptional items ** Excluding own shares Unless otherwise stated, the currency used throughout this report is US dollars Xstrata plc Annual Report 2008 3 Overview Xstrata: Worldwide Operations Xstrata’s activities are organised into five global commodity businesses and a technology business, each of which operates with a high level of autonomy. The Group’s operations and projects span 19 countries. Alloys Coal Copper HQ: Rustenburg HQ: Sydney HQ: Brisbane Description Description Description Xstrata Alloys is the world’s largest Xstrata Coal is the world’s largest exporter Xstrata Copper is the fourth largest producer of ferrochrome, is a leading of thermal coal and a significant producer global copper producer, with mining and producer of primary vanadium and has a of premium quality hard coking coal and processing facilities located in Australia, growing platinum group metals business. semi-soft coal. Headquartered in Sydney, Chile, Peru, Argentina and Canada. It also Xstrata Alloys also owns carbon and Australia, Xstrata Coal has interests in over manages a recycling business with plants in anthracite operations which supply key 30 operating coal mines in Australia, South the USA.