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annual report 2008

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xstrata is a global diversified mining group listed on the london and swiss stock exchanges with its headquarters in zug switzerland xstrata s businesses maintain a meaningful position in seven major international commodity markets copper coking coal thermal coal ferrochrome nickel vanadium and zinc with a growing platinum group metals business additional exposures to gold cobalt lead and silver recycling facilities and a suite of global technology products many of which are industry leaders the group s operations and projects span 19 countries for more information visit www.xstrata.com cover picture tintaya copper mine southern peru

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contents 1 overview 02 04 06 08 2008 highlights worldwide operations performance by business chairman s statement 4 governance 82 84 85 91 98 board of directors executive management directors report corporate governance report remuneration report 2 strategy 12 17 21 25 chief executive s report strategy sustainable development principal risks and uncertainties 5 financial statements 110 110 111 112 113 115 116 117 199 199 200 201 202 208 ibc group financial statements statement of directors responsibilities independent auditors report consolidated income statement consolidated balance sheet consolidated cash flow statement consolidated statement of recognised income and expense notes to the financial statements parent company financial statements and related information statement of directors responsibilities independent auditors report balance sheet notes to the financial statements shareholder information cautionary note 3 performance 32 37 45 45 49 55 63 69 75 76 key performance indicators financial review operating review xstrata alloys xstrata coal xstrata copper xstrata nickel xstrata zinc xstrata technology services operations data xstrata plc annual report 2008 1

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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 $9.7 billion 11 lower than the record profitability achieved in 2007 record annual production of platinum coking coal thermal coal mined nickel zinc in concentrate and lead in concentrate record thermal and coking coal and ferrochrome contracts settled during 2008 real cost savings of $184 million achieved from productivity improvements despite ongoing cost pressures 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 2 for 1 rights issue to raise approximately $5.9 billion secures strong balance sheet maintains commitment to investment grade and positions xstrata to emerge from downturn in position of strength $2 billion acquisition of world-class prodeco coal operations from glencore concurrently with rights issue net debt of $16.3 billion at end 2008 with gearing of 40 improving to gearing of less than 30 post-conclusion of the rights issue for more information see financial review p.37 2 xstrata plc annual report 2008

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revenue 25,000 20,000 15,000 10,000 5,000 0 07 08 28,542 27,952 ebitda 12000 10000 ebit $27,952m -2 10,000 8,000 6,000 10,888 9,657 $9,657m -11 8,000 6,000 4,000 8,792 7,261 $7,261m -17 4,000 2,000 0 07 08 2,000 0 07 08 attributable profit 6000 5,000 4,000 3,000 2,000 1,000 0 07 08 5,424 4,698 earnings per share 6 12000 cash generated from operations 11,046 8,888 $4,698m -13 5 4 3 2 1 0 5.60 4.90 $4.90 -13 10,000 8,000 6,000 4,000 2,000 0 $8,888m -20 07 08 07 08 30 25 net assets per share 60 50 dividends per share 26.29 20 15 10 5 0 07 25.51 $25.51 -3 50.0 40 30 20 10 0 18.0 18.0¢ -64 18 per million hours worked 15 12 12.3 9 6 3 0 10.1 total recordable injury frequency rate 10.1 -18 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

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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 hq rustenburg description coal hq sydney description copper hq brisbane description xstrata alloys is the world s largest producer of ferrochrome is a leading producer of primary vanadium and has a growing platinum group metals business xstrata alloys also owns carbon and anthracite operations which supply key raw materials to its ferrochrome smelters xstrata alloys operations are located in south africa key locations xstrata coal is the world s largest exporter of thermal coal and a significant producer of premium quality hard coking coal and semi-soft coal headquartered in sydney australia xstrata coal has interests in over 30 operating coal mines in australia south africa and colombia and an exploration project in nova scotia canada xstrata copper is the fourth largest global copper producer with mining and processing facilities located in australia chile peru argentina and canada it also manages a recycling business with plants in the usa xstrata copper has a world-class portfolio of six copper development projects located in peru the philippines chile argentina and papua new guinea key locations key locations south africa boshoek plant boshoek lion plant steelpoort lydenburg plant lydenburg rustenburg plant rustenburg wonderkop plant marikana boshoek opencast mine boshoek horizon mine pilansberg kroondal mine rustenburg thorncliffe mine steelpoort helena mine steelpoort waterval mine rustenburg rhovan v2o5 and fev brits maloma mine maloma swaziland char technologies witbank african carbon manufacturers witbank african carbon producers witbank african fine carbon middelburg african carbon union witbank mototolo steelpoort eland brits americas cerrejón colombia australia cumnock hunter valley liddell hunter valley macquarie coal jv ­ west wallsend newcastle ­ westside newcastle mt owen hunter valley ravensworth operations hunter valley ravensworth underground hunter valley oakbridge group ­ baal bone western coal fields ­ beltana hunter valley ­ bulga hunter valley tahmoor southern coal fields ulan western coal fields united hunter valley oaky creek bowen basin newlands ­ thermal bowen basin ­ coking bowen basin collinsville ­ thermal bowen basin ­ coking bowen basin rolleston bowen basin south africa southstock division ­ opencast witbank ­ underground witbank mpumalanga division ­ spitzkop ermelo ­ tselentis breyten impunzi division ­ opencast witbank ­ underground witbank tweefontein division ­ opencast witbank ­ underground witbank argentina alumbrera catamarca australia mount isa north west queensland ernest henry north west queensland townsville refinery north queensland canada ccr quebec horne quebec kidd creek ontario chile altonorte antofagasta region collahuasi tarapacá region lomas bayas antofagasta region peru antamina ancash region tintaya espinar province for more information see p.45 4 xstrata plc annual report 2008 for more information see p.49 for more information see p.55

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nickel hq toronto description zinc hq madrid description technology services hq brisbane and sudbury description xstrata nickel is the fifth largest global nickel producer and one of the world s largest producers of cobalt headquartered in toronto xstrata nickel s operations include mines and processing facilities in canada the dominican republic and australia and a refinery in norway xstrata nickel has a promising portfolio of growth projects in canada tanzania and new caledonia key locations xstrata zinc is one of the world s largest miners and producers of zinc xstrata zinc s operations span spain germany australia the uk and canada with an interest in the antamina copper-zinc mine in peru xstrata zinc s growth projects include interests in australia xstrata technology services supports the processes involved in mining it comprises xstrata technology based in brisbane a specialist technology solutions provider and xstrata process support based in sudbury an independent group which provide highly specialised technological support both to xstrata s operations and to third-party customers key locations key locations australia sinclair western australia cosmos western australia brazil araguaia para canada montcalm ontario sudbury ontario raglan quebec dominican republic falcondo bonao new caledonia koniambo north province norway nikkelverk kristiansand tanzania kabanga kagera australia mcarthur river northern territory mount isa north west queensland canada brunswick mine new brunswick brunswick smelting new brunswick cez refinery quebec perseverance mine quebec general smelting quebec kidd creek refinery ontario germany nordenham nordenham peru antamina ancash region spain san juan de nieva asturias hinojedo cantabria arnao asturias uk northfleet northfleet australia xstrata technology brisbane canada xstrata process support ontario for more information see p.63 for more information see p.69 for more information see p.75 xstrata plc annual report 2008 5

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overview performance by business a strong operating performance at xstrata s coal alloys nickel and zinc operations led to record production across a number of the group s key commodities during 2008 alloys key achievements coal key achievements copper key achievements ­ record ferrochrome prices and strong cost control contributed to xstrata alloys increased revenue ­ lion ferrochrome smelting complex and bokamoso pelletising plant contributed greater than expected improvements in energy efficiency and ore consumption ­ elandsfontein platinum operation was successfully commissioned ­ robust prices strong operating performance and record sales volumes increased the revenue achieved by xstrata coal ­ there was strong demand for thermal and coking coal in both the pacific and atlantic markets for the majority of 2008 ­ successful integration of the acquired tahmoor and resource pacific operations ­ dramatic fall in copper prices reduced sales volumes and lower production led to a fall in xstrata copper s revenue ­ copper volumes increased by 16 in the second half compared to the first half when lower grades and a number of one-off operational difficulties reduced volumes contribution to group revenue contribution to group revenue contribution to group revenue $2,002m 7 contribution to group ebit $7,944m 28 contribution to group ebit 1,464m 1 41 contribution to group ebit $1,007m 14 9,476 2007 $389m $3,549m 49 9,622 2007 $690m $2,297m 32 1 1,131 2007 $4 63m 1 average number of employees in 2008 excluding contractors average number of employees in 2008 excluding contractors average number of employees in 2008 excluding contractors for more information see p.45 6 xstrata plc annual report 2008 for more information see p.49 for more information see p.55

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nickel key achievements zinc key achievements technology services key achievements ­ the significant collapse in the nickel price during 2008 after record highs in 2007 reduced xstrata nickel s revenue for 2008 ­ record production was achieved at the nikkelverk refinery ­ the jubilee assets in australia were successfully integrated ­ lower zinc and lead prices impacted xstrata zinc s revenue during the year ­ cost savings of $87 million achieved through improved productivity and operating efficiencies ­ the perseverance mine in canada commenced production ­ xstrata technology services maintained a stable revenue despite project deferrals during the year ­ strong demand for xstrata technology s solutions ­ increase in external customers using xstrata process support s services contribution to group revenue contribution to group revenue contribution to group revenue $3,105m 11 contribution to group ebit $3,202m 12 contribution to group ebit $235m 1 contribution to group ebit $341m 5 4,520 2007 $2,172m $113m 2 5,029 2007 $1,529m $32m 162 2007 $43m average number of employees in 2008 excluding contractors average number of employees in 2008 excluding contractors average number of employees in 2008 excluding contractors for more information see p.63 for more information see p.69 for more information see p.75 xstrata plc annual report 2008 7

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overview chairman s statement xstrata recorded a very strong financial performance in 2008 second only in the company s history to the record year of 2007 xstrata s businesses achieved production records in a number of its key commodities successfully integrated and optimised acquired operations created a meaningful new platinum business commissioned new lower-cost operations and achieved a seventh consecutive year of real cost savings yet the group s overall strong performance for the year masks a period of extreme turbulence in financial and commodity markets the unprecedented speed and severity of the financial crisis in the second half of the year dealt a severe blow to global economic growth and led to sharp and sudden declines in the price of most of xstrata s commodities strategy the board remains committed to xstrata s long-term strategy of growth and diversification in pursuit of value however the financial crisis that has gripped the world s major economies and most industry sectors has led xstrata s board and management to direct attention to ensuring the group remains robust through the period of uncertainty that lies ahead of us this short-term imperative led in the first instance to our decision not to proceed with a full offer for lonmin plc in early october in view of the risks associated with the requirement to refinance a significant portion of the acquisition debt facililties within 12 months at the same time the group took the opportunity to arrange a new three-year bank facility to refinance existing short-term debt removing any significant refinancing obligations for three years ­ a truly valuable attribute in current markets between august and early october xstrata acquired a substantial stake of 24.9 of lonmin while with the benefit of hindsight the subsequent decline in lonmin s share price would have afforded xstrata an opportunity to purchase its stake at a lower average price at a later stage your board remains confident that xstrata s significant stake in one of the world s leading platinum producers represents a valuable long-term investment and adds to xstrata s strategic optionality my fellow board members and i have remarked on the scale and speed of actions being implemented across xstrata s businesses over the past few months to secure the group s financial position and preserve cash amidst challenging conditions from initiatives to secure an appropriate capital structure to innovative approaches to significantly reduce capital and production costs to maintain profitability even at current low commodity prices it is clear that decisive action is being taken at every level of the organisation as outlined further in the reports that follow of course some of these actions result in difficult decisions to suspend or close higher cost operations where compulsory redundancies have been unavoidable every effort is being made to mitigate the impacts on employees their families and communities including through the provision of appropriate employee assistance programmes and other support the successful development of xstrata s strategy over the past seven years has positioned the group to capture the benefit of recent historically strong commodity markets it has also provided xstrata with an excellent pipeline of prospective internal and external growth options while current conditions mean that capital expenditure at a number of xstrata s projects is being deferred or curtailed xstrata s management teams have been careful to preserve our valuable acquisition and organic growth willy strothotte chairman key points strong financial performance in 2008 swift response by xstrata to the challenges of the global economic downturn substantial rights issue launched well positioned to benefit from encouraging medium to longer-term prospects for demand for commodities to see a webcast of our results presentation visit www.xstrata.com 8 xstrata plc annual report 2008

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options which can be exercised as and when the conditions are right we look forward to resuming xstrata s longer-term growth strategy in earnest at the appropriate time xstrata management s capacity and willingness to act quickly and decisively has been underlined by the recent announcement of a substantial rights issue the proceeds from the rights issue will provide a significant capital injection allowing the repayment of debt and providing a firm footing for future growth further details about the rights issue and acquisition of the prodeco coal operations have been provided in a comprehensive circular and prospectus sent to each eligible registered shareholder and available from xstrata s website all of the resolutions relating to the proposed prodeco acquisition and rights issue were approved by shareholders at an extraordinary general meeting on 2 march 2009 governance xstrata benefits from a robust board of some six independent nonexecutives three executive directors and two non-executive directors nominated by glencore international an external evaluation of the board s effectiveness and performance was conducted in 2007 and in 2008 the board conducted an internal assessment led by senior independent director david rough we are now implementing the recommendations arising from these assessments in particular to address medium-term succession planning during 2008 the board agreed that an external evaluation exercise will be regularly undertaken every three years robert macdonnell has indicated that he intends to retire as an independent non-executive director at the next annual general meeting agm in may 2009 robert has served as a director of xstrata plc since its initial public offering and before that was a non-executive director of the former swiss company xstrata ag during his tenure he has overseen the significant growth of the company into a global mining major and i thank him on behalf of the company and board for his guidance and the contribution he has made to xstrata s development over the past several years i am delighted to announce that peter hooley has agreed to stand as an independent non-executive director for election by shareholders at the agm on 5 may 2009 peter held the position of group finance director of smith nephew plc until 2006 and is currently a nonexecutive director and chairman of the audit committee of cobham plc and a director and chairman of bsn medical i am confident that peter s appointment to the board will add significant value to xstrata peter brings with him extensive financial markets and corporate transactions experience and a strong track record of creating shareholder value peter has agreed to act as an independent external consultant to the board with effect from 3 march 2009 until the agm sustainable development xstrata s commitment to the principles of sustainable development remains at the centre of our strategy and is increasingly integrated into the group s day-to-day management practices and strategic decisionmaking the most important of our many targets and objectives is our aim that no fatalities or serious injuries are sustained by the men and women who work at xstrata we did not achieve this objective in 2008 and i am deeply saddened to report that six workers lost their lives at xstrata s operations or projects last year safety is a particular challenge during times of uncertainty and this is an area to which we will continue to dedicate significant resources and management attention outlook and prospects economic prospects in 2009 remain uncertain however the directors believe that some support for commodities is likely to be provided by the significant stimulus packages announced by many major countries which prioritise commodity-intensive infrastructure investment another positive development is the mining industry s action to curtail uneconomic supply and limit the build-up of excess inventories which has occurred more rapidly and to a greater extent than in previous downturns notwithstanding the global economic downturn the economic development and urbanisation of emerging economies remains a significant trend that is set to positively influence the fortunes of the mining sector over an extended timeframe with this in mind xstrata s management and employees remain focused on taking the appropriate action to ensure the group remains well positioned to weather current challenging conditions and benefit from encouraging medium to longer-term prospects for demand for commodities in view of xstrata s rights issue to repay debt approved by xstrata s shareholders at the egm on 2 march the board has decided not to pay a final dividend for 2008 we will of course review the potential to resume dividends at the earliest opportunity taking into account the group s financial position and prospects there is no doubt that 2009 will represent a challenging operating environment for xstrata and the mining sector as a whole your board has every confidence that xstrata has the requisite skills management structure and financial flexibility to mitigate the risks and seize the opportunities created by current economic conditions with the overarching objective of continuing to create value for its shareholders over the long term willy strothotte chairman xstrata plc annual report 2008 9

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10 xstrata plc annual report 2008

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2 12 17 21 25 strategy chief executive s report strategy sustainable development principal risks and uncertainties nickel at the nikkelverk refinery in norway where record nickel production was achieved in 2008 xstrata plc annual report 2008 11

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strategy business review chief executive s report xstrata s business achieved a highly creditable result in 2008 generating ebitda of $9.7 billion mick davis chief executive key points strong operating performance and successful integration of acquisitions seven consecutive years of sustainable real cost reductions 2 for 1 rights issue to raise approximately $5.9 billion acquisition of prodeco world-class colombian thermal coal operations to see a webcast of our results presentation visit www.xstrata.com 12 xstrata plc annual report 2008

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despite the sudden and severe impact of a global banking crisis that dramatically slowed economic growth from the third quarter and led to a precipitous fall in commodity prices xstrata s businesses achieved a highly creditable result in 2008 generating ebitda of $9.7 billion 11 lower than the record profitability achieved in 2007 earnings per share of $4.90 were 13 lower than the prior year the impact of markedly lower commodity prices in the final quarter was largely offset by the benefit of record thermal and coking coal and ferrochrome contracts settled during the year together with robust copper prices for the majority of 2008 a strong operating performance at xstrata s coal alloys nickel and zinc operations the successful integration of the acquired tahmoor and resource pacific coal operations and jubilee nickel assets the commissioning of the perseverance zinc mine and elandsfontein pgm operations led to record production across a number of the group s key commodities copper volumes increased by 16 in the second half compared to the first half when lower grades and a number of one-off operational difficulties reduced volumes the successful commissioning and ramp up of new lower cost production and a number of productivity improvements in particular at xstrata s zinc and coal operations mitigated ongoing inflationary cost pressures and achieved real cost savings of $184 million at xstrata alloys the lion ferrochrome smelting complex and bokamoso pelletising plant contributed greater than expected improvements in energy efficiency and ore consumption these proprietary industry-leading technologies continue to show their worth as further efficiency savings are set to mitigate the adverse impact of standing charges in 2009 in respect of idled capacity which currently represents some 80 of annual capacity cost deflation in respect of major input items has lagged the severe decline in commodity prices but is beginning to accelerate in particular for fuel raw materials and contract labour and will contribute to greater operating cost savings in 2009 the impact of a stronger us dollar against the major commodity-producing currencies is also expected to provide a significant offsetting benefit to lower prices in 2009 the response from nickel producers has perhaps been the most rapid and significant with over one-fifth of global supply suspended or closed to date and further cutbacks expected one million tonnes of zinc or 9 of planned zinc production has been idled or closed at the same time significant proportions of ferrochrome capacity and 24 million tonnes or 13 of planned coking coal production has been removed from the traded market as cutbacks continue to be implemented in response to weak demand from steelmakers in the copper market too previously planned global copper production in 2009 is expected to be reduced by at least 9 or 1.6 million tonnes due to production cutbacks and suspensions and the ongoing impact of mine underperformance at a number of major copper operations perhaps even more noteworthy is the likely impact on longer-term supply growth as announced cancellations or deferral of growth projects have removed over 2.8 million tonnes of new copper supply over the next four years introducing significant future constraints while near-term market conditions remain very challenging the swift reduction of existing production and the suspension of loss-making operations will limit oversupply and ultimately result in a more balanced market as demand starts to increase from current depressed levels in the medium term the current shortage of capital and poor shortterm visibility are leading to substantial capital expenditure reductions by major and junior miners to defer or forgo growth projects further delays to new production capacity to replace ageing mines with declining grades and increasingly difficult mining conditions are sowing the seeds of future undersupply and significant price increases across a number of commodities once global industrial production and demand for commodities resume their longer-term growth trend substantial global fiscal stimulus packages the mining industry s response to the sudden downturn in global economic conditions has been matched by government-led actions to attempt to restart growth improve liquidity and secure the global banking system in total over $1.7 trillion of fiscal stimulus packages have been announced to date in major commodity-consuming regions including china japan europe and the us a very significant proportion of this total ­ for example more than 70 or $400 billion of china s total investment ­ has been earmarked for metals-intensive infrastructure investment and is consequently expected to bolster demand for commodities together with looser monetary policy to encourage industrial production and economic growth these measures are expected to begin to ease economic conditions in due course rapid supply-side response to market conditions economic growth projections in the main oecd countries were already being reduced during the first half of 2008 but dramatically declined in the wake of the financial crisis in september failing banks resulted in a severe tightening in money supply and liquidity continues to be very constrained the consequence has been rapid de-leveraging and destocking across the world economic system with the us uk japan and euro-zone economies falling into recession and growth rates in the developing economies moderating significantly since the financial crisis in september 2008 the majority of lme commodities have traded at ultimately unsustainable levels at or below their marginal cost of production it is striking and important to note that the mining industry has responded to this sudden reversal in fortunes with far greater speed and to a greater extent than in previous economic downturns restricted access to capital in particular for junior mining companies or marginal producers has further contributed to the prompt closure of unprofitable operations and the curtailment of exploration and development of new growth projects consolidation of the sector has undoubtedly also played its part with a smaller number of major producers acting responsibly and rationally in the face of extraordinary financial market conditions and weak demand for commodities xstrata s response to the sudden downturn our businesses have acted promptly and decisively in response to sudden lower demand for key commodities and conserved cash during a period of heightened uncertainty by suspending or closing higher cost or unprofitable production aligning production with reduced demand redoubling efforts to drive down operating costs and tightly control working capital and substantially reducing discretionary sustaining and expansionary capital expenditure suspension of marginal production xstrata zinc and teck cominco closed the joint venture lennard shelf zinc-lead operation in western australia in early august in response to ongoing lower zinc prices in what now appears to have been a prescient decision given the financial meltdown in september xstrata plc annual report 2008 13

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