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tra ional rmat nsfo growth o nal ex ratio pe cellence value inable a sust annual report 2010

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mission statement we will grow and manage a diversified portfolio of metals and mining businesses with the single aim of delivering industry leading returns for our shareholders we can achieve this only through genuine partnerships with employees customers shareholders local communities and other stakeholders which are based on integrity co-operation transparency and mutual value-creation cobalt lead and silver the group also comprises a growing platinum group metals business iron ore projects recycling facilities and a suite of global technology products many of which are industry leaders xstrata s operations and projects span 20 countries how we operate we believe that operating to leading standards of health safety and environmental management contributing to the development of sustainable communities and engaging with our stakeholders in two-way dialogue regardless of our location enhances our corporate reputation and is a source of competitive advantage we balance social environmental ethical and economic considerations in how we manage our businesses who we are xstrata is a global diversified mining group listed on the london and swiss stock exchanges with its headquarters in zug switzerland what we do our businesses maintain a meaningful position in seven major international commodity markets copper coking coal thermal coal ferrochrome nickel vanadium and zinc with additional exposure to gold how we create value we create sustainable value for our shareholders by delivering transformational growth and by applying operational excellence to our portfolio.

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contents www.xstrata.com 1 overview 02 2010 highlights 04 group overview 06 chairman s statement 09 chief executive s report strategy 18 market overview 21 competitive environment 24 how we create value 26 strategy 28 growth pipeline 36 key performance indicators 42 principal risks and uncertainties performance 50 financial review 56 operating review 56 xstrata alloys 62 xstrata coal 70 xstrata copper 80 xstrata nickel 86 xstrata zinc 94 xstrata technology services 96 operations data governance 102 board of directors 104 executive management 105 directors report 110 corporate governance report 119 remuneration report financial statements 132 statement of directors responsibilities 133 independent auditors report 134 consolidated income statement 135 statement of comprehensive income 136 consolidated statement of financial position 138 consolidated cash flow statement 139 statement of changes in equity 140 notes to the financial statements 219 independent auditors report 220 balance sheet 221 notes to the financial statements 228 cautionary note regarding forward-looking statements ibc shareholder information overview strategy performance governance financials sustainable development for the second year we have combined information about our non-financial and financial policies and performance to provide a comprehensive overview of the group s business and activities we recognise that excellence in safety environmental ethical and social performance is a source of competitive advantage and is critical if we are to achieve our primary aim of delivering industry-leading returns to our shareholders over the long term integrated reporting reflects our ongoing efforts to embed our sustainable development policy and principles into our decision-making and the way we operate at every level of the organisation key information about sustainable development within this report is available in the following areas page numbers governance and framework approach and policies employees health and safety environment community key performance indicators 7-8 24-25 112 115-118 7 10-11 24-25 26-27 25 27 41 47 10-11 25 27 40 45-46 25 39-40 44-46 25 27 41 45 38-41 for more information visit our corporate website www.xstrata.com cross-reference within this document for related information we also produce a detailed sustainability report which is published in april 2011 this provides additional discussion on our policies activities and performance and is available on our website www.xstrata.com/sustainability

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2 business review overview 2010 highlights financial highlights operating profit up 75 to $7.7 billion as restructuring activities undertaken during 2009 positioned xstrata to benefit from a more favourable operating environment record real cost savings of $541 million achieved 3.4 of the cost base the ninth consecutive year of cost reductions strong cash generation of just under $10 billion gearing reduced to 15 from 26 and net debt by 38 to $7.6 billion despite total capital expenditure of $6.1 billion during the year final dividend of 20 cents per share proposed for payment in may 2011 reflecting a return to pre-financial crisis levels and confidence in the medium-term outlook on a rights-adjusted basis operational highlights strong operational performance with record annual production volumes for coking coal semi-soft coking coal and mined and refined nickel three major new mines successfully commissioned nickel rim south goedgevonden and blakefield south 20 major expansions and new mines currently in construction including 10 projects approved during 2010 20 annual reduction in total recordable injury frequency rate sector leader in the dow jones sustainability index for the fourth year running xstrata copper s ernest henry mine queensland australia.

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www.xstrata.com 3 revenue $bn operating ebitda $bn operating profit $bn overview $30,499m 2009 $22,732m 30 28.5 20 17.1 10 27.9 22.7 +34 $10,386m 2009 $6,788m 15 30.5 10 10.9 7.0 +53 $7,654m 2009 $4,369m 9 8.8 6 7.2 5.8 3 4.4 +75 7.7 strategy 9.6 6.8 10.4 5 performance 0 06 07 08 09 10 0 06 07 08 09 10 0 06 07 08 09 10 attributable profit $bn earnings per share basic cash generated from operations $bn governance $5,152m 2009 $2,773m 6 5.4 4 3.4 2 2.8 4.7 +86 $1.77 2009 $1.05 3 5.2 3.17 2.77 2 2.41 +69 $9,949m 2009 $5,304m 12 11.0 8 1.77 6.7 4 1.05 5.3 8.9 +88 9.9 financials 1 0 06 07 08 09 10 0 06 07 08 09 10 0 06 07 08 09 10 net assets per share dividends per share us¢ total recordable injury frequency rate per million hours worked $14.34 2009 $12.04 15 14.9 10 11.6 14.4 12.0 +19 25.0¢ 2009 8.0¢ 30 14.3 20 23.6 28.3 +212 7.0 15 25.0 2009 8.8 improvement 20 14.1 10 12.3 10.2 8.8 7.0 5 10 10.2 8.0 5 0 06 07 08 09 10 0 06 07 08 09 10 0 06 07 08 09 10 excludes exceptional items excluding own shares 2006-2008 adjusted for rights issue in 2009 including contractors.

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4 business review overview what we do area of operation assets by region us$m of group total revenue by region us$m of group total north america 6,257 10 6,504 21 canada copper nickel zinc and lead mining and smelting operations and xstrata process support usa recycling operations south america 19,702 30 8,744 29 chile copper mining and smelting operations and projects peru copper and copper-zinc operations copper growth projects colombia thermal coal operation argentina copper operation and project dominican republic ferronickel mining and processing operation commodity business operating profit us$m of group total revenue us$m of group total number of employees excluding contractors alloys 353 5 1,894 6 8,337 xstrata alloys is the world s largest producer of ferrochrome a leading producer of primary vanadium and has a growing platinum group metals business xstrata alloys also owns carbon operations which supply key raw materials to its ferrochrome smelters xstrata alloys operations are based in south africa copper 3,820 50 14,004 46 11,483 xstrata copper is the fourth largest global copper producer with mining and processing facilities and growth projects located in australia chile peru argentina and canada it also manages a recycling business xstrata recycling with offices in north america europe and asia xstrata copper s world-leading portfolio of growth projects includes las bambas in peru tampakan in the philippines el pachón in argentina and frieda river in papua new guinea includes unallocated expenditure p56 p70

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www.xstrata.com 5 europe 3,072 5 3,404 11 spain zinc smelter norway nickel refinery germany zinc smelter uk lead refinery ireland zinc exploration project africa 11,456 17 2,909 10 south africa ferrochrome vanadium platinum and coal operations tanzania nickel exploration project mauritania iron ore project republic of congo iron ore project australasia 24,818 38 8,938 29 australia copper zinc and lead mining and smelting operations separate coal mines and nickel operations and xstrata technology new caledonia nickel project philippines copper project papua new guinea copper project overview strategy revenue by destination 2010 1 6 2 3 2 19 7 44 3 25 performance 5 1 2 3 4 5 6 africa north america south america asia australasia europe governance 4 revenue by destination asia split 2010 14 14 3 5 4 4 financials 1 2 3 4 5 6 china japan india korea taiwan other asia 6 5 4 1 3 2 coal 2,216 29 7,788 26 10,473 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 nickel 503 7 2,738 9 zinc 917 12 3,922 13 4,645 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 technology services 26 153 167 xstrata technology services provides proprietary technologies and specialist services in the areas of mining mineral processing and metals extraction to major mining companies worldwide and to xstrata s own operations to improve efficiency and reduce operating costs 3,340 xstrata nickel headquartered in toronto canada is the fifth largest global nickel producer and one of the world s largest producers of cobalt xstrata nickel s operations include mines and processing facilities in canada operations in australia a ferronickel mine and processing facility in the dominican republic and a refinery in norway xstrata nickel s portfolio of growth projects includes kabanga in tanzania and koniambo in new caledonia p62 p80 p86 p94

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6 business review overview chairman s statement against a more encouraging macroeconomic backdrop xstrata delivered its second best financial performance since its ipo willy strothotte chairman the conviction that the financial crisis was a severe but temporary interruption of a positive secular trend underpinned xstrata s executive management s decision supported by the board to continue to invest in xstrata s major organic growth projects during 2009 thereby ensuring xstrata was quickly able to position itself for growth in anticipation of the global economy recovering i am pleased to report that the decision to do so has enabled the group to maintain its ambitious growth trajectory and xstrata s major growth projects remain set to deliver a substantial 50 increase in overall volumes on a copper-equivalent basis over 2009 levels by the end of 2014 providing robust returns at conservative commodity prices and importantly an average reduction in unit costs of 20 the volatility in prices evident in 2010 will in the board s view persist over the medium term as a result of more prudent supply chain management by customers leading to lower inventories and greater spot market activity an increase in shorter term quarterly pricing agreements for many commodities the impact of commodity markets becoming an investment class in their own right and high levels of capacity utilisation on the supply side the impact of financial flows on exchange traded metals is clearly visible in the almost immediate response of the commodities market to changes in market sentiment financial investment in commodities now represents a semi-permanent but highly volatile source of demand xstrata s diversified portfolio is geared towards early and mid-stage lme-traded commodities such as copper nickel and zinc and bulk negotiated commodities of thermal coal coking coal and ferrochrome with end-user construction infrastructure and electricity generation sectors accounting for some 50 of xstrata s revenues the group remains in a strong position to continue to benefit from demand from the industrialising economies of china india brazil and others strategy 2010 offered xstrata s businesses a markedly improved operating environment compared to the previous year despite the impact on confidence of sovereign debt concerns in the early part of the year and uncertainty about the potential impact of inflation on emerging economies growth in the latter part of the year against this more encouraging macroeconomic backdrop and aided by the numerous restructuring and cost saving initiatives implemented during the previous year xstrata delivered its second best financial performance since its ipo nine years ago in 2010 the board focused its attention on the substantial capital investment programme underway across our business examining the management processes in place to identify and manage the risks inherent in such an extensive expansion programme and scrutinising the 10 projects brought to the board for approval to commence construction the board continues to assess each project brought for approval against stringent criteria in terms of the anticipated return on investment at conservative long-run prices reduction in operating costs compared to current production and in the light of anticipated market conditions in addition to evaluating the business s ability to manage the associated risks the accelerating pace of delivery of organic growth created a strong sense of momentum in 2010 and into early 2011 it is encouraging to see xstrata already delivering volume growth and cost savings from the three major projects completed during the year and demonstrable progress on projects at every stage of development the combination of low gearing over $8 billion in undrawn bank facilities high-quality access to the debt markets and strong cash flow generation means xstrata is well-placed to fund the $18 billion of expansionary capital expenditure that has been committed for currently approved and soon-to-be approved projects commodity markets throughout the financial crisis and ensuing global downturn xstrata s board and management continued to hold the view that the secular trends underpinning the positive prospects for commodities remained intact and would in time reassert themselves demand growth fuelled by urbanisation and industrialisation in highly populated developing markets and the structural issues that restrict new supply of many major commodities continued to provide support for commodity prices notwithstanding events that weighed on global confidence during the year and had a short-term impact on commodity markets.

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www.xstrata.com 7 over the next three years of its ambitious expansion as well as retaining the agility to opportunistically take advantage of value accretive acquisitions with a robust balance sheet that continues to provide the flexibility to withstand short-term price pressures and maintain our ambitious capital expenditure programme and the board s confidence in the medium-term outlook i am pleased that we have been able to return xstrata s final dividend to pre-financial crisis levels this substantial increase which underlines the board s commitment to a progressive dividend policy will form the level from which the dividend policy will grow in the future during the year members of the board s health safety environment and community committee were able to see the impressive progress of the koniambo nickel project at first hand during a visit to the module yard in qingdao in china where components of koniambo s metallurgical plant were constructed followed by a visit to the koniambo site itself in new caledonia the project s disciplined approach to safety its integration into and close collaboration with the local community and its systematic approach to project management give the board great confidence in the successful execution of this substantial project xstrata also made further progress on its medium-term goal to build a substantial iron ore business in 2010 the fundamentals for iron ore are attractive and provide additional diversification of xstrata s portfolio xstrata s proven expertise in bulk commodities together with its track record in infrastructure and project development means the group is well positioned to successfully develop its iron ore projects following the acquisition of controlling interests in junior mining companies with assets in mauritania and republic of congo brazzaville xstrata now has a firm foothold in the market with projects that offer both near and long-term development potential mining companies and the equally legitimate requirement of shareholders to be compensated for the risks borne in developing and operating mines is complex and requires open consultation and a spirit of genuine partnership xstrata continues to support the communities associated with its operations and 2010 was no exception with more than $84 million invested in projects in the areas of health education community development art and culture job creation and enterprise development several countries in which we operate faced severe weather-related catastrophes in january the group donated $500,000 to the international red cross haiti appeal established to provide emergency aid and relief to those affected by the devastating earthquake as xstrata nickel s falcondo operation is situated in the dominican republic bordering haiti in march xstrata donated $1 million following a major earthquake in chile comprising $500,000 to the chilean red cross and a further $500,000 to support relief efforts being undertaken by an antofagasta-based industry body xstrata copper provided a variety of in-kind support including food parcels for impacted employees supporting a rescue and reconstruction team and facilitating helicopters for the rescue effort xstrata copper also provided support for the rescue of the chilean miners who were recovered safely on 13 october after 69 days trapped underground at a mine operated by san esteban during late 2010 the australian state of queensland suffered some of the worst flooding in decades leaving many homeless and infrastructure paralysed as a significant queensland employer and a major contributor to the affected region s economic growth via its coal copper and zinc operations it was fitting that xstrata supported and assisted these communities through a aud2 million contribution to the queensland premier s disaster relief appeal to help the state s recovery the safety and wellbeing of our workforce remains paramount whilst in 2010 the businesses saw an overall strong improvement in the reduction of total recordable injuries i am very saddened to report that three people lost their lives while working at xstrata s managed operations or projects improvement in safety performance and the prevention of fatalities remains the utmost priority for xstrata s board and management and we continue to work to ensure we implement the learnings from every actual and potential critical incident as well as from best practices within our own and other industries sustainability information is integrated within this report including a range of non-financial key performance indicators in the strategy section a comprehensive sustainability report is also published separately from the annual report each year laying out key sustainability risks strategy and performance against set targets which is available from xstrata s website overview strategy performance governance financials sustainability xstrata s sustainable development policy business principles supporting suite of standards and assurance process ensure a rigorous approach is taken at every site and project as xstrata moves further into an intensive phase of developing large-scale mining projects and exploring the potential of longer-term projects that lie in new and more complex geographies it is imperative that we continue to work in this way and apply our best-in-class environmental management and community relations if we are to successfully deliver our organic growth strategy mining involves a capital-intensive long-term investment commitment we have a recognised obligation to ensure our activities have a positive impact in terms of jobs training education and social and financial benefits that endure over the long term to do so we must work in partnership with host governments and communities within a stable regulatory environment that facilitates the substantial investment required to develop and sustain mining operations and that recognises the full contribution of mining activities to the socio-economic well-being of a region or nation striking the right balance between the legitimate desire of government to extract financial benefit for their countries from governance and risk management as announced in early march i will step down as chairman of xstrata plc at the annual general meeting agm on 4 may 2011 sir john bond has been invited to join the board and will stand for election as chairman and independent non-executive director at this

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8 business review overview chairman s statement continued juncture it is timely for me to reflect on my nine-year tenure as chairman of xstrata plc it has been an immense privilege to have served as chairman through the group s evolution from a small mining company into a global diversified mining major that benefits from a prolific organic growth pipeline top tier asset base global reputation in sustainable development and an enviable track record in value-creating growth for its shareholders i commend xstrata s employees and management team for their passion commitment entrepreneurial spirit and expertise during my tenure and i am pleased to hand over the chairman s role to such a highly capable and well-respected successor as sir john bond the board has always been mindful of ensuring a balance of relevant experience in its composition during 2010 paul hazen retired from the board and dr con fauconnier was elected a director of the company con has held numerous executive and board positions at international mining companies including as former ceo of kumba resources limited a south african iron ore producer during the year peter hooley assumed the role of chairman of the audit committee whilst all members of the board are financially literate peter a former cfo of global healthcare product supplier smith and nephew plc is considered to have the recent and relevant financial experience required by the 2010 uk corporate governance code xstrata s devolved management structure is underpinned by a robust governance framework the group s value-driven approach to risk management includes a comprehensive risk management structure and system that is embedded across its businesses each year the board approves business plans that include the results of annual risk reviews at an operational commodity business and group level in 2010 the overall board assumed direct responsibility for risk management from the audit committee following feedback from the 2009 board evaluation and the board s recognition of the evolving risk profile of xstrata s intensive phase of project development in line with our commitment to undertake an external evaluation of the board every three years an independent review was carried out in 2010 which concluded that the board was effective and provided strategic challenge and evident leadership the financial crisis of 2008 and 2009 prompted extensive reappraisal of governance systems worldwide as regulators sought to assess the robustness of corporate governance regimes in the wake of the disaster a new uk corporate governance code was published in mid-2010 which recommended that in the interests of greater accountability all directors of ftse 350 companies should be subject to annual re-election by shareholders in accordance with the code the remaining ten directors of the board will stand for re-election at the agm xstrata is committed to the highest standards of personal and professional ethical behaviour we have a long-standing statement of business principles and governance framework to help all xstrata employees contractors and associated partners manage the potential ethical risks in our business a global code of conduct has been developed to provide additional guidance on implementing xstrata s business principles and to encompass the revised requirements set out by the uk bribery act dividends ¢ per share interim dividend ¢ps final dividend ¢ps 30 19.2 20 17.0 20.0 10 6.6 0 06 07 08 09 adjusted for the 2009 rights issue 9.1 10.2 8.0 5.0 10 a global bribery fraud and corruption policy that updates our existing fraud policy and procedures has been developed along with third party due diligence standards and training standards xstrata s business principles are well embedded into the business the steps taken in 2010 will provide further assurance to the board and external stakeholders that the spirit and letter of our business principles are being implemented around the world a comprehensive corporate governance report is published on pages 110 to 118 of this report conclusion xstrata emerged through 2010 to deliver an impressive performance that was underpinned by prudent cost control operational excellence and undeterred development of its growth pipeline the record real cost savings achieved by our commodity business units in 2010 were truly commendable and demonstrate the group s ongoing focus on improving the quality of our operations the pipeline of significant growth projects which xstrata has successfully nurtured through the financial crisis will in addition to increasing volumes by 50 by 2014 also collectively reduce operating costs by over 20 on average accelerating the transformation of the group and cementing its position in the lower end of the cost curve relative to its peers in each major commodity the group enters 2011 on a strong financial footing well positioned to optimise its competitive position and market-leading position in key commodities the board remains confident of xstrata s ability to continue to deliver excellent shareholder returns willy strothotte chairman

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www.xstrata.com 9 chief executive s report xstrata is in the midst of a fundamental transformation through the development of our organic growth pipeline mick davis chief executive developing economies ebitda rose to $10.4 billion and attributable profit increased by 86 to $5.2 billion or $1.77 on a per share basis overview further improvements to value and quality of portfolio one of the defining features of xstrata today is the significant improvement in the quality of our portfolio brought about by our operating teams over the last nine years year-on-year cost savings have become a hallmark of our operational performance and a key indicator of the steady improvement in the competitiveness and value of our operations at the end of 2010 our teams had realised a record $541 million of cost savings in real terms representing 3.4 of the operating cost base consistent annual cost savings at each reporting period since our ipo nine years ago have transformed the cost competitiveness of our commodity businesses each of which is now positioned in the lower half of its respective industry cost curve on average xstrata has trimmed operating costs by 1.5 per annum since 2003 our extensive organic growth programme currently underway is progressively bringing about another step change in cost competitiveness over the next three years our businesses once again successfully expanded our resource base to preserve or enhance the longevity and value of our operations a substantial increase to copper mineral resources was announced at the collahuasi joint venture in chile in july bringing the total estimated mineral resource to 7.1 billion tonnes of copper at an average grade of 0.82 copper this represents 58 million tonnes of contained copper metal underpinning the potential to expand collahuasi into a one million tonnes per annum producer significant copper resource upgrades were also achieved at the antapaccay project in peru the el pachón project in argentina the frieda river project in papua new guinea and at the las bambas project in peru during the year providing a solid base for our development plans at each of these projects in february 2011 we announced a further substantial increase in mineral resources at the frieda river project in papua new guinea more than doubling measured and indicated resources over the previously published estimate strategy performance governance financials a strong operational performance in 2010 contributed to an exciting year for xstrata we made substantial progress in bringing a number of our organic growth projects into production and advanced the development of both late and early stage opportunities in our pipeline three major new mines were successfully commissioned during the year adding low cost coal and nickel production from goedgevonden blakefield south and nickel rim south a further 10 projects were approved and are now in implementation while a range of earlier stage opportunities continued to progress through pre-feasibility and feasibility studies the opportunities seized during the difficult market conditions of 2009 to restructure higher cost businesses improve productivity and strengthen the balance sheet together with ongoing initiatives to improve the quality and value of our underlying business positioned xstrata to benefit from a more favourable operating environment in 2010 average commodity prices rose substantially over the prior year reflecting improved market sentiment particularly in the second half as macro-economic concerns over european sovereign debt issues eased and strong physical demand emanated from the strong operational performance in 2010 in 2010 xstrata achieved record production of coking coal and nickel while volumes of mined copper chrome and lead in concentrate rose compared to the previous year xstrata zinc australia and xstrata nickel delivered on the promise of increased volumes and reduced operating costs a direct result of the restructurings undertaken in late 2008 and 2009 indeed every one of xstrata s commodity businesses reported real unit cost savings compared to the prior year as lower cost production was commissioned and initiatives to improve productivity took effect at xstrata zinc recent capital-efficient expansions at mount isa and mcarthur river mine delivered a 10 increase in volumes from the australian zinc operations and further reduced unit costs operational productivity improvements across our zinc operations contributed $208 million to operating profit in 2010 including $163 million of sustainable cost savings in total xstrata zinc c1

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10 business review overview chief executive s report continued cash costs on an integrated mine and smelter basis have been reduced by 40 over the last two years from 50.8¢ per pound in 2008 to less than 31¢ per pound at the end of 2010 this is a remarkable achievement attained despite the significant unfavourable headwind of a weakening us dollar against producer currencies a feasibility study into a further expansion of mcarthur river mine aims to reduce operating costs by a further 20 and is expected to be tabled for approval this year xstrata nickel also starts 2011 in a superior position following the restructurings undertaken in 2008 and 2009 to close high cost end of life operations while continuing to invest in the development of new low cost production from nickel rim south and koniambo the world-class nickel rim south operation reached nameplate capacity six months ahead of schedule in october and together with the reopening of the fraser mine and further expansions at raglan and xstrata nickel s australian mines enabled xstrata nickel to achieve record mined and refined nickel production in 2010 despite the closure of a number of higher cost operations in 2009 c1 cash costs have been dramatically reduced from a starting position amongst the higher cost producers in the industry of over $5 per pound in 2008 to a sustainable cost position towards the lower end of the second quartile of the industry cost curve today in 2010 c1 costs were reduced ahead of expectations to $2.16 per pound thanks to the significant by-product credits generated by nickel rim south the falcondo operation in the dominican republic will resume production profitably at a reduced rate of approximately 50 of full capacity during the first quarter further benefiting volumes while we continue to work towards the permanent conversion of the operation s fuel source to convert falcondo into a sustainable lower cost producer xstrata coal s operations encountered adverse weather conditions in the early part of the year and again from december including unprecedented flooding in queensland while the full impact on production in 2011 is being assessed and depends in part on the speed of recovery in the logistics chain and future rainfall current spot prices have responded to the inevitable supply constraints excluding the impact of difficult weather conditions across its portfolio and protracted strike action at tahmoor xstrata coal delivered $181 million of real cost savings primarily due to a 44 increase in production from the oaky creek complex a reduced strip ratio and cost savings initiatives at cerrejón and the successful commissioning of the new goedgevonden open cut mine in south africa xstrata copper continued to offset successfully the significant cost impact of lower grades at some of the older operations and stronger local currencies the overall cost profile of the business also benefited from the permanent closure in may of the kidd metallurgical site in canada in total net cost savings of $52 million were achieved despite a $47 million cost impact from lower grades this is a highly creditable cost performance which enabled c1 cash costs to be reduced to 89.4¢ per pound the substantial increases in copper resources announced during the year bring xstrata s total estimated in-situ copper resources to almost 90 million tonnes supporting our industry-leading copper growth pipeline of projects that will increase copper production by over 50 in the next three years with significant further growth potential thereafter from earlier stage projects at xstrata alloys a recovery in market conditions together with our strategy to retain skilled employees throughout the downturn enabled the efficient restart of idled capacity increasing chrome production by just under 50 initiatives to improve energy efficiency at our smelters and to reduce the amount of higher priced coking coal required in the furnaces further reduced operating costs offsetting some of the cost pressures attributable to the persistently strong south african rand against the us dollar which has continued into 2011 and the significant rise in the cost of electricity safety and environmental performance are equally important indicators of management and operational performance in 2010 xstrata plc was recognised as the industry leader in the dow jones sustainability index for the fourth consecutive year and for the first time all managed operations achieved our target of operating without any moderate or more serious category three or above environmental incidents our businesses also continued to make good progress in reducing the frequency of all injuries sustained reducing the rate of total recordable injuries including contractors by 20 year-on-year to seven per million hours worked a 79 improvement over the last eight years while we should justifiably be proud of this ongoing improvement in injury rates the greatest challenge we face is in eliminating fatalities from our business we did not achieve our goal in 2010 and three people lost their lives at managed operations already in 2011 four fatalities have occurred at xstrata operations every xstrata employee or contractor has the rightful expectation that they will arrive and leave work in good health and free of injury and i am deeply saddened by this loss of life my management team and i are resolved that we will do everything in our power to address the underlying causes of any critical or near-miss incidents at our operations with the ultimate objective of operating without harm to our people operating ebitda $bn 15 10 10.9 7.0 9.6 6.8 10.4 5 0 06 excludes exceptional items 07 08 09 10

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www.xstrata.com 11 group safety performance per million hours worked trifr total recordable injury frequency rate ltifr lost time injury frequency rate net debt to net debt plus equity basis compared to 26 at the end of 2009 despite total capital expenditure of $6.1 billion including $4.3 billion of expansionary capital as xstrata progressively commits to the substantial capital required over the next several years to deliver growth from the portfolio financial flexibility becomes increasingly important in 2010 our bank facilities were extended through a $4 billion syndicated loan on favourable terms including the removal of financial covenants from our lending agreements with increased headroom of some $8.7 billion a stable investment grade credit rating and ongoing strong cash generation from our operations i am comfortable that xstrata is well positioned to meet the capital requirements of our extensive growth ambitions while preserving sufficient flexibility to identify and rapidly act on opportunities to create further value should they arise overview 35 30 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 including contractors strategy 84 improvement 79 improvement performance delivering the next transformation of xstrata xstrata is now in the midst of a fundamental transformation of our portfolio through the development of our organic growth pipeline organic growth is not new for xstrata ­ our teams have already successfully delivered 14 new or expanded mines alongside the higher profile acquisitions that were a vital element of the group s initial stages of transformation nonetheless the scale and number of projects being developed by our teams today represent a step change in our growth strategy and will transform xstrata s volumes and unit costs profoundly by the end of 2014 volumes will be increased by 50 over 2009 production and the introduction of lower cost capacity is anticipated to deliver a reduction of over 20 in average operating costs i expect our approved and near-term projects to deliver an average return of around 22 predicated on conservative long-run commodity prices momentum in delivering growth from our portfolio gathered pace during the year with the delivery of three major projects and the approval of $10 billion of growth projects during 2010 in total 20 major expansions or new mines are currently in construction representing total capital expenditure of $18 billion of which $14 billion remains to be spent we are now entering into the most intensive phase of our organic growth programme to date this year activity will ramp up further with five projects due to commence production in 2011 a further $7.5 billion of capital projects will reach the approval stage during the course of this year the eight million tonnes per annum mangoola thermal coal project in australia is on budget and ahead of schedule to commission its coal handling and preparation plant in the first half of 2011 together with the newlands underground extension that will add three million tonnes per annum of thermal coal at full production the atcom east thermal coal mine in south africa will also commence production in the latter part of the year ramping up to four million tonnes of saleable production per annum construction commenced on the $1.3 billion ulan west and $1.4 billion ravensworth north coal projects following their approval governance entry into iron ore just over a year ago we took a first step towards our medium-term goal of building a substantial iron ore business in november 2009 xstrata obtained an option to acquire a stake in the early stage zanaga iron ore project in the republic of congo where a prefeasibility study is currently underway as announced in february 2011 xstrata has agreed to exercise its option to acquire a 50 plus one share interest in jumelles the owner of the zanaga project and a subsidiary of zanaga iron ore company limited in exchange for funding a feasibility study in august 2010 xstrata announced an agreed offer to acquire sphere minerals an australian-listed junior mining company with three iron ore projects in mauritania a country with an established history of iron ore exports the projects include potential near-term production from the askaf project and longer-term growth potential from the large-scale guelb el aouj project which will provide exposure to the attractive iron ore market further diversifying xstrata s portfolio xstrata currently owns in excess of 75 of the company and integration of the sphere operations into xstrata is well advanced these projects are currently managed through our coal business sharing the substantial expertise available in bulk mining successful project development and logistics financials robust financial position further strengthened in 2010 strong cash generation from our operations of just under $10 billion contributed to a significantly improved balance sheet in addition glencore international ag exercised its option to acquire the prodeco coal operations in the first half of 2010 providing a cash inflow of $2.25 billion plus the net balance of earnings and cash invested in the operation by xstrata ­ an annualised return of around 25 over the original purchase price consequently net debt was reduced by 38 compared to 2009 to $7.6 billion gearing fell to 15 on a

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12 business review overview chief executive s report continued xstrata project pipeline capital expenditure 20 major approved projects in implementation $14bn production in 2014 during 2010 the project achieved a number of key milestones including the completion of dredging for the port construction of the power station stack and the successful construction and delivery of the modules required to construct the metallurgical complex from the engineering yard in china all modules had been installed by january 2011 on-site construction of the metallurgical facility and power station is currently underway and will be complete in the early part of next year to allow testing and commissioning to commence the project is now entering its peak construction phase with some 3,500 employees and contractors currently on-site the expansion of george fisher zinc-lead mine will increase production by 29 to 4.5 million tonnes of ore per annum and the black star deeps projects will extend the life of the operation to 2016 both projects were approved during 2010 and together with feasibility studies into an expansion of the handlebar hill mine and the development of the high-grade lady loretta deposit aim to exploit xstrata s extensive zinc resource base at mount isa the largest zinc resource in the world zinc-lead resources at xstrata s mcarthur river mine are the third largest in the world and a project to double current production at mcarthur river mine is due for approval this year the project involves a 15-year extension to the current mine life at the expanded production rate and envisages the application of xstrata s proprietary hydrometallurgical technology to enable bulk concentrates to be processed at one or more of xstrata s smelters in canada the bracemac-mcleod project to replace perseverance mine was approved in july and initiatives continue to extend the life of the brunswick operations initial production is expected from the western decline shaft of the eland underground platinum operation during the first quarter of this year followed by initial production from the eastern decline in the second quarter once eland reaches full production towards the end of 2015 production of platinum will double to 300,000 ounces per annum a second phase expansion to the lion ferrochrome smelting complex in south africa is underway using proprietary energy-efficient technology while construction of the tswelopele mega-pelletizing plant is well advanced to further improve operating efficiency and reduce costs work on earlier stage growth projects is equally significant the next generation of projects to replenish our pipeline is currently in the feasibility or scoping stage and offers the potential to deliver sustained volume growth once the current suite of projects reach full production capital will be spent over the next five years to complete conceptual pre-feasibility and feasibility studies into this next cadre of projects including the large-scale tampakan copper-gold operation in the philippines the massive wandoan coal project and el pachón copper project in argentina amongst the various conceptual studies underway a concept study into a substantial expansion to the world-class collahuasi copper operation to produce one million tonnes of copper per annum is due to be completed in early 2011 14 major projects with near-term approval $7.5bn $1.3bn feasibility and scoping during the year to deliver 6.7 million tonnes of thermal coal from 2014 and eight million tonnes of thermal and semi-soft coking coal from 2012 respectively xstrata copper now has five major projects in construction to deliver a 50 increase in copper volumes by the end of 2014 the $1.47 billion antapaccay expansion to the tintaya copper mine in southern peru was approved in july 2010 as part of an integrated regional strategy to progressively increase copper production from southern peru to 500,000 tonnes by the end of 2014 in the six months since the project was approved facilities for the construction camp have been completed to accommodate the current 1,600 workers on site increasing to 4,500 people by the end of 2011 the on-site construction for the foundations of the crusher and the three large grinding mills is progressing on schedule and all the major components for the mills are already in peru ready to be installed commissioning is on track for the second half of 2012 the successful execution of antapaccay lays the foundations for the greenfield $4.2 billion las bambas project also approved during the year las bambas will share key infrastructure with antapaccay achieving operational and capital synergies and enabling skills to be transferred on completion of the antapaccay project to the construction of las bambas the $1.3 billion expansion to the antamina copper-zinc operation in peru to increase capacity to 130,000 tonnes per day is on track to commence commissioning at the end of this year while an expansion to the lomas bayas operation is progressing well to extend the life of the operation to 2024 ernest henry mine s conversion to a major underground shaft operation to extend the life of the operation remains on schedule and first magnetite was recently produced from the associated magnetite concentrate plant which will create an export by-product from the operation the koniambo nickel project in new caledonia remains on track to commence production next year before ramping up to full

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www.xstrata.com 13 xstrata volume growth production data 200 175 150 125 100 75 50 25 0 09 10 11 12 13 14 15 16 17 18 19 20 on a copper equivalent basis with 2009 based at 100 mined production base case 2009=100 unapproved likely approved existing businesses five-year cagr personnel required to deliver its major growth projects currently in development and together with engineering partners developed a standard concentrator design to fast-track the construction and delivery of the concentrator infrastructure required at the projects currently being developed at each of our projects we have engaged communities early in the process to address any areas of concern from the outset and to work together with community members to deliver sustainable benefits from our presence in the region with the ultimate aim of maintaining a social licence to operate the decentralised management structure that is a core differentiator of xstrata in my view underpins our entrepreneurial approach to project execution just as it has in our day-to-day operations and approach to m&a our businesses are able to adopt innovative solutions to specific project challenges and respond more nimbly to local issues unencumbered by the constraints imposed by a single rigid approach to project development and the limited resources and capacity which often befall centralised project teams once proven innovative ways of responding to particular risks or technical issues are widely disseminated and shared across the group to ensure that all of our businesses enjoy the benefits of successful innovation under our structure projects are developed by the same commodity business management teams that will eventually be responsible for running the operations ensuring maximum accountability throughout the process and enabling operational management to develop longer term more strategic relationships with key stakeholders overview strategy performance as we ramp up our programme of organic growth expansionary capital spending will rise accordingly to reach peak levels of around $6.8 billion this year and next in addition to the five projects that will reach initial production this year major projects including the koniambo greenfield nickel project the antapaccay expansion to our tintaya copper mine in southern peru and the ulan west coal mine in australia will be contributing volume and cost improvements to xstrata s performance by the end of 2012 our decision to continue investing in the development of our organic options through the downturn of late 2008 and 2009 will permit xstrata to introduce new volumes into a market with strong supply-demand fundamentals governance commodity market fundamentals underpin growth strategy from inception xstrata s growth strategy has been based on a conviction now widely held that the supply-side of our industry is fundamentally constrained and will struggle to meet burgeoning demand from populous industrialising nations over the medium term following a period of interruption during the downturn this secular trend was again in evidence in 2010 as the impact of falling grades longer haulage distances labour disputes and technical problems at existing ageing operations led to mine underperformance across the industry while the timing of the onset of new sources of supply fell short of market expectations in most key commodities these issues are particularly acute in the copper industry where a growing deficit is apparent and the development of new copper projects remains challenging due to skilled labour and engineering shortages more onerous environmental and planning regulatory requirements community dissent or increased political risk challenging conditions in the geographies in which a large proportion of new copper projects are located are likely only to exacerbate this trend capital costs continue to rise as mining sector inflation re-emerges in the light of increasing capital expenditure amongst the major mining companies financials de-risking of projects to ensure successful delivery xstrata s project pipeline is the product of many years planning and preparation as projects are nurtured through numerous approval stages feasibility environmental and social studies a vital component of the extensive feasibility and planning process is to eliminate or mitigate the risks involved in each individual project and the cumulative risks across the pipeline including through conducting extensive detailed designs early on realising potential synergies between projects optimising sequencing and ensuring that the requisite skills and equipment will be available to avoid expensive over-runs or delays once each project has been approved the entrepreneurial spirit we foster throughout the group is clearly evident in the approach our management teams have taken to de-risking our growth pipeline at xstrata nickel a modular approach has been adopted at the koniambo project to use best value engineering expertise and minimise the risks of additional on-site activity in constructing a power plant and metallurgical complex xstrata alloys and xstrata zinc are using proprietary technology in their development projects to optimise the cost performance and scope of metallurgical operations xstrata copper signed a strategic alliance with bechtel to secure the skills and

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