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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.
01 02 04 07
Key Financial Results Xstrata at a Glance Chairman’s Statement Chief Executive’s Report
14 18 20 36 44 57 67 77
Operating and Financial Review Business Overview & Strategy Key Performance Indicators Financial Review Alloys Coal Copper Zinc Technology
79 82 84 85 91 102
Group Information Board of Directors Executive Management Directors’ Report Corporate Governance Report Remuneration Report
Xstrata plc Annual Report 2005 | 01
Key Financial Results
Year ended 31.12.05
Year ended 31.12.04††
Revenue EBITDA† EBIT† Attributable profit Earnings per share (basic) Cash generated from operations Net debt to equity Net assets Net assets per share Dividends per share: – interim dividend (paid) – final dividend (proposed) Total 2005 dividends per share
8,049.8 3,092.8 2,509.2 1,706.4 279¢ 2,779.9 32.1% 8,137.2 $13.57
6,462.4 2,066.6 1,499.0 1,067.1 170¢ 1,784.9 20.1% 7,325.2 $11.74
25 50 67 60 64 56 60 11 16
9.0¢ 25.0¢ 34.0¢
8.0¢ 16.0¢ 24.0¢
13 56 42
†Excludes discontinued operations ††As restated for the effect of the transition to International Financial Reporting Standards (IFRS) with the exception of IAS 32 and IAS 39 whereby financial instruments and hedges have continued to be accounted for under UK GAAP prior to 1 January 2005
I I I I
Attributable profit up by 60% to $1.7 billion Operational cash flows of $2.8 billion and free cash flow of $1.9 billion after sustaining capital expenditure Real unit cost savings of $19 million, despite spiralling prices for key industry inputs $1.7 billion acquisition of one-third stake in Cerrejón thermal coal operation, a large scale, cost competitive asset with an exceptional reserve base and access to the high growth US and European markets Purchase of 19.9% of Falconbridge Limited for C$28 per share, with unrealised post-tax profit at year end of $316 million Rolleston thermal coal mine commissioned on time and within budget, with first coal railed in October 2005 Phase One of Project Lion ferrochrome smelting complex on budget and on track to commission in the second half of 2006 Meaningful and sustainable empowerment ownership secured in Xstrata’s South African coal assets through the creation of ARM Coal with African Rainbow Minerals Final dividend increased by 56% to 25¢ per share to bring the full year dividend to 34¢ per share, reflecting increased confidence in the medium term commodity price outlook
I I I I
02 | Xstrata plc Annual Report 2005
Xstrata at a Glance
Xstrata is a major global diversified mining group, listed on the London and Swiss stock exchanges. The Group is headquartered in Zug, Switzerland and has approximately 24,000 employees world-wide, including contractors. Xstrata maintains a meaningful position in six major international commodity markets: copper, coking coal, thermal coal, ferrochrome, vanadium and zinc, with additional exposures to gold, lead and silver. The Group's operations and projects span four continents and eight countries: Australia, South Africa, Spain, Germany, Argentina, Peru, Canada and the UK.
Alloys | the world’s largest producer of ferrochrome and a leading producer of primary vanadium.
Operates five operating chromite mines and 18 ferrochrome furnaces, through the Xstrata-Merafe Chrome Venture and one integrated vanadium plant in South Africa Interests in 32 coal mines, 19 in Australia and 13 in South Africa, and an exploration project in Canada
1150 1000 850 04* 05* 1,116
400 200 0 04* 05* 171 317
Coal | Xstrata Coal is the world’s largest producer of export thermal coal and a significant producer of coking coal.
4000 2,693 2000 0 04* 05* 3,400
400 200 0 04* 05* 668 1,079
Copper | one of the world’s top ten producers of copper.
Copper mines, processing operations and port facilities in Australia, mining and processing operations and port facilities in Argentina (50% owned) and an exploration project in Peru Zinc smelting operations in Spain and Germany, three zinc-lead mines and a lead smelter in Australia and one lead refining plant in the UK.
2500 1,598 1000 0 04* 05* 2,008
1000 644 500 0 04* 05* 920
Zinc | one of the largest producers of zinc globally.
1600 1,165 800 0 04* 05* 1,449
300 150 0 04* 05* 239
Technology | Xstrata Technology’s ISASMELT technology will be used for over 10% of global copper production in 2006.
Based in Brisbane, Australia, Xstrata Technology markets its products to metals and mining companies world-wide.
90 52 45 0 04*† 05* 77
18 16 10 9 0 04*† 05*
*2004 and 2005 data is reported under IFRS †Technology includes Townsville port operations in 2004
Xstrata plc Annual Report 2005 | 03
Revenue by origin
Revenue by destination
EBIT by commodity*
EBIT by geography*
Africa 24% Americas 11%
Australia 51% Europe 15%
Africa 3% Americas 9% Asia 42%
Australia 8% Europe 37% Middle East 1%
Alloys 12% Coal 42%
Copper 36% Zinc 9%
Africa 20% Americas 17%
Australia 57% Europe 6%
*Before non-trading items, continuing operations excluding Technology and unallocated
Employees by commodity**
Employees by geography**
Net assets by commodity†
Net assets by geography†
Alloys 22% Coal 45% Copper 18%
Zinc Lead 14% Technology 1%
Africa 48% Americas 6%
Australia 37% Europe 8%
Alloys 11% Coal 53%
Copper 24% Zinc Lead 12%
Africa 29% Americas 13%
Australia 49% Europe 9%
**Including contractors, excluding unallocated
†Continuing operations excluding Technology and unallocated
04 | Xstrata plc Annual Report 2005
Willy R Strothotte
Xstrata continued its growth trajectory in 2005, propelled by strong financial and operational performance. Since the year end, Xstrata’s market value has risen to around $18 billion from around $12 billion a year ago and approximately $800 million at the start of 2002. Robust commodity markets continued to exert a significant positive influence on Xstrata’s profitability as prices continued to rise for each of our commodities, fuelled by continued growth in demand from Asia and in particular, China and India, and less consistent, but increasingly positive economic performance in Europe and the United States. Xstrata achieved record attributable profits of $1.7 billion and earnings per share of $2.79, an increase of over 60% from the previous year. Strong demand for energy and metals also led to increased competition for mining supplies, skilled labour, fuel and energy, as producers accelerated growth projects to feed increasing demand and, inevitably, this led to higher prices for the key inputs into our operations. Against this background, Xstrata’s commodity businesses successfully contained and reduced real unit costs, ensuring ongoing improvements to margins, with the EBITDA margin rising to 38.5% in 2005. For the second consecutive year, Xstrata was the only London-listed diversified mining company to cut costs in real terms, reducing our operating cost base by $19 million in total. Xstrata’s consistent record in reducing the size of its operating cost base in real terms each year since the IPO in 2002 indicates the progress we have made in improving the quality of our entire portfolio. The introduction of new mining methods such as longwall coal operations in Australia, on-going technology improvements, for example at the San Juan de Nieva zinc smelter in Spain, greater capital efficiencies, in particular at the Mount Isa complex in Queensland, growth projects with significantly low-cost profiles including the Lion ferrochrome smelting complex and Rolleston coal mine and other productivity improvements have significantly improved the overall margins and cash generation ability of our businesses. Xstrata is thus better placed to secure benefits from the current high commodity price environment and better positioned to maintain cash flow and profitability when prices return in due course to more normalised levels. Returns to shareholders also increased in line with this strong performance, through the repurchase of Xstrata shares through the equity capital management programme, share price performance and increased dividend payments. As at 1 March 2006, Xstrata had achieved total shareholder return since IPO of 278%, compared to 26% for the FTSE100 index over the same period. Due to the Board’s increased confidence in the outlook for our key markets and in Xstrata’s ability to capitalise on a continuation of robust commodity prices, an additional increase was approved to the final dividend, up by over 56% from the previous year.
we welcome and actively seek feedback from the many stakeholders in our business on any aspect of our performance and corporate reporting. Xstrata maintains a robust Board comprising nine non-executive directors. including individual assessments of Board members. as such. both as a Group and at the commodity business level. risks and opportunities in these critical areas of our business. published separately and available from our website. environment and community (HSEC) committee to assess and guide Xstrata’s strategies. I am confident. These programmes have been designed to bring about a step change in safety performance at every level of our South African workforce and specifically to eliminate fatalities and critical incidents through enhanced leadership. Fatalities are simply unacceptable and the elimination of fatal incidents is the Group’s greatest challenge for 2006. Despite initial positive signs of progress from these businesses. In February 2005 Xstrata’s Board formed a health. requires a longer-term approach. leadership.Xstrata plc Annual Report 2005 | 05 Governance and corporate responsibility Our commitment to achieving growth and value creation for shareholders in a manner which is sustainable. systems and performance and to ensure the Board is fully informed about industry developments. During the year David Rough. carried out at every managed operation in 2005. resulting in the loss of nine employees’ and contractors’ lives. As part of our efforts to operate with the maximum transparency commercially possible and continually improve communications with stakeholders.3 per million hours worked. Across the Group. responsible and contributes to lasting social and economic benefits remains at the heart of our strategy. led a formal assessment of the Board’s performance. Several Xstrata sites are also producing standalone sustainability reports this year. it is with deep regret that I must report that in 2005. while one incident occurred at a zinc plant in Spain and another in Peru at the Las Bambas exploration site. I believe. As ever. Xstrata’s operations sustained seven fatal incidents. The extraordinary level of activity occurring to address safety in our South African operations aims to change attitudes and eliminate at-risk behaviour and. particularly with regard to the comprehensive safety programmes implemented at our South African operations in 2005. Professor Jim Joy. Again. We have also outlined performance against the key financial and non-financial indicators used by the Board and executive committee to assess Xstrata’s progress against our strategic objectives. Xstrata’s injury prevention programmes continued to achieve substantial reductions in injury frequency rates and in 2005. this year’s annual report includes a brief section outlining Xstrata’s strategy in greater detail. The programme provides assurance to the Board that our operations and commodity businesses have the appropriate management systems in place and are performing in line with the expectations we have set through the HSEC policy and management standards. The Board is closely monitoring the additional investment and focus being brought to bear on our South African operations and both Xstrata Coal South Africa and Xstrata Alloys provide six-monthly progress reports to the Board HSEC committee. Xstrata’s HSEC Assurance Programme is. behavioural change and hazard management. . with more planned for 2006. comprehensive information on our approach to sustainable development and environmental and social performance is provided in the Group 2005 Sustainability Report. the majority of these incidents occurred in Africa. Further. the Group total recordable injury frequency rate improved by 19% and lost time injuries were reduced by 18% to 4. as senior independent director and Deputy Chairman. The programme was initiated in 2005 and has provided a comprehensive analysis of Xstrata’s HSEC systems and performance across our sites. safety. The results of the initial baseline audits. have confirmed several areas of high performance. whose input has benefited both the Board committee and executive management. six of whom are independent. at the forefront of best practice in the industry and is a vital management tool in this area. that our programmes are already beginning to bring about lasting improvements that will help us achieve our goal of zero harm at work for all our employees. A specialist health and safety adviser was appointed to the committee. in addition to areas to which we are dedicating additional resources in 2006. however.
is one such opportunity that will position Xstrata to supply the growing US and European markets and cements our position as the global leader in export thermal coal. while maintaining a disciplined focus on creating and safeguarding shareholder value. Xstrata is well positioned to capitalise on the growth in these markets. Major organic greenfield and brownfield growth projects are underway across Xstrata’s commodities to maintain and improve our competitive position. a process in which we continue to seek opportunities. The company is also optimally placed to continue to play a key role in the ongoing consolidation of our sector. given coal’s reliability and relative cost position. The achievements of the last four years are owed most of all to the leadership of our executive team and to the skills and commitment of all our people.06 | Xstrata plc Annual Report 2005 Chairman’s Statement Outlook and prospects The prospects for our business remain very strong. and even more profoundly by continued demand growth from China and India. Willy R Strothotte . Asia is set to continue its economic development and demand for basic materials. Demand for power continues to grow in the United States and Europe and has improved the outlook for thermal coal into these markets. subject to shareholder approval. driven by a revival of Japan’s economy. The proposed acquisition of one-third of Cerrejón. My fellow Board members and I take great pride in the operational excellence of our employees that has enabled Xstrata to achieve record profits and continued growth in 2005 and we are confident that 2006 will prove to be another strong year for Xstrata. The world’s economies are in general showing positive signs of growth. optimise the portfolio and secure a growing share of continuing increased demand for our products. a major consumer of commodities.
zinc and lead increased again in 2005.Xstrata plc Annual Report 2005 | 07 Chief Executive’s Report Mick Davis Growth in earnings As presaged in my report last year and further anticipated in my interim report. On the back of higher commodity prices across all our businesses. I The second factor behind Xstrata’s exceptional earnings growth reflects the prescient investments made in acquisitions and projects over the past three years which have increased production volumes in our key commodities. Mount Isa and across our coal businesses have increased total thermal coal and zinc metal production by 55% and 41% respectively since 2002 and provided Xstrata with significant production from the new commodities of copper and coking coal. This is directly attributable to three factors: I The first is the influence of improved commodity prices. while average LME prices for copper and zinc were 29% and 32% higher than in 2004. and expansion projects at San Juan.7 billion. In the first two months of this year. as expected. These reviews have confirmed a positive outlook for prices. This reflects the surge in demand for metals and energy products and the lack of the capacity. the average LME zinc price of $2.846 to 28 February 2006 was 32% higher than the average 2005 price. Xstrata conducted major reviews of the copper and zinc markets in 2005. There is growing acceptance that the cycle is likely to extend further as the same dynamics remain in place. all of which will make a significant contribution to our 2006 results.146 per tonne was 55% higher than the average LME price for 2005 of $1. As a consequence. reported EBITDA has grown by a compound annual growth rate of 123%. This upward trend will continue with the improved performance of our zinc and copper businesses at Mount Isa. planning or investment required to enable a rapid supply response. 25% and 71% higher than 2004. which. Nordenham. Production volumes of thermal coal. Overall the Group generated some $2. Average prices in 2005 for the Group’s thermal coal and coking coal were. Narama and Ravenswood. . Xstrata was optimally positioned to benefit from the significant commodity price increases of the last two years. an increase of 60% on the strong financial performance in 2004. have exceeded their long-run averages for over two years. borne out by the sharp upward trend in both zinc and copper pricing at the end of the year.382 per tonne and the average LME copper price of $4. Xstrata delivered record net earnings of $1. 2005 was a very good year for Xstrata. respectively. against the previous year.8 billion of cash from its operations. In the four years since Xstrata’s listing in London in 2002. cash generated from operations by a compound annual growth rate of 105% and earnings per share by a compound annual growth rate of 87%. the acquisition of a one-third stake in the Cerrejón coal operation and the commencement of the Rolleston coal and Lion ferrochrome projects. which has continued into 2006. The acquisitions of MIM Holdings.
gold production was lower due to the anticipated decline in head grades. Xstrata’s commodity businesses made excellent progress in containing operating costs in 2005. Xstrata has successfully reduced costs in real terms across the Group and while the rate of cost savings has slowed since 2002. while copper sales accelerated in the second half of the year. with particular increases in the price of fuel. the Group operating cost base was reduced by a further $19 million during the year. Set against the robust demand environment. At Alumbrera. this was due to a combination of temporary ferrochrome furnace suspensions. explosives and other mining materials. lower-cost growth projects will yield improved volumes and positively impact cost performance in 2006. with our zinc business succeeding in reducing costs in real terms by more than $48 million – considerably ahead of the general inflation rate. The full benefit of these programmes was offset by higher prices for our key inputs. Production volumes in refined copper were lower principally on the back of restricted gas off-take at Mount Isa. This performance brings the total reduction in the operating cost base in real terms to $124 million over the last three years. allowing Alumbrera to reap the full benefit of stronger copper prices. in many respects the performance of our businesses in 2005 is even more creditable than in previous years. together with production from new.08 | Xstrata plc Annual Report 2005 Chief Executive’s Report Production volumes declined in 2005 reducing EBIT by $9 million compared to 2004. from efficiency programmes which delivered $106 million of savings in total. I The third driver of Xstrata’s improved earnings has been the delivery of meaningful efficiency gains across each of our businesses every year. the entire mining sector has faced a growing headwind of rising costs and supply delays for inputs such as energy. and contrary to the industry trend. The investments made to improve productivity across our businesses in 2005. For four years. In our ferrochrome. energy and mining materials. fuel. the closure of two vanadium operations in 2004 and a roof fall at the Oaky North underground coking coal mine. labour. following unplanned closures of the third-party owned acid plant. Against this highly challenging backdrop. As a result. An underground miner operates the continuous miner at Arthur Taylor . vanadium and coking coal businesses. reductants.
In our copper business.7% copper at the Ferrobamba deposit. This is in spite of the significant increased price of construction materials. with some 3 million tonnes expected to be produced in 2006. with efficiency gains of over $43 million from the introduction of significantly lower cost production from Beltana and Ulan.000 tonnes of coal in one day.000 tonnes in one week and one million tonnes in a month. The Xstrata-Merafe Chrome Venture continued to optimise its asset base and in particular achieved significant cost improvements at the Boshoek operation.1% copper with supplementary molybdenum and gold values. a strong endorsement of Xstrata’s devolved management structure which fosters an entrepreneurial spirit throughout the Group and empowers local management to make the right decisions for their projects and operations. 250. on the back of record improved efficiencies and increased production from the low-cost Black Star mine. I believe. The combination of higher grade skarn style . The highly efficient San Juan de Nieva smelter in Spain achieved production in excess of 8. and exploration work will commence in two additional mineralised zones in the Las Bambas district. while the Northfleet lead operation in the UK further increased production in 2005. that as a result of a variety of initiatives from the respective project teams. set new Australian productivity records in November 2005 producing 50. Commissioning remains on track and within budget for the new Project Lion ferrochrome smelter to begin in the second half of the year. productivity gains totalling $20 million helped to offset the negative impact of cost increases in fuel. confirming so far Indicated and Inferred Resources across three mineralised systems of 300 million tonnes at 1. represent significant production growth that can be initiated in response to ongoing strength in demand over the next few years. having reduced its unit cost base by over 15% since Xstrata’s acquisition of MIM Holdings in 2003. Work accomplished in 2005 on our two major copper growth projects – Las Bambas in Peru and Tampakan in the Philippines – has provided further confidence in their significant potential and importance to our copper business. alloys and zinc businesses. Beltana. It is particularly pleasing. Future growth Organic growth Inflation specific to the mining industry and critical shortages of materials and skilled manpower have also impacted significantly on major new capital projects. which have cemented the position of Xstrata’s New South Wales coal operations as among the most efficient coal mines in Australia. Included in these initial resources are 84 million tonnes of skarn mineralisation at 1. The internal and external expansion projects in our coal. The first year drilling programme at Las Bambas has shown promising results. Xstrata’s suite of expansionary growth projects has remained within budget and on schedule. integrated 300.000 tonnes over its previous nameplate capacity without any material increase in the cost base. in particular steel. The north Queensland operations are now well on track to achieve their aim of becoming a sustainable. therefore. The drilling programme will be doubled in 2006 to establish the depth and lateral extensions to the known main zones. set out in the interim report.Xstrata plc Annual Report 2005 | 09 The outstanding cost performance of the zinc business reflected benefits secured across both the Australian and European operations. Operating costs were reduced by 18% at the Mount Isa zinc-lead mine and concentrator. energy and consumables. particularly in north Queensland. Our coal business also delivered another impressive cost performance in 2005. where both the Ernest Henry and Mount Isa operations achieved record copper in concentrate production in 2005. First coal was railed from Rolleston thermal coal mine on 3 October 2005 and the operation is now ramping up to its Phase One annual capacity of 8 million tonnes.000 tonnes per annum producer of copper cathode. Xstrata Coal’s ability to contain cost increases in real terms to only $7 million in 2005 is particularly commendable in an industry where the weighted average FOB cash cost of thermal coal mines is estimated to have risen by over 27% from January 2004. which employs 152 people. These achievements are a credit to Xstrata’s operational management and.
due to its low emissions profile and the business is therefore excellently positioned to meet that market’s growing demand for thermal coal. and has confirmed in a letter to Xstrata’s Board that. will not vote at the meeting and the three Xstrata directors nominated by Glencore have not taken part in the board’s consideration of the proposed acquisition. will enhance Xstrata Coal’s highly competitive position in the major European market. the acquisition is fair and reasonable as far as Xstrata shareholders are concerned. with access into markets with strong growth potential and immediate earnings accretion. The medium-term outlook for coal demand in the Atlantic market appears particularly robust.1 billion tonnes at 0. and South American producers are expected to be the main beneficiaries of this growth due to the capacity. . compared with South African coal into Europe. supports our view of Las Bambas’s potential as a significant copper-gold-molybdenum operation. which will be funded from new credit facilities. At Tampakan.29 grams per tonne gold. and provide greater flexibility to manage production across the three global thermal coal production bases of Latin America. the high oil price environment and concerns over continuity of gas supply have led to a positive re-assessment of coal’s importance in meeting medium-term energy needs for consistent base-load generating capacity. In addition. will become effective on obtaining shareholder approval. Cerrejón is the lowest cost Atlantic coal producer and the world's largest export open pit coal mine. Rothschild has independently reviewed the acquisition. with further expansions under review. as a related party to the transaction. Indian and European markets. Cerrejón’s exceptional expansion potential provides important additional optionality. The United States is a fast-growing major market for coal exports. quality and regulatory constraints facing some domestic producers. In addition to immediate cash and earnings accretion. for $1.4% copper cut-off grade. Its high quality thermal coal product has strong marketability into the United States. planning is underway for the commissioning of new coal-fired generating capacity in Europe. of Glencore International’s one-third share of the Cerrejón coal operation in Colombia will be a major positive step for Xstrata Coal. In Europe. and coal is forecast to generate over one-fifth of this increase. certain third-party consents and agreements and certain competition and regulatory clearances. An expansion is currently underway to 32 million tonnes of annual production. Acquisition of One-Third of Cerrejón Our proposed acquisition.73% copper and 0. infrastructure. Cerrejón controls its own key rail and port infrastructure and is adjacent to the important and growing United States import market.7 billion. This process has been accelerated by the industry’s ongoing investment in clean coal technology and in other emission controls. resource estimates were updated in November 2005 to 1. broadening the range of growth options open to Xstrata to access the Atlantic market and enabling the Group to respond with enhanced flexibility to opportunities in the American. with an outstanding resource base that will allow incremental brownfield expansions from current production levels of 26 million tonnes in 2005. The proposed acquisition of Cerrejón. demand for energy is expected to increase by over 50% by 2030. As a consequence. Glencore. with between 11 and 13 new coal-fired power stations on the drawing board in Germany alone. An extraordinary general meeting will be held in late March or early April.10 | Xstrata plc Annual Report 2005 Chief Executive’s Report mineralisation. This expansion to our thermal coal business comes at a time when there is growing recognition for coal’s role in meeting the world’s future energy needs. using a 0. together with more extensive porphyry mineralisation. the low-cost nature of the operations and the freight differential between the delivery of Colombian. in its opinion. The acquisition of a meaningful stake in this low cost proven asset will confirm Xstrata’s global leadership position in the export thermal coal market and strengthens our portfolio by reducing the average export cost of thermal coal and extending the overall asset life of our business. providing a significant new source of high quality thermal coal. Tampakan is now in pre-feasibility stage and a decision whether to take up our option and proceed into the full feasibility stage for this major copper project will be made in the second half of 2006. South Africa and Asia/Australia. According to the International Energy Agency. The US Energy Information Administration predicts thermal coal demand from US coalfired plants will increase by 110 million tonnes over the next 10 years.
Under the agreement.Xstrata plc Annual Report 2005 | 11 Minera Alumbrera processing plant and facilities Oomeshni Naiker and SHE coordinator Wessel Ebersohn examine relocated aloes at Project Lion Further acquisition growth On 15 August 2005. Closure of the Inco offer has been delayed by the approval processes of the anti-trust authorities in the United States and European Union and we will therefore continue to assess all of the various options open to us. Following an agreed cash and shares offer for Falconbridge from Inco Limited in October 2005. Xstrata continues to assess the various options for further value creation that arise from its holding in Falconbridge.7 billion. which will hold a 20% interest in the existing coal operations of Xstrata Coal South Africa. This would result in historically disadvantaged South African control of 36% of Xstrata’s South African coal business. including the assessment and pursuit of new opportunities in a range of commodities in Africa. Black Economic Empowerment in South Africa Xstrata and African Rainbow Minerals Limited (“ARM”) have agreed to establish a major new black-controlled coal mining company to be called ARM Coal. to advance ARM’s participation in the South African coal industry. from Brookfield Asset Management (formerly Brascan Corporation) for a total consideration of $1. As the controlling shareholder of ARM Coal. has also agreed to grant ARM an option to increase its participation by up to a further 10%. The transaction therefore introduces meaningful and sustainable empowerment ownership and involvement in Xstrata’s coal assets in line with the South African government’s Mineral and Petroleum Resources Development Act and the Mining Charter. . a Canadian diversified mining company. ARM Coal will therefore have an immediate effective interest of more than 26% in Xstrata’s South African coal operations.9% of the common shares of Falconbridge Limited (“Falconbridge”). ARM will be instrumental in the formulation and execution of strategic goals inclusive of the identification and pursuit of growth opportunities. we continue to believe that opportunities exist in the prevailing robust commodity markets to create significant immediate and future value for Xstrata. As with the Xstrata-Merafe Chrome Venture in our ferrochrome business. and a direct 51% interest in the Goedgevonden project. We remain focused on our rigorous requirements for any potential acquisition and confident of our inherent discipline in assessing prospective targets. which will have significant operating assets and growth projects in South Africa and a substantial participation in the export and domestic thermal coal markets. Xstrata announced the purchase of 19. the partnership between ARM and Xstrata will provide further benefits to both parties. or C$28 per share. ARM will pay R400 million to subscribe for 51% and Xstrata will pay R384 million (around $63 million) to subscribe for 49% of the issued share capital of ARM Coal. Xstrata has agreed to provide vendor financing to ARM Coal and. While we recognise that acquisitions undertaken in the current high commodity price environment carry obvious risks.
1% of Xstrata’s issued share capital under the Equity Capital Management Programme. which will enable further cost savings and increased productivity at our operations.12 | Xstrata plc Annual Report 2005 Chief Executive’s Report In a further transformation agreement. Both these developments underscore Xstrata’s commitment to genuine empowerment in the South African mining industry. enabling Xstrata to return $522 million to shareholders during 2005 through the repurchase of 4. This represents an increase of 42% over the previous year and sets a higher level from which the Group’s progressive dividend policy will continue. Balance sheet. strong cash flow generation and our increased confidence in the medium-term outlook for commodity prices has led to our decision to increase the final dividend to 25¢ per share. bringing the full year dividend to 34¢ per share. Logging drill core at the Las Bambas exploration project in southern Peru Minera Alumbrera operators control levels of air in the flotation cells .7% of Xstrata’s ordinary share capital. in return for funding its proportionate share of the total capital expenditure required for the project. free cash flow rose to over $1. dividend and capital management After increased sustaining capital expenditure of some $430 million. Xstrata’s robust financial position. with net debt to equity at the year end at 32%. Xstrata will retain an effective 37% interest. resulting in Kagiso owning a fully participative 13% interest in the earnings from the Mototolo JV. Xstrata Alloys has formed a black economic empowerment partnership with Kagiso Trust Investments (“Kagiso”) in respect of Xstrata’s 50% interest in the Mototolo Joint Venture. Kagiso will acquire 26% of Xstrata’s 50% interest. or 4. through sound business partnerships that build on each partner’s respective areas of expertise and establish a basis for mutual value creation going forward. This brings the total number of shares purchased under the programme to 29 million.9 billion.
the resurgent performance of the Japanese economy and encouraging indicators in respect of European growth are all supportive for the sector. The investments we have made to optimise our zinc-lead operations and to grow the business incrementally will enable Xstrata to benefit from the particularly strong zinc prices expected in 2006 and into 2007. the outlook for 2006 is very encouraging. At the same time. Anglo American and BHP Billiton adjusted to December year end for comparison *Before non-trading items. ease from the exceptional levels of recent months. Our strategy remains sound: Xstrata is well positioned to create further value by continuing to grow our business and manage our operations ever more effectively.075 3. internally and externally.000 3.502 4. growth in supply – while inevitably rising – remains constrained by input shortages.Xstrata plc Annual Report 2005 | 13 EBITDA US$m 12. I have little doubt that they will remain above their long-run averages for a number of years. I extend my thanks and recognition for their contribution in 2005. Xstrata 2002 EPS adjusted for 3 for 2 rights issue Outlook In my report two years ago. While it may be reasonable to expect that prices will. As a consequence.821 Earnings per share* GR CA 6% +9 R CAG % +33 10. with the Las Bambas and Tampakan copper projects at the forefront of our plans to grow this business. in due course. The last four years have reflected that embedded in Xstrata’s architecture are two key ingredients for sustained value creation. I highlighted the improving fundamentals of the mining industry and the outlook for an extended period of higher than average commodity prices. an eye for the opportunity – be it internal or external – and an understanding of what is required for successful execution.221 US¢ 300 225 150 75 0 58 GR CA 7% +6 174 271 R CAG % +42 143 88 85 252 37 02 03 04 Xstrata 05 02 03 04 05 FTSE Diversifieds† 02 03 04 Xstrata 05 02 03 04 05 FTSE Diversifieds† †FTSE Diversifieds shows the average for Rio Tinto. The Xstrata team has much still to contribute and our progress to date underscores both our approach to value creation and the commitment of Xstrata’s Directors and employees. The outlook for our copper business is equally positive. This view has underpinned the steps we have taken.000 9.103 4.000 0 414 699 2. prospects and future contribution of the coal business. The acquisition of one-third of Cerrejón and our numerous organic growth projects in coal hold meaningful growth potential and have redefined the quality.000 6.696 7. Continued growth in demand for metals and energy products in the fast-growing economies of China and India. to position Xstrata over the past two years – and it remains unchanged. M L Davis . significant cost inflation and a dearth of projects ready to come into production. Namely.
and through identifying and completing larger. to conduct our business activities ethically and with the maximum transparency that is commercially possible. and commodities where prices are set by terminal markets such as the London Metal Exchange. creating shareholder value at each stage of our growth. through incremental. company-transforming transactions. to empower management teams in our commodity businesses and to minimise the burden of overheads. Swiss-listed company capitalised at around $800 million. through mutually beneficial partnerships with our stakeholders.103m Alloys 53% Zinc Lead 47% Alloys 17% Thermal Coal 63% Zinc Lead 20% Alloys 11% Thermal Coal 34% Zinc Lead 7% Copper 36% Coking Coal 9% . Our growth is guided by the following strategic objectives: I to manage a portfolio of assets diversified by commodity and by geography. Our strategy was put in place shortly before the inception of Xstrata plc. I I I I I I EBITDA: 2001 –2005 2001: US$126m 2002: US$482m 2005: US$3. we must operate in an ethical and transparent way. to create further value and further optimisation of the portfolio by delivering capital and operational efficiencies and real reductions in costs across our businesses. Our Mission recognises that. to support rational risk-taking and to identify and secure opportunities for value creation. a meaningful position in six major commodity markets and operations and projects in eight countries. with only two businesses (ferroalloys in South Africa and zinc in Spain). We aim to grow a diversified portfolio of metals and mining businesses. safety and environmental performance at our operations. through its initial public offering on the London Stock Exchange in March 2002. to foster a high performance and entrepreneurial culture across the Group through a highly devolved structure.14 | Xstrata plc Annual Report 2005 Operating and Financial Review | Business Overview & Strategy From its position at the start of 2002 as a small. to achieve the highest standards of health. to uphold a rigorous and unwavering focus on value. internally and externally. diversified metals and mining group with a market capitalisation of around $18 billion. supporting the principles of sustainable development. and to work in partnership with local communities for mutual benefits. We pursue growth and value creation through identifying opportunities for organic growth from our portfolio. Xstrata has grown rapidly to become a major. bolt-on acquisitions. and to maintain the capacity to act decisively. to continue to grow and create value over the long term. and continues to guide our corporate activity today. with a balanced spread between commodities where prices are negotiated between customer and supplier.
as we strive to eliminate fatal and high potential incidents from every aspect of our operations. thus providing investors with more reliable and stable cash flows. zinc and lead. However. We aim to operate a fatality. At the end of 2005. This rigorous assessment of value . within the structure of Xstrata’s global policies and standards. In addition to our four major commodity businesses. We believe this directly benefits our operations by creating a strong sense of local ownership. a minerals processing technology business. through which only the most attractive projects or acquisitions are approved and allocated capital. particularly in South Africa. We expect the leadership. Xstrata operated every operation in which it has an interest. A balanced. as with our entry into the platinum market in 2005. Cost reduction is an important driver of value creation and a measure of the quality of our operational management and our stewardship of the assets of our owners. Leaders in operational excellence We aim to hire and retain the best people at every level of our businesses and to provide them with the resources they require to achieve and maintain our industry-leading operational excellence. Xstrata has outperformed its FTSE100 mining industry peers in reducing the operating cost base every year and. We prefer to own a significant stake in our operations and joint ventures and take management control of operations wherever possible. we remain open to smaller opportunities where these arise. Xstrata also owns Xstrata Technology. Each commodity business operates with a high degree of autonomy. UK. illnesses and injuries are preventable. Switzerland. reduced costs by $19 million. injury and illness-free business and believe that work-related incidents. Safety is an ongoing. a joint venture with Anglo Platinum. and Xstrata Zinc. Each of Xstrata’s commodity businesses has the critical mass and scale within its respective commodity markets to compete on an integrated. Our businesses are mandated to reduce real costs on a continuous and sustainable basis. which successfully markets its products to metals and mining companies worldwide. such as ferrochrome and thermal and coking coal. we generally seek to gain a significant market position. Focus on value creation and growth Our imperative to grow the business is underpinned by an unwavering focus on value creation. Xstrata differentiates itself from its industry peers in our management philosophy that maximum responsibility and authority should be devolved to our operating businesses. major focus for the Group. Xstrata’s global businesses are supported in certain key corporate functions by a head office of around 18 people based in Zug. and commodities sold through negotiated customer-supplier contracts. When we enter new commodity markets. despite steep rises in the prices of key inputs for the mining sector as a whole. Xstrata Copper. diversified portfolio The portfolio of commodities produced by the Group is split evenly between terminal-traded commodities such as copper.Xstrata plc Annual Report 2005 | 15 Group structure and management philosophy Xstrata’s activities are organised into four global commodity businesses: Xstrata Alloys. where entrepreneurial managers are empowered and incentivised to address site-specific challenges and seize opportunities. with the exception of two thermal coal mines through the Douglas-Tavistock Joint Venture in South Africa. intensive training and investment in this area over the last 18 months. In each of the last four years. global basis. through Project Mototolo. to build a platinum mine and concentrator in South Africa. to bring about sustainable improvements in fatality prevention and continue our reduction in injury rates. Xstrata Coal. in 2005. We believe that a portfolio diversified by commodity and by geography balances the risks associated with specific commodity price cycles and operating locations. Diversification also engenders a healthy competition for capital between Xstrata’s commodity businesses. complemented by a further small corporate office in London.
logistics and power Utilise Xstrata Alloys’ capabilities and technologies as a springboard to building a diversified production base and continued quality growth Through these proprietary advantages. Any future funding decisions will continue to be based. however our strategy recognises that more challenging assets or more risky locations also offer the opportunity for value creation. Xstrata has completed two company-transforming acquisitions and a number of incremental acquisitions. Two of these. position in South Africa. will come on stream in 2006.16 | Xstrata plc Annual Report 2005 Operating and Financial Review | Business Overview & Strategy applies equally to growth initiatives from within our portfolio as it does to the acquisitions of projects or other assets. illnesses and injuries from our business through demonstrated leadership and continuing exchange of knowledge and best-practice across our New South Wales. and has initiated major growth projects in each of its commodity businesses. the Black-Star zinc-lead mine at Mount Isa. the risks can be identified and managed appropriately and that upside can be secured following acquisition. and the Rolleston thermal coal mine. the Lion Project in South Africa. although increasingly scarce. low-cost operations in low-risk geographies. Since its London listing. While value creation remains at the heart of our acquisition strategy. irrespective of the prevailing commodity price environment. A third. tailored products and powerful market insights. Commodity business strategies Xstrata Alloys Maintain Xstrata Alloys’ market leadership position in the ferrochrome industry by leveraging our unique scale. These assets are undeniably attractive. our entrepreneurial culture. ensure resilience in the downturns and leverage the technical flexibility of our Rhovan operation to develop high-value vanadium alloy products for specific international markets Eliminate fatalities and achieve a step-change in safety performance through an intensive training and knowledge-sharing programme Xstrata Coal Eliminate fatalities. we do not limit our sights to ‘tier one’ long-life. access to a combination of raw materials and expertise across a wide range of mining and processing technologies Enhance our competitive cost position. particularly through the application of our proprietary Premus Technology and on-going initiatives to minimise dependency on highcost inputs. began production in 2005 and are already enhancing the production and cost profile of our zinc and coal businesses respectively. mine optimisation and capital efficiency. Queensland and South African operations Become the world’s leading export coal company by seeking opportunities to strengthen Xstrata’s market leader position in export thermal coal and improve on Xstrata’s top five position in coking coal Ensure sustainable results by basing marketing and growth decisions on a well researched analysis of long-term market fundamentals and by the diversification of production and supply options across Pacific and Atlantic export coal markets Generate and progress incremental growth options to deliver low capital. with operating costs expected to be significantly lower than the industry average. with a particular focus on our leadership position in longwall technology Maintain a high performance team by becoming the employer of choice in the sector Be recognised for Xstrata’s commitment to sustainable development in general and clean coal technology in particular . through enhanced operational management and judicious capital investment. high return growth from existing portfolio Maximise returns on invested capital through operational excellence. continue to position Xstrata Alloys as the preferred supplier to the most attractive global customers Continue the progress made in the Xstrata Merafe Chrome Venture towards full compliance with the spirit of the MPRDA across chrome and vanadium Position the vanadium division optimally to benefit from price spikes. as those to date have been. on a dispassionate view of each project’s potential to create value in its own right. such as reductants. also in Queensland. provided that the price paid reflects the quality of the assets.
where cash generated exceeds our requirements for investment or further growth opportunities. and make appropriate returns of capital to shareholders.Xstrata plc Annual Report 2005 | 17 In addition to our focus on growth. through the implementation of a comprehensive human resources strategy. safe work environments Demonstrate continual improvements in the operations’ environmental performance Maximise the net present value of existing operations through ongoing capital and operating efficiencies. with the objective of adding resources to the Group’s resource base and extending the lives of our operations. nickel and platinum group metals Invest in research to develop new technologies. This strategy is already bearing fruit at the Tampakan project in the Philippines. Xstrata is pursuing a successful strategy of partnering with junior exploration companies. allowing us to leverage each partner’s strengths for mutual benefit. This strategy has been successful to date. particularly in Xstrata Copper. Xstrata Copper Consolidate and build on the dramatic improvements in safety performance in the business with the strategic objective of achieving injury-free. Exploring for further growth Xstrata’s commodity businesses are responsible for undertaking near-mine exploration around existing operations or in nearby regions. where Xstrata is working with Indophil Resources to progress pre-feasibility studies and how an option to take up a 62. while optimising and improving our existing suite of leading technology products Work with both internal and external users to continually improve the technologies and operating methods for the benefits of all users . dependent on Government approval Leverage improved operational. we maintain a progressive dividend policy. particularly in new industries such as coal. where an additional 16 million tonnes or a further two years of underground ore reserves has been added and at Alumbrera.5% interest in the project in September of this year. through application of our leading position in zinc technology Further improve the utilisation of existing assets. in particular hoisting capacity at George Fisher mine and upgrading of concentrating capacity at the Isa complex Develop opportunities to use Xstrata’s Albion process technology to develop a low-cost refined zinc production from the extensive MRM resource providing the opportunity to realise its full economic potential. Additional opportunities are being assessed through our partnership with Universal Resources in Australia and Erdene Gold in Mongolia. at Mount Isa. in line with Xstrata’s profitability. For greenfield exploration in less familiar territories. capital and safety performance by exchange of best practice and knowledge across our global zinc business Continue to achieve significant improvements in safety performance throughout the business unit Xstrata Technology Enhance Xstrata Technology’s market leading position across its select portfolio of core processing technologies to improve the efficiency and environmental performance of operations Develop new applications for existing technologies. with further scope for additions to the reserve base in both cases. where near-mine exploration has yielded 120 million additional tonnes of reserves added over the past two years. ongoing grade profile optimisation and extensions to mine lives Create and consolidate regional leverage through project development and business joint ventures in regions where Xstrata Copper already has an operating presence and/or infrastructure Scale up the significance of the project development pipeline by advancing activities and decision points on Xstrata Copper’s two major greenfield copper interests: Las Bambas and Tampakan Implement disciplined cost management programmes to ensure cost competitiveness throughout the commodity cycles Attract and retain quality people and. realise the full potential of our people Develop and retain a strong reputation for social responsibility in the broader community Xstrata Zinc Further improve Xstrata Zinc’s concentrate/ smelting balance in large part by exploiting the significant potential organic growth opportunities inherent in the long-life resources of our Australian operations and complement this through opportunistic acquisitions Continue to optimise and grow our highly efficient zinc smelting capacities.
3 6.1 10. It is a measure of how efficiently revenue is converted into EBITDA.7 7. Anglo American and Rio Tinto (FTSE Diversifieds). with dividend income assumed to be reinvested.7 8. The principal performance indicators are shown below. 02 03 04 05 EBITDA Margin | Xstrata’s EBITDA margin shows earnings before interest. Cost savings are shown as % of net operating costs. Anglo American and BHP Billiton adjusted to December year end for comparison †Non-trading items are material items of income and expense which.7 1. tax. Xstrata’s performance in achieving real cost savings is shown against the average for BHP Billiton. Employee turnover % 30 15 0 04 05 04 05 04 05 Group Alloys Coal Copper Zinc 10.0 Xsatr 0.3 –0. safety. Total shareholder return since IPO GBP 300 200 100 0 20 Mar 02 31 Dec 02 31 Dec 03 31 Dec 04 Xstrata FTSE100 31 Dec 05 Employees | We aim to attract and retain the very best people and provide them with the resources they require to achieve operational excellence. targets and performance measures related to Xstrata’s health. Employee turnover is a measure of our success in retaining our people.8 14. A broader range of non-financial indicators. Return on Capital % 50 33 25 0 04 05 04 05 04 25 15 22 32 Alloys 44 Coal Copper Zinc 19 6 05 04 05 Real Cost Savings | Sustainable real cost savings are an important driver of value and a measure of our operational excellence. based on contribution to EBIT variance.0 Commodity business 20.4 0.18 | Xstrata plc Annual Report 2005 Operating and Financial Review | Key Performance Indicators Xstrata’s Executive Committee and Board monitor a range of financial and non-financial key performance indicators reported on a monthly basis to measure the company’s performance over time. Return on Capital | Return on capital is calculated by dividing earnings before interest and tax (EBIT) before non-trading items† by capital employed and is an important measure of how effectively Xstrata earns profit from the money invested in its operations. Real Cost Savings % of operating costs 6 3 0 –3 02 03 04 05 4. The graph shows the total return for a £100 investment in Xstrata plc from initial public offering.5 7.9 FTSEDvifsre 01 i 0. calculated from the growth in share price together with the dividend income from the shares. depreciation and amortisation (EBITDA) before non-trading items† as a percentage of Group revenue.6 15. are presented separately .7 11. benchmarked against the FTSE100 index of the largest UK companies. together with comparative figures for the previous year.4 04 05 04 05 *FTSE Diversifieds shows the average for Rio Tinto.7 ds* ie 0.9 –19. EBITDA margin % 50 25 0 02 03 04 05 02 03 04 05 23 20 Xstrata 32 39 29 FTSE 100 Diversifieds* 25 29 36 Total Shareholder Return | TSR calculates the total return from an investment in Xstrata. published in April 2006 and available from our website. environmental and community performance is provided in the Sustainability Report 2005. due to their nature or expected infrequency.
environment. assess and control occupational health hazards and.4 16. Every new case of occupational diseases is reported.0 2. Corporate Social Involvement by region 30 Group ($m) 25 2004 2% 36% 10 57% 5% 0 04 05 Europe Southern Africa South America Australia 12% 32% 51% 2005 5% 15 .500 in 2004. to eliminate work-related diseases. compared to one fine for AUD1. job creation and enterprise.3 4. This bar chart shows number of new diseases recorded by commodity business over the last two years.4 4. in particular. category 5 represents a major or critical incident which requires major remediation.5 16. together with local communities.Xstrata plc Annual Report 2005 | 19 Health | Xstrata’s operations aim to identify. Total recordable injuries include lost time injuries.0 16.8 11.5 10. This chart shows the amount set aside for initiatives in each geographic region in which Xstrata operates.1 30 5. develops a social involvement plan to identify and support initiatives in the areas of health.9 25. Total Recordable Injury Frequency Rate Group Lost Time Injury Frequency Rate 20 13.5 10 0 4.3 15 0 04 12.9 3. 4 or 5 incidents.9 04 05 Zinc Group 18. Environmental fines and penalties | In 2005. relating to the non-capture of two blasts at Ravensworth East coal mine.1 5.6 24. Xstrata’s operations incurred no environmental fines or penalties. community development and arts and culture. Occupational health 50 36 20 28% 0 04 05 Group 37 25% 47% 2004 Alloys Coal Copper 2005 Zinc 43% 57% Safety | We believe that every work-related incident. No Category 4 or 5 incidents occurred in 2004 or 2005 Environmental incidents by category 1000 825 35 210 619 20 158 401 441 Category 1 Category 2 Category 3 500 580 224 49 52 273 220 102 123 0 04 Group 05 04 Alloys 05 04 Coal 05 04 05 Copper 04 Zinc 05 Community and social | Xstrata sets aside 1% of annual Group profit before tax to fund initiatives that benefit communities associated with our operations and employees. to provide a basis for comparison with our industry peers. We also report the lost time injury frequency rate.4 24. where practicable.5 15. operate without any category 3. Category 1 represents a very minor incident with negligible environmental impact that is reversible. providing a more complete measure of safety performance. Each operation. medical treatment injuries and restricted work injuries. New South Wales.3 05 04 05 04 05 04 05 04 05 04 05 Alloys Coal 04 05 04 05 3. We aim to limit the environmental impact of our operations.5 04 05 Copper Environment | Xstrata’s operations report every environmental incident according to defined categories to indicate the scale of the incident. and. illness and injury is preventable. education. Both frequency rates are reported per million hours worked.
For details of the significant impacts of the introduction of IFRS refer to the note ‘IFRS reconciliation to UK GAAP’. Unless indicated to the contrary.20 | Xstrata plc Annual Report 2005 Operating and Financial Review | Financial Review Basis of presentation of financial information Financial information is presented in accordance with International Financial Reporting Standards (IFRS). Consolidated operational results Group revenue increased by 25% in 2005. EBITDA for the year ended 31 December 2005 increased by 50% to $3. depreciation and amortisation (EBITDA) and earnings before interest and taxation (EBIT) are reported in the Chief Executive’s Report and the Operating and Financial Review before nontrading items (BNI). are presented separately in the income statement.520 million. Financial statements of subsidiaries are maintained in their functional currencies and converted to US dollars on consolidation of Group results. taxation. zinc and lead. The strong price increases in the thermal and coking coal and ferroalloys markets seen in the first half of the year eased in the second half. Minera Alumbrera open pit at night . Despite a weaker US dollar against all of Xstrata’s local currencies. earnings before interest.103 million and EBIT improved by 68% to $2. exceeding $8 billion as robust demand supported price increases across all of Xstrata’s commodities. Non-trading items are material items of income and expense which. revenue. The reporting currency of Xstrata plc is US dollars. all data and commentary in the Chief Executive’s Report and the Operating and Financial Review exclude the discontinued Forestry operation and all dollar and cent figures provided refer to US dollars and cents. Unless indicated to the contrary. Higher revenues drove profits and cash flow to record levels. significantly increasing earnings. due to their nature or expected infrequency. but improved demand in LME-traded commodities boosted prices of copper.
8 21.9 1.8) – – (6.0 (62.04 Alloys Coal Copper Zinc Technology Total Group Revenue Attributable Total Group Revenue Alloys Coal Copper* Zinc Technology Share of earnings from Falconbridge Corporate and unallocated Total Group EBITDA Attributable Total Group EBITDA Alloys Coal Copper Zinc Technology Corporate and unallocated Depreciation & Amortisation Attributable Total Group Depreciation & Amortisation Alloys Copper Technology Impairment of assets Attributable Total Group impairments Alloys Coal Copper* Zinc Technology Share of earnings from Falconbridge Corporate and unallocated Total Group EBIT Attributable Total Group EBIT *Excludes share of results from associates 1.4) (66.0) 2.Xstrata plc Annual Report 2005 | 21 Consolidated Results (includes minority interests) $m Year ended 31.448.3) (5.3 52.0) (248.8 7.715.4 6.5 238.8 1.2 667.5 21.6) (6.7) (5.0 916.007.05 Year ended 31.769.12.5 2.3 349.1 1.8) (490.0 (25.2 8.1) (5.200.462.049.1) 317.2) (212.4 1.1 15.9) (578.8) (6.2 203.271.115.8 1.497.4 1.9) (0.065.4 2.9) (1.7 145.5 1.7) (64.1 2.0) 3.9) 2.519.9 77.0 856.346.4) (3.5 19.3 1.4) (3.2) (209.103.2) (2.165.1) (560.5 – (80.1 13.6 .5) (510.3 (29.0 2.3 919.5 3.1) 1.0 953.8) 171.7 9.2 – (75.598.1 303.079.12.3 79.4) (3.693.400.228.9) (267.4 5.0 (65.8 644.131.980.
The north Queensland copper operations produced record copper-in-concentrate volumes but smelter production fell by 7% following maintenance work and limitations to furnace production due to gas off-take restrictions.12.5 Higher received coal prices and copper prices contributed over half of the increase in Group EBIT in 2005. Lower volumes were partially offset by higher thermal coal volumes and improved zinc and lead production at Mount Isa following the commissioning of the new Black Star zinc-lead mine and higher production from George Fisher. Significant progress was also made in reducing operating costs at the Xstrata-Merafe Chrome Venture’s Boshoek operation during the year.2) 0. by focussing on initiatives to improve the quality of feed to the smelters and minimise metallurgical coke requirements.7) (14. In particular.5 (8. and from lower vanadium sales due to the closure of two operations in 2004. and planned lower production from the higher cost Oaky Creek open cut mine.8 1. Despite this. Ferrochrome and vanadium price increases contributed $221 million and higher zinc and lead prices $134 million to EBIT.6 (131. .2) (173.04 Sales price* Volumes Unit cost – real Unit cost – inflation Unit cost – foreign exchange Foreign currency hedging Other income and expenses Corporate social involvement Depreciation and amortisation (excluding foreign exchange) EBIT 31. impacted by a roof fall at Oaky Creek.12. adding $623 million and $444 million respectively.519.3 2. Despite the substantial. coking coal sales remained at a similar level to the previous year. The combined impact of efficiency programmes. fuel and energy price increases.0) (1. which delivered $106 million of savings. treatment and refining charges $m 1. which resulted in 130.422. Hard coking coal production also fell by 7%. Efficiency improvements in the ferrochrome business produced benefits in 2005. Production of semi-soft coking coal declined from increased levels of production in 2004 in response to steel producers’ preference for hard coking coal in order to maximise output.000 tonnes of lost production. Xstrata Zinc achieved significant cost savings through improved capacity utilisation from the combined impact of the start-up of the Black Star mine and higher volumes from the George Fisher mine at Mount Isa.05 *Net of commodity price linked costs. including freight.497.0) (91. down by 9% due to lower gold grades. Chrome volumes also reduced due to a number of furnaces being temporarily suspended for routine maintenance during the winter period when energy prices are high. consumables. Xstrata achieved a reduction in unit costs in real terms of $19 million during the period. Lower volumes in a number of commodities compared to the previous year reduced EBIT by $9 million. was offset by specific cost increases that are being experienced across the mining industry.6) 18. ongoing increases in costs being experienced across the mining industry. The greatest impact was from lower gold production at the Alumbrera copper-gold mine.22 | Xstrata plc Annual Report 2005 Operating and Financial Review | Financial Review EBIT Variances EBIT 31.
74 1.67 . Productivity improvements at the Oaky North underground operation in Queensland were more than offset by an unexpected roof fall at the same underground operation.94 0.33 2.2 40. This was mainly due to a 3% strengthening of the Australian dollar and lower currency hedging gains compared to the previous year.3 47.0 27.2 71 49 25 24 29 10 32 7 159 Currency Table to $ (USD) USD:ARS AUD:USD USD:CHF EUR:USD GBP:USD USD:ZAR Average 2005 Average 2004 % change (+/–) At 31.31 1.9 39.5 65.24 1.12. These are more than offset by equity-accounted income of $21 million from Xstrata’s 19. and the impact of lower gold head grades.14 1.Xstrata plc Annual Report 2005 | 23 Productivity improvements at Xstrata Coal’s New South Wales operations. The Alumbrera copper operation in Argentina benefited from record processing volumes as the benefits of the flotation expansion were realised.24 1.43 +1 +3 +1 – +1 +1 3.5 70. The benefit of ongoing efficiency programmes and improved ore grades in Xstrata Copper in North Queensland more than offset higher fuel.92 5. Other income and expenses include Windimurra closure costs.04 2. The weaker US dollar during 2005 gave rise to an unfavourable foreign exchange variance of $264 million. the impact of one-off gains in 2004 which were not repeated in the period under review and a higher Group share-based payments charge under IFRS.03 0.0 70. port congestion at the Dalrymple Bay Coal Terminal and higher prices for key inputs. refining and freight rates.0 2. power and reagent costs.2 48.3 51. but overall costs were impacted by higher smelting.12. largely mitigated increased cost inflation.37 2.92 0.24 1.048 68.82 6.5 3.05 At 31. particularly at the Beltana mine.78 1.684 976 1.73 1.382 73.72 6.36 1.18 1.83 6.97 0.9% stake in Falconbridge Limited. Average commodity prices Unit Average price 2005 Average price 2004 % change Australian FOB export coking* Australian FOB export semi-soft coking* Australian FOB export thermal coal* South African export thermal coal* Copper (LME average) Lead (LME average) Zinc (LME average) Ferrochrome (Metal Bulletin) Ferrovanadium (Metal Bulletin) *Average received price $/t $/t $/t $/t $/t $/t $/t ¢/lb $/kg 111.25 1.866 886 1.76 1.
giving rise to a $4 million profit on disposal. mainly in the first half.05 Year ended 31.24 | Xstrata plc Annual Report 2005 Operating and Financial Review | Financial Review Earnings Summary $m Year ended 31.0) – (35.79¢ 1.067. The net foreign currency translation gain of $62 million represents the effect.1) 68.12.1) (158.9) (2. John Ayres skimming lead at Northfleet Chair lift to and from the surface at Kroondal Mine .027. In total $27.660.12. these gains and losses are recorded in the foreign currency translation reserve until the loans are repaid.6 5.9 8. In accordance with IFRS.3) 61. Non-recurring items totalled $46 million.4% in 2004.5) 1. at which point they are recycled through the income statement.4 2.2) 1.2 (9.5 (91.519.3) (17.4) (218.3 1.3 3.1 1.6 million was written off in relation to the unsuccessful offer for WMC.497.0) – (216. of the release of cumulative foreign currency translation gains and losses on repayment of inter-company loans that are considered equity in nature.2 – 39.9 1. The effective tax rate benefited from a decrease in corporate tax rates in South Africa and the recognition of research and development allowances in Australia.2 164¢ 10. Increased taxable earnings in 2005 led to a higher weighted average statutory tax rate of 24.9) (551.7 46.70¢ The effective tax rate for 2005 was 22%. Xstrata’s forestry division was sold in January 2005.04 EBIT Net interest (excluding loan issue costs written-off and realised net foreign currency translation gains) Income tax expense Discontinued operations Minority interests Attributable profit Earnings per share (BNI)* Profit on sale of investments Restructuring costs WMC offer costs Loan issue costs written-off Net recycled gains from foreign currency translation reserve Income tax on non-trading items Profit on sale of discontinued forestry operation Attributable profit Earnings per share* *Computed using same weighted average number of shares used to compute the statutory basic earnings per share 2.706.1 271¢ – – (10.8 (91.2% from 22.
1 2.1 2. no currency or commodity hedging and no contracted. Despite tax paid increasing by $323 million versus the prior period.9 3.7 4.139 million as strong cash generation was offset by the cash portion of the acquisition of 19.0 129. and contracted. priced sales as at 31 December 2005 **Assuming current annualised production and sales profiles. as shown in the hedging summary below.0 129.3 9.3 20. priced sales and purchases at 31 December 2005 Xstrata’s sensitivity to Australian export thermal coal prices is reduced by the sales already priced for 2006.5 3.0 3.6 3.5 1.8 9.0 6.325 million compared to 2004.9% of Falconbridge Limited and returned $522 million to shareholders through the repurchase of 4. acquired African Carbon Group for $60 million and distributed dividend payments to shareholders of $154 million. cash flow before capital expenditure increased by 42% to $2. Net Debt and Financing Summary Xstrata’s operations generated $1. In addition.924 million of free cash flow during 2005 after funding sustaining capital expenditure of $412 million.1 6.9 24. Net debt increased by $1.9 5. in 2005 Xstrata invested $517 million of capital at operations to enhance production capacities (including expenditure funded via finance leases).5 1.Xstrata plc Annual Report 2005 | 25 EBIT sensitivities $m Impact on 2006 EBIT* Indicative full year EBIT** 1¢/lb movement in ferrochrome price $1/kg movement in ferrovanadium price $1/tonne movement in Australian thermal export FOB coal price $1/tonne movement in Australian coking export FOB coal price $1/tonne movement in South African export thermal FOB coal price 1¢/lb movement in copper price $10/oz movement in gold price 1¢/lb movement in zinc price $10/tonne movement in zinc treatment charge price 1¢/lb movement in lead price 10% 10% 10% 10% 10% movement movement movement movement movement ARS AUD EUR GBP ZAR 10. Cash Flow.7 13.2 *After impact of currency and commodity hedging.9 4. . Xstrata Zinc has secured a substantial amount of its concentrate requirements for the remainder of 2006 into the San Juan de Nieva and Nordenham zinc smelters in Spain and Germany respectively.9 32.5 179. Forward sales have been entered into for a minor proportion of 2006 copper zinc.1 24.1% of Xstrata’s issued share capital under the Equity Capital Management Programme.6 10.5 1.1 6.6 6. lead and gold production.2 12.5 245.
1 – – 1.0) (60. .390.7) 15.5) 1.5 38.0) 119.3) 0.8) – – – – (35.1) (1.324.7 (167. resulting in a portion of the convertible bond net proceeds being reallocated to equity.5 (2. net of cash disposed Net cash flow before financing Purchase of own shares Sale of own shares Equity dividends paid Dividends paid to minority interests Foreign exchange adjustment Debt acquired with operations Debt disposed of with operations Issue of convertible debenture Convertible bond IAS 32/39 movements Borrowing costs written off New finance leases Redemption of Alumbrera capital to minority interests Other non-cash movements Movement in net debt Net debt at the start of the year Net debt at the end of the period* *Includes 100% of Alumbrera cash and third party shareholder loans 2.6) 10.9 (91.779.2) 4.4 (133.223.26 | Xstrata plc Annual Report 2005 Operating and Financial Review | Financial Review Cash flow summary $m Year ended 31.4) 13.9 (411.4 (51.9 (154.2) 2.2 (1.05 Year ended 31.0) (2.0) The financial instruments accounting standards IAS 32 and IAS 39 were adopted effective 1 January 2005.3 25.2 (38.5) – 22.472.7) 1.9 12.1) (1.2 (262.3) – – (91.8 1.638.2 1.6) (81.472.3) (521.9 (90.139.1) (111.5 (17.6) 1.12.611.04 Cash generated from operations Net interest paid Dividends received Tax paid Cash flow before capital expenditure Sustaining capital expenditure Disposals of fixed assets Free cash flow Expansionary capital expenditure Cash flow before acquisitions Investments Purchase of subsidiaries net of cash acquired Payments to Chrome Venture partner Purchase of Las Bambas Disposal of Ravenswood gold operation Disposal of Queensland coal assets Disposal of investments Repayments from Chrome Venture partner Sale of Forestry operation.3) 1.0) 34.8 (1.0) (7.784.1) 1.221.5) 16.6) 749. Borrowing costs written off relate to the payment of debt arrangement fees in connection with the bid for WMC Resources.6 (6.1 (455.5) (1.924.2 (3.8) (43.2) (148.6) 24.468.3) (62.7 (380.3) (188.8.131.52) – – – – 7.6 (57.472.2 (375.
Net debt summary $m As at 31.3 10.1 (2.0 8.8) 10.04 EBITDA Discontinued operations EBITDA Share of results from associates Non-trading items Net profit on disposal of property. plant & equipment Net profit on disposal of investments Increase in inventories Increase in trade and other receivables Increase in deferred stripping and other assets Increase in trade and other payables Movement in provisions and other non-cash items Cash generated from operations 3.472.12.4) (333.3) 1.2 (2.05 As at 31. Underlying trade creditors increased as a result of higher payables as a consequence of the higher prices inherent in concentrate stocks for the European zinc smelters.Xstrata plc Annual Report 2005 | 27 Reconciliation of EBITDA to cash generated from operations $m Year ended 31.1 2. in addition to timing of payments around the year end.8) 2.103.1% 459.3) 236. The value of concentrate stocks increased at the European zinc smelters due to higher metals prices.8) (80. As a consequence of the ongoing development of Australian operations.663.779.4 0.6 (1.2 (4.1) – 8.2 (228.6) (3.472.2) (10.917.6) 11.760.12. Australia.784.8 (2. with overburden removal at both the Black Star zinc lead open pit at Mount Isa and at the Ernest Henry copper operation.12.1% 35.4) (10.2 29.9) – (125. resulting in increased deferred stripping costs.0) (1.1) (51.065.0) 20.611. a reduction in the use of debtor financing in South Africa and the timing of copper sales which accelerated in the last quarter of the year. stripping ratios increased.9 The increase in receivables was primarily due to higher sales prices across all of Xstrata’s commodity businesses.1 (2.7 2.8) (2.0) Finance leases included in debt increased primarily in respect of rail infrastructure associated with the Rolleston thermal coal project in Queensland.8 (10.3 (1.3) (15.5 (185.441.12.611.0) (24.2) (36. reaping the benefit of very strong prices.05 Year ended 31.1) 13.6) (258.7) 1. . This increase in inventories was partially offset by a drawdown of thermal coal stockpiles in South Africa.1) 32.9 2.04 Cash External borrowings Arrangement fees Finance leases Net debt* Net debt to equity By currency: AUD EUR GBP USD ZAR Other Net debt by currency *Includes 100% of Alumbrera cash 524.1 – (23.6) 64.5 (1.
Foreign currency forward contracts $m Currencies Forward sale $m 31. management of interest rate and foreign exchange exposures.0 5. Sterling and Euro. and co-ordinating relationships with banks. Its responsibilities include: management of the Group’s cash resources and debt funding programmes. The Group is generally exposed to US dollars through its revenue stream.182.12.8) 935.2 666.9) (0.7468 0.3 98.12.05 As at 31.04 Maturing 2006 Coal NSW Coal Qld Copper $ to AUD $ to AUD $ to AUD $ to AUD 437. The majority of Australian dollar hedging relates to contracted US dollar priced sales.04 Inventories Trade and other receivables Prepayments Trade and other payables Net working capital 890.4) (14.12.9 661. rating agencies and other financial institutions.6) (3.8 (945.9 (788.7596 0. The currency hedging gains reflected in the income statement for the period ended 31 December 2005 amounted to $45 million compared to $218 million for the corresponding period in 2004.138.2) Coal NSW Total AUD to GBP .3927 (9.05 Weighted average exchange rate Fair value $m 31.8) 1. The unrealised mark-to-market loss on currency hedging in place at 31 December 2005 was $14 million. such as deferred stripping. Currency Hedging Currency hedging may be used to reduce the Group’s short-term exposure to fluctuations in the local currency exchange rates to the US dollar.8 214.7 1.12.0 Treasury Management and Financial Instruments Group Treasury has responsibility for the strategic planning of the Group’s financing activities. thus matching the negative exposure of our debt service obligations against the positive exposure of our revenue. The Group will seek to source debt capital in US dollars directly or by borrowing in other currencies and swapping them into US dollars.0 103.7474 0.9 794.0 825.28 | Xstrata plc Annual Report 2005 Operating and Financial Review | Financial Review Working Capital The differences between the working capital balances below and the movements shown in the EBITDA cash flow reconciliation reflect non-cash items such as movements in exchange rates and non-current assets.3 8. funding acquisitions and investments. Working Capital $m As at 31.8) (0.2 0.7449 0.3) (13.
Hedges relating to sales in 2006 are classified as cash flow hedges and shown in the table below.3) (85. As a result of the more favourable outlook for copper prices into 2006.2 (63.375 4.843 102. Xstrata Coal has an ongoing hedging programme for thermal coal.746. forward contracts have been undertaken to lock in the final price at the time at which the sale is recognised.68 7. generally on an annual basis.05 956.40 373. Zinc hedges maturing in 2006 relate to a specific shipment of zinc which was delayed from the final quarter of 2005 into 2006.7) (6. zinc. the Ernest Henry copper gold operation is scheduled in 2006 to enter a period of abnormally low ore grades for several months.06 500–590 2.000 49. A decision was made during the first half of 2005 to lock in the profitability of the operation through the forward sale of copper for this period.9) (15. principally from South Africa. and hedges a portion of forecast production when pricing opportunities exist in the forward market. . unit costs are expected to increase temporarily.05 Thermal coal (tonnes) Gold (ounces) Gold (ounces) Gold (ounces) Copper (tonnes) Zinc (tonnes) Lead (tonnes) Silver (ounces) Total $ Coal AUD Gold $ Gold $ Gold $ Copper $ Zinc $ Lead $ Silver 4.800 tonnes of copper have been redesignated as hedges against 2005 copper sales with the full earnings impact of $35 million recognised in the profit and loss statement at the balance sheet date.9) 0.625.62 1.2) *The average price is stated in US dollars and where necessary has been converted from foreign currencies at period end exchange rates Cash flow hedging The Group has undertaken short dated commodity hedging in respect of a minor portion of production during the course of the year. silver.12. In certain circumstances.4 (1. As indicated in the 2005 Interim Report.28 500.000 58.668 51.104 58. These terms are negotiated by concentrate purchasers to match the pricing period with the expected timing of cathode sales. The unrealised mark-to-market loss on commodity hedging maturing in 2006 and in place at 31 December 2005 was $85 million. lead and coal production. Copper and zinc are often sold under terms whereby sales are priced according to future quotational periods.0) (6. these hedges will have no further earnings impact. relating to 27. As a consequence. with the commodity mix spread relatively evenly between those which are priced by reference to prevailing market prices on terminal markets and those that are set on a contract basis with customers. Hedges that relate to 2005 sales for which the quotational period is still open are shown in the table below and have been recognised in the income statement at the balance date.900.Xstrata plc Annual Report 2005 | 29 Commodity Hedging The Group is exposed to fluctuations in commodity prices. Gold and silver are principally produced as by-products from our major operating assets. Commodity forward and option contracts maturing in 2006 Commodity Volume Average price $* Fair value $m 31.68 13. copper.412.000 51. Commodity hedging is in the form of forward and option contracts covering a portion of planned attributable gold.0) (5.750 12. As a result. The fair value of these hedges is deferred within equity on the balance sheet until the sale is recorded. hedging these commodities effectively locks in a portion of the operating costs associated with these assets.
Sustaining capital expenditure of $430 million in 2005 included: I I $188 million at Xstrata Coal. A limited amount of fixed rate hedging may be undertaken during periods where the Group’s exposure to movements in short-term interest rates is more significant.056. to around $400 million.48 378.9) *The average price is stated in US dollars and where necessary has been converted from foreign currencies at period end exchange rates Interest Rate Hedging The Group normally borrows and invests at floating rates of interest and will generally swap any fixed rate exposure into floating interest rates.54 1.412.05 Maturing in 2010 Interest rate swapped from fixed rates Total 600 4. infrastructure maintenance and ore handling projects at Mount Isa which resulted in increased concentrate output during 2005. both completed within budget.7) Consolidated Capital Expenditure Capital expenditure increased in 2005 as a number of Xstrata’s major projects were initiated during the year to take advantage of the strong commodity price environment.05 (1. and $115 million at Xstrata Copper including $21 million for continued mobile equipment replacements to assist in mining at greater depth at Ernest Henry and a total of $50 million for mine development. as Xstrata’s businesses continue to upgrade and invest in operations to increase efficiencies and production capacity.12. including the $52 million (AUD68 million) longwall system at the Ulan underground mine and $12 million (AUD16 million) underground drift conveyor system at the same operation.7 million.08 3. . undertake work on the shafts and improve paste filling capabilities in 2006. While this capital expenditure is sustaining in nature. these projects will have a material positive impact on costs and efficiencies at Xstrata’s operations. Total capital expenditure across the Group increased by $398 million or 72% to $947 million.5) (5.252 36. increased capital will be directed to the Mount Isa Mines copper and zinc operations to upgrade smelters and the zinc concentrator. Interest rate swaps Principal $m Average rate % Fair value $m 31. In particular.5 (9. Sustaining capital expenditure in 2006 is anticipated to decrease slightly from 2005 levels.05 Maturing in 2006 Gold (ounces) Gold (ounces) Copper (tonnes) Zinc (tonnes) Total AUD Gold $ Gold $ Copper $ Zinc 28.4) (102.321 479.9) (20.1) (75.050 41. The unrealised mark-to-market loss on interest rate hedging in place at 31 December 2005 was $9.7) (9.30 | Xstrata plc Annual Report 2005 Operating and Financial Review | Financial Review Commodity forward contracts Commodity Volume Average price $* Fair value $m 31.332 56.12.
.12.3 203.6 150.7 2. first production began as scheduled in September 2005.6 36.3 241.7 0. and the Project Lion ferrochrome smelter and related mine development in South Africa.8 168. Australia.05 Year ended 31.6 65.6 243.0 549.04 Alloys Coal Copper Zinc Technology Unallocated Total Sustaining Attributable Sustaining Alloys Coal Copper* Zinc Total Expansionary Attributable Expansionary Alloys Coal Copper* Zinc Technology Unallocated Total Attributable total *Excludes Las Bambas project acquisition in August 2004 34. in particular steel.1 4.0 306.7 115. incurring $132 million in 2005 – the largest part of the project’s total cost.9 35. particularly raw materials and labour.8 280.1 10. and I the initiation of the drilling programme at Xstrata Copper’s Las Bambas exploration project at a cost of $10 million.3 0.3 95.4 99. Xstrata’s businesses delivered a number of capital growth projects during the year on time and within budget.3 88.2 517. Again.5 Other major items of expansionary capital expenditure in 2005 included: I the commencement of construction of a UG2 mine and concentrator under the Mototolo joint venture with Anglo Platinum in South Africa.2 512.8 187. I the continued development of the Black Star zinc lead mine which led to substantial improvements in operating performance from the Australian zinc lead operations in 2005.6 468.1 928. Phase one of Project Lion has also progressed well.2 286.9 47.6 947. the project remains both on budget and schedule for commissioning in the second half of 2006. with total expenditure in 2005 of $135 million.9 415.9 172. Significant progress was achieved in 2005 in delivering two of the Group’s major growth projects: the Rolleston coal development in Queensland. Despite significant cost pressures due to rising input prices.3 32.Xstrata plc Annual Report 2005 | 31 Total expansionary capital expenditure increased to $517 million in 2005.6 121.8 0.5 528.1 132.3 94. I $24 million to upgrade the coal flotation plant at Newlands to coincide with operations beginning at the Northern underground mine in the first quarter of 2006.7 29.5 3.5 3.12.0 304. At Rolleston.0 0.7 2. Capital expenditure summary $m Year ended 31.6 429. despite escalating input prices.
32 | Xstrata plc Annual Report 2005
Operating and Financial Review | Financial Review
Expansionary capital expenditure is also anticipated to remain at a similar level to 2005 expenditure of around $500 million, as large-scale expansion projects are completed, new projects initiated and additional investment is made in a number of low capital cost, high return incremental expansion projects from the portfolio. Feasibility studies have confirmed the potential attraction of the development of the Goedgevonden coal mine and number 5 coal seam at South Witbank and Tavistock mines in South Africa. These projects are contingent on infrastructure and market considerations and, if approved, would result in additional capital expenditure in 2006. Expenditure will continue on the Rolleston thermal coal mine as it moves towards full production in 2008, although at a lower rate than in 2005. Phase one of Project Lion will be completed during 2006, with commissioning expected in the second half. In total, capital expenditure of around $130 million is anticipated in 2006 for these two major growth projects. In addition, Xstrata Coal is planning a number of incremental expansions in its highly-efficient New South Wales operations. Other major expansionary capital projects include the following:
construction of Project Bokamoso, a pelletising and sintering plant with a production capacity of 1.2 million tonnes per annum in South Africa, at an approximate cost of $75 million during the year; investment in a second rotary holding furnace at the Mount Isa copper smelter, which together with a copper slag cleaning furnace and associated smelter expansion projects, is expected to increase throughput to 300,000 tonnes per annum, to match the future copper-in-concentrate output from the North Queensland operations and improve efficiency at a total cost of approximately $56 million; construction will continue on the UG2 mine and concentrator for the Mototolo joint venture with Anglo Platinum, with Xstrata’s share estimated at approximately $68 million for 2006; the Stage 2 East cutback will be developed at the Black Star mine at Mount Isa at a cost of some $20 million; a further expansion to the concentrator at Minera Alumbrera in Argentina will increase capacity to 40 million tonnes per annum and will be completed in 2006 incurring expenditure of approximately $12 million during the year; Xstrata Copper’s drilling programme at Las Bambas will accelerate, with total expenditure of around $24 million in 2006; dependent on final approval being granted by the Northern Territory Mines Minister, estimated capital expenditure in 2006 to commence the conversion of McArthur River Mine to an open cut operation would be around $35 million; and approximately $15 million will be incurred to complete the development of the Northern 3500 underground copper orebody at Mount Isa’s Enterprise copper mine, enabling improved utilisation of the existing hoisting and concentrating facilities and achieving rated capacity of 3.5 million tonnes per annum.
The total cost of acquisitions completed in 2005 (including acquired debt) was $1,918 million, including the acquisition of 19.9% of Falconbridge Limited, compared to $94 million in 2004. In January 2005, Xstrata Alloys acquired a controlling stake in the African Carbon Group (“ACG”), a char producer situated in the Mpumalanga province, South Africa. The acquisition extends Xstrata Alloys’ strategy to secure its own supply of reductants. In March 2005, Xstrata Copper acquired 13.2% of Universal Resources Limited, a listed Australian exploration company, for a cost of $5 million.
Xstrata plc Annual Report 2005 | 33
In May 2005, Xstrata Alloys and Merafe Resources Limited (“Merafe”) signed an agreement with Samancor to acquire chrome ore reserves and resources associated with the Kroondal and Marikana mining areas for a total consideration of $16 million and $29 million respectively. Xstrata’s share of the total consideration is $29.5 million. In August 2005, Xstrata acquired a 19.9% stake in Falconbridge Limited for a total consideration of $1.7 billion, of which $375 million was settled by means of a guaranteed convertible debenture, convertible into ordinary Xstrata shares with the remainder in cash. The acquisition provided Xstrata with a meaningful stake in a major diversified mining company, with exposure to world class integrated businesses in copper and nickel, as well as to Falconbridge’s zinc and aluminium businesses. Subsequently, on 11 October, Inco Limited made a bid to acquire Falconbridge Limited for 0.6713 of an Inco common share plus C$0.05 in cash for each Falconbridge common share, or C$34 in cash, subject to pro rata application should certain thresholds be met. Inco’s offer has recently been extended and is currently due to close on 30 June 2006. The offer remains subject to approval from anti-trust authorities in the European Union and United States. In September 2005, Xstrata Zinc increased its ownership of McArthur River Mine to 100%, through the purchase of the 25% stake formerly owned by ANT Minerals Pty Limited. The acquisition completed in December 2005. Since the year end, in February 2006, Xstrata has entered into an alliance agreement with Erdene Gold Inc. (“Erdene”) and has purchased 9.8% of Erdene’s shares. The agreement allows Xstrata Coal the first option to enter into a joint venture and earn a 75% interest in coal opportunities identified by Erdene in Mongolia. Erdene is a diversified mineral exploration company with a significant profile and a large number of exploration projects in Mongolia, which include both coal and base metals. While this agreement is focused on the joint development of metallurgical and thermal coal projects, Xstrata will also have the right to participate in other mineral development opportunities with Erdene. On 1 March 2006, Xstrata announced the proposed acquisition of Glencore International’s one-third stake in the Cerrejón thermal coal operation in Colombia for a total consideration of $1.7 billion in cash, funded from new bank debt facilities. The acquisition is subject to shareholder approval and certain regulatory approvals.
Disposals and discontinued operations
In January 2005, Xstrata sold its wholly-owned forestry operation in Chile, Forestal Los Lagos SA (“FLL”) realising a $4 million gain on the disposal. In April 2005, Xstrata Alloys reached agreement with Precious Metals Australia Limited (“PMA”) regarding the disposal of the Windimurra vanadium project. The sale was finalised in August 2005 and as a consequence, Xstrata is now released from all obligations associated with the Windimurra project.
Other changes to Group companies
In August 2005, Anglo Platinum and Xstrata Alloys announced the formation of the Mototolo Joint Venture to develop a platinum group metals (PGM) mine and concentrator on the Eastern Limb of the Bushveld Complex in Mpumalanga, South Africa. On 28 February 2006, Xstrata announced its partnership with Kagiso Investment Trust (“Kagiso”), through which Kagiso will acquire 26% of Xstrata’s 50% interest in the joint venture, in return for funding its proportionate share of the capital expenditure required. Xstrata Alloys and Kagiso will jointly manage and vote the combined 50% share in the joint venture. In December 2005, Xstrata Coal and its partners in the Xstrata Donkin Mine Development Alliance won the exclusive right to pursue exploration of the Donkin coal resource in Nova Scotia, Canada. Evaluation of the thermal and metallurgical coal resource will begin in early 2006, with feasibility studies expected to continue for approximately two years.
34 | Xstrata plc Annual Report 2005
Operating and Financial Review | Financial Review
In February 2006, Erdene reached agreement with Kaoclay Resources Inc. (“Kaoclay”) to acquire all of the outstanding shares of Kaoclay in exchange for shares and warrants of Erdene. Kaoclay is a Nova Scotia-based private company involved in energy and industrial mineral projects in North America, including a 20% interest in the exploration and development of the Donkin coal project in Nova Scotia through the Xstrata Donkin Mine Development Alliance. On 28 February 2006, Xstrata and African Rainbow Minerals Limited (“ARM”) announced the formation of a new black-owned and controlled company, ARM Coal. ARM Coal will have a total participation interest of 26% of Xstrata’s South African coal business.
A 2005 interim dividend of 9¢ per share amounting to $55 million was paid on 14 October 2005. The proposed final 2004 dividend of 16¢ per share amounting to $100 million was paid on 20 May 2005. The directors propose a final 2005 dividend of 25¢ per share amounting to $150 million to be paid on 19 May 2006.
Dividend dates Ex-dividend date Deadline for return of currency election forms Record date Applicable exchange rate date Payment date
26 April 28 April 28 April 12 May 19 May
As Xstrata plc is a Swiss tax resident company, the dividend payment will be taxed at source in Switzerland at the rate of 35%. A full or partial refund of this tax may be available in certain circumstances. The final dividend is declared and will be paid in US dollars. Shareholders may elect to receive this dividend in Sterling, Euros or Swiss francs. The Sterling, Euro or Swiss francs amount payable will be determined by reference to the exchange rates applicable to the US dollar seven days prior to the dividend payment date. Dividends can be paid directly into a UK bank or building society account to shareholders who elect for their dividend to be paid in Sterling. Further details regarding tax refunds on dividend payment, together with currency election and dividend mandate forms, are available from Xstrata’s website (www.xstrata.com) or from the Company’s Registrars.
Under IFRS, own shares (treasury stock) are deducted from the total issued share capital when calculating earnings per share. During the period, 1.5 million shares were sold in the market and 1 million shares were issued relating to the disposal of Xstrata equity allotted to an Employee Share Ownership Trust, (an employees’ share scheme as that term is defined for the purposes of the Companies Act 1985 and within the provisions), to service the exercise of employee share options.
Share price Closing price 31.12.04 Closing price 31.12.05 Year high Year low Year average
XTA LSE (GBP)
XTA SWX (CHF)
9.31 13.60 14.90 8.70 11.52
20.50 30.75 33.95 19.20 26.14
Glencore.13* 15.367 101. Future Application of Xstrata Shares Held by Batiss Xstrata Capital intends that the shares held by Batiss will either be used by the Group as a source of financing for future acquisitions.72 per share. any gain or loss will be taken directly to the Group’s reserves.699. and the shares held by it will be accounted for as a deduction from shareholders’ funds in the consolidated balance sheet of the Group. as announced on 29 May 2003. the company has been informed by CSFB Equities that the Credit Suisse Group has an interest in a further 1.421 626. During 2005.11% of the issued share capital of the Company.659.Xstrata plc Annual Report 2005 | 35 Shares in issue for EPS calculations 2005 Weighted average for year ended 31.502 Equity Capital Management Programme Under the equity capital management programme (ECMP). representing approximately 0. No shares were sold under the ECMP during the period. and Glencore International AG (Glencore).21% of the issued outstanding ordinary shares of Xstrata.976 24.66 *Pursuant to a capital management programme. This brings the total purchases to 31 December 2005 to 29 million shares (4. up to 10% of the issued capital of Xstrata plc can be purchased in the market by Batiss Investments (Batiss).7% of ordinary share capital) at an average cost of GBP 10. Batiss will be consolidated by Xstrata as a special purpose entity.767 ordinary shares representing 40. or to repurchase shares for cancellation.12. CSFB Equities and CSFB Europe are jointly interested in 253.351 632. Accounting Treatment For so long as the shares continue to be held by Batiss they are disregarded for the purposes of calculating the earnings per share of Xstrata plc.50 each % of Ordinary issued share capital Credit Suisse First Boston Equities Nominees Limited Glencore International AG Batiss Investments Limited 152. 26. . in connection with the Group’s acquisition of the MIM Group and the associated rights issue.1 million shares were purchased under the ECMP for $522 million.040. The decision when to place the shares in the market. If Xstrata shares held by Batiss are subsequently disposed of by way of a placing or as consideration for an acquisition by the Group.165 Ordinary Shares.04 used for 2004 statutory eps calculation Total issued share capital Number of shares (000s) 612.400 29. Publicly disclosed major shareholders Name of shareholder Number of Ordinary shares of $0. use the shares to assist the Group in facilitating future transactions. in keeping with the Group’s growth strategy. entered into by Credit Suisse First Boston Equities Limited (CSFB Equities) and Credit Suisse Securities (Europe) Limited (CSFB Europe).12.05 used for 2005 statutory eps calculation 2004 Weighted average for year ended 31. or placed in the market. will be considered in light of the Group’s funding requirements and capital structure at the time.97* 4. In addition to the interests arising as a result of CSFB Equities and CSFB (Europe) entering into the capital management programme. a Guernsey-registered entity owned by a trust and independent of the Xstrata Group.330.450.
18.15 Alloys | Boshoek | South Africa Abinaar Magodielo. Production Engineer. leaves the plant after handing over to the afternoon shift .
7. in Europe. In the second half. Accordingly.3 million tonnes. Merafe’s share in the Chrome Venture increased further to 17%.9% to $141. Relatively weak stainless steel melt production has continued into the first quarter of 2006.6%. the increased availability of Outokumpu pellets from the Boshoek plant and reduced overall raw material requirements through better efficiencies from higher pellet availabilities. in line with the Pooling and Sharing agreement with Xstrata Alloys. As the correction in stainless melt production translated into lower ferrochrome demand in the second half of 2005. resulting in further downward pressure on prices.3% higher than the published 2004 average of 68¢ per pound. leading to a slow-down in stainless melt production. The temporary closures had no material impact on 2005 financial performance and all seven furnaces were brought back into Operations Revenue for 2005 was 2.5 million.7 million tonnes. predominantly due to lower volumes and the agreed reduction in Xstrata’s participation interest in the Xstrata-Merafe Chrome Venture (the “Chrome Venture”). where production declined by around 2. stainless steel melt production in 2005 continued at a similar level to the previous year. particularly in China. Following the Chrome Venture’s acquisition of Samancor’s 50% stake in the Wonderkop furnaces and Kroondal reserves (the “Gemini JV”) in addition to the acquisition of the contiguous Marikana reserves. stainless steel stocks began to build. with the base price reducing by 5¢ in each quarter to end the year at 68¢ per pound. down by 7%. primarily due to increased production of ferritic grade stainless steel. China was the exception. in Taiwan.6% lower than the previous year. EBIT decreased by 4. which accounts for approximately 80% of global ferrochrome consumption.5% year-on-year. Demand for ferrochrome has continued to grow year-on-year. in the first quarter the base price reduced by a further 5¢ to 63¢ per pound. management. experiencing significant growth of 33% to around 3.5 million tonnes in 2004. This growth brings global demand to 5. ferrochrome prices rose to 78¢ per pound in the second quarter of 2005. and in Japan. a recovery in the second half of 2006 is expected as both stainless steel melt production and ferrochrome demand gain momentum. down by 4%.7 million tonnes. Production of stainless melt also fell in the United States. The Chrome Venture continues to mature and is gradually realising the anticipated synergies from . The average quoted price for 2005 was 73¢ per pound. technological diversity and sharing of operational expertise. However. Operating conditions benefited during the year from improved performance at the Rustenburg pelletising plant. albeit at a slower rate than in the first half of the year. Merafe’s participation interest in the venture increased from 11% to 14%. with China again anticipated to drive this growth.8% to 8.5% on 1 July 2006. While globally. by around 3. suspensions were announced at seven of the Chrome Venture furnaces to perform planned maintenance during the winter months when energy costs are elevated. From 1 July 2005. Merafe’s participation in Project Lion will also increase to 20. Merafe’s interest will increase again to 20. ferrochrome prices came under pressure.Xstrata plc Annual Report 2005 | 37 Chrome | Markets The first half of 2005 was characterised by strong growth in stainless steel melt. and consequently in ferrochrome demand. up from 5.5%. In June 2005. stainless steel melt production declined by an estimated 4. as high nickel prices impacted demand for stainless steel. As a result. completed in November 2005.
6 million.6 operation during the third quarter. displaced production from the lower quality opencast operations at Kroondal and Boshoek. which had operated at escalated commodity-linked electricity prices in 2004.7% 187.4 1.4) (2. production volumes have increased and operating costs have significantly reduced. especially after the acquisition of the Marikana reserves announced in July 2005. modifications were made to the Boshoek furnaces during the winter shutdown.9 483.1 618.12.2 6. Following routine maintenance work. These cost savings also reflect lower power costs than in the previous year. Operations at the Horizon mine were temporarily suspended from 1 July to December 2005 to refurbish the mine.9 161.05 Year ended 31. Mining operations improved during 2005.3 25.9 819. due to lower coke prices. Using the combined expertise within Xstrata and Merafe.12.6% 8.8 33.0 5. The two Boshoek furnaces are currently operating with great stability. the modifications have produced excellent results. The continued strength of the South African rand during the year negatively impacted South African rand costs in US dollar terms by $4. Operating costs were contained in 2005 despite lower production volumes. and will be returned to production according to market conditions.7 73. unit costs fell by ZAR48 per tonne in real terms compared to 2004.5 168.7 9.0 16. with the objective of improving yields and production costs from January 2006.7 1. During 2005.3 168. Excluding standing charges of $10 million incurred by idled capacity.0) – 148. two furnaces at Rustenburg and one furnace at Boshoek.9 (20. a further five furnaces are being temporarily suspended.38 | Xstrata plc Annual Report 2005 Operating and Financial Review | Alloys Financial and Operating Data: Chrome $m Year ended 31.4 68.8 (24. the two Gemini JV furnaces at Wonderkop have remained suspended in light of prevailing market conditions and to improve the distribution of agglomerated ores across the chrome operations.6 5.3 6.0 11.3% 42. comprising two furnaces at Wonderkop. primarily due to the suspension of the Wonderkop JV furnaces. The Thorncliffe mine in the East remained the best performing and lowest cost chrome ore mine in the group in 2005.04 Revenue EBITDA Depreciation & amortisation Impairment of assets EBIT Net assets Capital employed Share of Group EBIT Share of Group net assets Return on capital employed* Capital expenditure Sustaining Expansionary Attributable saleable production (kt) Indicative average published price (US¢/lb) (Metal Bulletin) Total recordable injury frequency rate Lost time injury frequency rate Employee turnover (%) *ROCE % based on average exchange rates for the period 797.9% 16.5 8.0 851. The Thorncliffe mining complex is being expanded with the development of the Helena mine to supply ore to the new Lion ferrochrome smelter. . mechanical improvements at the Boshoek furnaces and improved furnace efficiencies resulting from higher pellet availabilities. In addition. Higher underground production volumes from the Kroondal mine.6% 27.9% 6.5 726.225.8 4.9) 141.121.
9) 1.9 46.0) 141. which will deliver significant production cost savings compared to prevailing ferrochrome production technologies.4) (2.12. outside Lydenburg is sponsored by Xstrata Simulated training at Kroondal Mine .0 (10. as well as the associated improved infrastructure that will benefit local communities and surrounding industries.Xstrata plc Annual Report 2005 | 39 EBIT variances: Chrome EBIT 31.12.05 *Net of commodity price linked costs $m 148. and specific social development programmes initiated by Xstrata Alloys.7) (10. Project Lion was awarded a substantial grant by the South African Department of Trade and Industry in 2005 in recognition of the project’s contribution to the sustainable development of the surrounding area.04 Sales price* Volumes Unit cost – real Unit cost – inflation Unit cost – foreign exchange Other income and expenses Corporate social involvement Depreciation and amortisation (excluding foreign exchange) EBIT 31. to construct a 360. This is a result of the project’s beneficial impact on local communities in the form of direct and indirect employment. training schemes.7 (10. is currently under construction following ground clearing which commenced during December 2004. Marifaan Primary School. The smelter is situated close to existing Xstrata chrome reserves at the Thorncliffe mining complex.000 tonnes per annum smelting complex in the Mpumalanga province.5) (16.6) (4. The project utilizes Xstrata Alloys’ proprietary Premus technology.5 Developments The first stage of Project Lion.
The additional agglomeration capacity will restore the ore balance between the mines and smelters in Xstrata’s Western operations. Merafe successfully raised equity and debt funding to acquire Samancor’s 50% stake in the Gemini Joint Venture and associated chrome reserves. Construction will commence in the first quarter of 2006. The plant is anticipated to reach full capacity by the end of 2007. The project will commence commissioning in the final quarter of 2006. a 50-50 joint venture with Anglo Platinum. The acquisition of the African Carbon Group was completed during January 2005. was initiated in the latter part of 2005. as well as facilitating Merafe’s 20. Project Lion construction of ferrochrome plant. Project Mototolo. the project is on track to commission on time and within budget during the third quarter of 2006.2 million tonnes per annum. in particular the quality of the kiln riding rings and roller support castings and difficult ground conditions. reaching full production by the end of 2007. in return for funding its proportionate share of the capital expenditure required. Other reductant supply alternatives continue to be actively pursued by the carbon division. The project will also result in improved environmental performance and operational flexibility.40 | Xstrata plc Annual Report 2005 Operating and Financial Review | Alloys The project has encountered some external difficulties. Despite these challenges.5% participation in the Project Lion. On 28 February 2006. The project is expected to produce approximately 132. with commissioning expected in the second quarter of 2007. Xstrata announced the formation of a partnership with Kagiso Investment Trust (“Kagiso”). Project Bokamoso was approved towards the end of 2005 at a capital cost of ZAR800m. reducing operating costs for the smelting operations and enhancing mining and operational efficiencies. an attractive new commodity. Xstrata Alloys and Kagiso will jointly manage and vote the combined 50% share in the joint venture. The project consists of the construction and commissioning of a pelletising and sintering plant with a production capacity of 1. through which Kagiso will acquire 26% of Xstrata’s 50% interest in the joint venture. with chrome ore already being brought to surface. The related Helena mine development also remains within the project timing schedule and budget.000 ounces of platinum and 82. Xstrata’s share of the total capital expenditure is estimated to be approximately ZAR675 million.000 ounces of palladium per annum. The purchase has been an important step in enabling Xstrata Alloys to secure its supply of reductants and to gain greater control over key inputs into the ferrochrome manufacturing process. phase 1 . heralding Xstrata’s entry into platinum group metals. In November 2005.
Xstrata plc Annual Report 2005 | 41
Vanadium | Markets Carbon steel, which dominates the usage of vanadium, continued to show solid global growth of approximately 6% during 2005. The primary driver of demand was China, where carbon steel production increased by approximately 25%. Consequently the vanadium market remained strong, particularly in the first half of the year when rapid increases in demand from all sectors led to ferrovanadium prices rising to over $128 per kilogram.
Vanadium supply increased in response, particularly from magnetite steel producers in China, while high prices led to some substitution of vanadium by ferroniobium in certain applications, bringing supply and demand towards equilibrium. Consequently, ferrovanadium prices retreated from the peaks seen in the first half of the year to around $38 per kilogram by year end, bringing the average price for 2005 to around $70 per kilogram, compared to $27 per kilogram in 2004. With further growth anticipated in carbon steel production, demand for vanadium units should remain firm during 2006 despite expected further increases in vanadium production in China and additional ferroniobium substitution. Prices are expected to
moderate as a consequence, but are likely to remain above historical levels in 2006.
capacity of the overland conveyor and introducing a primary stockpile split to increase the efficiency of the fullyautogenous mill. During 2005, Xstrata Alloys took advantage of the vanadium division’s strong financial performance to redesign the Rhovan mining operation to improve efficiencies and access previously uneconomic reserves. As a result, additional costs of approximately $2.4 million were incurred, but the life of mine was extended by more than six months, while enhancing operational efficiencies.
Revenue increased by almost 138% to $318 million compared with the previous period, while operating profit increased by 688% to $176 million. Increased profitability was principally driven by higher sales prices, despite the effects of US dollar weakness and slight increases in real unit costs during the period. Vanadium pentoxide volumes were lower than the previous period, due to the closure of the Vantech operation announced in November 2004. Production of vanadium pentoxide at Rhovan was maximised in 2005 at the expense of efficiency in order to capitalise on favourable market conditions and maximise contribution margins. As a result, overall production volumes at Rhovan increased by 1.2% year-on-year to record levels, comprising higher vanadium pentoxide production and slightly lower ferrovanadium production. Unit costs increased slightly, principally due to an increased overburden removal programme. Rhovan reaped the benefits throughout the year of several projects launched during 2004. This included installing the crusher in the pit, maximising the
Xstrata’s efficient Rhovan operation has the potential to increase vanadium pentoxide production capacity by a further 8.5 million pounds per annum through low cost brownfield expansion to take advantage of expected increased future demand. The planned increase in capacity will have a substantial positive impact on unit costs due to economies of scale. The Environmental Management Programme Report (EMPR) for the proposed expansion project is being prepared and will be completed in the first half of 2006.
42 | Xstrata plc Annual Report 2005
Operating and Financial Review | Alloys
Final settlement was reached with PMA on the closure of the Windimurra plant during August 2005 and, as a consequence, PMA has assumed all responsibilities and obligations related to the final rehabilitation of the Windimurra project. Rehabilitation of the Vantech site is also progressing well, with full closure expected to take approximately four-to-five years in order to allow for groundwater remediation.
Xstrata Alloys Health, Safety, Environment and Community (HSEC)
Three critical incidents in which five employees (including contractors) lost their lives overshadow a year where intensive safety programmes were implemented and substantial
improvements in injury frequency rates were achieved. Xstrata Alloys is striving to become a fatality-free business and invested significant resources in a range of safety improvement programmes which began in 2005, including specific fatality prevention programmes, behavioural safety training for all employees and contractors and specific training for supervisors and mine managers. Two of the fatal incidents in 2005 involved falls of ground. Special focus being applied to this area includes: I securing the assistance of various experts in this field, including leading academic institutions from South Africa and Australia; I visits to other mines in South Africa and abroad to investigate alternative roof support mechanisms;
the implementation of a new set of working instructions for the interim in order to minimise risks; and enhancing the use of groundpenetrating radar equipment, including software development.
Xstrata Alloys has actively drawn on HSEC resources and best practices from Xstrata’s global operations to identify and manage major risks and to enhance safety at its operations during 2005. A revised HSEC strategy has been developed under the leadership of a newly appointed Executive Director of Sustainable Development, which has helped to focus efforts on key risks and to invest resources more effectively. The lost time injury frequency rate
Financial and Operating Data: Vanadium
Year ended 31.12.05
Year ended 31.12.04
Revenue EBITDA Depreciation & amortisation Impairment of assets EBIT Net assets Capital employed Share of Group EBIT Share of Group net assets Return on capital employed* Capital expenditure – Sustaining – Expansionary Attributable saleable production – V2O5 (k lbs) – Ferrovanadium (k kg) Indicative average published prices – V2O5 ($/lb) (Metal Bulletin) – Ferrovanadium ($/kg V) (Metal Bulletin) Total recordable injury frequency rate Lost time injury frequency rate Employee turnover (%)
*ROCE % based on average exchange rates for the period
318.0 181.1 (5.5) – 175.6 128.2 128.5 7.0% 1.6% 137.5% 16.3 8.9 7.4 20,166 4,936 16.3 70.5 8.1 3.7 8.3
133.7 34.1 (5.0) (6.8) 22.3 143.3 143.6 1.5% 2.0% 17.7% 4.5 1.3 3.2 21,067 5,791 6.0 27.2 19.7 8.7 7.2
Xstrata plc Annual Report 2005 | 43
Tapping of furnace at Boshoek smelter
(LTIFR) and total recordable injury frequency rate (TRIFR) for Xstrata Alloys improved by 21% and 32% respectively compared to 2004 to 4.3 and 11.5, the lowest ever frequency rates for the business unit. Every Xstrata Alloys operation was independently audited against Xstrata’s HSEC policy and 17 HSEC management standards in 2005. Significant resource was dedicated to the implementation of the 17 Xstrata corporate HSEC standards and substantial improvements were achieved over the past six audits as a result. No serious or critical environmental incidents (category 4 or 5) and one category 3 (significant) incident occurred at Xstrata Alloys operations during 2005. Overall, environmental incidents decreased by 32% from the
previous year. No fines or penalties were issued. A group air pollution specialist was appointed during 2005 to ensure a holistic approach to the control and management of air emissions arising from Xstrata’s operations and to work closely with the local municipalities to ensure optimal emissions monitoring. Individual specialists have been assigned to drive Xstrata Alloys’ occupational health and community initiatives. In particular, Rhovan, Xstrata’s vanadium operation, has implemented a number of wide-ranging initiatives to improve air quality and prevent respiratory problems in the workplace. In 2006, Xstrata Alloys is implementing a comprehensive voluntary counselling, testing and treatment programme for HIV/AIDS for all employees and contractors at every operation. The Xstrata-Merafe Chrome Venture
has been recognised by the then Minister of Minerals and Energy, Mrs Phumzile Mlambo Ngcuka (currently Deputy President) and the Director General of the Department of Minerals and Energy, as a partnership that embodies the spirit of the Minerals and Petroleum Development Act. The venture is on track to satisfy the 26% participation required by the Charter before the stipulated deadline. Negotiations are currently being advanced to secure broad-based participation by historically disadvantaged South Africans (HDSAs) in Xstrata’s vanadium operation. Procurement from HDSA suppliers increased significantly in 2005 to 40% of total discretionary procurement expenditure compared to 23% in 2004 and the proportion of management positions held by HDSAs increased to 21%, up from 17.5% in the previous year.
EBIT variances: Vanadium EBIT 31.12.04 Sales price* Volumes Unit cost – real Unit cost – inflation Unit cost – currency Other income and expenses Depreciation and amortisation (excluding foreign exchange) EBIT 31.12.05
*Net of commodity price linked costs
22.3 174.7 (24.1) (4.1) (2.5) 1.8 7.9 (0.4) 175.6
06. Mineworker – Preparing to go underground on dayshift .30 Coal | United | Australia Troy Guthrie.
Encouragingly. increased Indian and Chinese buying interest appeared to put a floor under the market before problems with some nuclear power stations and a cold winter prompted some Japanese spot purchases and pushed prices higher once again. The FOB Newcastle spot price was at just over $40 per tonne at the close of 2005.Xstrata plc Annual Report 2005 | 45 Markets Far East and Australian thermal coal markets Demand for imported seaborne thermal coal in the Pacific Basin remained strong during 2005. a slight oversupply in the Pacific caused spot prices to slide to around $38 per tonne in late November. but parts of China became net importers. Australia’s export growth continued to be impacted by ongoing infrastructure constraints. In the second half. India and Latin America. Term/annual contracts made up 60% of Xstrata Coal‘s Australian managed export thermal sales in 2005. prices remained stable before easing as supply increased from Australia and Indonesia. Higher prices for coking coal led Australian producers to give preference on the rail and port system to coking coal exports wherever possible. Despite the progress made in improving the Hunter Valley coal chain. and import tonnages grew by 8% for the second consecutive year. China and Indonesia continue to dominate the Asia-Pacific region. driven by strong growth in New South Wales thermal coal exports as new capacity became available and ongoing improvements were made to the coal supply chain. the majority of 2005 demand growth was fuelled by the emerging economies of China. At these prices. Spot prices for seaborne thermal coal were stable through the first part of the year. India faces a similar shortfall of domestic thermal coal. allows increases in coal chain capacity to occur at a steady pace while maintaining the Newcastle port queue at a reasonable level and reducing unnecessary demurrage payments. This growth has more than compensated for a decline in overall Pacific exports to the European market in 2005. remaining in the range between $51-53 per tonne between January and July. Korea and Taiwan increased by an estimated 2% on average over 2004 levels. Korea and Taiwan entered 2005 with comfortable stock levels as a buffer against any repeat of the pricing shocks seen in 2004. This was most clearly seen in Queensland where . Thermal coal supplies from Australia. Major utilities in Japan. Thermal coal demand into the major markets of Japan. not only did Chinese thermal coal exports decline by around 15% in 2005. In contrast to previous years. this pushed domestic Chinese coal prices above import prices by the year end. as new coal-fired power stations were commissioned. As a result. Xstrata Coal secured a price of around $53. approved by the Australian Competition and Consumer Commission (ACCC). The Hunter Valley coal chain’s “capacity balancing scheme”. Annual supply to the Korean generating companies was priced later in the year at approximately $51 per tonne. with the balance sold on the spot market. Both India and Southern China are expected to become increasingly important destinations for seaborne export thermal coal. As a result. Growth in Chinese demand for thermal coal continued to outpace increases in domestic production. For annual contracts with the majority of Japanese utilities. effective for the year commencing 1 April 2005.75 per tonne free on board (FOB). This represented a 19% price increase on the average contract price of $45 per tonne achieved in 2004. there were no major disruptions to Pacific supply during 2005. Overall thermal coal exports from Australia grew by approximately 4% in 2005.
0 812.1 4.3 1.3% 39.3 107.2) (34.46 | Xstrata plc Annual Report 2005 Operating and Financial Review | Coal Financial and Operating Data: Coal $m Year ended 31.1 671.5 1.5) (154.682.868.1 53.4 4.7 1.6% 6.5 278.7 174.0 183.2 1.6 64.8 111.0% 15.346.1% 54.1 1.1 .1% 468.8% 18.1 4.9 2.510.587.6 65.7 280.12.664.5 790.475.7% 7.217.2 (248.0 187.751.3% 19.6) (72.935.991.208.458.1 (267.7 2.4 239.8% 304.3 243.467.1 3.04 Revenue: own production Coking Australia Thermal Australia Thermal South Africa Revenue: third party purchased coal Thermal Australia Thermal South Africa Total revenue Coking Australia Thermal Australia Thermal South Africa EBITDA Coking Australia Thermal Australia Thermal South Africa Depreciation & amortisation Coking Australia Thermal Australia Thermal South Africa EBIT Coking Australia Thermal Australia Thermal South Africa Net assets Australia South Africa Capital employed Australia South Africa Share of Group EBIT Australia South Africa Share of Group net assets Australia South Africa Return on capital employed* Australia South Africa Capital expenditure Australia South Africa Sustaining Expansionary *ROCE % based on average exchange rates for the period 3.6 2.1 358.692.0 916.693.1 4.8% 6.05 Year ended 31.073.6 44.5 2.4 1.5 657.1 42.6% 37.0) 1.3 76.0% 22.4 536.8% 62.400.0 144.079.4 536.2) (32.8% 36.4 256.3% 23.8 564.3 192.4 736.5 3.8 132.1 597.9 3.550.1) 667.053.0 2.5) (143.8% 35.9% 12.4% 26.0 138.6 403.3 172.697.1 102.7 178.6 454.3 1.5 1.7) (78.12.4 358.
European and South African thermal coal markets Atlantic export coal prices continued to strengthen during 2005 as the European and Mediterranean market grew by around 4%. With Chinese cut-backs and Australian constraints.50 per tonne from $39 per tonne in 2004. despite robust demand. Indonesian thermal coal producers have once again been able to claim the majority of the growth in the Pacific thermal coal market. gas and electricity prices reached record levels. where Xstrata maintained significant contract sales in 2005. The Asian market accounted for around 80% of Xstrata’s managed export thermal coal sales from Australia in 2005. Indonesian exports grew by approximately 18% in 2005 and.Xstrata plc Annual Report 2005 | 47 2005 thermal coal exports were below 2004 levels. Indonesia became the largest exporter of thermal coal in the world in 2005. Xstrata Coal continues to maintain a stable and balanced domestic portfolio to provide geographic and currency diversification. with higher-value coking coal exports taking precedence. In addition. Indonesia has been the only major Pacific producer to maintain sales to the European and Atlantic market. in particular into Mexico. on a tonnage basis. The remainder of Xstrata’s Australian thermal coal export sales are directed into Europe and the Americas. Korean and Taiwanese customers have joined Japanese buyers in increasing purchases from stable Australian term suppliers to protect against Chinese volatility and to maintain stocks of high quality Australian coal to blend with lower quality Indonesian material. as high freight rates and high Asian FOB prices substantially reduced the competitiveness of Australian and Chinese material into that market. Continued strong prices largely reflected the robust but volatile energy market in Europe during the year as oil. Spot prices in 2005 varied from $45 per tonne in the first quarter to $53 per tonne in the third quarter and settled at just below $40 per tonne at year end. albeit with some volatility in pricing throughout the year. Average prices increased by 24% to $48. Domestic thermal coal sales remain predominantly long-term contracts with power utilities in both New South Wales and Queensland and represent about 16% of total managed thermal coal sales from Xstrata Coal’s Australian operations. sustained performance improvement from the rail network during the second half of the year Newlands stockpile at dusk . Although South African export tonnages were constrained during the first half of the year by continuing rail bottlenecks. Russian thermal exports to the Pacific market remain portconstrained.
12. reducing the amount of Colombian coal exported to Europe in 2005.9 111. which accounted for two-thirds of the Group’s South African sales tonnage.8 28.2 48.2 40.5 12.9 19.8 4. While Indonesian exports to Europe did increase. High freight differentials and a robust pricing environment in Asia continued to constrain coal supplies to the European market from Pacific producers in 2005.6 60. despite some production shortfalls due to poor weather and limited equipment availability.2 6.4 4.04 Total consolidated production Queensland coking NSW semi-soft coking Australian thermal South African thermal Consolidated Australian sales total† Queensland coking export NSW semi-soft coking export Thermal export Domestic Consolidated South African sales total† Thermal export Thermal domestic Attributable Australian sales total† Queensland coking export NSW semi-soft coking export Thermal export Domestic Attributable South African sales total† Thermal export Thermal domestic Average received export FOB coal price ($/t) Queensland coking NSW semi-soft coking Australian thermal South African thermal Total recordable injury frequency rate Lost time injury frequency rate Employee turnover (%) †All sales data is ex-mine i.8 4.4 26.9 39.5 16.5 6.8 20.2 41. but were absorbed by strong demand in North and South America.1 4.6 39. Demand for export thermal coal from the North .48 | Xstrata plc Annual Report 2005 Operating and Financial Review | Coal Production Data: Coal (million tonnes) Year ended 31.6 4.5 12.1 4.0 16.6 42.7 28.5 4.7 25.3 47.1 5.3 51.8 4.4 13.8 33.9 7.9 8.8 4.9 4.9 40. Export volumes from Colombia increased overall.1 17.e.1 4.9 4.9 6.3 17. these increases were more than offset by lower volumes from both Australia and China.3 23.6 18.0 5. Xstrata Coal’s South African operations increased export volumes by some 5% in 2005.5 70.05 Year ended 31.9 6.8 4.0 20.7 resulted in export volumes of around 69 million tonnes compared to 66 million tonnes in 2004.12.4 13.6 65.5 6. does not include sale of third-party purchased coal 61.7 4.4 3.
Xstrata plc Annual Report 2005 | 49 and South American markets is expected to show strong growth going forward. which accounted for around a third of Xstrata Coal’s South African sales volumes. The advent of the EU emissions trading scheme (ETS) to trade carbon dioxide allowances between industrial installations began in early 2005 and initially created some uncertainty amongst European buyers. reaching approximately 23 million tonnes. with further tightness in the supply of higher-grade products and increasing demand for lower-grade coals. Increased demand from these regions was somewhat offset by a reduction in imported coal into Scandinavia due to abundant hydropower reserves. coal remained the least expensive fossil fuel for electricity generation and in both the UK and Germany the coal generating margin (“dark spread”) was higher than the gas generating margin (“spark spread”) on both a carbon adjusted (“clean”) and unadjusted (“dirty”) basis. Polish exports increased marginally from 2004. predominantly from Colombia. The South African domestic market. Imports into North and South America increased significantly. underlining the importance of these markets for Atlantic export coal. Markets quickly adjusted to accommodate the increased cost of carbon credits and seaborne coal exports to Europe are estimated to have increased by approximately 4% from 2004. Total import demand from India almost doubled compared to 2004. supporting robust coal demand. As a result. due to continuing cutbacks in domestic coal production and the relatively attractive cost of coal for power generation. Argentina and Chile both continued to import coal to overcome continued regional shortages in the supply of natural gas. Increasing free on board (FOB) cost pressures in Russia are likely to curtail any further growth from this region and possibly lead to export reductions in 2006. by over 16% Children play on the facilities at Middelburg care village Front end loader loads coal at Rolleston open cut mine compared to 2004. demand in Europe was particularly strong from the UK. peaking at over 30 per tonne during the year. where very dry conditions limited the availability of hydropower. Both new and extended spot and annual contracts for the supply of low quality coal to Eskom contributed . also remained robust during 2005. particularly during periods of tight South African and Colombian availability. and eventually finding a trading range of 20 – 25 per tonne during the last quarter of 2005. Trading commenced at approximately 8 per tonne of carbon dioxide in January 2005. whilst Russian exports into Europe continued to escalate. driven by continued Eskom demand. from Germany where attractive generating margins and high electricity prices supported coal burn and in the Iberian Peninsula. Nonetheless.
Production in the rest of Asia grew by approximately 1%. Contract prices of around $120 per tonne were achieved for Collinsville semi-hard coking coal into the Asian steel market. This additional supply was eagerly consumed in the marketplace and there are no signs of oversupply developing in the near term. Although some. when exports from both Canada and Australia were constrained by infrastructure supply problems.50 | Xstrata plc Annual Report 2005 Operating and Financial Review | Coal to an overall increase in Xstrata’s sales to Eskom of 70% over 2004 levels. Xstrata Coal settled its hard coking coal contracts into the Asian and European markets at varying prices up to $135 per tonne. driven by marginal demand from both industrial users and local traders. mostly European. Global steel prices softened in most regions during 2005 from the peaks of 2004 but remain at relatively high levels. in particular from Australia. particularly high quality coking coal. but this was coupled with a change in actual quality mix resulting in an average increase of 3% year-on-year. whilst blast furnace output declined in the rest of the world. The United States maintained its high level of hard coking coal exports in 2005 as a swing producer to Asian markets. The majority of non-Eskom domestic contracts from Xstrata South African coal operations achieved above-inflation increases. a similar level to the previous contract year. steel-makers indicated a slight production slowdown in order to prevent oversupply and allow some inventory drawdown. these prices were not required to be averaged with carryover tonnage at lower prices. remains undiminished. despite the relatively high cost of US suppliers. hard coking coal production and exports increased significantly from both countries. demand for hard coking coal continued to grow strongly as steel demand boomed in the strengthening Indian economy. Coking Coal Markets Demand for export coking coal again remained strong in 2005 as global blast furnace output grew by 9%. most steel-makers across Asia continued to maximise output and demand for steel-making raw materials. as was the case due to production constraints at Oaky Creek in late 2003. Unlike in the previous period. Although increased availability and lower prices of Chinese coke slowed growth in demand for imported coking coal to the Indian coke makers. such as the coals from Xstrata Coal’s Vineyards coexist with mining at Beltana . making this the third consecutive year of annual growth in excess of 8%. For the 2005 – 2006 contract period. Compared to 2004. These contract prices reflect the ongoing positive outlook in the medium to longer term for premium quality hard coking coals. reflecting the strong global demand for coking coal. Non-Eskom domestic sales volumes increased 22% in 2005. Xstrata’s average Eskom pricing fell 10% in 2005 due to lower inflation-related adjustments coupled with a change in quality mix and delivery basis year-on-year. This was achieved despite the 11% reduction in long-term Eskom contract sales volumes from the Douglas Tavistock Joint Venture (DTJV) due to production difficulties at the Middelburg mine. This growth was once again concentrated in China where domestic output of iron and steel grew by approximately 30% in 2005.
Despite these significant cost pressures. there has been significant cost inflation for various inputs. and the cost of explosives. The coking coal business was negatively impacted by labour supply shortages. increased EBIT by 45% to $657. Semi-soft coking coal prices rose with hard coking coal prices and were helped by the strong global thermal coal market which has. with 56% output going to Asian markets. Japanese steel mills were once again the dominant buyers of this material in 2005. Xstrata Coal will continue to mitigate these increases as far as possible through initiatives to achieve increased productivities and operational synergies. Xstrata Coal’s thermal coal business was able to demonstrate real cost savings in 2005.50 per tonne. partially offset by the impact of the closure of the Newlands Southern underground mine in the second half of 2005. approximately 80% higher than the previous year’s price. substantially due to shortage of supply.9 46. which rose . Australian thermal coal Higher coal prices and increased sales volumes from Xstrata’s Australian thermal coal operations. almost all semi-soft sales are exported to Asian markets.079.12.04 Sales price* Volumes Unit cost – real Unit cost – inflation Unit cost – foreign exchange Other income and expenses Foreign currency hedging Corporate social involvement Depreciation and amortisation (excluding foreign exchange) EBIT 31.8) (59.5) (59. Production from Newlands Southern underground will Operations Across Xstrata Coal’s operations globally.9) (116.Xstrata plc Annual Report 2005 | 51 EBIT variances: Coal EBIT 31.3 Oaky Creek and Collinsville operations. Africa. which increased significantly worldwide.6% for underground mines. The growth in global demand for hard coking coal along with the escalating steel price during last year’s negotiations had a positive effect on New South Wales semi-soft coking coal prices.3) (0.2006 contract year were agreed with long-term Asian customers at an average level of $79. accounting for over 75% of total sales. Most semi-soft coking coal was also sold under longterm contracts with spot market sales comprising less than 10% of total sales of this product.1 (6. in the past. overall costs increased by just $7 million in 2005. increased equipment and input prices and a roof fall at the Oaky North underground mine. Increased production from Beltana underground.05 *Net of commodity price linked costs $m 667. the Ulan Complex and the commencement of production from Rolleston. Semi-soft coking coal prices for the 2005 . on the back of continuing growth in demand from markets such as China. and the balance to the Americas. 27% to Europe. the vast majority of Xstrata Coal’s hard coking coal was sold under long-term contracts. which reached 38.3% for open cut and 9. These increases take into account fuel costs.8 622.12. set a floor price for this type of coking coal.4 million tonnes in 2005.1) (3.7 million in 2005. India and South America. led to an 8% increase in consolidated saleable production. Despite this.3) (11. Australia and the Middle East.6) 1. During 2005. The Australian Bureau of Statistics has indicated that price inflation on mining materials on an annualised basis (for period ending December 2005) was around 9. The inflationary environment is expected to continue for the foreseeable future. Xstrata Coal’s semi-soft coking coal production comes from its New South Wales operations. together with continued strong cost control.
5 million. if not global. Export sales from Australia increased by 2% to 33 million tonnes.7 million tonnes as a result of higher demand from local power generators. WitCons. Xstrata Coal’s thermal coal mines include some of the lowest cost operations in Australia. on top of a strong cost performance in 2004. increased production from lower cost operations and benefits derived from capital expenditures aimed at operational improvements. which rose in line with strong coal prices – real unit costs for Australian thermal coal were reduced by 1% yearon-year. Real unit costs in local currency increased by 2% from 2004. Rolleston. resulted in a 25% increase in US dollar cash costs periodon-period. Xstrata Coal increased sales from its Baal Bone operation to capitalise on available capacity from Port Kembla. while total production declined by 7% compared to the prior year. As a result of the continued strength of the Australian dollar.000 tonnes or an increase of 11% on 2004 were offset by a roof fall at Oaky North. Overall saleable production was 3% lower than in 2004. which impacted production by approximately 130. Excluding the impact of “revenue related” costs – primarily the government ad valorem royalty. which will begin longwall operations in the first quarter of 2006.000 tonnes and by planned reduced production at the Oaky Creek open cut. Export sales of coking coal were slightly lower than 2004 levels at 4.9 million tonnes in 2004. US dollar unit cash costs increased by 9% from 2004. The Rolleston operation produced 932. Continued productivity improvements at Beltana culminated in the longwall achieving what is considered to be an Australian. steel and explosives) and increased royalty payments as a result of higher coal prices. began production in September 2005 on time and on budget. In addition to taking advantage of improved performance at the Port of Newcastle. The congestion at DBCT resulted in a significant increase in demurrage charges ($3. Australian coking coal Significantly higher prices for coking coal in 2005 boosted EBIT by 118% to $243. Significant productivity improvements at Oaky North underground of 175. These items combined with the continued strengthening of the Australian dollar. Xstrata’s new open cut thermal coal mine. Real local unit cash costs rose by 18%.6 million tonnes.000 tonnes in one day.8 million tonnes down from 4. a real increase in the cost of mining inputs (including fuel. Xstrata’s thermal coal operations largely mitigated the impact of increased cost inflation across the industry through improved productivities. primarily as a result of demurrage associated with the congestion at Dalrymple Bay Coal Terminal (DBCT) in the first half of 2005. Costs were also impacted by the labour shortage in central Queensland with increased costs for contract labour. South Africa Xstrata’s Boschmans.47 per tonne in 2004). Domestic sales increased by 0. mainly due to planned output reductions at Waterpan following the closure of the .000 tonnes in one week and one million tonnes in a month. South Witbank. at 18.54 per tonne in 2005 compared to $1. 250.000 tonnes in 2005 and will produce six million tonnes per annum for export and two million tonnes per annum for domestic consumption when it reaches full production in 2008.52 | Xstrata plc Annual Report 2005 Operating and Financial Review | Coal Breyten HIV/AIDS Clinic Reconstruction and realignment of Maryland creek at New Wallsend be replaced by the newly-developed Northern underground. Tavistock and Tselentis operations achieved production records in 2005. production record in November 2005 of 50.
I development of the Ravensworth West operation following settlement of six-year supply contract with Macquarie Generation. After adjusting for one-off items. Canada. Xstrata Coal holds a 66% participating interest in the Alliance. I upgrading the coal preparation plant at the Bulga complex for $11 million (A$14 million) which increased yield and lowered operating costs. The South African rand was marginally stronger during the year. although at reduced levels from 2005. Ulan underground. with the majority of the expenditure in Queensland. Export sales increased by 5% to 13.1 million. a domestic generator. increasing US dollar unit cash costs by 6% compared to the previous year. Capital expenditure for Australia in 2006 is expected to be lower than 2005. Expenditures will continue to be made at Rolleston. up 21% and sales to Eskom increased by 70% to 4. despite the continued strength of the South African rand. and a higher proportion of domestic coal sales (from 26% in 2004 to 34% in 2005). Longwall surface mini build at Ulan underground mine . neither of which are managed by Xstrata. I commencement of the replacement of the existing Newlands coal handling and preparation plant with a new dense-medium cyclone plant.5 million tonnes. Domestic non-Eskom sales increased to 2. This replacement will enable the production of additional coking coal product from the existing reserves as well as providing additional capacity and will continue in 2006.Xstrata plc Annual Report 2005 | 53 underground mine and at Phoenix due to changes in coal grades required by Eskom.3 million tonnes. and Atlantic Green Energy Development (USA) with the remaining 14% interest. with feasibility studies expected to continue for approximately two years. which began production in September 2005.5 million tonnes.6 million for 2005.2% higher than 2004 levels. I purchase of a $52 million (A$68 million) state-of-the-art longwall system and $12 million (A$16 million) underground drift conveyor system for the Ulan underground mine. and continuing development of the Northern underground at Newlands to replace the Southern underground. as some of the major projects which accounted for significant capital expenditures in 2005 become operational. and for the coal handling and preparation plant upgrade at Newlands. local currency cash unit costs in real terms were 1. I installation of a second longwall at Oaky Creek to allow for recovery of previously unplanned resources and replacement of higher cost open cut operations. Evaluation of the thermal and metallurgical coal resource will begin in early 2006. offsetting productivity improvements. Mining operations commenced in early 2006. Other partners include Kaoclay Australia Capital expenditure for Xstrata Coal’s Australian operations totalled $403. Xstrata Coal and its partners in the Xstrata Donkin Mine Development Alliance won the exclusive right to pursue exploration of the Donkin coal resource in Nova Scotia. I Developments In December 2005. which will be operational in 2006. Resources (Canada). Newlands Northern underground. which holds a 20% interest. I construction within capital budget of the Mount Owen dump hopper. on time and on budget. primarily as a result of higher costs incurred at the two Douglas Tavistock Joint Venture operations (Douglas and Middelburg mines). Increased sales volumes – in excess of 20 million tonnes for the first time – coupled with higher export coal prices increased EBIT by 74% to $178. mainly at Boschmans and Tavistock. Key capital expenditure projects in 2005 include: I completion of Rolleston Coal mine.
ARM Coal. and pre-feasibility study on the Douglas Middelburg Optimisation Project (managed by BHP Billiton) designed to extend the economic life of the complex to 2033. ARM Coal will hold a majority 51% interest in the Goedgevonden Project. An amount of $5 million (ZAR34 million) was spent on initial pre-feasibility and feasibility work on the following projects: I the finalisation of the Goedgevonden feasibility study. through a joint venture with . full feasibility study for the South Witbank/Tavistock 5 Seam operations to detail the mining and beneficiation of the high-value 5seam coal to service the domestic metallurgical market and the export market. and feasibility study for a new high capacity coal processing plant for the Tweefontein operation. I I the development of the number 5 coal seam at South Witbank and Tavistock mines. On 28 February 2006. comprising interests in 13 coal operations. Waterpan and WitCons and will provide significant improvements in yield and operating cost.54 | Xstrata plc Annual Report 2005 Operating and Financial Review | Coal South Africa Capital expenditure for Xstrata Coal’s South African operations totalled $65 million (ZAR416 million). providing a significant stake in the thermal coal export and domestic markets. The mine will produce around 3 million additional export tonnes per annum in addition to 3 to 4 million tonnes of Eskom supply. Xstrata and African Rainbow Minerals (ARM) established a new black-owned and controlled coal company. the majority of which was spent on sustaining projects. This plant will process coal from Boschmans. The newly established ARM Coal will own a 20% participation share in Xstrata’s South African coal business. In addition. with exposure to some 20 million tonnes of annual production and immediate access to cash flows. I further studies following the prefeasibility work for a new processing plant and export load out system I I located at Boschmans. Rolleston dragline Xstrata is planning the following expansionary projects to commence in 2006: I the development of the Goedgevonden Mine.
Best practice and expertise is being shared with Xstrata’s highperforming Australian operations.9 from 4. however. In March 2005. importantly. Regrettably. Environment. this target was not met and two employees lost their lives at South African operations in 2005. Special provision will be made to encourage a new generation of coal exporters by earmarking up to 4 million tonnes per annum by April 2006 for emerging black economic empowerment (BEE) exporters. As the majority shareholder of the Goedgevonden Project. which will be two-thirds controlled by historically disadvantaged South Africans (HDSAs). supervisors and workers are generating positive results. An extensive safety programme was developed and implemented during late 2004 and early 2005 to address fatal risks. indicate that the full rail and mine capacity will only be available after 2009. the supervisor safety leadership training programme and structured safety communication and engagement between management. will take up a further 6 million tonnes per annum of the expansion. Action plans are being implemented to address outcomes of the audits. ARM Coal will have an effective participation interest in 26% of Xstrata’s South African coal business. Xstrata Coal launched its Biodiversity Strategy to undertake progressive rehabilitation of land disturbed by mining.9 in 2004. which is consistent with the current Quattro arrangements. The precise phasing of the incremental export tonnage is subject to colliery and rail infrastructure developments and will be determined once the projects that will utilise the increase in terminal capacity have been identified. The total cost will be approximately $167 million (ZAR1 billion) and the expansion is expected to be completed by July 2008. Health. Safety. 4 or 5 environmental incidents during 2005 and no fines or penalties were issued. in line with the continuing transformation of South Africa’s coal industry under the Mining Charter. Environment and Community (HSEC) In 2005 all Xstrata Coal sites were independently audited against Xstrata’s Health. In particular. Mount Owen mine was recognised for excellence in environmental . This includes the original Phase 5 expansion. to provide sustainable lands post-mine closure and to facilitate biodiversity conservation. which have not sustained a fatality in over four years. Safety. In total. Initial estimates. The remaining 10 million tonnes per annum of the expansion capacity will be opened up for subscription to all with an emphasis on empowerment to facilitate the transformation of RBCT. ARM Coal will apply for additional export capacity for the project in the revised Phase V expansion of Richards Bay Coal Terminal. Richards Bay Coal Terminal (RBCT) announced an expansion from its existing 72 million tonnes per annum to 92 million tonnes per annum. behavioural reasons that lead to fatalities at the South African operations. Xstrata Coal’s primary objective is to be a zero-fatality business. Xstrata Coal continues to believe that operating a fatality-free business is achievable and is a key objective for 2006. Xstrata Coal will continue to strive for an annual 20% reduction in injury frequency rates in 2006. hazards and. South Dunes Coal Terminal. Xstrata Coal’s 30 managed operations achieved its target of zero category 3. A number of Xstrata Coal’s operations are situated in ecologically important areas. which has been under discussion for some time. The total recordable injury frequency rate (TRIFR) remained stable at 16. and Community (HSEC) Policy and Standards.Xstrata plc Annual Report 2005 | 55 Xstrata.4 while the lost time injury frequency rate improved to 3.
environment. As a result of the transaction. methane utilisation and carbon sequestration projects. working in partnership with service providers. Xstrata Coal in Australia launched a $964. education. announced the formation of a new black-controlled coal company. NGOs and government. Xstrata Coal has particularly focused on the provision of HIV/AIDS testing. as well as social and community development. which would result in HDSA control of 36% of Xstrata Coal South Africa. for local communities. counselling and treatment programmes for employees and. Xstrata Coal was a participant in the industry dialogue as part of this inaugural meeting of Ministers from Australia. more recently. In early 2005. In South Africa.56 | Xstrata plc Annual Report 2005 Operating and Financial Review | Coal management and won the 2005 HunterCentral Rivers Coal Industry Environmental Award in November 2005 for its industry-leading Biodiversity Management Programme. On 1 March 2006. procurement. In addition to its collaborative efforts. Underground miners at Arthur Taylor . China. housing and accommodation. Xstrata Coal is committed to working with government and industry to research. Xstrata Coal has also agreed to grant ARM an option to increase its participation by 10%. Xstrata Coal has also lodged its cooperative agreement for the Australian Government’s Greenhouse Challenge Plus programme. culture and art. social and community development. local and state government. working with NGOs.3 million) corporate social involvement programme to support a range of community initiatives in New South Wales and Queensland. The importance of continuing and expanding such collaborative efforts in advancing near zero emissions technologies was a key focus of the Asia-Pacific Partnership for Clean Development and Climate Ministerial meetings held in January 2006. develop and commercialise clean coal. which outlines plans for reduction of greenhouse gas emissions from Xstrata Coal’s Australian operations. ARM Coal. Japan.2 million to support a range of initiatives to support communities associated with its South African and Australian operations in the areas of enterprise and job creation. Xstrata Coal in South Africa continued to make good progress with aligning the business with the requirements of the South African Mineral and Petroleum Resources Development Act. In 2005 Xstrata Coal has set aside $9. health. ARM Coal will have an immediate effective interest in 26% of Xstrata’s South African coal operations. Xstrata Coal and African Rainbow Minerals (ARM). universities and volunteer organisations.000 (AU$1. The business is well positioned in terms of the principal transformational elements of the Mining Charter and Scorecard including human resource development and the representation of historically disadvantaged South Africans (HDSAs) in management. the Republic of Korea and the United States on addressing the challenges of climate change. India.
Xstrata plc Annual Report 2005 | 57 13.00 Copper | Alumbrera | Argentina Sonia Morales takes a lunch break from driving her truck in the Minera Alumbrera open pit copper-gold mine .
The LME copper price averaged 167¢ per pound over the year. Overall the North Queensland division achieved record copper-in- Operations Australia The North Queensland division achieved a strong increase in EBIT to $487. .4 million in 2005.5¢ per pound in April to $150 per dry metric tonne and 15¢ per pound by year end. which resulted in a corresponding increase in contained metal produced of just over 4%. The main contributor to this result was the strong copper price. This decline was also reflected in the contract market. In the Mount Isa copper operations. up by 77% on 2004.000 tonnes.58 | Xstrata plc Annual Report 2005 Operating and Financial Review | Copper Markets In 2005. disruptions to global mine supply were coupled with unexpected shortfalls in smelter and refined production. Spot mine/smelter treatment and refining charges (TC/RCs) declined from a peak of $175 per dry metric tonne and 17. increased throughputs and improved metallurgical performance resulted in a 13% increase in copper-in-concentrate production compared to 2004. copper head grade improved to 1. an increase of 29% over the corresponding period in 2004.8% in 2005. This was partially offset by the negative impact of currency movements which reduced earnings by $22 million and by higher inflationary costs of $32 million. and pull the concentrate market back into deficit over 2006. EBITDA increased by 61% from $369 million in 2004 to $594.000 tonnes in January 2005.5¢ per pound for 2006 calendar year shipments. representing 3. At the Ernest Henry operation.21% from 1. ore production from the underground mines increased by 4% on 2004. LME prices reached new record levels during the first months of 2006.7 million in 2005.4 million. global exchange stocks finished the year at 156. which added over $259 million to EBIT. The expected increase in smelter demand is forecast to exceed available concentrate. a number of supply disruptions coupled with continued strong Chinese demand and critically low exchange stocks drove copper prices to record nominal highs.4 days of global consumption. where terms eased from $113 per dry metric tonne and 11. strong Chinese consumption curtailed growth in exchange inventories. Gold production was 17% higher for similar reasons. Revenue increased by 33% to $1. Further efficiency gains in the concentrator resulted in a mill throughput increase of almost 6%. While the concentrate market remained in oversupply during the year. The combination of higher head grades. An expected recovery in Western demand and continuing strong demand from China suggest that exchange stocks are likely to remain well below historical levels and that the market will remain sensitive to further supply-side disruptions.14% in 2004. Material mined at Ernest Henry was 19% higher compared to the prior year. In 2005. as stripping ratios increased in the mine. From 125.158. Despite weak copper demand from the major Western consuming regions. Refined cathode production increased by 5% in 2005 as refined copper supply remained in deficit throughout 2005. Global concentrate production increased by just 1. mine disruptions resulted in a lower than anticipated concentrate surplus. to $95 per dry metric tonne and 9.3¢ per pound in the mid-year contract talks. Production of refined copper is anticipated to increase in 2006 as increased smelting capacity in India and China addresses the surplus concentrate inventory built up in 2005.
6 1.12.5% 19.9) – – – 644.1 594.598.2 94.1 856.4 1.4% 12.7 (209.9 34.098.5% 31.12.006.6 977.9) – (1.6 4.6 1.089.985.Xstrata plc Annual Report 2005 | 59 Consolidated Financial and Operating Data: Copper $m Year ended 31.1% 24.7) (106.7 115.8% 26.7 .7 369.8 1.0) (1.4) (93.007.0 36.3 1.3 908.3 2.8 1.6 1.4 849.4% 43.5) (118.066.3 989.5% 15.7% 48.4% 24.5 977.0% 39.0% 12.7% 150.8 2.1 26.087.6% 37.6% 27.05 Year ended 31.098.5 487.2 724.3 874.3 73.9) 919.131.7 (212.0 487.3 43.0% 12.9 2.158.3 275.007.6 1.7 431.7) (103.4 536.4% 17.3 35.04 Revenue Australia South America† EBITDA Australia South America† Depreciation & amortisation Australia South America† Impairment of assets Australia South America† EBIT Australia South America† Net assets Australia South America† Capital employed Australia South America† Share of Group EBIT Australia South America† Share of Group net assets Australia South America† Return on capital employed* Australia South America† Capital expenditure Australia South America†§ Sustaining Expansionary§ *ROCE % based on average exchange rates for the period †100% consolidated figures §Excludes Las Bambas project acquisition in August 2004 2.6 115.3% 99.5 368.0% 18.
energy and consumables. North Queensland unit costs on a C1 basis were 71.198 tonnes of saleable cathode. The operating performance at Alumbrera was characterised by record full year mill throughputs and further efficiency initiatives. energy and consumables. higher treatment and refining costs and a stronger Australian dollar. Walnut grafting at Pozo de Piedra in the province of Catamarca in Argentina Underground miners attaching their self rescuers and cap lamps on the R62 platform at Mount Isa Developments Australia During 2004 capital expenditure of $25 million was approved to develop the Northern 3500 underground copper ore body at Mount Isa’s Enterprise copper mine. South America Alumbrera’s financial performance in 2005 was positively influenced by the buoyant price environment and strong copper production performance. 10% higher than the previous year. primarily as a result of maintenance and improvement activities undertaken in the converter section of the smelter during the first quarter. due to the lower anode supply. the Townsville copper refinery produced 219.4¢ per pound compared to 59. enabling the mine to maintain its rated capacity of 3. The increase in C1 cash costs compared to 2004 was primarily due to lower gold head grades and therefore gold production. and higher sea freight costs.4¢ per pound in 2004.4 million. higher smelting and refining charges. Total material mined was 3% higher than last year as a result of pit optimisation initiatives.5 million tonnes per annum and improve the utilisation of the existing hoisting and concentrator capacity. the Australian division has been subjected to higher than inflation costs in diesel. In common with other Australian producers. lower cathode production.492 tonnes. Copper smelter production was almost 7% lower than 2004. Capital work is progressing according to schedule and . 8% lower than in 2004. Mill throughput was 4% higher and concentrate production was 6% higher than the corresponding period last year.1 million to $849. The unit costs were impacted by increased mining volumes at Ernest Henry. Revenue increased by 17% from $724. an increase of 8% over 2004 production.60 | Xstrata plc Annual Report 2005 Operating and Financial Review | Copper concentrate production in 2005 from the Mount Isa and Ernest Henry operations of 306. due to lower gold grade ores. These activities negatively offset the excellent outputs achieved in the second and third quarters of 2005 as the benefits of the improvement initiatives were realised. Cash operating costs (C1) averaged 35. The Alumbrera business has also been subjected to higher than inflation cost rises in diesel. and limitations to furnace production resulting from gas off-take restrictions as a result of reduced availability from the Southern Cross acid plant and maintenance requirements in the final quarter. EBIT increased by 17% from $369 million to $432 million and EBITDA improved to $537 million. The project will provide an additional high-grade mining zone in Enterprise.1¢ per pound of copper produced (net of gold credits). Gold production was lower compared to 2004. as the benefits from the flotation expansion completed in 2004 were fully realised. Consequentially. Concentrate sales increased by 3% over last year.
Exploration activity in north-west Queensland is continuing to focus on leveraging value from Xstrata Copper’s strong regional asset and infrastructure base in north Queensland.000 tonnes per annum to 280. capital expenditure of AUD41 million ($29. in late 2005 a decision was made to increase the copper smelter and refinery capacities to 300. This project is progressing in the tender and construction phases and is scheduled for completion in mid-2006. Prefeasibility work will be undertaken on both of these projects during 2006. Xstrata Copper agreed to invest AUD$6. Known as the Sulphide Extension Exploration Project (SEEP). principal exploration targets are expected to be beneath and adjacent to the native copper deposits within the Roseby Feasibility Project. In March 2005.000 tonnes per year to match the future copper-in-concentrate production from the Ernest Henry and Mount Isa copper mines. largely comprising geophysics and drilling. Additional capital expenditure of approximately AUD32 million (US$23. Universal Resources Limited.500 tonnes per annum of additional copper from the electrostatic dust precipitator in the Mount Isa copper smelter. Of Xstrata Copper’s investment in Universal.3 million) was approved to expand the capacity of the Mount Isa copper smelter and improve its efficiency.7 million) in 2006 will see anode production at the new rate before the end of 2006 with refinery production matching this from early 2007. management has established a dedicated project team to evaluate the potential to exploit the significant known resources contained within the 500 orebody and “halo” mineralisation surrounding the 1100 orebody. These initiatives are all designed to increase the smelter’s capacity from 240.2 million is funding an exploration project undertaken by Xstrata Copper for additional copper sulphide mineralisation within the Roseby tenement area during 2005 and 2006. Exploration activities. commenced during the second half of 2005 and are planned to continue throughout 2006. Also in 2004. AUD4. a copper slag cleaning furnace and associated plant and equipment. Initial production is expected to commence in late 2006.6 million ($5 million) in Australian-listed exploration company. This investment provides Xstrata Copper with the right to explore and options to acquire 51% of the Roseby copper deposits in the Mount Isa Inlier in northwest Queensland. The project comprises the installation of a second rotary holding furnace. The plant is scheduled for commissioning in the first half of 2006. targeting mineralisation in the Mount Isa/Cloncurry district. Environmental sampler Graham Milligan at Mount Isa environmental monitoring station .000 tonnes per annum and to obviate the current need for slag re-treatment through the smelter.Xstrata plc Annual Report 2005 | 61 on budget with capital expenditure of AUD16 million to the end of 2005. In November 2004. Xstrata Copper announced the approval of an AUD7. The remaining AUD2.2 million ($5 million) leaching plant to recover around 2.4 million is being used to part-fund the Roseby Feasibility Project now scheduled for completion in April 2006. In addition to the ore definition programme at Mount Isa that last year yielded 16 million tonnes or a further two years of underground ore reserves. In addition.
407 129.36 5.0 493.223 111.6184.108.40.206 36.159 1.0 20.001 12.928 1.184 24.60 11.198 71.14 0.8 .776 583.648 3.182.607.353.57 0.62 | Xstrata plc Annual Report 2005 Operating and Financial Review | Copper Operating Data: Copper Australia – Ernest Henry Material mined (t) Ore mined (t) Copper head grade (%) Gold head grade (g/t) Ore treated (t) Concentrate produced (t) Copper in concentrate (t) Gold in concentrate (oz) Australia – Mount Isa Ore mined (t) Copper head grade (%) Ore treated (t)†† Concentrate produced from ore (t) Copper in concentrate from ore (t) Anode copper (t) Refined copper (t) North Queensland cash cost (C1) post by-product credits (US¢/lb) South America – Alumbrera† Material mined (t) Ore mined (t) Copper head grade (%) Gold head grade (%) Ore treated (t) Concentrate produced (t) Copper in concentrate (t) Gold in concentrate (oz) Gold in doré (oz) Total gold (oz) Cash cost (C1) – post by-product credits (US¢/lb) Total copper in concentrate produced from ore (t) Total gold in concentrate produced from ore (t) Total recordable injury frequency rate Lost time injury frequency rate Employee turnover (%) †100% consolidated figures ††Includes mined ore only and excludes impact of reprocessed slag Year ended 31.616 5.014.284 442.809 685.621 59.312 693.985 35.5 460.5 14.698 654.529 0.482 220.711 3.602.1 3.4 114.568 59.166.521 693.045 114.1 6.9 2.439 517.003 32.007 142.21 0.485 33.298 633.4 58.05 Year ended 31.425.63 0.372.276 392.56 0.263 219.521 49.027 11.366 187.56 10.402.948 177.224 5.37 5.197 236.166 35.04 69.638.102 170.500.252 237.481.643 726.940 11.317 176.12.925.873 654.598 577.799.010 167.
361 597. Exploration drilling at the Filo Colorado prospect in Catamarca is expected to commence in the first half of 2006. During the year.866 409 South America A further incremental expansion to the Alumbrera concentrator was approved in June 2005 and is expected to increase mill throughputs by 8%.270 642.5 million. In addition.528 – 291. with the objective of further extending the ore reserve base at the mine during the year.001 507.191 2.790 43. from 37 million tonnes per annum to 40 million tonnes per annum.04 221.317 61. which will cost $15.886 8.532 464.298 565.262 45.097 184. These encouraging results have given sufficient confidence to double the size of last year’s programme for the current year. a workforce of around 300 employees and contractors hired and drilling and other contractors mobilised. on completion of access road construction. with 120 million tonnes of reserves added over the past two years. Xstrata Copper has continued its Alumbrera district exploration programme independently of the Alumbrera Joint Venture work.731 159.040 475. Following the successful outcome in August 2004 of the competitive tender for the highly prospective Las Bambas exploration district in southern Peru. sampling and assaying were complete with geological modelling and mineral resource estimation work well advanced.1% copper with supplementary molybdenum and gold values. management has continued with the in-pit resource definition programme into 2006.05 Year ended 31. logging.12.245 – 181 285.216 148. a vigorous start was made in 2005 to the exploration programme required to advance the project work. The expansion will further improve mill productivities and fully utilise the downstream capacity of the pipeline and filter plant and is progressing on time and on budget. Following the recent successes of continual additions to the ore reserve base at Alumbrera. 56. Included in these initial resources are 84 million tonnes of skarn mineralisation at 1.732 724. is scheduled for commissioning in December 2006.Xstrata plc Annual Report 2005 | 63 Sales volumes: Copper Australia – North Queensland Refined copper (t) Copper in concentrate (t) (payable metal) Other products (t) (payable metal) Third party sourced (t) (payable metal) Total copper (t) (payable metal) Gold in concentrate and slimes (oz) (payable metal) South America – Alumbrera† Copper in concentrate (t) (payable metal) Gold in concentrate (oz) (payable metal) Gold in doré (oz) (payable metal) Total gold (oz) (payable metal) Total copper sales (t) Total gold sales (t) Average LME copper price ($/t) Average LBM gold price ($/oz) Year ended 31.000 metres of diamond drilling was completed at Las Bambas. with 100.577 791.742 57. Chalcobamba and Sulfobamba.7% copper in Indicated Resources at the Ferrobamba deposit. which shows combined Indicated and Inferred Resources across three mineralised systems of 300 million tonnes at 1. focused on three major known zones of copper mineralisation.000 metres of drilling planned to establish the depth and lateral extensions to the known main zones and to commence exploration work in additional mineralised zones in the Las Bambas district. . at Ferrobamba.684 445 241. This work has enabled the publication of an initial Mineral Resources Statement for Las Bambas.659 179. A substantial camp was constructed at site.12. By year end. The project.137 3.
a fatality occurred at the Las Bambas exploration project in Peru early in 2005 with the death of Mr. further safety performance improvements are expected in 2006 following the implementation of recommendations from the Xstrata plc HSEC Assurance Audits conducted at the copper operations during 2005. overlooking Minera Alumbrera’s open pit . Indophil Resources. to accelerate the development and completion of a project pre-feasibility study by September 2006. Minera Alumbrera continued to set the benchmark for safety performance across the operating divisions. In relation to safety performance across the businesses. A strong culture of environmental compliance within Xstrata Copper was evidenced by the fact that no fines or environmental penalties were recorded during the year and the number of environmental incidents decreased by 19% in total. with the publication in November 2005 of a new Mineral Resource estimate totalling 1. Environment and Community (HSEC) Xstrata Copper has in place policies and procedures to ensure the highest Ramón Chile. During 2006.0 in 2004 to 2. a strong leadership and organisational focus has helped Xstrata Copper to continue its dramatic improvement in safety performance. safety. every Xstrata Copper site will produce a 2005 site-specific sustainability report. Xstrata Copper is a signatory to the Minerals Council of Australia’s ‘Enduring Value’ framework for sustainable development and in line with this commitment. The total recordable injury frequency rate (TRIFR) was almost halved during the course of the year from 24 in 2004 to 12.4% copper. The lost time injury frequency rate (LTIFR) also continued to improve from 3. Elmer Cordoba. standards of health.64 | Xstrata plc Annual Report 2005 Operating and Financial Review | Copper Philippines Xstrata holds an option to acquire 62.29 grams per tonne gold at a cut-off grade of 0. Tragically. Health.9 in 2005. both the north Queensland and Alumbrera divisions produced a 2004 Sustainability Report.5% of the Tampakan copper-gold deposit in the Philippines. Safety.100 million tonnes at 0. environmental and community performance. In April 2005.5 in 2005. caused by a fall. Pre-feasibility study activities continue according to the agreed programme. agreement was reached with the current project owner. During 2006 the focus of Xstrata’s activities will be to support Indophil’s work programme and to evaluate the project in sufficient detail to enable a decision regarding the exercise of the option in the second half of the year. although North Queensland demonstrated significant improvements across its operations during the year.73% copper and 0. Looking ahead. The ongoing implementation of behavioural safety systems will also facilitate further improvements in safety awareness and performances.
with the associated formal commitments to regular auditing of greenhouse gas emissions and the identification and implementation of greenhouse gas reduction initiatives. Minera Alumbrera continued to support local communities with an annual commitment of $1 million across an extensive set of programmes focusing on health. the programme consists of 34 partnerships with government and community organisations. Commencing in 2006. In Argentina. zinc and coal). Following extensive community consultation. During the year. It will also comprise a commitment of AUD2. and $3 million over three years for identified health infrastructure in Tucuman. during 2005 ISO 14001 accreditation was attained at the port. improved acid plant efficiency and improving co-ordination between copper smelter and acid plant operations. provision of educational materials for over 200 primary and secondary schools. the programme includes installing copper smelter converter hoods to capture fugitive emissions. . the Alumbrera social initiatives were significantly extended to include a $3 million commitment over four years to specified health and education infrastructure works in Catamarca. resulting in greater process control. The Townsville copper refinery was successfully nominated as one of the sites to trial the implementation of the Australian Federal Government’s Energy Efficiency Opportunity programme. health and education initiatives on behalf of Xstrata’s three commodity businesses operating in Queensland (copper. provision of improved health services to 90 regional medical posts and health centres and the promotion of sustainable development through 18 diverse agricultural programmes with local farmers. In the area of community relations. The Xstrata Community Partnership Program in north Queensland provided support to enable computer cabling to reach all classrooms At Alumbrera. filter plant and concentrate pipeline facilities. These programmes aim to improve the quality of life in local communities through improved literacy skills. Xstrata Copper continued its strong commitment to engagement and cooperation with its host communities and key stakeholders. education and sustainable development. In 2006. Xstrata Copper is targeting an increase from 80% to 95% capture of sulphur dioxide emissions from the Mount Isa copper smelter. focusing on health and education. Xstrata Copper developed and launched an AUD4 million Xstrata Community Partnership Programme in North Queensland. Commencing in 2005. Xstrata Copper will also become a signatory to the Australian Federal Government’s Greenhouse Challenge Plus programme.5 million over three years to social welfare.Xstrata plc Annual Report 2005 | 65 Ernest Henry mine concentrator at dusk Sally Kapernick with student Madison Smith at Cloncurry State School. in both cases through partnerships with the respective provincial governments. Further work was also progressed on biodiversity and tailings/waste rock capping studies. using software to identify air entry points into the copper smelter. The programme has been further extended in 2006 to include additional initiatives in North Queensland.
EBIT variances: Copper EBIT 31.12. treatment and refining charges $m 644.8 919.3 (31. During the year. Priority areas for Xstrata Copper’s community relations team during the year included relationship building and awareness workshops with local communities.3 444.8) (21.05 *Net of commodity price linked costs.3) (31. The Las Bambas corporate social involvement programme currently under development will commit $1 million per annum over the next three years towards sustainable agribusiness and tourism projects in the area.9) (3. hydroponics and improved irrigation. The trust is managed independently of Xstrata by local Mayors and Proinversion. It will also include a skills training programme for members of the local communities.4) (8. and partnering with local communities. the Peruvian Government’s agency for the promotion of inward investment. as exploration activities commenced. As part of Xstrata Copper’s acquisition of the Las Bambas project in August 2004. specific local projects targeted to improve nutrition levels within the communities.3) 8.6) (46. The IAG comprises people widely experienced in managing these issues in developing countries and will meet at least twice a year to provide recommendations and advice to Xstrata. NGOs.5 million was paid into a community trust or fideicomiso social to be used for social development projects in the Grau and Cotabambas provinces. Xstrata formed an Independent Advisory Group (IAG) to help ensure that the Las Bambas project manages the complex social and environmental issues associated with mining operations in a socially acceptable way. service providers and government organisations to commence sustainable.66 | Xstrata plc Annual Report 2005 Operating and Financial Review | Copper A range of social initiatives were implemented at the Las Bambas project in southern Peru during 2005.6) (34. trout farming. with Xstrata retaining one seat on the managing committee.04 Sales price* Volumes Unit cost – real Unit cost – inflation Unit cost – foreign exchange Foreign currency hedging Other income and expenses Corporate social involvement Depreciation and amortisation (excluding foreign exchange) EBIT 31.12.5 . commencement of capacity building programmes to improve the local skills base for projectrelated work. $45. These projects include guinea pig breeding.
00 Zinc | Northfleet | England Ian Ramsey taps the furnace in the silver plant at Northfleet .Xstrata plc Annual Report 2005 | 67 11.
As a result. as strong growth in China drove a 3. Refined zinc production should remain constrained by the acute tightness in the concentrate market while expansions in Asian galvanising production capacity should underpin strong and steady demand growth.382 per tonne.2 million tonnes in 2005.2 million tonnes in 2005. While demand continued to grow. particularly in the second half of the year. where lead usage has risen strongly in recent years. Spain. This tightness in the supply of zinc concentrate is anticipated to continue throughout 2006 and possibly into 2007. Zinc supply is expected to remain in deficit throughout 2006 and potentially into 2007 as commissioning of new mines is not expected to have a significant effect before 2008. This was reflected in a drawdown of 235. global zinc metal production remained relatively flat at 10.4 million tonnes in 2005.000 tonnes. Morocco. Strong market fundamentals drove prices up. smelting capacity reduction in France and plant closures in Italy. rising by 51% to finish the year at $1. and Germany.915 per tonne. As a result. Mine output increased mainly in China. India and Kazakhstan were largely balanced by lower production in Canada. The average LME zinc price increased by 32% in 2005 to $1. representing less than one week of global consumption. LME stocks fell by 37% to 394. supporting strengthened prices. Global zinc mine production in 2005 increased by 3% to 9. Global production of refined lead increased by 5% to 7. At the end of 2005. Norway and Russia. driven by surging battery production due to the country’s rapidly expanding automobile sector. Sweden and Australia while it fell in Canada and Mexico.6% increase in global demand for refined zinc to 10. Domestic consumption in China continued to grow strongly.125 tonnes at the end of the year. as increases in output in China. Peru. as well as from construction and infrastructure investment. In China.9 million tonnes. The concentrates market remained tight during the year. which fell from $141 per tonne in 2004 to $126 per tonne in 2005. around half of this amount came from secondary production. the refined lead market was in supply deficit in 2005 with lead stocks at LME warehouses remaining at very low levels during the period.000 tonnes of stocks held elsewhere during the year. Belgium. reflecting strong economic growth and a surge in new galvanizing capacity due to booming demand from the automotive and home appliance sectors.68 | Xstrata plc Annual Report 2005 Operating and Financial Review | Zinc Markets Zinc The refined zinc market was again in supply deficit in 2005 by around 500. India.048 per tonne in the previous year. Lead Global consumption of refined lead rose by over 4% to 7. primary lead production increased by 16% while secondary production increased by 9%.000 tonnes of LME stocks and 265.7 million tonnes. up from $1.625 tonnes. resulting in a further drop in average negotiated treatment charges. zinc stocks are expected to continue to be drawn down. the lowest level recorded since mid 2001. mainly from battery recycling. LME stocks were at 43. China remains a significant and growing influence in the global lead market. .
12.2 961.9 5.3% 0.5% 3.0 57.3 950.6 1.8% 4.9 257.9 1.4% 14.3 60.1 87.7 21.0) (4.8 32.7% 14.6 34.3 41.3 250.183.6 .034.9 240.0 79.5 9.8 1.1 12.0 123.7 303.7% 19.7 88.1 125.5 9.186.8) (4.382.0% 95.2% 3.2 1.7 225.9 (66.5 13.5 1.448.5 145.0 225.8% 11.2% 41.0% 121.05 Year ended 31.8% 4.7% 14.9 17.1) 238.165.4) (32.9 1.12.4 347.1) (30.7 97.5% 2.5% 18.2 957.8% 5.7 29.8 1.Xstrata plc Annual Report 2005 | 69 Financial and Operating Data: Zinc $m Year ended 31.0 155.5) (31.031.9 (64.04 Revenue Zinc lead Australia Zinc Europe Lead Europe EBITDA Zinc lead Australia Zinc Europe Lead Europe Depreciation & amortisation Zinc lead Australia Zinc Europe Lead Europe EBIT Zinc lead Australia Zinc Europe Lead Europe Net assets Australia Europe Capital employed Australia Europe Share of Group EBIT Australia Europe Share of Group net assets Australia Europe Return on capital employed* Australia Europe Capital expenditure Australia Europe Sustaining Expansionary *ROCE % based on average exchange rates for the period 1.7 65.8 347.7% 7.5 44.5 155.379.3) 79.1% 6.4) (28.8 759.
renewal of mining equipment and improved geotechnical control of stoping. together with the start up of Black Star Open Cut and the Black Star open cut mine at Mount Isa: Environmental advisor Anne Moore checks levels of chemicals added to water to suppress dust and decrease water usage Finished zinc product at Nordenham . These. reflecting the tight physical market. increase in production both in George Fisher Mine and in Mount Isa Lead Mine. after operating for more than 80 years. up from $12 million the previous year. Ore throughput at the Mount Isa zinc operations increased to 4. the second half of the year saw significant production increases as a result of better mine planning. The lead market is expected to be largely balanced in 2006 with global lead consumption anticipated to continue to grow. resulted in a reduction of 18% in Mount Isa Mines and Concentrator unit operating costs compared with 2004. Lead stocks should continue to remain at very low levels and consequently the market is expected to remain fairly tight throughout 2006.4 million tonnes. Exports of refined lead from China remained at similar levels to the year before but in the future are expected to show a declining trend as domestic demand continues to grow. up by 37% compared to 2004. Backwardation was again a key feature of trading throughout the year. 9% higher than 2004. EBIT from the Australian zinc-lead operations increased sharply to $97 million in 2005.70 | Xstrata plc Annual Report 2005 Operating and Financial Review | Zinc During the year the cash price for lead traded between $824 and a high of $1.6 million tonnes of ore for the full year. Battery demand is anticipated to continue to increase while non-battery uses for lead are expected to follow the current downward trend. supporting lead prices. China will continue to be a dominant force in consumption and production.100 per tonne. which more than offset the negative impact of a stronger Australian dollar. A new pastefill plant was commissioned in June 2005. In particular. but at a lower rate than in 2005. 7% higher than 2004. The average price in 2005 was $976 per tonne. Operations at the Mount Isa Lead Mine ceased on 31 December 2005 due to depletion of reserves. driven by higher sales prices for both zinc and lead and improved production. Operations Zinc Lead Australia The transformation programme put in place at Xstrata Zinc’s operations at Mount Isa in 2004 resulted in improved performance and strong growth from these operations during 2005. The Mount Isa Lead Mine produced 0. George Fisher produced 2.156 per tonne to finish the year at $1. achieving an increase in the regional ground stability and allowing better ore recoveries.8 million tonnes in 2005. 10% higher than $886 per tonne the year before. Ore production is expected to increase further in 2006 following improvements in the ore hoisting capacity. In 2005 several actions were carried out in order to reduce the operating costs in the Mount Isa operations.
494 161.281 10.433 139.5 10.442 36.976 3.147.9 1.765 231.350 – 161.7 5.7 108.859 – 11.382 976 7.432 12.1 15.048 886 6.7 111.465 26.596 11.077 220.127.116.112 4.752 224 8.9 3.676.184.6 1.535 153.69 25.9 4.4 *From 1 July 2005.581 5.9 1.167 159.967 7. .446 115.483 1.2 1.212 1.7 491.938 8.9 4.775.390 52.527 191.9 1.5 11.04 501.373 11.720 154. MRM results are included at 100%. due to Xstrata’s acquisition of the remaining 25% of McArthur River in the second half of 2005.971 7.859 4.413 147.034 32.31 24.538 37.12.5 4.142.05 Year ended 31.557 26.644 34.828.5 1.6 13.350 11.028 125.Xstrata plc Annual Report 2005 | 71 Production Data: Zinc Europe – San Juan de Nieva Zinc metal (t) Europe – Nordenham Zinc metal (t) Europe – Northfleet Mount Isa sourced lead (t) Other lead (t) Total lead (t) Mount Isa refined silver (koz) Other silver (koz) Total silver (koz) Australia – Mount Isa Ore mined (t) Zinc head grade (%) Lead head grade (%) Silver head grade (g/t) Ore treated (t) Zinc in concentrate (t) Lead in lead/silver bullion (t) Lead in purchased concentrate (t) Silver in crude lead (koz) Silver in purchased concentrate (koz) Cash cost (C1) – post by-product credits (US¢/lb) Australia – McArthur River * Ore mined (t) Zinc head grade (%) Lead head grade (%) Ore treated (t) Zinc in concentrate (t) Lead in concentrate (t) Silver in concentrate (koz) Cash cost (C1) – post by-product credits (US¢/lb) Average LME zinc price ($/t) Average LME lead price ($/t) Average LBM silver price ($/oz) Total recordable injury frequency rate Lost time injury frequency rate Employee turnover (%) Year ended 31.822 120.910 10.0 4.355.
As a result of improvements in the operational efficiency of the roasting .122 tonnes. As a result.052 tonnes of saleable zinc. MRM is 100% owned by Xstrata. Lead smelter production increased in line with additional feed available and an increase in sinter plant utilisation due to a number of reliability improvements. with EBIT rising by 115% to $124 million. Production from the mine increased by 20% over the previous year. As a result of the transaction. the largest and most efficient electrolytic zinc plant in the world. again driven by higher sales prices for zinc and a strong cost performance. resulted in significant improvements in throughput in both the zinc concentrator and the lead smelter in 2005. together with additional ore produced from the new Black Star zinc-lead open cut mine. The smelter produced 482. Ore production is anticipated to increase substantially from this low cost operation in 2006.577 tonnes of liquid sulphur dioxide. particularly at San Juan de Nieva smelter in Spain. ANT Minerals Pty Ltd. although the head grade declined from 12.72 | Xstrata plc Annual Report 2005 Operating and Financial Review | Zinc Jesus Angel Barros Abarno at the melting and casting plant at San Juan de Nieva Cell house at San Juan de Nieva Improved ore production from both George Fisher and the Mount Isa Lead Mine during the year. The Arnao plant produced 16. due to the depletion of the number 2 orebody. while lead concentrate production improved by 29% over 2004 production to 277. Xstrata acquired the remaining 25% interest in the McArthur River Joint Venture from its joint venture partner. production at San Juan smelter exceeded half a million tonnes of melted zinc for the first time.000 tonnes per annum. The upgrade is due to be completed in the first half of 2006 and will increase smelter production to 170.7% in 2004 to 11.753 tonnes. Zinc Europe The profitability of the European zinc operations also improved strongly during 2005. During the second half of 2005. zinc in bulk concentrate decreased by 4% compared to the previous year to 153.408 tonnes of saleable sulphuric acid.644 tonnes. Improvements in operational and maintenance practices.142 tonnes of zinc oxide and the Hinojedo roaster produced 29. following its commissioning on time and on budget in February 2005. In 2005. The new Black Star mine produced a total of 1. together with increased ore feed.608 tonnes more than the previous year and 692. McArthur River Mine (MRM) underground mining operations were scaled down significantly at the beginning of October as open pit mining commenced at the test pit.9% zinc in 2005.117 tonnes represents an increase of 14% over 2004. Anticipated further production increases in the second half of 2005 were hampered by a delay to the blast furnace cooling water system upgrade. 9.4 million tonnes of ore during the year. resulted in a 23% rise in zinc concentrate production to 457. the mining of bulk stopes and open pit tonnes with lower head grades during the last quarter. Crude lead production of 160.
MRM results are included at 100%. As a result of improved production and higher sales prices.350 tonnes due to higher production from Mount Isa.612 481. The Stage 2 North and the Stage 2 East Black Star cutbacks commenced in June and are at an advanced stage of development. Relocation of the underground portal was completed in October 2005 and the next scheduled move is November 2006.5 million tonnes per annum.199 153.851 17.507 65.192 8.552 320 456.6 million. silver production rose by 32% to 11. Lead Europe In 2005. due to Xstrata’s acquisition of the remaining 25% interest in the operation in the second half of 2005 . contributing to improved efficiency at Northfleet.000 tonnes of lead per annum. revenue improved by just over $100 million to $258 million in 2005 and EBIT rose by 84% to $18 million.136 5.Xstrata plc Annual Report 2005 | 73 plants. This feed system will replace the existing crushing system to provide evenly blended ore feed.876 159.04 454.051 13.802 193.783 799 11.391 251 146.094 122.889 478.187 103. Recent monthly performance indicates a plant capacity in excess of 180.907 167. The upgrade is expected to be completed by July 2006 with expenditure of around $3.365 277 *From 1 July 2005. Similarly.12.482 149.295 12. a record of 896. Developments Zinc Lead Australia An upgrade of the hoist is planned for George Fisher mine in 2006 to increase the annualised hoisting rate to 3. a significant reduction of Sales volumes: Zinc Europe – San Juan de Nieva Refined zinc (t) Toll-treated zinc (t) Total zinc (t) Europe – Nordenham Refined zinc (t) Europe – Northfleet Refined lead (t) Refined silver (koz) Australia – Mount Isa Zinc in concentrate (t) third party sales (payable metal) Zinc in concentrate (t) inter-company sales (payable metal) Total zinc (t) (payable metal) Lead in concentrate (t) third party sales (payable metal) Lead in bullion (t) inter-company sales (payable metal) Total lead (t) (payable metal) Silver in concentrate (koz) third party sales (payable metal) Silver in bullion (koz) inter-company sales (payable metal) Total silver (koz) (payable metal) Australia – McArthur River* Zinc in concentrate (t) third party sales (payable metal) Lead in concentrate (t) third party sales (payable metal) Silver in concentrate (koz) third party sales (payable metal) Year ended 31. Production at the Nordenham plant in Germany was slightly lower than in 2004 mainly as a result of a transformer failure during the first half of the year.335 tonnes of calcine has been achieved.089 129.05 Year ended 31. lead production at Northfleet in the United Kingdom increased by 28% to 161. thereby removing the most significant factor in restricting mine production during 2005.290 148.619 10.799 145. Single streaming was maintained throughout the year and cycle times have continued to reduce.317 23.172 147.649 195.912 12.531 146. Stage 2 East will continue to be developed throughout 2006. An independent ore feed system for the concentrator plant is due to be completed in February 2006. Mining Stage 3 has commenced during 2005 and will deliver mainly overburden waste during 2006 with ore production scheduled for early 2007.000 ounces.593 23.156 7.12.782 8.859.560 24.
Following a review by the Federal Government. Approval has also been received to deepen the test pit to provide additional ore in the near term. the Northern Territory Environment Minister declined to recommend that Xstrata’s proposal should be approved. which has been approved by the Northern Territory Government’s Department of Business. the Northern Territory Mines Minister will make the final decision. includes approval for a test pit on site to contribute ore for sampling and for processing. Xstrata Zinc subsequently submitted a supplementary EIS in December 2005. Xstrata Zinc announced its intention to convert the McArthur River zinc-lead mine (MRM) in the Northern Territory.74 | Xstrata plc Annual Report 2005 Operating and Financial Review | Zinc New respirator helmet used at Northfleet Stockpile from the McArthur River open cut maintenance costs. increased plant feed reliability and better labour utilization. Australia. Xstrata has lodged a full Environmental Impact Statement (EIS) with the Northern Territory government which has been available for public review. from an underground to an open cut operation to enable production to continue at the mine. in response to submissions received as part of the consultation process. The McArthur River ore body remains one of the largest known deposits of zinc and lead in the world. expected in April 2006. In August 2005. The switch of mining method entails an investment of AUD66 million over two years and requires government approval. A new zinc filter plant is due for completion in the first quarter of 2006 and is expected to reduce costs by minimising the loss of concentrate and will remove a potential throughput bottleneck. Industry and Resource Development. This would significantly improve the profitability of . The development of an open cut mine at McArthur River would enable Xstrata to continue operations at the site and retain the option to develop MRM as a source of zinc feed for a future zinc refinery using the Group’s Albion process technology. McArthur River Mine’s current Mine Management Plan. In February 2006.
04 Sales price* Volumes Unit cost – real Unit cost – inflation Unit cost – foreign exchange Foreign currency hedging Other income and expenses Corporate social involvement Depreciation and amortisation (excluding foreign exchange) EBIT 31.2 0. Safety.05 *Net of commodity price linked costs. single streaming cycle times reduced to 11.12. using jarofix to return the land to its original landscape. reduction of raw water consumption in Nordenham. will contain the cost of electricity in 2006. the MRM site has been ruled out as a possible location for an Albion plant.3) (13.5 238. This was achieved through continuous improvement efficiency gains and with virtually no capital expenditure.3 hours average for a month a year on year reduction of 52%. No category 4 or 5 environmental incidents occurred at Xstrata Zinc operations in 2005 and no environmental fines or penalties were issued. These will continue throughout 2006 and will be the main focus of development work along with a programme which will concentrate on reducing boundary lead emissions. had not sustained a fatality since the inception of Xstrata plc in 2002.Xstrata plc Annual Report 2005 | 75 EBIT variances: Zinc EBIT 31. and upgrading of the stack dust continuous monitoring system at Northfleet in the UK. I Development projects have started in the Northfleet silver refinery to reduce costs and increase efficiency. the Nordenham plant has secured a competitive offer for electric power which. In Northfleet. This was not the case in 2005. Given the power requirements associated with zinc refineries.1 134. Xstrata Zinc is committed to remaining a fatality-free business and. when one . with first silver concentrate production expected in the second half of 2006. Zinc Lead Europe The San Juan de Nieva smelter has focused on process improvements to improve recoveries from lower grade zinc concentrates.1 11. treatment and refining charges $m 79. Other sites continue to be assessed. Construction of a flotation plant at the San Juan de Nieva operation to recover silver concentrate is on schedule. I I I Health.2) (10.7 mining operations at MRM.8 5.3) 3.5 48.12. Key environmental initiatives in 2005 included: I commencement of phase two of the operation and rehabilitation of a quarry controlled by local authorities in Spain. together with a reduction in grid charges due to new German energy legislation. until 2005.3 (20. developing a strategy to move towards total site water treatment and meeting all ongoing commitments under EU IPPC legislation. Environment and Community (HSEC) All Xstrata Zinc operations were independently audited against Xstrata’s HSEC policy and 17 HSEC management standards during 2005 and audit recommendations are being integrated into 2006 business plans. development of the George Fisher ultra-filtration plant at Mount Isa. Germany. completion of the environmental impact assessment and enhancement of the biodiversity conservation plan at McArthur River mine in Australia. Despite continuing high energy prices in Germany.
Safety initiatives significantly improved other safety performance measures. support local communities through the Xstrata Community Partnership programme. with the lost time injury frequency rate and total recordable injury frequency rate improving by 25% and 5% respectively in 2005. In Europe.76 | Xstrata plc Annual Report 2005 Operating and Financial Review | Zinc contractor was fatally injured during demolition work at the Hinojedo operation in Spain. consultation continued with local communities regarding the proposed change of mining method and MRM continued to work closely with the local Aboriginal Association. in line with Xstrata’s ongoing commitment to minimise the environmental impact of our operations. the regional government health service and the NGO “Alcoholics Anonymous”. Xstrata Zinc operations continue to upgrade knowledge of eco-systems in and around all operations and in-depth biodiversity studies are being undertaken at every Xstrata Zinc site. support focused on the GRAND project to develop young people’s education and opportunities and collaboration with a range of local organisations on development plans for the region. Xstrata’s zinc-lead operations at Mount Isa. in addition to educational initiatives at local schools. During 2006 work will continue to achieve Xstrata Zinc’s target of achieving ISO14001 certification for all Jean-Baptiste Bertin. Minimising atmospheric emissions at Mount Isa is a key focus for 2006. dependent on approval being received for operations to continue at the mine. At Northfleet. in conjunction with the coal and copper North Queensland operations. McArthur River mine is implementing an Environmental Management System that is expected to be certified during 2007. health and enterprise and job creation. Currently three out of seven sites are certified. 122 new jobs were created in 2005. For 2006. Xstrata’s Spanish operations undertook a health awareness campaign. These improvements are a result of intensive training programmes that have been implemented at all levels across all of Xstrata Zinc’s operations. Community activities constituted a wide variety of contributions to social welfare such as education. public health and young people’s needs. In addition. sponsorship of a range of community cultural and educational events and infrastructure development. focusing on the effects of alcohol in collaboration with the local municipal authorities. plant engineer at the control room at Nordenham operations. At Mount Isa. providing AUD4 million for community initiatives over three years. . McArthur River mine (MRM) undertook a wide range of community activities in 2005 including working with the Territory Government to provide training subsidies and youth programmes for indigenous people. Xstrata Zinc’s operations will focus in particular on community initiatives in the areas of education. The Nordenham plant provided support for health initiatives and programmes to support the long-term unemployed and socially deprived. Findings from the investigation into this deeply regrettable incident have been integrated into the business and all operations are working to ensure that no further critical incidents occur.
reliable and low overall cost tankhouse solution. driven by strong demand for Xstrata Technology products as high commodity prices stimulated greater project development.15 Technology | Mount Isa | Australia Kenward Chansa. The new Anglo Platinum application is expected to demonstrate a significant improvement in energy efficiency compared with conventional grinding. ISAPROCESS™ The proven operational benefits of Xstrata’s ISA PROCESS refining technology were recognised by a number of major producers. . and sales of M10. The potential was confirmed in 2005 with the commissioning of an M10. Pasar in the Philippines and Piedras Verdes in Mexico. a development which enables the coarse grinding applications of the IsaMill. Orders for 2007 are also building quickly.000 mills to Phelps Dodge Corporation and Anglo Platinum. Increased research and development at Copper Refineries in Townsville (with several key customers) is expected to bring new innovations to the market during 2007. These major projects were accompanied by a strengthening stream of smaller replacement plate orders worldwide. Revenue in 2005 was 43% higher than standalone revenue of $44 million in 2004. including the Saganoseki and Tamano projects in Japan. The Centerra mill is the first application of ceramic media. Both Toyo and First Quantum Minerals’ Kansanshi operation in Zambia were successfully commissioned during the year. Demand for Xstrata Technology’s products is anticipated to remain strong throughout 2006.000 mill for Centerra Gold at Kumtor. grinding technology. ISASMELT trainee. Project delivery during 2005 included the BHP Billiton Spence operation in Chile and Sumitomo Toyo in Japan. Nkana Cobalt in Africa. due to its combination of long life and high energy efficiency and the vast tankhouse expertise available to clients. ISAMILL™ IsaMill is rapidly emerging as a new. Both revenue and earnings accelerated in the second half of the year as a number of large orders were placed for delivery in 2006.18. ISAPROCESS continues to provide a high quality. Maintenance Controller at Mopani Copper Mines Plc Mufulira Smelter. resulting in a rush of orders in the second half of the year. co-developed with Maggoteaux. highly efficient. achieving EBIT of $10 million on revenue of $77 million. These orders will be completed in 2006. learns to operate plasma cutter Xstrata Technology continued its strong performance in 2005.
7% ISASMELT™ Two new ISASMELT™ smelters were commissioned.78 | Xstrata plc Annual Report 2005 Operating and Financial Review | Technology Financial and Operating Data: Technology $m Year ended 31. The first Albion Process Technology licence was issued to EnviroGold Ltd in December 2005 to retreat tailings material at the Las Lagunas project in the Dominican Republic.12. and in particular is due to its record of successful technical transfer.3) 9. with lead metal production in the ISASMELT™ and lead slag reduction in a blast furnace. Townsville port operations are reported as part of Xstrata Copper 77.4) (0. together with co-developer Highlands Pacific.0% 52. Xstrata Technology.8 44.8 0. Xstrata and Highland Pacific retain ownership of intellectual property. Asia and Europe during 2005. with ongoing technical interchange with existing users – a key feature of the Xstrata Technology operating model. The Mopani Copper Mines smelter in Zambia is nearing completion and training of Mopani operators at Mount Isa is complete – a key part of the successful technology transfer.2 (3. formed a partnership with Core Resources to market the Albion Process atmospheric leach technology commercially. JAMESON CELL™ The Jameson Cell is a high intensity flotation device.7 44. Albion Process During 2005. which offers low cost. and engineering for two further smelters was completed during 2005.2 13. particularly from coal customers. The CYMG plant employs a new variation of the technology. Further development of the product and new markets are expected to expand the range of applications of the cell. The Vedanta copper ISASMELT™ in India has set new records since startup in May. this technology will be used for over 10% of global copper smelter production by the end of 2006.5 0.12.6 3. This growth has been driven by the high efficiency and low capital cost of the technology. The outlook for future contracts remains good.04 Revenue EBITDA Depreciation & amortisation Impairment of assets EBIT Capital expenditure Net assets Capital employed Employee turnover *Includes Townsville port operations.4 19.7) – 15. with strong orders. South America. ISASMELT™ is one of the fastest growing smelting technologies in the world – from its first copper installation in 1992.5 (3. The huge Southern Copper Ilo smelter in Peru is under construction and is expected to start operation in August 2006.8 6. with feasibility studies carried out for plants in Australia. From 1 January 2005. reaching design capacity within two months of first feed and the CYMG lead smelter in China is approaching design capacity. highly efficient flotation capacity. leading to rapid plant start ups and ongoing improvements.5 43. Development work continued.05 Year ended 31. It completed its most successful year ever in 2005. Hail Creek Jameson Cell .5 43.
742kt 2.400kt 700kt 6.5% 69.800k kg 2.5% 50% 79.6% 79.166k lbs 4.3% 68.100kt – 1.150k kg 683kt 112kt – – – Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Marikana South Africa Marikana South Africa Rustenburg South Africa Lydenburg South Africa Boshoek South Africa Rustenburg South Africa Rustenburg South Africa Rustenburg South Africa Steelpoort South Africa Pilansberg South Africa Pilansberg South Africa Boshoek South Africa Brits South Africa Maloma Swaziland Maloma Swaziland Witbank South Africa Witbank South Africa Witbank South Africa Witbank South Africa 90% 90% 3.210kt 52kt – 34kt 20.5% 80% 80% 100% 50% 74.910k kg 1.5% 79.149kt 2.313kt 666kt 5.000kt 2.500kt 4.5% 79.955kt 2.3% 68.680kt 4.500kt 1.621kt 666kt 5.511kt 2.091kt 2.274kt 131kt 23kt 253kt 19.362kt Joint venture Joint venture Western Coal Fields Western Coal Fields .440kt 180kt 96kt 360kt 23.502kt 2.5% 79.500kt 4.900kt – 1.837kt 2.500kt 2.5% 79.5% 100% 100% 75% 100% 100% 100% 74% 362kt 191kt 430kt 396kt 240kt 1.161kt 4.800kt 2.5% 79.794kt 213kt Subsidiary Joint venture Joint venture Joint venture Subsidiary Joint venture Subsidiary Joint venture Joint venture Joint venture Hunter Valley Hunter Valley Newcastle Newcastle Hunter Valley Hunter Valley Western Coal Fields Hunter Valley Hunter Valley Hunter Valley 79.3% 1.571kt 563kt 405kt 1.300k lbs 7.592k kg 345k kg 272kt 97kt 123kt 174kt 102kt 311kt 173kt 393kt 393kt 218kt 1.5% 79.936kt 5.963kt 2.465kt 2.1% 68.Xstrata plc Annual Report 2005 | 79 Group Information Production data Annual production Capacity (Full plant/ mine basis) 100% Production 2005 100% Production 2004 Name of Operation Ownership Accounting Status Location Alloys Wonderkop plant Gemini plant Rustenburg plant Lydenburg plant Boshoek plant Kroondal mine Kroondal opencast mine Waterval mine Thorncliffe mine Horizon mine Chrome Eden mine Boshoek opencast mine Rhovan V2O5 FeV Swazi Vanadium FeV Maloma mine Char Technologies African Carbon Manufacturers African Carbon Producers African Carbon Union Coal Australia Cumnock Liddell Macquarie Coal JV – West Wallsend – Westside Mt Owen Narama Oakbridge Group – Baal Bone – Beltana – Bulga – South Bulga Closed H2 2004 Ulan – Ulan Underground – Ulan Opencast 84% 67.5% 79.100kt 2.092kt 2.920kt 540kt 480kt 1.923k lbs 5.422kt 441kt 445kt 1.000kt 2.700kt 2.021kt 4.400k kg 540kt 116kt 147kt 188kt 117kt 333kt 4kt 383kt 374kt 196kt 1.
800kt 1.700kt 8.009kt 2.700kt 8.939kt 1.011kt 2.661kt 1.800kt 25.796kt 2.800kt 400kt 2.855kt 504kt 1.152kt 956kt 1.292kt 23.826kt 22.097kt 1.352kt 1.500kt 1.400kt 500kt 3.138kt 1.000kt 500kt 1.526kt 8.700kt 2.80 | Xstrata plc Annual Report 2005 Group Information Name of Operation Ownership Annual production Capacity (Full plant/ mine basis) 100% Production 2005 100% Production 2004 Accounting Status Location United Cook Oaky Creek Newlands –Thermal – Coking Collinsville – Thermal – Coking Rolleston Coal South Africa iMpunzi Division – Phoenix – Tavistock Mpumalanga Division – Spitzkop – Tselentis Tavistock TESA JV – ATC – ATCOM Tweefontein Division – Boschmans – Goedgevonden – South Witbank – Waterpan – WitCons Mines operated by JV partners – Douglas/Middelburg 95% 95% 55% 55% 55% 55% 55% 75% 2.672kt 178kt 6.044kt 733kt 1.090kt 408kt 3.846kt 372kt 7.897kt 1.400kt 1.766kt 814kt 1.400kt 600kt 8.988kt 1.881kt 920kt 1.148kt 2.600kt 1.448kt 2.529kt – Joint venture Subsidiary Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Hunter Valley Bowen Basin Bowen Basin Bowen Basin Bowen Basin Bowen Basin 100% 100% 100% 100% 50% 50% 100% 100% 100% 100% 100% 16% 1.500kt 1.973kt 410kt 3.000kt 2.761kt 7.888kt Subsidiary Subsidiary Subsidiary Subsidiary Joint venture Joint venture Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Joint venture Witbank Witbank Ermelo Breyten Witbank Witbank Witbank Witbank Witbank Witbank Witbank Witbank / Middelburg .916kt 1.390kt 1.400kt 1.000kt 1.943kt 1.
4mt 231kt Zn 160kt Pb 353t Ag 492kt Zn 472kt Zn 45kt calcine 29kt SO2 17kt Zn 154kt Zn 145kt saleable Zn 126kt Pb 3.5mt 170kt Cu 236kt Cu Subsidiary North West Queensland Australia Ernest Henry 100% 11.2mt 191kt Zn 140kt Pb 329t Ag Subsidiary Asturias Spain Hinojedo Arnao Nordenham 100% 100% 100% Subsidiary Subsidiary Subsidiary Cantabria Spain Asturias Spain Nordenham Germany Northfleet Mount Isa 100% 100% Subsidiary Subsidiary Northfleet UK North West Queensland Australia McArthur River 100% 1.Xstrata plc Annual Report 2005 | 81 Name of Operation Ownership Annual production Capacity (Full plant/ mine basis) 100% Production 2005 100% Production 2004 Accounting Status Location Copper Mount Isa 100% 6.5mt 160kt Zn Subsidiary Northern Territory Australia .7mt ore 154kt Zn 1.1mt ore 250kt Zn in conc 170kt Pb in bullion 300t Ag in bullion 1.8mt 114kt Cu 143koz Au Subsidiary North West Queensland Australia Townsville refinery 100% 280kt cathode 219kt 238kt Subsidiary North Queensland Australia Catamarca Argentina Alumbrera 50% 37mt ore 190kt Cu in conc 550koz Au in conc 50koz Au in dore 492kt Zn 474kt saleable Zn 44kt calcine 29kt SO2 24kt semis Zn 145kt Zn 140kt saleable Zn 180Kt Primary Pb 5.8mt ore 115kt Cu in conc 120koz Au in conc 5.2mt ore 180kt Cu in conc 240kt Cu in anode 10.4mt 129kt Cu 167koz Au 10.6mt 187kt Cu 518koz Au 59koz Au 35.4mt 176kt Cu 584koz Au 50koz Au Subsidiary Zinc San Juan de Nieva 100% 501kt Zn 482kt saleable Zn 45kt calcine 30kt SO2 16kt Zn 148kt Zn 141kt saleable Zn 161kt Pb 4.7mt ore 175kt Zn in conc 36.6mt 177kt Cu 220kt Cu 5.
His early career included a period as Private Secretary to the Chancellor of the Exchequer and a two-year secondment to Investors in Industry plc (3i). Mr. joined Johannesburg Consolidated Investment Company Limited in 1976. is Chief Executive Officer of Glencore International. Environment and Community Committee.82 | Xstrata plc Annual Report 2005 Board of Directors 01 | Willy Strothotte. aged 40. Mr. and he was Chief Executive of BTR plc from 1996 to 1999. Mr. 06 | David Issroff. Partnerships UK plc and The Royal Bank of Scotland Group plc. Issroff joined Glencore South Africa in 1989. he managed Glencore International’s Hong Kong and Beijing offices. He subsequently formed his own firm. Land Securities plc. joined the Board of Xstrata AG in May 2000. joined the Board of Xstrata AG in May 2000. Mr. he was Global Head of Resource Banking at the Standard Bank Group. Brown. where he was an Executive Director. Belgium and the USA. and was appointed to the Board of Xstrata in February 2002. Mr. Mr. 09 | Sir Steve Robson CB. Mr Zaldumbide was appointed to the Board of Xstrata in February 2002. procurement policy including the private finance initiative and the Treasury's enterprises and growth unit. Lead Independent Director of Safeway. He also serves as Deputy Chairman and Lead Independent Director of Vodafone Group Plc. Johnson Matthey plc. Strothotte has been Chairman of Xstrata AG since 1994. aged 55. He is a previous Chief Executive Officer and Director of Union Explosivos Rio Tinto and of Petroleos del Norte. aged 61. From 1989 to 1990. Sir Steve is a Director of JPMorgan Cazenove Holdings. Strachan was appointed to the Board of Xstrata at the Annual General Meeting held in May 2003 and is the Chairman of the Health. Rough headed all aspects of fund management within Legal & General Investments. Petroleos del Norte became part of the Repsol Oil Group where Mr. 12 | Santiago Zaldumbide. is also a Director of Reuters Group plc. which specialised in small management buyouts. and is currently a director of Century Aluminium Corporation and Minara Resources Limited. he joined Gencor Limited where he became Chairman of Alusaf and Executive Director responsible for Gencor Base Metals and Heavy Minerals. Dr Roux was appointed to the Board of Xstrata in February 2002. and ThyssenKrupp SA. appointed in July 1997. in 1976. Hazen retired in April 2001 as Chairman after a 30-year career with the bank. Mr. Davis was Chief Financial Officer and an Executive Director of Billiton Plc. the Senior Independent Director and Chairman of the Nominations Committee. Chief Executive of Xstrata Zinc and Executive Chairman of Asturiana de Zinc. Glasenberg was appointed to the Board of Xstrata in February 2002. is the Chief Executive of Xstrata.. In 1994 he was appointed Chief Executive Officer of the Corporación Industrial de Banesto and in December 1997 Chairman and Chief Executive Officer of Asturiana de Zinc. a corporate finance boutique specialising in the minerals sector. Frederik Roux. Deputy Chairman of Invensys plc from 1999 to 2000. Mr. Safety. Prior to joining Xstrata. Mr. Mr. In 1990. 05 | Paul Hazen. Mr. He had joined HM Treasury after leaving university. MacDonnell is also currently a Director of Safeway. Rough was appointed to the Board of Xstrata in April 2002. is Deputy Chairman. From 1961 to 1978 Mr. his responsibilities included the legal . Mr. aged 62. and served as Executive Chairman of Ingwe Coal Corporation Limited from 1995. Mr. aged 62. Base Metals. and was Deputy Chief Executive from 1991 to 1995. Mr Reid joined Xstrata AG in January 2002. where he held positions in the Finance. when the roles of Chairman and Chief Executive were split. 02 | Mick Davis. Prior to joining Kohlberg Kravis Roberts & Co. Mr. he transferred to Glencore’s head office in Switzerland with responsibility for the marketing of ferroalloys. He joined the Standard Bank Group in 1997 from Warrior International Limited. 08 | Trevor Reid. was a Director of Legal & General Group Plc before retiring from Legal & General in June 2002. Inc. Hazen is currently Chairman of Accel-KKR and of KKR Financial Corp. Mr. Sir Steve was appointed to the Board of Xstrata in February 2002 and is Chairman of the Audit Committee. and was appointed to the Board of Xstrata in February 2002. the South African electricity utility. Strothotte was appointed Chief Executive Officer of Glencore in 1993 and held the combined positions of Chairman and Chief Executive Officer from 1994 until 2001. Mr. Hazen is a former Chairman and CEO of Wells Fargo and Company. 10 | Dr. he has pursued private business interests in game ranching and safaris in South Africa. Zaldumbide was responsible for establishing the international structure of the enlarged Repsol Oil Group. MacDonnell became the first non-founding partner of KKR in 1982 and participated in virtually all investment decisions until the firm expanded in the late 1980s. taking up the position of Head of Metals and Minerals in 1984. Since 1997. and Chairman of Xstrata since February 2002. and a Director of Willis Group Holdings Ltd. and US Natural Resources. In 1990. and was appointed to the Board of Xstrata in February 2002. and was appointed a Director of Xstrata in February 2002. 03 | David Rough. Rolls Royce plc and Transocean Inc. Strothotte held various positions with responsibility for international trading in metals and minerals in Germany. Previously. He is also currently a Director of Minara Resources Limited. is Chairman of Glencore International. Strachan joined Rio Tinto plc (formerly RTZ plc) as CFO in 1987. which he joined in 1984. framework for regulation of the UK financial services industry. Strachan was Chairman of Instinet Group from 2003 to 2005. is the Chief Financial Officer of Xstrata. public private partnerships. aged 68. he was appointed Head of the Ferroalloys Division at Glencore International. aged 64. Strothotte joined Glencore International. Emap plc. He joined Gencor Limited in early 1994 from Eskom. In 1992. Shipley & Co Ltd and Mithras Investment Trust plc. and was appointed to the Board of Xstrata in February 2002. As Group Director (Investments). is an Executive Director of Xstrata. In 1978. In 1997. aged 49. retired as Second Permanent Secretary at HM Treasury in January 2001. Mr. Mr Davis was appointed as Chief Executive of Xstrata AG in October 2001. 04 | Ivan Glasenberg. aged 63. In 1991 he became Head of the Coal Department and in 2002 Chief Executive Officer of Glencore International. aged 48. aged 58. 07 | Robert MacDonnell. aged 45. Rough is currently a director of BBA Group plc. He worked in the coal department of Glencore in South Africa for three years and in Australia for two years. Mr. 11 | Ian Strachan. Gold and Platinum divisions. Dr Roux is also Chairman of Impala Platinum Holdings Limited. Inc. Inc. Mr. Zaldumbide is also a Director of Carburos Metálicos SA. From 1997 until his retirement. MacDonnell was a Management Consultant at Arthur Andersen & Co. joined the Board of Xstrata AG in May 1997.
Xstrata plc Annual Report 2005 | 83 01 02 03 04 05 06 07 08 10 11 09 12 .
Sustainable Development Eric Ratshikhopha Executive Director. Pacific Mick Buffier Chief Operating Officer. South Africa Jeff Gerard General Manager Business Strategy Peter Coates Chief Executive Xstrata Coal Corporate Brian Azzopardi Group Controller Richard Elliston Company Secretary Glenn Field Head of Internal Audit and Risk Paul Jones General Manager Health. Atlantic Phil Jones General Manager Human Resources Peter McKenna General Manager Engineering and Development Earl Melamed Chief Financial Officer Reinhold Schmidt New Business Colin Whyte General Manager Sustainable Development Peet Nienaber Chief Executive Xstrata Alloys Xstrata Copper Jon Evans General Manager Minera Alumbrera Peter Forrestal General Manager Project Development Barry Grant Chief Operating Officer North Queensland Copper Louis Irvine Chief Financial Officer Charlie Sartain Chief Executive Xstrata Copper Neal O’Connor General Counsel Alberto Olivero General Manager Human Resources . Safety and Environment Andrew Latham General Manager Corporate Development Benny Levene Chief Legal Counsel Thras Moraitis General Manager Group Strategy and Development Ian Wall Group Treasurer Jason Wilkins Head of IT Marc Gonsalves Executive General Manager Corporate Affairs Murray Houston General Manager Marketing. Chrome Deon du Preez Executive Director. Vanadium Deon Dreyer Managing Director. Queensland Mark Eames General Manager. New South Wales Ian Cribb Chief Operating Officer.84 | Xstrata plc Annual Report 2005 Executive Management Executive Committee Mick Davis Chief Executive Trevor Reid Chief Financial Officer Santiago Zaldumbide Chief Executive Xstrata Zinc Executive Management Xstrata Alloys Bill Barrett Managing Director. Corporate Development Shaun Usmar Chief Financial Officer Xstrata Zinc Iñigo Abarca Chief Legal Counsel Manuel Alvarez General Manager Assistant to the Chief Executive Jaime Arias General Manager Spanish Operations Brian Hearne General Manager McArthur River Mining Kevin Hendry General Manager Mount Isa Zinc Lead Operations Juan León Chief Financial Officer Rainer Menge General Manager German Operations Emilio Tamargo General Manager Business Development & Research Neil Wardle General Manager Britannia Refined Metals Fred White General Manager Metallurgic Processing Mount Isa Zinc Lead Operations Xstrata Coal Garry Beck General Manager Marketing. Commercial Peter Freyberg Chief Operating Officer.
The Group’s Business Principles set out an ethical framework for Xstrata’s global activities which are supported by the Group’s HSEC.com.1 million or 34 US¢ per share (2004 US$150 million or 24 US¢ per share). The shareholders will be asked to approve the dividend at the Annual General Meeting on 9 May 2006. Health Safety and Environment reports to the Chief Executive and oversees the global implementation. environmental and community issues. review and assurance of the relevant HSEC policies and standards and. The General Manager. A comprehensive HSEC assurance and verification programme has been implemented across the global business in 2005. The Group consolidated income statement and other Group financial information is produced on pages 4 to 120 of the Financial Statements 2005. development The Group business units carry out exploration and research and development activities that are necessary to support and expand their operations.xstrata. The Board HSEC Committee was established in February 2005 to assist the Board to fulfil its HSEC role and obligations.706. The total 2005 dividend is US$204. environmental and social performance as well as its sustainability initiatives. Chief Executive’s Report and the Operating and Financial Reviews on pages 4 to 78. Xstrata Coal. including post-balance sheet events. safety. The 2005 Sustainability Report. Xstrata Copper. will be available from Xstrata’s website (or as a hard copy on request) in April 2006. including case studies and previous reports. manages the Group’s interface with stakeholders on health.9 million. A full description of disposals. Risk Management and Corporate Social Involvement policies and HSEC management standards. Financial instruments The Group’s financial risk management objectives and policies are discussed on pages 28 to 30 of the Operating and Financial Review and Note 39 to the financial statements. Review of the business. The Group’s activities are managed through four major global Business Units: Xstrata Alloys. safety. is included in the Financial Review on pages 32 to 34.9 million in the previous year. which provides details of the Group’s economic. together with Xstrata Technology. are available from our website: www.Xstrata plc Annual Report 2005 | 85 Directors’ Report Results and dividends The Group profit for the year ended 31 December 2005 on ordinary activities after taxation and minority interests was US$1. for payment on 19 May 2006 to ordinary shareholders whose names were on the register on 28 April 2006. future developments and post balance sheet events A review of the business and the future developments of the Group is presented in the Chairman’s Statement. Additional information on the Group’s operations is provided on pages 36 to 78 of this report.052. Details of the HSEC Committee are given on pages 100 and 101. Health. . along with the Executive General Manager Corporate Affairs. environment and community (HSEC) Xstrata is committed to the principles of sustainable development and to achieving the highest standards of health. safety and environmental performance. Principal activities Xstrata plc is an international metals and mining company. Further details of Xstrata’s sustainability initiatives. and Xstrata Zinc. The Board recommends a final dividend of 25 US¢ per share amounting to US$149. Exploration and research. acquisitions and changes to Group companies undertaken during the year.4 million compared to US$1.
In 2005.7 million for CSI initiatives. Employee share schemes The Company has a policy of encouraging employees to acquire Xstrata plc shares and linking a significant element of employees’ variable reward to the performance of the Group. sport and the arts. job creation and enterprise. where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. Where existing employees become disabled. Xstrata’s corporate social involvement expenditure supports initiatives that benefit the communities local to the Group’s operations in the areas of health. The LTIP has two elements i) a free contingent award of ordinary shares which vest in three years and ii) a share option to acquire ordinary shares at the exercise price after three years. Forestry. In South Africa. the Colliery Officials Association (COA) and the Australian Collieries Staff Association (ACSA). about 58 percent of Xstrata Coal employees are represented by the National Union of Mineworkers and 65 percent of Xstrata Alloys employees are union members. The vesting of awards and options depends upon the satisfaction of stipulated performance conditions. no political donations were made in 2005. . No form of workplace discrimination is tolerated. In Australia. the predominant union membership for coal mining employees is with the Construction. community development. The Group’s Statement of Business Principles is available from our website and is published separately and distributed to every employee and contractor in their native language. good relations with their employees and unions. but participation across the Group varies. Further details of the above and of other Company’s share schemes are set out in Note 37 to the Financial Statements and in the Remuneration Report on pages 112 to 115. although 44% are covered by collective agreements. education.000 employees worldwide including contractors. Only 2% of Xstrata Copper’s South American employees have union membership. the collection of union membership statistics in this country is illegal. however. it is the Group’s policy wherever practicable to provide continuing employment under normal terms and conditions and to provide training and career development and promotion to disabled employees wherever appropriate. Mining and Energy Union (CFMEU). Corporate governance A report on corporate governance and compliance with the provisions of the Combined Code is set out on pages 91 to 101. The Group strives to ensure and believes that all of the Group’s operations have. Disabled employees The Group gives full consideration to applications for employment from disabled persons.86 | Xstrata plc Annual Report 2005 Directors’ Report Political and charitable donations In accordance with Xstrata’s corporate social involvement (CSI) policy. around 50 percent of Xstrata Zinc employees are union members. in general. Employee policies and involvement The Group’s policy is to communicate honestly with employees and encourage consultation between employees and management. Xstrata set aside $24. All employees are free to join a union of their choice. Labour relations The Group has approximately 24. Executive directors and employees of the Company and its subsidiaries are eligible to participate at the discretion of the Remuneration Committee in the Xstrata Long Term Incentive Plan (LTIP). In Europe.
after making inquiries that they consider to be appropriate. Details of the resolutions that will be put to the Annual General Meeting are given in the Notice to the Annual General Meeting. Further details about the directors and their roles within the Group are given in the directors’ biographies on pages 82 and 83. Senior Independent Director and Non-Executive* Chief Financial Officer Non-Executive* Non-Executive* Chairman and Non-Executive Executive 25 February 2002 25 February 2002 25 February 2002 25 February 2002 25 February 2002 25 February 2002 1 April 2002 6 May 2004 8 May 2003 9 May 2005 6 May 2004 8 May 2003 6 May 2004 6 May 2004 Standing for re-election Standing for re-election Trevor Reid Dr. For this reason they continue to adopt the going concern basis in preparing the financial statements. . Directors and their interests The directors as at 31 December 2005 were: Position *denotes independent director Director First appointed Re-elected Retirement by rotation at AGM Mick Davis Ivan Glasenberg Paul Hazen David Issroff Robert MacDonnell Sir Steve Robson David Rough Chief Executive Non-Executive Non-Executive* Non-Executive Non-Executive* Non-Executive* Deputy Chairman. Fred Roux Ian Strachan Willy Strothotte Santiago Zaldumbide 25 February 2002 25 February 2002 8 May 2003 25 February 2002 25 February 2002 9 May 2005 8 May 2003 9 May 2005 9 May 2005 8 May 2003 Standing for re-election Standing for re-election In accordance with the Articles of Association. that the Company has adequate resources to continue in operational existence for the forseeable future.Xstrata plc Annual Report 2005 | 87 Going concern The Directors believe. four directors will retire and offer themselves for re-election.
None of the shares were held non-beneficially.50 shares each to K.) Nominees Limited for the purposes of the Company’s Employee Share Ownership Trust.380 40.488. (C.000.638 ordinary shares following the issue of shares in connection with the Xstrata Capital Corporation A.576 – – 6.320 – 595. Under the Companies Act 1985 (the “Act”) the Board is not able to allot shares except with the general or specific authority of the shareholders.920 – 14.500 In addition to the above interests in shares.000.450 60. an employees’ share scheme.920 – 14. trade on the London Stock Exchange and were admitted to the Official List on 8 April 2005.000 3. Ordinary shares held beneficially as at 1 January 2005 Ordinary shares held beneficially as at 31 December 2005 Ordinary shares held beneficially as at 1 January 2005 Ordinary shares held beneficially as at 31 December 2005 Name of Director Name of Director Executive Mick Davis Trevor Reid Santiago Zaldumbide 146. Details of these interests are disclosed in the Remuneration Report on pages 112 to 115. US$600.V.320 – 595.706 Non-Executive Ivan Glasenberg Paul Hazen David Issroff Robert MacDonnell Sir Steve Robson David Rough Dr. Fred Roux Willy Strothotte Ian Strachan – 357.V.B. including the rights pertaining to each share class. An Ordinary Resolution will therefore be proposed at the forthcoming Annual General Meeting to authorise the Directors of the Company in accordance with Section 80 of the Act to exercise all the powers of the Company to allot relevant securities (within the meaning of Section 80(2) of the Act) of the Company up to an aggregate nominal amount of US$105. The ordinary issued share capital was increased on 23 March 2005 to 632.977.416 ordinary shares when the Directors issued and allotted 1.I.000 new ordinary shares of US$0.380 – 15. certain of the directors also have interests in the share capital of the Company in the form of conditional rights to free shares and options to subscribe for shares. As of the date of this report. Share capital Details of the authorised and issued share capital of the Company. No director was interested in the shares of any subsidiary company. The ordinary issued share capital of the Company at the date of this report is 632.88 | Xstrata plc Annual Report 2005 Directors’ Report Details of interests in the share capital of the Company of those directors in office as at 31 December 2005 are given below. The 1.95 per cent Guaranteed Convertible Bond due 2010. .705 146.933.50 each) (being the lesser of the Company’s authorised but unissued share capital and one third of its issued capital).576 – – 6.939 (equivalent to 210. there have been no changes.878 ordinary shares of US$0.502.500 – 357.000.000 new ordinary shares rank pari passu with the existing ordinary shares. are set out in Note 28 to the Financial Statements.
In addition. It is the Group policy that payments are made in accordance with those terms. the following major interests in the ordinary issued shares of US$0. 6300 Zug. Parkhotel Zug. In addition to the interests arising as a result of CSFB Equities and CSFB (Europe) entering into the capital management programme.040. Switzerland with a satellite meeting held concurrently at 10.66 *Pursuant to a capital management programme.21% of the issued outstanding ordinary shares of Xstrata plc. Individual operating companies are responsible for agreeing terms and conditions for their business transactions and ensuring that suppliers are aware of the terms of payment. entered into by Credit Suisse First Boston Equities Limited (CSFB Equities) and Credit Suisse Securities (Europe) Limited (CSFB Europe). still be subject to the requirements of the UK Listing Authority. London Stock Exchange.976 24. The authority extends until the end of the next Annual General Meeting. equity securities of a nominal amount not exceeding US$15. The Act provides that.367 101. 9 May 2006 at Congress Center Metalli. Glencore.767 ordinary shares representing 40.13* 15.680 ordinary shares of US$0.Xstrata plc Annual Report 2005 | 89 This represents 33.699. representing 5% of the issued share capital) without first offering such securities to existing ordinary shareholders. Xstrata plc is a holding company with no business activity other than the holding of investments in the Group and therefore had no trade creditors at 31 December 2005. Any issue of shares for cash will. CSFB Equities and CSFB Europe are jointly interested in 253. provided that all trading terms and conditions have been met by the supplier. and Glencore International AG (Glencore). to the extent permitted by the Companies Acts.823. London EC4M 7LS.00 am (Central European Time) on Tuesday. in connection with the Group’s acquisition of the MIM Group and the associated rights issue. when equity securities are being issued for cash.340 (equivalent to 31. such securities must first be offered to existing shareholders unless the Board is given a power to allot them without regard to that requirement. A Special Resolution will therefore be proposed at the forthcoming Annual General Meeting to empower the Board to allot for cash. Annual general meeting The Annual General Meeting of the Company will be held at 11. however. .659.50 each of the Company had been notified to the Company in accordance with Sections 198 to 208 of the Act: Name of shareholder Number of Ordinary shares of US$0. Directors’ liabilities The Company has granted qualifying third party indemnities to each of its directors against for any liability which attaches to them in defending proceedings brought against them. Creditor payment policy and practice In view of the international nature of the Group’s operations there is no specific group-wide policy in respect of payments to suppliers.330. Details of transactions between the Group and the shareholders detailed above are given in Note 38 to the Financial Statements. 10 Paternoster Square.97* 4. The authority extends until the end of the next Annual General Meeting. representing approximately 0.165 Ordinary Shares.33% of the issued ordinary share capital of the Company as of the date of this report. Major interests in shares On 1 March 2006.646. as announced on 29 May 2003. the company has been informed by CSFB Equities that the Credit Suisse Group has an interest in a further 1.10% of the issued share capital of the Company. The Board does not have any present intention of exercising this authority other than for the purposes of the Company’s employee share schemes.400 29. directors and officers of the Company and its subsidiaries are covered by Directors & Officers liability insurance.50 each % of Ordinary issued share capital Credit Suisse First Boston Equities Nominees Limited Glencore International AG Batiss Investments Limited 152.00 am (BST) at the Media & Business Complex.50 each.450.
the 2005 Sustainability Report and other corporate publications.computershare. press releases and announcements are available on the Company’s website at www. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. This facility can be accessed by visiting www. Resolutions will also be proposed for items of special business. The Company may treat as invalid a CREST proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. CREST Personal Members or other CREST sponsored member and those CREST members who have appointed any voting service provider(s) should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf.com.xstrata.90 | Xstrata plc Annual Report 2005 Directors’ Report The Notice convening the meeting is sent to shareholders separately with this Report. the Notice of the Annual General Meeting. By order of the Board Richard Elliston Company Secretary 10 March 2006 . Directors’ Report. authorisation to the directors to allot ordinary shares and the disapplication of pre-emption rights. Computershare Investor Services plc. Electronic proxy voting Registered shareholders have the opportunity to submit their votes (or abstain) on all resolutions proposed at the Annual General Meeting by means of an electronic voting facility operated by the Company’s Registrar.com. namely. Electronic copies of the Annual Review and Financial Statements 2005 and other publications A copy of the 2005 Annual Report (which includes the Annual Review and Financial Statements. paper proxy cards will be distributed to all registered shareholders with the Notice of Annual General Meeting. reports. as explained in the paragraph above entitled Share Capital. Auditors A resolution will be put to the members at the forthcoming Annual General Meeting to re-appoint Ernst & Young LLP as auditors and to authorise the Board to determine the auditor’s remuneration. Corporate Governance Report and Remuneration Report). As usual.
. A. Directors A. details the key policies. These reserved matters which are documented in a comprehensive regime of authorisation levels and prior approval requirements for key corporate decisions and actions are reviewed and updated annually by the Board. major acquisitions and disposals. which provide an ethical framework for all Xstrata businesses. ensuring that obligations to shareholders are met. to provide an explanation. During the year ended 31 December 2005.1 The Board The first main principle requires the Company to have an effective Board which is collectively responsible for its success. non-executive director is the Deputy Chairman.Xstrata plc Annual Report 2005 | 91 Corporate Governance Report Introduction The Board is committed to the principle of best practice in corporate governance. and resources that are vital to the success of the Group. has twelve directors. Statement by the Directors on corporate governance policies and compliance with the provisions of the Combined Code The Code establishes 14 main principles of good governance. with regard to membership of the Remuneration Committee as the Chairman of the Committee is not considered independent and save that no individual member of the Audit Committee has been identified as having recent and relevant financial experience. an independent. There were no changes to the membership of the Board during the year. Trevor Reid. The Board is satisfied that it has met these requirements. approval of budgets and business plans. Supporting principles describe the Board’s role to provide entrepreneurial leadership within a framework of controls that allow risk to be assessed and managed. Chief Financial officer. The Board sets standards of conduct. as documented in an approved Statement of Business Principles. the Company complied with the best practice governance provisions as set out in Section 1 of the Code. major capital expenditure. the Chief Executive. While the Board focuses on strategic issues. The Board is responsible for the governance of the Group on behalf of shareholders within a framework of policies and controls which provide for effective risk assessment and management. comprising three executive directors and nine non-executive directors. and other key commitments. This report addresses the status of the Company’s compliance with the principles and provisions of the Combined Code on Corporate Governance issued on 23 July 2003 (“the Code”). The Listing Rules require every listed company to report on how it applies the principles in the Code. scrutinising management performance and ensuring the integrity of financial information and systems of risk management. risk management and critical business issues. financial performance. and Santiago Zaldumbide. The Board should set strategic aims and the Company’s values. Non-executive directors have a particular role in overseeing the development of strategy. but are not limited to. processes and structures that apply within the Group to comply with the Code. Such matters reserved to the Board include. The Board. David Rough. This Committee and a description of its powers are described on page 101. as explained below. Certain powers are delegated by the Board to an Executive Committee which is a Committee of the Board of Xstrata (Schweiz) AG. except. it also has a formal schedule of matters specifically reserved to it for decision. The non-executive directors possess a range of experience and are of sufficiently high calibre to bring independent judgement to bear on issues of strategy. The Board provides leadership and articulates the Company’s objectives and strategy for achieving those objectives. chaired by Willy Strothotte. performance. and to confirm that it complies with the Code’s provisions or. the main trading subsidiary of Xstrata plc. The three executive directors are Mick Davis. 21 supporting principles and 48 provisions. where it does not. Chief Executive of Xstrata Zinc.
persons discharging managerial responsibilities.2 Chairman and Chief Executive Another main principle states that there should be a clear division of responsibilities between the running of the Board and executive responsibility for running the business. each of which has formal terms of reference. Safety.92 | Xstrata plc Annual Report 2005 Corporate Governance Report The Company has a policy based on the Model Code published in the Listing Rules. Willy Strothotte is Chairman. The Chairman is responsible for leadership of the Board and creating the conditions for overall Board and individual director effectiveness while the Chief Executive is responsible for overall performance of the Group including the responsibility for arranging the effective day to day management controls over the running of the Group. and employee insiders. Ivan Glasenberg is Chief Executive Officer and David Issroff is Head of the Ferroalloys Division. Of the nine non-executive directors. A. . such that no individual or small group can dominate the Board’s decision taking. A clear separation is maintained between the responsibilities of the Chairman and the Chief Executive. so that no one person should have unfettered powers of decision. Attendance at Board meetings and Committees of the Board There are four formally constituted committees of the Board. Attendance by directors at Board meetings and committee meetings is shown below. of Glencore. six are considered by the Board to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement and three. Director Board (7) of which 5 were scheduled Audit (4) Health.3 Board balance and independence The Company complies with the requirement of the Code that there should be a balance of executive and non-executive directors. The Chairman held separate meetings with the non-executive directors several times a year following the full Board meetings without the executive directors being present. which covers dealings in securities and applies to directors. Remuneration Environment & (3) Community (4) Nominations (3) Mick Davis Ivan Glasenberg Paul Hazen David Issroff Robert MacDonnell Sir Steve Robson David Rough Trevor Reid Dr. These can be seen on the Company website. Fred Roux Ian Strachan Willy Strothotte Santiago Zaldumbide 6 7 7 7 7 7 5 7 7 5 7 6 4 3 3 3 4 4 4 4 3 3 4 4 4 3 A. Five scheduled Board meetings were held during the year and two additional meetings were held. Willy Strothotte and Ivan Glasenberg are directors of Glencore International AG (“Glencore”). All Board meetings are held in Switzerland. The Board has considered these associations and considers the industry expertise and experience of these directors beneficial to the Group. This is documented in a statement approved by the Board.
are that he should be available to shareholders to discuss their concerns where the normal channels would not be appropriate for this purpose. 5 Information and professional development Another main principle requires that information of appropriate quality is supplied to the Board in a timely manner and that. All directors are made aware that they may take independent professional advice at the expense of the Company in the furtherance of their duties. who is responsible to the Board for ensuring that all governance matters are complied with and assists with professional development as required. 4 Appointments to the Board The Code requires there to be a formal. formal and tailored induction on joining the Board. to have contact with analysts and major shareholders to obtain a balanced understanding of their issues and concerns. which should be made on merit and against objective criteria. in addition to induction programmes on joining the Company. rigorous and transparent procedure for the appointment of new directors. The Nomination Committee fulfils these requirements and its report is set out on page 100. 6 Performance evaluation In accordance with the Code requirement. opportunities for professional and skills training. the Board undertook a formal and rigorous evaluation of its own performance and that of its Committees and of its individual directors including the Chairman. all directors receive appropriate and timely information and briefing papers are distributed to all directors. arrangements. A. knowledge and familiarity with the Company. to ensure directors are familiar with the Group’s operations. A.Xstrata plc Annual Report 2005 | 93 David Rough is the Deputy Chairman and the Senior Independent Director. . The Board reviews annually the composition and chairmanship of its standing committees. Remuneration. 7 Re-election of directors Under the Code. To enable the Board to discharge its duties. A. Arrangements have been approved by the Board to ensure that new directors should receive a full. including site visits. Professional development and training is provided in three complementary ways: regular updating with information on changes and proposed changes in laws and regulations affecting the Group or its businesses. The non-executive directors have a particular responsibility to ensure that the strategies proposed by the executive directors are fully considered. Safety. and. All directors had access to the advice and services of the Company Secretary. namely the Audit. directors should regularly update their skills and knowledge. The evaluation of individual director performance was also employed to identify individual director training requirements. to chair the Nomination Committee and to lead the Board and director appraisal process. Nomination and the Health. A. The process was led by the Senior Independent Director. Environment & Community Committee. In addition ongoing support and resources are provided to directors in order to enable them to extend and refresh their skills. in summary. His role and responsibilities as the Senior Independent Director are detailed in and formalised by Board resolution and. directors should offer themselves for re-election at regular intervals and there should be a planned and progressive refreshing of the Board.
An ongoing process. This process has been in place throughout the year under review up to the date of approval of the annual report and financial statements. The Board is mindful of its responsibility to present a balanced and clear assessment of the Company’s position and prospects and the Board is satisfied that it has met this obligation. Retiring directors may offer themselves for re-election. and the Operating and Financial Review contained in this Report. the Chief Executive’s Report. B. This assessment is primarily provided in the Chairman’s Statement. MacDonnell. management representations and assertions and the reports on risk management and internal control from Internal Audit. A succession plan was approved by the Board during the year to ensure there was a balance of skills and experience on the Board and to plan for an orderly refreshing of Board membership. C. C. It is proposed that Messrs Glasenberg. 2 Internal Control The Code requires the Company to maintain a sound system of internal control to safeguard shareholders’ investment and the Company’s assets. The Statement of Directors’ Responsibilities in respect of the Financial Statements are set out on page 1 and 121 of the Financial Statements 2005 report. operational and compliance controls and risk management systems. The Board must review. including financial.94 | Xstrata plc Annual Report 2005 Corporate Governance Report One third of all directors are required to retire by rotation at each annual general meeting and any director who. has been established for identifying. Remuneration Remuneration is covered in the Remuneration Report on pages 102 to 115 and. Following an appraisal of the non-executive directors. mitigating actions and internal controls. This responsibility extends to annual and interim reports and other price-sensitive reports and reports to regulators as well as to information required to be presented by statutory requirements. The internal control systems have been designed to manage rather than eliminate the risk of failure to achieve business objectives and provide reasonable but not absolute assurance against material misstatement or loss. in accordance with the Guidance of the Turnbull Committee on Internal Control. the effectiveness of the internal control system and report to shareholders that they have done so. . at least annually. Internal Control The Board of Directors is responsible for the Group’s system of internal control. The Board relies on reviews undertaken by the Audit Committee (supported by the Business Unit Audit Committees) in relation to the Group’s compliance with the Turnbull Guidance throughout the year. the external auditors and other assurance providers such as Health Safety and Environmental Management. The review should cover all material controls. 1 Financial Reporting The Board is required to present a balanced and understandable assessment of the Company’s position and prospects. the Board was satisfied that each director’s performance continues to be effective and that each director continues to demonstrate commitment to the role. The Audit Committee reviews the process by which risks are identified and assessed and the effectiveness of the system of internal control by considering the regular reports from management on key risks. on pages 99 and 100. evaluating and managing the significant risks faced by the Group. Accountability and Audit C. has been in office for more than three years since his election must retire. The directors confirm that they have reviewed the effectiveness of the system of internal control. The principal aim of the system of internal control is the management of business risks that are significant to the fulfilment of the Group’s business objectives with a view to enhancing over time the value of the shareholders’ investment and safeguarding the assets. Roux and Zaldumbide will retire and will offer themselves for re-election at the Annual General Meeting on 9 May 2006. and recommended the re-election of the four directors. with regard to the Remuneration Committee. at the start of an annual general meeting.
Detailed consolidated management accounts. updated forecasts for the year together with information on the key risk areas. review of bank covenants. The way the Group conducts its business. rating agencies and other financial institutions. together with an executive summary from the Chief Executive. Plans and budgets are prepared on the basis of consistent economic assumptions determined by the Group Finance function. There is a standardised approval procedure for investment appraisal which includes a detailed calculation of return on equity. and for some projects. . expectations of management and key accountabilities are embodied in the Group’s policies. All meetings are held outside the UK.xstrata. the Group Treasurer and Group Controller. detailed written proposals are submitted to the Executive Committee in accordance with Board delegated authority limits. is undertaken in respect of acquisitions as appropriate. (iii) Information and Financial Reporting Systems Financial reporting to the Executive Committee and the Board is continuously modified and enhanced to cater for changing circumstances. For expenditure beyond specified levels. lines of responsibility and delegated authority. (iv) Investment Appraisal A budgetary process and authorisation levels regulate capital expenditure. the Chief Financial Officer. are circulated to all Directors on a monthly basis. to monitor progress against plan. exposures and hedging and is circulated to the Executive Committee. are prepared and presented to the Executive Committee by the Group Controller and form a cornerstone of the system of internal control. comprehensive monthly management reports on a divisional and consolidated basis. The Board reviews and approves the annual budget and plan. which is agreed by the Board. major overruns are investigated. Commercial. during the construction period. using outside consultants. legal and financial due diligence work. (v) Treasury Committee A Treasury Committee operates as a sub-committee of the Executive Committee. A monthly report details the Group cash/debt position. The Group’s comprehensive planning and financial reporting procedures include detailed operational budgets for the year ahead and a three-year rolling plan. The Group Risk Management Policy is published on the Xstrata website at www. relating to all aspects of funding. Economic assumptions are consistent with those included in management reports and budgets and are agreed with Group Finance. The Committee monitors all significant treasury activities undertaken by group companies and ensures compliance with group policy. In addition.Xstrata plc Annual Report 2005 | 95 Control environment The key elements and procedures that have been established to provide an effective system of internal control are as follows: (i) Organisational Structure There is a well-defined organisational structure with clear operating procedures. Performance is monitored and relevant action taken throughout the year through the monthly reporting of key performance indicators. its Statement of Business Principles and Board Level Authority Limits. management of interest rate and foreign exchange exposures and it co-ordinates relationships with banks. including updated forecasts for the year.com as part of the Governance section. Its membership consists of the Chief Executive. (ii) Risk Identification and Evaluation The Board considers effective risk management as essential to the achievement of the Group’s objectives and has implemented a structured and comprehensive system across the Group. The Committee recommends group policy. Reviews are carried out after the project is complete.
the Chairman and the senior independent director. C. Internal Audit completed a full programme of work in 2005. Findings and agreed actions were reported to management and the Audit Committee. D. through which employees or contractors can report any breach of Xstrata’s Business Principles. (vii) Fraud Management There is a formal Group policy relating to fraud management. including fraud. The contact details are published in the Statement of Business Principles which can be found on the Xstrata website. The Group-wide internal audit function is supplemented by services provided as required by KPMG LLP as an outsourced service provider. The Board places considerable importance on effective communication with shareholders. The Senior Independent Director was available to shareholders for any concern which contact with the Group Chairman. focusing in particular on the more significant risks and related internal controls identified in the risk self-assessment process. covering the Business Units and Head Office. These responsibilities are delegated to and are discharged by the Audit Committee whose work is described on pages 97 to 99. There are independently operated confidential hotlines in each country in which the Group operates. Chief Executive or Chief Financial Officer failed to resolve or for which such contact was inappropriate. based on the mutual understanding of objectives. at the same time in accordance with London and Swiss Stock Exchange requirements. should maintain contact with major shareholders in order to understand their issues and concerns. Members of the Remuneration Committee had meetings with major institutional investors to explain the background and purpose of the decision to devise an Added Value Incentive Plan for the Chief Executive. . Risk-based internal audit plans. While the Code recognises that most shareholder contact is with the Chief Executive and the Chief Financial Officer. this includes whistleblowing procedures. in line with best practice. The Chief Executive and Chief Financial Officer. including reporting and investigation arrangements and. Ernst & Young LLP. maintain regular dialogue with and give briefings throughout the year to analysts and institutional investors and are involved in a structured programme of investor. All incidents reported are fully investigated and the results are reported to the Audit Committee. institutional and private. managed and controlled.96 | Xstrata plc Annual Report 2005 Corporate Governance Report (vi) Internal Audit Internal Audit is an important element of the overall process by which the Executive Committee and the Board obtains the assurance it requires that risks are being properly identified. prepared on an annual basis. and timely reports on achievement of the plans and findings are presented to the Audit Committee. assisted by the Executive General Manager of Corporate Affairs. and other directors as appropriate. analyst and media site visits. and it is the responsibility of the Board as a whole to ensure that a satisfactory dialogue does take place. before recommending adoption of the Plan at the May 2005 Annual General Meeting. 3 Audit Committee and Auditors A principle of the Code is that the Board should establish formal and transparent arrangements for considering how it should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the external auditors. Relations with shareholders D. are approved by the Audit Committee. Presentations are given by the Chief Executive and Chief Financial Officer after the Company’s preliminary announcements of the year-end results and at the half year. Care is taken to ensure that any price-sensitive information is released to all shareholders.1 Dialogue with shareholders The Company is required to have a dialogue with shareholders.
The Audit Committee comprises four independent non-executive directors. to be held in Zug. At the Annual General Meeting on 9 May 2005. the Committee decided it would be helpful to invite the Chairmen of the Business Unit Audit Committees and the Chief Executives of the Business Units to attend the Audit Committee meetings on a rotational basis in order to further enhance communication and best practice. Remuneration. The Operating and Financial Review on pages 14 to 78 include a detailed report on the business and future developments. on invitation by the Committee. Other directors of the Company and senior management may also. Given this history and the number of shares still held in or through Switzerland. or could appear to affect. At the time of the listing in March 2002. 2 Constructive use of the Annual General Meeting (AGM) All directors normally attend the Company’s Annual General Meeting and shareholders are invited to ask questions during the meeting and to meet directors after the formal proceedings have ended. D. Fred Roux and Ian Strachan. Remuneration. the Chairman and the Chairmen of the Audit. including reviewing the annual financial statements. Audit Committee The Audit Committee assists the Company’s board of directors in discharging its responsibilities with regard to financial reporting. external and internal audits and controls.com. but not vote at any meeting of the Committee. The Board uses the Annual General Meeting to communicate with institutional and private investors and welcomes their participation. a representative of the Company’s external auditors and the Head of Internal Audit normally attend the meetings.Xstrata plc Annual Report 2005 | 97 All shareholders can obtain access to the annual report and accounts and other current information about the Company through the Company’s website at www. The Committee met four times in the year. Board Committees The terms of reference of the Audit. the Board continues to consider it is appropriate for the Annual General Meeting. shareholders in the old Xstrata AG were informed that the Company would offer shareholders the opportunity to attend general meetings in Switzerland where the head office resides. the Chief Financial Officer. attend and speak. Details of the resolutions to be proposed at the Annual General Meeting on 9 May 2006 can be found in the notice of the meeting. The Combined Code recommends that all members of the Audit Committee should be non-executive directors. their judgement and that at least one member should have recent and relevant financial experience. The Board therefore considers that it complies with Combined Code recommendations regarding the composition of the Audit Committee. all of whom are independent in character and judgement and free from relationships or circumstances which are likely to affect. Switzerland and for a satellite meeting to be held concurrently in London. David Rough. As an outcome of an evaluation of the Audit Committee’s performance. Nominations and HSEC Committees are available on the Company website. Shareholders at the meeting are advised as to the level of proxy votes received including percentages for and against and the abstentions in respect of each resolution following each vote on a show of hands. approving the internal audit programme. Nomination and HSEC Committees were present to answer questions. . Sir Steve Robson (Chairman of the Committee).xstrata. even though the Company was incorporated and has its registered office in England. considering the scope of the Company’s annual external audit and the extent of non-audit work undertaken by external auditors. the Group Controller. The Chief Executive. The Board considered membership of the Committee during the year and declared its satisfaction that the members of the Committee collectively have sufficient recent and relevant financial experience to discharge its role and responsibilities. advising on the appointment of external auditors and reviewing the effectiveness of the Company’s internal control systems. Four meetings are scheduled for 2006.
recommended to the Board the re-appointment of the external auditors following an evaluation of their effectiveness and confirmation of auditor objectivity and independence. Under that policy the external auditors are prohibited from performing services which: result in the auditing of their own work. The 2005 interim and annual financial statements have been prepared for the first time in accordance with the International Financial Reporting Standards. evaluated the performance of the Committee. monitored the controls which are in force to ensure the integrity of the information reported to the shareholders. and approved their remuneration both for audit and non-audit work. is set at an appropriate level. separate meetings were held by the Committee with the external auditors in the absence of executive management. reviewed the structure and limits of Group insurance policies and these were considered to be appropriate. Following each Committee meeting. It also received a report on internal network security. The Committee found that transactions with Glencore are at competitive market rates and are deemed to be commercial arms length transactions. regularly reviewed the potential impact on the Group’s financial statements of a range of matters which involve significant judgement.000 limit for individual non-audit assignments above which prior approval of the Audit Committee was required. undertook a review of related party transactions with particular focus on those transactions with Glencore. The Committee carefully monitored the nature. received quarterly reports on the status of its tax residency.98 | Xstrata plc Annual Report 2005 Corporate Governance Report During the year. in February 2006. and reviewed the whistleblowing arrangements within the Group. the Committee reviewed for submission to the Board. reviewed procurement policies and procedures to ensure they were based on common standards and applied across the Business Units. range and cost of non-audit services provided by the external auditors particularly in relation to the annual cost of audit fees. reviewed the reports on findings and on progress against recommendations. estimation or uncertainty. examined the effectiveness of the Company’s risk management system including its risk management process and profile and the Company’s internal control systems and operations which were examined and tested by the internal auditors. puts the auditor in the role of advocate for the Group. received a report on succession planning for senior financial and accounting personnel. reviewed the external auditor’s plan and scope for the audit of the Group accounts. reviewed and approved the Internal Audit plans for 2005. and the possible impairment of fixed asset values. the 2005 interim and. It also concluded that the $100. the 2005 annual financial statements and reviewed the external auditor’s detailed reports thereon. . the effectiveness of the internal audit function and. The arrangements with Glencore are seen to be to the commercial advantage of Xstrata. at each meeting. The Group has a specific policy governing the conduct of non-audit work by the external auditors which ensures that the Company is in compliance with the requirements of the Combined Code and the Ethical Standards for Auditors published by the Auditing Practices Board. or create a mutuality of interest between the auditors and the Group. reviewed the appropriateness of the Group’s accounting policies. the 2004 annual financial statements. and their terms of engagement. result in the auditors participating in activities normally undertaken by management. with executive management in the absence of the external auditors and with the internal auditor in the absence of executive management and the external auditors.
are both non-executive directors and independent. The terms of reference of these Committees follow those of the Company’s Audit Committee. The Business Unit Audit Committees are independent of the executive management of the Business Unit and are chaired by suitably qualified individuals independent of Xstrata. The Chief Executive attends meetings by invitation but does not participate at a meeting of the Committee (or during the relevant part) at which any part of his remuneration is being discussed or participate in any recommendation or decision concerning his remuneration. A range of non-audit services have been preapproved in principle by the Audit Committee. the other members of the Committee. specific re-approval is required. an independent remuneration consultancy. The Committee met three times during the year. prior approval of the Committee is required for each specific service provided by the external auditors.000. This plan was recommended by the Committee to. determined the remuneration for the executive directors and reviewed the remuneration arrangements proposed for the members of the Executive Committee. but will only be paid on vesting. to incentivise the Chief Executive by providing a share of the long term value created for shareholders and to create alignment with shareholders by means of ownership. determined the vesting percentage applicable to awards under the Long Term Incentive Plan 2002 which vested in May 2005 received independent advice on benchmarking and best practice. agreed amendments to the Deferred Bonus Plan to reflect that dividends will accrue on all deferred bonus shares. However.Xstrata plc Annual Report 2005 | 99 The auditors are permitted to provide non-audit services that are not in conflict with auditor independence. The Board regards Willy Strothotte’s membership as critical to the work of the Committee due to his extensive knowledge and experience of the global mining resources sector. As Chairman of the Company and Chairman of Glencore. the Committee: devised an Added Value Incentive Plan in collaboration with the Hay Group. The amendments also enable up to 300% of salary to be paid as a bonus for outstanding performance but subject to the condition that the first 100% of salary is paid in cash. David Rough and Paul Hazen. the Board and by the Shareholders. The Audit Committee is supported and assisted in its work by separate Audit Committees for each Commodity Business Unit in line with the decentralised commodity business unit model. however. Meeting dates precede those of the Company’s Audit Committee and minutes of their meetings are circulated to the Company’s Audit Committee.000 for such services. . and subsequently approved by. the next 100% is paid in shares but restricted for one year and the next 100% is paid in shares but restricted for two years. Remuneration Committee The Remuneration Committee is chaired by Willy Strothotte. Six-monthly reports are made to the Audit Committee detailing non-audit fees paid to both the external and internal auditors. During the year. agreed amendments to the Annual Bonus Plan for key executives which introduce a broader range of bonus performance conditions including health and safety. while prior approval of the Chief Financial Officer is required for those pre-approved services where the fee is likely to be less than $100. he is not considered to be an independent director. The principal roles of the Committee are (i) to consider and determine all elements of the remuneration of the Chief Executive. where the fee is likely to be in excess of $100. and Chief Financial Officer and of the Heads of the major operating subsidiaries or business units of the Company (the “Executive Group”) as defined by the Chief Executive and (ii) to determine targets for any performance-related remuneration schemes operated by the Company.
Health. A resolution to approve the Remuneration Report will be proposed at the Annual General Meeting. continued its search. This was carried out by means of a questionnaire to all directors inviting comments on general and specific aspects of board and director performance and commitment. . share options. subsequently initiated and continues a new search. for a non-executive director with broad international experience. Environment & Community Committee The Board established the Board Health. their skills and experience. who chairs the Committee. pensions entitlements. This is designed to take in account matters such as the size of the Company. Safety. and perhaps due to the nature of the market. Nominations Committee The Nominations Committee comprises three non-executive directors of which two are independent. Safety. approved arrangements for the annual appraisal of the Board and directors’ performance. benefits. as well as maintaining a balance to the Board in relation to independent/non-independent members. The Committee comprises Ian Strachan .100 | Xstrata plc Annual Report 2005 Corporate Governance Report The terms of reference of the Remuneration Committee conform precisely to the Code. product diversity and geographical spread. Ultimately. Paul Jones (General Manager HSE) is Secretary to the Committee. The Committee met four times in the year and there was an informal meeting of the members of the Committee in South Africa with operational site visits. Three meetings were held in 2005. initiated at the end of 2004. Mick Davis. The Committee has responsibility to identify. evaluate and recommend candidates for Board vacancies and to make recommendations on Board composition and balance. Results were reported to the Board by the Senior Independent Director. David Rough and Fred Roux. Details of the Company’s remuneration for executive directors. Environment & Community (HSEC) Committee on 24 February 2005 to assist the Board to fulfil its HSEC role and obligations across the global business and provide additional focus and guidance on key HSEC issues. The terms of reference provide for a formal and transparent procedure. the search for a non-conflicted mining candidate was unsuccessful. in collaboration with an external search consultancy. During the year. for a non-executive director based in Australia with a mining background. The setting of non-executive directors’ remuneration was decided by the Board as a whole. the Committee: reviewed the plan for the retirement by rotation and re-election of directors and the framework for board succession planning to ensure continuity. It is chaired by David Rough. service contracts and compensation payments are given in the Remuneration Report on pages 102 to 115.
URS. Trevor Reid and Santiago Zaldumbide (also Chief Executive of Xstrata Zinc) together with the Chief Executives of the other Business Units. Executive Committee The Executive Committee is a Committee of the Board of Xstrata (Schweiz) AG. approval of matters consistent with its delegated levels of authority and overseeing the various businesses which comprise the Group. Corporate Affairs). monitored and evaluated the implementation and effectiveness of the HSEC assurance and verification programme. on the 2004 Sustainability Report. the main trading subsidiary of Xstrata plc. issues and/or relevant legislation on HSEC matters. monitored and evaluated reports on the implementation and effectiveness of HSEC Policy. Other members of senior management are invited to attend Executive Committee meetings as required. The Executive Committee obtains its responsibility and authority from the Xstrata (Schweiz) AG Board and is directly accountable to the Xstrata plc Board. It is chaired by Mick Davis and comprises executive directors. Charlie Sartain (Xstrata Copper) and Marc Gonsalves (Executive General Manager. Alloys and Copper Commodity Businesses’ HSEC strategies and plans.Xstrata plc Annual Report 2005 | 101 During the year the Committee: appointed Professor Jim Joy as OH&S Adviser to the Committee. HSEC Strategy and HSEC Governance. monitored and evaluated the implementation and effectiveness of the Coal. Peter Coates (Xstrata Coal). monitored and evaluated reports on high potential HSEC incidents and the results of investigations into critical HSEC incidents. HSEC Management Standards. The Executive Committee is responsible for implementing strategy. It meets regularly during the year and no meetings are held in the United Kingdom. reviewed a report from the independent verifiers. and monitored and evaluated new developments. . Peet Nienaber (Xstrata Alloys).
bonuses. The Board recognises that Willy Strothotte is not an independent non-executive director as defined by the Combined Code. long-term incentives. as necessary. The Remuneration Committee commits to bringing independent thought and scrutiny to the development and review process of the Group with regards to remuneration. retain and motivate the highly talented individuals needed to deliver the business strategy and to maximise shareholder wealth creation. The purpose and function of the Committee in the future will not differ materially from this year and its terms of reference can be found on the Group’s website (www.com). for subsequent years. other than the Chairman. The Committee is also aware of the level and structure of remuneration for senior management and advises on any major changes in employee remuneration and benefit structures throughout the Group. except when issues relating to his own remuneration are discussed. with its principal shareholders about remuneration. including the continuous review of incentive schemes to ensure that they remain appropriate for the Group. The policy for 2005 and. the Hay Group provided independent advice to the Remuneration Committee on executive remuneration. all of whom are non-executive directors. of specific remuneration packages for executive directors and other members of the Executive Committee. The Remuneration Committee reviews the structure of remuneration for executive directors on an ongoing basis and has responsibility for the determination. Total reward levels will be set at appropriate levels to reflect the competitive global market in which Xstrata operates with the intention of positioning within the top quartile for outstanding performance when measured against a peer group of global mining companies and the FTSE100. The Committee met three times during 2005. Remuneration policy Xstrata’s remuneration policy is designed to attract. pension rights. within agreed terms of reference. will be framed around the following principles for the Executive Committee: Remuneration arrangements will be designed to support the business strategy and to align with the interests of Xstrata’s shareholders. The Chairman continues to ensure that the Group maintains contact. including salaries. The Hay Group provided no other services to the Group during 2005. and . The Chairman’s remuneration is determined by the Remuneration Committee while the Chairman is absent. The Remuneration Committee is provided with national and international pay data collected from external survey providers. is considered by the Chairman and the Chief Executive and is not considered by the Remuneration Committee.xstrata. benefits in kind and any compensation payments. A high proportion of the remuneration should be “at risk” with performance related remuneration making up at least 50% of the total potential remuneration for Executive Committee members. The remuneration of non-executive directors.102 | Xstrata plc Annual Report 2005 Remuneration Report Information not Subject to Audit Remuneration Committee The Remuneration Committee is chaired by Willy Strothotte and its other members are David Rough and Paul Hazen. During the year. but regards his membership as critical to the workings of the Committee due to his extensive knowledge and experience of the global mining resources sector. The Chief Executive attends the Remuneration Committee meetings by invitation and assists the Remuneration Committee in its considerations. so far as practicable.
other than on his voluntary termination or termination . Consequently. life and private medical insurance.000. The Remuneration Committee considers that a successful remuneration policy needs to be sufficiently flexible to take account of future changes in the business environment and in remuneration practices. 6% and 6% respectively . provided that such notice may not be given to result in his employment terminating before 28 February 2007. and the relative performance of comparator companies. The Remuneration Committee is satisfied that Xstrata’s pay and employment conditions for non-Board employees around the world are appropriate to the various markets in which it operates. The vastly different costs of living in the countries where Xstrata has operations and fluctuations in exchange rates mean any trend analysis or comparisons with competitors would be meaningless. In doing so the Committee will take into account the UK Listing Rules. 7% and 5. On termination of the agreement. This will help to ensure that the policy continues to provide Xstrata with a competitive reward strategy. Base salaries effective 1st January 2006 will be £1. the Committee also considers the impact on pension contributions and associated costs. £470. permanent health. Trevor Reid and Santiago Zaldumbide during 2005.060 payable at a rate of 601.012 per annum less any fees received from certain specified external directorships.Xstrata plc Annual Report 2005 | 103 Performance-related payments will be subject to the satisfaction of demanding and stretching performance targets over the short and long-term. The Remuneration Committee is also responsible for ensuring that the positioning of the Group’s remuneration relative to its peers does not result in increases in remuneration without a corresponding increase in performance or responsibilities. The agreement is in force until 28 February 2007 and continues thereafter indefinitely unless terminated by Asturiana giving six months notice to that effect. When setting base salaries. Up until 31 December 2002. pension. With effect from January 2003. the Remuneration Committee concluded and agreed with Santiago Zaldumbide that his annual fee should be subject to review in line with the other executive directors.005.000.5%.450. participation in long-term incentive arrangements. legislation or business practices among peer group mining companies. as well as the guidance provided by a number of institutional investor representative bodies on the design of performance-related remuneration. representing increases of 5. the provisions of the Combined Code and associated guidance attached to it. the remuneration policy and the Remuneration Committee’s terms of reference for subsequent years will be reviewed annually in the light of matters such as changes to corporate governance best practice or changes to accounting. were 5. The Remuneration Committee reviews external pay data to ensure that the levels of remuneration remain competitive and appropriate in the light of the Group’s policy. and other benefits including housing allowance (where essential for the performance of the duties). Base salary The base salary of the executive directors is subject to annual review by the Remuneration Committee. Elements of remuneration The total remuneration package for executive directors comprises the following principal elements: base salary. These performance targets will be set in the context of the prospects of the Group.3%. Policies will be sensitive to pay and employment conditions elsewhere in the Group. annual bonus plan including deferred element. the prevailing economic environment in which it operates. Base salary increases for Mick Davis. This fixed contract predates the acquisition of Asturiana.5% respectively. Santiago Zaldumbide was entitled to a total fee for the term of his agreement of 3. subsisting rights under the Xstrata AG shares schemes and individual arrangements (as detailed below). The Remuneration Committee does not consider a ratio comparison between executive directors and non-Board employees to be a useful way of assessing the fairness and equitability of Xstrata’s remuneration practices.693 and 829. Santiago Zaldumbide has a professional services agreement with Asturiana (dated 29 January 1998) to act as Chairman and Chief Executive of Asturiana.
The Bonus Plan focuses on the achievement of annual objectives. Santiago Zaldumbide will receive no additional remuneration for his position as director of Xstrata Plc but is eligible to participate in the Bonus Plan and the Long Term Incentive Plan.060 which he will already have received. at the discretion of the Remuneration Committee. The Remuneration Committee has the discretion to vary the basis of calculation and the performance targets for subsequent years. Bonuses will be payable in up to three tranches. The Remuneration Committee retains the discretion to vary the size of the bonus pool if warranted by special circumstances. On termination of the agreement by expiry of the fixed term. Santiago Zaldumbide is entitled to receive the capital redemption value of the policy. including any with profits bonus payable under the policy less the compensation received by him during the term of the agreement.005. Santiago Zaldumbide’s entitlements under the insurance policy are in lieu of his receiving pension benefits. which will be evaluated by the Committee in determining individual allocations from the bonus pool. to a trust for his/her benefit) will be at the discretion of the Remuneration Committee. any remaining bonus will be deferred for a period of two years. Santiago Zaldumbide is entitled to receive a sum from the redemption of an insurance policy (acquired by Asturiana for a premium of 3. The highest level of bonus will only be available for truly outstanding performance. any additional bonus up to a further 100% of base salary will be deferred for a period of one year. and the relative proportions payable to each participant (or. If this hurdle is not reached. which any one participant is eligible to receive in cash. The deferred elements will take the form of awards of Xstrata shares conditional on the participant remaining in employment throughout the deferral period. will be limited to 100% of the individual’s base salary. The amount of the bonus pool that is distributed in any one year. minus the aforementioned amount of EUR3. the bonus pool will be zero. Individual performance criteria have been agreed with each participant. The maximum bonus payable under the Bonus Plan for executive directors is 300% of salary.005.104 | Xstrata plc Annual Report 2005 Remuneration Report for gross negligence. . The number of shares awarded will be determined by reference to the market value of the shares at the date the bonus payment is determined. This part of the agreement is not affected by the review. Santiago Zaldumbide’s appointment as a director of Xstrata is on an indefinite basis subject to the existence of the agreement between Santiago Zaldumbide and Asturiana.060). Bonus plan Executive directors and the other members of the Executive Committee are eligible to participate in the Bonus Plan. The bonus is based on Xstrata’s operational performance as measured by return on equity and net profit. as follows: the maximum bonus. which align the short-term financial performance of the Group with the creation of shareholder value. including the with profit bonus element. The payment of any bonus under the Bonus Plan is subject to a hurdle rate (for the financial years ending 31 December 2005 and 2006 it will be set such that the Group’s return on equity will be at least equal to the Group’s average cost of borrowing). Before the pool is finalised the Remuneration Committee actively considers whether the pool is appropriate in light of the other key financial and non-financial drivers of future shareholder value. Specific targets for return on equity and the proportion of net profits that make up the bonus pool are determined each year by the Remuneration Committee.
e. The holding may be met through shares held beneficially and.5 x 0.Xstrata plc Annual Report 2005 | 105 There is no intention to use newly-issued ordinary shares for the Bonus Plan and any shares required for the satisfaction of deferred bonuses will be acquired by market purchase.5% of the Added Value for the first Plan Cycle) to calculate the “Base Reward”. it will be multiplied by a Participation Percentage (which is 0. Xstrata has underperformed the index) there will be no payments from the AVP. fully vested share options that have not yet been exercised and which have exercise prices materially below the market share price at the commencement of the relevant plan cycle. which will quantify the difference in TSR between the Xstrata TSR Index and Xstrata. The Remuneration Committee believes that the Chief Executive has a unique role in delivering value to shareholders through the efficient utilisation of Xstrata’s assets and by making value enhancing acquisitions and divestments. Long-Term Incentive Arrangements Added Value Plan The Added Value Plan (the “AVP”) was approved at the Annual General Meeting in 2005. it is intended that membership of the AVP will be restricted to the current Chief Executive and any future successor in that role. The Base Reward will be increased or decreased in line with the Xstrata share price index. as is the case with an orthodox share option or performance share plan.1%. Payments under the AVP will be based upon the growth in total shareholder return (“TSR”) over a three-year performance period relative to an index of global mining companies. This will ensure that higher payments are delivered for higher levels of absolute performance. The Chief Executive’s participation in the AVP is contingent on his building up and maintaining a holding of at least 350. The LTIP will continue in force for other Executive Directors and other employees at the discretion of the Remuneration Committee. The Added Value will be limited to 50% of the initial market capitalisation. if absolute TSR over three years were minus 10%. a multiplier of 0. If this figure is positive. subject to the agreement of the Remuneration Committee.3 would be applied 1x 0. which will form the Xstrata TSR Index. The adjustment is in line with index performance rather then Xstrata’s to avoid double counting Xstrata’s outperformance of the index. The maximum aggregate Participation Percentage for Plan Cycles commencing in any three-year period shall not exceed 1. The Chief Executive will no longer be eligible for awards under the Xstrata plc Long Term Incentive Plan (the “LTIP”) in any year when an AVP cycle commences. If the Added value is negative (i. as follows: Xstrata absolute TSR over 3 years Multiplier +25% or above 0% -25% or below Straight-line interpolation will apply between these points for example.0 x . by applying a multiplier to the indexed Base Reward to calculate the Final Reward. A reduction will then be made for lower levels of absolute performance.000 ordinary Xstrata shares. The AVP is designed to incentivise the Chief Executive by providing a share of the long-term value he creates for shareholders over and above the value created by Xstrata’s peer companies and to create alignment with shareholders by means of share ownership. The Remuneration Committee recognises that the absolute value received by shareholders is higher when outperforming a rising market than outperforming a market which is static or falling. For this reason. Once the Excess Return figure has been calculated it will be applied to the market capitalisation of Xstrata at the start of the performance period to measure the “Added Value” added relative to the movement in the market. At the end of each performance period an Excess Return figure will be calculated.
The group will. Phelps Dodge Corp. Falconbridge Ltd (previously Noranda Inc). In determining the value of Free Share Awards the value of the underlying shares will be used. The Xstrata TSR and Share Price Indices will be weighted by market capitalisation. Teck Cominco Ltd and Umicore SA. initially. verification in capital or any other event that will materially affect calculation of the index. The LTIP aims to focus management’s attention on continuous and sustainable improvements in the underlying financial performance of the Group and on the delivery of superior long-term returns to Xstrata’s shareholders by providing executives with the opportunity to earn superior levels of reward for outstanding performance. The vesting of the remainder will be deferred in equal tranches for a further one and two years. Payments under the Added Value Plan may be settled in cash or shares as determined by the Remuneration Committee at the date of payment. Arch Coal Inc. The options will also be subject to stretching performance targets to ensure that windfall growth in the share price as a result of external factors does not deliver rewards which are not justified by the performance of the Group relative to its peer group. The LTIP provides for the grant of both contingent awards of free shares (“Free Share Awards”) and share options on the same occasion to the same individual. the LTIP further aligns the interests of shareholders and management by encouraging executives to build a shareholding in the Group. The Free Share Awards will ensure that where the Group has performed well over a specified performance period. dissolution. relative to that of competitors. Inco Ltd. merger. Korea Zinc Inc. (The “LTIP”).000. At the end of the three-year performance period. the Final Reward under each plan cycle will be at least US$1. . Elkem ASA. BHP Billiton plc. comprise of 19 global mining firms consisting of Xstrata’s key competitors for both financial and human capital: Alcoa Inc. 50% of the Final Reward will vest immediately. The option element will only allow participants to benefit provided shareholders also benefit from future share price growth. The option value at grant will not be less than 25% of the value of the underlying shares. Anglo American plc. Peabody Energy Corp. Alcan Inc. As at 31 December 2005. The number of ordinary shares over which options will be granted will be calculated using a Black Scholes valuation of the option (or a similar approach) which the Remuneration Committee considers represents both the cost to Xstrata of providing the benefit and the value of the option itself as a component of the total remuneration package.106 | Xstrata plc Annual Report 2005 Remuneration Report Provided Xstrata’s TSR is at least equal to that of the Xstrata TSR Index. Coal & Allied Industries Ltd. Norddeutsche Affinerie AG. Eramet SA. participants will be rewarded even if there is no substantial share price growth due to external factors. The policy regarding performance targets is discussed in more detail below. Grupo Mexico SA de CV. The two elements are complementary and ensure that the cyclical nature of the industry does not have an excessively adverse effect on employee remuneration in circumstances where the performance of the Group has otherwise been good. Long Term Incentive Plan Executive directors are eligible to participate in the Long Term Incentive Plan. such as commodity prices or general economic conditions. The Remuneration Committee may add other relevant competitors to the index if required. Xstrata’s TSR was just below that of the Xstrata TSR Index. In addition. Rio Tinto plc. the Remuneration Committee shall determine how this should be reflected in the index calculation.000. In the event of one or more constituents undergoing a take-over. Lonmin plc. If this is the outcome at the end of the threeyear performance period the award will not vest.
but not exceed. effects of currencies on translation of local currency costs and planned life of mine adjustments. The Remuneration Committee is also satisfied that TSR will be a genuine reflection of the Group’s underlying financial performance. at its absolute discretion. as follows. reflects the Group’s strategic initiative to add shareholder value through productivity and cost efficiencies. plus WMC Resources Ltd. The vesting of both the options and Free Share Awards is subject to the satisfaction of stretching performance conditions over a three-year performance period. Furthermore. The peer group of global mining companies used to determine the vesting of the options and Free Share Awards that are conditional on TSR in the 2004 and 2005 LTIPs comprises the same companies used to form the Xstrata Share Indices for the CEO’s Added Value Plan detailed above. although vested options will remain exercisable for a maximum of seven years or such shorter period as the Remuneration Committee may specify (after which they will lapse). with straight line vesting between these points. based on the value at the time of grant. Since the Group’s share price and that of its peers are significantly influenced by the cycle in commodity prices. four times base salary).Xstrata plc Annual Report 2005 | 107 Using the method above. Half of the options and Free Share Awards are conditional on Total Shareholder Return (“TSR”) relative to a peer group and half are conditional on the Group’s real cost savings relative to targets set on a stretching scale over the three-year period. The use of the second measure. No vesting will occur for cost savings that are less than 1%. commodity price linked costs. It is envisaged that this peer group will be used to determine the vesting of any options and Free Share Awards that are granted in 2006. vesting is conditional on the Group’s real cost savings relative to targets set on a stretching scale: 5% of the combined award will vest for 1% cost savings. . although the Remuneration Committee may. Group real cost savings relative to targets. The performance targets are not capable of being retested at the end of the performance period. 35% for 2% cost savings and 50% for 3% or more cost savings. remove or alter the companies making up the peer group where events happen which cause the Remuneration Committee to consider that such a change is appropriate to ensure that the performance condition continues to represent a fair measure of performance. For the remaining award. the use of a financial performance measure alongside a relative TSR measure is aligned with current corporate governance best practice. No vesting will occur for TSR growth below median performance. the value ratio of Free Share Awards to share options for awards made during 2005 was in general 1:1. Summary of performance conditions 2004 and 2005 LTIP awards During 2004 and 2005. The rules of the LTIP provide that the aggregate value of options and Free Share Awards made to an individual in any one year may not exceed an amount equal to two times base salary in normal circumstances (although in exceptional circumstances the limit may be up to. Real cost savings will be measured in relation to operating costs after adjusting for the effects of inflation. The Remuneration Committee has determined that annual awards will be made under the LTIP to minimise the impact of share price volatility and to reflect existing best practice. excluding depreciation. 25% of the combined award will vest if TSR growth is at the median of the specified peer group. This is provided that the Remuneration Committee reasonably considers such a varied or amended performance condition is not materially easier or more difficult to satisfy. the Remuneration Committee considers TSR relative to a peer group to be an appropriate performance measure as it rewards relative success in growing shareholder value through the development and execution of the corporate strategy. executive directors were granted market value options and Free Share Awards under the LTIP. the full 50% of the combined award will vest for performance at or above the second decile with straight line vesting between these points. The Remuneration Committee may change the ratio for future awards if it is thought appropriate. For the awards conditional on TSR. add. vary. so that any proportion of a Free Share Award or option which does not vest after three years will lapse.
on the assumption that any net dividend per share paid by any company during the relevant performance period is reinvested in shares on the last day of the month during which the relevant shares go ex-dividend. demerger or change in listing status by any member of the peer group or upon any other events which the Remuneration Committee considers may materially distort the calculation. At 10 February 2006. Whilst subsisting options continue to vest under these schemes. This calculation is subject to such adjustments to closing value and base value as the Remuneration Committee considers appropriate to reflect any variation of share capital or any merger. the Group was ranked 11th out of the peer group of 21 companies in terms of TSR for the 2005 award. take-over. . At 31 December 2005. reconstruction. The Remuneration Committee has resolved that averaging over a three month period eliminates the volatility in spot share prices that could otherwise distort the assessment of whether the target has been met. Both the options and Free Share Awards vest in full at the expiry of a three-year performance period to the extent that the Group’s TSR ranks at or above the second decile of the peer group specified above. no future grants will be made. and 50% will vest if it ranks at the median of the peer group. It should be noted that these amounts are based on the Group’s results at this provisional stage and do not necessarily reflect the eventual outcome. 95% of each executive director’s 2003 award vested. Subsisting options are not subject to performance conditions because they were originally granted under arrangements (which did not provide for awards to be subject to performance) which related to Xstrata AG prior to the Group becoming a UK listed company. As a result. In between these two points straight line vesting will apply. No options or Free Share Awards will vest for below median performance.108 | Xstrata plc Annual Report 2005 Remuneration Report In calculating the TSR. It is intended that the replacement options will as far as possible be satisfied by the transfer of ordinary shares in the Group held by the trustees of the Xstrata Employee Share Ownership Trust and the Xstrata Employee and Directors Share Ownership Trust. If this is the outcome at the end of the three-year performance period then 50 percent of each executive director’s 2005 award linked to TSR will vest. At 31 December 2005. the share price of a notional parcel of shares of the Group and the companies in the specified peer group will be averaged over a period preceding both the start and end of the relevant performance period. 2003 LTIP award vesting in 2006 Awards of market value options and Free Share Awards granted under the LTIP to executive directors in 2003 were subject to a TSR performance condition only. the Group was ranked 5th out of the peer group of 21 companies in terms of TSR. Subsisting rights under Xstrata AG share schemes Subsisting options held by Mick Davis and Trevor Reid pursuant to terms on which they were recruited and the subsisting options of Santiago Zaldumbide under certain share schemes previously operated by Xstrata AG were converted into equivalent options over ordinary shares in the Group at the time of the listing of the Group’s shares on the London Stock Exchange (“the Listing”) but otherwise continue to be subject to the terms and conditions of the relevant Xstrata AG share schemes. the Group was ranked 6th out of the peer group of 21 companies in terms of TSR for the 2004 award. If this is the outcome at the end of the three-year performance period then 88% percent of each executive director’s 2004 award linked to TSR will vest. The TSR of the Group and each member of the peer group over any performance period is calculated by taking the growth between the closing value and the base value of 100 shares expressed as a percentage of the base value.
Mick Davis no longer has an option over these 1. The TSR calculation also assumes that immediately before any liability to the Group in respect of the shares is due to be satisfied sufficient shares are sold from the holding to raise funds to meet the liability. were also converted into equivalent options over ordinary shares in the Group on the Listing but otherwise continued to be subject to the same terms and conditions as applied originally.334 million shares at CHF19.30 per share on Monday 19th September 2005 and the exercise price of CHF13. Dividends are invested in additional shares and benefits receivable in the form of shares are also added to the relevant holding. The Board considers that the FTSE 100 currently represents the most appropriate of the published indices for these purposes. Pensions Mick Davis and Trevor Reid have participated in money purchase retirement plans from their respective dates of joining the Group. representing 1. which had been previously granted to Mick Davis over shares in Xstrata AG owned by Glencore International. As a consequence. Performance Graph Total shareholder return since IPO GBP 300 200 100 0 20 Mar 02 31 Dec 02 31 Dec 03 31 Dec 04 31 Dec 05 Xstrata FTSE100 The performance graph set out above shows the TSR for a holding of shares of the Group for the year ended 31 December 2005 compared with the TSR for a hypothetical holding of shares of the same kinds and number as those by reference to which the FTSE100 index is calculated.3 million. On 19th September 2005.60 per share). The plans are designed having regard to the taxation and employment status of each executive. . be based on the amount which has accumulated in that member’s money purchase account.Xstrata plc Annual Report 2005 | 109 Similarly.334 million Xstrata shares. The actual benefits payable will. Group contributions are re-assessed at regular intervals and are based on actuarial advice with the objective of accumulating sufficient funds over the working lifetime of each executive to provide an overall target pension which is currently intended to be equivalent to approximately 60% of final salary at normal retirement age for executives who begin participating in the plans at the age of 40. assuming that an equivalent sum was invested on that day in shares of the Group and in the FTSE 100 index. in the case of a rights issue sufficient rights are deemed to be sold to enable the proceeds to be invested in taking up as many rights as possible without injecting fresh funds. the 2003 rights issue was recalculated as per the date of listing.70 per share. subsisting options. In the case of Xstrata. TSR has been calculated on a spot basis with effect from 20 March 2002. the date conditional dealings in the shares commenced on the London Stock Exchange. being the difference between Xstrata’s closing price of CHF33. however. for example. the option over these Xstrata shares was discharged in full and Mick Davis received from Glencore International a consideration equating to the current value of the option (CHF26.
after deduction of applicable income tax and social security contributions. Non-executive directors’ fees are reviewed annually by the Chairman and the Chief Executive in the light of fees payable to non-executive directors of comparable companies and the importance attached to the retention and attraction of high calibre individuals as non-executive directors. As noted above. However. their services as Chief Executive and Chief Financial Officer respectively are provided to the Group under a secondment agreement entered into between the Group and XSL on 19 March 2002. External appointments Executive directors are not permitted to hold external directorships or offices without the approval of the Board. . or if Mr Davis or Mr Reid resigns in circumstances where they cannot in good faith be expected to continue in employment. each director is entitled to be paid a sum equal to 100% (instead of the original 150%) of his annual salary and his previous year’s bonus (plus any accrued basic salary and expenses) and to have all entitlements under his retirement benefit plans paid in accordance with the plan rules. and will not in the future. Fertiberia SA and ThyssenKrupp SA. Each of Mick Davis and Trevor Reid is seconded to the Group for a fixed term of two years thereafter renewable by either party for further periods of two years. Non-executive directors are eligible to forgo all or part of their directors’ fees to acquire shares in the Group. Directors’ service contracts It is the Group’s general policy that the period of notice required should not exceed 12 months. these are set out in the section of this report headed Entitlements under Service Contracts see below. For the purposes of calculating termination payments. participate in the Bonus Plan or LTIP or any other performancerelated incentive arrangements which may be introduced from time to time. In total the remuneration received by Santiago Zaldumbide amounted to 36. having gained the approval of the Board. Mr Davis and Mr Reid have agreed to alter their contracts so that on termination of employment by XSL in breach. The non-executive directors do not. Santiago Zaldumbide. As both Mr Davis and Mr Reid participate in defined contribution arrangements it is not expected that any significant additional liability would arise in respect of retirement plan entitlements beyond that already accrued in the accounts. Non-Executive Directors The level of fees for non-executive directors will be set at the level considered necessary to obtain the services of individuals with the relevant skills and experience to bring added depth and breadth to the composition of the Board. Where specific terms apply to individual executive directors. held directorships with the following companies during the year: Asturiana de Zinc SA.500. annual bonus will be capped at 300% of annual salary. such period would reduce after the initial period. Entitlements under service contracts Executive Directors Mick Davis and Trevor Reid have employment agreements with Xstrata Services (UK) Limited (“XSL”) effective from 1 February 2002 which are for fixed terms of one year. If it became necessary to offer a longer notice period to a new director. No employee contributions are currently payable for Mick Davis and Trevor Reid. Santiago Zaldumbide receives no pension benefits under the terms of his fixed cost remuneration arrangement.110 | Xstrata plc Annual Report 2005 Remuneration Report Such contributions are inclusive of any contributions from the relevant individuals. The employment of Mick Davis and Trevor Reid may be terminated by not less than 12 months’ notice by XSL or the director concerned or by a payment in lieu of notice by XSL. Carburos Metalicos SA.
Frederik Roux. There are no outstanding loans or guarantees granted or provided by any member of the Group to or for the benefit of any of the Directors. other than on his voluntary termination or termination for gross negligence. Santiago Zaldumbide is entitled to receive a sum from the redemption of an insurance policy acquired by Asturiana as described above. No significant awards have been made in the financial year to any past Directors. The term may be renewed by the Board. injury. each of the executive directors is eligible to participate in the Bonus Plan which provides that deferred amounts up to an aggregate ceiling of 100% of salary remain payable notwithstanding cessation of employment after the date a bonus is awarded other than in the event of dismissal for cause. The Group may terminate David Rough’s appointment at any time and on such termination David Rough will not be entitled to any compensation for loss of office. Sir Steve Robson and Ian Strachan are each engaged by the Group as a non-executive director on the terms of a letter of appointment. David Issroff.Xstrata plc Annual Report 2005 | 111 In addition. Santiago Zaldumbide will receive no additional remuneration for his position as director of Xstrata Plc and is not entitled to any compensation in respect of the termination of his office as a director of Xstrata Plc. Paul Hazen. Each term may be renewed by the Board. the terms and conditions of which are detailed above. . The term may be renewed by the Board. Robert MacDonnell. Non-Executive Directors Willy Strothotte is engaged by the Group as a non-executive director and Chairman on the terms of a letter of appointment. a proportion of the annual bonus pool may still be awarded subject to the normal discretion of the Remuneration Committee. Santiago Zaldumbide is engaged as a director of Xstrata Plc on the terms of a letter of appointment dated 18 March 2002. The appointment is on an indefinite basis subject to the existence of the agreement between Santiago Zaldumbide and Asturiana. In the case of termination by reason of death. Ivan Glasenberg. There is no arrangement under which a director has agreed to waive future emoluments nor have there been any such waivers during the financial year. The Group may terminate Willy Strothotte’s appointment at any time and on such termination Willy Strothotte will not be entitled to any compensation for loss of office. The appointment is for an initial fixed term of 36 months commencing on 1 April 2002 and terminable thereafter by six months notice by David Rough. or if the Remuneration Committee in its discretion so resolves. ill health or disability before the date the bonus is awarded for a financial year. David Rough is engaged by the Group as the senior independent non-executive director and Deputy Chairman on the terms of a letter of appointment. The Group may terminate each non-executive director’s appointment at any time and on such termination the non-executive director will not be entitled to any compensation for loss of office. On termination of the agreement under which Santiago Zaldumbide receives a fixed fee for acting as Chairman of Asturiana. The appointment is for an initial fixed term of 36 months commencing on 25 February 2002 and terminable thereafter by six months notice by Willy Strothotte. Each appointment is for an initial fixed term of 36 months commencing on 25 February 2002 (or on 8 May 2003 in the case of Ian Strachan) and terminable thereafter by six months notice by the non-executive director.
600 8.923 2. $17.171 100.171 146.722 5. 5.000 2 1.245 (2004: 1. The number of shares awarded will be determined by reference to the market value of the shares at the date the bonus payment was determined. The figures above have been converted to US dollars based on the average euro/dollar exchange rate for the year of 1.b Bonuses were awarded and paid in Euros and converted at a rate of 1. Trevor Reid’s housing allowance was awarded in US dollars and paid in UK pounds sterling.100 118.171 119.100 4 118.046. 9.949.a.224 3.545 324. 8.6783 6. Santiago Zaldumbide’s basic salary and benefits were set and paid in Euros.264.500 4 145.184 3.600 4 118. The benefits been converted to US dollars based on the average pound/dollar exchange rate for the year of 1. 4.685 5b* 327.316 327. Amount also includes $50.213 3 932.094. In 2005.776 5a* 141. 2. In 2005. the exchange rate prevailing on the date of the award.833) and therefore reflect the impact of the exchange rate fluctuations during the year.385 0 14. 7.244) and therefore reflect the impact of the exchange rate fluctuations during the year. Mick Davis’ housing allowance was awarded and paid in US dollars.126.672 192.300 145.5325a 990.300 100.58.156 2.0845a* 183.0858 12.833) and the average Swiss franc/dollar exchange rate for the year of 0. Mick Davis’ benefits were set and paid in both UK pounds sterling and Swiss Francs.6606b 974.660 141. Trevor Reid’s benefits were set and paid in UK pounds sterling. 6.300 4 145. Mick Davis’ and Trevor Reid’s salaries were set and paid in UK pounds sterling.56 in respect of dividend equivalents awarded during the year in respect of prior years’ deferred bonus awards which will vest on the date of the underlying award for Mick Davis.678.802 (2004: 0.844 3.373.69 and $12. 5.820 (2004: 1.600 227.706.600 118.961.500 145.500 4 118. Salary and fees includes non-executive directors’ fees which may be paid in shares. With the exception of Ian Strachan whose fees were set in pounds and paid in US dollars. all non-executive director fees were set and paid in UK pounds sterling.300 4 100. No consideration has been paid to or is receivable by third parties for making available the qualifying services of any directors during the year or in connection with the management affairs of Xstrata.171 226.500 118.307.496 16.b In 2005. the exchange rate prevailing on the date of the award.012 119.000.833) and therefore reflects the impact of the exchange rate fluctuations during the year.192.837 119. 6.300 136. *Deferred bonus payable in shares. . The salary figures above have been converted to US dollars based on the average pound/dollar exchange rate for the year of 1.1712 777.729.790. 3.502.097 330.4505a 2.0006a 808. The figures above have been converted to US dollars based on the average pound/dollar exchange rate for the year of 1.a Bonuses were awarded and paid in UK pounds sterling and converted at a rate 1.174.820 (2004: 1.600 4 227.740 5b 1.689. In 2005.171 119.507 119.820 (2004: 1. In 2005.805.820 (2004: 1.833) and therefore reflect the impact of the exchange rate fluctuations during the year.600 4 4.751.805) and therefore reflects the impact of the exchange rate fluctuations during the year.747 Notes 1. Frederik Roux Ivan Glasenberg Sir Steve Robson CB David Rough Ian Strachan 1. In 2005. Trevor Reid and Santiago Zaldumbide respectively.6227 72.300 4 136. The benefits have been converted to US dollars based on the average pound/dollar exchange rate for the year of 1.663.112 | Xstrata plc Annual Report 2005 Remuneration Report Information Subject to Audit Emoluments and compensation The emoluments and compensation in respect of qualifying services of each person who served as director during the year were as follows: Health life and private medical insurance US$ Director Salary and fees1 US$ Bonus US$ Deferred Bonus US$ Housing allowances US$ Other benefits US$ Year ended 31 December 2004 Total Total US$ US$ Executives Mick Davis Trevor Reid Santiago Zaldumbide Non-executives Willy Strothotte Paul Hazen David Issroff Robert MacDonnell Dr.
548 (2004 US$16. On 19th September 2005.085 268.189 £10. The market value of an Xstrata share on the date of exercise was £10.224 120.53 31-Dec-04 31-Dec-11 222. No options.103 192.35 15-Jan-07 15-Jan-14 111.130 1.430 £6.50 and GBP6. 4. The highest and lowest prices of the company's shares during the year were GBP14.669 352.669 444.571. other than the LTIP options.810. 9.35 5-Mar-07 8-Mar-14 192.794 293.Xstrata plc Annual Report 2005 | 113 Share options Details of share options of those directors who served during the year are as follows: At 1 Jan 2005 Awarded Exercised/ Expired Discharged unexercised At 31 Dec 2005 Exercise Earliest date price of exercise Expiry date Director Mick Davis Service Contract Arrangements Service Contract Arrangements Glencore Option LTIP Options LTIP Options Trevor Reid Service Contract Arrangements Service Contract Arrangements Service Contract Arrangements LTIP Options LTIP Options LTIP Options Santiago Zaldumbide Xstrata AG Management and Employee Incentive Scheme LTIP Options LTIP Options LTIP Options 444.60 (2004 GBP9. having been converted in US dollars at the average exchange rate for the year of 1.22 respectively).860 £4. The market value of an Xstrata share on the date of exercise was CHF33.669 shares.334.31). During the year. 7.60 19-Sep-04 19-Sep-11 352.35 5-Mar-07 8-Mar-14 221.430 111. The gain on the exercise of the Glencore option does not represent an obligation of Xstrata plc.35 5-Mar-07 8-Mar-14 0 CHF 12.636).103 £7.058.130 £10.169 Notes 1. are subject to performance conditions as explained above. no options were subject to a variation of terms and conditions.966 221.860 444.900.72 1-Oct-06 1-Oct-13 0 CHF 13. as they were awarded by Glencore AG.860 shares.30. Trevor Reid exercised his option over 444.860 222. 2.60 11-Mar-08 11-Mar-15 444. The aggregate gains on the exercise of the options during 2005 was US$25.334. .334. Mick Davis exercised his option over 1. and were over shares held by Glencore AG.69 respectively (2004 GBP9. 5.872 689.2421).374 413.319 1.44.98 31-Jan-04 31-Jan-07 107.085 £3.966 £7. Details of the LTIP performance conditions are described above.860 120.860 £4.430 £4.640 shares.794 £3. The market value of an Xstrata share on the date of exercise was £10. The price at the year end was GBP13. 8. 3.655 444.640 0 CHF 14. Santiago Zaldumbide exercised his option over 120.640 107. 6. Mick Davis’ and Trevor Reid’s LTIP options may be settled in cash at the discretion of the Remuneration Committee.2463 (2004: 1.60 10-Feb-06 10-Feb-13 689.655 £7.872 £3.12 15-Jan-06 15-Jan-13 222.60 10-Feb-06 10-Feb-13 268. On 3rd March 2005.430 222.860 1.189 5. On 3rd March 2005.90 and GBP8.60 10-Feb-06 10-Feb-13 293.60 11-Mar-08 11-Mar-15 0 3.29 1-Oct-05 1-Oct-12 444.44.
544.811 36.038 395. The participation percentage was 0. 2. No awards will be made to Mr Davis under the LTIP in any year in which any award is made to him under the AVP.357 43.080 87.690 66. No shares have become receivable in respect of a scheme interest.560 80.983 10-Feb-06 5-Mar-07 23-Feb-07 10-Feb-06 5-Mar-07 11-Mar-08 23-Feb-06 10-Feb-06 5-Mar-07 11-Mar-08 23-Feb-06 0 0 0 0 0 0 0 0 0 0 0 0 113.560 80.60. The market value of a share on the date of award under the LTIP and the Deferred Bonus was GBP10.021 Notes 1.880 206. *During the year.084.726 34. 3. .880 206.450 560. as this award is not over a fixed number of shares.450 956.931 57.026. which may then be settled in cash or by the award of shares with a value equal to that of the award.357 43.726 34.639 58.897 169.931 57.897 * 169.080 87.690 66. Details of performance conditions are described above. and conditional rights under the LTIP are as follows: End of the period for qualifying conditions to be fulfilled Director Scheme interest at 1 Jan 2005 Awarded Vested At 31 Dec 2005 Mick Davis LTIP LTIP Added Value Plan Deferred Bonus Trevor Reid LTIP LTIP LTIP Deferred Bonus Santiago Zaldumbide LTIP LTIP LTIP Deferred Bonus 113.639 58.5% and the market capitalisation at the date of award was £6.811 36.114 | Xstrata plc Annual Report 2005 Remuneration Report Shares Details of the Company’s ordinary shares over which those directors who served during the year have rights under the deferred bonus scheme. Mick Davis was made an award under the Added Value Plan as described above. No amount of shares awarded has been disclosed in the table above. but is a plan which calculates a monetary award at the end of the performance period.
2.602 3. Payments to Mick Davis and Trevor Reid in both years were made in UK pounds sterling.Xstrata plc Annual Report 2005 | 115 Pensions Mick Davis and Trevor Reid have participated in defined contribution retirement benefit plans. Approved by the Board and signed on its behalf by Trevor Reid Director and Chief Financial Officer 10 March 2006 .282.746 629.244. During the year pension related payments were made as follows: 2005 Mick Davis US$ 2004 Mick Davis US$ 2005 Trevor Reid US$ 2004 Trevor Reid US$ 2005 Total US$ 2004 Total US$ Pension related payments 1. Santiago Zaldumbide received no pension benefits under the terms of his fixed cost remuneration arrangement which is detailed above. Based on the average UK pound/US dollar exchange rate for the year of 1.445 271. Further details of the pension arrangements are explained above.820 (2004: 1.191 900.833).627 Notes 1. 3.961.025 1.
xstrata.com Corporate Claire Divver +44 20 7968 2871 cdivver@xstrata. please contact us (details above) or register directly on the website at www.xstrata.com/register Design and production – Cre8with.com • Typesetting – Orb Solutions • Printing – St.116 | Xstrata plc Annual Report 2005 Enquiries If you would like further information on Xstrata please contact: www. Ives Westerham Press .com If you would like to register to receive copies of Company news releases or announcements.com Brigitte Mattenberger +41 41 726 6071 bmattenberger@xstrata.
Xstrata plc Bahnhofstrasse 2 PO Box 102 6301 Zug Switzerland Tel +41 41 726 6070 Fax +41 41 726 6089 www.xstrata.com .
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