Notes to the financial statements

1. Principal Accounting Policies

Basis of preparation

These financial statements have been prepared under the historical cost convention and in accordance with applicable UK accounting standards. The Xstrata plc Group ("the Group") has adopted the following principal accounting policies:

Basis of consolidation

The financial statements consolidate the financial statements of Xstrata plc and its subsidiaries. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passes.

Entities in which the Group holds an interest on a long term basis and are jointly controlled by the Group and one or more other venturers under a contractual arrangement are treated as joint ventures. The consolidated financial statements include the Group proportion of turnover, operating profit or loss, exceptional items, interest expense, taxation, gross assets and gross liabilities of joint ventures (the gross equity method).

Entities, other than subsidiaries and joint ventures, in which the Group has a participating interest and over whose operating and financial policies the Group exercises a significant influence are treated as associates. The consolidated financial statements include the Group proportion of the operating profit or loss, exceptional items, interest expense, taxation and net assets of associates (the equity method).

The Group has certain contractual arrangements with other participants to engage in joint activities that do not create an entity carrying on a trade or business of its own. The financial statements include the Group's share of the assets, liabilities and cash flows in such joint arrangements, measured in accordance with the terms of each arrangement, which is usually pro-rata to the Group's interest in the joint arrangement.

On the acquisition of a subsidiary, or of an interest in a joint venture, associate, or joint arrangement, the purchase consideration is allocated to the assets and liabilities on the basis of fair value at the date of acquisition. Those mineral reserves and resources that are able to be reliably valued are recognised in the assessment of fair values on acquisition. Other potential reserves, resources and mineral rights, for which in the Directors' opinion, values cannot be reliably determined, are not recognised. When the cost of acquisition exceeds the fair values attributable to the Group's share of the identifiable net assets the difference is treated as purchased goodwill. This is amortised on a straight-line basis over its useful economic life up to a presumed maximum life of 20 years.

Foreign currencies

Transactions in foreign currencies are translated at the exchange rates ruling at the date of transaction or, where forward cover contracts have been arranged, at the rate specified in the forward contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates, or where there are related forward contracts, at the rate specified in the forward contract.

On consolidation, profit and loss account items are translated at average rates of exchange. Balance sheet items are translated at year end exchange rates.

Exchange differences on the re-translation of the investments in overseas subsidiaries, joint arrangements, joint ventures and associates at closing rates, together with differences between profit and loss accounts translated at average and at closing rates, are dealt with in reserves. Exchange differences on foreign currency borrowings financing those net investments, are also dealt with in reserves. All other exchange differences are charged or credited to the profit and loss account in the year in which they arise.

The following exchange rates have been applied:

Turnover

Revenues associated with the sales of commodities are recognised when all significant risks and rewards of ownership of the asset sold are transferred to the customer, usually when the commodity is delivered to the shipping agent. Turnover is recognised at invoiced amounts, with most sales being priced free on board (FOB), free on rail (FOR) or cost, insurance and freight (CIF). Revenues from the sales of by-products are also included in turnover.

Cost of sales

Cost of sales represents product cost, determined by means of either the weighted average or first in first out (FIFO) method, and by applying full absorption costing of mining, processing and smelting overheads, plus any other costs directly attributed to the acquisition of materials.

Investments

The investments in the rehabilitation trust funds are measured at fair value based on the market price of the investments held by the trust fund. Other investments are carried at cost less any provision for impairments.

Intangible assets

Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the fair value can be measured reliably on initial recognition, subject to the constraint that, unless the asset has a readily ascertainable market value, the fair value is limited to an amount that does not create or increase any negative goodwill arising on the acquisition.

Intangible assets are amortised using a straight-line method based on estimated useful lives, except those intangible assets which the Directors regard as having indefinite useful lives, which are not amortised but are reviewed for impairment annually.

Tangible assets
Land and buildings, plant and equipment

The cost of each item of buildings, plant and equipment is depreciated over its useful life. Mine production assets are depreciated using a unit of production method based on estimated economically recoverable reserves, which results in a depreciation charge proportional to the depletion of reserves. Tangible assets unrelated to production are depreciated using the straight-line method based on estimated useful lives. Each item's estimated useful life has due regard to both its own physical life limitations and the present assessment of economically recoverable reserves of the mine property or plantation at which the item is located, and to possible future variations in those assessments. Estimates of remaining useful lives are made on a regular basis for all mine buildings, machinery and equipment, with annual reassessments for major items. Changes in estimates which affect unit of production calculations are accounted for prospectively. Freehold land is not depreciated.

The expected useful lives are as follows:

Tangible assets: Land and buildings, plant and equipment

Buildings	15 - 40 years
Plant and Equipment	4 - 30 years
Furniture and Fixtures	5 - 15 years
Other	3 - 5 years

The net carrying amounts of mine buildings, machinery and equipment at each mine property are reviewed regularly and, to the extent to which these values exceed their recoverable amounts, that excess is fully provided against in the financial year in which this is determined.

Plantations

Plantations are recorded at cost. Development costs, interest and financing costs relating to the development of the plantations are deferred and amortised upon commencement of production, on a unit of production method based on the estimated future production from each plantation.

Exploration and evaluation expenditure

Exploration and evaluation expenditure for each area of interest, other than that acquired from the purchase of another mining company, is carried forward as an asset provided that one of the following conditions is met:

• such costs are expected to be recouped through successful development and exploration of the area of interest or alternatively, by its sale; or
• exploration and evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in relation to the area are continuing.

Exploration expenditure which fails to meet at least one of the conditions outlined above is written-off.

Identifiable exploration and evaluation assets acquired are recognised as assets at their cost of acquisition. Exploration assets are reassessed on a regular basis and these costs are carried forward provided that at least one of the conditions outlined above is met.

Mineral properties and mine development expenditure

Costs of acquiring mineral properties are capitalised on the balance sheet in the year in which they are incurred. Capitalised costs (development expenditure) include interest and financing costs relating to the construction of plant and equipment and costs associated with a start up period where the asset is available for use but incapable of operating at normal levels without a commissioning period.

Mineral properties and capitalised costs are, upon commencement of production, amortised using a unit of production method based on the estimated economically recoverable reserves to which they relate or are written-off if the property is abandoned or where there is a impairment in value.

Leasing and hire purchase commitments

Assets held under finance leases, where substantially all the risks and rewards of ownership of the asset have passed to the Group, and hire purchase contracts are capitalised in the balance sheet and are depreciated over their useful lives. The capital elements of future obligations under leases and hire purchase contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged in the profit and loss account over the periods of the leases and hire purchase contracts and represent a constant proportion of the balance of capital repayments outstanding.

Rentals payable under operating leases are charged in the profit and loss account on a straight-line basis over the lease term.

Capital work in progress

Assets in the course of construction are capitalised in the capital work in progress account. On completion, the cost of construction is transferred to the appropriate category of tangible fixed assets.

The cost of a tangible fixed asset comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use.

Costs associated with a start up period are capitalised where the asset is available for use but incapable of operating at normal levels without a commissioning period.

Capital work in progress is not depreciated.

Impairment

The carrying amounts of fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on income generating units.

If the carrying amount of a fixed asset exceeds the recoverable amount, a provision is recorded to reflect the asset at the lower amount. In assessing recoverable amount for fixed assets, the relevant future cash flows expected to arise from the continuing use of such assets and from their disposal have been discounted to their present value using a market-determined discount rate.

Deferred overburden removal expenditure

In open pit mining operations, it is necessary to remove overburden and other waste in order to access the ore body. During the pre-production phase, these costs are capitalised as part of the cost of the mine property.

The cost of removal of the waste material during a mine's production phase is deferred, where appropriate. The deferral of these costs, and subsequent charges in the profit and loss account are determined with reference to the mine's strip ratio. This ratio represents the ratio of the estimated total volume of waste, to the estimated total quantity of economically recoverable ore, over the life of the mine. Deferral of these costs is made where the actual stripping ratios vary from the mine's strip ratio. The costs charged in the profit and loss account are based on application of the mine strip ratio to the quantity of ore mined in the period. Where the ore is expected to be evenly distributed, waste removal is expensed as incurred.

Stocks

Stocks are stated at the lower of cost and net realisable value. Cost includes all costs incurred in the normal course of business in bringing each product to its present location and condition. Stocks are categorised, as follows:

• raw materials and consumables: Materials, goods or supplies (including energy sources) to be either directly or indirectly consumed in the production process.
• work in progress: Items stored in an intermediate state that have not yet passed through all the stages of production.
• finished goods: Products and materials that have passed all stages of the production process.

Net realisable value is based on estimated selling price less any further costs expected to be incurred to completion and disposal.

Capital grants

Government grants in respect of capital expenditure are credited to a deferred income account and are released to the profit and loss account over the expected useful lives of the relevant assets by equal annual instalments. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate. Potential liabilities to repay grants either in whole or in part are provided for to the extent that the repayment is probable.

Environmental protection, rehabilitation and closure costs

Provision is made for close down, restoration and for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the accounting period when the related environmental disturbance occurs, based on the estimated future costs. The provision is discounted where material and the unwinding of the discount is included in interest payable. At the time of establishing the provision, a corresponding asset is capitalised (where it gives rise to a future benefit) and depreciated over future production from the mine to which it relates. The provision does not include allowances for unforeseeable events.

The provision is reviewed on an annual basis for changes in cost estimates or life of operations.

Provisions for liabilities and charges

Provisions are recognised when the Group has a present obligation, as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation.

Deferred taxation

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date that will result in an obligation to pay more, or a right to pay less tax in the future. In particular:

• provision is made for tax on gains arising from the disposal of fixed assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold;
• provision is made for deferred tax that would arise on remittance of the retained earnings of overseas entities only to the extent that, at the balance sheet date, dividends have been accrued as receivable; and
• deferred tax assets are recognised only to the extent that, it is considered that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Derivative instruments

The Group is exposed to foreign exchange, interest rate and commodity price risks. The Group may use forward, swap, option and collar contracts to reduce its exposure to foreign exchange, interest rate and commodity price risks movements. Hedge accounting is applied whereby gains and losses on these contracts are recognised in the period to which the gains and losses of the underlying transactions relate. Where the underlying transaction can no longer be identified, gains or losses on the hedge contract are recognised in the profit and loss account. Where the hedge contracts are terminated early and the underlying transaction can no longer be identified, the gain or loss on the terminated hedge contract is recognised in the profit and loss account. Where the hedged transaction is still expected to occur, the gain or loss on the terminated hedge transaction is deferred until the underlying transaction occurs.

Pensions and other post - retirement obligations

The Group's contributions to its defined contribution pension plans are charged to the profit and loss account in the year to which they relate.

The Group contributes to separately administered funds for its defined benefit pension plans and the pension costs are charged to the profit and loss account over the employees' working lives within the Group. The regular cost is attributed to individual years using the projected unit method. Variations in pension cost, which are identified as a result of actuarial valuations, are amortised over the average expected remaining working lives of employees in proportion to their expected payroll costs. Differences between the amounts funded and the amounts charged in the profit and loss account are treated as either provisions or prepayments in the balance sheet.

The Group also provides post retirement healthcare benefits to certain employees in South Africa. The estimated cost of providing such benefits is charged to the profit and loss account on a systematic basis over the employees' working lives within the Group.

Capital instruments

Shares are included in shareholders` funds. Other instruments are classified as liabilities if they contain an obligation to transfer economic benefits and if not they are included in shareholders` funds.

Financial liabilities

Loans are recognised at inception at the fair value of the proceeds received net of issue costs. The finance cost recognised in the profit and loss account is allocated to periods over the term of the loan at a constant rate on the carrying amount.

Research and development

Research and development expenditure is written off as incurred, except that development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortised in line with the expected future sales from the related project.

Change of accounting policies

As a result of the implementation of UITF 38 'Accounting for ESOP Trusts', Own shares of US$40.8 million (2003 US$40.8 million) for the Group and US$32.9 million (2003 US$32.9 million) for the Company have been re-classified from Other investments to within equity in the Balance Sheet. There has been no impact on results in the current or prior periods.

Comparatives

Where applicable, comparatives have been adjusted to disclose them on the same basis as current period figures.

Use of estimates

The preparation of these financial statements is in conformity with generally accepted accounting practice requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates.

2. Changes in Group Companies

Acquisitions
Cook Resources Mining Pty Ltd

On 22 April 2004, the Group acquired a further 45% interest in Cook Resources Mining Pty Ltd in Australia for US$6.3 million from Centinal Coal Company Limited by assuming a US$6.3 million of shareholder loans from the vendor, increasing the percentage ownership to 95%.

Pooling and Sharing Venture

On 1 July 2004, the Group established a joint venture with Merafe Resources Ltd (formerly SA Chrome & Alloys Limited). The Group and Merafe Resources Ltd ("Merafe") will retain legal ownership of their respective assets, mining rights and land, with both parties undertaking to contribute to the venture the right to use all such assets in the ratio 82.5%/17.5%, in exchange for set interest participations in the pooled EBITDA as follows:

Foreign currencies exchange rates

	Xstrata	Merafe
Year 1	89.0%	11.0%
Year 2	86.0%	14.0%
Year 3 onwards	82.5%	17.5%

Merafe has an option, exercisable for one year, to acquire an additional 2.5% in the venture at a value of US$11 million per percentage point.

Both parties will share in the earnings of the venture in proportion to their respective participation interests from time to time.

The joint venture is managed by a joint board with six members - three representing the Group and three representing Merafe. An executive committee, appointed by the joint board, manages the joint venture's day to day operations. Its members, drawn from Group and Merafe, will be accountable to the joint board.

MIM Group

On 24 June 2003, the Group acquired 100% of the issued share capital of the Australian public company MIM Holdings Limited ("MIM Group"), for a consideration of US$2,090.1 million. The fair values of assets and liabilities at the acquisition date have been revised as follows:

The revaluations are as follows:

1. revise the fair value of land and mineral properties based on an independent valuation received during 2004 (refer to note 13).
2. Carrying value adjusted following the sale completion.
3. adjustments to a defined benefit pension plan deficit based on an Actuarial report adjusted for conditions existing as at the acquisition date (US$29.0 million) and provision for the value of claims incurred but not reported at acquisition date (US$3.0 million).

Las Bambas

On 31 August 2004, the Group acquired the Las Bambas copper project in the Cotabambas province, Peru for US$91 million which is included in mining properties and leases within tangible assets. After a decision is made to develop this project, a further US$30 million is payable to a community trust during the development and construction phases of the project.

Disposal of Operations
Ravenswood

The Group assumed 100% ownership of Carpentaria Gold Pty Ltd ("Ravenswood") in Australia with the acquisition of the MIM Group in June 2003. The company was considered non-core to the Group's business at the date of acquisition. On 1 March 2004, Ravenswood was sold to Resolute Mining Limited for a consideration of US$34.5 million after selling costs and US$9.4 million loss on disposal of the associated gold hedge book. As Ravenswood was carried at the expected net sales proceeds, there was no gain or loss on disposal of Ravenswood (refer to note 17).

Queensland Coal Asset Sell Down

The gain on the sale of a 20% interest in the Newlands, Collinsville, Abbot Point Joint Venture, a 20% interest in the Oaky Creek Coal Joint Venture and a 25% interest in four Xstrata Coal Queensland projects in equal portions to current Joint Venture partners Itochu Corporation and Sumitomo Corporation, for a net consideration of US$388.4 million in November 2003. The receipt of US$38.9 million was deferred pending the approval to develop the Rolleston Project, which was announced on 24 February 2004 (refer to note 4).

Magnesium Corporation

On 1 April 2003 Magnesium Corporation was disposed for a consideration of US$1.2 million. A loss of US$1.6 million arose on disposal (refer to note 4).

3. Segmental analysis

4. Exceptional Items

Gains and losses on the sale of tangible assets are not considered to be exceptional items where the gain or loss represents amarginal adjustment to depreciation previously charged.

5. Net Operating Costs

6. Operating Profit

7. Staff Costs

8. Interest Payable and Similar Charges

9. Tax on Profit on Ordinary Activities

Deferred taxation not recognised in respect of tax losses and other timing differences amounts to US$29.0 million for 2004 (2003US$103.3 million). These assets will be recognised should it become more likely than not that taxable profits or timing differences against which they may be deducted will arise.

10. Earnings per Ordinary Share

Basic earnings per ordinary share excludes purchased own shares held by Batiss Investments for the Equity Capital Management Programme (ECMP) and in an Employee Share Ownership Trust to be used when Director and employee share options are exercised (refer to note 29). Diluted earnings per share is based on basic earnings per share adjusted for the potential dilution if Director and employee share options are exercised and the conversion into ordinary share capital of the guaranteed convertible bonds with an adjustment to the attributable profit for a reduced interest charge of US$10.0 million (2003 US$3.6) as a result of the conversion. Basic and diluted earnings per share have also been shown on a pre-exceptionals basis to better reflect the underlying performance of the Group. The profit or loss on sale of tangible assets is not considered exceptional for this purpose (refer note 4).

11. Dividends

Dividends declared in respect of the year ended 31 December 2004 will be paid on 20 May 2005.

Batiss Investments and the Employee Share Ownership Trust (refer to note 21 and 29) have waived the right to receive dividends on the purchased own shares.

12.Intangible Assets

The Group has a 20.91% interest in the service organisation, Richards Bay Coal Terminal Company Limited, through which the shareholders gain access to export markets enabling them to realise higher sales prices than in the domestic market. The Directors regard the right to export coal afforded by the interest in the terminal to have an indefinite life, as the operations utilising the terminal have appropriate reserves (including undeveloped reserves) to allow the use of the terminal for an indefinite period. Theland on which the terminal operates is leased on a long term basis from the state owned ports authority. There has been ahistory oflease renewal and extension by Richards Bay Coal Terminal Company Limited and it is the intention to continually renew the long term lease. Accordingly, these coal export rights are not amortised but subject to an annual asset impairment review.

Goodwill is amortised over the useful economic life of the relevant assets up to a maximum period of 20 years.

The Group has the right to market to third parties various leading technologies for the mining, mineral processing and metals extraction industries. The technology patents are amortised over a period of 20 years.

13. Tangible Assets

Land and buildings include non-depreciating freehold land amounting to US$199.2 million (2003 US$131.3 million) and plantations US$19.4 million (2003 US$21.4 million). No long term leasehold land or investment properties are held. Plant and equipment include capitalised interest amounting to US$5.4 million (2003 US$5.1 million). US$0.3 million (2003 US$0.2 million) was capitalised during 2004 at an average rate of 3.3% (2003 3.1%). Included in the amounts for plant and equipment above are the following amounts relating to leased assets and assets acquired under hire purchase contracts:

14. Investments

On 1 July 2004, the Group established a joint venture with Merafe Resources Ltd (refer to note 2).

The rehabilitation trust fund in South Africa receives cash contributions to accumulate funds for the Group's rehabilitation liability relating to the eventual closure of the Group's coal operations. Amounts are paid out from the trust fund following completion and approval of the rehabilitation work by the South African Department of Minerals and Energy. The contributions to the trust fund are placed with investment bankers who are responsible for making investments in equity and money market instruments. The trust funds are to be used according to the terms of the trust deed and are not available for the general purpose of the Group.

Other investments mainly comprises sundry interests in port facilities, listed and unlisted shares. The net book value of listed shares isUS$1.5 million (2003 US$3.4 million) and have a market value of US$3.0 million (2003 US$3.4 million) at 31 December 2004.

15. Stocks

Saleable in more than one year comprises long term ore stockpiles of US$83.2 million (2003 US$120.5 million) and livestock of US$12.8 million (2003 US$8.7 million).

16. Debtors

Factored receivables not recognised in trade debtors at 31 December 2004 amount to US$nil (2003 US$62.2 million).

17. Investments: Assets acquired held for resale Within

The Group assumed 100% ownership of Carpentaria Gold Pty Ltd ("Ravenswood") with the acquisition of the MIM Group. The company was considered non-core to the Group's business at the date of acquisition and was disposed of in February 2004 (refer to note 2).

18. Creditors

Syndicated Loan Facility Agreement

The amended syndicated loan was refinanced in May 2004 when Xstrata plc and certain subsidiary undertakings of the Group, entered into a US$1,400.0 million committed multi-currency syndicated loan. The loan is comprised of two tranches, a US$1,000.0 million five year facility and a US$400.0 million 364-day facility, with a 364-day term out option. The syndicated loan facility is used for finance general corporate purposes.

The syndicated loan facility bears interest at a rate based on the London inter-bank offered rate (LIBOR) plus 50 basis points for the five-year element and 40 basis points for the 364-day tranche with a utilisation fee of 5 basis points if usage exceeds 66.6% of the facility. The Company is liable to pay a commitment fee on the undrawn portion of the syndicated facility at a rate per annum equal to 20 basis points and 10 basis points on the five-year and 364-day elements respectively, payable quarterly in arrears.

Guaranteed Convertible Bonds

On 15 August 2003, Xstrata Capital Corporation AVV issued US$600 million of Guaranteed Convertible Bonds due 2010 convertible at the option of the holder into fully paid Xstrata plc ordinary shares. The Convertible Bonds are guaranteed by the Company and were issued at par and bear a coupon of 3.95% per annum. The conversion price is GBP6.10. If not converted or previously redeemed, the Guaranteed Convertible Bonds will be redeemed at par on 15 August 2010.

Application was made on 27 August 2003 to The UK Listing Authority and the London Stock Exchange for a block listing of 61,180,977 Ordinary shares of US$0.50 each to be issued upon the conversion of the 3.95% Guaranteed Convertible Bonds, to trade on the London Stock Exchange and to be admitted to the Official List upon issuance. On issue the shares will rank pari passu with the existing issued shares of the Company.

Capital Market Notes

The Group has guaranteed unsecured private placements in the United States as at 31 December 2004 as follows:

• (a) US$10.5 million of 2.75% of series B notes due in yearly instalments, maturing in December 2005;
• (b) US$18.7 million of 3.22% of senior notes due in yearly instalments, maturing in December 2006;
• (c) US$163.6 million of 5.9% of series A senior unsecured notes, maturing and due in June 2008;
• (d) US$54.6 million of 6.75% series B senior unsecured notes due in yearly instalments from June 2008, maturing in June 2011; and
• (e) US$54.9 million of 7% series B senior unsecured notes, maturing and due in June 2011.

The Group has AUD83 million of bonds maturing in February 2005. Interest is based on bank bill swap rate (BBSW) plus 1.9%, payable quarterly.

Project Finance

The Group has repaid the secured bank project finance in Minera Alumbrera Limited during 2004.

Equity Minority Interest Loans

The Group repaid the shareholder loan in Oakbridge Pty Ltd during 2004.

The third party shareholder loans at Minera Alumbrera Limited were refinanced during 2004. As at 31 December 2004, the balance outstanding was US$81.0 million which is subject to a fixed interest rate of 7.23% per annum.

Silver Loan

The Group repaid the silver loan in December 2004.

Other Bank Borrowings

Other bank borrowings includes ZAR denominated borrowings that are subject to floating interest rates based on Johannesburg inter bank acceptance rate (JIBAR).

19. Provisions for Liabilities and Charges

The employee entitlement provisions represents the value of excess leave entitlements allocated over the leave taken by the employees of the Group and defined benefit pension obligations. These amounts are expected to reverse as the employees either take their accrued leave or receive equivalent benefits upon ceasing employment. These costs are expected to be incurred over the next 17.4 years.

Post retirement benefits are provided for a number of current and former employees. Entitlement to these benefits is dependent upon the employee remaining in service until retirement age and is subject to periodic review. The Group recognises the estimated liability on an accruals basis over the working life of the eligible employees. These costs are expected to be incurred over the next 17.5 years.

The expected costs of restoration and rehabilitation from mining activities, discounted to its present value, is provided and capitalised at commencement of production. The capitalised cost is included within tangible assets (refer to note 13) and is then amortised on a units of production basis over the life of the operation, while the increase in the net present value of the provision due to the unwinding of the discount is included in net interest and similar items (refer to note 8). These amounts will reverse when such rehabilitation has been performed. These costs are expected to be incurred over the next 16.0 years.

Other includes the payments due for early termination of contracts upon mine closure and deferred payments for various service providers. These costs are expected to be incurred over the next 9.4 years.

20. Called up Share Capital

Deferred shares

The holders of deferred shares do not have the right to receive notice of any general meeting of the Company nor the right to attend, speak or vote at any such general meeting. The deferred shares have no rights to dividends and, on a winding-up or other return of capital, entitle the holder only to the repayment of the amounts paid upon such shares after repayment of the nominal amount paid up on the Ordinary Shares, the nominal amount paid up on the special voting share plus the payment of GBP100,000 per Ordinary Share. The Company may, at its option, redeem all of the deferred shares in issue at any time (but subject to the minimum capital requirement of the Companies Act 1985) at a price not exceeding GBP1.00 for each share redeemed to be paid to the relevant registered holders of the shares.

Special voting share

Certain rights, that are inalienable under Swiss law, have been preserved in the Xstrata plc Articles of Association by creating a special voting share that carries weighted voting rights sufficient to defeat any resolution which could amend or remove these entrenched rights. The holder of the special voting share is the Law Debenture Trust Corporation plc which has entered into a voting agreement with the company, specifying the conditions upon which it is entitled to exercise its right to vote. The special voting share does not carry a right to receive dividends and is entitled to no more than the amount of capital paid up in the event of liquidation.

21. Share Capital and Reserves

Own shares comprise shares of Xstrata plc held in the Employee Share Ownership Trust (ESOP) and held by Batiss Investments for the ECMP.

The ESOP may be used to co-ordinate the funding and manage the delivery of ordinary shares for options and Long Term Incentive Plan (LTIP) awards granted under the LTIP and Xstrata AG incentive plan (refer to note 29 for further details). The trustee of the ESOP is not permitted to hold more than 5% of the issued share capital of the Company at any one time. At 31 December 2004, 4,109,545 (2003: 4,130,500) shares, equivalent to 0.7% (2003: 0.7%) of the total issued share capital, were held by the trust with a market value of US$73.3 million (2003 US$46.5 million). The trust has waived the right to receive dividends from the shares that it holds. Costs relating to the administration of the trust are expensed in the period in which they are incurred.

The shares held by Batiss Investments will either be used by the Group as a source of financing for future acquisitions, in keeping with the Group's growth strategy, or placed in the market. The decision when to place the shares in the market, use the shares to assist the Group in facilitating future transactions, or to repurchase shares for cancellation, will be considered in light of the Group's funding requirements and capital structure at the time. The trustee of the ECMP is not permitted to hold more than 10% of the issued share capital of the Company at any one time. Batiss Investments has entered into an option agreement with Xstrata Capital Corporation A.V.V. ("Xstrata Capital"), a wholly owned subsidiary within the Xstrata Group, whereby Batiss has granted to Xstrata Capital a right to require Batiss to sell the Xstrata shares purchased to a third party (other than a subsidiary of Xstrata plc), as nominated by Xstrata Capital, at an exercise price of 1p per share. Under the option agreement, Xstrata Capital pays Batiss a premium for this right, the premium being the equivalent of the market price paid by Batiss for the shares plus associated costs less the 1p exercise price. This premium payment, together with funds from a subscription by Xstrata Capital for non-voting redeemable preference shares in Batiss, provides the funding for Batiss to acquire the shares in the market. These payments are sourced from the existing and future cash resources of Xstrata Capital. Xstrata Capital is able to exercise its right under the option agreement for a period of six years from the date of each purchase. Batiss has waived its right to receive dividends on the shares which it holds.At 31 December 2004, 3,371,726 (2003 nil) shares, equivalent to 0.5% (2003 nil%) of the total issued share capital, were held by the trust with a market value of US$60.2 million (2003 US$nil million). Costs relating to the administration of the trust are expensed in the period in which they are incurred.

22. Notes to the Statement of Cash Flows

23. Post Balance Sheet Events

The wholly owned forestry operation in Chile, Forestal Los Lagos SA ("FLL") was sold in January 2005. The majority (89%) of the operation has been purchased by Forestal Valdivia SA, a subsidiary of Forestal Arauco, an integrated private Chilean forestry company. The remaining 11% was purchased by Forestal del Sur SA, a privately-held forestry trading company. The disposal proceeds amount to US$24 million. As a result of the sale, Xstrata will be released from all its obligations with respect to the US$12 million project debt related to FLL. There is no material gain or loss arising on this disposal.

Chrome acquired a controlling stake in the African Carbon Group ("ACG") in January 2005, a char producer situated in the Mpumalanga province, South Africa from The Standard Bank of South Africa, Anker Coal and Mineral Holdings South Africa, and various other South African shareholders. The consideration paid was US$63.2 million.

24. Capital Commitments

Amounts contracted for but not provided in the financial statements amounted to US$420.4 million (2003 US$325.6 million) for the Group, including US$144.3 million (2003 US$177.8 million) for Queensland Rail take or pay commitments over the next 5 years and US$52.3 million (2003 US$63.9 million) for Queensland Port Authority take or pay commitments over the next 6 years, US$59.2 million for a long wall and US$12.9 million for an overland conveyor at the Ulan coal mine and US$45.2 million (2003 US$nil) Project Lion, the construction of a ferrochrome smelter. The balance of the other amounts contracted for but not provided relates to various minor commitments around the Group. Amounts contracted for but not provided in the financial statements for the Company amounted to US$nil (2003 US$nil).

Finance leases entered into after 31 December 2004 amounted to US$44.6 million (2003 US$15.4 million) for the Group and US$nil (2003 US$nil) for the Company. The finance lease in 2004 relates to a Spur Line at the Rolleston coal project.

25. Contingent Liabilities

In connection with the expansion at the San Juan de Nieva plant, the company has issued bank guarantees for the amount of EUR52.3 million (2003 EUR53.6 million). The bank guarantees have primarily been issued in respect of grants received from regional and federal authorities. The guarantees will be released once the authorities are satisfied that the Group has met all its obligations in connection with the receipt of the grants.

Northfleet has issued bank guarantees to H M Customs and Excise in respect of VAT and duty on imports of lead and other raw materials for GBP4.0 million (2003 GBP 4.0 million), to the Environmental Agency in respect to the recycling of batteries and disposal of metal residues of GBP0.4 million (2003 GBP0.5 million) and EUR1.0 million (2003 US$nil) to the European Commission in respect of a fine.

Coal Australia has issued performance guarantees to customers under contracts for supply of coal for AUD13.1 million (2003 AUD24.8 million) and guarantees to the NSW and Queensland Departments for Mineral Resources in respect of various mining leases and the performance thereof AUD113.1 million (2003 AUD123.4 million).

The Newlands and Collinsville joint ventures are responsible for costs incurred with workforce termination and equipment demobilisation at the conclusion of the open cut mining contracts. Indemnities have been provided by the joint venture to government agencies which have given guarantees relating to mining tenements of US$15.9 million (2003 US$nil) and customs, civil contract work and transport of US$1.0 million (2003 US$nil).

The Rolleston joint venture has signed an agreement with Ergon Energy for electricity supply. Bank guarantees of AUD18.8 million (2003 AUD$nil) have been provided by Xstrata and based on the work completed to date there is an estimate contingent liability of AUD15 million (2003 AUDnil).

Coal South Africa has issued a guarantee to Eskom for early termination of power usage of ZAR16.0 million (2003 ZAR12.6 million), to the Department of Mineral and Energy to obtain certain prospecting permits of ZAR0.4 million (2003 ZAR0.9 million) and to banks for property transactions of ZARnil million (2003 ZAR0.8 million).

Alloys has issued a guarantee to Eskom for early termination of power usage of ZAR103.6 million (2003 ZAR38.7 million), to the Department of Mineral and Energy Mineral Resources, municipalities and governmental boards in respect of various mining leases and the performance thereof for ZAR23.8 million (2003 ZAR18.8 million) and customers of ZAR0.5 million (2003 ZAR1.4 million).

Copper, Zinc Lead and Technology Australia has issued performance guarantees to customers for AUD10.5 million (2003 AUD38.1 million), JPY78.3 million (2003 JPYnil), US$26.7 million (2004 US$nil), ZAR1.2 million (2004 ZARnil), guarantees to the NSW and Queensland Departments for Mineral Resources in respect of various mining leases and the performance thereof, environmental bonds and self insurance licences AUD125.4 million (2003 AUD77.8 million) and a guarantee on a building lease of AUDnil million (2003 AUD1.1 million). Zinc has issued performance guarantees to the Northern Territory government for an electricity supply and pipeline agreements of AUD43.6 million (2003 AUD47.1 million).

The purchase of the Las Bambas copper project in Peru includes contingent amounts payable to a community trust fund of US$30 million following a decision to develop the project. This will be payable over the development and construction phases of the project.

The Group had a issued bank guarantee to Banco Santander in Chile for US$12.0 million (2003 US$12.0 million). This bank guarantee was released upon the sale of the forestry operations in January 2005 (refer to note 23).

26. Pension and Other Post-retirement Benefits

Defined Contribution Pension Plans

The Group participates in a number of defined contribution pension plans and industry-wide schemes covering the majority of its employees. To the extent there is a difference between pension cost and contributions paid, a prepayment or creditor arises. The accumulated difference provided in the balance sheet at 31 December 2004 gives rise to a creditor of US$0.3 million (2003 creditor of US$0.6 million).

The assets are held separately from those of the Group, being generally invested with insurance companies and regulated by local legislation.

In general, these pension plans provide benefits to participants at retirement or other life contingencies. The benefits vary from severance payments to retirement pensions on termination of employment. On retirement or other legitimate life contingency, the employees are eligible to a severance lump sum payment or an annuity equal in value to their share of the fund.

Post-retirement Medical Plans

The Group also operates unfunded post-retirement medical benefits in South Africa. Independent qualified actuaries using the projected unit credit method assess the accumulated benefit obligation and annual cost of accrued benefits. The accumulated benefit obligation calculated as at 31 December 2004 was US$12.6 million (2003 US$8.6 million) and has been included in the accounts.

Defined Benefit Pension Plans

The Group had two defined benefit plans in the United Kingdom and one plan in Australia. One of the plans in the United Kingdom was settled during 2004. Independent professionally qualified actuaries assess the pension costs and funding of these plans using the projected unit method. The actuaries have updated the valuations to 31 December 2004. The Group does not have any other material defined benefit plans.

At 31 December 2004 the estimated market value of the assets of the funded pension plans under FRS 17 was US$166.3 million (2003 US$115.2 million) and the market value of the assets was sufficient to cover 96.9% (2003: 76.7%) of the benefits that had accrued to members after allowing for expected increases in future earnings and pensions. The date of the most recent FRS 17 valuation was 31 December 2004.

The full implementation of FRS 17 - Retirement Benefits ("FRS 17") has been delayed until periods beginning 1 January 2005 but additional disclosures are required in the current year, which are shown below. The standard requires pension deficits and surpluses to be recognised in full. Annual service cost and net financial income on the assets and liabilities of the plans are recognised through earnings. Other fluctuations in the value of the surplus/deficits are recognised in the statement of total recognised gains and losses. Under SSAP 24 - Accounting for Pension Costs ("SSAP 24"), the projected unit basis was one of the accepted valuation methods but under FRS 17, it is the only acceptable method.

SSAP 24 disclosures

The results of the most recent actuarial valuations under SSAP 24 which was conducted as at 31 December 2004 are as follows:

Further contributions of GBP1.6 million per annum to 5 April 2015, in addition to the employer's current contributions of 12.8% of pensionable salaries in the United Kingdom, are being made in order to eliminate the deficiency in the United Kingdom plan.

FRS 17 Disclosures

The weighted average main economic assumptions used to determine the actuarial value of obligations and pension costs are as follows:

The market value of the assets and the long term expected rate of return on the pension plans are as follows:

27. Related Party Transactions

During the year, the Group entered into the following transactions, in the ordinary course of business, with related parties:

Included in the transactions with Glencore are US$501.0 million (2003 US$313.1 million) of back to back sales whereby the title to the goods has passed to Glencore but they are then on-sold to customers at the same sales price that the Group received.

Glencore International AG

Pursuant to a capital management programme, as announced on 29 May 2003, entered into by Glencore International AG ("Glencore"), Credit Suisse First Boston Equities Limited and Credit Suisse First Boston (Europe) Limited in connection with the Group's acquisition of the MIM Group and the associated rights issue, Glencore, Credit Suisse First Boston Equities Limited and Credit Suisse First Boston (Europe) Limited are jointly interested in 255,096,956 ordinary shares representing 40.4% (2003: 40.0%) of the issued share capital of the Company at 31 December 2004.

Chrome

Xstrata South Africa entered into a ferrochrome marketing agreement with Glencore on 21 April 1995, appointing Glencore as its exclusive world-wide marketing agent for the sale of Xstrata South Africa's entire production of ferrochrome other than ferrochrome sold into the US, Canada and certain Asian countries. The agreement continues for as long as Xstrata South Africa produces ferrochrome. Glencore is obliged to use its best endeavours to arrange sales at prevailing market rates as agreed from time to time by Xstrata South Africa and Glencore. Glencore is entitled to receive an agency fee of 3.5% on FOB sales revenues and an additional fee of 0.75% on FOB sales revenues for assuming the risk of non-payment by customers on this material. Glencore assumes 60% of the risk of non-payment by customers in relation to ferrochrome sales.

If at any time Xstrata South Africa notifies Glencore that it is able to find purchasers for its production at prices higher than those generally obtainable by Glencore, Xstrata South Africa may, unless Glencore is able to obtain similar prices, sell its products in the market. Glencore is nevertheless entitled to an agency fee of 3.5% of FOB sales revenue in respect of such sales. Glencore is also entitled to receive a US$50,000 monthly fee in connection with market analysis and administration tasks it performs.

Ferrochrome sold into the US and Canada is distributed by Glencore Ltd and Glencore Canada Inc respectively, under two distribution agreements. These agreements continue indefinitely, with both parties having the right to terminate the agreement at 12 month's notice. The percentage of distribution fees payable by the Group in respect of ferrochrome sold under the distribution agreement is substantially the same as the commission paid in respect of ferrochrome sold under the marketing agreement.

Mitsui & Co. Ltd is the appointed marketing agent for all ferrochrome sales into China, Japan and South Korea up to a maximum of 30,000 tonnes. A change in marketing agent for sales into the these countries must be done with the consent of Glencore International AG. Mitsui & Co. is entitled to receive 2.5% sales commission on sales revenue FOB value. The continuation of the distribution agreement with Mitsui & Co. Ltd is subject to the operating agreement between Xstrata South Africa and Mitsui Minerals Development South Africa (MMDSA) in relation to the Xstrata Lydenburg plant. Mitsui Minerals Development South Africa owns a 12.5% undivided share in the fixed assets of Xstrata Lydenburg plant of which Xstrata South Africa is appointed as independent contractor. This ownership entitles MMDSA to purchase the same percentage of the rated capacity (capped at 240,000 tonnes) ferrochrome produced at an amount equal to FOB cost per tonne plus 3.5% of the FOB export price for the products taken. Upon termination of the operating agreement, the distribution agreement will also terminate and Xstrata South Africa will be obliged to purchase the 12.5% undivided share from MMDSA at the prevailing market price.

Vanadium

In December 1997, the Group, entered into a 20-year marketing agreement with Glencore in respect of Rhovan's and Vantech's entire production of vanadium other than vanadium sold into the US and Canada.

Glencore is obliged to use its best endeavours to arrange sales of vanadium pentoxide and ferrovanadium to customers. The Group is obliged to pay to Glencore an agency fee of 3.5% on FOB sales revenues and an additional fee of 1.5% on FOB sales revenues for assuming the risk of non-payment by customers on this material. Glencore assumes 100% of the risk of non-payment by customers in relation to vanadium sales.

If at any time the Group notifies Glencore that it is able to find purchasers for its production at prices higher than those generally obtainable by Glencore, the Group may, unless Glencore is able to obtain similar prices, sell its products in the market. Glencore is nevertheless entitled to the 3.5% agency fees described above in respect of such sales.

Vanadium pentoxide and ferrovanadium sold into the US or Canada is distributed by Glencore Ltd and Glencore Canada Inc respectively, under two distribution agreements. The distribution agreements have the same term as the marketing agreement. The percentage of distribution fees payable by the Group in respect of vanadium pentoxide and ferrovanadium is substantially the same as the commission paid in respect of vanadium pentoxide and ferrovanadium sold under the marketing agreement.

Xstrata Windimurra Pty Ltd entered into a 10 year marketing agreement in December 1998 with Glencore in respect of the entire production of the Group's Australian vanadium operation. Pursuant to this, an agency fee of 3.5% on FOB sales revenues is payable by Xstrata Windimurra Pty Ltd to Glencore, or, if production exceeds four million pounds of vanadium pentoxide in any year, the greater of US$500,000 or 3.5% on FOB sales revenues. Glencore assumes the risk of non-payment by customers. If at any time Xstrata Windimurra Pty Ltd notifies Glencore that it is able to find purchasers for its production at prices higher than those generally obtainable by Glencore, Xstrata Windimurra Pty Ltd may, unless Glencore is able to obtain similar prices, sell its production in the market. Glencore is nevertheless entitled to the 3.5% agency fees described above in respect of such sales. No amounts are payable as a result of the permanent closure of the Windimurra vanadium operation during 2004.

Coal

In 2002, the Group entered into a 20 year Market Advisory Agreement with Glencore with fee reviews at the end of every fifth year of the agreement. Pursuant to this agreement, Glencore acts as the Group's market advisor with respect to its export production of coal (other than for Cumnock No. 1 Colliery Pty Limited while it is not a wholly owned subsidiary and other than for export sales from the TAV/TESA joint venture unless and until the current marketing arrangements with TESA are terminated). The fee payable to Glencore is US$0.50 per attributable tonne of coal exported by the Group from Australia or South Africa. In January 1995, Cumnock entered into a sales and marketing agreement with Glencore, for a commission of US$0.75 per tonne for all coal sold by Cumnock. Pursuant to this agreement, Glencore provides sales and marketing services to Cumnock and Cumnock appoints Glencore as its agent to market coal.

The Group entered into forward commodity price derivatives with Glencore as counter party. During the year, 930,000 tonnes were delivered at an average FOB price of US$43.10 per tonne. At year end, 720,000 tonnes (2003: 600,000 tonnes) were contracted at an average FOB price of US$59.75 per tonne (2003 US$39.25 per tonne) for delivery in the following year. These derivatives are on arms length terms and conditions.

All other coal purchases and sales with Glencore are on commercial terms.

Zinc

During 1999, Asturiana entered into a service agreement with Glencore (the "Asturiana Service Agreement"), under the terms of which Glencore provides advice and assistance with respect to the acquisition of mining and/or metallurgical interests and advice in connection with Asturiana's hedging policy and improvement of its position in the zinc market. The fees to be paid by Asturiana under the Asturiana Service Agreement are approximately US$2.0 million per annum. The agreement expired on 31 December 2004 but will be renewed.

Asturiana has an evergreen agreement with Glencore to purchase 380,000 dmt per annum of zinc concentrate. Treatment charges are negotiated annually.

Asturiana (San Juan de Nieva and Nordenham) has agreed to supply Glencore with 250,000 tonnes of SHG zinc slabs or CGG ingots during 2005 based on market FOB/CPT prices plus the respective premium.

McArthur River has an agreement with Glencore to supply 299,000 wmtper annum in 2004 and 2005 and 51,200 wmt in 2006, of zinc concentrate with an option to sell an additional 153,600 wmt in 2006. There is an additional agreement to supply Glencore with any unsold zinc concentrate, to a maximum of 94,200 wmt per annum, in 2004 and 2005. Treatment charges for 51,200 wmt per annum of zinc concentrate are fixed with the balance negotiated annually until 31 December 2006.

Mt Isa has an agreement with Glencore to supply 90,000 wmt per annum in 2004 and 2005 of zinc concentrate. Treatment charges are negotiated annually.

Copper

Copper has entered into sales agreements with Glencore in respect of the total available export allocation of copper cathode and surplus North Queensland copper concentrate not processed through its Mount Isa copper smelter for 3 years effective from 1 January 2004. From 1 January 2007, an "evergreen" contract will continue indefinitely unless the agreement is terminated by either party with a minimum 12 month notice period. The sales terms for the copper cathode are on average LME pricesplus a range of premiums that is based on Codelco North Asian CIF Liner Terms less freight discounts by destination. The sales terms for the copper concentrate are based on FOB market prices less agreed metal content deductions, treatment and refining charges. The treatment and refining charges for the benchmark portion (25%) is fixed annually in line with annual benchmark terms. The treatment and refining charges for the spot portion (75%) is negotiated quarterly based on the prevailing spot market terms.

Minera Alumbrera Limited has entered into a Trader Frame contract with Glencore in respect of 20,000 to 40,000 dmt copper concentrate per annum expiring on 31 December 2004, thereafter "evergreen" with a 12-month termination period. The sales terms for the copper concentrate are Trader Frame terms. Minera Alumbrera Limited also has a fixed term contract for the sale of copper concentrate to Glencore for 40,000 dmt per annum in 2004, 2006 and 2007 as well as 60,000 dmt in 2005, expiring 31 December 2007. The treatment and refining charges are fixed for the term of the contract. Minera Alumbrera Limited on occasions sells concentrate to Glencore at spot terms. Spot sales are at prevailing spot market prices.

All terms for North Queensland and Minera Alumbrera Limited are set at generally accepted international terms.

Forestal del Sur Ltda

During 2001, Forestal del Sur Ltda was sold to management. Subsequently, Forestal del Sur Ltda entered into a tolling and marketing agreement with the Group and a management service agreement was concluded. The wholly owned forestry operation in Chile, Forestal Los Lagos SA ("FLL") was sold in January 2005 (refer to note 23).

28. Financial Instruments

The Group is exposed to changes in currency exchange rates, commodity prices and interest rates in the normal course of business. Derivative transactions are entered into solely to hedge these risks. Market fluctuations in derivative financial instruments designated as hedges are used to offset the fluctuations in the underlying exposure. With the exception of the net foreign currency monetary receivable exposures, the disclosures below exclude short-term trading related debtor and creditor balances.

Commodity price risk

The Group is exposed to fluctuations in commodity prices, with the commodity mix spread fairly 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, generally on an annual basis. Due to the volatile nature of commodity prices and the historical relationship between prices and the currencies of most of the countries where the Group operates, hedging may be entered into only in limited circumstances and subject to strict limits laid down by the Board.

Credit risk

The Group is exposed to credit risk in respect of trade receivables, however, given the geographical and industry spread of the Group's customers, credit risk is believed to be limited. The Group has established credit limits so that dealings are with a wide range reputable bank and financial institutions on a competitive basis.

Interest rate risk of financial assets and liabilities

The Group normally borrows and invests at floating rates of interest. A limited amount of fixed rate hedging can be undertaken during periods where the Group's exposure to movements in short term interest rates is more significant. The 2010 guaranteed convertible bonds was initially swapped to a floating rate of interest, but the first 2 years of floating rate payments were subsequently swapped back to a fixed interest rate.

The interest rate profile of the Group as at 31 December was as follows:

The interest charged and received on floating rate financial liabilities and assets are based on the relevant national inter-bank rates.

The financial assets on which no interest is earned represent the Group's other fixed asset investments US$50.7 million (2003 US$50.9 million) and assets held for resale of US$nil (2003 US$31.1 million) which have no fixed maturity, other debtors of US$24.0 million (2003 US$6.9 million) which mature within the next 12 months and other debtors of US$36.5 million (2003 US$71.7 million) which mature within 5 years.

Also refer to note 18 and 22 for further details.

Interest rate swaps

The Guaranteed Convertible Bond was initially swapped into a floating interest rate, however the first 2 years were subsequently swapped back into a fixed interest rate.

Gains and losses on interest rate swaps taken out to fix interest commitments are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on interest rate swaps and the movements therein are as follows:

Borrowing facilities

The Group has various borrowing facilities available to it. The un-drawn committed facilities available at 31 December 2004 and 31 December 2003 in respect of which all conditions precedent had been met at that date are as follows:

Currency risk

Owing to the Group's significant operations in Australia, South Africa and Spain, the balance sheet and results can be affected significantly by movements in exchange rates. The reporting currency of the Group is the US$, as this is the underlying economic currency of the Group's cash flows and the majority of borrowings are denominated in US$. However, overseas operations undertake the majority of transactions and have cash flows in local currencies.

The table below shows the Group's currency exposures; in other words, those transactional (or non-structural) exposures that give rise to the net currency gains and losses recognised in the profit and loss account. Such exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the operating (or 'functional') currency of the operating unit involved.

As at 31 December, the net foreign currency monetary receivable exposure (primarily US$) is as follows:

The amounts shown in the table above take into account the effect of foreign currency contracts entered into to manage these currency exposures.

Foreign currency hedges

The Australian operations have entered into AUD/US$ exchange contracts to hedge their US dollar denominated revenue and third party loans whilst the Spanish operations have entered into EUR/US$ exchange contracts to hedge a portion of their US dollar denominated revenue. The Group will also enter into forward contracts to hedge specific one off foreign currency risks. The fair value on the open foreign currency exchange contracts has been determined based on relevant market information available as at 31 December 2004.

Gains and losses on foreign currency contracts taken out to hedge currency commitments are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on foreign currency hedging and the movements therein are as follows:

Commodity hedging

The Australian and Americas operations have entered into copper and gold forwards and collars to hedge prices of future sales. The European operations have entered into zinc and lead forwards and collars to hedge prices of future sales. The fair value on the open forwards and collars commodity contracts has been determined based on relevant market information available as at 31 December 2004.

Gains and losses on commodity hedging are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on commodity hedging and the movements therein are as follows:

Fair values

Fair values of financial assets and liabilities set out below is a comparison by category of book values and fair values of all the Group's financial assets and financial liabilities as at 31 December 2004 and 31 December 2003:

Market values have been used to determine the fair value of foreign currency contracts, interest rate swaps, commodity contracts, the guaranteed convertible bond, fixed interest loans and listed fixed asset investments. The fair value of all other items has been calculated by discounting the expected future cash flows at prevailing interest rates.

29. Long Term Incentive Plan

The Xstrata plc Long Term Incentive Plan (LTIP) has two elements:

• (i) A contingent award of free ordinary shares that vests after three years, subject to, and to the extent that, performance criteria determined at the time of grant have been satisfied; and
• (ii) A share option to acquire ordinary shares at a specified exercise price after the third anniversary of grant, subject to, and to the extent that, performance criteria determined at the time of grant have been satisfied.

No consideration will be payable on the vesting of an LTIP award of free ordinary shares. On exercise of an option, a participant will be required to pay an exercise price that will not be less than the market value of an ordinary share on the date of grant.

The movement in the number of free ordinary shares and share options are as follows:

Xstrata AG incentive plan

With the merger of Xstrata AG into Xstrata plc, Xstrata plc assumed the obligations of Xstrata AG under the scheme with the number of options and strike price adjusted accordingly. The share options have a two year vesting period followed by a three year exercise period. No further options will be granted under this incentive plan. The movement in the number of share options are as follows:

As at 31 December 2004, the Company held 4,109,545 shares (2003: 4,130,500 shares) to hedge its exposure under the above share and option plans (refer to notes 11 and 21).

30. Principal Subsidiaries, Associates, Joint Ventures and Joint Arrangements

The Group comprises a large number of companies and it is not practical to include all of these in the above list. The list only includes those companies that have a significant impact on the profit or net assets of the Group. All entities operate mainly in the country of incorporation and these interests are held indirectly by the parent company unless otherwise indicated.

31. Parent Company Balance Sheets

The financial statements on pages 160 to 161 were approved by the Board of Directors on 1 March 2005 and signed on its behalf by:

Trevor Reid
Chief Financial Officer

No profit and loss account is presented for Xstrata plc as permitted by section 230 of the Companies Act 1985.

32. Parent Company Balance Sheets Notes