Xstrata Plc - annual report 2005

Notes to the Financial Statements

1. Corporate Information

The consolidated financial statements were authorised for issue in accordance with a Directors' resolution on 10 March 2006. The ultimate parent entity of the Group, Xstrata plc, is a publicly traded limited company incorporated in England and Wales and domiciled in Switzerland. Its ordinary shares are traded on the London and Swiss stock exchanges.

The financial information for the full preceding year is based on the statutory accounts for the financial year ended 31 December 2004, restated for the effects of the adoption of IFRS.

The principal activities of the Group are described in note 10.

2. Statement of compliance

The accounting policies adopted are in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as adopted by the European Union, effective for the Group's reporting for the year ended 31 December 2005.

3. Basis of preparation

The consolidated financial statements are presented in US dollars, which is the parent's functional and presentation currency, and all values are rounded to the nearest 0.1 million except where otherwise indicated.

The accounting policies in note 6 have been applied in preparing the financial statements. Where the Group has applied different policies since its transition to IFRS on 1 January 2004, this is explained in note 5.

The consolidated financial statements for the year ended 31 December 2005 have been prepared under the historical cost convention, except for derivatives, financial instruments classified as fair value through profit and loss, available-for-sale financial assets, pension assets and deficits and biological assets that have been measured in accordance with applicable IFRS. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and are otherwise carried at cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged.

4. Significant accounting judgements and estimates

Estimates

The preparation of these financial statements 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.

5. First time adoption of IFRS and changes in accounting policies

To comply with European Union legislation, the Group has adopted IFRS from 1 January 2005. The date of transition is 1 January 2004 and as a result the 2004 comparative information has been adjusted to conform with IFRS. Under IFRS 1 'First time adoption of International Financial Reporting Standards', IFRS are applied retrospectively at the transition balance sheet date with all adjustments to assets and liabilities as stated under UK Generally Accepted Accounting Practices (GAAP) taken to retained earnings unless certain exemptions are applied. The primary exemptions that have been applied by the Group are:

IFRS 2 has only been applied to equity-settled share-based payment awards that were granted after 7 November 2002 that had not vested prior to 1 January 2005;
IFRS 3, IAS 36 (revised) and IAS 38 (revised) are not retrospectively applied to business combinations occurring before 1 January 2004;
The cumulative surpluses or deficits of defined benefit pension schemes and similar benefits at transition date have been recognised in full; and
2004 comparative information is not presented or prepared in accordance with IAS 32 and IAS 39. Financial instruments and hedges are accounted for in accordance with UK GAAP prior to 1 January 2005.

Early adoption of other International Financial Reporting Standards

The Group has resolved to early adopt the following new or revised standards and interpretations from the date of transition:

IFRS 6 'Exploration for and Evaluation of Mineral Resources';
IFRIC 4 'Determining whether an Arrangement contains a Lease';
IFRIC 5 'Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds'; and
Amendment to IAS 19 'Employee Benefits', effective for annual periods beginning on 1 January 2006.

Adoption of IFRS 5

IFRS 5 'Non-current assets held for sale and discontinued operations' has been applied prospectively from 1 January 2005. The comparative balance sheet has not been adjusted to reflect non-current assets held for sale but the income statement has been adjusted to present the forestry division, sold in 2005, as a discontinued operation in the comparative year.

Further information regarding the impact of the adoption of IFRS on the Group is found in the change in accounting policies in note 6 and IFRS Reconciliation to UK GAAP in note 7.

New standards and interpretations not applied

During the year, the IASB and IFRIC have issued the following standards and interpretations which will impact the Group with an effective date after the date of these financial statements:

New standards and interpretations
		Effective date
IFRS 1	Amendment relating to IFRS 6	1 Jan 2006
IFRS 4 and IAS 39	Amendment to IAS 39 and IFRS 4 - Financial guarantee contracts	1 Jan 2006
IFRS 6	Amendment relating to IFRS 6	1 Jan 2006
IFRS 7	Financial instruments: Disclosures	1 Jan 2007
IAS 1	Amendment: Capital disclosures	1 Jan 2007
IAS 21	Amendments to IAS 21 - The effects of changes in foreign exchange rates - Net investment in foreign operations	1 Jan 2006
IAS 39	Fair value option	1 Jan 2006
IAS 39	Cash flow hedge accounting for forecast intra-group transactions	1 Jan 2006
IFRIC 8	Scope of IFRS 2	1 May 2006
IFRIC 9	Re-assessment of embedded derivatives	1 Jun 2006

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

Upon adoption of IFRS 7, the Group will have to disclose additional information about its financial instruments, their significance and the nature and extent of risks that they give rise to. More specifically the Group will need to disclose the fair value of its financial instruments and its risk exposure in greater detail. There will be no impact on income or net assets.

Certain transactions that the Group may undertake in the future could result in the Group receiving consideration of less than the fair value of equity instruments granted. Should this occur, the guidance in IFRIC 8 will be followed.

The principal changes to the Group's accounting policies adopted in the previous financial year arising as a result of the adoption of IFRS are discussed below and the effect on earnings and the balance sheet is outlined in the IFRS Reconciliation to UK GAAP section in note 7.

Share-based Payments

IFRS requires an expense to be recognised where the Group buys goods or services in exchange for shares or rights over shares (equity-settled transactions), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (cash-settled transactions). The main impact of this on the Group is the expensing of the employees' and Directors' share options and other share-based incentives by using an option-pricing model, with a credit to equity or liabilities for equity-settled and cash-settled options respectively.

The Group has taken advantage of the transitional provisions of IFRS 2 in respect of equity-settled awards and has applied this accounting standard only to equity-settled awards granted after 7 November 2002 that had not vested prior to 1 January 2005.

Under UK GAAP, the Group recognised only the intrinsic value or cost of the potential awards for long term incentive plans as an expense. The cost of these awards were accrued over the performance period of each plan based on the intrinsic value of equity-settled awards or estimated cost of cash-settled awards, and an adjustment was made to the latter to reflect the actual costs incurred.

Business Combinations, Impairment of Assets and Intangible Assets

IFRS 3 has been applied to accounting for business combinations for which the agreement date is on or after 1 January 2004. Consequently the Group has adopted the revised IAS 36 and 38 as at 1 January 2004.

Upon acquisition, the Group initially measures the identifiable assets, liabilities and contingent liabilities, acquired at their fair values as at the acquisition date hence causing any minority interest in the acquiree to be stated at the minority proportion of the net fair values of those items.

The adoption of IFRS has resulted in the Group ceasing annual goodwill amortisation from 1 January 2004 and the requirement to test goodwill for impairment annually (unless an event occurs during the year which requires the goodwill to be tested more frequently) from 1 January 2004. The useful lives of intangible assets are now assessed as having either a finite or indefinite life. Where an intangible asset has a finite life, it has been amortised over its useful life. Amortisation periods and methods for intangible assets with finite useful lives are reviewed annually or earlier where an indicator of impairment exists. Intangible assets assessed as having indefinite useful lives are not amortised, as there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. However, the intangible assets are reviewed annually for impairment, regardless of whether an indicator of impairment is present.

Under UK GAAP the Group amortised goodwill over its estimated useful life of 20 years and only tested goodwill and intangible assets with indefinite lives for impairment when circumstances indicated that the carrying amount of the asset may have exceeded its recoverable amount.

Dividends

Dividends are provided for when they meet the recognition criteria of a liability. Xstrata recognises a liability for the dividends once appropriate approval is granted and the payment is no longer at the discretion of the entity.

Under UK GAAP dividends were provided for in the financial statements despite the fact they may not have been approved at a general meeting until after the balance sheet date.

Income Taxes

IFRS requires deferred tax to be recognised on temporary differences. Temporary differences are recognised as the differences between the tax base of the asset or liability and its carrying amount in the balance sheet.

Under UK GAAP, deferred tax is provided on timing differences. Timing differences are differences between an entity's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in financial statements.

Under both IFRS and UK GAAP, in certain instances deferred tax is not recognised. Refer to note 6 for more details.

Employee Benefits

IFRS requires defined benefit plan assets to be recognised in the balance sheet at fair value, and liabilities to be recognised in the balance sheet based on an actuarial valuation.

Actuarial gains or losses are recognised directly in equity through the statement of recognised income and expenses, while the charge to the income statement reflects the Group's past and current service costs for the defined benefit plan, financing costs of the plan assets and liabilities and the expected return on plan assets.

Under UK GAAP the Group accounted for its defined benefit pension plans and post retirement healthcare plans under SSAP 24, whereby the costs are charged to operating profit so as to spread the cost over the remaining average service lives of current employees in the scheme. Differences between contributions paid and the cumulative amounts charged to profit were shown as prepayments or accruals. Under SSAP 24 the assets and liabilities of the plan were not recognised on the balance sheet.

The Effects of Changes in Foreign Exchange Rates

IFRS requires foreign currency gains and losses on the translation of foreign operations to be recorded in a separate component of equity. Under UK GAAP such amounts were not included as a separate component of equity.

Under IFRS upon full or partial disposal or the repayment of a portion of a net investment in a foreign operation, the cumulative amount of the exchange differences are recognised in the income statement when the gain or loss on disposal, or on repayment of a loan forming part of the net investment occurs. Under UK GAAP such amounts were not recycled through the profit and loss account.

Investments in Associates

Net income from associates is reported after interest and taxation on one line in the consolidated income statement. Previously the Group's share in the associates operating profit was disclosed separately on the face of the income statement and the share of the associates finance income, finance cost and income tax expense were included within the respective headings in the income statement. This reclassification has no impact on the Group's profit for the years 2004 and 2005.

Interest in Joint Ventures

The results, assets and liabilities and cash flows of jointly controlled entities are proportionately consolidated on a line-by-line basis in the Group financial statements. Under UK GAAP, the Group's share in the joint ventures' turnover and operating profit was disclosed separately on the face of the income statement and the share of the joint ventures' finance income, finance cost and income tax expense were included within the respective headings in the income statement. This change has no impact on the Group profit for the year or the Group net assets. For ventures which were classified as joint arrangements not creating an entity (JANEs) under FRS 9 in UK GAAP and classified as 'Jointly controlled assets' or 'Jointly controlled operations' under IFRS, the treatment adopted is similar to UK GAAP.

Non-current Assets Held for Sale and Discontinued Operations

On 1 January 2005, the Group prospectively adopted IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. Under this accounting policy, non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. The Group must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets (or disposal groups) held for sale are carried at the lower of the carrying amount prior to being classified as held for sale, and the fair value less costs to sell. A non-current asset is not depreciated while classified as held for sale.

A non-current asset held for sale is presented separately in the balance sheet. The assets and liabilities of a disposal group classified as held for sale are presented separately as one line in the assets and liabilities sections on the face of the balance sheet.

Under UK GAAP such amounts were not disclosed separately on the face of the balance sheet.

As this standard was applied to the forestry operations, which were disposed of prior to 31 December 2005 no amounts are shown on the balance sheet at this date.

A discontinued operation, is a component of an entity whose operations and cash flows are clearly distinguished, operationally and for financial reporting purposes from the rest of the entity, that has been disposed of or classified as held for sale, provided that certain criteria in IFRS 5 are met. Where the operation is discontinued at the balance sheet date, the results are presented in one line on the face of the income statement, and prior period results are represented as discontinued. This approach has been adopted for the forestry operations.

Financial Instruments

The change to the Group's accounting policies adopted in the current financial year arise as a result of the first time adoption of IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'. The effect of the adoption of these standards on the balance sheet at 1 January 2005 are outlined below.

The application of IAS 32 and IAS 39 was deferred to 1 January 2005 and as permitted, the 2004 comparatives have not been restated. The main impact of these standards for the Group are:

Derivative financial instruments are initially recorded at fair value and then for reporting purposes re-measured to fair value at subsequent balance sheet dates.
Changes in the fair value of derivative financial instruments that are designated as and are effective as cash flow hedges of a highly probable forecast transactions are recognised directly in equity. Amounts deferred in this way are recognised in the income statement in the same period in which the hedged highly probable commitments or forecasted transactions are recognised in the income statement.
Changes in the fair value of derivative financial instruments that are designated as and are effective as fair value hedges of assets or liabilities are taken to the income statement. The carrying value of the hedged item is adjusted for the gains or losses attributed to the risk being hedged, with the gain or loss being recorded in the income statement.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. For a cash flow hedge at that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is retained there until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement for the period.
Financial assets are classified and measured in accordance with IAS 39. The impact of this on the Group is that available-for-sale financial assets are initially reported at fair value plus transaction costs when entered into and then for reporting purposes are re-measured to fair value at subsequent balance sheet dates with the movements in the fair value being deferred in a separate component of equity until the investment is impaired or disposed of, when the cumulative gain or loss deferred in equity is reclassified in the income statement.
The liability component of convertible financial instruments is measured using a market rate for an equivalent non-convertible instrument with the difference between the proceeds received on issuing the instrument and the liability component being allocated to a separate component of equity. The liability component is re-measured on an amortised cost basis until extinguished on conversion or redemption. On conversion, the carrying amount of the liability component is allocated to equity, with no gain or loss being recognised. On redemption, any difference between the amount of the liability component and payments made is recognised in the income statement.

Under UK GAAP:

Gains or losses on the hedging instrument are recognised in the period to which the gains and losses on the underlying transactions relate. Where the underlying hedged transaction can no longer be identified, gains and losses on the hedge instrument are recognised in the profit and loss account.
The investments in the rehabilitation trust funds are measured at fair value based on the market price of investments held by the trust fund. Other investments are carried at cost less any provision for impairments.
Convertible financial instruments are recognised at inception at the fair value of the proceeds received net of issue costs. The carrying amount of the instrument is increased by the finance cost for each period less payments made. On redemption, any difference between the carrying amount of the liability and the payments made is recognised in the profit and loss account. On conversion, the carrying amount is allocated to equity, with no gain or loss recognised on conversion.

The main differences that arise as a result of the changes in policy are outlined in the reconciliation below and relate to:

All derivatives being brought onto the balance sheet at fair value.
Instruments classified as available-for-sale being measured at fair value.
The liability component of convertible financial instruments being re-measured with an adjustment to equity.

A reconciliation between the IFRS Balance Sheet at 31 December 2004 and 1 January 2005 upon adoption of IAS 32 and IAS 39 is provided below:

Reconciliation between the IFRS Balance Sheet at 31 December 2004 and 1 January 2005 upon adoption of IAS 32 and IAS 39
US$m	at 31.12.04	Adoption of IAS 32 & 39	at 01.01.05
Assets
Non-current assets
Intangible assets	1,523.9	-	1,523.9
Property, plant and equipment	8,128.5	-	8,128.5
Biological assets	32.2	-	32.2
Inventories	83.2	-	83.2
Trade and other receivables	61.1	-	61.1
Investment in associates	48.9	-	48.9
Available-for-sale financial assets	-	6.9	6.9
Derivative financial assets	-	25.1	25.1
Other financial assets	77.2	-33.5	43.7
Pension asset	2.7	-	2.7
Prepayments	15.9	-	15.9
Deferred tax assets	2.0		2.0
Other assets	73.4	-	73.4
	10,049.0	-1.5	10,047.5
Current assets
Inventories	825.9	-	825.9
Trade and other receivables	794.0	-	794.0
Prepayments	103.9	-	103.9
Derivative financial assets	-	85.6	85.6
Other financial assets	53.8	-25.9	27.9
Cash and cash equivalents	459.6	-	459.6
	2,237.2	59.7	2,296.9
Total assets	12,286.2	58.2	12,344.4

Reconciliation between the IFRS Balance Sheet at 31 December 2004 and 1 January 2005 upon adoption of IAS 32 and IAS 39
US$m	at 31.12.04	Adoption of IAS 32 & 39	at 01.01.05
Equity and liabilities
Capital and reserves - attributable to equity holders of Xstrata plc
Issued capital	315.8	-	315.8
Share premium	2,481.5	-	2,481.5
Own shares	-91.7	-	-91.7
Convertible borrowings - equity component	-	63.4	63.4
Other reserves	3,490.1	2.5	3,492.6
Retained earnings	622.9	-8.8	614.1
	6,818.6	57.1	6,875.7
Minority interests	506.6	-	506.6
Total equity	7,325.2	57.1	7,382.3
Non-current liabilities
Trade and other payables	15.7	-	15.7
Interest-bearing loans and borrowings	1,232.7	-	1,232.7
Convertible borrowings	590.4	-43.5	546.9
Derivative financial liabilities	-	21.2	21.2
Provisions	480.3	-	480.3
Pension deficit	27.7	-	27.7
Deferred tax liabilities	1,357.7	11.0	1,368.7
Other liabilities	6.2	-	6.2
	3,710.7	-11.3	3,699.4
Current liabilities
Trade and other payables	788.8	-	788.8
Interest-bearing loans and borrowings	108.5	-	108.5
Derivative financial liabilities	-	12.4	12.4
Provisions	94.7	-	94.7
Income taxes payable	238.7	-	238.7
Other liabilities	19.6	-	19.6
	1,250.3	12.4	1,262.7
Total liabilities	4,961.0	1.1	4,962.1
Total equity and liabilities	12,286.2	58.2	12,344.4

Notes to the reconciliation between the IFRS Balance Sheet at 31 December 2004 and 1 January 2005 upon adoption of IAS 32 and IAS 39:

Investments in listed and unlisted shares of US$5.6 million have been reclassified from non-current Other financial assets to Available-for-sale financial assets. An unrealised fair value adjustment of US$1.3 million was recorded to the Available-for-sale financial assets, adjusting Other reserves by US$1.3 million.
Foreign currency cash flow hedges of US$2.2 million and the cross currency swap of US$21.8 million was reclassified to current Derivative financial assets from current Other financial assets.
The fair values of foreign currency hedges and commodity hedges of US$14.0 million in non-current Derivative financial assets, US$59.3 million in current Derivative financial assets, US$21.2 million in non-current Derivative financial liabilities and US$12.4 million in current Derivative financial liabilities have been recognised. The book value of commodity hedges of US$27.9 million in non-current Other financial assets and US$1.9 million in current Other financial assets were derecognised. A deferred tax liability of US$11.0 million was recorded in relation to these foreign currency and commodity hedges and US$1.1 million decrease was recorded in Other reserves.
The fair value of the liability component of the convertible borrowings on issue date was determined using a market rate for a non-convertible instrument. The remaining balance of US$63.4 million was allocated to a separate component of equity, net of issue costs. The amortised cost adjustment on the liability component of US$10.0 million was adjusted to Retained earnings. The interest payable on the bond was swapped from a fixed to floating interest rate and the fair value of this interest rate swap of US$11.1 million has been recorded in non-current Derivative financial assets, US$9.9 million adjusted against the carrying value of the Convertible borrowings and US$1.2 million adjusted to Retained earnings.
An interest rate swap from floating to fixed rates with a fair value of US$2.3 million has been recorded in current Derivative financial assets and Other reserves.

Refer to note 6 for further details of IFRS financial instruments accounting policies.

This reconciliation differs from the reconciliation provided in the 30 June 2005 interim report as follows:

The adjustment to recognise available-for-sale financial assets has decreased by US$82.3 million due to the early adoption of IFRIC 5 and the accounting for the rehabilitation trust fund as an Other financial asset and the classification of coal port assets in Australia. This has no net effect on total financial assets.
Commodity hedge assets of US$29.8 million have been derecognised with an adjustment to Other reserves, as they had been incorrectly recorded on adoption of IAS 32 and IAS 39.
The fair value of the interest rate swap adjusted against the convertible borrowings has decreased by US$1.2 million with an adjustment against retained earnings.
Derivative financial assets and liabilities have been separately disclosed.

6. Principal Accounting Policies

This note outlines the Group's IFRS compliant accounting policies. Refer to note 5 for the exemptions the Group has taken in applying IFRS for the first time.

Basis of consolidation

The financial statements consolidate the financial statements of Xstrata plc and its subsidiaries. All inter-entity balances and transactions, including unrealised profits and losses arising from intra-group transactions, have been eliminated in full. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passes. Control is achieved where the Group has the power to govern the financial and operating policy of an entity so as to obtain benefits from its activities. Where there is a loss of control of a subsidiary, the financial statements include the results for the part of the reporting period during which Xstrata plc has control. Subsidiaries use the same reporting period and same accounting policies as Xstrata plc.

Interests in Joint Ventures

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The financial statements of the joint ventures are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Jointly controlled operations

A jointly controlled operation involves the use of assets and other resources of the Group and other venturers rather than the establishment of a corporation, partnership or other entity.

The Group accounts for the assets it controls and the liabilities it incurs, the expenses it incurs and the share of income that it earns from the sale of goods or services by the joint venture.

Jointly controlled assets

A jointly controlled asset involves joint control and offers joint ownership by the Group and other venturers of assets contributed to or acquired for the purpose of the joint venture, without the formation of a corporation, partnership or other entity.

The Group accounts for its share of the jointly controlled assets, any liabilities it has incurred, its share of any liabilities jointly incurred with other ventures, income from the sale or use of its share of the joint venture's output, together with its share of the expenses incurred by the joint venture, and any expenses it incurs in relation to its interest in the joint venture.

Jointly controlled entities

A jointly controlled entity involves the establishment of a corporation, partnership or other legal entity in which the Group has an interest along with other venturers.

The Group recognises its interest in jointly controlled entities using the proportionate method of consolidation whereby the Group's share of each of the assets, liabilities, income and expenses of the joint venture are combined with the similar items, line by line, in its consolidated financial statements.

When the Group contributes or sells assets to a joint venture, any portion of gain or loss from the transaction is recognised based on the substance of the transaction. When the Group has transferred the risk and rewards of ownership to the joint venture, the Group will generally only recognise the portion of the gain or loss attributable to the other ventures, unless the loss is reflective of an impairment, in which case the loss is recognised in full. When the Group purchases assets from the joint venture, it does not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. Losses are accounted for in a similar manner unless they represent an impairment loss, in which case they are recognised immediately.

Joint ventures are accounted for in the manner outlined above, until the date on which the Group ceases to have joint control over the joint venture.

Investments in Associates

Entities in which the Group has significant influence and which are neither subsidiaries nor joint ventures, are associates, and are accounted for under the equity method of accounting.

Under the equity method of accounting, the investment in the associate is recognised in the balance sheet on the date of acquisition at the fair value of the purchase consideration and therefore includes any goodwill on acquisition which is not amortised. The carrying amount is adjusted by the Group's share of the post acquisition profit or loss; depreciation, amortisation or impairment arising from fair value adjustments made at date of acquisition and certain inter-entity transactions together with a reduction for any dividends received or receivable from the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes in equity.

The financial statements of the associates are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. Adjustments are made in the consolidated financial statements to eliminate the Group's share of unrealised gains and losses on transactions between the Group and its associates.

The Group discontinues its use of the equity method from the date at which it ceases to have significant influence, and shall from that date, account for the investment in accordance with IAS 39 (with its initial cost, being the carrying amount of the associate at that date), provided the investment does not then qualify as a subsidiary or joint venture.

The Group's income statement reflects the share of associates results after tax and the Group's statement of recognised income and expense includes any amounts recognised by associates outside of profit and loss.

Business Combinations

Business combinations after 1 January 2004, are accounted for in accordance with the below policy. Business combinations that occurred prior to this date have not been adjusted (refer to note 5).

On the acquisition of a subsidiary, the purchase method of accounting is used whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) 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 which is not amortised but is reviewed for impairment annually and where there is an indication of impairment. If the fair value attributable to the Group's share of the identifiable net assets exceeds the cost of acquisition the difference is immediately recognised in the income statement.

Minority interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the Group and is presented in equity in the consolidated balance sheet, separately from the parent shareholders' equity.

Similar procedures are applied in accounting for the purchases of interests in associates or jointly controlled entities. Any goodwill arising on such purchases is included within the carrying amount of the investment in associates or jointly controlled entity, but not thereafter amortised. Any excess of the Group's share of the net fair value of the associate's or jointly controlled entity's identifiable assets, liabilities and contingent liabilities over the cost of the investment is included in income in the period of the purchase.

Foreign currencies

Financial statements of subsidiaries, joint ventures and associates, are maintained in their functional currencies and converted to US dollars for consolidation of the Group results. The functional currency of each entity is determined after consideration of the primary economic environment of the entity. Transactions in foreign currencies are translated at the exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates. All differences that arise are recorded in the income statement except when hedge accounting is applied. Non-monetary assets measured at historical cost in a foreign currency are translated using the exchange rates at the date of the initial transactions. Where non-monetary assets are measured at fair value in a foreign currency, they are translated at the exchange rates when the fair value was determined. Where the exchange differences relates to an item which has been recorded in equity, the related exchange difference is also recorded in equity.

On consolidation of foreign operations into US dollars, income statement items are translated at weighted average rates of exchange where this is a reasonable approximation of the exchange rate at the dates of the transactions. Balance sheet items are translated at closing exchange rates. Exchange differences on the re-translation of the investments in overseas subsidiaries, joint ventures and associates at closing rates, together with differences between income statements translated at average and at closing rates, are recorded in a separate component of equity. Exchange differences relating to quasi equity inter-company loan balances with the foreign operations which form part of the net investment in the foreign operation are also recognised in this component of equity. On disposal or partial disposal of a foreign entity or on repayment of loans forming part of the net investment in the foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

Exchange differences on foreign currency borrowings to finance net investments and tax charges/credits attributable to those exchange differences are also recorded in a separate component of equity to the extent that the hedge is effective. Upon full or partial disposal or repayment of the net investment in the foreign operation (including loans that form part of the net investment), the cumulative amount of the exchange differences are recognised in the income statement when the gain or loss on disposal or on loan repayment is recognised.

The following exchange rates to the US dollar (US$) have been applied:

Exchange rates to the US dollar (US$)
	31 December 2005	Average 12 months 2005	31 December 2004	Average 12 months 2004
Argentine pesos (US$:ARS)	3.0300	2.9224	2.9720	2.9416
Australian dollars (AUD:US$)	0.7328	0.7624	0.7802	0.7370
Canadian dollars (US$:CAD)	1.1620	1.2113	n/a	n/a
Chile pesos (US$:CLP)	n/a	n/a	557.40	611.45
Euros (EUR:US$)	1.1850	1.2444	1.3554	1.2442
Great Britain pounds (GBP:US$)	1.7229	1.8195	1.9179	1.8335
South African rands (US$:ZAR)	6.3288	6.3661	5.6650	6.4341
Swiss francs (US$:CHF)	1.3134	1.2463	1.1403	1.2421

Revenue

Revenue associated with the sales of commodities is recognised when all significant risks and rewards of ownership of the asset sold are transferred to the customer, usually when title and insurance risk has passed to the customer and the commodity has been delivered to the shipping agent. Sales revenue is recognised at the fair value of consideration received, which is invoiced amounts, with most sales being priced free on board (FOB), free on rail (FOR) or cost, insurance and freight (CIF). Revenues from the sale of by-products are also included in sales revenue. Revenue is recognised, at fair value of the consideration receivable, to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue excludes treatment and refining charges unless payment of these amounts can be enforced by the Group at the time of the sale.

Interest income

Interest income is recognised as earned on an accruals basis using the effective interest method in the income statement.

Non-trading items

Non-trading items represent material items of income and expense which due to their nature or expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance. Non-trading items include but are not limited to acquisition costs which have not been capitalised, profits and losses on sale of investments, profits and losses from the sale of operations, recycled gains and losses from the foreign currency translation reserve, restructuring and closure costs, loan issue costs written-off on facility refinancing and the related tax impacts for these items.

Property, plant and equipment
Land and buildings, plant and equipment

On initial acquisition, land, property, plant and equipment are valued at cost, being the purchase price and the directly attributable costs of acquisition or construction required to bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management.

In subsequent periods, property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value, whilst land is stated at cost less any impairment in value and is not depreciated.

Depreciation is provided so as to write off the cost, less estimated residual values of property, plant and equipment (based on prices prevailing at the balance date) on the following bases:

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. Buildings, plant and equipment unrelated to production are depreciated using the straight-line method based on estimated useful lives.

Where significant parts of an asset have differing useful lives, depreciation is calculated on each separate part. Each item or part'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 at which the item is located, and to possible future variations in those assessments. Estimates of remaining useful lives and residual values are reviewed annually. Changes in estimates which affect unit of production calculations are accounted for prospectively.

The expected useful lives are as follows:

expected useful lives
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 for impairment either individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying amount may not be recoverable. 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.

Expenditure on major maintenance or repairs includes the cost of replacement of parts of assets and overhaul costs. Where an asset or part of an asset is replaced and it is probable that future economic benefits associated with the item will be available to the Group, the expenditure is capitalised and the carrying amount of the item replaced derecognised. Similarly, overhaul costs associated with major maintenance are capitalised where it is probable that future economic benefits will be available and any remaining carrying amounts of the cost of previous overhauls are derecognised. All other costs are expensed as incurred.

Where an item of property, plant and equipment is disposed of, it is derecognised and the difference between its carrying value and net sales proceeds is disclosed as a profit or loss on disposal in the income statement.

Any items of property, plant or equipment that cease to have future economic benefits expected to arise from the continued use or disposal of them are derecognised with any gain or loss included in the income statement in the financial year in which the item is derecognised.

Exploration and evaluation expenditure

Exploration and evaluation expenditure relates to costs incurred on the exploration and evaluation of potential mineral reserves. 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 in full 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, or planned for the future.

Purchased exploration and evaluation assets are recognised as assets at their cost of acquisition or at fair value if purchased as part of a business combination.

An impairment review is performed, either individually or at the cash generating unit level, when there are indicators that the carrying amount of the assets may exceed their recoverable amounts. To the extent that this occurs, the excess is fully provided against, in the financial period in which this is determined. 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

The cost of acquiring mineral reserves and mineral resources are capitalised on the balance sheet as 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 reserves and capitalised mine development expenditure are, upon commencement of production, depreciated 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. The net carrying amounts of mineral reserves and resources and capitalised mine development expenditure at each mine property are reviewed for impairment either individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying amount may not be recoverable. 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.

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 property, plant and equipment.

The cost of a property, plant and equipment 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.

The net carrying amounts of capital work in progress at each mine property are reviewed for impairment either individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying amount may not be recoverable. To the extent to which these values exceed their recoverable amounts, that excess is fully provided against in the financial period in which this is determined.

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 at the lower of the fair value of the leased property or the present value of the minimum lease payments during the lease term calculated using the interest rate implicit in the lease agreement. These amounts are determined at the inception of the lease and are depreciated over the shorter of their estimated useful lives or lease term. 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 lease or hire purchase obligations are charged to the income statement over the periods of the leases and hire purchase contracts and represent a constant proportion of the balance of capital repayments outstanding.

Leases where substantially all the risks and rewards of ownership have not passed to the Group are classified as operating leases. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term.

Biological assets

Biological assets, being cattle and plantations, are carried at their fair value less estimated selling costs. Any changes in fair value less estimated selling costs are included in the income statement in the period in which they arise.

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 costs of removal of the waste material during a mine's production phase are deferred, where appropriate. The deferral of these costs, and subsequent charges to the income statement 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 to the income statement 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.

Intangible assets

Purchased intangible assets are recorded at the cost of acquisition including expenses incidental to the acquisition, less accumulated amortisation and any impairment in value.

Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the asset is separable or arises from contractual or legal rights, and the fair value can be measured reliably on initial recognition.

Internally generated goodwill is not recognised.

Intangible assets are amortised using a straight-line method based on estimated useful lives, except goodwill and those intangible assets which the Directors regard as having indefinite useful lives, which are not amortised but are reviewed for impairment at least annually, and whenever events or circumstances indicate that the carrying amount may not be recoverable. Intangible assets are regarded as having an indefinite life when, based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash flows. Such analyses are performed annually. Estimated useful lives are determined as the period over which the Group expects to use the asset or the number of production (or similar) units expected to be obtained from the asset by the Group and for which the Group retains control of access to those benefits.

For intangible assets with a finite useful life, the amortisation method and period are reviewed annually and impairment testing is undertaken when circumstances indicate the carrying amount may not be recoverable.

Where an intangible asset is disposed of, it is derecognised and the difference between its carrying value and the net sales proceeds is reported as a profit or loss on disposal in the income statement.

Coal Export Rights

Coal export rights are carried at cost and are considered to have an indefinite useful life. As a result they are not amortised but are subject to an asset impairment review at least annually and more regularly if indicators of impairment exist.

Software and Technology patents

Software and Technology patents are carried at cost and amortised over a period of 3 years and 20 years respectively.

Impairment of assets

The carrying amounts of non-current assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, a review is undertaken to determine whether the carrying values are in excess of their recoverable amount. The recoverable amount is determined as the higher of an asset's fair value less costs to sell and its value in use. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flows independent of other assets, when the review is undertaken at the cash generating unit level.

Where a cash generating unit, or group of cash generating units, has goodwill allocated to it, or includes intangible assets which are either not available for use or which have an indefinite useful life (and which can only be tested as part of a cash generating unit), an impairment test is performed at least annually or whenever there is an indication that the carrying amount of such assets may be impaired.

If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in the income statement to reflect the asset at the lower amount. In assessing recoverable amount for 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 pre-tax discount rate which reflects current market assessments of the time value of money and asset-specific risks for which the cash flow estimates have not been adjusted.

An impairment loss is reversed in the income statement if there is a change in estimates used to determine recoverable amount since the prior impairment loss was recognised. The carrying amount is increased to recoverable amount but not beyond the carrying amount net of depreciation or amortisation which would have arisen if the prior impairment loss had not been recognised. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Goodwill impairments are not reversed.

Non-current assets held for sale and discontinued operations
Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. The Group must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Discontinued Operations

the operation must represent a separate major line of business or geographical area of operations;
the operation must be part of a single coordinated plan to dispose of a separate major line of business or geographical areas of operations; or
the operation must be a subsidiary acquired exclusively with a view for resale.

Where the operation is discontinued at the balance sheet date, the results are presented in one line on the face of the income statement, and prior period results are represented as discontinued.

Financial instruments
Investments and other financial assets

As outlined in note 5 the Group has not retrospectively applied the requirements of IAS 32 and of IAS 39. Investments and other financial assets are accounted for in accordance with UK GAAP prior to 1 January 2005.

IFRS Accounting Policy

Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. The Group determines the classification of its financial assets at initial recognition (which in the case of financial assets existing at the transition date, includes designation at that date). Where as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held to maturity, the investment is reclassified into the available-for-sale category. When financial assets are recognised initially, they are measured at fair value on the trade date, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category 'financial assets at fair value through profit or loss'. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as and are effective hedging instruments. Other assets can be designated to this category on initial recognition. Gains or losses on these items are recognised in income.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long term investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in income when the investments are derecognised or impaired, as well as through the amortisation process.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or available for sale. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition available-for sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Listed share investments are carried at fair value based on stock exchange quoted prices at the balance sheet date. Unlisted shares are carried at fair value where it can be reliably obtained, otherwise they are stated at cost less any impairment.

Fair values

The fair value of quoted financial assets is determined by reference to bid prices at the close of business on the balance sheet date. Where there is no active market, fair value is determined using valuation techniques. These include recent arm's length market transactions; reference to current market value of another instrument which is substantially the same; discounted cash flow analysis and pricing models.

Derivative financial instruments are valued using applicable valuation techniques such as those outlined above.

Derecognition of financial assets and liabilities
Financial assets

A financial asset is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass-through' arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, it continues to recognise the financial asset to the extent of its continuing involvement in the asset.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Gains on derecognition are recognised within finance income and losses within finance costs.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Impairment of financial assets

The Group assesses at each balance sheet date whether a financial asset is impaired.

Financial assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables and held to maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced and the amount of the loss is recognised in the income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Available-for-sale financial assets

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognised in profit. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in profit or loss.

Rehabilitation Trust Fund

Investments in the rehabilitation trust funds are measured at fair value based on the market price of investments held by the trust. In accordance with IFRIC 5, movements in the fair value are recognised in the income statement. Such amounts relate to trusts in South Africa which receive cash contributions to accumulate funds for the Group's rehabilitation liability relating to the eventual closure of the Group's coal operations.

Derivative financial instruments and hedging

The Group uses derivative financial instruments such as interest rate swaps, forward currency and commodity contracts to hedge its risks associated with interest rate, foreign currency and price fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to profit or loss for the year.

The fair value of forward currency and commodity contracts are calculated by reference to current forward exchange rates and prices for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

For the purpose of hedge accounting, hedges are classified as:

fair value hedges;
cash flow hedges; or
hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Fair value hedges

Fair value hedges are hedges of the Group's exposure to changes in the fair value of a recognised asset or liability that could affect profit or loss. The carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is re-measured at fair value and gains and losses from both are taken to profit or loss.

For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through profit or loss over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to profit or loss.

Amortisation begins when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation.

Cash flow hedges

Cash flow hedges are a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to profit or loss.

Hedges of a net investment

Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to profit or loss.

UK GAAP Accounting Policy

The investments in the rehabilitation trust funds are measured at fair value based in the market price of investments held by the trust fund. Other investments are carried at cost less any provision for impairments which are recognised when it is assessed that the carrying amount of the asset is no longer recoverable.

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. Where a borrowing is used as a hedge of a net investment in a foreign operation and is used to reduce the exposure to foreign currency risk, the gains or losses on the retranslation of the instrument are transferred to equity.

Own shares

The cost of purchases of own shares held by the Employee Share Ownership Plan (ESOP) trust are deducted from equity. Where they are issued to employees or sold, no gain or loss is recognised in the income statement. Any proceeds received on disposal of the shares or transfer to employees are also recognised in equity.

Own shares purchased under the Equity Capital Management Program (ECMP) are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of such shares. Such gains and losses are recognised directly in equity.

Interest-bearing loans and borrowings

Loans are recognised at inception at fair value of the proceeds received, net of directly attributable transaction costs. Subsequently they are measured at amortised cost using the effective interest method. Finance costs are recognised in the income statement using the effective interest method.

Convertible borrowings

As outlined in note 5, the Group has not retrospectively applied the requirements of IAS 32 and 39. Convertible borrowings are accounted for in accordance with UK GAAP prior to 1 January 2005.

IFRS Accounting Policy

On issue of a convertible borrowing, the fair value of the liability component is determined by discounting the contractual future cash flows using a market rate for a non-convertible instrument with similar terms. This value is carried as a liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to a separate component of equity, net of issue costs, which remains constant in subsequent periods. Issue costs are apportioned between the liability and equity components based on their respective carrying amounts when the instrument was issued.

On conversion, the liability is reclassified to equity and no gain or loss is recognised in the profit or loss. Where the convertible borrowing is redeemed early or repurchased in a way that does not alter the original conversion privileges, the consideration paid is allocated to the liability and equity components. The consideration relating to the equity component is recognised in equity and the amount of gain or loss relating to the liability element in profit or loss.

The finance costs recognised in respect of the convertible borrowings will include the accretion of the liability component to the amount that will be payable on redemption.

UK GAAP Accounting Policy

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. Convertible financial instruments are recognised at inception at the fair value of the proceeds received net of issue costs in liabilities. The carrying amount of the convertible borrowing is increased by finance cost in respect of each period less any payments made. On redemption, any difference between the carrying amount of the liability and the payment made is recognised in the profit and loss account. On conversion, the carrying amount is allocated to equity, with no gain or loss recognised on conversion.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis or using first-in-first-out basis and includes all costs incurred in the normal course of business including direct material and direct labour costs, and an allocation of production overheads, depreciation and amortisation and other costs, based on normal production capacity, incurred in bringing each product to its present location and condition. Cost of inventories includes the transfers from equity of gains and losses on qualifying cash flow hedges in respect of the purchase of materials. Inventories 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 represents estimated selling price in the ordinary course of business less any further costs expected to be incurred to completion and disposal.

Trade and other receivables

Trade and other receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. A provision is made where the estimated recoverable amount is lower than the carrying amount. Where trade receivables are used to factor debt they are derecognised where the Group has transferred its rights to receive the cash flow to a third party and if all the significant risks and rewards relating to the financial assets in question have been transferred to the third party.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank, cash in hand and short-term deposits with an original maturity of three months or less. For the cash flow statement, cash and cash equivalents includes certain bank overdrafts where the facility forms part of the working capital cash management activities.

Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received and all the attaching conditions will be complied with. Government grants in respect of capital expenditure are credited to the carrying amount of the related asset and are released to the income statement over the expected useful lives of the relevant assets. Grants which are not associated with an asset are credited to income so as to match them with the expense to which they relate.

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 financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the balance sheet date. The provision is discounted using a current market-based pre-tax discount rate and the unwinding of the discount is included in interest expense. 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 is reviewed on an annual basis for changes to obligations or legislation or discount rates that effect change in cost estimates or life of operations. The cost of the related asset is adjusted for changes in the provision resulting from changes in the estimated cash flows or discount rate, and the adjusted cost of the asset is depreciated prospectively.

Rehabilitation trust funds holding monies committed for use in satisfying environmental obligations are included within Other financial assets on the balance sheet.

Employee Entitlements

Provisions are recognised for short-term employee entitlements, on an undiscounted basis, for services rendered by employees that remain unpaid at the balance sheet date.

Provisions for long-term employee entitlements are measured using the projected unit credit method and discounted at an interest rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the plan liabilities.

In some of the Group's Australian operations, long service leave (an employee entitlement for which a provision is recorded) is administered by an independent fund. The fund collects levies from employers throughout the industry based on the expected cost of future liabilities. When the Group makes long service leave payments to employees covered by the fund, it is reimbursed for the majority of the payment. To reflect the expected reimbursement for future long service leave payments from the fund, a receivable is recorded based on the present value of the future amounts expected to be reimbursed.

Other Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive), as 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. Where the effect is material, the provision is discounted to net present value using an appropriate current market-based pre-tax discount rate and the unwinding of the discount is included in finance costs.

Taxation

Current tax

Current tax for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the balance sheet date and includes adjustments to tax payable or recoverable in respect of previous periods.

Deferred tax

Deferred tax is recognised using the balance sheet method in respect of all temporary differences between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes, except as indicated below:

Deferred income tax liabilities are recognised for all taxable temporary differences, except:

where the deferred income tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except:

where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. To the extent that an asset not previously recognised fulfils the criteria for recognition, a deferred income tax asset is recorded.

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

Current and deferred tax relating to items recognised directly in equity are recognised in equity and not in the income statement.

Pensions and other post-retirement obligations

The Group's contributions to its defined contribution pension plans are charged to the income statement in the year to which they relate.

The Group contributed to separately administered defined benefit pension plans.

Plan assets are measured at fair value, while plan liabilities are measured on an actuarial basis using the projected unit credit method and discounted at an interest rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the plan liabilities. The expected return on plan assets is based on an assessment made at the beginning of the year of long term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. In measuring its defined benefit liability past service costs are recognised as an expense on a straight-line basis over the period until the benefits become vested. To the extent that the benefits vest immediately following the introduction of, or changes to, a defined benefit plan, the past service costs are recognised immediately. When a settlement (eliminating all obligations for part or all of the benefits that have already accrued) or a curtailment (reducing future obligations as a result of material reduction in the scheme membership or a reduction in future entitlement) occurs the obligation and related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss recognised in the income statement during the period in which the settlement or curtailment occurs.

The service cost of providing pension benefits to employees for the year is determined using the projected unit method and is recognised in the income statement. The difference between the expected return on plan assets and the unwinding of the discount on plan liabilities is recognised in the income statement.

Actuarial gains or losses are recognised directly in equity through the statement of recognised income and expenses. The full pension surplus or deficit is recorded in the balance sheet, with the exception of the impact of any recognition of past service costs. Surpluses recorded are restricted to the sum of any unrecognised past service costs and present value of any amounts the Group expects to recover by way of refunds from the plan or reductions in future contributions.

The Group also provides post-retirement healthcare benefits to certain employees in South Africa. These are accounted for in a similar manner to the defined benefit pension plans. These benefits are unfunded.

Ordinary share capital

Ordinary shares issued by the Company are recorded at the net proceeds received, which is the fair value of the consideration received less costs that are incurred in connection with the share issue. The nominal par value of the shares issued is taken to the share capital account and any excess is recorded in the share premium account, including the costs that were incurred with the share issue.

Share-based compensation plans

The Group makes share-based awards, including free shares and options, to certain employees.

Equity-settled awards

For equity-settled awards, the fair value is charged to the income statement and credited to retained earnings, on a straight line basis over the vesting period, after adjusting for the estimated number of awards that are expected to vest (taking into account the achievement of non-market based performance conditions). The fair value of the equity-settled awards is determined at the date of the grant. In calculating fair value, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions). The fair value is determined by external experts using the models outlined in note 37. At each balance sheet date prior to vesting, the cumulative expense representing the extent to which the vesting period has expired and managements best estimate of the awards that are ultimately expected to vest is computed (after adjusting for non-market performance conditions). The movement in cumulative expense is recognised in the income statement with a corresponding entry within equity.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified over the original vesting period. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification, over the remainder of the new vesting period.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. Any compensation paid up to the fair value of the awards at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the new awards are treated as if they are a modification of the original award, as described in the previous paragraph.

Cash-settled awards

For cash-settled awards, the fair value is re-calculated at each balance date until the awards are settled based on the estimated number of awards that are expected to vest adjusting for market and non-market based performance conditions. During the vesting period, a liability is recognised representing the portion of the vesting period which has expired at the balance sheet date times the fair value of the awards at that date. After vesting the full fair value of the unsettled awards at each balance date is recognised as a liability. Movements in the liability are recognised in the income statement. The fair value is recalculated using an option pricing model (refer to note 37).

The Group has taken advantage of the transitional provisions of IFRS 2 in relation to unvested equity-settled awards and has applied this accounting standard only to awards granted after 7 November 2002 that had not vested prior to 1 January 2005.

Comparatives

Where applicable, prior year figures have been adjusted to disclose them on the same basis as current period figures except for the adoption of IAS 32, IAS 39 and IFRS 5 on 1 January 2005 as explained above.

7. IFRS Reconciliation to UK GAAP

Balance sheet reconciliations

A reconciliation between the UK GAAP and IFRS Consolidated Balance Sheet at 1 January 2004 (date of transition to IFRS) is provided below:

Reconciliation between the UK GAAP and IFRS Consolidated Balance Sheet at 1 January 2004
	UK GAAP US$m	Reclassi- fications US$m	Subtotal US$m	Adjustments US$m	Notes	IFRS US$m
Non-current assets
Intangible assets	1,333.5	4.2	1,337.7	-		1,337.7
Property, plant and equipment	7,614.8	-25.6	7,589.2	-3.7	i	7,585.5
Biological assets	-	30.1	30.1	-		30.1
Inventories	-	120.5	120.5	-		120.5
Investment in associates	-	-	-	49.3	i	49.3
Other financial assets	81.0	40.3	121.3	-43.7	i	77.6
Pension asset	-	-	-	2.8	iii	2.8
Prepayments	-	9.4	9.4	-		9.4
Deferred tax assets	-	106.7	106.7	-104.5	iv	2.2
Other assets	250.3	-156.4	93.9	-		93.9
	9,279.6	129.2	9,408.8	-99.8		9,309.0
Current assets
Inventories	802.8	-129.2	673.6	-		673.6
Trade and other receivables	702.1	-58.6	643.5	-1.9	i	641.6
Prepayments	-	36.5	36.5	-		36.5
Assets held for resale	31.1	-	31.1	-		31.1
Other financial assets	-	22.1	22.1	-		22.1
Cash and cash equivalents	255.1	-	255.1	-		255.1
	1,791.1	-129.2	1,661.9	-1.9		1,660.0
Total assets	11,070.7	-	11,070.7	-101.7		10,969.0
Equity and liabilities
Capital and reserves - attributable to equity holders of Xstrata plc
Issued capital	315.8	-	315.8	-		315.8
Share premium	2,481.5	-	2,481.5	-		2,481.5
Own shares	-40.8	-	-40.8	-		-40.8
Other reserves	1,240.7	1,739.6	2,980.3	-		2,980.3
Retained earnings	2,487.7	-1,739.0	748.7	-1,061.6		-312.9
	6,484.9	0.6	6,485.5	-1,061.6		5,423.9
Minority interests	614.6	-	614.6	-141.1	vii	473.5
Total equity	7,099.5	0.6	7,100.1	-1,202.7	x	5,897.4
Non-current liabilities
Trade and other payables	-	40.9	40.9	-		40.9
Interest-bearing loans and borrowings	1,658.5	-	1,658.5	-		1,658.5
Convertible borrowings	588.7	-	588.7	-		588.7
Provisions	621.6	-193.7	427.9	2.9	viii	430.8
Pension deficit	-	26.4	26.4	1.2	iii	27.6
Deferred tax liabilities	-	117.1	117.1	1,180.5	iv	1,297.6
Other liabilities	-	5.0	5.0	-		5.0
	2,868.8	-4.3	2,864.5	1,184.6		4,049.1
Current liabilities
Trade and other payables	1,102.4	-330.1	772.3	-83.6	ix	688.7
Interest-bearing loans and borrowings	-	229.4	229.4	-		229.4
Provisions	-	81.1	81.1	-		81.1
Income taxes payable	-	23.3	23.3	-		23.3
	1,102.4	3.7	1,106.1	-83.6		1,022.5
Total liabilities	3,971.2	-0.6	3,970.6	1,101.0		5,071.6
Total equity and liabilities	11,070.7	-	11,070.7	-101.7		10,969.0

Reconciliation between the UK GAAP and IFRS Consolidated Balance Sheet at 1 January 2004
	UK GAAP US$m	Reclassi- fications US$m	PSV US$m	Subtotal US$m	Adjustments US$m	Notes	IFRS US$m
Non-current assets
Intangible assets	1,505.2	6.7	-	1,511.9	12.0	ii	1,523.9
Property, plant and equipment	7,858.6	-26.1	299.8	8,132.3	-3.8	i	8,128.5
Biological assets	-	32.2	-	32.2	-		32.2
Inventories	-	83.2	-	83.2	-		83.2
Trade and other receivables	-	61.1	-	61.1	-		61.1
Investment in joint ventures:
- Share of gross assets	621.5	-	-621.5	-	-		-
- Share of gross liabilities	-252.3	-	252.3	-	-		-
	369.2	-	-369.2	-	-		-
Investment in associates	-	-	-	-	48.9	i	48.9
Other financial assets	87.9	57.4	-23.0	122.3	-45.1	i	77.2
Pension asset	-	-	-	-	2.7	iii	2.7
Prepayments	-	15.9	-	15.9	-		15.9
Deferred tax assets	-	235.6	-	235.6	-233.6	iv	2.0
Other assets	476.0	-402.6	-	73.4	-		73.4
	10,296.9	63.4	-92.4	10,267.9	-218.9		10,049.0
Current assets
Inventories	729.9	-96.0	192.0	825.9	-		825.9
Trade and other receivables	928.9	-125.1	-9.8	794.0	-		794.0
Prepayments	-	103.9	-	103.9	-		103.9
Other financial assets	-	53.8	-	53.8	-		53.8
Cash and cash equivalents	477.3	-	-17.7	459.6	-		459.6
	2,136.1	-63.4	164.5	2,237.2	-		2,237.2
Total assets	12,433.0	-	72.1	12,505.1	-218.9		12,286.2
Equity and liabilities
Capital and reserves - attributable to equity holders of Xstrata plc
Issued capital	315.8	-	-	315.8	-		315.8
Share premium	2,481.5	-	-	2,481.5	-		2,481.5
Own shares	-91.7	-	-	-91.7	-		-91.7
Other reserves	1,245.3	2,411.3	-	3,656.6	-166.5	vi	3,490.1
Retained earnings	4,069.4	-2,411.3	-	1,658.1	-1,035.2		622.9
	8,020.3	-	-	8,020.3	-1,201.7		6,818.6
Minority interests	635.7	-	-	635.7	-129.1	vii	506.6
Total equity	8,656.0	-	-	8,656.0	-1,330.8	x	7,325.2
Non-current liabilities
Trade and other payables	-	15.7	-	15.7	-		15.7
Interest-bearing loans and borrowings	1,232.7	-	-	1,232.7	-		1,232.7
Convertible borrowings	590.4	-	-	590.4	-		590.4
Provisions	662.3	-204.4	13.6	471.5	8.8	viii	480.3
Pension deficit	-	27.1		27.1	0.6	iii	27.7
Deferred tax liabilities	-	155.4	-	155.4	1,202.3	iv	1,357.7
Other liabilities	-	6.2	-	6.2	-		6.2
	2,485.4	-	13.6	2,499.0	1,211.7		3,710.7
Current liabilities
Trade and other payables	1,291.6	-459.5	56.5	888.6	-99.8	ix	788.8
Interest-bearing loans and borrowings	-	108.4	0.1	108.5	-		108.5
Provisions	-	92.8	1.9	94.7	-		94.7
Income taxes payable	-	238.7	-	238.7	-		238.7
Other liabilities	-	19.6	-	19.6	-		19.6
	1,291.6	-	58.5	1,350.1	-99.8		1,250.3
Total liabilities	3,777.0	-	72.1	3,849.1	1,111.9		4,961.0
Total equity and liabilities	12,433.0	-	72.1	12,505.1	-218.9		12,286.2

Notes to the Balance Sheet and Equity Reconciliation at 1 January 2004 and 31 December 2004

UK GAAP

The UK GAAP balance sheets are derived from the UK GAAP balance sheets as reported in the prior year financial statements. They have however been amended to an IFRS presentation and the main adjustments are as follows:

Minority interests have been reclassified to a separate component of equity. Under UK GAAP they were reported as a liability.
Other non-current assets represents amounts disclosed as 'Debtors: amounts falling due after more than one year' in the UK GAAP balance sheets.
Current Trade and other receivables represents amounts disclosed as 'Debtors: amounts falling due within one year' in the UK GAAP balance sheets.
Current trade and other payables represents amounts disclosed as 'Creditors: amounts due within one year' in the UK GAAP balance sheets.
Various other categories have been renamed in accordance with IFRS.

Reclassifications:

The adoption of IFRS has resulted in the requirement to reclassify several items from their existing UK GAAP classifications. The main reclassifications are as follows:

At transition date US$30.1 million and at 31 December 2004 US$32.2 million of plantations and cattle have been reclassified from Property, plant & equipment and Inventories to Biological assets.
At transition date US$4.2 million and at 31 December 2004 US$6.7 million of software assets have been reclassified from Property, plant & equipment to intangible assets.
At transition date US$40.3 million and at 31 December 2004 US$90.0 million for various recognised hedging assets and loans have been reclassified from Other non-current assets to Other financial assets.
Various current hedging assets with a value of US$22.1 million at transition date and US$21.2 million at 31 December 2004 have been reclassified from Trade and other receivables to other current financial assets.
At transition date US$106.7 million and at 31 December 2004 US$235.6 million of Deferred tax assets has been reclassified from Other non-current assets.
At transition date US$36.5 million and at 31 December 2004 US$103.9 million of current Prepayments have been reclassified from Trade and other receivables. At transition date US$9.4 million and at 31 December 2004 US$15.9 million of non-current Prepayments have been reclassified from Other non-current assets.
At transition date US$120.5 million and at 31 December 2004 US$83.2 million of non-current Inventories has been reclassified from current Inventories.
Provisions included US$0.6 million at transition date and Other reserves included US$4.6 million at 31 December 2004 for share-based compensation plan awards that have been reclassified to retained earnings.
At transition date US$1,739.6 million and at 31 December 2004 US$2,411.3 million of foreign currency translation adjustments of subsidiary net assets and loans has been reclassified from Retained earnings to Other reserves.
At transition date US$117.1 million and at 31 December 2004 US$155.4 million of Deferred tax liabilities has been reclassified from non-current Provisions.
At transition date US$229.4 million and at 31 December 2004 US$108.4 million of current Interest-bearing loans and borrowings have been reclassified from current Trade and other payables.
At transition date US$81.1 million and at 31 December 2004 US$92.8 million of current Provisions have been reclassified from current Trade and other payables.
At transition date US$23.3 million and at 31 December 2004 US$238.7 million of Income tax payable have been reclassified from current Trade and other payables.
Various reclassifications between current and non-current have occurred as a result of the IFRS opening balance sheet requiring more detailed classifications.

Accounting for Alloys Pooling and Sharing Venture (PSV):

Under UK GAAP, the Group's investment in the PSV was treated as a joint venture and was gross equity accounted, with its share of the PSV's assets and liabilities being recorded in two lines on the face of the balance sheet 'Share of gross assets of JV', and 'Share of gross liabilities of JV'. Under IAS 31 'Interests in Joint Ventures', the investment is accounted for as a jointly controlled operation.

The Group accounts for the assets it controls and the liabilities it incurs, the expenses it incurs and the share of income that it earns from the sale of goods and services by the joint venture.

Adjustments:

Reclassification of Investment in associates
Under UK GAAP, the investment in Richards Bay Coal Terminal Company Limited (RBCT) was classified and accounted for as a joint arrangement not creating an entity (JANE). Under IAS 28 'Investments in Associates' the investment in RBCT is classified as an associate. As a result, the Group's proportional share of RBCT's assets and liabilities has been deconsolidated.
Under UK GAAP, an investment in a port facility in Australia was classified and accounted as an Investment. On transition to IFRS it was determined that the Group had significant influence over the investment and consequently it has been classified as an associate which is equity accounted. This treatment should also have been adopted under UK GAAP. The impact of this adjustment is to reclassify the asset and the income recorded, but does not affect profits reported previously as all profits of the investment have been distributed.
Goodwill
Under IFRS 3 'Business Combinations' goodwill is no longer amortised but subject to an annual impairment test, resulting in the reversal of the UK GAAP amortisation charge for the year ended 31 December 2004. As required by IFRS, an impairment test was carried out at the date of transition to IFRS. No impairment was identified and no other adjustment was made to the goodwill balance except for minor foreign exchange differences.
Pension assets and deficits
Defined benefit pension plans with a net surplus of US$2.8 million and a net deficit of US$1.2 million at transition date and net surplus of US$2.7 million and a net deficit of US$0.6 million at 31 December 2004 have been adjusted against the UK GAAP carrying amounts in accordance with the amended IAS 19 'Employee Benefits'.
Deferred taxation
Under IAS 12 'Income Taxes' deferred tax is recognised on temporary differences as opposed to timing differences as under UK GAAP. Temporary differences are defined as differences between the carrying amount of an asset or liability in the balance sheet and its tax base which is broader in application than the timing difference approach. For fair value adjustments to mineral reserves, mineral resources and other property, plant and equipment acquired in a business combination, the tax base is normally nil since generally no tax deduction for amortisation is obtained in the jurisdictions in which the Group operates. Under UK GAAP no deferred tax liability arose as the non-deductible amortisation was a permanent difference, however under IFRS the difference between the carrying amounts and the asset's tax base is treated as a temporary difference and gives rise to the recognition of a deferred tax liability. In both periods, the liability recognised in relation to the fair value adjustments to mineral reserves, mineral resources and other assets is approximately US$1.1 billion. Under IFRS, the recognition of such deferred tax liabilities also results in the recognition of previously unrecognised deferred tax assets, mainly relating to tax losses of US$153.7 million at transition date and US$13.9 million at 31 December 2004, on the basis that these additional deferred tax liabilities will give rise to future taxable temporary differences against which the losses will be recovered. The tax loss adjustment at 31 December 2004 has been reduced from transition date due to utilisation of part of these losses during 2004 and as a result of the recognition of a significant portion of these losses under UK GAAP. Other adjustments to the deferred tax liability relate to miscellaneous other temporary differences not recognisable under UK GAAP.
Such deferred tax assets are netted against deferred tax liabilities to the extent that:
- the Group has a legally enforceable right to set off current tax assets against current tax liabilities; and
- the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:
  - the same taxable entity; or
  - different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recorded.
Equity-settled share-based payments
Under IFRS 2 'Share-based payments', the fair value of equity-settled options issued under the Long Term Incentive Plan (LTIP) at grant date is recognised in the income statement over the vesting period, and the corresponding entry to equity recorded in retained earnings.
Foreign currency translation reserve (FCTR)
This adjustment reflects the impact on the FCTR balance of the various IFRS adjustments to the balance sheet and the recycling of FCTR balance through the income statement. Under IAS 21 'The effects of changes in foreign exchange rates' upon full or partial disposal of a foreign operation or repayment of a portion of the net investment in such foreign operations, FCTR balances are recycled through the Income Statement. For the year ended 31 December 2004 this amounted to US$68.6 million.
Minority interests
This adjustment primarily represents the minority interest's share of the increased deferred tax liability.
Provisions
Under IFRS 2 'Share-based Payment' the fair value of cash-settled options issued under the LTIP is provided for over the vesting period, with subsequent movement in fair value after the vesting date recorded in the income statement as they arise. A provision of US$2.9 million at transition date and US$8.8 million at 31 December 2004 for the estimate of the future cost of the cash-settled share-based payment awards has been recognised.
Reversal of dividend accrual
The decrease to Trade and other payables represents the reversal of the dividend accrual of $83.6 million at transition date and US$99.8 million at 31 December 2004 against Retained earnings. Under IAS 10 'Events after the balance sheet date', the Group may only accrue for a dividend if this dividend has been appropriately approved and the payment is no longer at the discretion of the entity. Under UK GAAP, it was sufficient for the dividend to have been proposed.
Equity reconciliation
A reconciliation of total equity under UK GAAP to total equity under IFRS is outlined in the below table, which illustrates the net impact on equity of each of the major adjustments:

Equity reconciliation
US$m	Notes	As at 1 January 2004	As at 31 December 2004
UK GAAP equity		7,099.5	8,656.0
IFRS adjustments:
Goodwill amortisation reversal (including translation)	ii	-	12.0
Recognition of pension asset	iii	2.8	2.7
Recognition of pension liabilities	iii	-1.2	-0.6
Deferred tax	iv	-1,285.0	-1,435.9
Share-based compensation plans	v and viii	-2.3	-8.8
Dividend accrued reversal	ix	83.6	99.8
IFRS equity		5,897.4	7,325.2

The above amounts include minority interests which under IFRS are classified as equity.

Income statement reconciliation

A reconciliation between the UK GAAP and IFRS profit for the year ended 31 December 2004 is provided below. The UK GAAP profit and loss statement has been presented in an IFRS Income Statement format.

A reconciliation between the UK GAAP and IFRS profit for the year ended 31 December 2004
	UK GAAP US$m	PSVⁱ US$m	Forestryⁱⁱ US$m	US$m	Adjustments US$m	Notes	US$m
Revenue	6,091.6	373.7	-2.9	6,462.4	-		6,462.4
Cost of sales before depreciation	-3,274.8	-248.1	2.3	-3,520.6	-		-3,520.6
Distribution costs	-661.7	-50.4	-	-712.1	-		-712.1
Administrative expenses before depreciation	-128.6	-1.6	0.3	-129.9	-9.6	iii	-139.5
Other expenses	-52.1	-3.3	0.2	-55.2	-		-55.2
Other income	29.4	1.0	-	30.4	-2.3	iv	28.1
Share of results from associates	-	-	-	-	2.3	iv	2.3
Share of results from joint ventures	65.7	-65.7	-	-	-		-
Profit on sale of investments	10.2	-	-	10.2	-		10.2
Restructuring and closure costs	-9.0	-	-	-9.0	-		-9.0
Profit before interest, taxation, depreciation and amortisation	2,070.7	5.6	-0.1	2,076.2	-9.6		2,066.6
Depreciation and amortisation	-568.2	-5.6	1.6	-572.2	11.4	v	-560.8
Impairment of assets	-6.8	-	-	-6.8	-		-6.8
Profit before interest and taxation	1,495.7	-	1.5	1,497.2	1.8		1,499.0
Finance income	15.9	-	-	15.9	103.8	vi	119.7
Finance cost	-142.5	-	0.1	-142.4	-35.2	vi	-177.6
Profit before taxation	1,369.1	-	1.6	1,370.7	70.4		1,441.1
Income tax expense	-177.1	-	0.5	-176.6	-37.1	vii	-213.7
Profit for the year from continuing operations	1,192.0	-	2.1	1,194.1	33.3		1,227.4
Loss from discontinued operations	-	-	-2.1	-2.1	-		-2.1
Profit for the year	1,192.0	-	-	1,192.0	33.3		1,225.3

Attributable to:
Equity holders of the parent	1,052.9	-	-	1,052.9	14.2		1,067.1
Minority interests	139.1	-	-	139.1	19.1	viii	158.2
	1,192.0	-	-	1,192.0	33.3		1,225.3

The UK GAAP amounts are based on the UK GAAP profit and loss account adjusted to be consistent with the 2005 IFRS income statement. The main reclassification was to separate net operating costs before exceptional items on the face of the income statement.

Notes to the Reconciliation of Profit for the Year Ended 31 December 2004

Accounting for Alloys Pooling and Sharing Venture (PSV):
Under UK GAAP, the Group's share of the results of the PSV is recorded in a single line in the Profit & Loss Statement 'Share of operating profit of Joint Venture'. In addition under the gross equity method the combination of the Group turnover and share of joint venture turnover was shown as a separate item on the face of the profit and loss account. The revenue reported in the UK GAAP profit and loss account reflects Group revenue only. Under IAS 31 'Interest in Joint Ventures', the PSV is accounted for as a jointly controlled operation. The Group income statement includes the expenses incurred by the Group and the share of income that it earns from the sale of goods and services by the joint venture.
Discontinued operation - Forestry
The wholly owned forestry operation in Chile, Forestal Los Lagos SA (FLL) was sold on 6 January 2005 (refer to note 9). The 2004 results have been reclassified to discontinued under IFRS 5.
Administrative expenses
The adjustment to Administrative expenses is comprised of the following:
- Share-based compensation plan charge
  Under IFRS 2 'Share-based payments', the fair value of cash-settled options issued under the Long Term Incentive Plan is recorded in the Income Statement over the vesting period, with subsequent movements in fair value after the vesting date recognised in the income statement immediately. The fair value at grant date of the equity-settled options is recognised in the Income Statement over the vesting period. The result of the adopted policy for those plans is an additional charge of US$10.2 million under IFRS.
- Pension plan entitlements
  Under the amended IAS 19 'Employee Benefits', the movement in the pension plan surplus and deficits results in a reduced charge of US$0.6 million.
Share of results from associates
Under IAS 28 'Investments in Associates' the investment in several port facilities are classified as an associates and the share of income from these ports has been transferred from Other income.
Reversal of goodwill amortisation
Under IFRS 3 'Business Combinations', goodwill is no longer amortised, but is instead tested annually for impairment. As a result, the UK GAAP charge of US$11.4 million of goodwill amortisation has been reversed.
Financial income and expense
Under IAS 21 'The effects of changes in foreign exchange rates' upon full or partial disposal of a foreign operation or the repayment of a portion of the net investment in such foreign operations, cumulative foreign currency translation gains or losses are required to be recycled through the Income Statement. This has resulted in the recycling of net cumulative foreign currency gains through the income statement of US$68.6 million which were recorded directly in equity under UK GAAP.
Total Income tax benefit/(expense)
The increased tax charge for the year ended 31 December 2004 under IAS 12 'Income Taxes' as compared to UK GAAP is mainly due to the reversal of the benefit recognised in the UK GAAP profit and loss from the recognition of previously unrecognised tax losses, partially offset by the reversal of the deferred tax charge relating to depreciation on mineral reserves and resources which under UK GAAP is treated as a non-deductible permanent difference.
Minority interest
The increase in the minority interest, represents the minority's share of the reduction in the tax charge under IFRS as the temporary differences reverse following the depreciation of mineral reserves.

Cash Flow Statement

The presentation of certain items in the cash flow statement prepared under IAS 7 'Cash Flow Statements' differs to the previous presentation under UK GAAP.

Under IFRS, cash flows are segregated into three categories: operating, investing and financing. This differs from UK GAAP which requires additional sub categories. Foreign currency exchange differences are also recorded on the face of the cash flow statement under IFRS. The cash inflows and outflows under IFRS also differ to those reported under UK GAAP as under IFRS the cash flows of the PSV are included within the line items in the statement. Under UK GAAP the Group accounted for the cash flows it received from the PSV. This results in a net cash difference of negative US$17.7 million.

The above information on the transition to IFRS is consistent with the information presented in the 30 June 2005 interim report except that:

the Australian investment in ports had not been reclassified to Investment in associates at 30 June 2005 (refer above);
the amount reclassified from retained earnings to Other reserves has been adjusted by US$4.4 million at transition date and at 31 December 2004 million;
prepayments, non-current Trade and other receivables and non-current Trade and other payables have been recognised on the face of the balance sheet; and
a number of other reclassifications have occurred to align amounts with the disclosures made on the face of the Balance Sheet.

8. Acquisitions

Business combinations
African Carbon Group (ACG)

On 4 January 2005, the Group acquired 100% of the voting shares of a char producer, an input into the ferrochrome production process, ACG comprising African Fine Carbon (Pty) Limited and African Carbon Producers (Pty) Limited, unlisted companies situated in South Africa, for a cash consideration of US$63.5 million (including acquisition costs of US$0.3 million).

The fair value of the identifiable assets and liabilities of ACG as at the date of acquisition was:

Fair value of the identifiable assets and liabilities of African Carbon Group as at the date of acquisition
US$m	value	adjustments	acquisition
Property, plant and equipment	21.9	3.8	25.7
Inventories	2.7	-	2.7
Trade and other receivables	5.1	-	5.1
Cash and cash equivalents	3.2	-	3.2
	32.9	3.8	36.7
Interest-bearing loans and borrowings	-6.4	-	-6.4
Provisions	-0.1	-	-0.1
Deferred tax liabilities	-2.8	-	-2.8
Income taxes payable	-2.4	-	-2.4
Trade and other payables	-12.3	-	-12.3
Net assets	8.9	3.8	12.7
Goodwill arising on acquisition			50.8
			63.5

Cost:
Cash			63.2
Acquisition costs			0.3
Cash paid			63.5

Cash outflow on acquisition:
Net cash acquired with the subsidiary			-3.2
Cash paid			63.5
Net cash outflow			60.3

From the date of acquisition, ACG has contributed US$5.5 million to the net profit to the Group.

Included in goodwill recognised above are supplier contracts and technology which have not been recognised separately as they cannot be accurately valued. This is due to the fact that the contracts do not specify a fixed tonnage supply, can be terminated and due to the uncertainties surrounding the continuous supply of product. The nature of the other intangible assets prohibits an accurate valuation. As outlined above, char is an input into the ferrochrome production process and as such the recognition of goodwill is appropriate because of the synergies obtained.

Mototolo Joint Venture

On 3 August 2005, Anglo Platinum and the Group formed 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. Anglo Platinum and the Group will each contribute a similar amount of in-situ PGM reserves and resources. Anglo Platinum will purchase the Group's 50% share of PGM concentrate for further smelting refining and marketing of finished product. The Group will construct a beneficiation plant at its own cost to process the UG2 chrome tailings arising from the PGM concentrator and will purchase Anglo Platinum's share of chrome concentrate. The total capital expenditure for the project is estimated at US$200 million to commissioning, of which the Group's share is US$100 million. Construction of the mine and concentrator commenced during the last quarter of 2005, with initial production of PGM ounces anticipated in the last quarter of 2006 and full production by the end of 2007. The completion of these arrangements (including the contribution of reserves and resources) is conditional upon the entry of an Black Economic Empowerment partner into the joint venture and the approval of the Department of Minerals and Energy during 2006.

McArthur River Joint Venture

On 22 September 2005, the Group agreed to purchase the remaining 25% interest in the McArthur River Joint Venture in the Northern Territory, Australia, from its Joint Venture partner, ANT Minerals Pty Ltd. ANT Minerals is a consortium comprising Nippon Mining & Metals, Mitsui & Co and Marubeni Corporation.

Pooling and Sharing Venture

The Group and Merafe Resources Limited (Merafe) formerly SA Chrome & Alloys Limited, the Group's partner in the ferrochrome Pooling and Sharing Venture (PSV), acquired chrome ore reserves and resources from Samancor associated with the Kroondal and Marikana mining areas for a total consideration of US$16.0 million and US$29.1 million respectively. The Group's share of the total consideration was US$29.5 million for the purchase of 50% of Kroondal and 74% of Marikana mining areas. In addition, Merafe acquired Samancor's 50% stake in the Wonderkop Joint Venture for a total consideration of ZAR235 million (US$37.9 million). As a result of these transactions, Merafe's participation in the earnings before interest, tax, depreciation and amortisation (EBITDA) of the enlarged Venture increased to 17% from 16 November 2005 and will increase ultimately to 20.5% from 1 July 2006 onwards as outlined below. The Board of Merafe has also agreed to participate in the first stage of Project Lion at 20.5%, the Group's new 360,000 tonnes per annum ferrochrome smelter, that is currently under construction. The Group's 50% share in the Wonderkop JV was originally excluded from the PSV and has been placed into the PSV, together with Merafe's 50% stake acquired from Samancor, effective 16 November 2005.

The Group assisted Merafe in making these acquisitions by providing a loan to fund Merafe's share of the Marikana resources, which was repaid on 15 November 2005, and by standing as guarantor for a new loan facility provided to Merafe by the ABSA bank of South Africa (refer to note 36), which, together with equity financing, has funded Merafe's acquisition of Samancor's stake in the Wonderkop JV and the Kroondal resources.

The Group had previously established the PSV with Merafe, effective from 1 July 2004. Under the PSV, the Group and Merafe contribute assets in the ratio as stated in Year 3 onwards below in exchange for the revised participations in the pooled EBITDA as follows:

the Group and Merafe contribution
	Original PSV		Amended PSV
	Xstrata	Merafe	Xstrata	Merafe
Year 1	89.0%	11.0%	89.0%	11.0%
Year 2	86.0%	14.0%	83.0%	17.0%
Year 3 onwards	82.5%	17.5%	79.5%	20.5%

Investments in associates
Falconbridge Limited

On 14 August 2005, the Group acquired 73,115,756 common shares representing 19.9% of the common shares of Falconbridge Limited (Falconbridge), a Canadian company listed on the Toronto and New York stock exchanges, from Brascan Corporation (Brascan) for a consideration of CAD2.0 billion (US$1.7 billion), or CAD28 per share, settled by issuing short term promissory note A for US$1,327.3 million and promissory note B for US$375.0 million with coupons of 4% per annum. Falconbridge is a diversified mining company with copper, nickel, zinc and aluminium business segments.

On 22 August 2005, promissory note A was refinanced by drawing on the US$600.0 million term loan and the Group's existing syndicated loan facility (refer note 30). On 6 September 2006, promissory note B was replaced by a US$375 million convertible debenture (refer note 31).

Following the acquisition of 19.9% from Brascan, a further 550,240 shares in Falconbridge were acquired for a cash consideration of CAD15.4 million (US$13.0 million) to 5 September 2005, taking the Group's holding to 20%.

If within nine months of these acquisitions, the Group makes an offer or announces its intention to acquire a majority of the common shares of Falconbridge at a price per share in excess of CAD28, the Group will pay the excess over CAD28 for each of the common shares the Group has already acquired. Such payment is payable within five business days of the completion of the majority interest acquisition.

The Group treated this investment as an associate until 11 October 2005. Following the announcement of Inco Limited's proposed friendly takeover offer to acquire Falconbridge for CAD34.00 per share on 11 October 2005, equity accounting was ceased as the Group no longer had significant influence over the investment and the investment was classified as an available-for-sale asset (refer to note 23).

From the date of acquisition until 11 October 2005, the 20% interest in the Falconbridge contributed US$21.0 million to the net profit of the Group (refer to note 21).

9. Discontinued operations and disposals

Discontinued operations
Forestry

The wholly owned forestry operation in Chile, Forestal Los Lagos SA (FLL) was sold on 6 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, the Group will be released from all its obligations with respect to the US$12 million project debt related to FLL (refer to note 30, 36 and 38). A gain of US$3.7 million was realised upon disposal of the investment in the forestry operation, mainly due to a US$5.3 million recycled cumulative foreign exchange net gain from foreign currency translation reserve within equity. There was no other income or expenses during 2005.

The results of FFL for the periods ended are presented below:

Results of Forestal Los Lagos SA (FLL)
US$m	2004
Revenue	2.9
Cost of sales	-2.3
Administrative expenses	-0.3
Other expenses	-0.2
Profit before interest, taxation, depreciation and amortisation	0.1
Depreciation and amortisation	-1.6
Loss before interest and taxation	-1.5
Finance cost	-0.1
Loss before taxation	-1.6
Income tax expense	-0.5
Loss for the year	-2.1

The carrying value of the major classes of assets and liabilities are as follows:

Forestal Los Lagos SA (FLL): carrying value of the major classes of assets and liabilities
US$m	at 31.12.04
Property, plant and equipment	16.1
Biological assets	19.4
Other assets	0.1
Inventories	2.9
Trade and other receivables	0.6
Interest bearing loans and borrowings	-9.5
Provisions	-0.1
Trade and other payables	-0.2
Current portion of interest bearing loans and borrowings	-3.7
Net assets	25.6

Disposal proceeds:
Cash	24.0

Cash inflow on disposal:
Net bank overdrafts disposed of with the subsidiary	1.2
Cash received	24.0
Net cash inflow	25.2

The carrying value of assets and liabilities on the sale date were not materially different to the carrying values at 31 December 2004.

The net cash flows are as follows:

Forestal Los Lagos SA (FLL): net cash flows
US$m	2004
Net cash flow from operating activities	-0.5
Net cash flow from investing activities	-1.3
Net cash flow from financing activities	1.5

As the disposal occurred on 6 January 2005, the only cash flow in respect of this operation in the year ended 31 December 2005 was the disposal proceeds outlined above.

Earnings/(loss) per share from discontinued operations:

Forestal Los Lagos SA (FLL): Earnings/(loss) per share from discontinued operations
(US$)	2005	2004
Basic earnings per share	0.01	-0.01
Diluted earnings per share	0.01	-

Disposals

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. There was no gain or loss on disposal of Ravenswood.

Queensland Coal Asset Sell Down

A gain was reported in 2003 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. The receipt of US$38.9 million was deferred pending the approval to develop the Rolleston Project, which was announced on 24 February 2004.

The net cash impact of the above disposals was US$73.4 million.

10. Segmental Analysis

The Group's primary reporting format is business segments and its secondary format is geographical segments. The operating businesses are organised and managed separately according to the nature of the products produced, with each segment representing a strategic business unit that offers different products and serves different markets. The Group's geographical segments are determined by location of the Group's assets and operations. There are no transactions between business segments.

Business segments

The following tables present revenue and profit information and certain asset and liability information regarding the Group's business segments for the years ended 31 December 2005 and 2004.

For the year ended 31 December

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
Revenue
External parties:
Coal - Thermal	2,863.7	-	2,863.7	2,335.1	-	2,335.1
Coal - Coking	536.7	-	536.7	358.3	-	358.3
Coal	3,400.4	-	3,400.4	2,693.4	-	2,693.4
Chrome	797.5	-	797.5	819.3	-	819.3
Vanadium	318.0	-	318.0	133.7	-	133.7
Copper	2,007.8	-	2,007.8	1,598.3	-	1,598.3
Zinc Lead	1,448.9	-	1,448.9	1,165.3	-	1,165.3
Technology	77.2	-	77.2	52.4	-	52.4
Revenue (continuing operations)	8,049.8	-	8,049.8	6,462.4	-	6,462.4
Revenue (discontinued operations):
Forestry	-	-	-	2.9	-	2.9
Total	8,049.8	-	8,049.8	6,465.3	-	6,465.3

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
Profit before interest, taxation, depreciation and amortisation (EBITDA)
Coal - Thermal	1,066.1	-	1,066.1	769.6	-	769.6
Coal - Coking	278.0	-	278.0	144.1	-	144.1
Coal	1,344.1	-	1,344.1	913.7	-	913.7
Chrome	168.8	-	168.8	168.9	-	168.9
Vanadium	181.1	-	181.1	34.1	-0.6	33.5
Copper	1,131.1	-	1,131.1	856.7	-	856.7
Zinc Lead	303.1	-	303.1	145.5	-	145.5
Technology	13.5	-	13.5	19.2	-	19.2
Unallocated	-62.0	-10.3	-72.3	-75.0	-8.4	-83.4
Segment EBITDA (continuing operations)	3,079.7	-10.3	3,069.4	2,063.1	-9.0	2,054.1
Share of results from associates (net of tax, continuing operations):
Coal	2.4	-	2.4	2.3	-	2.3
Copper	15.9	-	15.9	-	-	-
Unallocated	5.1	-	5.1	-	-	-
Profit on sale of investments (continuing operations):
Copper	-	-	-	-	10.2	10.2
EBITDA (continuing operations)	3,103.1	-10.3	3,092.8	2,065.4	1.2	2,066.6
EBITDA (discontinued operations):
Forestry	-	-	-	0.1	-	0.1
Profit on sale of discontinued operations:
Forestry	-	3.7	3.7	-	-	-
Total	3,103.1	-6.6	3,096.5	2,065.5	1.2	2,066.7

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
Depreciation and amortisation
Depreciation:
Coal	266.6	-	266.6	247.9	-	247.9
Chrome	24.4	-	24.4	20.0	-	20.0
Vanadium	5.5	-	5.5	5.0	-	5.0
Copper	209.6	-	209.6	212.4	-	212.4
Zinc Lead	63.4	-	63.4	66.2	-	66.2
Technology	0.2	-	0.2	0.7	-	0.7
Unallocated	2.1	-	2.1	2.1	-	2.1
Depreciation (continuing operations)	571.8	-	571.8	554.3	-	554.3
Depreciation (discontinued operations):
Forestry	-	-	-	1.6	-	1.6
Total	571.8	-	571.8	555.9	-	555.9

Amortisation:
Coal	0.6	-	0.6	0.3	-	0.3
Copper	0.1	-	0.1	-	-	-
Zinc Lead	1.0	-	1.0	0.2	-	0.2
Technology	3.2	-	3.2	3.0	-	3.0
Unallocated	1.8	-	1.8	3.0	-	3.0
Total (continuing operations)	6.7	-	6.7	6.5	-	6.5

Total:
Coal	267.2	-	267.2	248.2	-	248.2
Chrome	24.4	-	24.4	20.0	-	20.0
Vanadium	5.5	-	5.5	5.0	-	5.0
Copper	209.7	-	209.7	212.4	-	212.4
Zinc Lead	64.4	-	64.4	66.4	-	66.4
Technology	3.4	-	3.4	3.7	-	3.7
Unallocated	3.9	-	3.9	5.1	-	5.1
Depreciation and amortisation
(from continuing operations)	578.5	-	578.5	560.8	-	560.8
Depreciation and amortisation (discontinued operations):
Forestry	-	-	-	1.6	-	1.6
Total	578.5	-	578.5	562.4	-	562.4

Impairment of assets recognised in profit or loss
Chrome	2.9	-	2.9	-	-	-
Copper	1.9	-	1.9	-	-	-
Vanadium	-	-	-	6.8	-	6.8
Technology	0.3	-	0.3	-	-	-
Total impairment of assets
(continuing operations)	5.1	-	5.1	6.8	-	6.8

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
Profit before interest and taxation (EBIT)
Coal - Thermal	833.4	-	833.4	553.9	-	553.9
Coal - Coking	243.5	-	243.5	111.6	-	111.6
Coal	1,076.9	-	1,076.9	665.5	-	665.5
Chrome	141.5	-	141.5	148.9	-	148.9
Vanadium	175.6	-	175.6	22.3	-0.6	21.7
Copper	919.5	-	919.5	644.3	-	644.3
Zinc Lead	238.7	-	238.7	79.1	-	79.1
Technology	9.8	-	9.8	15.5	-	15.5
Unallocated	-65.9	-10.3	-76.2	-80.1	-8.4	-88.5
Segment EBIT (continuing operations)	2,496.1	-10.3	2,485.8	1,495.5	-9.0	1,486.5
Share of results from associates
(net of tax, continuing operations):
Coal	2.4	-	2.4	2.3	-	2.3
Copper	15.9	-	15.9	-	-	-
Unallocated	5.1	-	5.1	-	-	-
Profit on sale of investments (continuing operations):
Copper	-	-	-	-	10.2	10.2
EBIT (continuing operations)	2,519.5	-10.3	2,509.2	1,497.8	1.2	1,499.0
Finance income			124.2			119.7
Finance expense			-171.5			-177.6
Profit before taxation			2,461.9			1,441.1
Income tax expense			-542.7			-213.7
Profit from continuing operations			1,919.2			1,227.4
EBIT (discontinued operations):
Forestry			-			-1.5
Finance costs (discontinued operations):
Forestry			-			-0.1
Profit on sale of discontinued operations:
Forestry			3.7			-
Income tax expense (discontinued operations):
Forestry			-			-0.5
Total			1,922.9			1,225.3

Business segments (For the year ended 31 December)
US$m	at 31 December 2005	at 31 December 2004
Total assets
Before tax assets and investments in associates:
Coal	6,218.3	6,329.4
Chrome	1,106.5	890.1
Vanadium	213.8	183.7
Copper	2,952.7	2,756.9
Zinc Lead	1,831.2	1,771.5
Technology	72.8	85.7
Unallocated*	2,373.4	178.9
Total segmental assets (continuing operations)	14,768.7	12,196.2
Discontinued operations:
Forestry	-	39.1
Total	14,768.7	12,235.3

Tax assets:
Chrome	1.8	2.0
Zinc Lead	3.0	-
Unallocated	1.9	-
Total (continuing operations)	6.7	2.0

Investment in associates:
Coal	43.9	48.9
Total (continuing operations)	43.9	48.9

Total assets
Coal	6,262.2	6,378.3
Chrome	1,108.3	892.1
Vanadium	213.8	183.7
Copper	2,952.7	2,756.9
Zinc Lead	1,834.2	1,771.5
Technology	72.8	85.7
Unallocated	2,375.3	178.9
Total assets (from continuing operations)	14,819.3	12,247.1
Discontinued operations:
Forestry	-	39.1
Total	14,819.3	12,286.2
*Includes available-for-sale financial assets not directly attributable to business segments.

Business segments (For the year ended 31 December)
US$m	at 31 December 2005	at 31 December 2004
Total liabilities
Before tax liabilities, interest bearing loans and borrowings:
Coal	532.5	446.4
Chrome	94.2	172.4
Vanadium	79.4	40.1
Copper	343.6	257.9
Zinc Lead	525.1	286.0
Technology	22.3	36.1
Unallocated	268.5	193.8
Total segmental liabilities (continuing operations)	1,865.6	1,432.7
Discontinued operations:
Forestry	-	0.3
Total	1,865.6	1,433.0

Tax liabilities, interest bearing loans and borrowings*:
Coal	1,271.2	1,381.3
Chrome	288.1	236.6
Vanadium	6.2	0.3
Copper	623.6	492.4
Zinc Lead	126.1	106.1
Technology	5.7	6.1
Unallocated	2,495.6	1,292.0
Total tax liabilities, interest bearing loans and borrowings (continuing operations)	4,816.5	3,514.8
Discontinued operations:
Forestry	-	13.2
Total	4,816.5	3,528.0

Total liabilities
Coal	1,803.7	1,827.7
Chrome	382.3	409.0
Vanadium	85.6	40.4
Copper	967.2	750.3
Zinc Lead	651.2	392.1
Technology	28.0	42.2
Unallocated	2,764.1	1,485.8
Total liabilities (from continuing operations)	6,682.1	4,947.5
Discontinued operations:
Forestry	-	13.5
Total	6,682.1	4,961.0
*These liabilities are included in Interest-bearing loans and borrowings, Convertible borrowings, Deferred tax liabilities and Income taxes payable line items in the balance sheet.

Business segments (For the year ended 31 December)
US$m	at 31 December 2005	at 31 December 2004
Net assets
Before tax assets and liabilities, investment in associates, interest bearing loans and borrowings:
Coal	5,685.8	5,883.0
Chrome	1,012.3	717.7
Vanadium	134.4	143.6
Copper	2,609.1	2,499.0
Zinc Lead	1,306.1	1,485.5
Technology	50.5	49.6
Unallocated*	2,104.9	-14.9
Total segmental net assets (continuing operations)	12,903.1	10,763.5
Discontinued operations:
Forestry	-	38.8
Total	12,903.1	10,802.3

Tax assets, tax liabilities, interest bearing loans and borrowings:
Coal	-1,271.2	-1,381.3
Chrome	-286.3	-234.6
Vanadium	-6.2	-0.3
Copper	-623.6	-492.4
Zinc Lead	-123.1	-106.1
Technology	-5.7	-6.1
Unallocated	-2,493.7	-1,292.0
Total (continuing operations)	-4,809.8	-3,512.8
Discontinued operations:
Forestry	-	-13.2
Total	-4,809.8	-3,526.0

Investment in associates:
Coal	43.9	48.9
Total (continuing operations)	43.9	48.9

Net assets
Coal	4,458.5	4,550.6
Chrome	726.0	483.1
Vanadium	128.2	143.3
Copper	1,985.5	2,006.6
Zinc Lead	1,183.0	1,379.4
Technology	44.8	43.5
Unallocated	-388.8	-1,306.9
Net assets (from continuing operations)	8,137.2	7,299.6
Discontinued operations:
Forestry	-	25.6
Total	8,137.2	7,325.2
*Includes available-for-sale financial assets not directly attributable to business segments.

Business segments
US$m	2005	2004
Capital expenditure
Sustaining:
Coal	187.7	132.3
Chrome	25.9	8.8
Vanadium	8.9	1.3
Copper	115.3	94.6
Zinc Lead	88.8	65.7
Technology	0.7	0.5
Unallocated	2.6	3.0
Total sustaining (continuing operations)	429.9	306.2
Sustaining (discontinued operations):
Forestry	-	1.3
Total (continuing operations)	429.9	307.5

Expansionary:
Coal	280.9	172.1
Chrome	161.4	33.7
Vanadium	7.4	3.2
Copper*	35.3	95.7
Zinc Lead	32.2	29.6
Total expansionary (continuing operations)	517.2	334.3

Total:
Coal	468.6	304.4
Chrome	187.3	42.5
Vanadium	16.3	4.5
Copper*	150.6	190.3
Zinc Lead	121.0	95.3
Technology	0.7	0.5
Unallocated	2.6	3.0
Total (from continuing operations)	947.1	640.5
Total (discontinued operations):
Forestry	-	1.3
Total	947.1	641.8
*Includes US$91.0 million for project acquisitions in 2004.

The average monthly number of employees, which includes Executive Directors and excludes contractors, during the year was as follows:

Business segments (For the year ended 31 December)
	2005	2004
Coal	6,762	6,697
Chrome	4,408	4,197
Vanadium	363	536
Copper	3,256	2,898
Zinc Lead	2,742	2,331
Technology	56	54
Unallocated	41	37
Total (continuing operations)	17,628	16,750
Total (discontinued operations):
Forestry	-	16
Total	17,628	16,766


The average monthly number of contractors during the year was as follows:
Coal	4,061	3,541
Chrome	500	450
Vanadium	75	130
Copper	1,018	650
Zinc Lead	768	565
Technology	41	42
Total	6,463	5,378

Geographical segments

The following tables present revenue and profit information and certain asset and liability information regarding the Group's geographical segments for the years ended December 2005 and 2004.

For the year ended 31 December

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
Revenue by origin
External parties:
Africa	1,905.7	-	1,905.7	1,621.3	-	1,621.3
Americas	849.5	-	849.5	724.2	-	724.2
Australia	4,086.0	-	4,086.0	3,202.4	-	3,202.4
Europe	1,208.6	-	1,208.6	914.5	-	914.5
Revenue (continuing operations)	8,049.8	-	8,049.8	6,462.4	-	6,462.4
Revenue (discontinued operations):
Americas	-	-	-	2.9	-	2.9
Total	8,049.8	-	8,049.8	6,465.3	-	6,465.3

Revenue by destination
External parties:
Africa	236.4	-	236.4	274.4	-	274.4
Americas	710.9	-	710.9	313.6	-	313.6
Asia	3,391.0	-	3,391.0	2,882.5	-	2,882.5
Australia	655.3	-	655.3	556.3	-	556.3
Europe	2,964.0	-	2,964.0	2,328.1	-	2,328.1
Middle East	92.2	-	92.2	107.5	-	107.5
Revenue (continuing operations)	8,049.8	-	8,049.8	6,462.4	-	6,462.4
Revenue (discontinued operations):
Americas	-	-	-	2.9	-	2.9
Total	8,049.8	-	8,049.8	6,465.3	-	6,465.3

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
EBITDA
Africa	620.5	-	620.5	386.3	-0.6	385.7
Americas	543.8	-	543.8	487.7		487.7
Australia	1,799.8		1,799.8	1,162.7	-	1,162.7
Europe	177.6		177.6	101.4	-	101.4
Unallocated	-62.0	-10.3	-72.3	-75.0	-8.4	-83.4
Segment EBITDA (continuing operations)	3,079.7	-10.3	3,069.4	2,063.1	-9.0	2,054.1
Share of results from associates
(net of tax, continuing operations):
Australia	2.4	-	2.4	2.3	-	2.3
Americas	15.9	-	15.9	-	-	-
Unallocated	5.1	-	5.1	-	-	-
Profit on sale of investments
(continuing operations):
Australia	-	-	-	-	10.2	10.2
EBITDA (continuing operations)	3,103.1	-10.3	3,092.8	2,065.4	1.2	2,066.6
EBITDA (discontinued operations):
Americas	-	-	-	0.1	-	0.1
Profit on sale of discontinued operations:
Americas	-	3.7	3.7	-	-	-
Total	3,103.1	-6.6	3,096.5	2,065.5	1.2	2,066.7

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
Depreciation and amortisation
Depreciation:
Africa	107.7	-	107.7	96.7	-	96.7
Americas	103.0	-	103.0	118.9		118.9
Australia	324.0	-	324.0	302.4	-	302.4
Europe	35.0	-	35.0	34.2	-	34.2
Unallocated	2.1	-	2.1	2.1	-	2.1
Depreciation (continuing operations)	571.8	-	571.8	554.3	-	554.3
Depreciation (discontinued operations):
Americas	-		-	1.6	-	1.6
Total	571.8	-	571.8	555.9	-	555.9

Amortisation:
Africa	0.2	-	0.2	0.3	-	0.3
Americas	0.1	-	0.1	-	-	-
Australia	3.6	-	3.6	3.0	-	3.0
Europe	1.0	-	1.0	0.2	-	0.2
Unallocated	1.8	-	1.8	3.0	-	3.0
Total (continuing operations)	6.7	-	6.7	6.5	-	6.5

Total:
Africa	107.9	-	107.9	97.0	-	97.0
Americas	103.1	-	103.1	118.9	-	118.9
Australia	327.6	-	327.6	305.4	-	305.4
Europe	36.0	-	36.0	34.4	-	34.4
Unallocated	3.9	-	3.9	5.1	-	5.1
Depreciation and amortisation (from continuing operations)	578.5	-	578.5	560.8	-	560.8
Depreciation and amortisation (discontinued operations):
Americas	-	-	-	1.6	-	1.6
Total	578.5	-	578.5	562.4	-	562.4

Impairment of assets recognised in profit or loss
Africa	2.9	-	2.9	6.8	-	6.8
Americas	1.9	-	1.9	-	-	-
Australia	0.3	-	0.3	-	-	-
Total impairment of assets (continuing operations)	5.1	-	5.1	6.8	-	6.8

Business segments (For the year ended 31 December)
US$m	Before non-trading items	Non-trading items	2005	Before non-trading items	Non-trading items	2004
EBIT
Africa	509.7	-	509.7	282.5	-0.6	281.9
Americas	438.8	-	438.8	368.8	-	368.8
Australia	1,471.9	-	1,471.9	857.3	-	857.3
Europe	141.6	-	141.6	67.0	-	67.0
Unallocated	-65.9	-10.3	-76.2	-80.1	-8.4	-88.5
Segment EBIT (continuing operations)	2,496.1	-10.3	2,485.8	1,495.5	-9.0	1,486.5
Share of results from associates (net of tax, continuing operations):
Australia	2.4	-	2.4	2.3	-	2.3
Americas	15.9	-	15.9	-	-	-
Unallocated	5.1	-	5.1	-	-	-
Profit on sale of investments (continuing operations):
Australia	-	-	-	-	10.2	10.2
EBIT (continuing operations)	2,519.5	-10.3	2,509.2	1,497.8	1.2	1,499.0
Finance income			124.2			119.7
Finance expense			-171.5			-177.6
Profit before taxation			2,461.9			1,441.1
Income tax expense			-542.7			-213.7
Profit from continuing operations			1,919.2			1,227.4
EBIT (discontinued operations):
Americas			-			-1.5
Profit on sale of discontinued operations:
Americas			3.7			-
Finance costs (discontinued operations)
Americas			-			-0.1
Income tax expense (discontinued operations):
Americas			-			-0.5
Total			1,922.9			1,225.3

Business segments (For the year ended 31 December)
US$m	at 31.12.05	at 31.12.04
Total assets
Before tax assets and investment in associates
Africa	3,415.0	3,413.8
Americas	1,460.2	1,391.5
Australia	6,194.6	5,864.8
Europe	1,325.5	1,347.2
Unallocated*	2,373.4	178.9
Total segmental assets (continuing operations)	14,768.7	12,196.2
Total (discontinued operations):
Americas	-	39.1
Total (continuing operations)	14,768.7	12,235.3

Tax assets:
Africa	1.8	2.0
Europe	3.0	-
Unallocated	1.9	-
Total (continuing operations)	6.7	2.0

Investment in associates:
Africa	1.5	3.8
Australia	42.4	45.1
Total (continuing operations)	43.9	48.9

Total assets
Africa	3,418.3	3,419.6
Americas	1,460.2	1,391.5
Australia	6,237.0	5,909.9
Europe	1,328.5	1,347.2
Unallocated	2,375.3	178.9
Total (continuing operations)	14,819.3	12,247.1
Total (discontinued operations):
Americas	-	39.1
Total	14,819.3	12,286.2
*Includes available-for-sale financial assets not directly attributable to geographical segments.

Business segments (For the year ended 31 December)
US$m	at 31.12.05	at 31.12.04
Total liabilities
Before tax liabilities, interest bearing loans and borrowings:
Africa	320.7	303.6
Americas	83.5	62.1
Australia	863.9	585.2
Europe	329.0	288.0
Unallocated	268.5	193.8
Total segmental liabilities (continuing operations)	1,865.6	1,432.7
Total (discontinued operations):
Americas	-	0.3
Total	1,865.6	1,433.0

Tax liabilities, interest bearing loans and borrowings:
Africa	777.1	802.2
Americas	368.9	421.1
Australia	1,133.3	971.8
Europe	41.6	27.7
Unallocated	2,495.6	1,292.0
Total (continuing operations)	4,816.5	3,514.8
Total (discontinued operations):
Americas	-	13.2
Total	4,816.5	3,528.0

Total liabilities
Africa	1,097.8	1,105.8
Americas	452.4	483.2
Australia	1,997.2	1,557.0
Europe	370.6	315.7
Unallocated	2,764.1	1,485.8
Total (continuing operations)	6,682.1	4,947.5
Total (discontinued operations):
Americas	-	13.5
Total	6,682.1	4,961.0

Business segments (For the year ended 31 December)
US$m	at 31.12.05	at 31.12.04
Net assets
Before tax assets and liabilities, investment in associates, interest bearing loans and borrowings:
Africa	3,094.3	3,110.2
Americas	1,376.7	1,329.4
Australia	5,330.7	5,279.6
Europe	996.5	1,059.2
Unallocated*	2,104.9	-14.9
Total segmental net assets (continuing operations)	12,903.1	10,763.5
Total (discontinued operations):
Americas	-	38.8
Total	12,903.1	10,802.3

Tax assets and liabilities, interest bearing loans and borrowings:
Africa	-775.3	-800.2
Americas	-368.9	-421.1
Australia	-1,133.3	-971.8
Europe	-38.6	-27.7
Unallocated	-2,493.7	-1,292.0
Total (continuing operations)	-4,809.8	-3,512.8
Total (discontinued operations):
Americas	-	-13.2
Total	-4,809.8	-3,526.0

Investment in associates:
Africa	1.5	3.8
Australia	42.4	45.1
Total (continuing operations)	43.9	48.9

Net assets
Africa	2,320.5	2,313.8
Americas	1,007.8	908.3
Australia	4,239.8	4,352.9
Europe	957.9	1,031.5
Unallocated	-388.8	-1,306.9
Total (continuing operations)	8,137.2	7,299.6
Total (discontinued operations):
Americas	-	25.6
Total	8,137.2	7,325.2
*Includes available-for-sale financial assets not directly attributable to geographical segments.

Business segments (For the year ended 31 December)
US$m	2005	2004
Capital expenditure
Sustaining:
Africa	94.0	63.9
Americas	21.1	23.1
Australia	283.9	189.8
Europe	28.3	26.4
Unallocated	2.6	3.0
Total sustaining (continuing operations)	429.9	306.2
Total (discontinued operations):
Americas	-	1.3
Total	429.9	307.5
Expansionary:
Africa	174.6	47.9
Americas	13.6	94.2
Australia	315.6	183.9
Europe	13.4	8.3
Total expansionary (continuing operations)	517.2	334.3
Total:
Africa	268.6	111.8
Americas	34.7	117.3
Australia	599.5	373.7
Europe	41.7	34.7
Unallocated	2.6	3.0
Total (continuing operations)	947.1	640.5
Total (discontinued operations):
Americas	-	1.3
Total	947.1	641.8

The average monthly number of employees, which includes Executive Directors and excludes contractors, during the year was as follows:

Business segments (For the year ended 31 December)
	2005	2004
Africa	8,936	8,976
Americas	1,192	1,110
Australia	5,803	5,125
Europe	1,656	1,502
Unallocated	41	37
Total (continuing operations)	17,628	16,750
Total (discontinued operations):
Americas	-	16
Total	17,628	16,766

The average monthly number of contractors during the year was as follows:

Business segments (For the year ended 31 December)
	2005	2004
Africa	2,676	2,498
Americas	328	15
Australia	3,163	2,572
Europe	296	293
Total	6,463	5,378

11. Revenues and Expenses

Revenue and expenses included in the consolidated income statement

Revenue and expenses included in the consolidated income statement
US$m	2005	2004
Revenue - sales of goods	8,049.8	6,462.4
Less cost of sales - after depreciation and amortisation and impairment of assets	-4,434.9	-4,060.2
Gross profit	3,614.9	2,402.2
Administrative expenses - after depreciation and amortisation and impairment of assets	225.6	167.5
Inventory recognised as an expense	4,367.7	4,022.5
Inventory written down to net realisable value	1.0	0.6
Operating lease rental expense - minimum lease payments	21.0	30.1
Royalties paid	230.6	154.8
Research and development - directly charged	0.6	0.3

Depreciation and amortisation included in the consolidated income statement

Depreciation and amortisation included in the consolidated income statement
US$m	2005	2004
Depreciation of owned assets	561.2	541.8
Depreciation of assets held under finance leases and hire purchase contracts	10.6	12.5
Total depreciation	571.8	554.3
Amortisation of intangible assets	6.7	6.5
Total depreciation and amortisation from continuing operations	578.5	560.8
Discontinued operations:
Depreciation of owned assets	-	1.6
	578.5	562.4

Employee costs including Directors' emoluments (refer to the Remuneration report on pages 112 to 115 of the Annual Review 2005 for details)

Employee costs including Directors' emoluments
US$m	2005	2004
Wages and salaries	718.4	629.5
Pension and other post-retirement benefit costs (refer to note 37)	81.2	50.4
Social security and other benefits	46.6	40.4
Share-based compensation plans (refer to note 37)	31.4	14.8
Employee costs from continuing operations	877.6	735.1
Discontinued operations:
Wages and salaries	-	0.2
	877.6	735.3

Other expenses

Other expenses
US$m	2005	2004
Loss on disposal of property, plant and equipment	0.8	1.2
Net foreign exchange losses	-	30.4
Standing charges and asset maintenance costs	43.1	13.2
Other sundry expenses	8.0	10.4
Other expenses from continuing operations	51.9	55.2
Discontinued operations:
Other sundry expenses	-	0.2
	51.9	55.4

Other income

Other income
US$m	2005	2004
Fair value gains on biological assets	1.1	-
Gain on disposal of property, plant and equipment*	16.7	5.4
Net foreign exchange gains	25.4	-
Other sundry income	25.0	22.7
	68.2	28.1
*The gain includes US$14.5 million recognised when mining properties and leases, with a carrying amount of US$nil, were exchanged for a supply contract.

Acquisition costs

The Group made a cash offer to purchase the entire share capital of WMC Resources Limited, an Australian listed diversified mining company in October 2004. In March 2005 BHP Billiton Limited announced a higher cash and the Group announced it would not increase its offer price. The Group incurred acquisition costs of US$10.3 million and US$17.3 million of financing costs in relation to the offer for WMC Resources Limited. The tax credit attributable to the costs incurred is US$8.3 million.

Impairment of assets included in the consolidated income statement

Impairment of assets included in the consolidated income statement
US$m	2005	2004
Chrome - Africa	2.9	-
Copper - Americas	1.9	-
Vanadium - Africa	-	6.8
Technology - Australia	0.3	-
	5.1	6.8

The impairment of assets mainly relates to the write down of uneconomic exploration costs and mineral resources (included in capital works in process and mining properties and leases within Property, plant and equipment) following further geological studies in South America and South Africa indicated that such assets were not recoverable.

Profit on sale of investments

Profit on sale of investments
US$m	2005	2004
Copper - Australia	-	10.2
	-	10.2

Listed shares were sold for a consideration of US$ 12.1 million in 2004

Auditors' remuneration

Auditors' remuneration
US$m	2005	2004
Auditors' remuneration (a):
- Group auditors - UK	0.8	1.2
- Group auditors - overseas	4.1	4.1
- Other auditors	-	0.1
	4.9	5.4
Amounts paid to auditors for other work:
Group auditors (b)
- Corporate finance transactions (c)	5.2	1.4
- Taxation (d)	2.0	3.1
- Other (e)	0.8	0.8
	8.0	5.3
Other audit firms
- Internal audit	0.8	1.3
- Other (f)	2.8	1.4
	3.6	2.7
(a) The Group audit fee includes US$50,000 (2004 US$42,000) in respect of the parent company.
(b) Included in other fees to auditors is US$6.6 million (2004 US$3.2 million) relating to the Company and its UK subsidiaries.
(c) 2005 includes amounts spent on the proposed acquisition of WMC, and other potential transactions.
(d) Includes corporate tax compliance and advisory services.
(e) Primarily relates to accounting advise and non-statutory assurance services.
(f) Includes tax advisory services, accounting assistance and acquisition due diligence.

The Corporate Governance Report set out on pages 91 to 101 of the Annual Review 2005 details the Group's policy with regard to the independence and objectivity of the external and internal auditors and the provision and approval of non-audit services provided by the external auditors.

Finance income

Finance income
US$m	2005	2004
Bank interest receivable	20.0	13.2
Dividends received	9.2	1.6
Interest receivable - other	6.5	1.1
Finance income before non-trading items	35.7	15.9
Recycled gains from the foreign currency translation reserve	88.5	103.8
Total finance income	124.2	119.7

Finance costs

Finance costs
US$m	2005	2004
Amortisation of loan issue costs	2.4	7.5
Bank loans and overdrafts	43.3	32.1
Discount unwinding	14.2	14.4
Convertible borrowings and capital market notes	37.5	31.5
Convertible borrowings amortised cost charge	9.6	-
Finance charges payable under finance leases and hire purchase contracts	7.0	4.8
Unrealised loss on interest rate swap	2.2	-
Minority interest loans	5.9	7.1
Interest payable - other	5.5	9.9
Finance cost before non-trading items	127.6	107.3
Recycled losses from the foreign currency translation reserve	26.6	35.2
Loan issue costs written-off on facility refinancing	17.3	35.1
Non-trading finance cost	43.9	70.3
Total finance cost from continuing operations	171.5	177.6
Discontinued operations:
Bank loans and overdrafts	-	0.1
Total finance cost	171.5	177.7

Income Taxes

Income tax charge

Significant components of income tax expense for the years ended:

Income tax charge
US$m	2005	2004
Consolidated income statement
Current tax:
Based on taxable income of the current year	498.7	267.5
Prior year adjustments (under/over provision)	-12.6	-2.2
Total current taxation charge for the year	486.1	265.3
Deferred taxation:
Origination and reversal of temporary differences	81.0	46.6
Change in tax rates in South Africa from 30% to 29%	-21.5	-
Benefit from previously unrecognised tax losses, tax credits or temporary differences of a prior year
that is used to reduce deferred tax expense	-0.5	-49.6
Benefit from entry into the Australian tax consolidation regime	-2.4	-48.1
Total deferred taxation charge/(credit) for the year	56.6	-51.1
Total taxation charge	542.7	214.2

Total taxation charge reported in consolidated income statement	542.7	213.7
Income tax attributable to discontinued operations	-	0.5
Total taxation charge	542.7	214.2

UK taxation included above:
Current tax	1.2	1.0
Deferred tax	0.1	-4.2
Total taxation charge	1.3	-3.2

Recognised directly in equity
Deferred tax:
Available-for-sale financial assets	-82.7	-
Cash flow hedges	58.5	-
Other equity classified items	18.2	-
Total taxation charge reported in equity	-6.0	-

A reconciliation of income tax expense applicable to accounting profit before income tax at the weighted average statutory income tax rate to income tax expense at the Group average effective income tax rate for the years ended is as follows:

Income taxes
US$m	2005	2004
Profit before taxation from continuing operations	2,461.9	1,441.1
Profit before taxation from discontinued operations	3.7	-1.6
Profit before taxation	2,465.6	1,439.5
At average statutory income tax rate 24.2% (2004: 22.4%)	597.7	322.1
Non-deductible expenses	12.3	10.8
Rebatable dividends received	-0.9	-13.2
Research and development allowances	-30.8	-1.6
Change in tax rates	-21.5	-
Previously unrecognised tax losses	-0.5	-49.6
Benefit from entry into the Australian tax consolidation regime	-2.4	-48.1
Prior year adjustments (under/over provision)	-12.6	-2.2
Other	1.4	-4.0
At average effective income tax rate	542.7	214.2

Total taxation charge reported in consolidated income statement	542.7	213.7
Income tax attributable to discontinued operations	-	0.5
At average effective income tax rate	542.7	214.2

The average statutory income tax rate is the average of the standard income tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the subsidiaries in the respective countries as included in the consolidated accounts.

The change in the average statutory income tax rate is due to the variation in the weight of subsidiaries profits and by various changes in the enacted standard income tax rates.

Deferred income taxes

Deferred tax assets are recognised for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available against which the unused tax losses/credits can be utilised.

Unrecognised tax losses

The Group has tax losses that are available indefinitely of US$9.3 million (2004 US$15.5 million) to carry forward against future taxable income of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they have arisen in subsidiaries that have been loss-making for some time. There are no other deductible temporary differences that have not been not recognised at balance sheet date.

Temporary differences associated with Group investments

At 31 December 2005, there was no recognised deferred tax liability (2004 US$nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries, associates or joint ventures as:

The Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future; and
The profits of the associates will not be distributed until it obtains the consent of the Group.

The temporary differences associated with investments in subsidiaries, associates and joint ventures, for which deferred tax assets have not been recognised amount to US$314.6 million (2004 US$334.2 million). A deferred tax asset based on these temporary differences has not been recognised as the investments are not held for resale and are expected to be recouped by continued use of these operations by the subsidiaries.

There are no income tax consequences for the Group attaching to the payment of dividends by the Company to its shareholders.

The deferred tax assets/(liabilities) included in the balance sheet is as follows:

Income taxes
US$m	2005	2004
Tax losses	73.3	194.2
Derivative financial instruments	76.8	-
Employee provisions	49.1	57.3
Other provisions	14.6	8.8
Rehabilitation and closure	66.6	66.3
Accelerated depreciation	-1,200.3	-1,296.2
Coal export rights	-300.2	-345.1
Other intangibles	-9.7	-10.6
Government grants	-15.3	-18.9
Deferred stripping	-36.1	-12.1
Available-for-sale financial assets	-82.7	-
Other equity related items	18.2	-
Other	13.7	0.6
	-1,332.0	-1,355.7
Represented on the face of the balance sheet as:
Deferred tax assets	6.7	2.0
Deferred tax liabilities	-1,338.7	-1,357.7
	-1,332.0	-1,355.7

The deferred tax included in the Group income statement is as follows:

Income taxes
US$m	2005	2004
Tax losses	105.9	100.8
Accelerated depreciation	-10.8	-49.7
Deferred stripping	25.7	2.0
Derivative financial instruments	-27.1	-
Rehabilitation and closure	-5.7	-
Employee provisions	3.8	-1.3
Other provisions	-5.5	-1.1
Other	-5.3	-4.1
From continuing operations	81.0	46.6
From discontinued operations	-	0.5
	81.0	47.1

13. Earnings Per Share

Earnings per share
US$m	2005	2004
Continuing operations:
Profit before non-trading items attributable to ordinary equity holders of the parent from continuing operations	1,660.1	1,029.3
Non-trading items from continuing operations	42.6	39.9
Profit attributable to ordinary equity holders of the parent from continuing operations	1,702.7	1,069.2
Interest in respect of convertible borrowings	40.9	23.7
Convertible borrowings interest rate swap fair value hedge movement	-18.6	-
Profit attributable to ordinary equity holders of the parent for diluted earnings per share from continuing operations	1,725.0	1,092.9
Total operations:
Profit before non-trading items attributable to ordinary equity holders of the parent from continuing operations	1,660.1	1,029.3
Non-trading items from continuing operations	42.6	39.9
Profit attributable to ordinary equity holders of the parent from continuing operations	1,702.7	1,069.2
Profit/(loss) attributable to ordinary equity holders of the parent from discontinued operations	3.7	-2.1
Profit attributable to ordinary equity holders of the parent	1,706.4	1,067.1
Interest in respect of convertible borrowings	40.9	23.7
Convertible borrowings interest rate swap fair value hedge movement	-18.6	-
Profit attributable to ordinary equity holders of the parent for diluted earnings per share	1,728.7	1,090.8
Weighted average number of shares (000) excluding own shares:
For basic earnings per share	612,421	626,351
Effect of dilution:
- Free share and share options (000)	4,828	2,461
- Convertible borrowings	65,719	61,181
For diluted earnings per share	682,968	689,993
Basic earnings per share (US$)
Continuing operations:
- before non-trading items	2.71	1.65
- non-trading items	0.07	0.06
	2.78	1.71
Discontinued operations:
- before non-trading items	-	-0.01
- non-trading items	0.01	-
	0.01	-0.01
Total:
- before non-trading items	2.71	1.64
- non-trading items	0.08	0.06
	2.79	1.70
Diluted earnings per share (US$)
Continuing operations:
- before non-trading items	2.46	1.52
- non-trading items	0.06	0.06
	2.52	1.58
Discontinued operations:
- before non-trading items	-	-
- non-trading items	0.01	-
	0.01	-
Total:
- before non-trading items	2.46	1.52
- non-trading items	0.07	0.06
	2.53	1.58

Basic earnings per share is calculated by dividing the net profit for the year attributable to the equity holders of the parent company by the weighted average number of ordinary shares outstanding for the year, excluding own shares. Adjustments are made for continuing and discontinued operations and before non-trading items and after non-trading items as outlined above.

Diluted earnings per share is based on basic earnings per share adjusted for the potential dilution if Director and employee free shares and share options are exercised and the convertible bonds and debentures are converted into ordinary shares. An adjustment is also made to the net profit for the interest in respect of the convertible borrowings and related hedging.

There have been no other transactions involving ordinary shares or potential ordinary shares since the reporting date and before the completion of these financial statements.

14. Dividends Paid and Proposed

Dividends Paid and Proposed
US$m	2005	2004
Declared and paid during the year:
Final dividend for 2004 - 16.0 cents per ordinary share (2003: 13.3 cents per ordinary share)	100.0	83.6
Interim dividend for 2005 - 9.0 cents per ordinary share (2004: 8.0 cents per ordinary share)	54.2	50.2
	154.2	133.8

Proposed for approval at the Annual General Meeting (not recognised as a liability as at 31 December):
Final dividend for 2005 - 25.0 cents per ordinary share (2004: 16.0 cents per ordinary share)	149.9	100.0

Dividends declared in respect of the year ended 31 December 2005 will be paid on 19 May 2006. As stated in note 28, own shares held in the ESOP and by Batiss Investments (Batiss) have waived the right to receive dividends.

15. Intangible Assets

Intangible Assets
US$m	Coal export rights*	Goodwill*	Technology patents*	Computer software & development	Other	2005
At 1 January 2005	1244.6	210.9	59.3	6.7	2.4	1,523.9
Acquisition of subsidiaries	-	50.8	-	-	-	50.8
Additions	-	-	-	13.3	-	13.3
Amortisation charge	-	-	-3.1	-3.3	-0.3	-6.7
Translation adjustments	-114.3	-33.0	-3.5	-0.3	-0.2	-151.3
At 31 December 2005	1130.3	228.7	52.7	16.4	1.9	1,430.0
At 1 January 2005:
Cost	1244.6	210.9	64.1	12.4	12.0	1,544.0
Accumulated depreciation	-	-	-4.8	-5.7	-9.6	-20.1
Net carrying amount	1244.6	210.9	59.3	6.7	2.4	1,523.9
At 31 December 2005:
Cost	1130.3	228.7	60.2	25.0	2.4	1,446.6
Accumulated depreciation	-	-	-7.5	-8.6	-0.5	-16.6
Net carrying amount	1130.3	228.7	52.7	16.4	1.9	1,430.0
*Purchased as part of business combinations

Intangible Assets
US$m	Coal export rights*	Goodwill*	Technology patents*	Computer software & development	Other	2004
At 1 January 2004	1072.5	195.4	60.3	4.2	5.3	1,337.7
Additions	-	-	-	2.8	-	2.8
Amortisation charge	-	-	-3.0	-0.5	-3.0	-6.5
Translation adjustments	172.1	15.5	2.0	0.2	0.1	189.9
At 31 December 2004	1244.6	210.9	59.3	6.7	2.4	1,523.9
At 1 January 2004:
Cost	1072.5	195.4	61.8	9.0	11.9	1,350.6
Accumulated depreciation	-	-	-1.5	-4.8	-6.6	-12.9
Net carrying amount	1072.5	195.4	60.3	4.2	5.3	1,337.7
At 31 December 2004:
Cost	1244.6	210.9	64.1	12.4	12.0	1,544.0
Accumulated depreciation	-	-	-4.8	-5.7	-9.6	-20.1
Net carrying amount	1244.6	210.9	59.3	6.7	2.4	1,523.9
*Purchased as part of business combinations

The Group has a 20.91% interest in the service organisation, Richards Bay Coal Terminal Company Limited, acquired through a business combination, 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. The land on which the terminal operates is leased on a long term basis from the state owned ports authority. There has been a history of lease 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 impairment review.

The Group acquired the right to market to third parties various leading technologies for the mining, mineral processing and metals extraction industries, through a business combination. The technology patents are amortised over their useful economic lives of 20 years to June 2023.

Computer software and software development is being amortised over their useful economic lives of 3 years, with an average remaining life of 1.6 years.

16. Impairment Testing of Goodwill and Indefinite Life Intangible Assets

Impairment Testing of Goodwill and Indefinite Life Intangible Assets
US$m	2005	2004
Coal export rights carrying value:
Coal Africa	1130.3	1244.6
Goodwill carrying values:
Chrome - Africa	50.6	6.2
Zinc Lead - Europe (Nordenham)	13.2	15.1
Zinc Lead - Europe (San Juan de Nieva)	164.9	189.6
	228.7	210.9

As outlined in the above table goodwill and indefinite life intangibles have been allocated for impairment testing first to reportable segments and then to the next level of cash generating unit which is expected to benefit from the asset.

For the coal export rights and the chrome goodwill the cash-generating unit levels are consistent with the reportable segment. Goodwill zinc Europe has been allocated to individual operations representing the cash-generating unit level which will benefit from the synergies of acquisition.

The recoverable amount of the coal export rights in Africa has been determined based on a value-in-use calculation. The value in use is based on cash flows expected to be generated by the mines that rely on the coal export right. Such cash flows are projected for a period up to the date that mining ceases, based on management's current expectation. This date depends on a number of variables, including the recoverable reserves and the forecast selling price for such production. Cash flows have been projected for a maximum of 40 years (2004: 40 years).

The recoverable amounts of goodwill have been determined based on a value in use calculations. The value-in-use is based on cash flow expected to be generated from mines and refining operations included within the cash generating units. In a similar manner to the testing for the coal export right cash flows are projected for periods up to the date mining and refining ceases based on management's current expectations. This date depends on a number of variables, including recoverable reserves, the forecast selling price for such production and the treatment charges receivable from refining operations. Cash flows have been projected for a maximum of 20 years (2004: 20 years).

The key assumptions in calculating the value-in-use of the coal export rights and goodwill are:

recoverable mineral reserves;
commodity prices;
treatment charges receivable from refining operations; and
discount rates.

As outlined above recoverable mineral reserves are based on management's current expectations, based on the availability of reserves at mine sites and exploration and evaluation work undertaken.

Long term commodity prices and treatment charges are based on external market consensus forecasts. Specific prices are determined from information available in the market after considering the nature of the commodity produced and long term market expectations.

The pre-tax discount rate utilised in the calculation of value in use is 7.3% (2004: 9.1%) for the coal export right and 5.4% (2004: 5.4%) for the goodwill calculations for Europe and 9.2% (2004: 10.0%) for Africa, representing the risk adjusted weighted average cost of capital appropriate for the cash flows generated. The weighted average cost of capital has been based on internally sourced information and information from third party advisors.

Management is of the opinion that no reasonable change in any of the above key assumptions used in impairment testing at balance date would cause the carrying values of the assets to exceed their recoverable amount.

17. Property, Plant and Equipment

Property, Plant and Equipment
US$m	Land and buildings	Mining properties and leases	Plant and equipment	Capital works in progress	2005
At 1 January 2005, net of accumulated depreciation	667.0	3,933.1	3,149.2	379.2	8,128.5
Acquisition of subsidiaries	5.1	-	20.4	0.2	25.7
Additions	25.7	116.6	462.6	328.9	933.8
Disposals	-16.7	-0.8	-4.4	-6.5	-28.4
Rehabilitation provision adjustments	-	5.4	-	-	5.4
Reclassifications	125.1	-40.3	40.3	-125.1	-
Depreciation charge	-35.7	-190.2	-345.9	-	-571.8
Impairments recognised (refer to note 11)	-	-4.2	-	-0.9	-5.1
Translation adjustments	-81.8	-238.6	-197.9	-24.7	-543.0
At 31 December 2005, net of accumulated depreciation	688.7	3,581.0	3,124.3	551.1	7,945.1
At 1 January 2005:
Cost	770.4	4,378.2	3,996.9	382.8	9,528.3
Accumulated depreciation	-103.4	-445.1	-847.7	-3.6	-1,399.8
Net carrying amount	667.0	3,933.1	3,149.2	379.2	8,128.5
At 31 December 2005:
Cost	855.0	4,237.3	4,131.9	552.8	9,777.0
Accumulated depreciation	-166.3	-656.3	-1,007.6	-1.7	-1,831.9
Net carrying amount	688.7	3,581.0	3,124.3	551.1	7,945.1

Property, Plant and Equipment
US$m	Land and buildings	Mining properties and leases	Plant and equipment	Capital works in progress	2004
At 1 January 2004, net of accumulated depreciation	598.4	3,771.5	2,961.0	254.6	7,585.5
Acquisition accounting adjustment*	29.0	0.9	-	-	29.9
Acquisition of subsidiaries	-	-	19.1	-	19.1
Additions	22.4	121.0	330.8	164.8	639.0
Disposals	-	-	-7.2	-0.7	-7.9
Other non-current liabilities adjustment	-	-17.7	-	-	-17.7
Reclassifications - other	2.5	28.4	33.6	-64.5	-
Depreciation charge for the year	-30.7	-186.1	-336.0	-3.1	-555.9
Impairments recognised (refer to note 11)	-	-3.7	-3.1	-	-6.8
Translation adjustments	45.4	218.8	151.0	28.1	443.3
At 31 December 2004, net of accumulated depreciation	667.0	3,933.1	3,149.2	379.2	8,128.5
At 1 January 2004:
Cost	673.8	4,003.3	3,508.3	255.1	8,440.5
Accumulated depreciation	-75.4	-231.8	-547.3	-0.5	-855.0
Net carrying amount	598.4	3,771.5	2,961.0	254.6	7,585.5
At 31 December 2004:
Cost	770.4	4,378.2	3,996.9	382.8	9,528.3
Accumulated depreciation	-103.4	-445.1	-847.7	-3.6	-1,399.8
Net carrying amount	667.0	3,933.1	3,149.2	379.2	8,128.5
*Relates to adjustments made in respect of the acquisition of MIM Holdings Limited in June 2003.

Land and buildings include non-depreciating freehold land amounting to US$163.3 million (2004 US$199.2 million).

Mining properties and leases include capitalised exploration costs at 31 December 2005 of US$18.6 million (2004 US$15.6 million). US$10.5 million (2004 US$0.6 million) was capitalised during the year.

The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2005 is US$237.4 million (2004 US$195.6 million). Leased assets and assets under hire purchase contracts are pledged as security for the related finance leases and hire purchase liabilities. The carrying value of other property, plant and equipment pledged as security is US$0.2 million (2004 US$nil).

Plant and equipment include capitalised interest amounting to US$nil (2004 US$5.4 million). US$nil (2004 US$0.3 million) was capitalised during the year at an average rate of 3.3% in 2004.

The carrying value of property, plant and equipment at 31 December 2005 that is temporarily idle is US$3.1 million (2004 US$nil), retired from active use and held for resale is US$0.2 million (2004 US$nil).

The Group has made commitments to acquire property, plant and equipment totalling US$106.6 million at 31 December 2005 (2004 US$154.3 million).

18. Biological Assets

Biological Assets
US$m	Cattle	Plantations	2,005
At 1 January 2005	12.8	19.4	32.2
Additions	2.0	-	2.0
Disposal of subsidiaries	-	-19.4	-19.4
Disposals	-3.2	-	-3.2
Net gain/(loss) from fair value less estimated selling cost adjustments	1.1	-	1.1
Translation adjustments	0.4	-	0.4
At 31 December 2005	13.1	-	13.1

Biological Assets
US$m	Cattle	Plantations	2,004
At 1 January 2004	8.7	21.4	30.1
Additions due to purchases	3.6	-	3.6
Harvesting	-	-3.1	-3.1
Translation adjustments	0.5	1.1	1.6
At 31 December 2004	12.8	19.4	32.2

Biological assets are stated at fair value less estimated selling costs, which has been determined based on independent valuations as at 31 December 2005 and 2004, on the basis of open market value, supported by market evidence. As at 31 December 2005, the Group owned 45,750 (2004: 44,530) cattle. The plantation was disposed in January 2005 and had previously been pledged as security against a US$12.0 million loan that was included as part of the assets and liabilities disposed (refer to note 9 and 30).

19. Inventories

Inventories
US$m	2005	2004
Current:
Raw materials and consumables	282.3	246.2
Work in progress	267.9	205.5
Finished goods	340.5	374.2
	890.7	825.9
Non-current:
Work in progress	71.0	83.2
	71.0	83.2

Non-current inventories comprises long term ore stockpiles that are not planned to be processed within one year.

20. Trade and Other Receivables

Trade and Other Receivables
US$m	2005	2004
Current:
Trade debtors	1,033.0	676.3
Advances	13.4	17.6
Recoverable sales tax	80.0	87.9
Other debtors	11.9	12.2
	1,138.3	794.0
Non-current:
Employee entitlement receivables (refer to note 33)	22.1	41.6
Recoverable sales tax	19.6	18.8
Other debtors	15.4	0.7
	57.1	61.1

21. Investment in Associates

The Group acquired 73,115,756 shares (19.9%) of Falconbridge on 14 August 2005 (refer to note 8) and a further 550,240 shares (0.1%) to 5 September 2005. Falconbridge is a diversified Canadian mining company listed on the Toronto and New York stock exchanges. Its reporting date of 31 December is the same as for the Group. Following the announcement of Inco Limited's proposed friendly takeover offer to acquire Falconbridge for CAD34.00 per share on 11 October 2005, equity accounting was ceased as the Group no longer had significant influence over the investment and the investment was classified as an available-for-sale financial asset (refer to note 23).

The following is a summary of the financial information for Falconbridge:

Investment in Associates
US$m	2005	2004
Share of associate's revenue and profit during the period classified as an associate:
Revenue	249.6	-
EBITDA	67.8	-
EBIT	45.3	-
Profit for the year	21.0	-

The Group has interests in coal terminals as outlined in note 38, through which the shareholders gain access to export markets. These associated companies are not listed so there is no published quoted price for the fair value of these investments and the reporting dates is the same as for the Group being 31 December.

The following is a summary of the financial information of the Investment in Associates:

Investment in Associates
US$m	2005	2004
Share of associate's balance sheet:
Non-current assets	47.4	56.1
Current assets	16.3	1.3
Total assets	63.7	57.4
Non-current liabilities	-18.6	-7.2
Current liabilities	-1.2	-1.3
Total liabilities	-19.8	-8.5
Net assets	43.9	48.9

Carrying amount of the investment	43.9	48.9

Share of associate's revenue and profit:
Revenue	12.8	16.0
EBITDA	4.9	5.6
EBIT	4.6	4.9
Net interest paid	-1.1	-1.6
Income tax expense	-1.1	-1.0
Profit for the year	2.4	2.3

22. Interests in Joint Ventures

The Group has various interests in jointly controlled operations and assets as outlined in note 38. These interests are accounted for in the manner outlined in note 6.

23. Available-for-sale Financial Assets

Inventories
US$m	2005	2004
Shares - listed (refer to note 5, 6 and 25)	2,320.9	-
Shares - unlisted (refer to note 5, 6 and 25)	3.9	-
	2,324.8	-

Available-for-sale financial assets consist of investments in listed and unlisted ordinary shares that have no fixed maturity date or coupon rate. Such assets are held for strategic investment purposes.

Listed shares mainly comprises 19.9% (2004: nil%) of the ordinary share capital of Falconbridge Limited (the Group's interest was diluted from 20.0% due to shares issued by Falconbridge Limited). The remainder of the listed shares relate to companies in the mining industry. The listed shares are carried at fair value from 1 January 2005.

Unlisted shares mainly comprises interests in ports in Australia used to export coal and are carried at fair value.

24. Derivative Financial Assets

Derivative Financial Assets
US$m	2005	2004
Current:
Commodity cash flow hedges	16.1	-
Other commodity derivatives	0.8	-
	16.9	-
Non-current:
Commodity cash flow hedges	8.1	-
Other commodity derivatives	0.8	-
	8.9	-
Total	25.8	-

The Group's cash flow and fair value hedges and other commodity derivatives are carried at fair value from 1 January 2005. Please refer to note 5, 6 for further details.

25. Other Financial Assets

Other Financial Assets
US$m	2005	2004
Current:
Commodity cash flow hedges	-	1.9
Foreign currency cash flow hedges	-	2.2
Cross currency swap	-	21.8
Loans to joint venture partner	34.5	27.9
	34.5	53.8
Non-current:
Commodity cash flow hedges	-	27.9
Fair value hedge (refer to notes 30 and 39)	15.5	-
Rehabilitation trust fund	34.9	37.2
Shares - listed (refer to note 5, 6 and 23)	-	1.5
Shares - unlisted (refer to note 5, 6 and 23)	-	4.1
Other	5.9	6.5
	56.3	77.2
Total	90.8	131.0

Cross currency swap

AUD83 million had been swapped into US$43.0 million. This swap matured in February 2005 (refer to note 30).

Loans to joint venture partner

A loan to Merafe was made on establishment of the Chrome PSV. At 31 December 2005, US$3.3 million (2004 US$14.4 million) was interest free and US$31.2 million (2004 US$13.5 million) was subject to a floating interest rate based on South African prime rates. It has no fixed repayment date but is expected to be repaid during 2006. This loan is secured by the Group's ability to acquire Merafe's PSV assets at fair value in the event of default.

Rehabilitation trust fund

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 banks who are responsible for making investments in equity and money market instruments. The trust fund is to be used according to the terms of the trust deed and the assets are not available for the general purpose of the Group. The trust fund is carried at fair value (refer to note 33).

26. Other Assets

Other Assets
US$m	2005	2004
Non-current:
Deferred overburden removal expenditure	141.0	73.4
	141.0	73.4

27. Cash and Cash Equivalents

Cash and Cash Equivalents
US$m	2005	2004
Cash at bank and in hand	153.8	348.2
Short term deposits	370.3	111.4
	524.1	459.6

Cash at bank and in hand earns interest at floating rates of interest. Short term deposits are made at call and for less than one week, dependent on the short term cash requirements of the Group and earn interest based on the respective short term deposit rates. The fair value of cash and cash equivalents at 31 December 2005 and 31 December 2004 approximates carrying value.

For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents comprise the following at 31 December:

Other Assets
US$m	2005	2004
Cash at bank and in hand	153.8	348.2
Short term deposits	370.3	111.4
Bank overdrafts (refer to note 30)	-2.7	-8.4
	521.4	451.2

During the year, the Group entered into new finance leases and hire purchase contracts to purchase various items of plant and equipment for US$62.5 million (2004 US$111.6 million), issued a promissory note B for US$375.0 million to Brascan as consideration for the part purchase of 73,115,756 common shares in Falconbridge and issued shares to the ESOP for a market value of US$19.1 million (2004 US$nil) which did not require the use of cash and cash equivalents and are not included in the net cash flow used in investing and financing activities in the Consolidated Cash Flow Statement.

28. Capital and Reserves

Capital and Reserves
US$m
Authorised:
875,000,000 ordinary shares of US$0.50 each as at 1 January and 31 December 2004 and as at 1 January and 31 December 2005	437.5
50,000 deferred shares of GBP1.00 each as at 1 January and 31 December 2004 and as at 1 January and 31 December 2005	0.1
1 special voting share of US$0.50 as at 1 January and 31 December 2004 and as at 1 January and 31 December 2005	-
	437.6

Issued, called up and fully paid:
631,502,416 ordinary shares of US$0.50 each as at 1 January and 31 December 2004 and as at 1 January 2005	315.8
1,000,000 ordinary shares issued on 24 March 2005 to the ESOP	0.5
632,502,416 ordinary shares of US$0.50 each as at 31 December 2005	316.3
50,000 deferred shares of GBP1.00 each paid to GBP0.25 as at 1 January and 31 December 2004 and as at 1 January and 31 December 2005	-
1 special voting share of US$0.50 as at 1 January and 31 December 2004 and as at 1 January and 31 December 2005	-

Share Premium:
As at 1 January and 31 December 2004 and as at 1 January 2005	2,481.5
1,000,000 ordinary shares issued on 24 March 2005 to the ESOP	18.6
As at 31 December 2005	2,500.1

Own shares:
4,130,500 ordinary shares of US$0.50 each as at 1 January 2004	-40.8
3,371,726 ordinary shares purchased in the ECMP during the year	-51.3
20,955 ordinary shares sold by the ESOP during the year	0.4
7,481,271 ordinary shares of US$0.50 each as at 1 January 2005	-91.7
26,079,250 ordinary shares purchased in the ECMP during the year	-521.5
1,000,000 ordinary shares issued on 24 March to the ESOP	-19.1
3,925 ordinary shares purchased in the ESOP during the year	-0.1
1,509,582 ordinary shares disposed by the ESOP during the year	16.2
33,054,864 ordinary shares of US$0.50 each as at 31 December 2005	-616.2

Issue of ordinary shares

During March 2005, 1,000,000 shares were issued to the ESOP at a market price of GBP10.20 per share.

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.

Own shares

Own shares comprise shares of Xstrata plc held in the ESOP and held by Batiss for the ECMP.

The shares acquired by the ESOP will either be from the stock market or from share issues at the market price from the Company. The ESOP is used to co-ordinate the funding and manage the delivery of ordinary shares for options and LTIP awards granted under the LTIP and Xstrata AG incentive plan (refer to note 28 for further details). The trustee of the ESOP is permitted to place the shares back into the market and may hold up to 5% of the issued share capital of the Company at any one time. At 31 December 2005, 3,603,888 (2004: 4,109,545) shares, equivalent to 0.6% (2004: 0.7%) of the total issued share capital, were held by the trust with a cost of US$43.4 million (2004 US$40.4 million) and market value of US$84.4 million (2004 US$73.3 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 acquired from the stock market by Batiss 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 back into the market. The decision as to 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. Batiss is not permitted to hold more than 10% of the issued share capital of the Company at any one time. Batiss 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 purchased Xstrata shares 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 2005, 29,450,976 (2004: 3,371,726) shares, equivalent to 4.7% (2004: 0.5%) of the total issued share capital, were held by the trust with a cost of US$572.8 million (2005 US$51.3 million) and market value of US$689.8 million (2004 US$60.2 million). Costs relating to the administration of the trust are expensed in the period in which they are incurred.

Convertible borrowings

IAS 32 'Financial Instruments: Disclosure and Presentation' was adopted on 1 January 2005 and requires the equity and liability components of convertible borrowings to be separately measured and presented on the face of the balance sheet. The liability element has been determined at the issue date by discounting the contracted future cash flows using a market rate of a similar liability that does not have a conversion option. The equity components (representing the proceeds less the liability component) at the issue date of the convertible bonds was US$63.4 million and US$56.0 million for the convertible debenture (refer note 5, 6 and 31).

Consolidated changes in equity

Consolidated changes in equity
US$m	Issued capital	Share premium	Own shares	Convertible borrowings - equity component	Other reserves*	Retained earnings	Total	Minority interests	Total Equity
	Attributable to equity holders of the parent
At 31 December 2004	315.8	2,481.5	-91.7	-	3,490.1	622.9	6,818.6	506.6	7,325.2
First time adoption of IAS 32 and IAS 39:
- Available-for-sale
financial assets	-	-	-	-	1.3	-	1.3	-	1.3
- Cash flow hedges	-	-	-	-	1.2	1.2	2.4	-	2.4
- Convertible bond	-	-	-	63.4	-	-10.0	53.4	-	53.4
At 1 January 2005
(restated)	315.8	2,481.5	-91.7	63.4	3,492.6	614.1	6,875.7	506.6	7,382.3
Net gains/(losses) on:
- Available-for-sale financial assets	-	-	-	-	314.8	-	314.8	-	314.8
- Cash flow hedges	-	-	-	-	-122.9	-	-122.9	-	-122.9
Foreign currency
translation differences	-	-	-	-	-563.8	-	-563.8	-2.7	-566.5
Recycled foreign currency
translation net gains on loan repayments to the income statement	-	-	-	-	-61.9	-	-61.9	-	-61.9
Recycled foreign currency
translation net gains on sale of operations to the income statement	-	-	-	-	-5.3	-	-5.3	-	-5.3
Defined benefit plan
actuarial gains/(losses)	-	-	-	-	-	0.8	0.8	-	0.8
Net profit	-	-	-	-	-	1,706.4	1,706.4	216.5	1,922.9
Issue of share capital	0.5	18.6	-19.1	-	-	-	-	-	-
New borrowings issued	-	-	-	56.1	-	-	56.1	-	56.1
Own share purchases	-	-	-521.6	-	-	-	-521.6	-	-521.6
Own share disposals	-	-	16.2	-	-	8.7	24.9	-	24.9
Cost of IFRS 2 equity settled share-based compensation plans	-	-	-	-	-	20.1	20.1	-	20.1
Exercise of pre-IFRS 2 option awards	-	-	-	-	-	-4.1	-4.1	-	-4.1
Dividends paid	-	-	-	-	-	-154.2	-154.2	-148.2	-302.4
At 31 December 2005	316.3	2,500.1	-616.2	119.5	3,053.5	2,191.8	7,565.0	572.2	8,137.2
*Includes deferred tax, refer below for further details.

Consolidated changes in equity
US$m	Issued capital	Share premium	Own shares	Convertible borrowings - equity component	Other reserves*	Retained earnings	Total	Minority interests	Total Equity
	Attributable to equity holders of the parent
At 1 January 2004	315.8	2,481.5	-40.8	-	2,980.3	-312.9	5,423.9	473.5	5,897.4
Foreign currency
translation differences	-	-	-	-	578.4	-	578.4	-1.0	577.4
Recycled foreign currency
translation net gains to income statement	-	-	-	-	-68.6	-	-68.6	-	-68.6
Defined benefit plan
actuarial gains/(losses)	-	-	-	-	-	-6.4	-6.4	-	-6.4
Net profit	-	-	-	-	-	1,067.1	1,067.1	158.2	1,225.3
Issue of share capital	-	-	-	-	-	-	-	-	-
New borrowings issued	-	-	-	-	-	-	-	-	-
Own share purchases	-	-	-51.3	-	-	-	-51.3	-	-51.3
Own share disposals	-	-	0.4	-	-	-	0.4	-	0.4
Cost of IFRS 2 equity settled share-based compensation plans	-	-	-	-	-	8.9	8.9	-	8.9
Redemption of minority interests	-	-	-	-	-	-	-	-81.0	-81.0
Dividends paid	-	-	-	-	-	-133.8	-133.8	-43.1	-176.9
At 31 December 2004	315.8	2,481.5	-91.7	-	3,490.1	622.9	6,818.6	506.6	7,325.2
*Includes deferred tax, refer below for further details.

*Other reserves

Other Reserves
US$m	reserves	gains	translation	Total
At 1 January 2004	1,240.7	-	1,739.6	2,980.3
Hedge on net investment	-	-	40.9	40.9
Foreign currency translation of subsidiaries	-	-	537.5	537.5
Recycled foreign currency translation net gains	-	-	-68.6	-68.6
At 31 December 2004	1,240.7	-	2,249.4	3,490.1
First time adoption of IAS 32 and IAS 39:
Available-for-sale financial assets	-	1.3	-	1.3
Cash flow hedges	-	12.2	-	12.2
Deferred tax	-	-11.0	-	-11.0
At 1 January 2005	1,240.7	2.5	2,249.4	3,492.6
Available-for-sale financial assets	-	397.5	-	397.5
Cash flow hedges	-	-185.4	-	-185.4
Recycled foreign currency translation net gains	-	-	-67.2	-67.2
Deferred tax	-	-24.2	18.2	-6.0
Foreign currency translation of subsidiaries	-	4.0	-582.0	-578.0
At 31 December 2005	1,240.7	194.4	1,618.4	3,053.5

Other reserves

This reserve principally originated during 2002 from the merger of Xstrata AG into Xstrata plc (US$279.4 million) and the issue of shares from the acquisition of the Duiker and Enex Group's of US$934.8 million.

Net unrealised gains/(losses) reserve

This reserve records the re-measurement of available-for-sale financial assets to fair value (refer to note 5, 6 and 23) and the effective portion of the gain or loss on cash flow hedging contracts (refer to note 5, 6, 24, 32 and 39). Deferred tax is provided on the re-measurement at tax rates enacted or substantively enacted.

Foreign currency translation reserve

This is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the exchange differences from the translation of quasi equity inter-company loans used to acquire investments in foreign operations.

29. Trade and Other Payables

Other Reseves
US$m	2005	2004
Current:
Trade payables	598.0	472.4
Sundry payables	107.6	91.9
Interest payable	16.8	12.7
Accruals and other payables	223.4	211.8
	945.8	788.8
Non-current:
Accruals and other payables	10.4	15.7
	10.4	15.7
Total	956.2	804.5

All current payables are expected to be settled in the next 12 months and non-current payables are expected to be settled within 6 years.

30. Interest-bearing Loans and Borrowings

Interest-bearing Loans and Borrowings
US$m	2005	2004
Current:
Bank overdrafts	2.7	8.4
Syndicated bank loans – unsecured	106.0	–
Term bank loan – unsecured	600.0	–
Bank loans – secured (i)	–	2.5
Bank loans – other unsecured	7.1	–
Capital market notes	14.3	90.0
Obligations under finance leases and hire purchase contracts (ii)	14.7	9.3
Other loans	0.3	0.4
Bank loan issue costs	-1.0	-2.1
	744.1	108.5
Non-current:
Syndicated bank loans – unsecured	971.0	657.0
Bank loans – secured (i)	–	9.5
Bank loans – other unsecured	5.8	32.4
Capital market notes	261.7	277.1
Minority interest loans	81.5	81.0
Obligations under finance leases and hire purchase contracts (ii)	214.1	175.7
Other loans	1.2	1.8
Bank loan issue costs	-2.5	-1.8
	1,532.8	1,232.7
Non-current:
Convertible bond (refer note 31)	866.0	600.0
Convertible bond issue costs	-7.7	-9.6
	858.3	590.4
Total	3,135.2	1,931.6
Less cash and cash equivalents (refer note 27)	-524.1	-459.6
Net debt*	2,611.1	1,472.0
*Net debt is defined as loans and borrowings net of cash and cash equivalents.

i. At 31 December 2005, US$nil (2004 US$12.0 million) was secured against the forestry land and plantation (refer to notes 9, 36 and 38).
ii. Secured over specific items of plant and equipment (refer to note 17).

Syndicated Loan Facility

On 28 May 2004 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. During the period the 364-day facility was extended for a further 364-day period to 26 May 2006, retaining the 364-day term out option.

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.

Term Bank Loan

On 18 August 2005 Xstrata plc and certain subsidiary undertakings of the Group, entered into a US$600.0 million 364-day fully drawn advance loan facility, with Deutsche Bank and J.P. Morgan plc as lenders which bears interest at a rate based on LIBOR plus 40 basis points per annum. The facility has a 6 month term out option (refer to note 8).

Bank Loans – secured

As at 31 December 2005, bank loans – other comprised a US$nil (2004 US$12.0 million) loan, used to fund the plantation acquisition in Chile with repayments of US$2.5 million due in 2005, US$2.5 in 2006, US$3.0 million in 2007 and US$4.0 million in 2008. The average floating rate of interest payable at 31 December 2004 was 3.7% per annum. The forestry plantation was sold in January 2005 and as a result of the sale, Xstrata was released from all its obligations with respect to this US$12.0 million debt (refer to note 9).

Bank Loans – other unsecured

Other bank loans includes ZAR denominated borrowings that are subject to floating interest rates based on Johannesburg inter bank acceptance rate (JIBAR). US$7.4 million was used to fund capital expenditure at the Richards Bay Coal Terminal with half-yearly loan repayments commencing in January 2005 until 2010. The average floating rate of interest payable was 8.7% per annum at 31 December 2005. The balance of US$5.5 million is repayable during 2006.

Bank overdrafts – unsecured

Bank overdrafts are subject to local prime floating interest rates in which they have been drawn down, mainly in South Africa.

Capital Market Notes

As at 31 December 2005, Guaranteed unsecured private placements in the United States were as follows:

(a) US$nil million (2004 US$10.5 million) of series B notes due in yearly instalments, effective rate of 2.75% maturing in December 2005;
(b) US$9.3 million (2004 US$18.7 million) of senior notes due in yearly instalments, effective rate of 3.22% maturing in December 2006;
(c) US$159.1 million (2004 US$163.6 million) of series A senior unsecured notes, effective rate of 5.9% maturing and due in June 2008;
(d) US$53.7 million (2004 US$54.6 million) series B senior unsecured notes due in yearly instalments from June 2008, effective rate of 6.75% maturing in June 2011; and
(e) US$53.9 million (2004 US$54.9 million) series B senior unsecured notes, effective rate of 7% maturing and due in June 2011.
(f) US$64.9 million (US$64.8 million) of AUD denominated bonds matured in February 2005. There was a cross currency swap of this amount into US$43.0 million (refer to note 25). Interest was based on BBSW plus 1.9%, payable quarterly.

An Australian subsidiary has designated the US$ denominated notes as a fair value hedge of an investment in South America (refer to notes 25 and 39). The hedge is being used to reduce exposure to foreign currency risk. In the prior year under UK GAAP, such notes were used as a hedge of the net investment in the South American operation.

Equity Minority Interest Loans

Third party shareholder loans include US$81.0 million (2004 US$81.0 million) advanced to Minera Alumbrera Limited to fund operations that is subject to a fixed rate of 7.2% per annum. It has no fixed repayment date.

Other Loans

As at 31 December 2005, other loans included US$1.5 million (2004 US$2.2 million), received from the Ministry of Industry & Energy and Cantabria Government in Spain for San Juan de Nieva zinc smelter expansion projects. US$0.6 million (2004 US$0.7 million) is subject to a fixed interest rate of 5.0% per annum and the balance of US$0.9 million (2004 US$1.5 million) is interest free, repayable by 2013.

31. Convertible Borrowings

Convertible Borrowings
US$m	2005	2004
Convertible bonds	554.4	600.0
Interest rate swap	-8.6	–
Bond issue costs	-7.7	-9.6
	538.1	590.4
Convertible debenture	320.2	–
	858.3	590.4

Convertible Bonds

On 15 August 2003, Xstrata Capital Corporation AVV issued US$600 million of Convertible Bonds due 15 August 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. They will be convertible at any time after 26 September 2003 at the option of the holder into 61,180,977 ordinary shares in Xstrata plc based on a conversion price of GBP6.10 (US$9.81 converted into GBP at a fixed exchange rate) per ordinary share, a 39.6% premium to the closing price of Xstrata plc's ordinary shares on 1 August 2003. On the giving of not less than 30 days notice, the Convertible Bond may be called by the Group at par plus accrued interest if the share price is 30% higher than the conversion price for 20 dealing days within a 30-day period, at any time on or after 6 September 2007. If 85% or more of the bonds originally issued have been converted and/or redeemed, then the remainder of the bonds can be redeemed by the Group. If not converted or previously redeemed, the Convertible Bonds will be redeemed at par on 15 August 2010. The liability component of the Convertible Bonds is carried at amortised cost based on an effective interest rate of 5.85% per annum.

The fixed interest rate on the bonds has been swapped to a floating rate (refer to note 39). The swap has been accounted for as a fair value hedge (refer to note 6 and 32).

Convertible Debenture

On 6 September 2005, Xstrata Capital Corporation AVV issued a US$375 million Convertible Debenture to Brascan, due 14 August 2017, convertible at the option of the holder into fully paid Xstrata plc ordinary shares. The Convertible Debenture is guaranteed by the Company and was issued at par, with a coupon of 4.0% per annum. It will be convertible at any time on or after 14 August 2006 at the option of the holder into 12,100,332 ordinary shares in Xstrata plc based on a conversion price of GBP17.13 (US$30.99 converted into GBP at a fixed exchange rate) per ordinary share, representing a 35% premium to the closing price of Xstrata plc's ordinary shares on 11 August 2005. On the giving of not less than 30 days' notice, the Convertible Debenture may be called by the Group at par plus accrued interest, at any time after 14 August 2010. If not converted or previously redeemed, the Guaranteed Convertible Debenture will be redeemed at par on 14 August 2017. The liability component of the Convertible Bonds is carried at amortised cost based on an effective interest rate of 5.74% per annum.

IAS 32 'Financial Instruments: Disclosure and Presentation' was adopted on 1 January 2005 and requires the equity and liability components to be separately measured and presented on the face of the balance sheet. The liability element has been determined by discounting the future cash flows using a market rate of a similar liability that does not have a conversion option as at the issue date. The equity components at the issue date of the convertible bonds was US$63.4 million and US$56.0 million for the convertible debenture, representing the difference between the liability component and the face values (refer note 5, 6 and 28). Issue costs are apportioned between the liability and equity components based on their respective carrying amounts when the instrument was issued.

32. Derivative Financial Liabilities

Derivative Financial Liabilities
US$m	2005	2004
Current:
Commodity cash flow hedges	101.3	–
Foreign currency cash flow hedges	14.2	–
Other commodity derivatives	117.4	–
	232.9	–
Non-current:
Commodity cash flow hedges	51.0	–
Fair value interest rate swap hedge	9.7	–
	60.7	–
Total	293.6	–

The Group's cash flow and fair value hedges and other commodity derivatives are carried at fair value from 1 January 2005. Please refer to note 5, 6, 24, 25 and 28 for further details.

33. Provisions

Provisions 2005
US$m	Employee entitlements	Share-based compensation plans	Post-retirement medical plans	Rehabilitation costs	Onerous contracts	Other	2005
At 1 January	154.5	8.8	12.6	338.9	27.3	32.9	575.0
Acquisition of subsidiaries	0.1	–	–	–	–	–	0.1
Arising during the year	95.7	11.3	–	26.3	23.9	71.7	228.9
Discount unwinding	–	–	–	14.1	0.1	–	14.2
PPE asset adjustment	–	–	–	5.4	–	–	5.4
Utilised	-63.2	-7.5	-0.2	-38.1	-25.6	-69.9	-204.5
Unused amounts reversed	-2.4	–	-0.5	-1.4	–	-0.5	-4.8
Translation adjustments	-10.9	–	-1.3	-26.6	-2.6	-1.5	-42.9
At 31 December	173.8	12.6	10.6	318.6	23.1	32.7	571.4
Current	79.7	–	–	4.3	1.1	28.6	113.7
Non-current	94.1	12.6	10.6	314.3	22.0	4.1	457.7
	173.8	12.6	10.6	318.6	23.1	32.7	571.4

Provisions 2004
US$m	Employee entitlements	Share-based compensation plans	Post-retirement medical plans	Rehabilitation costs	Onerous contracts	Other	2005
At 1 January	133.1	2.9	8.6	314.5	22.7	30.1	511.9
Acquisition of subsidiaries	–	–	–	–	–	8.4	8.4
Arising during the year	55.7	5.9	2.1	22.3	–	13.4	99.4
Discount unwinding	–	–	–	11.4	3.0	–	14.4
Utilised	-40.8	–	–	-27.6	–	-20.0	-88.4
Unused amounts reversed	-0.3	–	–	-1.1	–	–	-1.4
Translation adjustments	6.8	–	1.9	19.4	1.6	1.0	30.7
At 31 December	154.5	8.8	12.6	338.9	27.3	32.9	575.0
Current	54.6	–	–	12.2	2.9	25.0	94.7
Non-current	99.9	8.8	12.6	326.7	24.4	7.9	480.3
	154.5	8.8	12.6	338.9	27.3	32.9	575.0

Employee entitlements

The employee entitlement provisions mainly represents the value of excess leave entitlements allocated over the leave taken by the employees of the Group. These amounts are expected to be utilised as the employees either take their accrued leave or receive equivalent benefits upon ceasing employment. Current employee entitlements includes excess short term leave entitlements and the portion of non-current employee entitlements that are expected to be incurred within 12 months. Non-current entitlements include long service leave entitlements which are payable upon an employee attaining a certain period of service and workers compensation provisions. For some entitlements, amounts will also be recovered from an independent fund (refer to note 20). These costs are expected to be incurred over the next 7.8 years (2004: 8.3 years).

Share-based compensation plans

The Group has various share-based compensation plans under which options to subscribe for the Company's shares have been granted to certain executives and senior employees that will be cash-settled (refer to note 37). The intrinsic value of the options that had vested at 31 December 2005 was US$0.5 million (2004 US$4.4 million).

Post-retirement medical plans

The Group operates unfunded post-retirement medical benefits plans in South Africa 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. Independent qualified actuaries using the projected unit credit method assess the accumulated benefit obligation and annual cost of accrued benefits. These costs are expected to be incurred over the next 18.1 years (2004: 17.5 years) (refer to note 37).

Rehabilitation costs

Rehabilitation provision represents the estimated costs required to provide adequate restoration and rehabilitation upon the completion of mining activities. These amounts will reverse when such rehabilitation has been performed. These costs are expected to be incurred over the next 16.3 years (2004: 16.2 years) (refer to note 25).

Onerous contracts

Onerous contract provisions represent the restatement of various long term contracts to their current market value at the acquisition date of subsidiaries. These contracts will expire within 13.4 years (2004: 15.3 years).

Other

Other mainly comprises legal and restructuring provisions and is expected to be utilised within 2.5 years (2004: 2.5 years).

34. Other Liabilities

Other Liabilities
US$m	2005	2004
Current:
Deferred income	11.0	19.6
	11.0	19.6
Non-current:
Deferred income	9.0	4.9
Other	0.7	1.3
	9.7	6.2

35. Litigation settlements

On 22 April 2005, the Group reached a settlement agreement with Precious Metals Australia Limited (PMA) in respect of the Windimurra vanadium project at Mount Magnet, Western Australia. The Group paid PMA US$7.8 million, comprising US$3.9 million due to PMA as royalty payments until the final rehabilitation of the Windimurra site and US$3.9 million in full and final settlement of all outstanding claims by PMA relating to the Windimurra project. On 9 August 2005, the Group finalised the sale to PMA of the tenements, remaining Windimurra project assets and all project information on Windimurra with PMA assuming all obligations associated with the project, including environmental rehabilitation for US$7.8 million. The Group has been released from all obligations relating to performance bonds it provided in respect of the Windimurra project and replacement bonds have been furnished by PMA.

36. Commitments and Contingencies

Operating lease commitments – Group as Lessee

The Group has entered into leases for buildings, motor vehicles and sundry plant and equipment. These leases have an average life of 12.5 years with renewal terms at the option of the lessee at lease payments based on market prices at the time of renewal. There are no restrictions placed upon the lessee by entering into these leases. Future minimum lease payments under non-cancellable operating leases as at 31 December are as follows:

Commitments and Contingencies
US$m	2005	2004
Within one year	17.4	23.6
After one year but not more than five years	22.9	42.2
More than five years	10.8	11.3
	51.1	77.1

Finance lease and hire purchase commitments

The Group has entered into finance leases and hire purchase contracts for various items of plant and machinery. The majority of these leases include a residual balloon payment at the end of the lease term and title passing to the lessee. Future minimum lease payments under finance leases and hire purchase contracts together with the future finance charges as at 31 December are as follows:

Finance lease and hire purchase commitments
US$m	Undiscounted minimum payments 2005	Present value of minimum payments 2005	Undiscounted minimum payments 2004	Present value of minimum payments 2004
Within one year	31.0	14.7	14.1	9.3
After one year but not more than five years	187.6	171.9	152.9	137.9
More than five years	48.1	42.2	42.7	37.8
Total minimum lease payments	266.7	228.8	209.7	185.0
Less amounts representing finance lease charges	-37.9	–	-24.7	–
Present value of minimum lease payments	228.8	228.8	185.0	185.0

Capital commitments

Amounts contracted for but not provided in the financial statements amounted to US$639.8 million (2004 US$420.4 million), including for Xstrata Coal US$113.2 million (2004 US$144.3 million) for Queensland Rail take or pay commitments and US$38.7 million (2004 US$52.3 million) for Queensland Port Authority take or pay commitments, US$9.0 million (2004 US$59.2 million) for a long wall and US$0.5 million (2004 US$12.9 million) for an overland conveyor at the Ulan coal mine and for Xstrata Alloys US$98.9 million (2004 US$45.2 million) Project Lion, US$95.8 million (2004 US$nil) for the Mototolo joint venture, the construction of a ferrochrome smelter, US$126.4 million (2004 US$nil) for a mega pelletizer at the Wonderkop plant, US$13.4 million (2004 US$nil) for a pelletizer at the Rustenburg plant and US$13.5 million (2004 US$nil) for software design and implementation. The balance of the other amounts contracted for but not provided relates to various minor commitments around the Group, mainly for the purchase of new property, plant and equipment.

Included in the above is US$140.0 million (2004 US$107.5 million) representing the Group's share of the capital commitments that have been incurred jointly with other venturers.

Finance leases entered into after 31 December 2005 amounted to US$nil (2004 US$44.6 million). The finance lease in 2004 relates to a Spur Line at the Rolleston coal project.

Guarantees

Xstrata Coal Australia has issued performance guarantees to customers under contracts for supply of coal for US$20.5 million (2004 US$21.6 million) and guarantees to the NSW and Queensland Departments for Mineral Resources in respect of various mining leases and the performance thereof US$59.2 million (2004 US$62.4 million).

Xstrata Coal as a party to 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 partners to government agencies including guarantees relating to mining tenements of US$5.3 million (2004 US$16.5 million) and customs, civil contract work and transport of US$0.2 million (2004 US$1.0 million).

Xstrata Coal as a party to the Rolleston joint venture has signed an agreement with Ergon Energy for electricity supply. Bank guarantees of US$nil (2004 US$14.7 million) have been provided by Xstrata and based on the work completed to date there is an estimated contingent liability of US$nil (2004 US$11.7 million).

Xstrata Coal South Africa has issued guarantees to Eskom for power usage and early termination of power usage of US$3.2 million (2004 US$2.8 million) and to the Department of Mineral and Energy to obtain certain prospecting permits of US$0.1 million (2004 US$0.1 million).

Xstrata Alloys has issued guarantees to Eskom for power usage and early termination of power usage of US$16.5 million (2004 US$18.3 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 US$5.9 million (2004 US$4.2 million) and customers of US$0.7 million (2004 US$0.1 million).

Xstrata Alloys has issued a guarantee in respect of the obligations of Merafe under a US$47.4 million (2004 US$nil) facility in connection with the acquisition of certain assets and resources relating to the PSV and the Project Lion ferrochrome expansion project to be undertaken by the PSV. Any payment to be made under the guarantee are secured by the Group's ability to acquire Merafe PSV's assets for fair value and the security Merafe has provided to the lender.

Xstrata Copper, Xstrata Zinc and Xstrata Technology Australia have issued performance guarantees to customers for US$22.4 million (2004 US$35.8 million), guarantees to the Queensland Departments for Mineral Resources in respect of various mining leases and the performance thereof, environmental bonds and self insurance licences US$114.2 million (2004 US$97.8 million) and office lease of US$0.8 million (2004 US$0.9 million).

Xstrata Zinc has issued performance guarantees to the Northern Territory government for an electricity supply and pipeline agreements of US$32.0 million (2004 US$34.0 million).

In connection with the expansion at the San Juan de Nieva plant, bank guarantees have been issued for the amount of US$31.4 million (2004 US$40.8 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. Other bank guarantees issued amount to US$76.3 million (2004 US$30.0 million).

Xstrata Zinc 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 US$13.8 million (2004 US$7.7 million), to the Environmental Agency in respect to the recycling of batteries and disposal of metal residues of US$0.2 million (2004 US$0.8 million) and US$1.2 million (2004 US$1.4 million) to the European Commission in respect of a fine.

The Group had a issued bank guarantee to Banco Santander in Chile for US$12.0 million in 2004. This bank guarantee was released upon the sale of the forestry operations in January 2005 (refer to note 9, 30 and 38).

Included in the above is US$95.3 million (2004 US$94.4 million) representing the Group's share of guarantees that have been incurred jointly with other venturers.

Other contingencies

Xstrata Coal South Africa has legal obligations to rehabilitate and treat mine water which will decant from the mines into the river systems some time after cessation of mining occurs. Detailed studies are currently being undertaken to determine the likely quantum and timing of decanting, the most appropriate treatment options and the impact of water flows from adjoining mines. Once this study is complete and the exposure is quantifiable, a rehabilitation asset and liability will be recognised.

The purchase agreement of the Las Bambas copper project in Peru includes contingent amounts payable to a community trust fund of US$21.0 million (2004 US$38.1 million) following a decision to develop the project. This will be payable over the development and construction phases of the project. No decision to development the project has been made.

There have been no other contingencies included above incurred jointly with other venturers.

37. Employee Benefits

Share-based Payments

The Group operates a number of share option plans which are outlined below.

The expense recognised for share-based payments during the year ended 31 December 2005 was US$31.4 million (2004 US$14.8 million). The proportion of that expense arising from equity-settled share-based awards was US$20.1 million (2004 US$8.9 million).

Xstrata plc Long Term Incentive Plan (LTIP)

The 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 which will not be less than the market value of an ordinary share on the date of grant.

Of the below options, 1.6 million (2004: 1.4 million) are accounted for as cash-settled share-based awards whilst the remainder of the LTIP awards granted after 7 November 2002 are equity-settled.

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

2005

Employee Benefits: Share-based payments 2005
Scheme	Excercise price	Exercise period	At 1 Jannuary 2005 No.	Granted during the year No.	Excercised during the year No.	Forfeited and lapsed during the year* No.	At 31 December 2005 No.
Shares:
2002	–	May 2005 – May 2012	85,849	–	-78,676	-7,173	–
2003	–	February 2006 – February 2013	717,066	–	–	-3,364	713,702
2004	–	March 2007 – March 2014	1,659,447	–	–	-5,708	1,653,739
2005	–	March 2008 – March 2015	–	1,325,723	–	-17,497	1,308,226
			2,462,362	1,325,723	-78,676	-33,742	3,675,667
Options:
2002	GBP6.23	May 2005 – May 2012	633,678	–	-473,365	-53,869	106,444
2002	GBP6.44	May 2005 – May 2012	33,279	–	-30,617	-2,662	–
2002	GBP6.30	May 2005 – May 2012	22,620	–	-20,810	-1,810	–
2003	GBP3.60	February 2006 – February 2013	2,221,891	–	–	-10,420	2,211,471
2004	GBP7.35	March 2007 – March 2014	5,468,301	–	–	-19,026	5,449,275
2004	GBP7.03	March 2007 – March 2014	63,163	–	–	–	63,163
2005	GBP10.60	March 2008 – March 2015	–	4,419,089	–	-58,324	4,360,765
			8,442,932	4,419,089	-524,792	-146,111	12,191,118
*Comprised 26,901 free shares and 91,221 options that were forfeited and 6,841 free shares and 54,890 options that lapsed during the year.

The number of share options that were exercisable at 31 December 2005 was 106,444 and nil for free shares. For the share options and free shares outstanding at 31 December 2005, the weighted average remaining contractual life was 8.4 years. The weighted average share price at the dates that the share options were exercised during the year was GBP11.31 per share. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2005: GBP6.27 per share option
Outstanding at 31 December 2005: GBP7.82 per share option
Granted during the year: GBP10.60 per share option
Exercised during the year: GBP6.25 per share option
Lapsed during the year: GBP7.94 per share option
Exercisable at 31 December 2005: GBP6.23 per share option.

2004

Employee Benefits: Share-based payments 2004
Scheme	Excercise price	Exercise period	At 1 Jannuary 2005 No.	Granted during the year No.	Excercised during the year No.	Forfeited and lapsed during the year No.	At 31 December 2004 No.
Shares:
2002	–	May 2005 – May 2012	88,138	–	–	-2,289	85,849
2003	–	February 2006 – February 2013	739,655	–	–	-22,589	717,066
2004	–	March 2007 – March 2014	–	1,741,713	–	-82,266	1,659,447
			827,793	1,741,713	–	-107,144	2,462,362
Options:
2002	GBP6.23	May 2005 – May 2012	657,687	–	–	-24,009	633,678
2002	GBP6.44	May 2005 – May 2012	33,279	–	–	–	33,279
2002	GBP6.30	May 2005 – May 2012	22,620	–	–	–	22,620
2003	GBP3.60	February 2006 – February 2013	2,291,898	–	–	-70,007	2,221,891
2004	GBP7.35	March 2007 – March 2014	–	5,742,525	–	-274,224	5,468,301
2004	GBP7.03	March 2007 – March 2014	–	63,163	–	–	63,163
			3,005,484	5,805,688	–	-368,240	8,442,932

No share options or free shares were exercisable at 31 December 2004. For the share options outstanding at 31 December 2004, the weighted average remaining contractual life was 8.1 years and for the free shares was 8.9 years. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2004: GBP4.23 per share option
Outstanding at 31 December 2004: GBP6.27 per share option
Granted during the year: GBP7.35 per share option
Lapsed during the year: GBP6.56 per share option.

The fair value of the share-based compensation plans (including free shares and options) are estimated using a binomial model at the date of grant and the fair value is updated at 31 December for a limited number of options that are permitted to be cash-settled. The main weighted average assumptions used are:

The main weighted average assumptions used to estimate the fair value of the share-based compensation plans
	Date of grant 2005	31 December 2005	Date of grant 2004	31 December 2004
Dividend yield (%)	3.14	3.16	3.25	3.23
Expected volatility (%)	31.18	29.25	37.57	36.19
Risk-free interest rate (%)	4.86	4.18	4.78	4.52
Earliest exercise date	11 Mar 2008	11 Mar 2008	4 Mar 2007	4 Mar 2007
Latest exercise date	10 Mar 2015	10 Mar 2015	4 Mar 2014	4 Mar 2014
Expected exercise date	10 Sep 2011	10 Sep 2011	4 Sep 2010	4 Sep 2010
Share price at date of grant (GBP)	10.48	10.48	7.33	7.33
Exercise price (GBP)	10.60	10.60	7.35	7.35
Free share fair value at date of grant (GBP)	9.54	9.54	6.37	6.37
Option fair value at date of grant (GBP)	3.05	3.05	2.34	2.34

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historic volatility is indicative of future trends, which may also not necessarily be the actual outcome.

The amount of 2004 and 2005 LTIP awards that vest are subject to the satisfaction of certain performance criteria being met over a three-year performance period. 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. For the awards conditional on TSR, 25% of the combined award will vest if TSR growth is at the median of the specified peer group, the full 50% of the combined award will vest for performance at or above the second decile with straight line vesting between these points. No vesting will occur for below median performance. For the remaining award, 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, 35% for 2% cost savings and 50% for 3% or more cost savings, with straight line vesting between these points. No vesting will occur if cost savings are less than 1%. Real cost savings will be measured in relation to operating costs after adjusting for the effects of inflation, excluding depreciation, commodity price linked costs, effects of currencies on translation of local currency costs and planned life of mine adjustments. The 2003 LTIP awards are only subject to the TSR performance criteria. No other features of the LTIP awards were incorporated into the measurement of fair value.

As outlined in note 5 and 6, IFRS 2 has not been applied to equity-settled share-based payments granted on or before 7 November 2002 and consequently the above 2002 share options and free shares are not accounted for under IFRS 2.

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 exercise price adjusted accordingly. The share options have a two year vesting period followed by a three year exercise period. The exercise price was the share price at the date of granting of the share options. There are no other conditions attaching to these options and they can be cash-settled by the holder. No further options will be granted under this incentive plan. All of the options below are accounted for as cash-settled share-based awards. The movement in the number of share options are as follows:

2005

Xstrata AG Employees' Incentive Scheme 2005
Scheme	Exercise price	Exercise period	At 1 January 2005 No.	Granted during the year No.	Exercised during the year No.	Lapsed during the year No.	At 31 December 2005 No.
Options:
2000	CHF22.28	Jan 2002 – Jan 2005	690,287	–	–	-690,287	–
2001	CHF28.64	Jan 2003 – Jan 2006	511,589	–	-351,076	–	160,513
2002	CHF14.98	Jan 2004 – Jan 2007	671,854	–	-659,036	–	12,818
			1,873,730	–	-1,010,112	-690,287	173,331

The number of share options that were exercisable at 31 December 2005 was 173,331. For the share options outstanding at 31 December 2005, the weighted average remaining contractual life was 0.2 years. The weighted average share price at the dates that the share options were exercised during the year was CHF26.99 per share. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2005: CHF21.40 per share option
Outstanding at 31 December 2005: CHF27.63 per share option
Exercised during the year: CHF19.73 per share option
Lapsed during the year: CHF22.28 per share option
Exercisable at 31 December 2005: CHF27.63 per share option.

2004

Xstrata AG Employees' Incentive Scheme 2004
Scheme	Exercise price	Exercise period	At 1 January 2004 No.	Granted during the year No.	Exercised during the year No.	Lapsed during the year No.	At 31 December 2004 No.
Options:
2000	CHF22.28	Jan 2002 – Jan 2005	690,287	–	–	–	690,287
2001	CHF28.64	Jan 2003 – Jan 2006	511,589	–	–	–	511,589
2002	CHF14.98	Jan 2004 – Jan 2007	898,768	–	-226,914	–	671,854
			2,100,644	–	-226,914	–	1,873,730

The number of share options that were exercisable at 31 December 2004 was 1,873,730. For the share options outstanding at 31 December 2004, the weighted average remaining contractual life was 1.1 years. The weighted average share price at the dates that the share options were exercised during the year was CHF20.18 per share. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2004: CHF20.71 per share option
Outstanding at 31 December 2004: CHF21.40 per share option
Exercised during the year: CHF14.98 per share option
Exercisable at 31 December 2004: CHF21.40 per share option.

As at 31 December 2005, the Company held 3,603,888 shares (2004: 4,109,545 shares) to hedge its exposure under the above share and option plans (refer to note 28).

Directors' Service contracts

Options were granted to two Executive Directors pursuant to the terms of on which they were recruited. The options are to be equity-settled. The exercise price was the share price at the date of granting of the share options. If the holder ceases to be employed by the Group for any reason, they may exercise any vested options within six months of such cessation, after which the options lapse. Any unvested options will lapse if the holder is dismissed lawfully under the terms of their contract or if they voluntarily resign except where they have a valid reason to terminate their employment as defined in their employment contract, in which case all unvested options shall immediately vest and become exercisable for a period of six months. In all other cases, they will remain exercisable for a period of six months.

The movement in the number of share options are as follows:

2005

Movement in the number of share options for 2005
Exercise price	Exercise period	At 1 January 2005 No.	Granted during the year No.	Exercised during the year No.	Lapsed during the year No.	At 31 December 2005 No.
CHF12.53	Dec 2004 – Dec 2011	444,860	–	-444,860	–	–
GBP4.29	Oct 2005 – Oct 2012	444,860	–	–	–	444,860
GBP4.12	Jan 2006 – Jan 2013	222,430	–	–	–	222,430
GBP4.72	Oct 2006 – Oct 2013	444,860	–	–	–	444,860
GBP6.35	Jan 2007 – Jan 2014	222,430	–	–	–	222,430
		1,779,440	–	-444,860	–	1,334,580

The number of share options that were exercisable at 31 December 2005 was 444,860. For the share options outstanding at 31 December 2005, the weighted average remaining contractual life was 7.4 years. The weighted average share price at the dates that the share options were exercised during the year was CHF23.45 per share. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2005: CHF12.53 and GBP4.75 per share option
Outstanding at 31 December 2005: GBP4.75 per share option
Exercised during the year: CHF12.53 per share option
Exercisable at 31 December 2005: GBP4.29 per share option.

2004

Movement in the number of share options for 2004
Exercise price	Exercise period	At 1 January 2004 No.	Granted during the year No.	Exercised during the year No.	Lapsed during the year No.	At 31 December 2004 No.
CHF12.53	Dec 2004 – Dec 2011	444,860	–	–	–	444,860
GBP4.29	Oct 2005 – Oct 2012	444,860	–	–	–	444,860
GBP4.12	Jan 2006 – Jan 2013	222,430	–	–	–	222,430
GBP4.72	Oct 2006 – Oct 2013	444,860	–	–	–	444,860
GBP6.35	Jan 2007 – Jan 2014	222,430	–	–	–	222,430
		1,779,440	–	–	–	1,779,440

The number of share options that were exercisable at 31 December 2004 was 444,860. For the share options outstanding at 31 December 2004, the weighted average remaining contractual life was 8.3 years. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2004: CHF12.53 and GBP4.75 per share option
Outstanding at 31 December 2004: CHF12.53 and GBP4.75 per share option
Exercisable at 31 December 2004: CHF12.53 per share option.

As outlined in note 5 and 6, IFRS 2 has not been applied to equity-settled share-based payments granted on or before 7 November 2002 and consequently the above 2002 share options are not accounted for under IFRS 2.

Xstrata AG Directors' Incentive Scheme

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 exercise price adjusted accordingly. The share options have a two year vesting period followed by a three year exercise period. The exercise price was the share price at the date of granting of the share options. There are no other conditions attaching to these options and they can be cash-settled by the holder. All of the options below are accounted for as cash-settled share-based awards. No further options will be granted under this incentive plan. The movement in the number of share options are as follows:

2005

Xstrata AG Directors' Incentive Scheme 2005
Scheme	Exercise price	Exercise period	At 1 January 2005 No.	Granted during the year No.	Exercised during the year No.	Lapsed during the year No.	At 31 December 2005 No.
Options:
2000	CHF22.28	Jan 2002 – Jan 2005	76,079	–	–	-76,079	–
2001	CHF28.64	Jan 2003 – Jan 2006	15,231	–	–	–	15,231
			91,310	–		-76,079	15,231

The number of share options that were exercisable at 31 December 2005 was 15,231. For the share options outstanding at 31 December 2005, the weighted average remaining contractual life was 0.1 years. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2005: CHF23.34 per share option
Outstanding at 31 December 2005: CHF28.64 per share option
Lapsed during the year: CHF22.28 per share option
Exercisable at 31 December 2005: CHF28.64 per share option.

2004

Xstrata AG Directors' Incentive Scheme 2004
Scheme	Exercise price	Exercise period	At 1 January 2004 No.	Granted during the year No.	Exercised during the year No.	Lapsed during the year No.	At 31 December 2004 No.
Options:
1999	CHF12.07	Feb 2001 – Jan 2004	72,384	–	-72,384	–	–
2000	CHF22.28	Jan 2002 – Jan 2005	76,079	–	–	–	76,079
2001	CHF28.64	Jan 2003 – Jan 2006	15,231	–	–	–	15,231
2002	CHF14.98	Jan 2004 – Jan 2007	45,602	–	-45,602	–	–
			209,296	–	-117,986	–	91,310

The number of share options that were exercisable at 31 December 2004 was 91,310. For the share options outstanding at 31 December 2004, the weighted average remaining contractual life was 0.3 years. The weighted average share price at the dates that the share options were exercised during the year was CHF15.07 per share. The weighted average exercise prices (WAEP) of share options is as follows:

Outstanding at 1 January 2004: CHF17.62 per share option
Outstanding at 31 December 2004: CHF23.34 per share option
Exercised during the year: CHF14.98 per share option
Lapsed during the year: CHF12.07 per share option
Exercisable at 31 December 2004: CHF23.34 per share option.

Deferred Bonus

As detailed within the Remuneration Report on pages 102 to 115 of the Annual Review 2005, the maximum bonus payable under the Bonus Plan for Executive Directors and members of the Executive Committee is 300% of salary. Bonuses are payable in three tranches as follows:

The maximum bonus, which any one participant is eligible to receive in cash, will be limited to 100% of the individual's base salary;
Any additional bonus up to a further 100% of base salary will be deferred for a period of one year; and
Any remaining bonus will be deferred for a period of two years.

The deferred elements will take the form of awards of Xstrata shares conditional on the participant remaining in employment throughout the deferral period. 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. The deferred elements have been treated as an equity-settled share-based payment in accordance with IFRS 2.

In 2005 the Xstrata Remuneration Committee resolved that during the bonus deferral period dividend equivalents would accrue in relation to the deferral, to be delivered at the end of the deferral period and subject to the deferral award vesting.

As dividend equivalents are receivable on the deferred amounts, the fair value of the deferral is technically equal to the value of the bonuses deferred. The total value of 2005 bonuses deferred was US$7.5 million (2004 US$5.4 million). The number of shares that this will be deferred as is calculated with reference to the strike price calculated for the LTIP awards. The number of deferred shares for the 2005 deferred bonus is 258,242 (2004: 271,987).

Directors' Added Value Plan (AVP)

The first cycle of the AVP began on 9 May 2005. A description of the performance requirements and the vesting schedule of the plan are detailed within the Remuneration Report on pages 102 to 115 of the Annual Review 2005.

The fair value of the equity-settled share-based payment under IFRS 2 was US$6.9 million, estimated at the 9 May 2005, using a Monte Carlo simulation model to incorporate the market based features of the plan.

For the 2005 plan cycle, the market capitalisation on the 9 May 2005 was US$11.4 billion, the Participation Percentage was equal to 0.5% and the share price at the measurement date was US$18.00. In addition to these parameters, the key inputs used within the valuation model were:

Directors' Added Value Plan
		Xstrata share Indices¹
Dividend yield (%)	Xstrata plc N/A	N/A²
Expected volatility (%)	32%	21%
Risk-free interest rate (%)	4.51%	4.51%
Third anniversary of start of cycle	9 May 2008	9 May 2008
Fourth anniversary of start of cycle	9 May 2009	9 May 2009
Fifth anniversary of start of cycle	9 May 2010	9 May 2010

1. There are two Xstrata Share Indices used within the valuation model; one is a market capitalisation weighted TSR index comprising 19 global mining firms who are considered to be Xstrata's key competitors for both financial and human capital. The other is a market capitalisation price index comprising the same 19 constituents.
2. When simulating the Xstrata Price Index, a dividend yield is included to account for the suppressing impact that a dividend payment has on the constituent share prices. A yield of 3.16% has been used. For the simulation of Xstrata's TSR and the Index TSR a dividend yield is not required.

The expected volatility reflects the assumption that the historic volatility is indicative of future trends, which may also not necessarily be the actual outcome. There is no disclosure of the number of equity instruments granted as the AVP is not an award over a fixed number of shares.

Directors' Glencore Option

As part of a package to attract him to take the position of chief executive of Xstrata AG in October 2001, Glencore International AG ("Glencore") awarded Mick Davis an option over shares in Xstrata owned by Glencore, at an exercise price 46% higher than the share price on the day he joined and exercisable after three years from 19 September 2004 until 19 September 2011. Following the creation of the Company, the merger with Xstrata AG and the Rights Issue associated with the acquisition of MIM Holdings Limited, the option was over 1,334,669 shares in the Company owned by Glencore, at an exercise price of CHF13.60 per share.

On September 20 2005, these options were exercised and he has received from Glencore a cash consideration equating to the current value of the Option (CHF26.3 million, representing 1.334 million shares at CHF19.70 per share, being the difference between Xstrata plc's closing price of CHF33.30 per share on Monday 19 September 2005 and the exercise price of CHF13.60 per share). The Group did not incur any costs in respect of this exercise.

Pensions and Other Post-Employment Benefit Plans

Net benefit expense recognised in the Consolidated Income Statement for the year ended 31 December:

Pensions and Other Post-Employment Benefit Plans
US$m	2005	2004
Defined benefit pension plans	2.9	-1.5
Defined contribution pension plans	78.3	49.8
Post-retirement medical plans	–	2.1
	81.2	50.4

Defined Contribution Pension Plans

The Group operates or participates in a number of defined contribution pension plans and industry-wide schemes covering the majority of its employees. The assets are held separately from those of the Group, being generally invested with insurance companies and regulated by local legislation.

Post-retirement Medical Plans

The Group 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 actuaries have updated the valuations to 31 December 2005.

Defined Benefit Pension Plans

The Group has one funded defined benefit plan in the United Kingdom, one unfunded defined benefit plan in Germany and two funded defined benefit plans in Australia. 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 2005. The Group does not have any other material defined benefit plans.

The following tables summarise the components of the net benefit expense recognised in cost of sales in the consolidated income statement and the funded status and amounts recognised in the consolidated balance sheet for the defined benefit pension plans and post-retirement medical plans.

The weighted average principal economic assumptions used to determine the actuarial values are as follows:

Defined Benefit Pension Plans
	Pension plans 2005	Post- retirement medical plans 2005	Pension plans 2004	Post- retirement medical plans 2004
Rate of salary increases	4.2%	–	4.1%	–
Rate of pension increases	2.7%	–	2.6%	–
Expected rate of return on plan assets:
Equities	7.8%	–	8.0%	–
Property	7.0%	–	7.0%	–
Bonds	4.7%	–	4.7%	–
Cash	3.5%	–	3.2%	–
Total	6.3%	–	6.3%	–
Discount rate	4.8%	8.9%	5.4%	9.8%
Inflation rate	2.8%	4.4%	2.7%	7.0%
Rate of medical cost increases	–	9.2%	–	7.2%

The pension plan mortality rate at 31 December 2005 and 31 December 2004 was PA92C30+2 for pensioners and PA92C15+2 for non-pensioners. These rates refer to projected mortality tables published by the Faculty and Institute of Actuaries in the UK and take into account the assumed increases in the life expectancy and are calculated for both current and future pensioners. The average life expectancy in the medical plans was 71 years as at 31 December 2005. A one percentage point change in the assumed rate of increase in healthcare costs would adjust the current service cost, interest cost, and the defined benefit obligation by US$0.7 million.

Funded status (before allowance of deferred tax) at 31 December are as follows:

Defined Benefit Pension Plans funded status
US$m	Pension plans 2005	Post- retirement medical plans 2005	Pension plans 2004	Post- retirement medical plans 2004
Present value of benefit obligations	106.2	10.6	109.8	12.6
Assets at fair value	-85.1	–	-84.8	–
Net liability	21.1	10.6	25.0	12.6

Net liability as at 31 December represented by:
Pension deficits	23.7	10.6	27.7	12.6
Pension assets	-2.6	–	-2.7	–
Net liability	21.1	10.6	25.0	12.6

Historical adjustements are as follow:

Historical adjustments to the Defined Benefit Pension Plans funded status
US$m	2005	2004	2003
Defined benefit obligation	106.2	109.8	169.3
Plan assets	-85.1	-84.8	-115.3
Net deficit	21.1	25.0	54.0
Experience (gain)/loss adjustments on plan liabilities	-8.0	-1.1	–
Experience (gain)/loss adjustments on plan assets	-3.9	1.5	-5.7

The reconciliation of the net liability movement during the year in the net pension and post-retirement liability (before allowance of deferred tax) are as follows:

Reconciliation of the net liability movement during the year in the net pension and post-retirement liability
US$m	Pension plans 2005	Post- retirement medical plans 2005	Pension plans 2004	Post- retirement medical plans 2004
Net liability as at 1 January	25.0	12.6	24.8	8.6
Acquisition accounting adjustment*	–	–	29.2	–
Total benefit (income)/expense	2.9	–	-1.5	2.1
Actuarial (gains)/losses	-0.3	-0.5	6.4	–
Employer contributions actually paid	-4.8	–	-7.4	–
Settlements and curtailments	–	-0.2	-30.8	–
Translation adjustments	-1.7	-1.3	4.3	1.9
Net liability as at 31 December	21.1	10.6	25.0	12.6
*Relates to adjustments made in respect of the acquisition of MIM Holdings Limited in June 2003.

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. For one of the plans in Australia, the employer's current contributions is 9.0% of pensionable salaries. The other Australian defined benefit pension plan is in surplus so employer's contributions are suspended and the German plan is self funded. The total contributions to the defined benefit pension plans in 2006 are expected to be US$4.6 million.

The components of benefit (income)/expense recognised in the Consolidated Income Statement during the year are as follows:

Components of benefit (income)/expense recognised in the Consolidated Income Statement
US$m	Pension plans 2005	Post- retirement medical plans 2005	Pension plans 2004	Post- retirement medical plans 2004
Service cost	2.2	-1.4	2.0	2.1
Interest cost	5.6	1.4	8.1	–
Expected return on plan assets (net of expected expenses)	-4.9	–	-10.6	–
Gains/(losses) on settlements and curtailments	–	–	-1.0	–
	2.9	–	-1.5	2.1

The components of actuarial (gains)/losses recognised in the Consolidated Statement of Recognised Income and Expenses during the year are as follows:

Components of actuarial (gains)/losses recognised in the Consolidated Statement of Recognised Income and Expenses
US$m	Pension plans 2005	Post- retirement medical plans 2005	Pension plans 2004	Post- retirement medical plans 2004
Expected return on plan assets (net of expected expenses)	4.9	–	10.6	–
Actual return on plan assets	-8.8	–	-9.1	–
Actual return less expected return on plan assets	-3.9	–	1.5	–
Actuarial gain on pension obligations	-8.0	-0.5	-1.1	–
Change of assumptions	11.6	–	6.0	–
	-0.3	-0.5	6.4	–

The cumulative amount of net actuarial losses recognised in the statement of recognised income and expenses is US$10.0 million (2004 US$10.8 million).

The reconciliation of the present value of benefit obligations and fair value of plan asset movements during the year are as follows:

Reconciliation of the present value of benefit obligations and fair value of plan asset movements during the year
US$m	Pension plans 2005	Post- retirement medical plans 2005	Pension plans 2004	Post- retirement medical plans 2004
Benefit obligation present value as at 1 January	109.8	12.6	140.1	8.6
Acquisition accounting adjustment	–	–	29.2	–
Current service cost	2.2	-1.4	2.0	2.1
Interest cost	5.6	1.4	8.1	–
Employee contributions	0.7	–	0.7	–
Actuarial (gains)/losses	-8.0	-0.5	-1.1	–
Actual benefit payments	-5.4	–	-6.4	–
Settlements and curtailments	–	-0.2	-80.1	–
Change of assumptions	11.6	–	6.0	–
Translation adjustments	-10.3	-1.3	11.3	1.9
Benefit obligation present value as at 31 December	106.2	10.6	109.8	12.6

Plan assets fair value as at 1 January	84.8	–	115.3	–
Actual return on plan assets	8.8	–	9.1	–
Company contributions	4.8	–	7.4	–
Employee contributions	0.7	–	0.7	–
Benefits paid from fund	-5.4	–	-6.4	–
Settlements and curtailments	–	–	-48.3	–
Translation adjustments	-8.6	–	7.0	–
Plan assets fair value as at 31 December	85.1	–	84.8	–
Net liability as at 31 December	21.1	10.6	25.0	12.6
Net liability as at 1 January	25.0	12.6	24.8	8.6

The defined benefit obligation present value included above for unfunded pension plans at 31 December 2005 was US$5.0 million (2004 US$6.8 million).

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

Major categories of plan assets
	Pension plans 2005	Pension plans 2004
Equities	52.5%	50.0%
Property	1.3%	1.6%
Bonds	40.5%	40.1%
Cash	5.1%	7.7%
Other	0.6%	0.6%

Included in equities is US$0.1 million (2004 US$0.1 million) of Xstrata plc shares.

The overall expected rate of return on assets is determined based on the market value weighted expected return applicable to the underlying asset category.

38. Related Parties

Related Parties
Name	Country of incorporation	Principal activities	% of ordinary shares held and voting rights
Principal Subsidiaries
Xstrata Coal
Abelshore Pty Limited	Australia	Coal operations	100%
AZSA Holdings Pty Limited	Australia	Coal operations	100%
Cook Resources Mining Pty Limited	Australia	Coal operations	95%
Cumnock Coal Limited	Australia	Coal operations	84%
Enex Foydell Limited	Australia	Coal operations	100%
Enex Liddell Pty Limited	Australia	Coal operations	100%
Enex Oakbridge Pty Limited	Australia	Coal operations	100%
Xstrata Mt Owen Pty Limited	Australia	Coal operations	100%
Jonsha Pty Limited	Australia	Coal operations	100%
Oakbridge Pty Limited	Australia	Coal operations	78%
Oceanic Coal Australia Limited	Australia	Coal operations	100%
Ravensworth Operations Pty Limited	Australia	Coal operations	100%
Saxonvale Coal Pty Limited	Australia	Coal operations	100%
The Wallerawang Collieries Limited	Australia	Coal operations	95%
Ulan Coal Mines Limited	Australia	Coal operations	90%
Ulan Power Company Pty Limited	Australia	Feasibility projects	100%
Xstrata Coal Pty Limited	Australia	Holding company	100%
Xstrata Coal Holdings Pty Limited	Australia	Holding company	100%
Xstrata Coal Investments Limited	Australia	Holding company	100%
Xstrata Coal Queensland Pty Limited	Australia	Coal operations	100%
Xstrata Energy Pty Limited	Australia	Holding company	100%
Xstrata Newpac Pty Limited	Australia	Investment company	100%
Tavistock Collieries (Pty) Ltd	South Africa	Coal operations	100%
Xstrata Coal Marketing AG	Switzerland	Marketing & trading	100%
Xstrata Alloys
Xstrata South Africa (Pty) Ltd	South Africa	Holding company, Coal, Chrome	100%
		and Vanadium operations
Char Technology (Pty) Ltd	South Africa	Char operation	100%
African Fine Carbon (Pty) Limited	South Africa	Char operation	100%
African Carbon Producers (Pty) Limited	South Africa	Char operation	100%
Xstrata Copper
Ernest Henry Mining Pty Ltd	Australia	Copper operation	100%
Minera Alumbrera Limited	Antigua	Copper operation	50%*
Mount Isa Mines Limited	Australia	Copper, Lead and Zinc operations	100%
Xstrata Zinc
Asturiana de Zinc SA	Spain	Zinc smelter	100%
Britannia Refined Metals Limited	UK	Lead smelter	100%
McArthur River Mining Pty Ltd	Australia	Zinc operations	100%
Xstrata Zinc GmbH	Germany	Zinc smelter	100%
Xstrata Technology
Xstrata Technology Pty Ltd	Australia	Technology operations	100%
MIM Process Technology South Africa (Pty) Ltd	South Africa	Technology operations	100%
Other
Xstrata (Schweiz) AG **	Switzerland	Holding company	100%
Xstrata Capital Corporation AVV***	Aruba	Finance company	100%
Xstrata Holdings Pty Ltd	Australia	Holding company	100%

Related Parties (2)
Name	principal place of operations/ country of incorporation	Principal activities	Effective interest held
Principal Joint Ventures
Xstrata Coal
Bulga Joint Venture	Australia	Coal operations	87.5%
Douglas Tavistock Joint Venture	South Africa	Coal operations	16%
Foybrook Joint Venture	Australia	Coal operations	67.5%
Liddell Joint Venture	Australia	Coal operations	67.5%
Macquarie Coal Joint Venture	Australia	Coal operations	80%
Narama Joint Venture	Australia	Coal operations	50%
Newlands, Collinsville, Abbot Point Joint Venture	Australia	Coal operations	55%
Oaky Creek Coal Joint Venture	Australia	Coal operations	55%
Rolleston Pentland Wandoan Joint Venture	Australia	Coal operations	75%
Tavistock TESA Joint Venture	South Africa	Coal operations	50%
Ulan Coal Mines Joint Venture	Australia	Coal operations	90%
United Joint Venture	Australia	Coal operations	95%
Xstrata Alloys
Merafe Pooling and Sharing Venture	Africa	Chrome operations	82.5%
Mototolo Joint Venture	South Africa	Platinum project	50%
Principal Associates
Xstrata Coal
Newcastle Coal Shippers Pty Ltd	Australia	Coal terminal	37.1%
Port Kembla Coal Terminal Limited	Australia	Coal terminal	20.0%
Richards Bay Coal Terminal Company Ltd	South Africa	Coal terminal	20.9%
*This investment is treated as a subsidiary as the Group is entitled to two of the four Board positions of Minera Alumbrera Limited, including the Chairman as it is the manager of the copper operation. The Chairman has the casting vote where any vote is split equally between the four board positions however in a limited number of situations the vote must be unanimous, including transactions with related parties.
**Directly held by the parent company.
***4% held by the parent company.

The Group comprises a large number of companies and it is not practical to include all of these in the above list. All entities operate mainly in the country of incorporation and these interests are held indirectly by the parent company unless otherwise indicated.

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

Related Parties (3)
US$m	Sales**	Purchases	Treatment & refining charges	Treatment & refining revenue	Agency & marketing charges	Technical support revenue	Amounts payable	Amounts receivable
Glencore International AG*
2005	2,248.0	348.4	154.6	64.2	71.0	0.7	62.3	211.8
2004	1,516.7	206.5	86.6	35.8	57.9	–	38.8	154.3

Associates
2005	–	–	–	–	14.7	–	1.6	–
2004	–	–	–	–	13.7	–	1.2	–
Forestal del Sur Ltda
2004	2.9	–	–	–	–		–	0.2
*Includes share of joint ventures.
**No provision for doubtful debts has been raised in respect of transactions with related parties.

Included in the transactions with Glencore are US$761.1 million (2004 US$501.0 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.

Amounts payable and receivable, are included in Trade and other receivables (refer to note 20) and in Trade and other payables (refer to note 29), are unsecured and will be settled in cash.

Glencore International AG – Substantial shareholder

On 29 May 2003 Glencore International AG (Glencore), Credit Suisse First Boston Equities Limited and Credit Suisse First Boston (Europe) Limited entered into a capital management programme. Under the terms of this agreement 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 have joint ownership over 253,699,767 (2004: 255,096,956) ordinary shares representing 40.1% (2004: 40.4%) of the issued share capital of the Company at 31 December 2005.

Chrome

Xstrata Alloys 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 Alloys entire production of ferrochrome other than ferrochrome sold into the US, Canada and certain Asian countries. The agreement continues for as long as Xstrata Alloys produces ferrochrome. Glencore is obliged to use its best endeavours to arrange sales at prevailing market rates subject to initial agreement and approval by Xstrata Alloys prior to effecting the sale. Glencore assists Xstrata Alloys in negotiating sales contracts with third parties. 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 Alloys notifies Glencore that it is able to find purchasers for its production at prices higher than those generally obtainable by Glencore, Xstrata Alloys 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 months' 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 distributing agent for ferrochrome sales into territories of China, Japan and South Korea up to a maximum of 105,000 tonnes per annum. A change in distributing agent for sales into these countries must be done with the consent of Glencore International AG.

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 at prevailing market rates subject to initial agreement and approval by Xstrata South Africa prior to effecting the sale. 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.

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 Xstrata Coal entered into forward commodity price derivatives with Glencore as counter party. During the year 945,000 tonnes (2004: 930,000 tonnes) were delivered at an average FOB price of US$57.80 per tonne (2004 US$43.10 per tonne). At 31 December 2005, 765,000 tonnes (2004: 720,000 tonnes) were contracted at an average FOB price of US$52.63 per tonne (2004 US$59.75 per tonne) for delivery in 2006. These derivatives are on arms length terms and conditions and for the year ended 31 December 2005 are included within derivative financial assets and liabilities (refer to notes 24 and 02).

During the year 627,766 tonnes were borrowed from Glencore and 758,788 tonnes were transferred back to Glencore with 140,570 tonnes owed to Glencore at 31 December 2005 (31 December 2004 271,592 tonnes).

All other coal purchases and sales with Glencore are on arm's length terms and conditions.

Zinc

During 2005, Xstrata Zinc renewed 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.

Xstrata Zinc has an evergreen agreement with Glencore to purchase 380,000 dmt per annum of zinc concentrate. Treatment charges in respect of such purchases are negotiated annually.

Xstrata Zinc (San Juan de Nieva and Nordenham) has agreed to supply Glencore with 250,000 tonnes of SHG zinc slabs or CGG ingots during 2006 based on market FOB/CPT prices plus the respective premium.

Xstrata Zinc (McArthur River) has an agreement with Glencore to supply 204,800 wmt per annum in 2005 and 2006 of zinc concentrate. There is an additional agreement to supply Glencore with any unsold zinc concentrate, to a maximum of 94,200 wmt per annum, in 2005 and 2006. Treatment charges for 51,200 wmt per annum of zinc concentrate are fixed with the balance negotiated annually until 31 December 2006.

Xstrata Zinc (Mt Isa) has two agreements with Glencore in 2005 for the supply of zinc concentrate. The first agreement was to supply 90,000 wmt. The second agreement was to supply 80,000 wmt to 100,000 wmt for the purpose of swapping Mt Isa concentrate in exchange for the same volume to be delivered to Xstrata's European smelters at equivalent terms. Treatment charges are negotiated annually. Xstrata and Glencore have agreed to extend these agreements to the end of 2008 after which they will become "evergreen" in nature.

Copper

Xstrata 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 an initial three year period effective from 1 January 2004, and "evergreen" thereafter unless the agreement is terminated by either party with a minimum 12 month notice period. The sales terms for the copper cathode are the LME price plus 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 market prices less agreed metal content deductions, treatment and refining charges. The treatment and refining charges for the benchmark portion (25%) are fixed annually in line with annual benchmark terms. The treatment and refining charges for the spot portion (75%) are negotiated quarterly based on the prevailing spot market terms.

Xstrata Copper (Minera Alumbrera Limited) has entered into a 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 negotiated annually. 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 at prevailing spot market prices. Minera Alumbrera Limited on occasions also sells concentrate to Glencore under swap arrangements at prevailing market prices.

All terms and conditions are set on an arm's length basis.

Associates

Coal

Xstrata Coal has a number of investments in export coal terminals allowing it to export coal into overseas markets.

Xstrata Coal South Africa holds a 20.9% (2004: 20.9%) interest in Richards Bay Coal Terminal Company Ltd (RBCT), a company that operates the Coal Terminal in Richards Bay, South Africa. RBCT is governed by a consolidated agreement between the seven shareholders which deals with all aspects of the operation of the Terminal. All matters are decided by the board, membership of which is determined by shareholding. All decisions must have an 80% majority. Veto rights are held by BHP Billiton (Ingwe), Anglo American and Xstrata Coal. Xstrata Coal South Africa reimburses RBCT for its share of operating and capital expenditure.

Xstrata Coal Australia has a 20% (2004: 16.7%) interest in Port Kembla Coal Terminal Limited and a 37.1% (2004: 37.1%) interest in Newcastle Coal Shippers Pty Limited. Xstrata Coal Australia reimburses these coal terminals for its share of coal loading and handling charges.

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 notes 9, 30 and 36).

Remuneration of Key Management Personnel of the Group

Remuneration of Key Management Personnel of the Group
US$m	2005	2004
Wages and salaries	13.4	16.4
Pension and other post-retirement benefit costs	4.2	1.3
Social security and other benefits	1.5	1.1
Share-based compensation plans	18.2	7.7
	37.3	26.5

Includes amounts paid to Directors disclosed in the Remuneration report on pages 112 to 115 in the Annual Review 2005.

39. Financial Instruments – 2005

The disclosures for the year ended 31 December 2005 have been made in accordance with IAS 32. Financial instruments were accounted for under UK GAAP prior to 1 January 2005 and separate disclosures compliant with UK GAAP have been made in note 40.

The Group's significant financial instruments, other than derivatives, comprise bank loans and overdrafts, convertible borrowings, capital market notes, finance leases and hire purchase contracts, and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group's acquisitions and operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The Group is exposed to changes in currency exchange rates, commodity prices and interest rates in the normal course of business. Derivative transactions are generally entered into solely to hedge these risks although hedge accounting under IAS 39 is only applied when certain criteria have been met. Market fluctuations in derivative financial instruments designated as hedges are used to offset the fluctuations in the underlying exposure. The Group generally does not hold derivatives for trading purposes. Refer below and to the Financial Review on pages 28 to 30 of the Annual Review 2005 for further discussion on the Group's strategies in respect of holding financial instruments.

The main risks arising from the Group's financial instruments are credit risk, interest rate risk, liquidity risk, foreign currency risk and commodity price risk. A treasury committee establishes the policies for managing each of these risks and the board reviews and agrees these policies. The Group's accounting policies in relation to derivatives are set out in note 6.

Credit risk

The Group is mainly exposed to credit risk in respect of trade receivables, however given the geographical industry spread of the Group's customers, credit risk is believed to be limited. Where concentrations of credit risk exist, management closely monitors the receivable and ensures appropriate controls are in place to ensure recovery. Credit risk is minimal and not concentrated for other financial assets. Credit risk is limited to the carrying amount of financial assets at the balance sheet date. Details of guarantees given by the Group are outlined in note 36.

Interest rate risk

It is the Group's preference to borrow and invest at floating rates of interest, notwithstanding that some borrowings are at fixed rates. 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. In keeping with the Group's preference to borrow at a floating rate of interest, the 2010 guaranteed convertible bonds, which bears a fixed rate of interest at 3.95%, was swapped to a floating rate of interest based on LIBOR. This interest rate swap contracts as at 31 December 2005 was as follows:

Interest rate risk
	Principal amount US$m	Average rate %	Fair value US$m
Fair value hedges:
Interest rate swap from US$ fixed rates:
Maturing between 4 to 5 years	600	4.5	-9.7
	600	4.5	-9.7

The interest rate risk profile of the Group as at 31 December 2005 is as follows:

The interest rate risk profile of the Group as at 31 December 2005
US$m	Falling due within 1 year	Falling due between 1-2 years	Falling due between 2-3 years	Falling due between 3-4 years	Falling due between 4-5 years	Falling due more than 5 years	2005
Fixed rate by balance sheet category:
Cash and cash equivalents	196.9	–	–	–	–	–	196.9
Capital market notes	-14.3	-5.0	-165.7	-16.0	-12.5	-62.5	-276.0
Equity minority interest loans	–	–	–	–	–	-81.0	-81.0
Convertible borrowings*	–	–	–	–	-554.4	-320.2	-874.6
Other loans	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1	-0.6
	182.5	-5.1	-165.8	-16.1	-567.0	-463.8	-1035.3
Fixed rate by currency:
AUD	184.6	–	–	–	–	–	184.6
EUR	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1	-0.6
GBP	9.0	–	–	–	–	–	9.0
US$	-11.0	-5.0	-165.7	-16.0	-566.9	-463.7	-1228.3
	182.5	-5.1	-165.8	-16.1	-567.0	-463.8	-1035.3

Floating rate by balance sheet category:
Cash and cash equivalents	323.8	–	–	–	–	–	323.8
Other financial assets	31.2	–	–	–	–	–	31.2
Syndicated bank loan	-106.0	–	–	-971.0	–	–	-1077.0
Term bank loan	-600.0	–	–	–	–	–	-600.0
Bank loans – other	-7.1	-1.6	-1.4	-1.4	-1.4	–	-12.9
Bank overdrafts	-2.7	–	–	–	–	–	-2.7
Finance leases/hire purchase contracts	-14.7	-138.1	-11.5	-13.5	-8.8	-23.9	-210.5
	-375.5	-139.7	-12.9	-985.9	-10.2	-23.9	-1548.1
Floating rate by currency:
AUD	48.3	-132.8	-6.0	-7.0	-8.8	-23.9	-130.2
EUR	9.8	–	–	–	–	–	9.8
GBP	1.2	–	–	–	–	–	1.2
US$	-473.6	-2.9	-5.5	-977.5	–	–	-1459.5
ZAR	36.0	-4.0	-1.4	-1.4	-1.4	–	27.8
Other	2.8	–	–	–	–	–	2.8
	-375.5	-139.7	-12.9	-985.9	-10.2	-23.9	-1548.1
*The effects of an interest rate swap on this borrowing are discussed above.

The interest charged on floating rate financial liabilities is based on the relevant national inter-bank rates and re-priced at least annually. Interest on financial instruments classified as fixed rate is fixed until maturity of the instrument. The other financial instruments of the Group that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk.

Borrowing facilities

The Group has various borrowing facilities available to it. The undrawn committed facilities available at 31 December 2005 in respect of which all conditions precedent had been met at that date are as follows:

Borrowing facilities
US$m	2005
Expiring in:
Less than 1 year	446.9
Between 3 to 4 years	29.0
	475.9

Foreign currency risk

Owing to the Group's significant operations in Australia, South Africa and Europe, the balance sheet and results can be affected significantly by movements in exchange rates. The long term relationship between commodity prices and the currencies of most of the countries where the Group operates provides a degree of natural protection however in the short term it can be quite volatile. 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.

Foreign currency hedges

The Australian operations have entered into AUD/US$ exchange contracts to hedge a portion of their US dollar denominated revenue and third party loans. The Group also enters into forward contracts to hedge specific one off foreign currency transactions. The open foreign currency exchange contracts as at 31 December 2005 are as follows:

Classified as Cash flow hedges:

Foreign currency hedges
	Contract amount US$m	Average forward rate	Fair value US$m
Forward contracts – sell US$/buy AUD:
Maturing in less than 1 year	661.0	0.7468	-13.8
Maturing between 1 to 2 years	8.7	0.7329	–
	669.7	0.7466	-13.8
Forward contracts – sell US$/buy EUR:
Maturing in less than 1 year	0.6	1.2630	–
	0.6	1.2630	–
Forward contracts – sell ZAR/buy EUR:
Maturing in less than 1 year	1.0	7.8290	–
	1.0	7.8290	–
Forward contracts – sell AUD/buy GBP:
Maturing in less than 1 year	5.2	0.3927	-0.4
	5.2	0.3927	-0.4
			-14.2

An Australian subsidiary has designated its US$ denominated capital market notes as a fair value hedge of an investment in a US$ denominated South American operation (refer to notes 25 and 30). The hedge is being used to reduce exposure to foreign currency risk.

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. Where exposure to commodity price movements results from processing contracts for which the Group has no underlying production, market risk from fluctuations on the commodity price will from time to time be hedged by LME futures or the OTC swap market.

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 to hedge prices of future sales. The Australian and South African operations have entered into coal forwards to hedge prices of future sales of coal. The open forwards and collars commodity contracts as at 31 December 2005 are as follows:

Classified as cash flow hedges:

Commodity hedging
	Ounces	Average price US$	Fair price US$m
Cash flow hedges:
Gold forwards – AUD denominated contracts:
Maturing in less than 1 year	58,843	500.40	-1.9
Maturing between 1 to 2 years	88,500	520.05	-3.4
Maturing between 2 to 3 years	84,200	538.63	-3.8
Maturing between 3 to 4 years	87,800	547.76	-5.2
	319,343	528.95	-14.3
Gold forwards – US$ denominated contracts:
Maturing in less than 1 year	102,668	373.06	-15.9
Maturing between 1 to 2 years	125,000	386.30	-19.5
	227,668	380.33	-35.4
Gold options – US$ denominated contracts:
Maturing in less than 1 year	51,000	500-590	0.2
Maturing between 1 to 2 years	102,000	500-576	-1.4
Maturing between 2 to 3 years	126,000	475-594	-4.0
Maturing between 3 to 4 years	150,000	495-640	-3.9
	429,000	475-640	-9.1
Silver forwards – US$ denominated contracts:
Maturing in less than 1 year	4,900,000	7.68	-6.3
	4,900,000	7.68	-6.3

Commodity hedging
	Tonnes	Average price US$	Fair price US$m
Copper forwards – US$ denominated contracts:
Maturing in less than 1 year	49,750	2,746.62	-63.0
	49,750	2,746.62	-63.0
Zinc forwards – US$ denominated contracts:
Maturing in less than 1 year	12,104	1,412.05	-6.0
	12,104	1,412.05	-6.0
Lead forwards – US$ denominated contracts:
Maturing in less than 1 year	58,375	956.68	-5.7
	58,375	956.68	-5.7
Coal forwards – US$ denominated contracts:
South African FOB
Maturing in less than 1 year	3,105,000	51.82	15.9
Maturing between 1 to 2 years	2,205,000	48.82	-2.2
	5,310,000	50.57	13.7
South African CIF
Maturing in less than 1 year	975,000	56.80	-0.4
Maturing between 1 to 2 years	420,000	60.95	0.5
	1,395,000	58.05	0.1
Australian FOB
Maturing in less than 1 year	545,000	38.32	-2.1
	545,000	38.32	-2.1
			-128.1

Classified as Other commodity derivatives:

Commodity hedging
	Ounces	Average price US$	Fair price US$m
Gold forwards – AUD denominated contracts:
Maturing in less than 1 year	28,252	479.48	-1.5
	28,252	479.48	-1.5
Gold forwards – US$ denominated contracts:
Maturing in less than 1 year	36,332	378.08	-5.1
	36,332	378.08	-5.1

Commodity hedging
	Ounces	Average price US$	Fair price US$m
Gold swaps – AUD denominated contracts:
Maturing in less than 1 year	13,166	1.5	0.8
Maturing between 1 to 2 years	30,000	1.5	0.6
Maturing between 2 to 3 years	58,300	1.5	0.2
Maturing between 3 to 4 years	16,500	1.5	–
	117,966	1.5	1.6

Commodity hedging
	Tonnes	Average price US$	Fair price US$m
Copper forwards – US$ denominated contracts:
Maturing in less than 1 year	56,050	3,056.54	-75.9
	56,050	3,056.54	-75.9
Zinc forwards – US$ denominated contracts:
Maturing in less than 1 year	41,321	1,412.05	-20.4
	41,321	1,412.05	-20.4
			-101.3

Other commodity derivatives also includes zinc and lead forward contracts that were closed out from offsetting sales positions with settlement deferred into 2006 until the maturity dates of the sales forward contracts, with a loss of US$14.5 million.

Fair values

Set out below is a comparison by category of carrying value and fair values of the Group's financial instruments that are not carried at fair value in the financial statements at 31 December:

Fair values
US$m	Carrying value 2005	Fair value 2005
Financial Liabilities:
Capital market notes	-276.0	-271.2
Equity minority interest loans	-81.0	-80.4
Convertible borrowings	-874.6	-872.5

Market rates at 31 December 2005 have been used to determine the fair value of fixed interest loans. The fair value of the liability portion of the convertible bonds are estimated using an equivalent market interest rate of a similar liability that does not have a conversion option as at the origination of the bond (refer notes 5, 6, 28 and 31).

40. Financial Instruments – 2004

The Group's significant financial instruments in 2004 were of a similar nature to those in 2005 and consequently the main risks arising from those instruments are consistent with the risks outlined in note 39; specifically credit risk, interest rate risk, liquidity risk, foreign currency risk and commodity price risk. Due to the limited changes in the Group's operations in the year to 31 December 2005, the discussions of the risks and the methods utilised by the Group to manage the risks at 31 December 2005 were also utilised in 2004. The below provides additional disclosures required by FRS 13, the UK GAAP accounting standard applied to financial instruments in the 2004 year.

The interest rate profile of the Group as at 31 December 2004 was as follows:

Financial assets
US$m	Weighted average time fixed rate	Weighted average fixed rate % pa	Fixed rate	Floating rate	Non-interest bearing	2004
Financial assets:
AUD	–	–	–	176.0	78.9	254.9
EUR	–	–	–	–	2.4	2.4
US$	–	–	–	220.7	29.8	250.5
ZAR	–	–	–	154.7	–	154.7
Other	<1 year	4.2	1.9	10.2	0.1	12.2
			1.9	561.6	111.2	674.7

Financial liabilities
US$m	Weighted average time fixed rate	Weighted average fixed rate % pa	Fixed rate	Floating rate	Non-interest bearing	2004
Financial liabilities:
AUD	–	–	–	229.4	–	229.4
EUR	9 years	5.0	0.7	–	1.5	2.2
US$	6 years	4.8	983.3	690.6	–	1,673.9
ZAR	–	–	–	38.4	–	38.4
Other	<1 year	4.6	1.2	–	–	1.2
			985.2	958.4	1.5	1,945.1

Financial liability maturity profile
US$m	Falling due within 1 year	Falling due between 1-2 years	Falling due between 2-5 years	Falling due more than 5 years	2004
Financial liability maturity profile:
AUD	71.4	100.3	19.9	37.8	229.4
EUR	0.4	0.4	0.6	0.8	2.2
US$	31.5	20.0	864.2	758.2	1,673.90
ZAR	6.1	23.5	3.0	5.8	38.4
Other	1.2	–	–	–	1.2
	110.6	144.2	887.7	802.6	1,945.1

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 which have no fixed maturity, other debtors of US$24.0 million which mature within the next 12 months and other debtors of US$36.5 million which mature within five years.

Interest rate swaps

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

Interest rates swaps
	Principal amount US$m 2004	Average rate % 2004	Fair value US$m 2004
Interest rate swaps to US$ fixed rates:
Less than 1 year	600.0	2.2	2.3
	600.0	2.2	2.3
Interest rate swaps from US$ fixed rates:
More than 5 years	600.0	4.5	11.1
	600.0	4.5	11.1

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:

Interest rate swaps: Unrecognised gains and losses
US$m	Gains 2004	Losses 2004	Net 2004
Interest rate swaps to US$ fixed rate:
Unrecognised gains and losses at 1 January	13.7	-2.5	11.2
Arising during the year but not recognised	-0.3	2.5	2.2
Unrecognised gains and losses at 31 December	13.4	–	13.4
Of which:
Gains and losses expected to be realised in the next accounting period	2.3	–	2.3

Borrowing facilities

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

Borrowing facilities
US$m	2004
Expiring in:
Less than 1 year	568.0
Between 2 to 5 years	343.0
	911.0

Currency Risk

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 income statement. 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 2004, the net foreign currency monetary receivable exposure (primarily US$) is as follows:

Currency Risk
US$m	2004
Functional currency:
AUD	102.9
EUR	-9.6
US$	-5.6
ZAR	44.1
Other	3.8
	135.6

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.

Foreign currency hedges
	Contract amount US$m 2004	Average forward rate 2004	Fair value US$m 2004
Forward contracts – sell US$/buy AUD:
Less than 1 year	858.8	0.7276	54.5
Between 1 to 2 years	9.5	0.7376	0.3
	868.3	0.7277	54.8
Forward contracts – sell AUD/buy EUR:
Less than 1 year	3.3	0.5626	-0.1
	3.3	0.5626	-0.1
Forward contracts – sell US$/buy EUR:
Less than 1 year	2.5	1.2733	0.2
	2.5	1.2733	0.2
Forward contracts – sell AUD/buy GBP:
Less than 1 year	37.0	0.3958	-1.0
	37.0	0.3958	-1.0
Cross currency swaps – sell US$/buy AUD
Less than 1 year	43.0	0.5185	21.8
	43.0	0.5185	21.8

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:

Foreign Currency Hedges
US$m	Gains 2004	Losses 2004	Net 2004
Forward contracts – sell US$/buy AUD:
Unrecognised gains and losses at 1 January	220.0	–	220.0
Arising in previous years that are now recognised	-220.0	–	-220.0
Arising during the year but not recognised	52.8	-1.1	51.7
Unrecognised gains and losses at 31 December	52.8	-1.1	51.7
Of which:
Gains and losses expected to be realised in the next accounting period	52.5	-1.1	51.4

An Australian subsidiary has utilised its US$ denominated capital market notes as a hedge of their net investment in a US$ denominated South American operation. This hedge is being used to reduce exposure to foreign currency risk.

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.

Commodity hedging
	Ounces 2004	Average price US$ 2004	Fair price US$m 2004
Gold forwards – US$ denominated contracts:
Less than 1 year	144,000	366.31	-11.3
Between 1 to 2 years	139,000	374.37	-11.1
Between 2 to 5 years	125,000	386.30	-10.1
	408,000	375.18	-32.5
Gold forwards – AUD denominated contracts:
Less than 1 year	98,602	477.26	2.6
Between 1 to 2 years	87,095	527.34	4.0
Between 2 to 5 years	260,500	566.45	10.0
	446,197	539.11	16.6

Commodity hedging
	Tonnes 2004	Average price US$ 2004	Fair price US$m 2004
Coal forwards – US$ denominated contracts:
Less than 1 year	720,000	59.75	3.9
	720,000	59.75	3.9

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:

Commodity hedging
US$m	Gains 2004	Losses 2004	Net 2004
Commodity hedging:
Unrecognised gains and losses at 1 January	13.0	-93.6	-80.6
Arising in previous years that are now recognised	-0.7	38.9	38.2
Arising during the year but not recognised	8.2	22.2	30.4
Unrecognised gains and losses at 31 December	20.5	-32.5	-12.0
Of which:
Gains and losses expected to be realised in the next accounting period	6.5	-11.3	-4.8

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:

Fair Value
US$m	Book value 2004	Fair value 2004
Primary financial instruments:
Short-term borrowings	-11.3	-11.3
Long-term borrowings	-781.7	-781.7
Guaranteed convertible bonds	-600.0	-1,140.80
Capital market notes	-367.1	-367.0
Finance leases and hire purchase liabilities	-185.0	-185.0
Fixed asset investments (other than joint ventures and associates)	87.9	84.0
Cash and short-term deposits	477.3	477.3
Other long term debtors	55.7	55.7

Derivative financial instruments:
Foreign currency contracts	24.0	75.7
Interest rate swaps	–	13.4
Coal commodity hedging	–	3.9
Gold commodity hedging	29.8	-15.9

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.

41. Events After Balance Sheet Date

On 15 February 2006, Xstrata Coal entered into an alliance agreement with Erdene Gold Inc. (Erdene) of Halifax, Nova Scotia following the 9.9% acquisition of their ordinary share capital for US$2.6 million, which 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 in Mongolia and a large number of exploration projects in the country, which include both coal and base metals. Through this agreement, Xstrata Coal will have access to Erdene projects and share with Erdene its extensive knowledge of coal project feasibility, development and operations to jointly pursue development opportunities. Whilst this agreement is focussed on the joint development of metallurgical and thermal coal projects, the Group will also have the right to participate in other mineral development opportunities with Erdene.

On 28 February 2006, the Group announced that it has concluded an agreement with African Rainbow Minerals Limited (ARM), to establish a new black controlled company, ARM Coal, to be 51% owned by ARM and 49% by Xstrata. ARM is listed on the Johannesburg Stock Exchange and is controlled by historically disadvantaged South Africans (HDSAs). The newly established ARM Coal will own a 20% participation share in Xstrata's existing South African coal business, providing it with a significant stake in the thermal coal export and domestic markets, with exposure to some 20 million tonnes of annual production and immediate access to cash flows. ARM Coal will also hold a majority 51% interest in the Goedgevonden project, through a joint venture with the Group. This will provide ARM Coal with an effective interest the Group's South African coal business of above 26%. ARM will contribute US$65 million in cash for its 51% shareholding in ARM Coal. The Group is facilitating ARM Coal's entry by funding the acquisition of 51% of the Goedgevonden project and providing all the funding required to commission this project. ARM will appoint the majority of ARM Coal directors and the majority of representatives on the Goedgevonden joint venture management committee,in line with its majority interests. The Group will manage the Goedgevonden Project on behalf of the joint venture. The Group's existing operations will be managed through a supervisory committee consisting of two ARM Coal representatives, appointed by ARM, and four Group representatives.

On 28 February 2006, the Group and Kagiso Trust Investments (Kagiso) announced an agreement to form a black economic empowerment partnership in respect of the Group's 50% interest in the Mototolo Joint Venture with Anglo Platinum. Kagiso will acquire 26% of Group's 50% interest, resulting in Kagiso owning a fully participative 13% interest in the earnings from the Mototolo JV, in return for funding its proportionate share of the total capital expenditure required for the project. Xstrata will retain an effective 37% interest in the Mototolo JV and will establish a joint Steering Committee with Kagiso, comprising two Kagiso representatives and three Group representatives, to manage and jointly vote the two companies' combined 50% interest in the JV. The Steering Committee will also represent the partners on the Mototolo JV Executive Committee. On finalisation, Kagiso's participation will be effective retrospectively from the inception of the Mototolo JV. Kagiso is in the process of raising debt financing to fund its share of the project's capital expenditure. The Group is supporting Kagiso's entry into the Mototolo JV through the provision of a completion guarantee and a loan in the event that capital expenditure requirements exceed budgeted project estimates.

On 1 March 2006, the Group announced the proposed acquisition of 331⁄3% of the Cerrejón thermal coal operation in Colombia from Glencore for a cash consideration of US$1,712 million (including US$12 million net asset adjustment) and funded through a new bank debt facility. Cerrejón is a privately-owned, independently-managed joint venture in which BHP Billiton plc, Anglo American plc and Glencore each own a one third stake. The acquisition is subject to approval at an extraordinary general meeting, obtaining certain third party consents and agreements and will also be conditional upon certain competition and regulatory clearances.

Annual Report 2005

Notes to the Financial Statements

1. Corporate Information

2. Statement of compliance

3. Basis of preparation

4. Significant accounting judgements and estimates

Estimates

5. First time adoption of IFRS and changes in accounting policies

Early adoption of other International Financial Reporting Standards

Adoption of IFRS 5

New standards and interpretations not applied

Share-based Payments

Business Combinations, Impairment of Assets and Intangible Assets

Dividends

Income Taxes

Employee Benefits

The Effects of Changes in Foreign Exchange Rates

Investments in Associates

Interest in Joint Ventures

Non-current Assets Held for Sale and Discontinued Operations

Financial Instruments

Under UK GAAP:

Notes to the reconciliation between the IFRS Balance Sheet at 31 December 2004 and 1 January 2005 upon adoption of IAS 32 and IAS 39:

6. Principal Accounting Policies

Basis of consolidation

Interests in Joint Ventures

Jointly controlled operations

Jointly controlled assets

Jointly controlled entities

Investments in Associates

Business Combinations

Foreign currencies

Revenue

Interest income

Non-trading items

Property, plant and equipmentLand and buildings, plant and equipment

Exploration and evaluation expenditure

Mineral properties and mine development expenditure

Capital work in progress

Leasing and hire purchase commitments

Biological assets

Deferred overburden removal expenditure

Intangible assets

Coal Export Rights

Software and Technology patents

Impairment of assets

Non-current assets held for sale and discontinued operationsNon-current assets held for sale

Discontinued Operations

Financial instrumentsInvestments and other financial assets

IFRS Accounting Policy

Financial assets at fair value through profit or loss

Held-to-maturity investments

Loans and receivables

Available-for-sale financial assets

Fair values

Derecognition of financial assets and liabilitiesFinancial assets

Financial liabilities

Impairment of financial assets

Financial assets carried at amortised cost

Assets carried at cost

Available-for-sale financial assets

Rehabilitation Trust Fund

Derivative financial instruments and hedging

Fair value hedges

Cash flow hedges

Hedges of a net investment

UK GAAP Accounting Policy

Own shares

Interest-bearing loans and borrowings

Convertible borrowings

IFRS Accounting Policy

UK GAAP Accounting Policy

Inventories

Trade and other receivables

Cash and cash equivalents

Government grants

Environmental protection, rehabilitation and closure costs

Employee Entitlements

Other Provisions

Taxation

Property, plant and equipment
Land and buildings, plant and equipment

Non-current assets held for sale and discontinued operations
Non-current assets held for sale

Financial instruments
Investments and other financial assets

Derecognition of financial assets and liabilities
Financial assets

Business combinations
African Carbon Group (ACG)

Investments in associates
Falconbridge Limited

Discontinued operations
Forestry