Directors' Report

Results and dividends

The Group profit for the year ended 31 December 2005 on ordinary activities after taxation and minority interests was US$1,706.4 million compared to US$1,052.9 million in the previous year. The Group consolidated income statement and other Group financial information is produced on pages 4 to 120 of the Financial Statements 2005.

The Board recommends a final dividend of 25 US¢ per share amounting to US$149.9 million. The total 2005 dividend is US$204.1 million or 34 US¢ per share (2004 US$150 million or 24 US¢ per share). The shareholders will be asked to approve the dividend at the Annual General Meeting on 9 May 2006, for payment on 19 May 2006 to ordinary shareholders whose names were on the register on 28 April 2006.

Principal activities

Xstrata plc is an international metals and mining company. The Group's activities are managed through four major global Business Units: Xstrata Alloys, Xstrata Coal, Xstrata Copper, and Xstrata Zinc, together with Xstrata Technology. Additional information on the Group's operations is provided on pages 36 to 78 of this report.

Review of the business, future developments and post balance sheet events

A review of the business and the future developments of the Group is presented in the Chairman's Statement, Chief Executive's Report and the Operating and Financial Reviews on pages 4 to 78.

A full description of disposals, acquisitions and changes to Group companies undertaken during the year, including post-balance sheet events, is included in the Financial Review on pages 32 to 34.

Exploration and research, development

The Group business units carry out exploration and research and development activities that are necessary to support and expand their operations.

Financial instruments

The Group's financial risk management objectives and policies are discussed on pages 28 to 30 of the Operating and Financial Review and Note 39 to the financial statements.

Health, safety, environment and community (HSEC)

Xstrata is committed to the principles of sustainable development and to achieving the highest standards of health, safety and environmental performance. The Group's Business Principles set out an ethical framework for Xstrata's global activities which are supported by the Group's HSEC, Risk Management and Corporate Social Involvement policies and HSEC management standards. A comprehensive HSEC assurance and verification programme has been implemented across the global business in 2005. The Board HSEC Committee was established in February 2005 to assist the Board to fulfil its HSEC role and obligations. Details of the HSEC Committee are given on pages 100 and 101.

The General Manager, Health Safety and Environment reports to the Chief Executive and oversees the global implementation, review and assurance of the relevant HSEC policies and standards and, along with the Executive General Manager Corporate Affairs, manages the Group's interface with stakeholders on health, safety, environmental and community issues. The 2005 Sustainability Report, which provides details of the Group's economic, environmental and social performance as well as its sustainability initiatives, will be available from Xstrata's website (or as a hard copy on request) in April 2006. Further details of Xstrata's sustainability initiatives, including case studies and previous reports, are available from our website: www.xstrata.com.

Political and charitable donations

In accordance with Xstrata's corporate social involvement (CSI) policy, no political donations were made in 2005. Xstrata's corporate social involvement expenditure supports initiatives that benefit the communities local to the Group's operations in the areas of health, education, sport and the arts, community development, job creation and enterprise. In 2005, Xstrata set aside $24.7 million for CSI initiatives.

Employee policies and involvement

The Group's policy is to communicate honestly with employees and encourage consultation between employees and management. The Group's Statement of Business Principles is available from our website and is published separately and distributed to every employee and contractor in their native language. No form of workplace discrimination is tolerated.

Disabled employees

The Group gives full consideration to applications for employment from disabled persons, where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. Where existing employees become disabled, it is the Group's policy wherever practicable to provide continuing employment under normal terms and conditions and to provide training and career development and promotion to disabled employees wherever appropriate.

Labour relations

The Group has approximately 24,000 employees worldwide including contractors. All employees are free to join a union of their choice, but participation across the Group varies. In Australia, the predominant union membership for coal mining employees is with the Construction, Forestry, Mining and Energy Union (CFMEU), the Colliery Officials Association (COA) and the Australian Collieries Staff Association (ACSA); however, the collection of union membership statistics in this country is illegal. In South Africa, about 58 percent of Xstrata Coal employees are represented by the National Union of Mineworkers and 65 percent of Xstrata Alloys employees are union members. In Europe, around 50 percent of Xstrata Zinc employees are union members. Only 2% of Xstrata Copper's South American employees have union membership, although 44% are covered by collective agreements.

The Group strives to ensure and believes that all of the Group's operations have, in general, good relations with their employees and unions.

Employee share schemes

The Company has a policy of encouraging employees to acquire Xstrata plc shares and linking a significant element of employees' variable reward to the performance of the Group. Executive directors and employees of the Company and its subsidiaries are eligible to participate at the discretion of the Remuneration Committee in the Xstrata Long Term Incentive Plan (LTIP). The LTIP has two elements i) a free contingent award of ordinary shares which vest in three years and ii) a share option to acquire ordinary shares at the exercise price after three years. The vesting of awards and options depends upon the satisfaction of stipulated performance conditions. Further details of the above and of other Company's share schemes are set out in Note 37 to the Financial Statements and in the Remuneration Report on pages 112 to 115.

Corporate governance

A report on corporate governance and compliance with the provisions of the Combined Code is set out on pages 91 to 101.

Going concern

The Directors believe, after making inquiries that they consider to be appropriate, that the Company has adequate resources to continue in operational existence for the forseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Directors and their interests

The directors as at 31 December 2005 were:

In accordance with the Articles of Association, four directors will retire and offer themselves for re-election. Details of the resolutions that will be put to the Annual General Meeting are given in the Notice to the Annual General Meeting. Further details about the directors and their roles within the Group are given in the directors' biographies on pages 82 and 83.

Details of interests in the share capital of the Company of those directors in office as at 31 December 2005 are given below. As of the date of this report, there have been no changes. None of the shares were held non-beneficially. No director was interested in the shares of any subsidiary company.

In addition to the above interests in shares, certain of the directors also have interests in the share capital of the Company in the form of conditional rights to free shares and options to subscribe for shares. Details of these interests are disclosed in the Remuneration Report on pages 112 to 115.

Share capital

Details of the authorised and issued share capital of the Company, including the rights pertaining to each share class, are set out in Note 28 to the Financial Statements.

The ordinary issued share capital was increased on 23 March 2005 to 632,502,416 ordinary shares when the Directors issued and allotted 1,000,000 new ordinary shares of US$0.50 shares each to K.B. (C.I.) Nominees Limited for the purposes of the Company's Employee Share Ownership Trust, an employees' share scheme. The 1,000,000 new ordinary shares rank pari passu with the existing ordinary shares, trade on the London Stock Exchange and were admitted to the Official List on 8 April 2005.

The ordinary issued share capital of the Company at the date of this report is 632,933,638 ordinary shares following the issue of shares in connection with the Xstrata Capital Corporation A.V.V. US$600,000,000 3.95 per cent Guaranteed Convertible Bond due 2010.

Under the Companies Act 1985 (the "Act") the Board is not able to allot shares except with the general or specific authority of the shareholders. An Ordinary Resolution will therefore be proposed at the forthcoming Annual General Meeting to authorise the Directors of the Company in accordance with Section 80 of the Act to exercise all the powers of the Company to allot relevant securities (within the meaning of Section 80(2) of the Act) of the Company up to an aggregate nominal amount of US$105,488,939 (equivalent to 210,977,878 ordinary shares of US$0.50 each) (being the lesser of the Company's authorised but unissued share capital and one third of its issued capital).

This represents 33.33% of the issued ordinary share capital of the Company as of the date of this report. The authority extends until the end of the next Annual General Meeting. The Board does not have any present intention of exercising this authority other than for the purposes of the Company's employee share schemes.

The Act provides that, when equity securities are being issued for cash, such securities must first be offered to existing shareholders unless the Board is given a power to allot them without regard to that requirement. A Special Resolution will therefore be proposed at the forthcoming Annual General Meeting to empower the Board to allot for cash, equity securities of a nominal amount not exceeding US$15,823,340 (equivalent to 31,646,680 ordinary shares of US$0.50 each, representing 5% of the issued share capital) without first offering such securities to existing ordinary shareholders. The authority extends until the end of the next Annual General Meeting. Any issue of shares for cash will, however, still be subject to the requirements of the UK Listing Authority.

Major interests in shares

On 1 March 2006, the following major interests in the ordinary issued shares of US$0.50 each of the Company had been notified to the Company in accordance with Sections 198 to 208 of the Act:

Details of transactions between the Group and the shareholders detailed above are given in Note 38 to the Financial Statements.

Directors' liabilities

The Company has granted qualifying third party indemnities to each of its directors against for any liability which attaches to them in defending proceedings brought against them, to the extent permitted by the Companies Acts. In addition, directors and officers of the Company and its subsidiaries are covered by Directors & Officers liability insurance.

Creditor payment policy and practice

In view of the international nature of the Group's operations there is no specific group-wide policy in respect of payments to suppliers. Individual operating companies are responsible for agreeing terms and conditions for their business transactions and ensuring that suppliers are aware of the terms of payment. It is the Group policy that payments are made in accordance with those terms, provided that all trading terms and conditions have been met by the supplier.

Xstrata plc is a holding company with no business activity other than the holding of investments in the Group and therefore had no trade creditors at 31 December 2005.

Annual general meeting

The Annual General Meeting of the Company will be held at 11.00 am (Central European Time) on Tuesday, 9 May 2006 at Congress Center Metalli, Parkhotel Zug, 6300 Zug, Switzerland with a satellite meeting held concurrently at 10.00 am (BST) at the Media & Business Complex, London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.

The Notice convening the meeting is sent to shareholders separately with this Report. Resolutions will also be proposed for items of special business, namely, authorisation to the directors to allot ordinary shares and the disapplication of pre-emption rights, as explained in the paragraph above entitled Share Capital.

Electronic proxy voting

Registered shareholders have the opportunity to submit their votes (or abstain) on all resolutions proposed at the Annual General Meeting by means of an electronic voting facility operated by the Company's Registrar, Computershare Investor Services plc. This facility can be accessed by visiting www.computershare.com. As usual, paper proxy cards will be distributed to all registered shareholders with the Notice of Annual General Meeting.

CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored member and those CREST members who have appointed any voting service provider(s) should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf. The Company may treat as invalid a CREST proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

Electronic copies of the Annual Review and Financial Statements 2005 and other publications

A copy of the 2005 Annual Report (which includes the Annual Review and Financial Statements, Directors' Report, Corporate Governance Report and Remuneration Report), the Notice of the Annual General Meeting, the 2005 Sustainability Report and other corporate publications, reports, press releases and announcements are available on the Company's website at www.xstrata.com.

Auditors

A resolution will be put to the members at the forthcoming Annual General Meeting to re-appoint Ernst & Young LLP as auditors and to authorise the Board to determine the auditor's remuneration.

By order of the Board
Richard Elliston
Company Secretary
10 March 2006