Xstrata Aluminum

Operations

Xstrata Aluminum comprises the St Ann bauxite mine in Jamaica and the Gramercy alumina plant, both of which are 50% owned through a joint venture with Century Aluminum Company, the New Madrid primary smelter, supplied by the Gramercy alumina plant, and four rolling mills in the south-eastern United States, capable of producing a range of fabricated products. Revenue for 2006 rose by 29% compared to the previous year, largely due to higher aluminium and fabrication prices and record production and sales volumes, driven by strong customer demand.

At the St Ann mining operation in Jamaica, production of bauxite increased by 31% to 5 million tonnes (of which Xstrata´s attributable share is 50%), but heavy rains during the fourth quarter created logistical constraints on vessels used to deliver bauxite to the Gramercy alumina plant. As a result, production of smelter grade alumina at Gramercy remained constant with 2005 levels of 1 million tonnes.

Production of refined aluminium metal increased by 3% year-on-year at the New Madrid smelter, and record sales of value-added products such as billet, electrical conductor rods and foundry alloys were 5% higher in 2006, adding $11 million to EBIT.

The fabricated products business increased production of rolled aluminium by 8% to 215,000 tonnes in 2006. The new 905 caster at Norandal, installed January 2006, increased cast coil production capacity by 9% and was the main driver of increased third-party sales, up by 4% year-on-year.

Xstrata Aluminum EBIT more than doubled compared to 2005 on a pro forma basis to $208 million, as higher prices and increased volumes more than offset increased natural gas costs and higher power costs at the New Madrid primary smelter.

Operating unit costs benefited from energy efficiency programmes at the New Madrid primary smelter, where a 1% reduction in kilowatt hours required to generate aluminium metal was achieved, partially offsetting a $5 million increase in power costs due to a new power contract effective June 2005.

Unit costs also benefited from improved mill performance at Norandal due to increased throughput and cost improvement projects, especially energy conservation. Despite a natural gas price increase from $7.77 per dekatherm (Dth) in 2005 to $10.28 per Dth in 2006, the impact on conversion costs was offset by improvements in energy efficiencies. Conversion programmes at the Huntingdon plant combined to produce an 8% year-on-year reduction in energy consumption per pound of product.

Norandal USA Inc. and the United Steelworkers agreed to a new three-year contract at the Salisbury Plant in November 2006. The union membership ratified the contract on 20 November 2006, which runs to 20 November 2009.

Developments

The New Madrid primary smelter is currently progressing four projects at a cost of $22 million to achieve improved energy efficiency and increase metal production by 10,000 tonnes per annum by 2011.

Port facilities at St. Ann bauxite mine, Jamaica