Notes to the Financial Statements
1. Corporate Information
The consolidated financial statements were authorised for issue in accordance with a directors’ resolution on 18 March 2008. 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 principal activities of the Group are described in note 9.
2. Statement of compliance
The consolidated financial statements of Xstrata plc and its subsidiaries (the Group) are prepared in accordance with 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 2007.
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 million except where otherwise indicated. The accounting policies in note 6 have been applied in preparing the consolidated financial statements.
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 year. Actual outcomes could differ from these estimates. The below are the most critical estimates and assumptions:
Estimated recoverable reserves and resources
Estimated recoverable reserves and resources are used to determine the depreciation of mine production assets, in accounting for deferred stripping costs and in performing impairment testing. Estimates are prepared by appropriately qualified persons, but will be impacted by forecast commodity prices, exchange rates, production costs and recoveries amongst other factors. Changes in assumptions will impact the carrying value of assets and depreciation and impairment charges recorded in the income statement.
Environmental rehabilitation costs
The provisions for rehabilitation costs are based on estimated future costs using information available at the balance sheet date. To the extent the actual costs differ from these estimates, adjustments will be recorded and the income statement may be impacted (refer to note 31).
Impairment testing
Note 15 outlines the significant assumptions made in performing impairment testing of goodwill and certain intangible assets. Similar assumptions are made when testing other non-current assets. Changes in these assumptions may alter the results of impairment testing, impairment charges recorded in the income statement and the resulting carrying values of assets.
Defined benefit pension plans and post retirement medical plans
Note 34 outlines the significant assumptions made when accounting for defined benefit pension plans and post retirement medical plans. Changes to these assumptions may alter the resulting accounting and ultimately the amount charged to the income statement.
5. Changes in accounting policies, new standards and interpretations not applied
Changes in accounting policies
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2006, except for the adoption of the following new standards and interpretations:
- IFRIC 7 ‘Applying the restatement approach under IAS 29’
The Group adopted IFRIC Interpretation 7 which details the requirements of applying IAS 29 where an entity identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period, and the entity therefore restates its financial statements in accordance with IAS 29. The adoption of this interpretation has had no impact on Group earnings or equity in the current or prior years. - IFRIC 10 ‘Interim Financial Reporting and Impairment’
The Group adopted IFRIC Interpretation 10 which requires that an entity must not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. The adoption of this interpretation has had no impact on Group earnings or equity in the current or prior years.
The Group has also adopted the following disclosure standards from 1 January 2007, both of which affect disclosures in the financial statements but neither of which have had any impact on Group earnings or equity in the current or prior periods:
- IFRS 7 ‘Financial Instruments: Disclosures’ (refer to note 36)
- IAS 1 ‘Amendment: Capital disclosures’
New standards and interpretations not applied
The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements, consequently these pronouncements will impact the Group’s financial statements in future periods.
| Effective date | ||
|---|---|---|
| (Revised) ‘Business Combinations’ | 1 July 2009 |
| ‘Consolidated and Separate Financial Statements’ | 1 July 2009 |
| (Revised) ‘Borrowing Costs’ | 1 January 2009 |
| ‘Operating segments’ | 1 January 2009 |
| ‘Group and treasury share transactions’ | 1 March 2007 |
| ‘The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction’ | 1 January 2008 |
The directors do not anticipate that the adoption of these standards and interpretations on their effective dates will have a material impact on the Group’s financial statements in the period of initial application, notwithstanding IFRS 3 (Revised) ‘Business Combinations’ may impact the financial statements should there be an acquisition in the period.
Upon adoption of IFRS 8, the Group will be required to disclose segment information based on the information management uses for internally evaluating the performance of operating segments and allocating resources to those segments. This information may be different from that reported in the balance sheet and income statement but the Group will provide an explanation for such differences. There will be no impact on the income, net assets or equity.
6. Principal Accounting Policies
Basis of consolidation
The financial statements consolidate the financial statements of Xstrata plc (the Company) and its subsidiaries (the Group). 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. This occurs when the Group has more than 50% voting power through ownership or agreements, except where minority rights are such that a minority shareholder is able to prevent the Group from exercising control. In addition control may exist without having more than 50% voting power through ownership or agreements, or in the circumstances of enhanced minority rights, as a consequence of de facto control. De facto control is control without the legal right to exercise unilateral control, and involves decision making ability that is not shared with others and the ability to give directions with respect to the operating and financial policies of the entity concerned. 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 generally 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 in the underlying records of the joint venture.
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 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 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 only recognises the portion of the gain or loss attributable to the other venturers, 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 using the equity method of accounting. Under the equity method of accounting, the investment in the associate is recognised on the balance sheet on the date of acquisition at the fair value of the purchase consideration and therefore includes any goodwill on acquisition. 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 generally 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 in the underlying records of the associate. 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 on which it ceases to have significant influence, and from that date, accounts 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 the income statement.
Business Combinations
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 mining rights, 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 or 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 are not held by the Group and are presented in equity in the consolidated balance sheet, separately from the parent shareholders’ equity.
When a subsidiary is acquired in a number of stages, the cost of each stage is compared with the fair value of the identifiable net assets at the date of that purchase. Any excess is treated as goodwill, or any discount is immediately recognised in the income statement. On the date control is obtained, the identifiable net assets are recognised in the Group balance sheet at fair value and the difference between the fair value recognised and the value on the date of the purchase is recognised in the asset revaluation reserve.
Similar procedures are applied in accounting for the purchases of interests in associates. Any goodwill arising on such purchases is included within the carrying amount of the investment in the associates, but not thereafter amortised. Any excess of the Group’s share of the net fair value of the associate’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 re-translated at year-end exchange rates. All differences that arise are recorded in the income statement. 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 difference 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 foreign 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 is recognised in the income statement when the gain or loss on disposal or the loan repayment is recognised.
The following exchange rates to the US dollar (US$) have been applied:
| 31 December 2007 | Average 12 months 2007 | 31 December 2006 | Average 12 months 2006 | |
|---|---|---|---|---|
| Argentine pesos (US$:ARS) | 3.1500 | 3.1155 | 3.0610 | 3.0745 |
| Australian dollars (AUD:US$) | 0.8751 | 0.8389 | 0.7886 | 0.7535 |
| Canadian dollars (US$:CAD) | 0.9984 | 1.0740 | 1.1659 | 1.1342 |
| Chilean pesos (US$:CLP) | 497.95 | 522.21 | 532.32 | 530.54 |
| Colombian pesos (US$:COP) | 2,018.00 | 2,075.16 | 2,240.00 | 2,359.39 |
| Euros (EUR:US$) | 1.4590 | 1.3708 | 1.3200 | 1.2566 |
| Great Britain pounds (GBP:US$) | 1.9849 | 2.0020 | 1.9589 | 1.8437 |
| Peruvian nuevo sol (US$:PEN) | 2.9980 | 3.1285 | 3.1950 | 3.2737 |
| South African rand (US$:ZAR) | 6.8626 | 7.0506 | 7.0061 | 6.7701 |
| Swiss francs (US$:CHF) | 1.1335 | 1.2000 | 1.2190 | 1.2529 |
Revenue
Revenue associated with the sale of commodities is recognised when all significant risks and rewards of ownership of the asset sold are transferred to the customer, usually when insurance risk has passed to the customer and the commodity has been delivered to the shipping agent. 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. Sales revenue is recognised at the fair value of consideration received, which in most cases 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 excludes treatment and refining charges unless payment of these amounts can be enforced by the Group at the time of the sale.
For some commodities the sales price is determined provisionally at the date of sale, with the final price determined at a mutually agreed date, generally at a quoted market price at that time. In order to ensure that revenue is recorded at the fair value of consideration to be received, adjustments are made to the invoice price based on the forward metal prices published at the balance sheet date.
Interest income
Interest income is recognised as earned on an accruals basis using the effective interest method in the income statement.
Exceptional items
Exceptional items represent significant items of income and expense which due to their nature or the 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 better assess trends in financial performance. Exceptional items include, but are not limited to, goodwill impairments, acquisition and integration costs which have not been capitalised, profits and losses on the sale of investments, profits and losses from the sale of operations, recycled gains and losses from the foreign currency translation reserve, foreign currency gains and losses on borrowings, restructuring and closure costs, loan issue costs written-off on facility refinancing and the related tax impacts of these items.
Property, plant and equipment
Land and buildings, plant and equipment
On initial acquisition, land and buildings, 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, buildings, plant and equipment are 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 buildings, plant and equipment (based on prices prevailing at the balance sheet 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 parts of an asset have different 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:
| Buildings | 15 - 40 years |
| Plant and Equipment | 4 - 30 years |
The net carrying amounts of land, buildings, plant and equipment 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 that 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 the 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 and depreciated over their useful lives 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 their continued use or disposal 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 and resources and includes costs such as exploratory drilling and sample testing and the costs of pre-feasibility studies. 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 year in which this is determined. Exploration and evaluation 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. Expenditure is transferred to mine development assets or capital work in progress once the work completed to date supports the future development of the property and such development receives appropriate approvals.
Mineral properties and mine development expenditure
The cost of acquiring mineral reserves and mineral resources is capitalised on the balance sheet as incurred. Capitalised costs (development expenditure) include 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 that 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 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 that these values exceed their recoverable amounts, that excess is fully provided against in the financial year in which this is determined.
Leasing and hire purchase commitments
The determination of whether an arrangement is, or contains a lease is based in the substance of the arrangement at inception date, including whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or whether the arrangement conveys a right to use the asset. A reassessment after inception is only made in specific circumstances.
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.
Deferred stripping costs
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 and depreciated based on the mine’s strip ratio (refer below). The costs of removal of the waste material during a mine's production phase are deferred, where they give rise to future benefits. The deferral of these costs, and subsequent charges to the income statement are determined with reference to the mine's strip ratio.
The mine’s strip 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. These costs are deferred where the actual stripping ratios are higher than the average life of mine strip ratio. The costs charged to the income statement are based on application of the mine’s 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.
Biological assets
Biological assets, being cattle, 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.
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 over their 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 in the financial year the disposal occurs.
Coal export rights
Coal export rights are carried at cost and amortised using a units-of-production method based on the reserves that exist in the location that has access to such rights.
Software and technology patents
Software and technology patents are carried at cost and amortised over a period of 3 years and 20 years respectively.
Hydroelectricity rights
Hydroelectricity rights acquired in connection with the acquisition of the Falconbridge Group (refer to note 7) have been recorded at fair value at the date of acquisition and will be amortised over the expected life of the operation following the completion of construction.
Long-term feed contract
A long-term feed contract acquired in connection with the acquisition of the Falconbridge Group (refer to note 7) has been recorded at fair value at the date of the acquisition and is being amortised over the remaining contract term.
Impairment of assets
The carrying amounts of non-current assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. If there are indicators of impairment, a review is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less costs to sell and its value in use. Such reviews are undertaken on an asset by asset basis, except where assets do not generate cash flows independent of other assets, in which case 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 (excluding goodwill recognised as a result of the requirement to recognise deferred tax liabilities on acquisitions), 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 amounts 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 the recoverable amount of assets, the relevant future cash flows expected to arise from the continuing use of such assets and from their disposal are 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 the estimates used to determine the recoverable amount since the prior impairment loss was recognised. The carrying amount is increased to the 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
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 assets or disposal groups are available for immediate sale in their 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 of 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.
Discontinued operations
A discontinued operation is a component of an entity, whose operations and cash flows are clearly distinguished both operationally and for financial reporting purposes from the rest of the entity, that has been disposed of or classified as held for sale. To be classified as a discontinued operation one of the following criteria must be met:
- the operation must represent a separate major line of business or geographical area of operations; or
- 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
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. 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. All financial liabilities are initially recognised at their fair value. Subsequently, all financial liabilities with the exception of derivatives are carried at amortised cost.
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. 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 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 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. Trade and other receivables are recognised and carried at their original invoiced value or their recoverable amount if this differs from the invoiced amount. Where the time value of money is material receivables are discounted and are carried at their present value. A provision is made where the estimated recoverable amount is lower than the carrying amount.
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 other three stated 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.
De-recognition 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 and losses on de-recognition are recognised within finance income and finance costs respectively. 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 de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.
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 (i.e. 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. Objective evidence of impairment of loans and receivables exists if the borrower is experiencing significant financial difficulty, there is a breach of contract, concessions are granted to the borrower that would not normally be granted or it is probable that the borrower will enter into bankruptcy or a financial reorganisation.
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 commodity 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 is 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. Hedges that 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.
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 recognised in equity.
Own shares purchased under the Equity Capital Management Programme (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 the fair value of 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
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 are 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 includes the accretion of the liability component to the amount that will be payable on redemption.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis or using a 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.
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 include 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 operations to which it relates.
The provision is reviewed on an annual basis for changes to obligations, legislation or discount rates that impact estimated costs or lives 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 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. Mining taxes and royalties are treated and disclosed as current and deferred taxes if they have the characteristics of an income tax.
Pensions and other post-retirement obligations
The Group’s contributions to defined contribution pension plans are charged to the income statement in the year to which they relate. The Group contributes to separately administered defined benefit pension plans.
For defined benefit funds, 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 is 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 Canada, the Dominican Republic, South Africa and the United States. 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 option pricing models. At each balance sheet date prior to vesting, the cumulative expense representing the extent to which the vesting period has expired and management’s 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 sheet 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 re-calculated using an option pricing model (refer to note 34).
Borrowing costs
Borrowing costs are recognised as an expense in the financial period incurred, except to the extent they are related to the establishment of a loan facility. In such cases they are capitalised and amortised over the life of the facility.
Comparatives
Where applicable, comparatives have been adjusted to disclose them on the same basis as current period figures, for the finalisation of the acquisition accounting (refer to note 7) and discontinued operations and disposals (refer to note 8).
7. Acquisitions
Current year business combinations
In January 2007, the Group exercised an option to obtain a 73.7% interest in the Frieda River copper-gold porphyry in Papua New Guinea for US$14 million.
Following an announcement in late 2006, in March 2007 the Group completed the exercise of its option to acquire a 62.5% interest in Sagittarius Mines Inc (SMI) for US$47 million. SMI is the holder of Tampakan copper-gold project. The Group now has management control of the Tampakan project.
In August 2007, the Group acquired the remaining 50% interest in the Narama thermal coal mine in Australia from Iluka Resources Limited (Iluka) for US$58 million.
In September 2007, the Group acquired the 16% of Cumnock Coal Limited which it previously did not own for US$22 million. Cumnock Coal Limited is a coal mining company, which was listed on the Australian Stock Exchange.
In October 2007, the Group acquired 85.85% of Austral Coal Limited (Austral) and obtained control of the company. By 21 December 2007, the Group had acquired the remaining 14.15% of the company. The total cost of these purchases was US$542 million. Austral owns the Tahmoor underground coking coal operation in the southern coalfields of New South Wales, Australia. The provisional fair values of the identifiable assets and liabilities of Austral as at the date of obtaining control were:
| US$m | IFRS carrying value | Fair value adjustments | Provisional fair value to Group |
|---|---|---|---|
| Property, plant and equipment | 166 | 563 | 729 |
| Deferred tax assets | 42 | (38) | 4 |
| Prepayments | 6 | – | 6 |
| Inventories | 14 | – | 14 |
| Trade and other receivables | 18 | – | 18 |
| 246 | 525 | 771 | |
| Trade and other payables | (23) | (1) | (24) |
| Interest-bearing loans and borrowings | (167) | – | (167) |
| Provisions | (16) | (23) | (39) |
| Deferred tax liabilities | – | (169) | (169) |
| Net assets | 40 | 332 | 372 |
| Goodwill arising on acquisition | 169 | ||
| 541 | |||
| Consideration: | |||
| Net cash acquired with the subsidiary | (1) | ||
| Cash paid | 512 | ||
| Contingent consideration | 30 | ||
| 541 |
The fair values are provisional due to the complexity and timing of the acquisition. The review of the fair value of the assets and liabilities acquired will continue for 12 months from the acquisition date. The Group’s share of Austral’s loss from the date of acquisition amounted to US$4 million. The goodwill balance is the result of the requirement to recognise a deferred tax liability calculated as the difference between the tax effect of the fair value of the assets and liabilities acquired and their tax bases.
In October 2007, the Group acquired the Anvil Hill coal project from Centennial Coal Company Limited for US$468 million. The Anvil Hill coal project is located in the Upper Hunter Valley, Australia. The provisional fair values of the identifiable assets and liabilities of Anvil Hill as at the date of acquisition were:
| US$m | IFRS carrying value | Fair value adjustments | Provisional fair value to Group |
|---|---|---|---|
| Property, plant and equipment | 228 | 274 | 502 |
| Deferred tax assets | – | 14 | 14 |
| 228 | 288 | 516 | |
| Provisions | – | (48) | (48) |
| Deferred tax liabilities | (23) | 23 | – |
| Net assets | 205 | 263 | 468 |
| Consideration: | |||
| Cash paid | 445 | ||
| Contingent consideration | 23 | ||
| 468 |
The fair values are provisional due to the timing of the acquisition. The review of the fair value of the assets and liabilities acquired will continue for 12 months from the acquisition date.
Eland Platinum Holdings Limited
In November 2007, the Group acquired 100% of Eland Platinum Holdings Limited (Eland). Eland was previously listed on the Johannesburg stock exchange and holds an indirect 65% interest in the Elandsfontein platinum project. The Group also acquired an additional 9% interest in the Elandsfontein platinum project increasing the Group’s interest in the project to 74%. In addition to the Elandsfontein platinum project, Eland has controlling interests in Madibeng Platinum (Pty) Ltd and Beestkraal Platinum Mines (Pty) Ltd. These companies own the rights to other platinum resources in South Africa. The total cost of the acquisition was US$1,113 million. The provisional fair values of the identifiable assets and liabilities of Eland (including the additional interest in the Elandsfontein Project) as at the date of acquisition were:
| US$m | IFRS carrying value | Fair value adjustments | Provisional fair value to Group |
|---|---|---|---|
| Property, plant and equipment | 185 | 1,371 | 1,556 |
| Inventories | 16 | – | 16 |
| Trade and other receivables | 4 | – | 4 |
| 205 | 1,371 | 1,576 | |
| Trade and other payables | (13) | – | (13) |
| Interest-bearing loans and borrowings | (86) | – | (86) |
| Provisions | (5) | – | (5) |
| Deferred tax liabilities | (2) | (398) | (400) |
| Income taxes payable | (1) | – | (1) |
| Net assets | 98 | 973 | 1,071 |
| Minority interests | (37) | (369) | (406) |
| Net attributable assets | 61 | 604 | 665 |
| Goodwill arising on acquisition | 398 | ||
| 1,063 | |||
| Consideration: | |||
| Net cash acquired with the subsidiary | (50) | ||
| Cash paid | 1,113 | ||
| 1,063 |
The fair values are provisional due to the timing and complexity of the acquisition. The review of the fair value of the assets and liabilities acquired will continue for 12 months from the acquisition date. The Group’s share of Eland’s loss from the date of acquisition amounted to US$4 million. The goodwill balance is the result of the requirement to recognise a deferred tax liability calculated as the difference between the tax effect of the fair value of the assets and liabilities acquired and their tax bases.
If the above combinations had taken place at the beginning of 2007, the Group’s results would have been:
| US$m | 2007 |
|---|---|
| Revenue | 29,256 |
| Profit before interest, taxation, depreciation and amortisation | 11,314 |
| Profit before interest and taxation | 9,141 |
| Profit for the year | 5,866 |
Prior year business combinations
Falconbridge Limited
The Group obtained control of Falconbridge Limited (Falconbridge) in August 2006 for a total cash cost of US$18,819 million including transaction costs. As at 31 December 2006 the fair values of the identified assets and liabilities acquired were provisional, due to the timing and complexity of the acquisition. During 2007, these values were finalised as follows in accordance with IFRS 3 ‘Business Combinations’:
| US$m | Provisional fair value as previously reported | Fair value adjustments(a) | Fair value at acquisition |
|---|---|---|---|
| Intangible assets | 267 | 701 | 968 |
| Property, plant and equipment | 18,692 | (648) | 18,044 |
| Inventories | 2,306 | (1) | 2,305 |
| Trade and other receivables | 1,372 | 3 | 1,375 |
| Investments in associates | 134 | – | 134 |
| Available-for-sale financial assets | 140 | 10 | 150 |
| Derivative financial assets | 56 | – | 56 |
| Other financial assets | 125 | (83) | 42 |
| Prepayments | 61 | 2 | 63 |
| 23,153 | (16) | 23,137 | |
| Trade and other payables | (1,804) | (15) | (1,819) |
| Interest-bearing loans and borrowings | (3,800) | – | (3,800) |
| Derivative financial liabilities | (125) | – | (125) |
| Provisions | (1,239) | (164) | (1,403) |
| Pension deficit | (235) | (76) | (311) |
| Deferred tax liabilities | (3,081) | (331) | (3,412) |
| Income tax payable | (339) | (14) | (353) |
| Net assets | 12,530 | (616) | 11,914 |
| Minority interests | (45) | (426) | (471) |
| Net attributable assets | 12,485 | (1,042) | 11,443 |
| Goodwill* | 2,859 | 486 | 3,345 |
| Net attributable assets including goodwill | 15,344 | (556) | 14,788 |
| Provisional | Adjustments | Final | |
|---|---|---|---|
| Total consideration: | |||
| Net cash acquired with the subsidiary | (879) | – | (879) |
| Acquisition costs | 68 | – | 68 |
| Cash paid for 19.9% acquired in 2005 | 1,715 | – | 1,715 |
| Cash paid for 80.1% acquired in 2006 | 17,036 | – | 17,036 |
| 17,940 | – | 17,940 |
| US$m | Provisional | Adjustments | Final |
|---|---|---|---|
| Goodwill arising on acquisition on 19.9% interest in Falconbridge in 2005: | |||
| Cash paid | 1,715 | – | 1,715 |
| Less fair value of the 19.9% share of the attributable net assets acquired** | (1,715) | – | (1,715) |
| Goodwill | – | – | – |
| Goodwill arising on acquisition on 80.1% interest in Falconbridge in 2006: | |||
| 80.1% of net cash acquired with the subsidiary | (704) | – | (704) |
| Acquisition costs | 68 | – | 68 |
| Cash paid | 17,036 | – | 17,036 |
| 16,400 | – | 16,400 | |
| Less 80.1% share of the attributable net assets acquired | (12,291) | 446 | (11,845) |
| Goodwill on 80.1% acquisition*** | 4,109 | 446 | 4,555 |
| Goodwill from above* | 2,859 | 486 | 3,345 |
| Total goodwill(b) | 6,968 | 932 | 7,900 |
| * This goodwill balance is the result of the requirement to recognise a deferred tax liability calculated as the difference between the tax effect of the fair value of the assets and liabilities and their tax bases. | |||
| ** In accordance with IFRS, this represents 19.9% of the fair value of the net assets at the date of acquisition in 2005. | |||
| *** Included in this goodwill are certain intangible assets that cannot be individually separated or reliably measured from the acquisition due to their nature. These items include the expected value of synergies and an assembled workforce. | |||
| (a) The fair values of identified assets and liabilities acquired have been finalised in 2007. This has resulted in updates to a number of fair values reflected at 31 December 2006. The main adjustments relate to:
| |||
| (b) As required by IFRS 3, all adjustments made in finalising the acquisition accounting have been presented as if the accounting had been completed on the acquisition date. Accordingly, the additional goodwill recorded as a result of the finalisation of the acquisition accounting is subject to impairment testing at 31 December 2006. This has resulted in an additional impairment charge of US$446 million which, in accordance with IFRS 3, has been recognised in the income statement for the year ended 31 December 2006, increasing the total impairment charge to US$1,824 million. There was no other significant income statement impact arising as a result of finalising the acquisition accounting. | |||
From the date of acquisition to 31 December 2006, Falconbridge contributed a profit of US$1,218 million to the Group prior to the impairment expense of US$1,824 million.
Tintaya
In June 2006, the Group acquired 100% of the Tintaya copper mine in Peru. At 31 December 2006, the fair value of the identifiable assets and liabilities was provisional due to the complexity of the acquisition. In 2007, the acquisition accounting was finalised as follows:
| US$m | Provisional fair value as previously reported | Fair value adjustments(a) | Fair value at acquisition |
|---|---|---|---|
| Property, plant and equipment | 791 | 26 | 817 |
| Prepayments | 1 | – | 1 |
| Inventories | 90 | – | 90 |
| Trade and other receivables | 139 | – | 139 |
| 1,021 | 26 | 1,047 | |
| Trade and other payables | (33) | – | (33) |
| Provisions | (94) | – | (94) |
| Deferred tax liabilities | (139) | (8) | (147) |
| Income tax payable | (33) | – | (33) |
| Net assets | 722 | 18 | 740 |
| Goodwill arising on acquisition(b) | 125 | 8 | 133 |
| Cost | 847 | 26 | 873 |
| Consideration: | |||
| Net cash acquired with the subsidiary | (5) | – | (5) |
| Cash paid | 816 | – | 816 |
| Contingent consideration | 36 | 26 | 62 |
| 847 | 26 | 873 | |
| (a) These adjustments arose due to the finalisation of valuations of property, plant and equipment that increased the contingent consideration payable by an equivalent amount. | |||
| (b) The goodwill balance is a result of the requirement to recognise a deferred tax liability calculated as the difference between the tax effect of the fair value of the assets and liabilities and their tax bases. As discussed above, this balance was subject to impairment testing as at 31 December 2006 and it has been determined that no impairment existed. There were no other significant income statement impacts arising as a result of finalising the acquisition accounting. | |||
From the date of acquisition to 31 December 2006, Tintaya contributed a profit of US$189 million to the Group.
Cerrejón
The Group purchased a 331/3% interest in the Cerrejón thermal coal operation in Colombia in April 2006. The acquisition accounting was provisional at 31 December 2006 due to the complexity of the acquisition. In 2007, the acquisition accounting was finalised as follows:
| US$m | Provisional fair value as previously reported | Fair value adjustments(a) | Fair value at acquisition |
|---|---|---|---|
| Investment in associates | – | – | – |
| Derivative financial assets | 70 | – | 70 |
| Inventories | 44 | – | 44 |
| Trade and other receivables | 85 | – | 85 |
| 1,887 | – | 1,887 | |
| Trade and other payables | (79) | – | (79) |
| Provisions | (3) | – | (3) |
| Deferred tax liabilities | (477) | – | (477) |
| Income tax payable | (17) | – | (17) |
| Derivative financial liabilities | (60) | – | (60) |
| Net assets | 1,251 | – | 1,251 |
| Goodwill arising on acquisition(b) | 464 | – | 464 |
| Cost | 1,715 | – | 1,715 |
| Consideration: | |||
| Net cash acquired with the joint venture interest | (9) | – | (9) |
| Acquisition costs | 5 | – | 5 |
| Cash paid | 1,719 | – | 1,719 |
| 1,715 | – | 1,715 | |
| (a) The fair values of identified assets and liabilities acquired have been finalised. There were no changes to the provisional fair values at 31 December 2006. | |||
| (b) The goodwill balance is a result of the requirement to recognise a deferred tax liability calculated as the difference between the tax effect of the fair value of the assets and liabilities and their tax bases. As discussed above, this balance was subject to impairment testing as at 31 December 2006 and it has been determined that no impairment existed. | |||
From the date of acquisition to 31 December 2006, Cerrejon contributed a profit of US$76 million to the Group.
Tavistock TESA Joint Venture
On 1 December 2006, the Group agreed to purchase the remaining 50% interest in the Tavistock TESA joint venture in South Africa from its joint venture partner, Total Coal South Africa (Pty) Ltd for US$49 million.
If the above combinations had taken place at the beginning of 2006, the Group’s results would have been:
| US$m | 2006 |
|---|---|
| Revenue | 26,877 |
| Profit before interest, taxation, depreciation and amortisation | 9,680 |
| Profit before interest and taxation | 6,381 |
| Profit for the year | 3,477 |
Consolidated information
The below information is provided in aggregate for all business combinations in 2007 and 2006:
| US$m | 2007 | 2006 |
|---|---|---|
| Intangible assets | – | 968 |
| Property, plant and equipment | 2,997 | 20,575 |
| Inventories | 30 | 2,439 |
| Trade and other receivables | 38 | 1,601 |
| Investments in associates | – | 134 |
| Financial assets | – | 318 |
| Prepayments | 6 | 64 |
| 3,071 | 26,099 | |
| Trade and other payables | (46) | (1,931) |
| Interest-bearing loans and borrowings | (301) | (3,800) |
| Derivative financial liabilities | – | (185) |
| Provisions | (92) | (1,500) |
| Pension deficit | – | (311) |
| Deferred tax liabilities | (572) | (4,036) |
| Income tax payable | (1) | (403) |
| Net assets | 2,059 | 13,933 |
| Minority interests | (429) | (471) |
| Net attributable assets | 1,630 | 13,462 |
| Goodwill | 589 | 8,497 |
| Net attributable assets including goodwill | 2,219 | 21,959 |
| Consideration: | ||
| Net cash acquired with the subsidiary | (52) | (914) |
| Acquisition costs | 3 | 73 |
| Cash paid in prior year | – | 1,715 |
| Cash paid in current year | 2,179 | 19,620 |
| Contingent consideration | 89 | 62 |
| 2,219 | 20,556 |
Interests in joint ventures
Prior year interests in joint ventures
Effective 1 July 2006, the Group concluded an agreement with African Rainbow Minerals Limited (ARM), to establish a new black majority owned 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).
ARM Coal holds a 20% participation share in the Group’s existing South African coal business, and a majority 51% interest in the Goedgevonden project, through a joint venture with the Group. ARM contributed ZAR400 million (US$56 million) in cash for its 51% shareholding in ARM Coal. The Group facilitated ARM Coal’s entry by funding the acquisition of 51% of the Goedgevonden project for ZAR 765 million (US$107 million) and will provide all the funding required to commission this project. The Group’s funding, including debt allocated to the existing South African coal business, was on preferential terms through the use of interest and capital repayment holidays. ARM Coal receives a proportion of the cash flows from operations with the balance used to repay debt. In August 2006, ARM exercised an option to acquire a further 10% direct interest in the Group’s coal operations in South Africa, excluding the Goedgevonden project, for ZAR400 million (US$56 million) and an effective interest in Xstrata’s South African coal business of 36%.
During 2006, the Mototolo joint venture, the terms of which were agreed with Anglo Platinum in 2005, was completed. During the first half of 2006, the Group and Kagiso Trust Investments (Kagiso) formed a black economic empowerment partnership in respect of Xstrata’s 50% interest in the Mototolo joint venture. Kagiso acquired 26% of the Group’s 50% interest, resulting in Kagiso owning a fully participative 13% interest in the earnings of the Mototolo joint venture. The Group retained a 37% interest in the Mototolo joint venture. To acquire this interest, Kagiso agreed to fund the joint venture expenditure costs (both incurred and in the future) in proportion to its interest.
8. Discontinued operations and disposals
Disposals
Aluminium
The Aluminium business was sold on 18 May 2007 to Apollo Management LP. The disposal proceeds amounted to US$1,150 million before disposal costs of US$24 million, resulting in the Group realising a gain of US$1 million after tax of US$12 million. The results of the aluminium business for the periods ended are presented below:
| US$m | 01.01.07 to 18.05.07 | 15.08.06 to 31.12.06 |
|---|---|---|
| Revenue | 542 | 530 |
| Cost of sales (before depreciation and amortisation) | (406) | (396) |
| Distribution costs | (9) | (11) |
| Administrative expenses | (7) | – |
| Profit before interest, taxation, depreciation and amortisation | 120 | 123 |
| Depreciation and amortisation – cost of sales | (31) | (25) |
| Profit before interest and taxation | 89 | 98 |
| Finance income | 2 | 2 |
| Finance costs | (2) | (7) |
| Profit before taxation | 89 | 93 |
| Income tax expense | (37) | (29) |
| Profit for the period from discontinued operation | 52 | 64 |
| Gain on disposal of the discontinued operation | 1 | – |
| Profit after tax for the period from discontinued operations | 53 | 64 |
The carrying value of the major classes of assets and liabilities at the date of the sale were:
| US$m | at 18.05.07 |
|---|---|
| Intangible assets | 139 |
| Property, plant and equipment | 1,011 |
| Inventories | 215 |
| Trade and other receivables | 176 |
| Other financial assets | 31 |
| Trade and other payables | (92) |
| Interest-bearing loans and borrowings | (1) |
| Provisions | (37) |
| Pension deficit | (19) |
| Deferred tax liabilities | (298) |
| Income tax payable | (6) |
| Net assets | 1,119 |
| Cash inflow on disposal: | |
| Cash disposed of with the subsidiary | (6) |
| Cash received | 1,150 |
| Disposal costs | (24) |
| Net cash inflow | 1,120 |
| Gain on disposal of the discontinued operation | 1 |
Earnings per share from discontinued operations:
| US$ | 2007 | 2006 |
|---|---|---|
| Basic earnings per share | 0.06 | 0.08 |
| Diluted earnings per share | 0.05 | 0.08 |
The cash flows arising from the aluminium business unit up to the date of sale were operational in nature and were materially the same as its profits.
Following the acquisition of 100% of the assets of Cumnock Coal in September (refer above), in December 10% of the assets were sold for US$7 million.
Prior year disposals
On 19 October 2006, the Group disposed of its Cook coal operation to Caledon Resources Limited. A gain of $16 million was recognised on the disposal.
Consolidated information
The below information is provided in aggregate for all disposals in both 2007 and 2006:
| US$m | 2007 | 2006 |
|---|---|---|
| Intangible assets | 139 | – |
| Property, plant and equipment | 1,018 | 14 |
| Inventories | 216 | 1 |
| Trade and other receivables | 176 | 1 |
| Financial assets | 31 | – |
| 1,580 | 16 | |
| Trade and other payables | (93) | – |
| Interest-bearing loans and borrowings | (1) | – |
| Provisions | (37) | – |
| Pension deficit | (19) | – |
| Deferred tax liabilities | (298) | – |
| Income tax payable | (6) | – |
| Net assets | 1,126 | 16 |
| Consideration: | ||
| Net cash disposed of with the subsidiary | (6) | – |
| Cash received | 1,150 | 24 |
| Disposal costs | (24) | – |
| Contingent consideration | 7 | 8 |
| Total consideration | 1,127 | 32 |
| Gain on disposal of the discontinued operation | 1 | 16 |
9. 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. Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. The Group’s geographical segments are determined by the location of the Group’s assets and operations.
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 2007 and 2006.
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| Revenue | ||||||
| External parties: | ||||||
| Coal – Thermal | 3,614 | – | 3,614 | 3,019 | – | 3,019 |
| Coal – Coking | 587 | – | 587 | 598 | – | 598 |
| Coal | 4,201 | – | 4,201 | 3,617 | – | 3,617 |
| Chrome | 1,064 | – | 1,064 | 748 | – | 748 |
| Platinum | 129 | – | 129 | 12 | – | 12 |
| Vanadium | 159 | – | 159 | 199 | – | 199 |
| Copper | 12,794 | – | 12,794 | 7,007 | – | 7,007 |
| Nickel | 5,252 | – | 5,252 | 1,678 | – | 1,678 |
| Zinc Lead | 4,726 | – | 4,726 | 3,721 | – | 3,721 |
| Technology | 217 | – | 217 | 120 | – | 120 |
| Revenue (continuing operations) | 28,542 | – | 28,542 | 17,102 | – | 17,102 |
| Inter-segmental: | ||||||
| Coal | 3 | – | 3 | 3 | – | 3 |
| Copper | 65 | – | 65 | 23 | – | 23 |
| Nickel | 131 | – | 131 | 41 | – | 41 |
| Zinc Lead | 214 | – | 214 | 59 | – | 59 |
| Eliminations | (413) | – | (413) | (126) | – | (126) |
| Group revenues | 28,542 | – | 28,542 | 17,102 | – | 17,102 |
| Discontinued operations: | ||||||
| Aluminium | 542 | – | 542 | 530 | – | 530 |
| Total | 29,084 | – | 29,084 | 17,632 | – | 17,632 |
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| Profit before interest, taxation,depreciation and amortisation (EBITDA) | ||||||
| Coal – Thermal | 977 | – | 977 | 947 | 16 | 963 |
| Coal – Coking | 214 | – | 214 | 300 | – | 300 |
| Coal | 1,191 | – | 1,191 | 1,247 | 16 | 1,263 |
| Chrome | 310 | – | 310 | 141 | – | 141 |
| Platinum | 66 | (25) | 41 | 11 | – | 11 |
| Vanadium | 72 | – | 72 | 111 | – | 111 |
| Copper | 4,987 | – | 4,987 | 3,349 | – | 3,349 |
| Nickel | 2,577 | 275 | 2,852 | 788 | – | 788 |
| Zinc Lead | 1,810 | – | 1,810 | 1,477 | – | 1,477 |
| Technology | 47 | – | 47 | 26 | – | 26 |
| Segment EBITDA (continuing operations) | 250 | 11,310 | 7,150 | 16 | 7,166 | |
| Share of results from associates | ||||||
| (net of tax, continuing operations): | ||||||
| Coal | 3 | – | 3 | 2 | – | 2 |
| Zinc Lead | 12 | – | 12 | 2 | – | 2 |
| EBITDA (continuing operations) | 11,075 | 250 | 11,325 | 7,154 | 16 | 7,170 |
| Unallocated | (187) | – | (187) | (170) | 13 | (157) |
| 10,888 | 250 | 11,138 | 6,984 | 29 | 7,013 | |
| EBITDA (discontinuing operations): | ||||||
| Aluminium | 120 | 13 | 133 | 123 | – | 123 |
| Total | 11,008 | 263 | 11,271 | 7,107 | 29 | 7,136 |
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| Depreciation and amortisation | ||||||
| Depreciation: | ||||||
| Coal | 470 | – | 470 | 356 | – | 356 |
| Chrome | 43 | – | 43 | 23 | – | 23 |
| Platinum | 7 | – | 7 | – | – | – |
| Vanadium | 8 | – | 8 | 6 | – | 6 |
| Copper | 820 | – | 820 | 495 | – | 495 |
| Nickel | 349 | – | 349 | 162 | – | 162 |
| Zinc Lead | 292 | – | 292 | 149 | – | 149 |
| Technology | 1 | – | 1 | 1 | – | 1 |
| Depreciation (continuing operations) | 1,990 | – | 1,990 | 1,192 | – | 1,192 |
| Unallocated | 4 | – | 4 | 4 | – | 4 |
| 1,994 | – | 1,994 | 1,196 | – | 1,196 | |
| Discontinued operations: | ||||||
| Aluminium | 31 | – | 31 | 25 | – | 25 |
| Total | 2,025 | – | 2,025 | 1,221 | – | 1,221 |
| Amortisation: | ||||||
| Coal | 34 | – | 34 | 1 | – | 1 |
| Chrome | 1 | – | 1 | – | – | – |
| Copper | 4 | – | 4 | 4 | – | 4 |
| Nickel | 56 | – | 56 | 12 | – | 12 |
| Zinc Lead | 1 | – | 1 | 1 | – | 1 |
| Technology | 3 | – | 3 | 3 | – | 3 |
| Amortisation (continuing operations) | 99 | – | 99 | 21 | – | 21 |
| Unallocated | 3 | – | 3 | 2 | – | 2 |
| 102 | – | 102 | 23 | – | 23 | |
| Coal | 504 | – | 504 | 357 | – | 357 |
| Chrome | 44 | – | 44 | 23 | – | 23 |
| Platinum | 7 | – | 7 | – | – | – |
| Vanadium | 8 | – | 8 | 6 | – | 6 |
| Copper | 824 | – | 824 | 499 | – | 499 |
| Nickel | 405 | – | 405 | 174 | – | 174 |
| Zinc Lead | 293 | – | 293 | 150 | – | 150 |
| Technology | 4 | – | 4 | 4 | – | 4 |
| Depreciation and amortisation | 2,089 | – | 2,089 | 1,213 | – | 1,213 |
| (from continuing operations) | ||||||
| Unallocated | 7 | – | 7 | 6 | – | 6 |
| 2,096 | – | 2,096 | 1,219 | – | 1,219 | |
| Discontinued operations: | ||||||
| Aluminium | 31 | – | 31 | 25 | – | 25 |
| Total | 2,127 | – | 2,127 | 1,244 | – | 1,244 |
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| Impairment of assets | ||||||
| Copper | – | – | – | – | 792 | 792 |
| Zinc Lead | – | – | – | – | 1,032 | 1,032 |
| Total impairment of assets (continuing operations) | – | – | – | 1,824 | 1,824 | |
| Profit before interest and taxation (EBIT) | ||||||
| Segment result: | ||||||
| Coal – Thermal | 544 | – | 544 | 640 | 16 | 656 |
| Coal – Coking | 143 | – | 143 | 250 | – | 250 |
| Coal | 687 | – | 687 | 890 | 16 | 906 |
| Chrome | 266 | – | 266 | 118 | – | 118 |
| Platinum | 59 | (25) | 34 | 11 | – | 11 |
| Vanadium | 64 | – | 64 | 105 | – | 105 |
| Copper | 4,163 | – | 4,163 | 2,850 | (792) | 2,058 |
| Nickel | 2,172 | 275 | 2,447 | 614 | – | 614 |
| Zinc Lead | 1,517 | – | 1,517 | 1,327 | (1,032) | 295 |
| Technology | 43 | – | 43 | 22 | – | 22 |
| Segment EBIT (continuing operations) | 8,971 | 250 | 9,221 | 5,937 | (1,808) | 4,129 |
| Share of results from associates | ||||||
| (net of tax, continuing operations): | ||||||
| Coal | 3 | – | 3 | 2 | – | 2 |
| Zinc Lead | 12 | – | 12 | 2 | – | 2 |
| EBIT (continuing operations) | 8,986 | 250 | 9,236 | 5,941 | (1,808) | 4,133 |
| Unallocated | (194) | – | (194) | (176) | 13 | (163) |
| 8,792 | 250 | 9,042 | 5,765 | (1,795) | 3,970 | |
| Finance income | 142 | 74 | 216 | 110 | 170 | 280 |
| Finance expense | (935) | (196) | (1,131) | (639) | (235) | (874) |
| Profit before taxation | 7,999 | 128 | 8,127 | 5,236 | (1,860) | 3,376 |
| Income tax expense | (2,301) | (10) | (2,311) | (1,545) | 11 | (1,534) |
| Profit from continuing operations | 5,698 | 118 | 5,816 | 3,691 | (1,849) | 1,842 |
| Profit after tax from discontinued operations: | ||||||
| Aluminium | 52 | 1 | 53 | 64 | – | 64 |
| Total | 5,750 | 119 | 5,869 | 3,755 | (1,849) | 1,906 |
| US$m | At 31.12.07 | At 31.12.06 |
|---|---|---|
| Total assets | ||
| Before tax assets and investments in associates: | ||
| Coal | 11,365 | 8,860 |
| Chrome | 1,290 | 1,146 |
| Platinum | 2,194 | 108 |
| Vanadium | 159 | 170 |
| Copper | 19,825 | 19,256 |
| Nickel | 9,402 | 9,178 |
| Zinc Lead | 7,015 | 6,407 |
| Technology | 140 | 104 |
| Total segmental assets (continuing operations) | 51,390 | 45,229 |
| Unallocated* | 666 | 660 |
| 52,056 | 45,889 | |
| Discontinued operation: | ||
| Aluminium | – | 1,630 |
| Total | 52,056 | 47,519 |
| Deferred tax assets: | ||
| Coal | 2 | – |
| Chrome | 2 | 2 |
| Copper | – | 6 |
| Zinc Lead | 3 | 8 |
| Total deferred tax assets (continuing operations) | 7 | 16 |
| Unallocated | – | 2 |
| Discontinued operations: | 7 | 18 |
| Aluminium | – | 4 |
| Total | 7 | 22 |
| Investment in associates: | ||
| Coal | 54 | 48 |
| Zinc Lead | 132 | 131 |
| Total investment in associates (continuing operations) | 186 | 179 |
| Total assets | ||
| Coal | 11,421 | 8,908 |
| Chrome | 1,292 | 1,148 |
| Platinum | 2,194 | 108 |
| Vanadium | 159 | 170 |
| Copper | 19,825 | 19,262 |
| Nickel | 9,402 | 9,178 |
| Zinc Lead | 7,150 | 6,546 |
| Technology | 140 | 104 |
| Total assets (from continuing operations) | 51,583 | 45,424 |
| Unallocated* | 666 | 662 |
| 52,249 | 46,086 | |
| Discontinued operations: | ||
| Aluminium | – | 1,634 |
| Total assets | 52,249 | 47,720 |
| *Includes corporate assets not directly attributable to business segments. | ||
| US$m | At 31.12.07 | At 31.12.06 |
|---|---|---|
| Total liabilities | ||
| Before tax liabilities, interest-bearing loans and borrowings: | ||
| Coal | 1,304 | 740 |
| Chrome | 158 | 106 |
| Platinum | 20 | 37 |
| Vanadium | 25 | 24 |
| Copper | 2,438 | 2,142 |
| Nickel | 1,354 | 749 |
| Zinc Lead | 1,362 | 1,234 |
| Technology | 108 | 55 |
| Total segmental liabilities (continuing operations) | 6,769 | 5,087 |
| Unallocated | 589 | 774 |
| 7,358 | 5,861 | |
| Discontinued operations: | ||
| Aluminium | – | 225 |
| Total | 7,358 | 6,086 |
| Tax liabilities, interest-bearing loans and borrowings:* | ||
| Coal | 1,872 | 1,826 |
| Chrome | 188 | 144 |
| Platinum | 447 | – |
| Copper | 3,059 | 3,313 |
| Nickel | 1,476 | 1,477 |
| Zinc Lead | 710 | 680 |
| Technology | 10 | 3 |
| Total tax liabilities, interest bearing loans and borrowings (continuing operations) | 7,762 | 7,443 |
| Unallocated | 11,871 | 14,296 |
| 19,633 | 21,739 | |
| Discontinued operations: | ||
| Aluminium | – | 303 |
| Total | 19,633 | 22,042 |
| Total liabilities | ||
| Coal | 3,176 | 2,566 |
| Chrome | 346 | 250 |
| Platinum | 467 | 37 |
| Vanadium | 25 | 24 |
| Copper | 5,497 | 5,455 |
| Nickel | 2,830 | 2,226 |
| Zinc Lead | 2,072 | 1,914 |
| Technology | 118 | 58 |
| Total liabilities (from continuing operations) | 14,531 | 12,530 |
| Unallocated | 12,460 | 15,070 |
| 26,991 | 27,600 | |
| Discontinued operations: | ||
| Aluminium | – | 528 |
| Total | 26,991 | 28,128 |
| *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 | ||
| US$m | At 31.12.07 | At 31.12.06 |
|---|---|---|
| Net assets | ||
| Before tax assets and liabilities, investment in associates, interest bearing loans and borrowings: | ||
| Coal | 10,061 | 8,120 |
| Chrome | 1,132 | 1,040 |
| Platinum | 2,174 | 71 |
| Vanadium | 134 | 146 |
| Copper | 17,387 | 17,114 |
| Nickel | 8,048 | 8,429 |
| Zinc Lead | 5,653 | 5,173 |
| Technology | 32 | 49 |
| Total segmental net assets (continuing operations) | 44,621 | 40,142 |
| Unallocated* | 77 | (114) |
| 44,698 | 40,028 | |
| Discontinued operations: | ||
| Aluminium | – | 1,405 |
| Total | 44,698 | 41,433 |
| Deferred tax assets, tax liabilities, interest bearing loans and borrowings: | ||
| Coal | (1,870) | (1,826) |
| Chrome | (186) | (142) |
| Platinum | (447) | – |
| Copper | (3,059) | (3,307) |
| Nickel | (1,476) | (1,477) |
| Zinc Lead | (707) | (672) |
| Technology | (10) | (3) |
| Total (continuing operations) | (7,755) | (7,427) |
| Unallocated* | (11,871) | (14,294) |
| (19,626) | (21,721) | |
| Discontinued operations: | ||
| Aluminium | – | (299) |
| Total | (19,626) | (22,020) |
| Investment in associates: | ||
| Coal | 54 | 48 |
| Zinc Lead | 132 | 131 |
| Total (continuing operations) | 186 | 179 |
| Net assets | ||
| Coal | 8,245 | 6,342 |
| Chrome | 946 | 898 |
| Platinum | 1,727 | 71 |
| Vanadium | 134 | 146 |
| Copper | 14,328 | 13,807 |
| Nickel | 6,572 | 6,952 |
| Zinc Lead | 5,078 | 4,632 |
| Technology | 22 | 46 |
| Net assets (from continuing operations) | 37,052 | 32,894 |
| Unallocated* | (11,794) | (14,408) |
| 25,258 | 18,486 | |
| Discontinued operations: | ||
| Aluminium | – | 1,106 |
| Total | 25,258 | 19,592 |
| *Includes corporate assets and liabilities not directly attributable to business segments. | ||
| US$m | 2007 | 2006 |
|---|---|---|
| Capital expenditure | ||
| Sustaining: | ||
| Coal | 460 | 226 |
| Chrome | 47 | 36 |
| Vanadium | 9 | 4 |
| Copper | 425 | 191 |
| Nickel | 281 | 68 |
| Zinc Lead | 219 | 114 |
| Technology | 3 | 1 |
| Total sustaining (continuing operations) | 1,444 | 640 |
| Unallocated | 11 | 4 |
| 1,455 | 644 | |
| Discontinued operations | ||
| Aluminium | 12 | 18 |
| Total | 1,467 | 662 |
| Expansionary: | ||
| Coal | 347 | 289 |
| Chrome | 46 | 161 |
| Platinum | 17 | 58 |
| Vanadium | 1 | 1 |
| Copper | 296 | 159 |
| Nickel | 424 | 120 |
| Zinc Lead | 285 | 158 |
| Technology | 1 | 1 |
| Total expansionary (continuing operations) | 1,417 | 947 |
| Discontinued operations | ||
| Aluminium | 1 | 4 |
| Total | 1,418 | 951 |
| Total capital expenditure: | ||
| Coal | 807 | 515 |
| Chrome | 93 | 197 |
| Platinum | 17 | 58 |
| Vanadium | 10 | 5 |
| Copper | 721 | 350 |
| Nickel | 705 | 188 |
| Zinc Lead | 504 | 272 |
| Technology | 4 | 2 |
| Total (from continuing operations) | 2,861 | 1,587 |
| Unallocated | 11 | 4 |
| 2,872 | 1,591 | |
| Discontinued operations | ||
| Aluminium | 13 | 22 |
| Total | 2,885 | 1,613 |
The average number of employees, which includes executive directors and excludes contractors, during the year was as follows:
| 2007 | 2006 | |
|---|---|---|
| Coal | 9,179 | 7,797 |
| Chrome | 7,000 | 6,374 |
| Platinum | 974 | 464 |
| Vanadium | 525 | 530 |
| Copper | 10,368 | 5,619 |
| Nickel | 4,738 | 1,586 |
| Zinc Lead | 4,734 | 4,562 |
| Technology | 77 | 65 |
| Total (continuing operations) | 37,595 | 26,997 |
| Unallocated | 103 | 76 |
| 37,698 | 27,073 | |
| Discontinued operations | ||
| Aluminium | 1,250 | 1,125 |
| Total | 38,948 | 28,198 |
The average number of contractors during the year was as follows:
| 2007 | 2006 | |
|---|---|---|
| Coal | 6,156 | 5,378 |
| Chrome | 4,025 | 3,912 |
| Platinum | 398 | 227 |
| Vanadium | 236 | 1,188 |
| Copper | 8,425 | 3,135 |
| Nickel | 1,332 | 310 |
| Zinc Lead | 1,684 | 1,511 |
| Technology | 62 | 61 |
| Total (continuing operations) | 22,318 | 15,722 |
| Unallocated | 5 | – |
| 22,323 | 15,722 | |
| Discontinued operations | ||
| Aluminium | 178 | 160 |
| Total | 22,501 | 15,882 |
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 31 December 2007 and 2006.
For the year ended 31 December
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| Revenue by origin | ||||||
| External parties: | ||||||
| Africa | 2,272 | – | 2,272 | 1,673 | – | 1,673 |
| North America | 10,448 | – | 10,448 | 3,878 | – | 3,878 |
| South America | 7,673 | – | 7,673 | 4,142 | – | 4,142 |
| Australasia | 5,490 | – | 5,490 | 4,815 | – | 4,815 |
| Europe | 2,659 | – | 2,659 | 2,594 | – | 2,594 |
| Revenue (continuing operations) | 28,542 | – | 28,542 | 17,102 | – | 17,102 |
| Inter-segmental: | ||||||
| North America | 199 | – | 199 | 188 | – | 188 |
| South America | 1,667 | – | 1,667 | 374 | – | 374 |
| Australasia | 809 | – | 809 | 611 | – | 611 |
| Europe | 101 | – | 101 | 15 | – | 15 |
| Eliminations | (2,776) | – | (2,776) | (1,188) | – | (1,188) |
| Group revenues | 28,542 | – | 28,542 | 17,102 | – | 17,102 |
| Discontinued operations: | ||||||
| North America | 542 | – | 542 | 530 | – | 530 |
| Total | 29,084 | – | 29,084 | 17,632 | – | 17,632 |
| Revenue by destination | ||||||
| External parties: | ||||||
| Africa | 449 | – | 449 | 228 | – | 228 |
| North America | 7,000 | – | 7,000 | 3,365 | – | 3,365 |
| South America | 1,582 | – | 1,582 | 689 | – | 689 |
| Asia | 8,594 | – | 8,594 | 5,279 | – | 5,279 |
| Australasia | 1,176 | – | 1,176 | 922 | – | 922 |
| Europe | 9,662 | – | 9,662 | 6,532 | – | 6,532 |
| Middle east | 79 | – | 79 | 87 | – | 87 |
| Revenue (continuing operations) | 28,542 | – | 28,542 | 17,102 | – | 17,102 |
| Inter-segmental: | ||||||
| North America | 199 | – | 199 | 493 | – | 493 |
| South America | 1,667 | – | 1,667 | 69 | – | 69 |
| Australasia | 809 | – | 809 | 18 | – | 18 |
| Europe | 101 | – | 101 | 608 | – | 608 |
| Eliminations | (2,776) | – | (2,776) | (1,188) | – | (1,188) |
| Group Revenues | 28,542 | – | 28,542 | 17,102 | – | 17,102 |
| Discontinued operations: | ||||||
| North America | 542 | – | 542 | 530 | – | 530 |
| Total | 29,084 | – | 29,084 | 17,632 | – | 17,632 |
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| EBITDA | ||||||
| Africa | 683 | (25) | 658 | 439 | – | 439 |
| North America | 2,799 | 275 | 3,074 | 1,148 | – | 1,148 |
| South America | 4,614 | – | 4,614 | 2,493 | – | 2,493 |
| Australasia | 2,475 | – | 2,475 | 2,520 | 16 | 2,536 |
| Europe | 489 | – | 489 | 550 | – | 550 |
| Segment EBITDA (continuing operations) | 250 | 11,310 | 7,150 | 16 | 7,166 | |
| Share of results from associates | ||||||
| (net of tax, continuing operations): | ||||||
| North America | 12 | – | 12 | 2 | – | 2 |
| Australasia | 3 | – | 3 | 2 | – | 2 |
| EBITDA (continuing operations) | 11,075 | 250 | 11,325 | 7,154 | 16 | 7,170 |
| Unallocated | (187) | – | (187) | (170) | 13 | (157) |
| 10,888 | 250 | 11,138 | 6,984 | 29 | 7,013 | |
| EBITDA (discontinued operations) | ||||||
| North America | 120 | 13 | 133 | 123 | – | 123 |
| Total | 11,008 | 263 | 11,271 | 7,107 | 29 | 7,136 |
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| Depreciation and amortisation | ||||||
| Depreciation: | ||||||
| Africa | 151 | – | 151 | 106 | – | 106 |
| North America | 526 | – | 526 | 272 | – | 272 |
| South America | 750 | – | 750 | 392 | – | 392 |
| Australasia | 521 | – | 521 | 386 | – | 386 |
| Europe | 42 | – | 42 | 36 | – | 36 |
| Depreciation (continuing operations) | 1,990 | – | 1,990 | 1,192 | – | 1,192 |
| Unallocated | 4 | – | 4 | 4 | – | 4 |
| 1,994 | – | 1,994 | 1,196 | – | 1,196 | |
| Discontinued operations: | ||||||
| North America | 31 | – | 31 | 25 | – | 25 |
| Total | 2,025 | 2,025 | 1,221 | – | 1,221 | |
| Amortisation: | ||||||
| Africa | 34 | – | 34 | – | – | – |
| North America | 58 | – | 58 | 13 | – | 13 |
| South America | 1 | – | 1 | 3 | – | 3 |
| Australasia | 5 | – | 5 | 4 | – | 4 |
| Europe | 1 | – | 1 | 1 | – | 1 |
| Amortisation (continuing operations) | 99 | – | 99 | 21 | – | 21 |
| Unallocated | 3 | – | 3 | 2 | – | 2 |
| 102 | – | 102 | 23 | – | 23 | |
| Total: | ||||||
| Africa | 185 | – | 185 | 106 | – | 106 |
| North America | 584 | – | 584 | 285 | – | 285 |
| South America | 751 | – | 751 | 395 | – | 395 |
| Australasia | 526 | – | 526 | 390 | – | 390 |
| Europe | 43 | – | 43 | 37 | – | 37 |
| Depreciation and amortisation | 2,089 | – | 2,089 | 1,213 | – | 1,213 |
| (from continuing operations) | ||||||
| Unallocated | 7 | – | 7 | 6 | – | 6 |
| 2,096 | – | 2,096 | 1,219 | – | 1,219 | |
| Discontinued operations: | ||||||
| North America | 31 | – | 31 | 25 | – | 25 |
| Total | 2,127 | – | 2,127 | 1,244 | – | 1,244 |
| Impairment of assets | ||||||
| Unallocated* | – | – | – | – | 1,824 | 1,824 |
| Total impairment of assets | ||||||
| (continuing operations) | – | – | – | – | 1,824 | 1,824 |
| Represented by:* | ||||||
| Copper Americas | – | – | – | – | 792 | 792 |
| Zinc Lead | – | – | – | – | 1,032 | 1,032 |
| Total | – | – | – | – | 1,824 | 1,824 |
| US$m | Before exceptional items | Exceptional items | 2007 | Before exceptional items | Exceptional items | 2006 |
|---|---|---|---|---|---|---|
| EBIT | ||||||
| Segment result: | ||||||
| Africa | 498 | (25) | 473 | 333 | – | 333 |
| North America | 2,215 | 275 | 2,490 | 863 | – | 863 |
| South America | 3,863 | – | 3,863 | 2,098 | – | 2,098 |
| Australasia | 1,949 | – | 1,949 | 2,130 | 16 | 2,146 |
| Europe | 446 | – | 446 | 513 | – | 513 |
| Segment EBIT (continuing operations) | 8,971 | 250 | 9,221 | 5,937 | 16 | 5,953 |
| Share of results from associates | ||||||
| (net of tax, continuing operations): | ||||||
| North America | 12 | – | 12 | 2 | – | 2 |
| Australasia | 3 | – | 3 | 2 | – | 2 |
| EBIT (continuing operations) | 8,986 | 250 | 9,236 | 5,941 | 16 | 5,957 |
| Unallocated | (194) | – | (194) | (176) | (1,811) | (1,987) |
| 8,792 | 250 | 9,042 | 5,765 | (1,795) | 3,970 | |
| Finance income | 142 | 74 | 216 | 110 | 170 | 280 |
| Finance expense | (935) | (196) | (1,131) | (639) | (235) | (874) |
| Profit before taxation | 7,999 | 128 | 8,127 | 5,236 | (1,860) | 3,376 |
| Income tax expense | (2,301) | (10) | (2,311) | (1,545) | 11 | (1,534) |
| Profit from continuing operations | 5,698 | 118 | 5,816 | 3,691 | (1,849) | 1,842 |
| Profit after tax from discontinued operations: | ||||||
| North America | 52 | 1 | 53 | 64 | – | 64 |
| Total | 5,750 | 119 | 5,869 | 3,755 | (1,849) | 1,906 |
| US$m | At 31.12.07 | At 31.12.06 |
|---|---|---|
| Total assets | ||
| Before tax assets and investment in associates: | ||
| Africa | 6,378 | 3,902 |
| North America | 9,703 | 9,591 |
| South America | 18,023 | 19,044 |
| Australasia | 12,420 | 8,037 |
| Europe | 2,135 | 1,924 |
| Total segmental assets (continuing operations) | 48,659 | 42,498 |
| Unallocated* | 3,397 | 3,391 |
| 52,056 | 45,889 | |
| Discontinued operations: | ||
| North America | – | 1,630 |
| Total | 52,056 | 47,519 |
| Deferred tax assets: | ||
| Africa | 4 | 2 |
| North America | – | 6 |
| Europe | 3 | 8 |
| Total (continuing operations) | 7 | 16 |
| Unallocated | – | 2 |
| 7 | 18 | |
| Discontinued operations: | ||
| North America | – | 4 |
| Total | 7 | 22 |
| Investment in associates: | ||
| Africa | 4 | 2 |
| North America | 132 | 131 |
| Australasia | 50 | 46 |
| Total (continuing operations) | 186 | 179 |
| Total assets | ||
| Africa | 6,386 | 3,906 |
| North America | 9,835 | 9,728 |
| South America | 18,023 | 19,044 |
| Australasia | 12,470 | 8,083 |
| Europe | 2,138 | 1,932 |
| Total (continuing operations) | 48,852 | 42,693 |
| Unallocated* | 3,397 | 3,393 |
| 52,249 | 46,086 | |
| Discontinued operations: | ||
| North America | – | 1,634 |
| Total | 52,249 | 47,720 |
| *Includes corporate assets not directly attributable to business segments. | ||
| US$m | At 31.12.07 | At 31.12.06 |
|---|---|---|
| Total liabilities | ||
| Before tax liabilities, interest-bearing loans and borrowings: | ||
| Africa | 631 | 388 |
| North America | 2,751 | 2,329 |
| South America | 1,203 | 923 |
| Australasia | 1,763 | 983 |
| Europe | 421 | 464 |
| Total segmental liabilities (continuing operations) | 6,769 | 5,087 |
| Unallocated | 589 | 774 |
| 7,358 | 5,861 | |
| Discontinued operations: | ||
| North America | – | 225 |
| Total | 7,358 | 6,086 |
| Tax liabilities, interest-bearing loans and borrowings:* | ||
| Africa | 1,272 | 789 |
| North America | 872 | 1,030 |
| South America | 3,261 | 4,083 |
| Australasia | 2,254 | 1,417 |
| Europe | 103 | 124 |
| Total (continuing operations) | 7,762 | 7,443 |
| Unallocated | 11,871 | 14,296 |
| 19,633 | 21,739 | |
| Discontinued operations: | ||
| North America | – | 303 |
| Total | 19,633 | 22,042 |
| Total liabilities | ||
| Africa | 1,903 | 1,177 |
| North America | 3,623 | 3,359 |
| South America | 4,464 | 5,006 |
| Australasia | 4,017 | 2,400 |
| Europe | 524 | 588 |
| Total (continuing operations) | 14,531 | 12,530 |
| Unallocated | 12,460 | 15,070 |
| 26,991 | 27,600 | |
| Discontinued operations: | ||
| North America | – | 528 |
| Total | 26,991 | 28,128 |
| *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. | ||
| US$m | At 31.12.07 | At 31.12.06 |
|---|---|---|
| Net assets | ||
| Before tax assets and liabilities, investment in associates, interest bearing loans and borrowings | ||
| Africa | 5,747 | 3,514 |
| North America | 6,952 | 7,262 |
| South America | 16,820 | 18,121 |
| Australasia | 10,657 | 7,054 |
| Europe | 1,714 | 1,460 |
| Total segmental net assets (continuing operations) | 41,890 | 37,411 |
| Unallocated* | 2,808 | 2,617 |
| 44,698 | 40,028 | |
| Discontinued operations: | ||
| North America | – | 1,405 |
| Total | 44,698 | 41,433 |
| Tax assets and liabilities, interest bearing loans and borrowings: | ||
| Africa | (1,268) | (787) |
| North America | (872) | (1,024) |
| South America | (3,261) | (4,083) |
| Australasia | (2,254) | (1,417) |
| Europe | (100) | (116) |
| Total (continuing operations) | (7,755) | (7,427) |
| Unallocated* | (11,871) | (14,294) |
| (19,626) | (21,721) | |
| Discontinued operations: | ||
| North America | – | (299) |
| Total | (19,626) | (22,020) |
| Investment in associates: | ||
| Africa | 4 | 2 |
| North America | 132 | 131 |
| Australasia | 50 | 46 |
| Total (continuing operations) | 186 | 179 |
| Net assets | ||
| Africa | 4,483 | 2,729 |
| North America | 6,212 | 6,369 |
| South America | 13,559 | 14,038 |
| Australasia | 8,453 | 5,683 |
| Europe | 1,614 | 1,344 |
| Total (continuing operations) | 34,321 | 30,163 |
| Unallocated* | (9,063) | (11,677) |
| 25,258 | 18,486 | |
| Discontinued operations: | ||
| North America | – | 1,106 |
| Total | 25,258 | 19,592 |
| *Includes corporate assets and liabilities not directly attributable to business segments. | ||
| US$m | 2007 | 2006 |
|---|---|---|
| Capital expenditure | ||
| Sustaining: | ||
| Africa | 184 | 99 |
| North America | 371 | 82 |
| South America | 264 | 105 |
| Australasia | 588 | 324 |
| Europe | 37 | 30 |
| Total sustaining (continuing operations) | 1,444 | 640 |
| Unallocated | 11 | 4 |
| 1,455 | 644 | |
| Discontinued operations: | ||
| North America | 12 | 18 |
| Total | 1,467 | 662 |
| Expansionary: | ||
| Africa | 221 | 326 |
| North America | 311 | 79 |
| South America | 278 | 80 |
| Australasia | 585 | 439 |
| Europe | 22 | 23 |
| Total expansionary (continuing operations) | 1,417 | 947 |
| Discontinued operations: | ||
| North America | 1 | 4 |
| Total | 1,418 | 951 |
| Total: | ||
| Africa | 405 | 425 |
| North America | 682 | 161 |
| South America | 542 | 185 |
| Australasia | 1,173 | 763 |
| Europe | 59 | 53 |
| Total (continuing operations) | 2,861 | 1,587 |
| Unallocated | 11 | 4 |
| 2,872 | 1,591 | |
| Discontinued operations: | ||
| North America | 13 | 22 |
| Total | 2,885 | 1,613 |
The average number of employees, which includes executive directors and excludes contractors, during the year was as follows:
| 2007 | 2006 | |
|---|---|---|
| Africa | 13,372 | 11,494 |
| North America | 7,190 | 2,603 |
| South America | 8,048 | 4,311 |
| Australasia | 7,462 | 6,897 |
| Europe | 1,523 | 1,692 |
| Total (continuing operations) | 37,595 | 26,997 |
| Unallocated | 103 | 76 |
| 37,698 | 27,073 | |
| Discontinued operations: | ||
| North America | 1,250 | 1,125 |
| Total | 38,948 | 28,198 |
The average number of contractors during the year was as follows:
| 2007 | 2006 | |
|---|---|---|
| Africa | 7,789 | 7,621 |
| North America | 1,844 | 230 |
| South America | 7,980 | 3,795 |
| Australasia | 4,465 | 3,682 |
| Europe | 240 | 394 |
| Total (continuing operations) | 22,318 | 15,722 |
| Unallocated | 5 | – |
| 22,323 | 15,722 | |
| Discontinued operations: | ||
| North America | 178 | 160 |
| Total | 22,501 | 15,882 |
10. Revenues and Expenses
Revenue and expenses
| US$m | 2007 | 2006 |
|---|---|---|
| Revenue and expenses | ||
| Continuing operations: | ||
| Revenue – sales of goods | 28,542 | 17,102 |
| Less cost of sales – after depreciation and amortisation and impairment of assets | (17,582) | (9,677) |
| Gross profit | 10,960 | 7,425 |
| Administrative expenses – after depreciation and amortisation and impairment of assets | 744 | 2,358 |
| Inventory recognised as an expense | 17,582 | 9,677 |
| Operating lease rental expense – minimum lease payments | 27 | 33 |
| Royalties paid | 630 | 390 |
| Research and development | 6 | 4 |
| Discontinued operations: | ||
| Revenue – sales of goods | 542 | 530 |
| Less cost of sales – after depreciation and amortisation and impairment of assets | (437) | (421) |
| Gross profit | 105 | 109 |
| Inventory recognised as an expense | (437) | (421) |
| Operating lease rental expense – minimum lease payments | 1 | 1 |
| Royalties paid | 1 | 1 |
Depreciation and amortisation
| US$m | 2007 | 2006 |
|---|---|---|
| Depreciation and amortisation | ||
| Continuing operations: | ||
| Depreciation of owned assets | 1,980 | 1,182 |
| Depreciation of assets held under finance leases and hire purchase contracts | 14 | 14 |
| Total depreciation from continuing operations | 1,994 | 1,196 |
| Amortisation of intangible assets | 102 | 23 |
| Total depreciation and amortisation from continuing operations | 2,096 | 1,219 |
| Discontinued operations: | ||
| Depreciation of owned assets | 31 | 25 |
| Total depreciation | 2,127 | 1,244 |
Employee costs including directors’ emoluments (refer to the Directors’ Remuneration Report on pages 132 to 135 for details)
| US$m | 2007 | 2006 |
|---|---|---|
| Continuing operations: | ||
| Wages and salaries | 2,088 | 1,123 |
| Pension and other post-retirement benefit costs (refer to note 34) | 193 | 111 |
| Social security and other benefits | 125 | 51 |
| Share-based compensation plans (refer to note 34) | 103 | 91 |
| Employee costs from continuing operations | 2,509 | 1,376 |
| Discontinued operations: | ||
| Wages and salaries | 54 | 58 |
| Pension and other post-retirement benefit costs (refer to note 34) | 2 | 1 |
| Employee costs from discontinued operations | 56 | 59 |
| Total employee costs | 2,565 | 1,435 |
Auditors’ remuneration
| US$m | 2007 | 2006 |
|---|---|---|
| Auditors’ remuneration (a): | ||
| – Group auditors – UK | 1 | 1 |
| – Group auditors – overseas | 10 | 11 |
| 11 | 12 | |
| Amounts paid to auditors for other work: | ||
| Group auditors (b) | ||
| – Corporate finance transactions (c) | 10 | 12 |
| – Taxation (d) | 3 | 2 |
| – Other (e) | 1 | 1 |
| 14 | 15 | |
| Other audit firms | ||
| – Internal audit | 2 | 1 |
| – Other (f) | 1 | 4 |
| 3 | 5 | |
| (a) The Group audit fee includes US$42,000 (2006 US$40,000) in respect of the parent company. | ||
| (b) Included in other fees to auditors is US$1 million (2006 US$1 million) relating to the Company and its UK subsidiaries. | ||
| (c) 2007 amounts relate to the 2007 acquisitions, other transactional opportunities reviewed by the Group and the ongoing integration of 2006 acquisitions. 2006 includes amounts incurred on the acquisitions of Cerrejón, Tintaya and Falconbridge. Of this amount US$10 million has been capitalised as acquisition costs (refer to note 7). | ||
| (d) Includes corporate tax compliance and advisory services. | ||
| (e) Primarily relates to accounting advice and non-statutory assurance services. | ||
| (f) Includes tax advisory services, accounting assistance and acquisition due diligence. | ||
The Corporate Governance Report set out on pages 110 to 120 details the Group's policy with regard to the independence and objectivity of the external and internal auditors and the provision and approval of non-audit services provided by the external auditors.
Finance income
| US$m | 2007 | 2006 |
|---|---|---|
| Continuing operations: | ||
| Bank interest | 101 | 91 |
| Dividends | 4 | 3 |
| Interest – other | 37 | 16 |
| Finance income before exceptional items from continuing operations | 142 | 110 |
| Foreign currency gains on bank loans* | – | 120 |
| Recycled gains from the foreign currency translation reserve | 74 | 50 |
| Exceptional finance income from continuing operations | 74 | 170 |
| Total finance income from continuing operations | 216 | 280 |
| Discontinued operations: | ||
| Bank interest | 2 | 2 |
| Total finance income | 218 | 282 |
Finance costs
| US$m | 2007 | 2006 |
|---|---|---|
| Continuing operations: | ||
| Amortisation of loan issue costs | 24 | 9 |
| Convertible borrowings amortised cost charge | 3 | 8 |
| Discount unwinding | 90 | 34 |
| Finance charges payable under finance leases and hire purchase contracts | 11 | 17 |
| Interest on bank loans and overdrafts | 394 | 397 |
| Interest on convertible borrowings and capital market notes | 366 | 142 |
| Interest on minority interest loans | 6 | 6 |
| Interest on preference shares | 18 | 12 |
| Interest – other | 23 | 14 |
| Finance cost before exceptional items from continuing operations | 935 | 639 |
| Foreign currency losses on bank loans* | 34 | 129 |
| Recycled losses from the foreign currency translation reserve | 102 | 97 |
| Loan issue costs written off on facility refinancing | 60 | 9 |
| Exceptional finance cost from continuing operations | 196 | 235 |
| Total finance cost from continuing operations | 1,131 | 874 |
| Discontinued operations: | ||
| Discount unwinding | 1 | 6 |
| Interest on bank loans and overdrafts | 1 | 1 |
| Total finance cost | 1,133 | 881 |
| *These amounts relate to foreign currency gains and losses on non US$ borrowings, predominantly CAD borrowings. | ||
Total interest income and expense (calculated using the effective interest method) for financial assets and liabilities not at fair value through the profit and loss are US$140 million (2006 US$109 million) and US$819 million (2006 US$589 million) respectively.
Exceptional items
Acquisition related activities
In March 2007, the Group made a cash offer to purchase the entire share capital of LionOre Mining International Limited (LionOre), a Canadian listed nickel and gold mining company. In May 2007, OJSC MMC Norilsk Nickel announced a higher cash offer and on 1 June 2007, the Group announced it would not increase its offer price. LionOre terminated the support agreement for the Group’s offer and made a termination payment to the Group of CAD305 million (US$284 million) in June 2007. The Group incurred acquisition costs of US$9 million in relation to the offer for LionOre. The tax charge attributable to the termination payment and acquisition costs is US$52 million.
Disposal fair value adjustment – Kagiso obligations
During the year ended 31 December 2007, a charge of US$25 million has been recorded for an increase in the fair value of the liability recognised by the Group following the black empowerment disposal to Kagiso of an interest in the Mototolo joint venture (refer to note 7 and note 28).
Restructuring and closure costs
Restructuring and redundancy costs of US$nil (2006 US$50 million) relate to the former Falconbridge Group following its acquisition.
Impairment of goodwill
The acquisition of Falconbridge was completed in two stages. The Group acquired 19.9% of Falconbridge at CAD28 per share in 2005, before acquiring the remaining 80.1% in 2006 at a price of CAD62.50 per share. The average price paid per share for the 100% interest was CAD56.44. The Group’s ability to average the purchase price paid for the second tranche of shares over the full purchase provided the Group with a compelling competitive advantage and was a significant factor in the success of the transaction. Under IFRS, this advantage cannot be recognised, as goodwill is calculated separately for each transaction, regardless of the average price paid per share to acquire the 100% interest. This accounting treatment has resulted in the creation of additional goodwill of US$1,403 million.
During 2007, the Group has completed a detailed fair value assessment of the assets acquired and recognised goodwill of US$4,555 million, US$446 million more than was recorded at 31 December 2006. As required by IFRS 3, all adjustments made in finalising the acquisition accounting have been presented as if the accounting had been completed on the acquisition date. Accordingly, the additional goodwill recorded as a result of the finalisation of the acquisition accounting is subject to impairment testing at 31 December 2006. This has resulted in an additional impairment charge of US$446 million which, in accordance with IFRS 3, has been recognised in the income statement for the year ended 31 December 2006, increasing the total impairment charge to US$1,824 million. There was no other significant income statement impact arising as a result of finalising the acquisition accounting (refer to note 7).
Profit on sale of available-for-sale financial assets
| US$m | 2007 | 2006 |
|---|---|---|
| Continuing operations: | ||
| Unallocated | – | 63 |
| – | 63 |
Listed shares were sold for a consideration of US$nil in 2007 (2006 US$190 million).
Profit on sale of operations
| US$m | 2007 | 2006 |
|---|---|---|
| Continuing operations: | ||
| Coal – Australia | – | 16 |
| Discontinued operations: | ||
| Aluminium | 1 | – |
| 1 | 16 |
The aluminium business was sold on 18 May 2007 to Apollo Management LP. The disposal proceeds amounted to US$1,150 million before disposal costs of US$24 million, realising a gain of US$1 million after tax (refer to note 8).
On 19 October 2006, the Group disposed of its Cook coal operation in Australia to Caledon Resources Limited. A gain of US$16 million was recognised on the disposal (refer to note 8).
11. Income Taxes
Income tax charge
Significant components of income tax expense for the years ended:
| US$m | 2007 | 2006 |
|---|---|---|
| Consolidated income statement | ||
| Current tax: | ||
| Based on taxable income of the current year | 2,183 | 1,386 |
| Prior year over provision | (14) | – |
| Total current taxation charge for the year | 2,169 | 1,386 |
| Deferred taxation: | ||
| Origination and reversal of temporary differences | 276 | 144 |
| Change in tax rates | (91) | (6) |
| Benefit from previously unrecognised tax losses, tax credits or temporary | ||
| differences of a prior year that are used to reduce deferred tax expense | – | (4) |
| Prior year under provision | 6 | 43 |
| Total deferred taxation charge for the year | 191 | 177 |
| Total taxation charge | 2,360 | 1,563 |
| Total taxation charge reported in consolidated income statement | 2,311 | 1,534 |
| Income tax attributable to discontinued operations | 49 | 29 |
| Total taxation charge | 2,360 | 1,563 |
| UK taxation included above: | ||
| Current tax | 10 | 2 |
| Deferred tax | 4 | (4) |
| Total taxation charge/(credit) | 14 | (2) |
| Recognised directly in equity | ||
| Deferred tax: | ||
| Available-for-sale financial assets | 16 | (75) |
| Cash flow hedges | (15) | 16 |
| Other equity classified items | 6 | 44 |
| Total taxation charge/(credit) reported in equity | 7 | (15) |
The amounts above include the tax charge attributable to exceptional items.
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:
| US$m | 2007 | 2006 |
|---|---|---|
| Profit before taxation from continuing operations | 8,127 | 3,376 |
| Profit before taxation from discontinued operations | 102 | 93 |
| Profit before taxation | 8,229 | 3,469 |
| At average statutory income tax rate 25.2% (2006 23.2%) | 2,075 | 803 |
| Goodwill impairment | – | 602 |
| Additional mining and other taxes | 239 | 72 |
| Foreign currency gains and losses | 156 | 67 |
| Non-deductible expenses | 81 | 30 |
| Non-taxable capital gains | (53) | – |
| Rebatable dividends received | (3) | (8) |
| Research and development allowances | (9) | (17) |
| Resource and other allowances | (25) | (22) |
| Change in tax rates | (91) | (6) |
| Prior year under/(over) provision | (8) | 43 |
| Other | (2) | (1) |
| At average effective income tax rate | 2,360 | 1,563 |
| Total taxation charge reported in consolidated income statement | 2,311 | 1,534 |
| Income tax attributable to discontinued operations | 49 | 29 |
| At average effective income tax rate | 2,360 | 1,563 |
The above reconciling items are disclosed at the tax rates that apply in the country where they have arisen.
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, by various changes in the enacted standard income tax rates and due to the acquisition of subsidiaries in countries with different 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 unrecognised deferred tax assets in relation to tax losses that are available indefinitely of US$9 million (2006 US$8 million) to carry forward against future taxable income of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they have arisen in subsidiaries that have been loss-making for some time. There are no other deductible temporary differences that have not been not recognised at balance sheet date.
Temporary differences associated with Group investments
At 31 December 2007, there was US$nil recognised deferred tax liability (2006 US$nil) for taxes that would be payable on the un-remitted 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;
- the profits of the associates will not be distributed until they obtain the consent of the Group; and
- the investments are not held for resale and are expected to be recouped by continued use of these operations by the subsidiaries.
The temporary differences associated with investments in subsidiaries, associates and joint ventures, for which deferred tax liabilities have not been recognised amount to US$2,218 million (2006 US$2,608 million).
There are no income tax consequences for the Group attaching to the payment of dividends by the Company to its shareholders.
The deferred tax assets/(liabilities) included in the balance sheet are as follows:
| US$m | 2007 | 2006 |
|---|---|---|
| Tax losses | 244 | 78 |
| Derivative financial instruments | 45 | 35 |
| Employee provisions | 75 | 65 |
| Other provisions | 244 | 235 |
| Rehabilitation and closure | 157 | 120 |
| Accelerated depreciation | (5,826) | (5,110) |
| Coal export rights | (260) | (253) |
| Other intangibles | (411) | (364) |
| Government grants | (14) | (13) |
| Deferred stripping | (83) | (49) |
| Available-for-sale financial assets | (20) | (7) |
| Other equity-related items | (36) | (3) |
| Other | (164) | (175) |
| (6,049) | (5,441) | |
| Represented on the face of the balance sheet as: | ||
| Deferred tax assets | 7 | 22 |
| Deferred tax liabilities | (6,056) | (5,463) |
| (6,049) | (5,441) |
The deferred tax included in the Group income statement are as follows:
| US$m | 2007 | 2006 |
|---|---|---|
| Tax losses | (185) | 112 |
| Accelerated depreciation | 360 | 96 |
| Deferred stripping | 27 | 17 |
| Rehabilitation and closure | (16) | (29) |
| Other provisions | (17) | (2) |
| Other | 12 | (28) |
| From continuing operations | 181 | 166 |
| From discontinued operations | 10 | 11 |
| 191 | 177 |
Tax audits
The Company periodically assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Company recorded its best estimate of the tax liability, including related interest charges, in the current tax liability. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax laws. Whilst management believes they have adequately provided for the probable outcome of these matters, future results may include favourable or unfavourable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved, or when the status of limitation lapses. The final outcome of tax examinations may result in a materially different outcome than assumed in the tax liabilities.
12. Earnings Per Share
| US$m | 2007 | 2006 |
|---|---|---|
| Continuing operations: | 5,372 | 3,286 |
| Profit before exceptional items attributable to ordinary equity holders of the parent from continuing operations | ||
| Exceptional items from continuing operations | 118 | (1,849) |
| Profit attributable to ordinary equity holders of the parent from continuing operations | 5,490 | 1,437 |
| Interest in respect of convertible borrowings | 16 | 37 |
| Profit attributable to ordinary equity holders of the parent for diluted earnings per share from continuing operations | 5,506 | 1,474 |
| Total operations: | ||
| Profit before exceptional items attributable to ordinary equity holders of the parent from continuing operations | 5,372 | 3,286 |
| Exceptional items from continuing operations | 118 | (1,849) |
| Profit attributable to ordinary equity holders of the parent from continuing operations | 5,490 | 1,437 |
| Profit attributable to ordinary equity holders of the parent from discontinued operations | 53 | 64 |
| Profit attributable to ordinary equity holders of the parent | 5,543 | 1,501 |
| Interest in respect of convertible borrowings | 16 | 37 |
| Profit attributable to ordinary equity holders of the parent for diluted earnings per share | 5,559 | 1,538 |
| Weighted average number of shares (000) excluding own shares: | ||
| For basic earnings per share | 959,549 | 771,820 |
| Effect of dilution: | ||
| – Free shares and share options (000) | 9,196 | 9,441 |
| – Convertible borrowings | 17,418 | 50,294 |
| For diluted earnings per share | 986,163 | 831,555 |
| Basic earnings per share (US$) | ||
| Continuing operations: | ||
| – before exceptional items | 5.60 | 4.26 |
| – exceptional items | 0.12 | (2.40) |
| 5.72 | 1.86 | |
| Discontinued operations: | ||
| – before exceptional items | 0.06 | 0.08 |
| – exceptional items | – | – |
| 0.06 | 0.08 | |
| Total: | ||
| – before exceptional items | 5.66 | 4.34 |
| – exceptional items | 0.12 | (2.40) |
| 5.78 | 1.94 | |
| Diluted earnings per share (US$) | ||
| Continuing operations: | ||
| – before exceptional items | 5.47 | 3.99 |
| – exceptional items | 0.12 | (2.22) |
| 5.59 | 1.77 | |
| Discontinued operations: | ||
| – before exceptional items | 0.05 | 0.08 |
| – exceptional items | – | – |
| 0.05 | 0.08 | |
| Total: | ||
| – before exceptional items | 5.52 | 4.07 |
| – exceptional items | 0.12 | (2.22) |
| 5.64 | 1.85 |
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 exceptional items and after exceptional items as outlined above, to present a meaningful basis for analysis.
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 are converted into ordinary shares. An adjustment is also made to net profit for the interest in respect of the convertible borrowings and related hedging.
On 30 October 2006, 235,787,596 ordinary shares were issued under a rights issue which was structured as an issue of one new ordinary share at a price of GBP12.65 per share for every three existing ordinary shares held. The theoretical ex-rights price for an ordinary share was GBP19.51. The 2006 earnings per share have been calculated after applying a factor of 0.9 for the bonus element of the rights issue.
On 16 January 2008, 6,000,000 shares were issued to the ESOP at a market price of GBP34.90 per share (refer to note 26).
13. Dividends Paid and Proposed
| US$m | 2007 | 2006 |
|---|---|---|
| Declared and paid during the year: | ||
| Final dividend for 2006: 30 cents per ordinary share (2005: 22.4 cents per ordinary share) | 290 | 159 |
| Interim dividend for 2007: 16 cents per ordinary share (2006: 11.6 cents per ordinary share) | 153 | 92 |
| 443 | 251 |
Proposed for approval at the Annual General Meeting (not recognised as a liability as at 31 December):
| US$m | 2007 | 2006 |
|---|---|---|
| Final dividend for 2007: 34 cents per ordinary share (2006: 30 cents per ordinary share) | 326 | 281 |
Dividends declared in respect of the year ended 31 December 2007 will be paid on 16 May 2008. The 2007 interim dividend was paid on 12 October 2007.
As stated in note 26, own shares held in the ESOP and by the ECMP have waived the right to receive dividends.
The dividends per share declared and paid prior to 30 October 2006 have been adjusted by the rights issue bonus adjustment factor of 0.9 (refer to note 12).
14. Intangible Assets
| US$m | Export rights* | Goodwill* | Technology patents* | Feed contract* | Hydro electricity rights* | Other | 2007 |
|---|---|---|---|---|---|---|---|
| At 1 January 2007 | 1,008 | 6,916 | 53 | 413 | 501 | 71 | 8,962 |
| Acquisitions | – | 589 | – | – | – | – | 589 |
| Additions | – | – | – | – | – | 32 | 32 |
| Reclassifications | – | – | – | – | – | (5) | (5) |
| Amortisation charge | (32) | – | (3) | (54) | – | (13) | (102) |
| Disposals (refer to note 8) | – | (139) | – | – | – | – | (139) |
| Translation adjustments | 17 | 23 | 6 | – | – | (1) | 45 |
| At 31 December 2007 | 993 | 7,389 | 56 | 359 | 501 | 84 | 9,382 |
| At 1 January 2007: | |||||||
| Cost | 1,008 | 8,740 | 64 | 425 | 501 | 86 | 10,824 |
| Accumulated amortisation | – | (1,824) | (11) | (12) | – | (15) | (1,862) |
| Net carrying amount | 1,008 | 6,916 | 53 | 413 | 501 | 71 | 8,962 |
| At 31 December 2007: | |||||||
| Cost | 1,026 | 9,213 | 72 | 425 | 501 | 112 | 11,349 |
| Accumulated amortisation | (33) | (1,824) | (16) | (66) | – | (28) | (1,967) |
| Net carrying amount | 993 | 7,389 | 56 | 359 | 501 | 84 | 9,382 |
| US$m | Export rights* | Goodwill* | Technology patents* | Feed contract* | Hydro electricity rights* | Other | 2006 |
|---|---|---|---|---|---|---|---|
| At 1 January 2006 | 1,130 | 229 | 53 | – | – | 18 | 1,430 |
| Acquisitions | – | 8,497 | – | 425 | 501 | 42 | 9,465 |
| Additions | – | – | – | – | – | 16 | 16 |
| Amortisation charge | – | – | (3) | (12) | – | (8) | (23) |
| Disposals (refer to note 7) | (26) | – | – | – | – | – | (26) |
| Impairment charge | – | (1,824) | – | – | – | – | (1,824) |
| Translation adjustments | (96) | 14 | 3 | – | – | 3 | (76) |
| At 31 December 2006 | 1,008 | 6,916 | 53 | 413 | 501 | 71 | 8,962 |
| At 1 January 2006: | |||||||
| Cost | 1,130 | 229 | 60 | – | – | 27 | 1,446 |
| Accumulated amortisation | – | – | (7) | – | – | (9) | (16) |
| Net carrying amount | 1,130 | 229 | 53 | – | – | 18 | 1,430 |
| At 31 December 2006: | |||||||
| Cost | 1,008 | 8,740 | 64 | 425 | 501 | 86 | 10,824 |
| Accumulated amortisation | – | (1,824) | (11) | (12) | – | (15) | (1,862) |
| Net carrying amount | 1,008 | 6,916 | 53 | 413 | 501 | 71 | 8,962 |
| *Purchased as part of business combinations | |||||||
The Group has a 20.91% interest in the service organisation, Richards Bay Coal Terminal Company Limited, acquired in a business combination, through which the shareholders gain access to export markets enabling them to realise higher coal sales prices than in the domestic market. Previously, the directors regarded the right to export coal afforded by the interest in the terminal to have an indefinite life, as the operations utilising the terminal had appropriate reserves (including undeveloped reserves) to allow the use of the terminal for an indefinite period. Further, the land on which the terminal operates is leased on a long-term basis and there has been a history of lease extensions. As outlined in the 2006 financial statements, the directors reassessed whether it was appropriate to treat the export rights as an indefinite life intangible asset in light of the approval of the Goedgevonden Project and determined that it would be appropriate to begin amortisation in 2007 based on a units-of-production method.
The Group acquired the right to market to third parties various leading technologies for the mining, mineral processing and metals extraction industries, in a business combination. The technology patents are amortised over their useful economic lives of 20 years to June 2023. The Group acquired hydroelectricity rights in connection with the acquisition of the Falconbridge Group (refer to note 7). These rights have been recorded at fair value and will be amortised over the expected life of the operation, currently estimated as being 40 years following the completion of construction.
A long-term feed contract acquired in connection with the acquisition of the Falconbridge Group (refer to note 7) has been recorded at fair value at the date of the acquisition and is being amortised over an eight year period, being the remaining contract term at the date of the acquisition.
Other intangible assets mainly comprise computer software and software development that are being amortised over their useful economic lives of between 3 to 5 years.
The disposal of a portion of the export rights which occurred during 2006 was the result of the transaction with ARM (refer to note 7).
15. Impairment Testing – Goodwill and Indefinite Life Intangibles
Export rights
| US$m | 2007 | 2006 |
|---|---|---|
| Coal export rights carrying value: | ||
| Coal Africa | 993 | 1,008 |
At 31 December 2006, the directors reassessed whether it was appropriate to continue treating the coal export rights of US$993 million (2006 US$1,008 million) as an indefinite life intangible asset and determined that the asset would be amortised prospectively. Consequently in 2007, amortisation of US$32 million was recorded in the income statement (refer to note 6 and note 14).
During 2006, the coal export right was not amortised as the asset was deemed to have an indefinite life. For the purpose of impairment testing this asset was allocated to the Coal Africa cash-generating unit and impairment testing was performed annually or whenever there was an indicator of impairment.
Impairment testing was performed at 31 December 2006 based on a value in use calculation. Value in use was based on cash flows expected to be generated from mines that rely on the coal export rights. Such cash flows were projected up to the date mining was expected to cease, based on management’s expectation at that time. This period depended on a number of variables including recoverable reserves and selling prices for production. Cash flows were projected for a maximum of 36 years.
Goodwill
Goodwill has been allocated to the following reportable segments, or when appropriate to a lower level of cash-generating unit, which are expected to benefit from the asset. The carrying values of goodwill by cash generating unit are as follows:
| US$m | 2007 | 2006** |
|---|---|---|
| Coal – Australia | 163 | – |
| Coal – Colombia | 464 | 464 |
| Chrome – Africa | 47 | 46 |
| Copper – Americas* | 1,185 | 1,185 |
| Copper – South America | 1,536 | 1,536 |
| Copper – Australasia | 152 | 129 |
| Nickel – North America | 856 | 856 |
| Nickel – South America | 295 | 295 |
| Nickel – Africa | 78 | 78 |
| Nickel – Australasia | 34 | 32 |
| Platinum – Africa | 399 | – |
| Zinc Lead* | 1,546 | 1,546 |
| Zinc Lead – North America | 244 | 244 |
| Zinc Lead – South America | 160 | 160 |
| Zinc Lead – Australasia | 8 | 7 |
| Zinc Lead – Europe | 222 | 199 |
| Aluminium – North America | – | 139 |
| 7,389 | 6,916 | |
| *Net of 2006 impairment loss discussed below | ||
| **Restated for the revisions to the Falconbridge, Cerrejon and Tintaya acquisitions in 2006 (refer to note 7). | ||
The goodwill recognised in 2006 arose on the Cerrejón, Tintaya and Falconbridge acquisitions (refer to note 7). Goodwill has been restated from those numbers reported in 2006 as a result of the finalisation of the accounting relating to these acquisitions.
As outlined in note 7, the US$464 million goodwill recognised on the Cerrejón acquisition and the US$133 million recognised Tintaya acquisition, relate to the requirement to recognise a deferred tax liability, calculated as the difference between the tax effect of the fair value of assets and liabilities acquired and their tax bases.
US$7,900 million goodwill was recognised on the Falconbridge acquisition (refer to note 7). Of this amount, US$3,345 million relates to the requirement to create a deferred tax liability, whilst US$4,555 million relates to goodwill recognised on the acquisition of 80.1% of the company in 2006.
The Group performs goodwill impairment testing on an annual basis and when there are indicators of impairment. The most recent test was undertaken at 31 October 2007.
In assessing whether goodwill has been impaired, the carrying amount of the cash-generating unit or reportable segment is compared with its recoverable amount.
2007 Testing
For the purpose of goodwill impairment testing, except for the testing of US$1,546 million allocated to the Zinc Lead reportable segment, recoverable amounts have been determined based on value in use calculations.
Value in use are based on the cash flows expected to be generated from mines, smelting and refining operations included within the cash-generating units or reportable segments. Cash flows are projected for periods up to the date mining and refining is expected to cease based management’s expectations at the time of completing the testing. This date depended on a number of variables, including recoverable reserves and resources, the forecast selling prices for such production and the treatment charges received from the refining operations. Cash flows have been projected for a maximum of 26 years.
For the goodwill allocated to the Zinc Lead segment recoverable amount was determined based on “fair value less cost to sell”. As observable market prices are not available, this was calculated using discounted cash flow methodology taking account of assumptions that would be made by market participants.
Key assumptions
The key assumptions used in the value in use calculations and in determining the “fair value less cost to sell” of the Zinc Lead segment are:
- recoverable reserves and resources;
- commodity prices;
- treatment charges receivable by smelting and refining operations; and
- discount rates.
As outlined above, economically recoverable reserves and resources are based on management’s expectations at the time of completing the testing, based on the availability of reserves at mine sites and exploration and evaluation work undertaken by appropriately qualified persons.
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 discount rates that are utilised for significant balances are outlined below, and represent the nominal pre-tax rates that reflect the current market assessments of the time value of money and the risks specific to the cash-generating unit or reportable segment for which cash flows had not been adjusted. These rates are based on the weighted average cost of capital specific to each cash-generating unit or reportable segment and the currency of the cash flows generated. These rates were calculated with reference to information from third party advisors.
| US$m | 2007 |
|---|---|
| Copper – Americas | 17.2% |
| Zinc Lead – Europe | 13.6% |
| Chrome – Africa | 11.1% |
| Zinc Lead | 13.3% |
In assessing the “fair value less costs to sell” of the Zinc Lead segment another key assumption that would be considered by market participants, is foreign exchange rates. These rates are based on external market consensus forecasts. Specific rates are determined from information available in the market after considering long-term market expectations and the countries in which the Group operates.
There was no impairment expense recorded in 2007 and the directors are of the view that no “reasonably possible change” in any of the key assumptions would result in an impairment expense being recognised.
2006 Testing
For the purpose of goodwill impairment testing, recoverable amounts were determined based on value in use calculations. Value in use was based on the cash flows expected to be generated from mines, smelting and refining operations included within the cash-generating units or reportable segments. Cash flows were projected for periods up to the date mining and refining was expected to cease based management’s expectations at the time of completing the testing. This date depended on a number of variables, including recoverable reserves and resources, the forecast selling prices for such production and the treatment charges received from the refining operations. Cash flows were projected for a maximum of 21 years.
Key assumptions
The key assumptions used in the value in use calculations for goodwill and the export right asset were consistent with those outlined above, and used in 2007. Management determined the value of the assumptions in the same manner, specifically, by considering economically recoverable reserves and resources and market consensus prices.
The discount rates that were utilised are outlined below, and represent the nominal pre-tax rates that reflect the current market assessments of the time value of money and the risks specific to the cash-generating unit or reportable segment for which cash flows had not been adjusted. These rates were based on the weighted average cost of capital specific to each cash-generating unit or reportable segment and the currency of the cash flows generated. These rates were calculated with reference to information from third party advisors.
| 2006 | |
|---|---|
| Coal – South Africa | 10.2% |
| Chrome – Africa | 11.1% |
| Copper – Americas | 17.2% |
| Zinc Lead | 13.3% |
| Zinc Lead – Europe | 13.6% |
Impairment losses
The impairment losses recognised as an exceptional item in the 2006 income statement relates to the following:
| US$m | 2006 |
|---|---|
| Goodwill: | |
| Copper – Americas | 792 |
| Zinc Lead | 1,032 |
| 1,824 |
The acquisition of Falconbridge was completed in two stages. Xstrata acquired 19.9% of Falconbridge at CAD28 per share in 2005, before acquiring the remaining 80.1% in 2006 at a price of CAD62.50 per share. The average price paid per share for the 100% interest was CAD56.44. Xstrata’s ability to average the purchase price paid for the second tranche of shares over the full purchase provided Xstrata with a compelling competitive advantage and was a significant factor in the success of the transaction.
Under IFRS, this advantage cannot be recognised, as goodwill is calculated separately for each transaction. This accounting treatment resulted in the creation of additional goodwill of US$1,403 million.
Xstrata completed a detailed fair value assessment of the assets acquired and, in accordance with IFRS, tested goodwill for impairment. As a consequence, the Company recorded an impairment charge of US$1,824 million in 2006 (refer to note 7 and note 10 for further details).
Sensitivity to changes in assumptions
As a result of the impairment expense above, the goodwill allocated to Copper Americas and Zinc Lead, was recorded at its recoverable amount at 31 December 2006 and therefore any adverse changes in key assumptions would have caused a further impairment loss to be recognised.
These key assumptions are discussed below:
Recoverable reserves and resources – The total recoverable reserve was 1,680 million tonnes of ore, and resource was 1,279 million tonnes of ore for Copper Americas. The total recoverable reserve was 180 million tonnes of ore, and resource was 563 million tonnes of ore for Zinc Lead. As outlined above this was based on management’s estimate, using appropriate exploration and evaluation techniques.
Commodity prices – In performing the value in use calculation for Copper Americas commodity prices were based on external market consensus forecasts. The copper prices ranged from US$1.00 per pound to US$3.28 per pound varying in accordance with the year the sale was expected to occur.
Treatment charges received from smelting and refining – In performing the value in use calculation for Zinc Lead treatment charges were estimated to be in the range of US$150 per tonne to US$250 per tonne for zinc and US$110 per tonne for lead refining fees, based on the year of processing. As outlined above, these prices were based on external market consensus forecasts.
Commodity prices – In performing the value in use calculation for Zinc Lead commodity prices were based on external market consensus forecasts. The prices ranged from US$1,124 per tonne to US$3,241 per tonne for zinc and US$639 per tonne to US$1,146 per tonne for lead, varying in accordance with the year the sale was expected to occur.
16. Property, Plant and Equipment
| US$m | Exploration and evaluation | Land and buildings | Mining properties and leases | Plant and equipment | Capital works in progress | 2007 |
|---|---|---|---|---|---|---|
| At 1 January 2007, net of accumulated depreciation | 245 | 2,751 | 18,343 | 6,285 | 1,874 | 29,498 |
| Acquisitions | 26 | 109 | 2,479 | 382 | 1 | 2,997 |
| Additions | 139 | 227 | 517 | 1,306 | 829 | 3,018 |
| Disposal of discontinued operations | – | (366) | (7) | (623) | (22) | (1,018) |
| Disposals | – | (4) | (5) | (26) | (24) | (59) |
| Rehabilitation provision adjustments | – | – | 122 | – | – | 122 |
| Reclassifications | 252 | 89 | (206) | 279 | (409) | 5 |
| Depreciation charge | (7) | (197) | (1,012) | (809) | – | (2,025) |
| Translation adjustments | (1) | 41 | 344 | 295 | 100 | 779 |
| At 31 December 2007, net of accumulated depreciation | 654 | 2,650 | 20,575 | 7,089 | 2,349 | 33,317 |
| At 1 January 2007: | ||||||
| Cost | 252 | 3,030 | 19,595 | 7,808 | 1,875 | 32,560 |
| Accumulated depreciation | (7) | (279) | (1,252) | (1,523) | (1) | (3,062) |
| Net carrying amount | 245 | 2,751 | 18,343 | 6,285 | 1,874 | 29,498 |
| At 31 December 2007: | ||||||
| Cost | 666 | 3,089 | 22,921 | 9,418 | 2,349 | 38,443 |
| Accumulated depreciation | (12) | (439) | (2,346) | (2,329) | – | (5,126) |
| Net carrying amount | 654 | 2,650 | 20,575 | 7,089 | 2,349 | 33,317 |
| US$m | Exploration and evaluation | Land and buildings | Mining properties and leases | Plant and equipment | Capital works in progress | 2006 |
|---|---|---|---|---|---|---|
| At 1 January 2006, net of accumulated depreciation | 19 | 689 | 3,703 | 3,124 | 551 | 8,086 |
| Acquisitions | 171 | 2,015 | 14,764 | 2,821 | 804 | 20,575 |
| Additions | 54 | 103 | 191 | 636 | 702 | 1,686 |
| Disposal of discontinued operations | – | – | (22) | (15) | – | (37) |
| Disposals | – | (8) | (5) | (7) | – | (20) |
| Rehabilitation provision adjustments | – | – | 88 | – | – | 88 |
| Reclassifications | – | 20 | 56 | 118 | (194) | – |
| Depreciation charge | – | (120) | (575) | (526) | – | (1,221) |
| Translation adjustments | 1 | 52 | 143 | 134 | 11 | 341 |
| At 31 December 2006, net of accumulated depreciation | 245 | 2,751 | 18,343 | 6,285 | 1,874 | 29,498 |
| At 1 January 2006: | ||||||
| Cost | 26 | 855 | 4,352 | 4,132 | 553 | 9,918 |
| Accumulated depreciation | (7) | (166) | (649) | (1,008) | (2) | (1,832) |
| Net carrying amount | 19 | 689 | 3,703 | 3,124 | 551 | 8,086 |
| At 31 December 2006: | ||||||
| Cost | 252 | 3,030 | 19,595 | 7,808 | 1,875 | 32,560 |
| Accumulated depreciation | (7) | (279) | (1,252) | (1,523) | (1) | (3,062) |
| Net carrying amount | 245 | 2,751 | 18,343 | 6,285 | 1,874 | 29,498 |
Land and buildings include non-depreciating freehold land amounting to US$363 million (2006 US$214 million).
Mining properties and leases at 31 December 2007 include deferred stripping costs of US$432 million (2006 US$304 million). US$165 million (2006 US$89 million) of deferred stripping costs were capitalised during the year.
The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2007 is US$125 million (2006 US$236 million). Leased assets and assets under hire purchase contracts are pledged as security for the related finance leases and hire purchase liabilities. The carrying value of other property, plant and equipment pledged as security is US$nil (2006 US$nil).
US$nil (2006 US$nil) of interest was capitalised during the year and there is US$nil (2006 US$nil) of capitalised interest within property, plant and equipment at 31 December 2007.
The carrying value of property, plant and equipment at 31 December 2007 that is temporarily idle is US$nil million (2006 US$36 million).
The Group has made commitments to acquire property, plant and equipment totalling US$532 million at 31 December 2007 (2006 US$227 million).
17. Biological Assets
| US$m | 2007 | 2006 |
|---|---|---|
| At 1 January | 15 | 13 |
| Net gain from fair value less estimated selling cost adjustments | 2 | 1 |
| Translation adjustments | 2 | 1 |
| At 31 December | 19 | 15 |
Biological assets are stated at fair value less estimated selling costs, which has been determined based on independent valuations as at 31 December 2007 and 2006, on the basis of open market value, supported by market evidence. As at 31 December 2007, the Group owned 54,000 (2006: 45,000) cattle.
18. Inventories
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| Raw materials and consumables | 1,451 | 1,294 |
| Work in progress | 1,763 | 1,376 |
| Finished goods | 953 | 869 |
| 4,167 | 3,539 | |
| Non-current: | ||
| Work in progress | 17 | 75 |
| 17 | 75 |
Non-current inventories comprises long-term ore stockpiles that are not planned to be processed within one year.
19. Trade and Other Receivables
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| Trade debtors | 2,451 | 2,380 |
| Advances | 189 | 115 |
| Employee entitlement receivables (refer to note 31) | 6 | 5 |
| Recoverable sales tax | 290 | 282 |
| Other debtors | 31 | 47 |
| 2,967 | 2,829 | |
| Non-current: | ||
| Employee entitlement receivables (refer to note 31) | 38 | 25 |
| Recoverable sales tax | 5 | 25 |
| Other debtors | 42 | 34 |
| 85 | 84 |
20. Investment in Associates
The Group has interests in coal terminals, through which it gains access to export markets and a 25% interest in the Noranda Income Fund which owns a zinc refinery in Salaberry-de-Valleyfield, Quebec. The Noranda Income Fund is listed on the Toronto stock exchange and the fair value of the Group’s investment was US$122 million at 31 December 2007 (2006 US$106 million). The companies which own the coal terminals are not listed so there is no published quoted price for the fair value of these investments. The reporting dates for all associates is the same as for the Group, being 31 December.
The following is a summary of the financial information of the above associates:
| US$m | 2007 | 2006 |
|---|---|---|
| Share of associates’ balance sheet: | ||
| Non-current assets | 256 | 230 |
| Current assets | 83 | 93 |
| Total assets | 339 | 323 |
| Non-current liabilities | (113) | (88) |
| Current liabilities | (40) | (56) |
| Total liabilities | (153) | (144) |
| Net assets | 186 | 179 |
| Carrying amount of the investment | 186 | 179 |
| Share of associates’ revenue and profit: | ||
| Revenue | 265 | 116 |
| EBITDA | 23 | 6 |
| EBIT | 15 | 2 |
| Net interest paid | 1 | 2 |
| Income tax expense | (1) | – |
| Profit for the year | 15 | 4 |
21. Interests in Joint Venture Entities
The Group has various interests in jointly controlled entities, operations and assets as outlined in note 35. These interests are accounted for in the manner outlined in note 6.
The following is a summary of the financial information of the Group’s jointly controlled entities in Africa and South America:
| US$m | 2007 | 2006 |
|---|---|---|
| Share of joint ventures’ balance sheets: | ||
| Non-current assets | 9,950 | 10,558 |
| Current assets | 690 | 616 |
| Total assets | 10,640 | 11,174 |
| Non-current liabilities | (2,121) | (2,578) |
| Current liabilities | (336) | (663) |
| Total liabilities | (2,457) | (3,241) |
| Net assets | 8,183 | 7,933 |
| Net assets consolidated | 8,183 | 7,933 |
| Share of joint ventures’ revenue and profit: | ||
| Revenue | 2,450 | 1,063 |
| Cost of sales (before depreciation and amortisation) | (310) | (273) |
| Distribution costs | (129) | (62) |
| Administration expenses (before depreciation and amortisation) | (54) | (21) |
| EBITDA | 1,957 | 707 |
| Depreciation and amortisation | (370) | (175) |
| EBIT | 1,587 | 532 |
| Finance income | 8 | 6 |
| Finance costs | (22) | (14) |
| Profit before tax | 1,573 | 524 |
| Income tax expense | (431) | (164) |
| Profit for the year | 1,142 | 360 |
These figures have been restated due to the finalisation of the 2006 acquisition accounting (refer note 7).
22. Available-for-sale Financial Assets
| US$m | 2007 | 2006 |
|---|---|---|
| At fair value: | ||
| Shares – listed | 87 | 58 |
| Shares – unlisted | 26 | 22 |
| Royalty contract | 90 | 90 |
| 203 | 170 |
Available-for-sale financial assets consist of a long-term royalty income contract and investments in listed and unlisted ordinary shares that have no fixed maturity date or coupon rate. These investments are held for strategic purposes. In 2007 and 2006, the listed shares related to companies in the mining industry. The listed shares are carried at fair value. Unlisted shares mainly comprise interests in ports in Australia used to export coal and are carried at fair value.
23. Derivative Financial Assets
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| At fair value: | ||
| Foreign currency cash flow hedges | 1 | 9 |
| Fair value interest rate swap hedges | 4 | – |
| Other commodity derivatives | 3 | 2 |
| Other foreign currency derivatives | 81 | – |
| 89 | 11 | |
| Non-current: | ||
| At fair value: | ||
| Foreign currency cash flow hedges | 112 | 1 |
| Fair value interest rate swap hedges | 98 | 8 |
| Other foreign currency derivatives | – | 48 |
| 210 | 57 | |
| Total | 299 | 68 |
24. Other Financial Assets
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| At amortised cost: | ||
| Loans to joint venture partners | 54 | – |
| Security deposits | – | 2 |
| 54 | 2 | |
| Non-current: | ||
| At fair value: | ||
| Rehabilitation trust fund | 43 | 36 |
| Other | 34 | 49 |
| 77 | 85 | |
| At amortised cost: | ||
| Loans to joint venture partners | 21 | 98 |
| 98 | 183 | |
| Total | 152 | 185 |
Loans to joint venture partners
A loan to Merafe was made on establishment of the Chrome Pooling and Sharing Venture (PSV). At 31 December 2007, US$21 million (2006 US$21 million) was subject to a floating interest rate based on South African prime rates. This loan is secured by the Group’s ability to acquire Merafe’s PSV assets at fair value in the event of default.
A loan was made to African Rainbow Minerals Limited (ARM) on establishment of ARM Coal. At 31 December 2007, US$54 million (2006 US$56 million) was subject to a floating interest rate based on South African prime rates. This loan is secured by the Group’s ability to acquire ARM Coal assets at fair value in the event of default.
A loan has been made to Barrick Gold Corporation for the Kabanga joint venture. At 31 December 2007, US$nil (2006 US$21 million) was interest free. This loan is secured by the Group’s ability to acquire Kabanga’s assets at fair value in the event of default.
Rehabilitation trust fund
The rehabilitation trust fund in South Africa receives cash contributions to accumulate funds for the Group’s rehabilitation liability relating to the eventual closure of the Group’s coal operations. Amounts are paid out from the trust fund following completion and approval of the rehabilitation work by the South African Department of Minerals and Energy. The contributions to the trust fund are placed with investment banks who are responsible for making investments in equity and money market instruments. The trust fund is to be used according to the terms of the trust deed and the assets are not available for the general purpose of the Group. The trust fund is carried at fair value.
25. Cash and Cash Equivalents
| US$m | 2007 | 2006 |
|---|---|---|
| Cash at bank and in hand | 487 | 622 |
| Short-term deposits | 661 | 1,238 |
| 1,148 | 1,860 |
The majority of cash at bank and in hand earns interest at floating rates of interest with a limited amount at fixed rates of interest or interest free. 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 2007 and 31 December 2006 approximates carrying value.
For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents comprise the following at 31 December:
| US$m | 2007 | 2006 |
|---|---|---|
| Cash at bank and in hand | 487 | 622 |
| Short-term deposits | 661 | 1,238 |
| Bank overdrafts (refer to note 28) | (79) | (143) |
| 1,069 | 1,717 |
During the year, the Group entered into new finance leases and hire purchase contracts to purchase various items of plant and equipment for US$26 million (2006 US$nil), issued shares from the conversion of the convertible borrowings and issued shares to the ESOP for a market value of US$185 million (2006 US$98 million) which did not require the use of cash and cash equivalents and are not included in the net cash flow used in investing and financing activities in the Consolidated Cash Flow Statement.
26. Capital and Reserves
| US$m | |
|---|---|
| Authorised: | |
| 875,000,000 ordinary shares of US$0.50 each as at 1 January 2006 | 438 |
| 14,234,948,397 ordinary shares of US$0.50 each increase on 30 June 2006 | 7,117 |
| 15,109,948,397 ordinary shares of US$0.50 each as at 31 December 2006 | 7,555 |
| 13,609,948,397 ordinary shares of US$0.50 each cancellation | (6,805) |
| 1,500,000,000 ordinary shares of US$0.50 each as at 31 December 2007 | 750 |
| 50,000 deferred shares of GBP1.00 each as at 31 December 2006 and at 31 December 2007 | – |
| 1 special voting share of US$0.50 as at 31 December 2006 and as at 31 December 2007 | – |
| 750 | |
| Issued, called up and fully paid: | |
| 632,502,416 ordinary shares of US$0.50 each as at 1 January 2006 | 316 |
| 3,000,000 ordinary shares issued on 28 March 2006 to the ESOP | 1 |
| 32,543,344 ordinary shares issued on 22 May 2006 to institutional investors | 16 |
| 235,787,596 ordinary shares issued on 30 October 2006 from a shareholder rights issue | 118 |
| 39,317,027 ordinary shares issued on the exercise of convertible bonds to 31 December 2006 | 20 |
| 943,150,383 ordinary shares of US$0.50 each as at 31 December 2006 | 471 |
| 4,000,000 ordinary shares issued on 31 January 2007 to the ESOP | 2 |
| 24,516,537 ordinary shares issued on the exercise of convertible bonds to 31 December 2007 | 12 |
| 971,666,920 ordinary shares of US$0.50 each as at 31 December 2007 | 485 |
| Share Premium: | |
| As at 1 January 2006 | 2,500 |
| 3,000,000 ordinary shares issued on 27 March 2006 to the ESOP | 97 |
| 32,543,344 ordinary shares issued on 22 May 2006 to institutional investors | 1,236 |
| 235,787,596 ordinary shares issued on 30 October 2006 from a shareholder rights issue | 5,314 |
| 39,317,027 ordinary shares issued on the exercise of convertible bonds to 31 December 2006 | 375 |
| At 31 December 2006 | 9,522 |
| 4,000,000 ordinary shares issued on 31 January 2007 to the ESOP | 183 |
| 24,516,537 ordinary shares issued on the exercise of convertible bonds to 31 December 2007 | 194 |
| As at 31 December 2007 | 9,899 |
| Own shares: | |
| 33,054,864 ordinary shares of US$0.50 each as at 1 January 2006 | (616) |
| 29,450,976 ordinary shares disposed by the ECMP during the year | 572 |
| 428,053 ordinary shares purchased during the year | (11) |
| 3,000,000 ordinary shares purchased on 28 March 2006 by the ESOP | (98) |
| 1,611,519 ordinary shares purchased from shareholder rights issue on 30 October 2006 | (38) |
| 2,469,713 ordinary shares disposed by the ESOP during the year | 37 |
| 6,173,747 ordinary shares of US$0.50 each as at 31 December 2006 | (154) |
| 4,000,000 ordinary shares purchased on 31 January 2007 by the ESOP | (185) |
| 9,310,000 ordinary shares purchased in the ECMP during the year | (518) |
| 291,585 ordinary shares purchased during the year | (14) |
| 6,618,641 ordinary shares disposed during the year | 220 |
| 13,156,691 ordinary shares of US$0.50 each as at 31 December 2007 | (651) |
Details in respect of the various classes of shares are outlined in the Directors’ Report on pages 103 to 106.
Issue of ordinary shares
During March 2006, 3,000,000 shares were issued to the ESOP at a market price of GBP18.72 per share.
On 22 May 2006, 32,543,344 shares were issued to institutional investors at a market price of GBP21.00 per share.
On 30 October 2006, 235,787,596 ordinary shares were issued under a rights issue which was structured as an issue of one new ordinary share at a price of GBP12.65 per share for every three existing ordinary shares held. The net proceeds from the rights issue was US$5,432 million (after US$186 million of capital raising costs) and the number of shares in issue of Xstrata plc following the completion of the rights issue was 943,150,383.
On 31 January 2007, 4,000,000 shares were issued to the ESOP at a market price of GBP23.58 per share.
During 2006, 64.3% of the US$600 million of convertible bonds were converted at the option of the holders into 39,317,027 ordinary shares in Xstrata plc. During 2007, the remainder of the US$600 million convertible bonds issued by Xstrata Capital Corporation AVV were converted at the option of the holders into 24,516,537 ordinary shares in Xstrata plc. As a result of this conversion, 100% of the bond has been now converted (refer to note 29).
On 16 January 2008, 6,000,000 shares were issued to the ESOP at a market price of GBP34.90 per share.
Own shares
Own shares comprise shares of Xstrata plc held in the Employee Share Option Plan (ESOP) and shares held by Batiss Investments (Batiss) for the Equity Capital Management Programme (ECMP).
The shares acquired by the ESOP are either stock market purchases or share issues from the Company. The ESOP is used to co-ordinate the funding and manage the delivery of ordinary shares for options and free share awards under the Group’s employee award schemes. 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 2007, 3,846,691 (2006: 6,173,747) shares, equivalent to 0.4% (2006: 0.7%) of the total issued share capital, were held by the trust with a cost of US$133 million (2006 US$154 million) and market value of US$271 million (2006 US$308 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 and held for the ECMP are used by the Group as a source of financing for future acquisitions, 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, is considered in light of the Group’s funding requirements and capital structure.
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, but has not chosen to do so in either 2007 or 2006.
Batiss has waived its right to receive dividends on the shares which it holds. At 31 December 2007, 9,310,000 (2006: nil) shares, equivalent to 1.0% (2006 nil%) of the total issued share capital, were held by the trust with a cost of US$518 million (2006 US$nil) and market value of US$656 million (2006 US$nil). Costs relating to the administration of the trust are expensed in the period in which they are incurred. In 2006, the shares held at 31 December 2005 were used as a source of funding for the Cerrejón acquisition (refer to note 7).
Consolidated changes in equity
| Attributable to equity holders of the parent | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| US$m | Issued capital | Share premium | Own shares | Convertible borrowings - equity component | Other reserves | Retained earnings | Total | Minority interests | Total equity |
| At 1 January 2007 | 471 | 9,522 | (154) | 78 | 4,472 | 4,057 | 18,446 | 1,146 | 19,592 |
| Recognised income and expenses | – | – | – | – | 595 | 5,472 | 6,067 | 326 | 6,393 |
| Issue of share capital | 14 | 377 | (185) | (22) | – | – | 184 | – | 184 |
| Own share purchases | – | – | (532) | – | – | – | (532) | – | (532) |
| Own share disposals | – | – | 220 | – | – | (164) | 56 | – | 56 |
| Cost of IFRS 2 equity-settled share-based | |||||||||
| compensation plans | – | – | – | – | – | 62 | 62 | – | 62 |
| Acquisition of subsidiaries | – | – | – | – | – | – | – | 429 | 429 |
| Capital injection | – | – | – | – | – | – | – | 180 | 180 |
| Redemption of minority interests | – | – | – | – | (12) | – | (12) | (10) | (22) |
| Dividends paid | – | – | – | – | – | (443) | (443) | (485) | (928) |
| Loan reclassification | – | – | – | – | – | – | – | (156) | (156) |
| At 31 December 2007 | 485 | 9,899 | (651) | 56 | 5,055 | 8,984 | 23,828 | 1,430 | 25,258 |
Consolidated changes in equity
| Attributable to equity holders of the parent | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| US$m | Issued capital | Share premium | Own shares | Convertible borrowings - equity component | Other reserves | Retained earnings | Total | Minority interests | Total equity |
| At 1 January 2006 | 316 | 2,500 | (616) | 119 | 3,054 | 2,192 | 7,565 | 572 | 8,137 |
| Recognised income and expenses | – | – | – | – | 1,418 | 1,549 | 2,967 | 405 | 3,372 |
| Issue of share capital | 155 | 7,022 | (136) | (41) | – | – | 7,000 | – | 7,000 |
| Own share purchases | – | – | (11) | – | – | – | (11) | – | (11) |
| Own share disposals | – | – | 609 | – | – | 525 | 1,134 | – | 1,134 |
| Cost of IFRS 2 equity-settled share-based | |||||||||
| compensation plans | – | – | – | – | – | 42 | 42 | – | 42 |
| Acquisition of subsidiaries | – | – | – | – | – | – | – | 471 | 471 |
| Redemption of minority interests | – | – | – | – | – | – | – | (95) | (95) |
| Dividends paid | – | – | – | – | – | (251) | (251) | (207) | (458) |
| At 31 December 2006 | 471 | 9,522 | (154) | 78 | 4,472 | 4,057 | 18,446 | 1,146 | 19,592 |
Other reserves
| US$m | Revaluation reserves | Other reserves | Net unrealised gains | Foreign currency translation | Total |
|---|---|---|---|---|---|
| At 1 January 2006 | – | 1,241 | 194 | 1,619 | 3,054 |
| Revaluation of property, plant and equipment | 1,418 | – | – | – | 1,418 |
| Available-for-sale financial assets | – | – | 1,892 | – | 1,892 |
| Losses on cash flow hedges | – | – | (78) | – | (78) |
| Realised gains on disposal of available-for-sale financial assets | – | – | (63) | – | (63) |
| Reversal of revaluation surplus on available-for-sale financial assets** | – | – | (2,205) | – | (2,205) |
| Realised losses on cash flow hedges* | – | – | 125 | – | 125 |
| Recycled foreign currency translation net losses | – | – | 47 | 47 | |
| Foreign currency translation differences | – | – | (5) | 249 | 244 |
| Deferred tax | – | – | 59 | (21) | 38 |
| At 31 December 2006 | 1,418 | 1,241 | (81) | 1,894 | 4,472 |
| Revaluation of property, plant and equipment | 22 | – | – | – | 22 |
| Available-for-sale financial assets | – | – | 49 | – | 49 |
| Losses on cash flow hedges | – | – | (261) | – | (261) |
| Realised losses on cash flow hedges* | – | – | 121 | – | 121 |
| Recycled foreign currency translation net losses | – | – | 28 | 28 | |
| Redemption of minority interests | – | (12) | – | – | (12) |
| Foreign currency translation differences | – | – | (2) | 672 | 670 |
| Deferred tax | – | – | (1) | (33) | (34) |
| At 31 December 2007 | 1,440 | 1,229 | (175) | 2,561 | 5,055 |
| *Realised losses of US$121 million (2006 US$125 million) are included in Revenue in the Income Statement. | |||||
| **Relates to gains made on the Group’s investment in Falconbridge whilst the investment was treated as an available-for-sale financial asset. In accordance with the Group’s accounting policy, on obtaining control of Falconbridge, the unrealised gains have been reversed and the acquisition accounting in note 7 was adopted. | |||||
Revaluation reserves
This reserve principally records the re-measurement from cost of the 19.9% interest held in Falconbridge at 31 December 2005, to the fair value of 19.9% of the identifiable net assets of Falconbridge on 15 August 2006, the date the Group obtained control of Falconbridge (refer to note 7).
Other reserves
This reserve principally originated during 2002 from the merger of Xstrata AG into Xstrata plc (US$279 million) and the issue of shares from the acquisition of the Duiker and Enex Groups of US$935 million.
Net unrealised gains/(losses) reserve
This reserve records the re-measurement of available-for-sale financial assets to fair value (refer to note 22) and the effective portion of the gain or loss on cash flow hedging contracts (refer to notes 23, 30 and 36). Deferred tax is provided on the re-measurement at tax rates enacted or substantively enacted.
Foreign currency translation reserve
This is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the exchange differences from the translation of quasi equity inter-company loans in foreign operations. On disposal or partial disposal of a foreign entity or repayment of a quasi equity loan, the deferred accumulated amount recognised in this reserve is transferred to the income statement.
Minority Interest
Minority interest movements in 2007 relate to the acquisition of Eland (refer note 7), a capital injection to Konimabo Nickel SAS, and the reclassification of a portion of the Koniambo Nickel SAS minority interest to liabilities in accordance with IFRS.
Significant movements in 2006 relate to minorities arising as part of the Falconbridge acquisition (refer note 7).
Capital Management
The capital of Xstrata plc is the total equity on the Group’s balance sheet. The objective of the Company’s capital management is to grow and manage a diversified portfolio of metals and mining businesses with the aim of delivering industry-leading returns for its shareholders. The management of the Group’s capital is performed by the Board of Directors. There are no externally imposed capital requirements.
27. Trade and Other Payables
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| Trade payables | 2,429 | 2,290 |
| Sundry payables | 426 | 326 |
| Interest payable | 69 | 23 |
| Accruals and other payables | 821 | 486 |
| 3,745 | 3,125 | |
| Non-current: | ||
| Accruals and other payables | 54 | 95 |
| 54 | 95 | |
| Total | 3,799 | 3,220 |
All current payables are expected to be settled in the next 12 months and non-current payables are expected to be settled over a weighted average life of 13 years (2006: 13 years).
28. Interest-bearing Loans and Borrowings
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| At amortised cost: | ||
| Bank overdrafts | 79 | 143 |
| Syndicated bank loans – unsecured | – | 1,656 |
| Syndicated bank loans – revolving loan facilities – unsecured | 481 | – |
| Bank loans – other unsecured | 41 | 39 |
| Capital market notes | 350 | 5 |
| Preference shares | 149 | – |
| Obligations under finance leases and hire purchase contracts (i) | 18 | 147 |
| 1,118 | 1,990 | |
| Non-current: | ||
| At amortised cost: | ||
| Syndicated bank loans – unsecured | 4,265 | 7,365 |
| Bank loans – other unsecured | 264 | 318 |
| Capital market notes | 6,338 | 4,617 |
| Minority interest loans | 81 | 81 |
| Obligations under finance leases and hire purchase contracts (i) | 114 | 95 |
| Preference shares | 199 | 304 |
| Other loans | 417 | 166 |
| 11,678 | 12,946 | |
| Non-current: | ||
| At amortised cost: | ||
| Convertible borrowings (refer note 29) | 327 | 525 |
| Total | 13,123 | 15,461 |
| Less cash and cash equivalents (refer note 25) | (1,148) | (1,860) |
| Net debt* | 11,975 | 13,601 |
| *Net debt is defined as loans and borrowings net of cash and cash equivalents. | ||
i. Secured over specific items of plant and equipment (refer to note 16).
New Facilities in 2007
The Xstrata Group has entered into the bank loans as described below:
Syndicated Bank loans
On 25 July 2007, the Group entered into a guaranteed US$4,680 million revolving syndicated loan facility (Syndicated Facilities Agreement). On 31 July 2007, the Group drew down US$4,087 million under the Syndicated Facilities Agreement and used these proceeds to repay in full the amounts outstanding under the Acquisition Facilities. Subsequent draw downs have been made to partly fund the acquisitions of Anvil Hill, Austral Coal Limited and Eland Platinum Holdings Limited. A portion of these draw downs were repaid prior to 31 December 2007 through the cash flows of the Group. Interest is payable on the loans at a rate which is based on LIBOR and the relevant margin, which is 27.5 basis points per annum.
Revolving Loan Facilities
On 8 October 2007, the Group entered into a guaranteed US$2,000 million 364 day Revolving Loan Facility. Draw downs have been made to partly fund the acquisitions of Anvil Hill, Austral Coal Limited and Eland Platinum Holdings Limited. Interest is payable on the loans at a rate which is the aggregate of LIBOR and the relevant margin, which is 27.5 basis points per annum.
On 6 December 2007, the Group entered into a guaranteed US$1,500 million 364 day Revolving Loan Facility. Interest is payable on the loans at a rate which is the aggregate of LIBOR and the relevant margin, which is 27.5 basis points per annum.
Repaid Facilities
In connection with the Falconbridge Acquisition in August 2006, Xstrata plc and certain subsidiaries of the Group entered into the Acquisition Facilities Agreement, the Debt Bridge Facility Agreement and the Equity Bridge Facility Agreement. The purpose of these agreements was to meet the financing requirements of the Falconbridge Offer and to subsequently act as the Group’s principal bank facilities following the Falconbridge acquisition.
- The Acquisition Facilities Agreement was a US$9,500 million committed multi-currency syndicated loan with facilities which consisted of: (i) a 36-month term loan facility for US$3,353 million; (ii) a 60-month-and-one-day term loan facility for US$1,117 million; (iii) a 60-month revolving loan facility for US$3,353 million; and (iv) a 364-day term loan facility for US$1,677 million with the ability to extend by 364 days. Interest was payable on the loans at a rate which was based on the London interbank offered rate (LIBOR) plus the relevant margins, which were initially between 50 and 70 basis points per annum. The Group was liable to pay a commitment fee on the un-drawn portion of the syndicated loan facility at a rate per annum equal to 35% of the applicable margin payable on the three and five year tranches and 30% of the applicable margin on the 364-day tranche. This facility was fully repaid in July 2007 using the US$4,680 million Syndicated Loan described and defined above.
- The Debt Bridge Facility Agreement consisted of a six-month term loan facility for US$2,500 million with the ability to extend by 364 days. Interest was payable on the loans at a rate which was based on LIBOR plus 40 basis points per annum. This facility was fully repaid in November 2006.
- The Equity Bridge Facility Agreement was a term loan facility for US$7,000 million which was fully repaid in November 2006. Interest was payable on the loan at a rate which was based on LIBOR plus 40 basis points per annum.
On 18 August 2005, Xstrata plc and certain subsidiary undertakings of the Group, entered into a US$600 million 364-day fully drawn advance loan facility. The interest payable on the term loan was at a rate based on LIBOR plus 40 basis points per annum. This facility was re-financed during 2006.
On 8 May 2006, the Group entered into a US$2,500 million committed multi-currency 364-day loan facility to partly finance the Cerrejon and Tintaya acquisitions (refer to note 7). The interest payable on the loan was based on LIBOR plus 40 basis points per annum. The Group was liable to pay a commitment fee on the un-drawn portion of the facility at a rate per annum equal to 25% on the applicable margin, payable quarterly in arrears. This facility was re-financed during 2006.
Capital Market Notes
As at 31 December 2007, other unsecured private placements included:
| Facility | Denomination | At 31 Dec 07 US$m | Fixed or floating interest rate | Effective interest rate % in 2007 | Maturity | At 31 Dec 06 US$m | Effective interest rate % in 2006 |
|---|---|---|---|---|---|---|---|
| Series A senior unsecured notes (a) | US$ | 152 | Fixed | 5.90 | Jun 08 | 150 | 5.90 |
| Series B senior unsecured notes (a) | US$ | 53 | Fixed | 6.75 | Jun 11 | 50 | 6.75 |
| Series B senior unsecured notes (a) | US$ | 53 | Fixed | 7.00 | Jun 11 | 50 | 7.00 |
| Unsecured notes (b) | US$ | 499 | Floating | 5.75 | Nov 09 | 498 | 5.72 |
| Unsecured notes (b) | US$ | 771 | Fixed | 5.50 | Nov 11 | 746 | 5.50 |
| Unsecured notes (b) | US$ | 1,024 | Fixed | 5.80 | Nov 16 | 996 | 5.80 |
| Unsecured notes (c) | EUR | 741 | Fixed | 4.88 | Jun 12 | – | – |
| Unsecured notes (c) | EUR | 738 | Fixed | 5.25 | Jun 17 | – | – |
| Unsecured notes (d) | US$ | 495 | Fixed | 6.90 | Nov 37 | – | – |
| Senior debentures (e) | CAD | 184 | Fixed | 4.89 | Dec 08 | 155 | 4.89 |
| Senior debentures (e) | US$ | 329 | Fixed | 6.03 | Feb 11 | 328 | 6.03 |
| Senior debentures (e) | US$ | 270 | Fixed | 5.88 | Jun 12 | 266 | 5.88 |
| Senior debentures (e) | US$ | 314 | Fixed | 6.06 | Jul 12 | 317 | 6.06 |
| Senior debentures (e) | US$ | 348 | Fixed | 6.34 | Oct 15 | 354 | 6.34 |
| Senior debentures (e) | US$ | 248 | Fixed | 6.16 | Jun 15 | 246 | 6.16 |
| Senior debentures (e) | US$ | 236 | Fixed | 6.39 | Jun 17 | 234 | 6.39 |
| Senior debentures (e) | US$ | 233 | Fixed | 6.77 | Jun 35 | 232 | 6.77 |
| 6,688 | 4,622 | ||||||
| (a) An Australian subsidiary has designated the series A and B senior unsecured notes as a fair value hedge of an investment in South America (refer to note 36). The hedge is being used to reduce exposure to foreign currency risk. | |||||||
| (b) In November 2006, the Group issued US$2,250 million of guaranteed capital market notes to refinance existing debt facilities. The notes are comprised of three tranches, a US$1,000 million ten-year note at a fixed interest rate of 5.8%, a US$750 million five year note at a fixed interest rate of 5.5% and a US$500 million three year note that bears interest at a rate based on LIBOR plus 35 basis points. | |||||||
| (c) In June 2007, the Group issued a two-tranche EUR1,000 million guaranteed bond offering, comprising EUR500 million 4.875% fixed guaranteed notes due 2012 and EUR500 million 5.25% fixed guaranteed notes due 2017. These bonds have been swapped to US$. The swaps have been accounted for as cash flow hedges with an unrealised gain of US$112 million (2006 US$nil) at 31 December 2007 (refer to note 36). | |||||||
| (d) In November 2007, the Group issued guaranteed 30 year notes of US$500 million bearing interest at a fixed rate of 6.9%. | |||||||
| (e) The guaranteed senior debentures were assumed by the Group through the acquisition of Falconbridge (refer to note 7). Pursuant to the terms of the note indentures as amended by supplemental indentures, Xstrata plc has fully and unconditionally guaranteed in favour of the holders of the senior debentures the payment, within 15 days of when due, of all financial liabilities and obligations of Xstrata Canada Incorporated to such holders under the terms of the senior debentures. | |||||||
A portion of the fixed interest rate of the Unsecured notes Senior debentures has been swapped to a floating rate. The swaps have been accounted for as fair value hedges with an unrealised gain of US$102 million (2006 US$11 million loss) at 31 December 2007 (refer to note 36). There has been no significant impact on income in 2007 or 2006 as a result of hedge ineffectiveness.
Preference shares
As at 31 December 2007, unsecured preference shares included:
| Facility | Denomination | At 31 Dec 07 US$m | Fixed or floating interest rate | Effective interest rate % in 2007 | Maturity | At 31 Dec 06 US$m | Effective interest rate % in 2006 |
|---|---|---|---|---|---|---|---|
| Preference shares series 2* | CAD | 120 | Floating | 5.88 | Jun 12 | 103 | 5.10 |
| Preference shares series 3 | CAD | 79 | Fixed | 4.58 | Mar 09 | 67 | 4.58 |
| Preference shares series H | CAD | 149 | Fixed | 6.50 | Mar 08 | 134 | 6.50 |
| 348 | 304 | ||||||
| *Holders of Preference shares series 2 have the right to convert their shares into Preference shares series 3 in March 2009, subject to certain conditions. | |||||||
The preference shares were assumed by the Group through the acquisition of Falconbridge (refer to note 7). At the acquisition date, Falconbridge had additional preference shares outstanding. The Group completed the redemption of all of the outstanding preferred shares, series F and series G and preferred shares series 1 for an aggregate cash consideration of CAD306 million (US$270 million) in November 2006. Following the completion of the preferred share redemption, the Toronto Stock Exchange halted trading in and de-listed the series F shares and the series G shares. Pursuant to the terms of a guarantee indenture, Xstrata plc has fully and unconditionally guaranteed in favour of the holders of the preference shares the payment, within 15 days of when due, of all financial liabilities and obligations of Xstrata Canada Incorporated to such holders under the terms of the preference shares. The preference shares are classified within interest bearing loans and borrowings because in the majority of cases the cumulative dividends must be paid for an indefinite period and/or the shares are transferable into a variable number of equity instruments.
Bank Loans – other unsecured
Other bank loans includes:
- Debts of proportionally consolidated joint ventures of US$139 million (2006 US$139 million) which bear interest at a rate based on LIBOR plus 175 basis points, repayable in August 2011 and US$163 million (2006 US$201 million) which bear interest at a rate based on LIBOR plus 31 basis points, repayable by December 2011;
- US$nil (2006 US$13 million) which bear interest at a rate based on LIBOR plus 85 basis points; and
- ZAR denominated borrowings of US$3 million (2006 US$4 million) that are subject to floating interest rates based on Johannesburg inter bank acceptance rate (JIBAR) with an average floating interest rate of 10.7% per annum during 2007 (2006: 9.0% per annum), repayable by January 2010.
Bank overdrafts – unsecured
Xstrata Group has bank overdrafts that are subject to local and US$ prime floating interest rates in which they have been drawn down. The majority of the bank overdrafts are denominated in Canadian and United States dollars.
Minority Interest Loans
Minority interest loans includes US$81 million (2006: US$81 million) advanced to Minera Alumbrera Limited to fund operations that is subject to a fixed rate of 7.2% per annum (2006: 7.2% per annum), repayable by May 2012.
Other Loans
Other loans includes:
- ZAR denominated loans of US$152 million (2006 US$135 million) payable to ARM Coal (refer note 7). The loan is subject to a floating rate of interest based on a dividend calculation with no fixed repayment date and is not callable within 12 months;
- US$ denominated loans of US$156 million (2006 US$nil) payable to Société Minière du Sud Pacifique for the Koniambo nickel project. The loan is subject to a floating rate of interest based on a dividend calculation with no fixed repayment date and is not payable within 12 months;
- AUD denominated loans of US$54 million (2006 US$nil) payable to Western Mining Corporation Resources International Limited and Indophil Resources Limited for the Tampakan copper project (refer note 7). The loan is subject to a fixed rate of interest of 4%, payable quarterly with no fixed repayment date and is not payable within 12 months;
- AUD denominated loans of US$167 million, assumed by the Group through the acquisition of Austral (refer to note 7), were repaid during 2007.
- ZAR denominated loans of US$43 million (2006 US$27 million) payable to Kagiso Trust Investments for the Mototolo project in South Africa (refer to note 7). The loan is subject to a floating rate of interest based on a dividend calculation with no fixed repayment date and is not payable within 12 months; and
- Loans of US$12 million and US$1 million are subject to a fixed rate of 5.0% per annum and US$11 million is interest free.
29. Convertible Borrowings
| US$m | 2007 | 2006 |
|---|---|---|
| Convertible bonds | – | 201 |
| Convertible bond | 327 | 324 |
| 327 | 525 | |
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 were guaranteed by the Company and were issued at par and bore a coupon of 3.95% per annum. On issue, they were 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. During 2006, 64.3% of the US$600 million of convertible bonds was converted by the holders (refer to note 26). Following the conversions that occurred during 2006 and rights issue in October 2006 (refer to note 26), the remaining number of ordinary shares that could be issued under the bond at 31 December 2006 was 24,516,537 and as a result of the rights issue the conversion price was adjusted to GBP5.44 (US$8.75 converted into GBP at a fixed exchange rate).
During 2007, the remainder of the bond was converted at the option of the holder. As a result of this conversion, 100% of the bond has now converted.
On 6 September 2005, Xstrata Capital Corporation AVV issued a US$375 million Convertible Debenture to Brookfield, due 14 August 2017, convertible at the option of the holder into fully paid Xstrata plc ordinary shares. The Convertible Debenture was guaranteed by the Company and was issued at par, with a coupon of 4.0% per annum. On issue it was 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. Following the rights issue in October 2006 (refer to note 26), the total number of ordinary shares that could have been converted was increased to 13,575,432 and the conversion price was adjusted to GBP15.27 (US$27.62 converted into GBP at a fixed exchange rate). On the giving of not less than 30 days notice, the Convertible Debenture could have been called by the Group at par plus accrued interest, at any time after 14 August 2010. Unless previously converted, redeemed or cancelled, the 2017 Convertible Debenture was redeemable on 14 August 2017 at its principal amount plus unpaid accrued interest. On 13 October 2006, the Convertible Debenture was cancelled and a 2017 Convertible Bond was issued to the holder of the Convertible Debenture. The terms of the Convertible Bond are consistent with those of the cancelled Convertible Debenture. On 16 October 2006, the Financial Services Authority approved the admission to the Official List by way of blocklisting of 13,575,432 ordinary shares of US$0.50 each to be issued upon conversion of the 2017 Convertible Bond. The 2017 Convertible Bond is listed on the Professional Securities Market of the London Stock Exchange.
The liability component of the Convertible Bonds is carried at amortised cost based on an effective interest rate of 5.74% per annum. There were no conversions during 2007 or 2006.
30. Derivative Financial Liabilities
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| At fair value: | ||
| Commodity cash flow hedges | 192 | 53 |
| Foreign currency cash flow hedges | – | 1 |
| Other commodity derivatives | 13 | 7 |
| Other foreign currency derivatives | – | 17 |
| 205 | 78 | |
| Non-current: | ||
| At fair value: | ||
| Commodity cash flow hedges | 58 | 50 |
| Fair value interest rate swap hedge | 6 | 26 |
| Other foreign currency derivatives | 142 | 96 |
| 206 | 172 | |
| Total | 411 | 250 |
31. Provisions
| US$m | Employee entitlements | Share-based compensation plans | Post retirement medical plans | Rehabilitation costs | Onerous contracts | Other | 2007 |
|---|---|---|---|---|---|---|---|
| At 1 January | 352 | 58 | 413 | 1,240 | 42 | 238 | 2,343 |
| Acquisitions | 15 | – | – | 8 | 69 | – | 92 |
| Arising during the year | 228 | 44 | 32 | 123 | – | 61 | 488 |
| Discount unwinding | 6 | – | – | 83 | – | 2 | 91 |
| PPE asset adjustment | – | – | – | 122 | – | – | 122 |
| Discontinued operations and disposals | (6) | – | (12) | – | – | (19) | (37) |
| Utilised | (190) | – | (27) | (75) | (12) | (86) | (390) |
| Unused amounts reversed | – | – | – | – | – | (30) | (30) |
| Translation adjustments | 9 | – | 75 | 32 | – | 3 | 119 |
| At 31 December | 414 | 102 | 481 | 1,533 | 99 | 169 | 2,798 |
| Current | 244 | – | – | 4 | – | 96 | 344 |
| Non-current | 170 | 102 | 481 | 1,529 | 99 | 73 | 2,454 |
| 414 | 102 | 481 | 1,533 | 99 | 169 | 2,798 | |
| US$m | Employee entitlements | Share-based compensation plans | Post retirement medical plans | Rehabilitation costs | Onerous contracts | Other | 2006 |
|---|---|---|---|---|---|---|---|
| At 1 January | 174 | 12 | 11 | 318 | 23 | 33 | 571 |
| Acquisitions | 111 | – | 407 | 816 | 16 | 150 | 1,500 |
| Arising during the year | 138 | 49 | 17 | 28 | – | 121 | 353 |
| Discount unwinding | – | – | – | 32 | 2 | 6 | 40 |
| PPE asset adjustment | – | – | – | 88 | – | – | 88 |
| Utilised | (74) | (3) | (1) | (49) | (2) | (67) | (196) |
| Unused amounts reversed | (8) | – | – | (12) | – | (5) | (25) |
| Translation adjustments | 11 | – | (21) | 19 | 3 | – | 12 |
| At 31 December | 352 | 58 | 413 | 1,240 | 42 | 238 | 2,343 |
| Current | 193 | – | – | 4 | – | 92 | 289 |
| Non–current | 159 | 58 | 413 | 1,236 | 42 | 146 | 2,054 |
| 352 | 58 | 413 | 1,240 | 42 | 238 | 2,343 | |
Employee entitlements
The employee entitlement provisions mainly represent 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 19). The current portion of these costs are expected to be utilised in the next 12 months and the non-current portion of these costs are expected to be utilised over a weighted average life of 8 years (2006: 9 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 34). The intrinsic value of the options that had vested at 31 December 2007 was US$86 million (2006 US$17 million).
Post retirement medical plans
The Group operates unfunded post-retirement medical benefits plans in North America and South Africa for a number of current and former employees. Independent qualified actuaries using the projected unit credit method assess the accumulated benefit obligation and annual cost of accrued benefits. The current portion of these costs are expected to be utilised in the next 12 months and the non-current portion of these costs are expected to be utilised over a weighted average life of 13 years (2006: 13 years) (refer to note 34).
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. The current portion of these costs are expected to be utilised in the next 12 months and the non-current portion of these costs are expected to be utilised over a weighted average life of 25 years (2006: 24 years) (refer to note 24).
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 provisions are expected to be utilised over a weighted average life of 7 years (2006: 12 years).
Other
Other includes provisions for litigation of US$79 million (2006 US$83 million) and restructuring of US$13 million (2006 US$32 million). The current portion of these costs are expected to be utilised in the next 12 months and the non-current portion of these costs are expected to be utilised over a weighted average life of 3 years (2006: 17 years).
32. Other Liabilities
| US$m | 2007 | 2006 |
|---|---|---|
| Current: | ||
| Deferred income | 45 | 41 |
| 45 | 41 | |
| Non-current: | ||
| Deferred income | 78 | 16 |
| 78 | 16 |
33. 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 7 years (2006: 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:
| US$m | 2007 | 2006 |
|---|---|---|
| Within 1 year | 42 | 50 |
| After 1 year but not more than 5 years | 95 | 101 |
| More than 5 years | 26 | 20 |
| 163 | 171 |
Finance lease and hire purchase commitments
The Group has entered into finance leases and hire purchase contracts for various items of plant and machinery. The majority of these leases include a residual balloon payment at the end of the lease term and title passing to the Group. Future minimum lease payments under finance leases and hire purchase contracts together with the future finance charges as at 31 December are as follows:
| Un-discounted minimum payments | Present value of minimum payments | Un-discounted minimum payments | Present value of minimum payments | |
|---|---|---|---|---|
| US$m | 2007 | 2007 | 2006 | 2006 |
| Within 1 year | 27 | 18 | 159 | 147 |
| After 1 year but not more than 5 years | 100 | 74 | 84 | 68 |
| More than 5 years | 56 | 40 | 43 | 27 |
| Total minimum lease payments | 183 | 132 | 286 | 242 |
| Less amounts representing finance lease charges | (51) | – | (44) | – |
| Present value of minimum lease payments | 132 | 132 | 242 | 242 |
Capital commitments
Amounts contracted for but not provided in the financial statements amounted to US$1,455 million (2006 US$795 million), including:
- Xstrata Coal US$170 million for the development of the Goedgevonden open cut coal mine, US$53 million for a dragline at the Wondoan project, US$53 million for the Wollombi development and US$51 million for a coal handling preparation plant upgrade at Liddell;
- Xstrata Zinc US$109 million for the development of an open cut mine at Mt Isa; and
- Xstrata Nickel US$78 million (2006 US$104 million) for the Nickel Rim South project and US$320 million (2006 US$159 million) for the Koniambo project.
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$350 million (2006 US$371 million) representing the Group’s share of the capital commitments that have been incurred jointly with other venturers. Finance leases entered into after 31 December 2007 amounted to US$nil (2006 US$nil).
Guarantees
Xstrata Coal Australia has contracted US$588 million (2006 US$697 million) for rail take or pay commitments, US$450 million (2006 US$494 million) for port take or pay commitments, performance guarantees to customers under contracts for supply of coal for US$24 million (2006 US$25 million) and guarantees to the New South Wales and Queensland Departments for Mineral Resources in respect of various mining leases and the performance thereof US$215 million (2006 US$112 million).
Xstrata Coal South Africa has issued guarantees to the Department of Minerals and Energy to obtain certain prospecting permits of US$70 million (2006 US$68 million).
Xstrata Coal’s share of the Cerrejón coal mine’s performance guarantees totals US$381 million (2006 US$343 million). These guarantees have been provided to various government agencies to enable the coal mine to freely export coal, receive tax exemptions, and to access a special imports system.
Xstrata Alloys has issued a guarantee in respect of the obligations of Merafe under a US$33 million (2006 US$43 million) facility in connection with the acquisition of certain assets and resources relating to the Pooling and Sharing Venture (PSV) and the Project Lion ferrochrome expansion project to be undertaken by the PSV. Any payments to be made under the guarantee are secured by the Group’s ability to acquire Merafe’s PSV 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$53 million (2006 US$27 million) and guarantees to the Queensland Departments for Mineral Resources and other government agencies in respect of various mining leases and the performance thereof, environmental bonds and self insurance licences US$105 million (2006 US$133 million).
Xstrata Nickel has issued guarantees for energy contracts of US$153 million (2006 US$96 million).
Xstrata Zinc has issued performance guarantees to the Northern Territory government for an electricity supply and pipeline agreement of US$32 million (2006 US$29 million) and has provided bank guarantees to the Northern Territory government for rehabilitation costs of US$49 million (2006 US$41 million). Xstrata Zinc has issued bank guarantees in Spain of US$107 million (2006 US$55 million).
A letter of credit of US$205 million (2006 US$172 million) has been given for the pension liabilities of the Group’s Canadian operations. Letters of credit have been issued to the Canadian government for rehabilitation costs of US$38 million (2006 US$33 million).
Included in the above is US$1,730 million (2006 US$1,609 million) representing the Group’s share of guarantees that have been incurred jointly with other venturers.
34. Employee Benefits
Share-based Payments
The expense recognised for share-based payments during the year is shown in the following table:
| US$m | 2007 | 2006 |
|---|---|---|
| Expense arising from equity settled transactions | 59 | 42 |
| Expense arising from cash settled transactions | 44 | 49 |
| Total expense arising from share-based payment transactions | 103 | 91 |
The Group operates a number of share option plans which are outlined below. There have been no cancellations or modifications to any of the plans during 2007 or 2006.
Xstrata plc Long Term Incentive Plan (LTIP)
The LTIP has two elements:
- 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
- An 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.
All LTIP awards that vest are subject to the satisfaction of certain performance criteria being met over a three-year performance period. The 2003 LTIP awards are only subject to the Total Shareholder Return (TSR) performance criteria. Half of the options and free share awards granted in 2004 and 2005 are conditional on TSR relative to a peer group, with the remainder conditional on the Group’s real cost savings relative to targets set on a stretching scale over the three-year period. The allocation of performance criteria pertaining to the options and free share awards granted in 2006 and 2007 is summarised in the following table:
| Award | Employees | Number | % TSR | % cost savings | TSR | Cost savings |
|---|---|---|---|---|---|---|
| 2007: | ||||||
| Options | Corporate | 1,140,952 | 50% | 50% | 570,476 | 570,476 |
| Business units | 2,117,638 | 25% | 75% | 529,410 | 1,588,228 | |
| 3,258,590 | 1,099,886 | 2,158,704 | ||||
| Free shares | Corporate | 342,286 | 50% | 50% | 171,143 | 171,143 |
| Business units | 635,287 | 25% | 75% | 158,822 | 476,465 | |
| 977,573 | 329,965 | 647,608 | ||||
| 2006: | ||||||
| Options | Corporate | 1,048,144 | 50% | 50% | 524,072 | 524,072 |
| Business units | 1,764,060 | 25% | 75% | 441,015 | 1,323,045 | |
| 2,812,204 | 965,087 | 1,847,117 | ||||
| Free shares | Corporate | 314,444 | 50% | 50% | 157,222 | 157,222 |
| Business units | 538,092 | 25% | 75% | 134,523 | 403,569 | |
| 852,536 | 291,745 | 560,791 |
For the awards conditional on TSR, one-half of the award will vest if TSR growth is at the median of the specified peer group, the full 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 awards where vesting is conditional on the Group’s real cost savings relative to targets set on a stretching scale: 10% of the award will vest for 1% cost savings, 70% for 2% cost savings and all awards 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 are 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. No other features of the LTIP awards are incorporated into the measurement of fair value.
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 is based on the closing market price of an ordinary share seven trading days prior to the date of grant.
Of the below options, 2.0 million (2006: 1.9 million) are accounted for as cash-settled share-based awards whilst the remainder of the LTIP awards are equity-settled. The movement in the number of free ordinary shares and share options is as follows:
Free Shares
| 2007 No | 2007 WAEP | 2006 No | 2006 WAEP | |
|---|---|---|---|---|
| Outstanding as at 1 January | 4,129,365 1 | NA | 3,675,667 1 | NA |
| Granted during the year | 977,573 | NA | 852,536 | NA |
| Granted through rights issue | – | NA | 436,838 2 | NA |
| Forfeited during the year | (54,491) | NA | (121,974) | NA |
| Exercised during the year | (1,804,700)4 | NA | (675,586)3 | NA |
| Expired during the year | – | NA | (38,116) | NA |
| Outstanding as at 31 December | 3,247,747 | NA | 4,129,365 | NA |
| Exercisable at 31 December | – | NA | – | NA |
| 1 All shares included in this balance have been accounted for in accordance with IFRS 2 Share-based Payments. | ||||
| 2 These awards were issued as a result of the rights issue in October 2006 (refer to note 26). | ||||
| 3 The weighted average share price at the date of exercise of these awards was GBP17.56. | ||||
| 4 The weighted average share price at the date of exercise of these awards was GBP23.63. | ||||
The weighted average remaining contractual life for the free shares outstanding as at 31 December 2007 is 8.1 years (2006: 8.0 years). The weighted average fair value of free shares granted during the year was US$38.23 (2006 US$22.25).
Share Options
| 2007 No | 2007 WAEP | 2006 No | 2006 WAEP | |
|---|---|---|---|---|
| Outstanding as at 1 January | 14,450,730 | GBP9.26 | 12,191,118 | GBP7.82 |
| Granted during the year | 3,258,590 | GBP24.00 | 2,812,204 | GBP16.15 |
| Granted through rights issue | – | – | 1,531,063 1 | GBP9.25 |
| Forfeited during the year | (182,323) | GBP13.21 | (406,582) | GBP9.99 |
| Exercised during the year | (4,332,000)2 | GBP6.49 | (1,559,147)3 | GBP3.57 |
| Expired during the year | – | – | (117,926) | GBP3.53 |
| Outstanding as at 31 December | 13,194,997 4 | GBP13.73 | 14,450,730 5 | GBP9.26 |
| Exercisable at 31 December | 2,402,460 | GBP5.89 | 637,630 | GBP3.22 |
| 1 These awards were issued as a result of the rights issue in October 2006 (refer to note 26). | ||||
| 2 The weighted average share price at the date of exercise of these options was GBP25.58. | ||||
| 3 The weighted average share price at the date of exercise of these options was GBP17.75. | ||||
| 4 All the share options included in this balance have been accounted for in accordance with IFRS 2 Share-based Payments, except for 65,708 options issued in 2002. | ||||
| 5 All shares included in this balance have been accounted for in accordance with IFRS 2 Share-based Payments. except for 81,013 options issued in 2002. | ||||
The weighted average remaining contractual life for the share options outstanding as at 31 December 2007: 7.7 years (2006 7.9 years). The weighted average fair value of options granted during the year was US$13.93 (2006 US$7.72). The range of exercise prices for options outstanding at the end of the year was GBP3.22 to GBP24.00 (2006 GBP3.22 to GBP15.37). The following table lists the inputs to the models used to measure the fair value of equity settled awards granted:
| Date of grant 2007 | Date of grant 2006 | |
|---|---|---|
| Dividend yield (%) | 1.5 | 1.3 |
| Expected volatility (%) | 35 | 31 |
| Risk-free interest rate (%) | 5.1 | 4.4 |
| Earliest exercise date | 15 Mar 2010 | 10 Mar 2009 |
| Latest exercise date | 14 Mar 2017 | 09 Mar 2016 |
| Expected exercise date | 27 Nov 2010 | 17 Nov 2009 |
| Share price at date of grant (GBP) | 24.25 | 17.03 |
| Exercise price (GBP) | 24.00 | 17.17 |
| Free share fair value at date of grant (GBP) | 19.73 | 16.38 |
| Option fair value at date of grant (GBP) | 6.74 | 4.49 |
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.
Both the free shares and the equity settled options are equity settled plans and the fair value is measured at the date of grant. The fair value of the cash settled options is measured at the date of grant and at each reporting date until the liability is settled, using the Black-Scholes option pricing model, taking into account the terms and conditions of the award.
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 had 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 were no other conditions attaching to these options and they could be cash-settled by the holder. No further options were granted under this incentive plan. All of the options below were accounted for as cash-settled share-based awards. The movement in the number of share options are as follows:
| 2007 No | 2007 WAEP | 2006 No | 2006 WAEP | |
|---|---|---|---|---|
| Outstanding as at 1 January | 14,320 1 | CHF13.41 | 173,331 1 | CHF27.63 |
| Granted through rights issue | – | – | 1,502 2 | CHF13.41 |
| Exercised during the year | (14,320)4 | CHF13.41 | (147,846)3 | CHF25.64 |
| Expired during the year | – | – | (12,667) | CHF25.64 |
| Outstanding as at 31 December | – | – | 14,320 | CHF13.41 |
| Exercisable at 31 December | – | – | 14,320 | CHF13.41 |
| 1 All shares included in this balance have been accounted for in accordance with IFRS 2 Share-based Payments. | ||||
| 2 These awards were issued as a result of the rights issue in October 2006 (refer to note 26). | ||||
| 3 The weighted average share price at the date of exercise of these options was CHF35.89. | ||||
| 4 The weighted average share price at the date of exercise of these options was CHF56.96. | ||||
The weighted average remaining contractual life for the share options outstanding as at 31 December 2006 was 0.1 years.
No new shares were granted during the year.
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 is the share price at the date of granting of the share options. The final scheme vested in January 2007 and each scheme has an exercise period of seven years. 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:
| 2007 No | 2007 WAEP | 2006 No | 2006 WAEP | |
|---|---|---|---|---|
| Outstanding as at 1 January | 1,242,492 | GBP4.36 | 1,334,580 | GBP4.75 |
| Granted through rights issue | – | – | 156,413 1 | GBP3.69 |
| Exercised during the year | (100,000)3 | GBP5.68 | (248,501)2 | GBP3.69 |
| Outstanding as at 31 December | 1,142,492 | GBP4.25 | 1,242,492 | GBP4.36 |
| Exercisable at 31 December | 1,142,492 | GBP4.25 | 993,994 | GBP4.03 |
| 1 These awards were issued as a result of the rights issue in October 2006 (refer to note 26). | ||||
| 2 The weighted average share price at the date of exercise of these options was GBP24.53. | ||||
| 3 The weighted average share price at the date of exercise of these options was GBP27.62. | ||||
The above share options have not been accounted for in accordance with IFRS 2 Share-based Payments as the options were granted on or before 7 November 2002 and have not been subsequently modified.
The weighted average remaining contractual life for the share options outstanding as at 31 December 2007 is 5.4 years (2006: 6.4 years).
No new shares were granted during the year.
The range of exercise prices for options outstanding at the end of the year was GBP3.84 to GBP5.68 (2006 GBP3.84 to GBP5.68).
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 had 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 were no other conditions attaching to these options and they could be cash-settled by the holder. All of the options below were 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:
| 2007 No | 2007 WAEP | 2006 No | 2006 WAEP | |
|---|---|---|---|---|
| Outstanding as at 1 January | – | – | 15,231 | CHF28.64 |
| Expired during the year | – | – | (15,231) | CHF28.64 |
| Outstanding as at 31 December | – | – | – | – |
| Exercisable at 31 December | – | – | – | – |
Deferred Bonus
As detailed within the Directors’ Remuneration Report on pages 121 to 135, the maximum bonus payable under the Bonus Plan for executive directors and the 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 following deferred bonus awards have been made:
| 2007 | 2006 | 2005 | ||
|---|---|---|---|---|
| Market value of deferred bonus award (US$m) | 16 | 13 | 7 | |
| Number of shares purchased | –* | 291,585 | 258,242 | |
| *At the date of signing the financial statements, the shares were yet to be purchased in the market. – | ||||
| – | ||||
Added Value Plan (AVP)
The first cycle of the AVP began on 9 May 2005, the second began on 10 March 2006 and the third on 15 March 2007. A description of the performance requirements and the vesting schedule of the plan are detailed within the Directors’ Remuneration Report on pages 121 to 135.
The fair value of the 2007 equity-settled share-based payment under IFRS 2 was US$19 million, estimated at 15 March 2007, using a Monte Carlo simulation model to incorporate the market-based features of the plan. The equivalent valuation of the 2006 award was US$7 million (2005 US$7 million), estimated using a Monte Carlo simulation model.
For the 2007 plan cycle, the market capitalisation on 15 March 2007 was US$45.2 billion, the Participation Percentage was equal to 0.3% and the share price at the measurement date was US$46.77. For the 2006 plan cycle, the market capitalisation on 10 March 2006 was US$18.6 billion, the Participation Percentage was equal to 0.3% and the share price at the measurement date was US$29.39. For the 2005 plan cycle, the market capitalisation on 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$18.00.
The following table lists the inputs to the models used to measure the fair value of the AVP award granted:
| 2007 | 2006 | |||
|---|---|---|---|---|
| Xstrata plc | Xstrata share Indices1 | Xstrata plc | Xstrata share Indices1 | |
| Dividend yield (%) | N/A | N/A2 | N/A | N/A2 |
| Expected volatility (%) | 38 | 25 | 30 | 21 |
| Risk-free interest rate (%) | 5.2 | 5.2 | 4.4 | 4.4 |
| Third anniversary of start of cycle | 15 March 2010 | 15 March 2010 | 10 March 2009 | 10 March 2009 |
| Fourth anniversary of start of cycle | 15 March 2011 | 15 March 2011 | 10 March 2010 | 10 March 2010 |
| Fifth anniversary of start of cycle | 15 March 2012 | 15 March 2012 | 10 March 2011 | 10 March 2011 |
| 1 There are two Xstrata share indices used within the valuation model; one is a market capitalisation weighted TSR index comprising 15 global mining firms (2006: 18 global mining firms) who are considered to be Xstrata’s key competitors for both financial and human capital. The other is a market capitalisation price index comprising the same global mining firm constituents. | ||||
| 2 When simulating the Xstrata price i ndex, a dividend yield is included to account for the suppressing impact that a dividend payment has on the constituent share prices. A yield of 2.5% (2006: 3.0%) has been used. For the simulation of Xstrata’s TSR and the Index TSR a dividend yield is not required. | ||||
The expected volatility reflects the assumption that the historic volatility is indicative of future trends, which may also not necessarily be the actual outcome. There is no disclosure of the number of equity instruments granted as the AVP is not an award over a fixed number of shares.
Pensions and Other Post-employment Benefit Plans
The net expense recognised in the income statement for the year ended 31 December:
| US$m | 2007 | 2006 |
|---|---|---|
| Defined benefit pension plans | 14 | 14 |
| Defined contribution pension plans | 149 | 81 |
| Post-retirement medical plans | 32 | 17 |
| 195 | 112 |
Defined Contribution Pension Plans
The Group participates in a number of defined contribution pension plans and industry-wide schemes covering the majority of its employees. The assets are held separately from those of the Group and are generally invested with insurance companies and regulated by local legislation.
Post-retirement Medical Plans
The Group participates in a number of post-retirement medical benefits. All material post-retirement medical benefit liabilities are in North America. Independent qualified actuaries assess the accumulated benefit obligation and annual cost of accrued benefits using the projected unit credit method. The actuaries have updated the valuations to 31 December 2007.
Defined Benefit Pension Plans
The Group contributes to defined benefit pension plans for a number of its employees. 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 2007.
All significant pension assets and liabilities are in North America.
The following tables summarise the components of the net expense recognised in cost of sales in the income statement and the funded status and amounts recognised in the 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:
| Pension plans 2007 | Post- retirement medical plans 2007 | Pension plans 2006 | Post- retirement medical plans | |
|---|---|---|---|---|
| Rate of salary increases | 3.8% | – | 3.8% | – |
| Rate of pension increases | 3.2% | – | 2.9% | – |
| Expected rate of return on plan assets: | ||||
| Equities | 9.1% | – | 9.0% | – |
| Bonds | 4.6% | – | 4.6% | – |
| Total | 6.9% | – | 6.9% | – |
| Discount rate | 5.6% | 5.7% | 5.2% | 5.3% |
| Inflation rate | 2.5% | 2.6% | 2.9% | 2.5% |
| Rate of medical cost increases | – | 9.0% | – | 9.0% |
A one percentage point change in the assumed rate of increase in healthcare costs would have the following impact:
| US$m | Increase 2007 | Decrease 2007 | Increase 2006 | Decrease 2006 |
|---|---|---|---|---|
| Effect on the current service cost and interest cost | 6 | 5 | 2 | (2) |
| Effect on the defined benefit obligation | 57 | 47 | 40 | (39) |
The pension plan mortality rate used at 31 December 2007 and 31 December 2006 was UP-94 for North American pension and post-retirement medical plans. These rates refer to published projected mortality tables by actuarial bodies in North America and take into account the assumed increases in the life expectancy and are calculated for both current and future pensioners. There are no significant differences in these rates between schemes. The average life expectancy in the medical plans was 82 years as at 31 December 2007 (2006: 82 years).
The assets and liabilities of the schemes and the amounts recognised in the Group balance sheet at 31 December are as follows:
| US$m | Pension plans 2007 | Post- retirement medical plans 2007 | Pension plans 2006 | Post- retirement medical plans |
|---|---|---|---|---|
| Present value of benefit obligations | 2,717 | 481 | 2,604 | 413 |
| Assets at fair value | (2,495) | – | (2,393) | – |
| Net liability | 222 | 481 | 211 | 413 |
| Net liability as at 31 December represented by: | ||||
| Pension deficits/provisions | 227 | 481 | 216 | 413 |
| Pension assets | (5) | – | (5) | – |
| Net liability | 222 | 481 | 211 | 413 |
Historical adjustments are as follows:
| US$m | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|
| Defined benefit obligation | 2,717 | 2,604 | 106 | 110 |
| Plan assets | (2,495) | (2,393) | (85) | (85) |
| Net deficit | 222 | 211 | 21 | 25 |
| Experience (gain)/loss adjustments on plan liabilities | 69 | (4) | (8) | (1) |
| Experience (gain)/loss adjustments on plan assets | 126 | (96) | (4) | 1 |
The reconciliation of the net liability movement during the year in the net pension and post-retirement medical plan liability (before allowance of deferred tax) are as follows:
| Pension plans 2007 | Post- retirement medical plans 2007 | Pension plans 2006 | Post- retirement medical plans | |
|---|---|---|---|---|
| Net liability as at 1 January | 211 | 413 | 21 | 11 |
| Acquisition accounting adjustment* | – | – | 311 | 407 |
| Discontinued operations and disposals | (19) | (12) | – | – |
| Total benefit expense | 14 | 32 | 14 | 17 |
| Actuarial (gains)/losses | 104 | (6) | (74) | 3 |
| Employer contributions | (116) | (21) | (61) | (4) |
| Translation adjustments | 28 | 75 | – | (21) |
| Net liability as at 31 December | 222 | 481 | 211 | 413 |
| *Relates to adjustments made in respect of the acquisition of Falconbridge Limited in August 2006. | ||||
Contributions of US$24 million in 2008, US$29 million in 2009, US$17 million in 2010, US$16 million in 2011 and US$4 million in 2012 are being made in order to eliminate the deficiency in the North America plans. The total contributions to the defined benefit pension plans in 2008 including these further contributions are US$73 million.
The components of benefit (income)/expense recognised in the income statement during the year are as follows:
| Pension plans 2007 | Post- retirement medical plans 2007 | Pension plans 2006 | Post- retirement medical plans | |
|---|---|---|---|---|
| Service cost | 43 | 9 | 22 | 5 |
| Interest cost | 133 | 23 | 48 | 9 |
| Expected return on plan assets (net of expected expenses) | (162) | – | (56) | (1) |
| Gains on settlements and curtailments | – | – | – | 4 |
| 14 | 32 | 14 | 17 |
The components of actuarial (gains)/losses recognised in the Consolidated Statement of Recognised Income and Expenses during the year are as follows:
| Pension plans 2007 | Post- retirement medical plans 2007 | Pension plans 2006 | Post- retirement medical plans | |
|---|---|---|---|---|
| Expected return on plan assets (net of expected expenses) | 162 | – | 56 | 1 |
| Actual return on plan assets | (36) | – | (152) | (3) |
| Actual return less expected return on plan assets | 126 | – | (96) | (2) |
| Actuarial (gain)/loss on obligations | 69 | (12) | (4) | – |
| Change of assumptions | (91) | 6 | 26 | 5 |
| 104 | (6) | (74) | 3 |
The cumulative amount of net actuarial losses recognised in the statement of recognised income and expenses is US$38 million (2006 gain US$60 million).
The reconciliation of the present value of benefit obligations and fair value of plan asset movements during the year are as follows:
| Pension plans 2007 | Post- retirement medical plans 2007 | Pension plans 2006 | Post- retirement medical plans | |
|---|---|---|---|---|
| Benefit obligation present value as at 1 January | 2,604 | 413 | 106 | 11 |
| Acquisition accounting adjustment | – | – | 2,565 | 439 |
| Discontinued operations and disposals | (255) | (12) | – | – |
| Current service cost | 43 | 9 | 22 | 5 |
| Interest cost | 133 | 23 | 48 | 9 |
| Employee contributions | 1 | – | 1 | – |
| Actuarial (gains)/losses | 69 | (12) | (4) | – |
| Actual benefit payments | (165) | (21) | (59) | (10) |
| Settlements and curtailments | – | – | – | (28) |
| Loss on settlements and curtailments | – | – | – | 4 |
| Change of assumptions | (91) | 6 | 26 | 5 |
| Translation adjustments | 378 | 75 | (101) | (22) |
| Benefit obligation present value as at 31 December | 2,717 | 481 | 2,604 | 413 |
| Plan assets fair value as at 1 January | 2,393 | – | 85 | – |
| Acquisition accounting adjustment | – | – | 2,254 | 32 |
| Discontinued operations and disposals | (236) | – | – | – |
| Actual return on plan assets | 36 | – | 152 | 3 |
| Company contributions | 116 | – | 61 | 4 |
| Employee contributions | 1 | – | 1 | – |
| Benefits paid from fund | (165) | – | (59) | (10) |
| Settlements and curtailments | – | – | – | (28) |
| Translation adjustments | 350 | – | (101) | (1) |
| Plan assets fair value as at 31 December | 2,495 | – | 2,393 | – |
| Net liability as at 31 December | 222 | 481 | 211 | 413 |
| Net liability as at 1 January | 211 | 413 | 21 | 11 |
The defined benefit obligation present value included above for unfunded pension plans at 31 December 2007 was US$5 million (2006 US$5 million).
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
| Pension plans 2007 | Pension plans 2006 | |
|---|---|---|
| Equities | 49% | 52% |
| Bonds | 49% | 48% |
| Other | 2% | –% |
Included in equities is US$nil (2006 US$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.
35. Related Parties
| Name | Country of incorporation | Principal activities | % of ordinary shares held & voting rights |
|---|---|---|---|
Principal Subsidiaries | |||
| Xstrata Coal | |||
| Abelshore Pty Limited | Australia | Coal operations | 100% |
| Austral Coal Limited | Australia | Coal operations | 100% |
| AZSA Holdings Pty Limited | Australia | Coal operations | 100% |
| Cook Resources Mining Pty Limited | Australia | Coal operations | 100% |
| 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 Australia Pty Limited | Holding company | 100% | |
| Xstrata Coal Queensland Pty Limited | Australia | Coal operations | 100% |
| Xstrata Energy Pty Limited | Australia | Holding company | 100% |
| Xstrata Mangoola Pty Limited | Australia | Coal Project | 100% |
| Xstrata Newpac Pty Limited | Australia | Investment company | 100% |
| Xstrata Coal Canada Limited | Canada | Investment company | 100% |
| Xstrata Coal South America Limited | Bermuda | Holding company | 100% |
| Tironimus AG | Switzerland | Holding company | 100% |
| Tavistock Collieries (Pty) Ltd | South Africa | Coal operations | 100% |
| Xstrata Coal Marketing AG | Switzerland | Marketing and Trading | 100% |
| Xstrata Alloys | |||
| Xstrata South Africa (Pty) Ltd | South Africa | Holding company, Coal, Chrome, | 100% |
| Platinum and Vanadium operations | |||
| Eland Platinum Holdings Ltd | South Africa | Platinum operation | 74% |
| 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 South America Limited | Cayman | Holding company | 100% |
| Xstrata Tintaya S.A. | Peru | Holding company | 100% |
| Compania Minera Xstrata Lomas Bayas | Chile | Copper operations | 100% |
| Xstrata Inversiones Chile Limitada | Chile | Holding company | 100% |
| Xstrata Copper Chile S.A. | Chile | Copper smelter | 100% |
| Xstrata Commodities Middle East DMCC†† | Marketing | 100% | |
| Xstrata Recycling Inc. | USA | Copper recycling | 100% |
| Xstrata Nickel | |||
| Xstrata International (Investments) Limited | Bermuda | Holding company | 100% |
| Xstrata Nickel International Limited | Barbados | Nickel feeds acquisition | 100% |
| Falconbridge Dominicana C por A | Dom. Republic | Ferronickel operation | 85% |
| Xstrata Nickel U.S. Inc. | U.S.A. | Nickel marketing | 100% |
| Xstrata Nickel Marketing S.A. | Belgium | Nickel marketing | 100% |
| Falconbridge Nikkelverk Aktieselskap AS | Norway | Nickel refinery | 100% |
| Xstrata Nickel International S.A. | Belgium | Nickel procurement agent | 100% |
| Xstrata Brasil Exploracao Mineral Ltda | Brazil | Exploration | 100% |
| Koniambo Nickel SAS** | New Caledonia | Ferronickel Project | 49% |
| 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 | Technology operations | 100% | |
| Other | |||
| Xstrata (Schweiz) AG*** | Switzerland | Holding company | 100% |
| Xstrata Capital Corporation AVV† | Aruba | Finance company | 100% |
| Xstrata Finance (Dubai) Limited†† | UAE | Finance company | 100% |
| Xstrata Holdings Pty Ltd | Australia | Holding company | 100% |
| Xstrata Queensland Limited | Australia | Holding company | 100% |
| Falconbridge Limited | Canada | Copper, Nickel and | 100% |
| Zinc operations | |||
| Xstrata Finance (Canada) Limited | Canada | Finance company | 100% |
| Noranda Finance Inc. | USA | Finance company | 100% |
| Xstrata Canada Inc. | Canada | Holding company | 100% |
| Alberta Limited | Canada | Holding company | 100% |
| Name | Principal place of operations/ country of incorporation | Principal activities | Effective |
|---|---|---|---|
Principal Joint Ventures | |||
| Xstrata Coal | |||
| Bulga Joint Venture | Australia | Coal operations | 87.5% |
| Cumnock Coal Joint Venture | Australia | Coal operations | 90% |
| Douglas Tavistock Joint Venture | South Africa | Coal operations | 12.8% |
| Goedgevonden Joint Venture | South Africa | Coal operations | 74% |
| Foybrook Joint Venture | Australia | Coal operations | 67.5% |
| Liddell Joint Venture | Australia | Coal operations | 67.5% |
| Macquarie Coal Joint Venture | Australia | Coal operations | 80% |
| 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% |
| Ulan Coal Mines Joint Venture | Australia | Coal operations | 90% |
| United Joint Venture | Australia | Coal operations | 95% |
| ARM Coal (Pty) Limited | South Africa | Coal operations | 49% |
| CMC Coal Marketing Company Ltd | Ireland | Marketing and Trading | 33.33% |
| Carbones De Cerrejón LLC | Anguilla | Coal operations | 33.33% |
| Cerrejón Zona Norte SA | Colombia | Coal operations | 33.33% |
| Xstrata Alloys | |||
| Merafe Pooling and Sharing Venture | South Africa | Chrome operations | 79.5% |
| Mototolo Joint Venture | South Africa | Platinum operations | 37% |
| Xstrata Copper | |||
| Antamina Joint Venture | Peru | Copper and Zinc operations | 33.75% |
| Collahuasi Joint Venture | Chile | Copper operations | 44% |
| Xstrata Nickel | |||
| Kabanga Joint Venture | Tanzania | Nickel project | 50% |
| Xstrata Zinc | |||
| Lady Loretta | Australia | Zinc project | 75% |
| Lennard Shelf | Australia | Zinc operations | 50% |
Principal Associates | |||
| Xstrata Coal | |||
| Newcastle Coal Shippers Pty Ltd | Australia | Coal terminal | 37.1% |
| Port Kembla Coal Terminal Limited | Australia | Coal terminal | 40.0% |
| Richards Bay Coal Terminal Company Ltd | South Africa | Coal terminal | 20.9% |
| Xstrata Zinc | |||
| Noranda Income Fund | Canada | Zinc refinery | 25% |
| *This investment is treated as a subsidiary as the Group is entitled to 2 of the 4 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 4 board positions, however in a limited number of situations the vote must be unanimous, including transactions with related parties. | |||
| **The Group has de facto control of Koniambo Nickel SAS as a result of its industry expertise and the ability to control the operating and financing decisions of the Joint Venture. | |||
| ***Directly held by the parent company. | |||
| †40% held by the parent company. | |||
| ††90% 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:
| US$m | Sales** | Purchases | Treatment & refining charges | Treatment & refining revenue | Agency & other charges | Interest & other revenue | Amounts payable | Amounts receivable |
|---|---|---|---|---|---|---|---|---|
| Glencore International AG* | ||||||||
| 2007 | 8,713 | 1,217 | 90 | 26 | 79 | 2 | 240 | 467 |
| 2006 | 3,703 | 940 | 258 | 8 | 63 | – | 37 | 317 |
| Joint venture entities | ||||||||
| 2007 | – | 427 | – | – | – | 8 | 360 | 329 |
| 2006 | – | 100 | – | – | – | 1 | 224 | 426 |
| Associates | ||||||||
| 2007 | 792 | – | 202 | – | 12 | 3 | 2 | 20 |
| 2006 | 362 | – | 58 | – | 14 | – | 1 | 166 |
| *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 International AG (Glencore) are US$484 million (2006 US$651 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 19) and in Trade and other payables (refer to note 27), are unsecured and will be settled in cash.
Glencore International AG – Substantial shareholder
As at 31 December 2007, Glencore owned 34.7% (2006: 35.7%) of the issued share capital of the Company representing 336,801,333 ordinary shares (2006: 336,801,333 ordinary shares).
On 30 October 2006, 235,787,596 ordinary shares were issued under a rights issue which was structured as an issue of 1 new ordinary share at a price of GBP12.65 per share for every 3 existing ordinary shares held. Glencore was paid an underwriting fee of US$35 million for the ordinary shares they subscribed to (refer to note 26).
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 certain administrative tasks it performs for Xstrata Alloys.
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 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.
Vanadium
In December 1997, the Group, entered into a 20-year marketing agreement with Glencore in respect of Rhovan’s and Vantech’s (closed in 2004) 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 Alloys prior to effecting the sale. Xstrata Alloys 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 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 the 3.5% agency fees described above in respect of such sales.
Vanadium pentoxide and ferrovanadium sold into the US and 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 and consequently, 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 Xstrata Coal’s share of production from the Cerrejón thermal coal operation in Colombia). The fee payable to Glencore is US$0.50 per attributable tonne of coal exported by the Group from Australia or South Africa. The first five-year fee review has not yet been finalised and both parties currently operating under the original terms of the agreement. 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.
In 2007 the Group entered into market standard forward commodity price derivatives for 60,000 tonnes with Glencore as counterparty. During the year ended 31 December 2007, there were no tonnes delivered (2006: 1,065,000 tonnes at an average FOB price of US$56.31 per tonne). At 31 December 2007, 60,000 tonnes (2006 nil tonnes) were contracted with Glencore for delivery in 2008. These derivatives are on arm’s length terms and conditions and are included within derivative financial assets and liabilities (refer to notes 23, 30 and 36).
During the year ended 31 December 2007, 256,733 tonnes were borrowed from Glencore (2006: 452,489 tonnes) and 281,328 tonnes were transferred back to Glencore (2006: 507,970 tonnes) with 206,206 tonnes owed to Glencore at 31 December 2007 (2006: 224,801 tonnes) on arm’s length terms and conditions.
In 2006 the Group entered into a three-year fuel supply agreement with Glencore to supply diesel fuels to coal mines in New South Wales and Queensland. Under this supply agreement US$69 million (2006 US$47 million) worth of fuel was delivered during the year ended 31 December 2007. The supply agreement is on arm’s length terms and prices change monthly according to the world market price per barrel (US$/BBL).
In 2005 Cerrejón entered into a four-year fuel supply agreement with Glencore to supply diesel fuels. The Group’s share of the fuel purchases for the year ended 31 December 2007 was US$48 million (2006 US$43 million). The supply agreement is on arm’s length terms and prices change for each shipment according to the world market price per barrel (US$/BBL).
All coal purchases and sales with Glencore are on arm’s length terms and conditions.
On 20 April 2006, the Group acquired a 331/3% interest in the Cerrejón thermal coal operation in Colombia for a cash consideration of US$1,719 million from Glencore (refer to note 7).
Zinc
During 2006, Xstrata Zinc renewed a service agreement for a period of two years 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 US$2 million per annum.
Xstrata Zinc entered into an “evergreen” agreement with Glencore in 2004 to purchase 380,000 dmt (2006: 380,000 dmt) per annum of zinc concentrate. Treatment charges in respect of such purchases are negotiated annually on arm’s length terms and conditions.
In 2007, Xstrata Zinc (San Juan de Nieva and Nordenham) agreed to supply Glencore with 217,500 tonnes (2006: 220,000 tonnes) of SHG zinc slabs or CGG ingots during 2007 based on market FOB/CPT prices plus the respective market premium.
In 2007 Xstrata Zinc (McArthur River) supplied Glencore with 262,400 wmt of zinc concentrate (2006: 262,400 wmt) and has an agreement to supply this amount each year until 31 December 2009, after which it will become “evergreen” in nature. Treatment charges are negotiated annually on arm’s length terms and conditions.
Xstrata Zinc (Mt Isa) has two agreements with Glencore for the supply of zinc concentrate from 2006 to 31 December 2008 after which they will become “evergreen” in nature. The first agreement is to supply 90,000 wmt per annum. The second agreement is to supply 80,000 wmt to 100,000 wmt per annum 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 on arm’s length terms and conditions.
Xstrata Zinc Canada had an agreement to supply Glencore with 1,000 tonnes per month (2006: 1,000 tonnes per month), of SHG zinc slabs and Jumbos based on market delivery duty paid plus the respective market premium during 2007. During 2007 there were spot SHG zinc slabs and Jumbo sales for 12,159 tonnes (2006: 500 tonnes). In 2007, 9,596 tonnes (2006 nil tonnes) of lead concentrate was sold on arm’s length terms and condition.
All purchase and sales transactions with Glencore are on arm’s length terms and conditions.
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. The sales terms for the copper cathode are the LME price plus a range of premiums 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 comprise both an annual benchmark and spot component. North Queensland on occasions sells by-products to Glencore and purchases concentrate from Glencore at prevailing spot market terms.
Xstrata Copper (Minera Alumbrera Limited) has entered into a frame contract with Glencore on an “evergreen” basis. The sales terms for the copper concentrate are negotiated annually on arm’s length terms and conditions. Minera Alumbrera Limited also has a fixed term contract for the sale of copper concentrate to Glencore from 2004 to 2007. The sales terms were fixed at arm’s length terms at the time the agreement was entered into. Minera Alumbrera Limited on occasions sells concentrate to Glencore at prevailing spot market prices. Minera Alumbrera Limited on occasions also sells concentrate to Glencore under swap arrangements at prevailing market prices.
Copper concentrate purchase and sale agreements were entered into between Xstrata Copper Canada and Glencore for the period 1 January to 31 December 2007, at prevailing spot market conditions. Copper cathode sales agreements were entered into between Xstrata Copper Canada and Glencore for the period 1 January to 31 December 2007. All sales are based on either spot or benchmark terms in accordance with prevailing market conditions.
Copper concentrate purchase agreements were entered into between Xstrata Copper North Chile and Glencore for a four year frame contract commencing 1 January 2007. All purchases are based on either spot or benchmark terms in accordance with prevailing market conditions. Copper cathode sales agreements were entered into between Xstrata Copper North Chile and Glencore for the period 1 January to 31 December 2007. All sales are based on either spot or benchmark terms in accordance with prevailing market conditions.
Copper concentrate sales agreements were entered into between Xstrata Copper Tintaya and Glencore for the period 1 January to 31 December 2007. All sales are based on either spot or benchmark terms in accordance with prevailing market conditions.
Sales agreements were also entered into between Xstrata Commodities Middle East and Glencore on copper cathode, for the period 1 January to 31 December 2007, and copper concentrates, for a three-year frame contract starting 1 January 2007. All sales are based on either spot or benchmark terms in accordance with prevailing market conditions.
All sales transactions with Glencore are on arm’s length terms and conditions.
Nickel
In March 2007 Xstrata Nickel entered into sole distributorship agreements with Glencore, for its nickel, cobalt and ferronickel production. These agreements continue until 31 December 2012 and are automatically renewed for successive three-year periods unless terminated by either party with not less than 12 months’ notice prior to the end of the original term or any renewal terms, or unless Xstrata Nickel permanently ceases production of these metals. Xstrata Nickel, at its sole discretion, may cease, suspend or reduce production at any time. Glencore is obliged to distribute the products with all due care and diligence and shall cultivate and maintain good relations with purchasers and potential purchasers in accordance with sound commercial principles and taking into account Xstrata Nickel’s business principles. All sales terms and conditions are set on an arm’s length basis. For nickel, ferronickel and cobalt sales, the price basis is the month following the month of delivery. Accordingly, provisionally priced nickel, ferronickel and cobalt revenues are subject to final price adjustments due to future price changes. In the period from the commencement of these agreements to 31 December 2007, Xstrata Nickel sold to Glencore 71,150 tonnes of nickel, 2,708 tonnes of cobalt and 24,212 tonnes of ferronickel. This included a one off sale of approximately 5,300 tonnes of nickel and 400 tonnes of cobalt to Glencore at the inception of the agreement, resulting in a contribution to revenue of US$354 million. In addition, Glencore prepays monthly to Xstrata Nickel in two equal instalments 100% of the value of the month’s planned production. The prepayment balance as at 31 December 2007 amounted to $166 million.
In 2004 Xstrata Nickel entered into two agreements with Glencore for the treatment of approximately 2,000 tonnes per annum of white alloy raw material feed to the Nikkelverk refinery in Norway and the Sudbury smelter in Canada. The contracts include both a metal purchase and a metal return component. The term of the contracts is to the end of 2009, continuing indefinitely thereafter unless terminated by either party with six months’ notice given not earlier than 1 July 2009. Treatment and refining charges to Glencore are subject to price participation adjustments based on prevailing market prices.
Xstrata Nickel sells refined nickel and cobalt to Glencore on arm’s length terms and conditions, under annual contracts or spot arrangements, which are based on prevailing market rates.
Technology
In 2006, Xstrata Technology was contracted to install a copper ISASMELT furnace, a lead ISASMELT furnace and an IsaProcess copper refinery at Kazzinc, a Glencore subsidiary for US$99 million. The project commenced in May 2006 and is due to be commissioned by December 2009. This transaction with Kazzinc is on arm’s length terms and conditions.
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% (2006: 20.9%) interest in Richards Bay Coal Terminal Company Ltd (RBCT), a company that operates the coal terminal in Richards Bay, South Africa. Xstrata Coal South Africa reimburses RBCT for its share of operating and capital expenditure. Xstrata Coal Australia has a 20% (2006: 20%) interest in Port Kembla Coal Terminal Limited and a 37.1% (2006: 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.
Zinc
The Group has a 25% economic and voting interest in the Noranda Income Fund (NIF), which owns a zinc refinery in Salaberry-de-Valleyfield, Quebec. The Group’s interest in the NIF are held as ordinary units of the partnership, which are subordinate to the priority units in respect of cash distributions in any month until 3 May 2017. In addition, the Group has entered into a supply and processing agreement that continues until 2 May 2017 and is obligated to sell to the NIF up to 550,000 tonnes of zinc concentrate per year. The NIF pays the Group a concentrate price, based on the price of zinc metal on the London Metal Exchange, for the payable zinc metal contained in the concentrate less a processing fee of US$0.3446 per pound (2006 US$0.3131 per pound) of such payable zinc metal at 31 December 2007.
Joint Venture Entities
Coal
Xstrata Coal has a 331/3% interest in the Cerrejón thermal coal operation in Colombia. All purchase terms and conditions are set on an arm’s length basis.
Copper
Xstrata Copper has a 44% interest in the Collahuasi joint venture in Chile. The Collahuasi joint venture has fixed term contracts for the sale of copper concentrate to Xstrata Copper for 160,000 dmt per year expiring in 2009 and for 120,000 dmt per year expiring in 2014. The treatment and refining charges are based on benchmark terms in accordance with the prevailing market.
Xstrata Copper has a 33.75% interest in the Antamina joint venture in Peru. The Antamina joint venture has fixed term contracts for the sale of copper concentrate to Xstrata Copper for 170,000 dmt per year expiring in 2013. The treatment and refining charges are based on benchmark terms in accordance with the prevailing market.
All other purchases between the joint venture entities and the Group are set on an arm’s length basis based on either spot or benchmark terms in accordance with prevailing market conditions.
Remuneration of Key Management Personnel of the Group
| US$m | 2007 | 2006 |
|---|---|---|
| Wages and salaries | 24 | 15 |
| Pension and other post-retirement benefit costs | 6 | 4 |
| Share-based compensation plans | 68 | 65 |
| 98 | 84 |
Includes amounts paid to directors disclosed in the Directors’ Remuneration Report on pages 132 to 135.
36. Financial Instruments
Principles of Risk Management
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. These risks arise from exposures that occur in the normal course of business and are managed by the Treasury Committee, which operates as a sub-committee of the Executive Committee. The responsibilities of the Treasury Committee include the recommendation of policies to manage financial instrument risks. These recommendations are reviewed and approved by the Board of Directors and implemented by the Group’s Treasury Department.
The overall objective of the Treasury Committee is to effectively manage credit risk, liquidity risk and other market risks in accordance with the Group’s strategy. Other responsibilities of the Treasury Committee include management of the Group’s cash resources and debt funding programmes, approval of counter-parties and relevant transaction limits and the monitoring of all significant treasury activities undertaken by the Group. The Group uses both conventional financial instruments and derivative financial instruments to manage these risks.
The Group’s Treasury Department prepares monthly treasury reports which monitor all significant treasury activities undertaken by Group companies. The report also benchmarks significant treasury activities and monitors key banking loan covenants to ensure continued compliance. The Treasury Committee and Executive Committee reviews these reports to monitor the financial instrument risks of the Group and to ensure compliance with established Group policies and procedures.
The Group’s significant financial instruments, other than derivatives, comprise bank loans and overdrafts, convertible borrowings, capital market notes, finance leases, hire purchase contracts, cash and short-term deposits. The main purpose of these financial instruments is to finance the Group’s acquisitions and ongoing operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.
Derivative transactions are entered into solely to hedge risks and 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 does not hold derivates for trading or speculative purposes. The Group’s accounting policies in relation to derivates are set out in note 6.
Credit risk
Exposure to credit risk arises as a result of transactions in the Group’s ordinary course of business and is applicable to all financial assets. Investments in cash, short-term deposits and similar assets are with approved counter-party banks and other financial institutions. Counter-parties are assessed both prior to, during, and after the conclusion of transactions to ensure exposure to credit risk is limited to an acceptable level. The Group’s major exposure to credit risk is in respect of trade receivables. Given the geographical industry spread of the Group’s ultimate customers and the solvency of major trade debtors, credit risk is believed to be limited.
| Past the due date but not impaired | |||||||
|---|---|---|---|---|---|---|---|
| US$m | Neither Impaired nor past the due date | Less than 30 days | Between 30 and 90 days | Between 91 and 180 days | Between 181 and 365 days | More than 1 year | Total |
| Trade debtors: | |||||||
| 2007 | 1,303 | 898 | 105 | 92 | 51 | 2 | 2,451 |
| 2006 | 1,238 | 729 | 218 | 52 | 141 | 2 | 2,380 |
The credit quality of the Group’s significant customers is monitored on an ongoing basis by the Credit Department. Receivables that are neither past due nor impaired are considered of high credit quality.
There were no material impairments of trade debtors as at 31 December 2007 or 2006. The solvency of the debtor and their ability to repay the receivables were considered in assessing the impairment of such assets. No collateral is held in respect of impaired assets or assets that are past due but not impaired. Details of guarantees material to the Group are outlined in note 33.
Where concentrations of credit risk exist, management closely monitors the receivable and ensures appropriate controls are in place to ensure recovery. A portion of the Group’s revenues are generated from sales to Glencore, a related party. These sales are governed by various sales, marketing and distribution agreements as outlined in note 35. In general, Glencore act as a sales and marketing agent, on-selling purchases from the Group to a wide variety of purchasers. As these agreements have been in place for a number of years and the Group has not been exposed to significant unrecoverable amounts, the Group does not believe these arrangements expose it to unacceptable credit risks. Credit risk is minimal and not concentrated for other financial assets.
The maximum exposure to credit risk is limited to the total carrying value of financial assets on the balance sheet as at the reporting date, being an amount of US$4,854 million (2006 US$5,196 million). The Group does not have netting agreements with any debtors.
The Group has also provided a financial guarantee to Merafe (refer note 33).
Liquidity risk
Liquidity risk is the risk that the Group may not be able to settle or meet its obligations on time or at a reasonable price. The Group’s Treasury Department is responsible for management of liquidity risk, including funding, settlements, related processes and policies. The Group manages its liquidity risk on a consolidated basis utilising various sources of finance to maintain flexibility while ensuring access to cost effective funds when required. The operational, tax, capital and regulatory requirements and obligations of the Group are considered in the management of liquidity risk. In addition, management utilise both short- and long-term cash flow forecasts and other consolidated financial information to manage liquidity risk.
The Group’s Treasury Department monitors the Group’s long-term credit ratings from major ratings agencies including Standard & Poor’s and Moody’s when assessing the ongoing credit-worthiness of the Group. At 31 December 2007, the Group had long-term credit ratings of BBB+ (stable outlook) from Standard & Poor’s and Baa2 (stable outlook) from Moody’s. The ratings agencies consider a number of qualitative measurements when assessing the credit-worthiness of a company. These include an assessment of the quality of assets and management, attitudes to risk, industry type and the performance of the company in relation to its peers. They also examine a number of financial ratios such as leverage, debt to operating cash flow, interest coverage, total liabilities to total assets and return on invested capital. The Group’s Treasury Department continuously monitors the Group’s performance relative to these ratios as a guide to the ongoing credit-worthiness of the Group.
The Group has various borrowing facilities available to it. This ensures flexibility to minimise liquidity risk and ensure the ongoing solvency of the Group. The un-drawn committed facilities available at 31 December 2007 in respect of which all conditions precedent had been met at that date are as follows:
Available un-drawn borrowing facilities and maturity:
| US$m | 2007 | 2006 |
|---|---|---|
| Expiring in: | ||
| Less than 1 year | 3,415 | 793 |
| Between 3 to 4 years | – | 407 |
| Between 4 to 5 years | 410 | – |
| 3,825 | 1,200 | |
The following tables show the Group’s contractually agreed undiscounted forecast cash flows from interest payments and the repayments of financial liabilities, including derivative financial liabilities.
| US$m | Due within 1 year | Due between 1-2 years | Due between 2-3 years | Due between 3-4 years | Due between 4-5 years | Due after 5 years | Total |
|---|---|---|---|---|---|---|---|
| At 31 December 2007 | |||||||
| Non-derivative financial liabilities: | |||||||
| Interest bearing loans and borrowings | 1,118 | 781 | 68 | 1,378 | 5,701 | 3,750 | 12,796 |
| Convertible borrowings | – | – | – | – | – | 375 | 375 |
| Interest payments on loans and borrowings | 644 | 569 | 498 | 458 | 319 | 2,219 | 4,707 |
| Other non-interest bearing liabilities | 3,745 | – | – | – | – | 54 | 3,799 |
| Derivative financial liabilities: | |||||||
| Derivatives contracts – net payments | 205 | 58 | – | 142 | 6 | – | 411 |
| US$m | Due within 1 year | Due between 1-2 years | Due between 2-3 years | Due between 3-4 years | Due between 4-5 years | Due after 5 years | Total |
|---|---|---|---|---|---|---|---|
| At 31 December 2006 | |||||||
| Non-derivative financial liabilities: | |||||||
| Interest bearing loans and borrowings | 1,990 | 515 | 3,971 | 55 | 4,675 | 3,730 | 14,936 |
| Convertible borrowings | – | – | – | 214 | – | 375 | 589 |
| Interest payments on loans and borrowings | 644 | 569 | 498 | 458 | 2,538 | 5,510 | |
| Other non-interest bearing liabilities | 3,125 | – | – | – | – | 95 | 3,220 |
| Derivative financial liabilities: | |||||||
| Derivatives contracts – net payments | 78 | 23 | 27 | 11 | 98 | 13 | 250 |
All instruments held at 31 December 2007 and 31 December 2006 and for which payments were already contractually agreed are included. Amounts in foreign currency are each translated at the closing rate at the reporting date. The variable interest payments arising from the financial instruments were calculated using interest rates as at reporting date. Financial liabilities that can be repaid at any time are always assigned to the earliest possible time period. Future forecast transactions or transactions subsequent to year end are not included.
Market Risk Analysis
IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes of relevant market risk variables on the Group’s profit and shareholders’ equity. The periodic effects are determined by relating the hypothetical changes in the risk variables to the balance of financial instruments at the reporting date. The Group’s primary market exposures are to interest rate risk, foreign currency risk and commodity price risk.
Interest rate risk
The Group is exposed to interest rate risk primarily as a result of exposures to movements in the LIBOR. It is the Group’s preference to borrow and invest at floating rates of interest, notwithstanding that some borrowings are at fixed rates. In addition, a limited amount of fixed rate hedging may be undertaken during periods where the Group’s exposure to movements in short-term interest rates is more significant. In keeping with the Group’s preference to borrow at floating rates of interest, the following interest rate swap contracts were outstanding at 31 December 2007 and 2006:
Fair value hedges table and interest rate risk profile table:
| US$m | Principal amount 2007 | Average rate % 2007 | Fair Value 2007 | Principal amount 2006 | Average Rate % 2006 | Fair value 2006 |
|---|---|---|---|---|---|---|
| Fair value hedges: | ||||||
| Interest rate swap from US$ fixed rates: | ||||||
| Maturing in less than 1 year* | 111 | 8.09 | 4 | – | – | – |
| Maturing between 1 to 2 years* | – | – | – | 111 | 8.48 | 4 |
| Maturing between 3 to 4 years* | 1,050 | 5.17 | 29 | 600** | 4.5 | (11) |
| Maturing between 4 to 5 years* | 925 | 5.60 | 32 | 1,050 | 5.69 | (2) |
| Maturing greater than 5 years* | 2,175 | 5.64 | 37 | 1,750 | 6.30 | (13) |
| Interest rate swap to US$ fixed rates: | ||||||
| Maturing in less than 1 year | 25 | 5.00 | – | – | – | – |
| Maturing between 1 to 2 years | – | – | – | 25 | 5.00 | – |
| Maturing between 4 to 5 years | 100 | 4.54 | (6) | – | – | – |
| Maturing greater than 5 years | – | – | – | 100 | 4.54 | 4 |
| 4,386 | 5.55 | 96 | 3,636 | 5.84 | (18) | |
| *Relates to the Unsecured notes and Senior debentures (refer to note 28). | ||||||
| **Relates to the Convertible borrowings (refer to note 29). | ||||||
The interest rate risk profile of the Group as at 31 December 2007 was as follows:
| US$m | Falling due within 1 year | Falling due between 1-2 years | Falling due between 2-3 years | Falling due between 3-4 years | Falling due between 4-5 years | Falling due more than 5 years | 2007 |
|---|---|---|---|---|---|---|---|
| Fixed rate by balance sheet category | |||||||
| Cash and cash equivalents | 220 | – | – | – | – | – | 220 |
| Capital market notes* | (350) | (14) | (14) | (1,165) | (1,335) | (3,338) | (6,216) |
| Equity minority interest loans | – | – | – | – | (81) | – | (81) |
| Convertible borrowings | – | – | – | – | – | (327) | (327) |
| Finance leases/hire purchase contracts | (18) | (21) | (13) | (29) | (4) | (47) | (132) |
| Preference shares | (149) | (79) | – | – | – | – | (228) |
| Other loans | – | – | – | – | – | (54) | (54) |
| (297) | (114) | (27) | (1,194) | (1,420) | (3,766) | (6,818) | |
| Fixed rate by currency: | |||||||
| AUD | 37 | (11) | (9) | (27) | (1) | (73) | (84) |
| CAD | (347) | (81) | (1) | (2) | (2) | (14) | (447) |
| EUR | – | – | – | – | (675) | (675) | (1,350) |
| US$ | 8 | (22) | (15) | (1,165) | (742) | (2,993) | (4,929) |
| GBP | 8 | – | – | – | – | – | 8 |
| ZAR | (3) | – | (2) | – | – | (11) | (16) |
| (297) | (114) | (27) | (1,194) | (1,420) | (3,766) | (6,818) | |
| Floating rate by balance sheet category: | |||||||
| Cash and cash equivalents | 903 | – | – | – | – | – | 903 |
| Other financial assets | 54 | – | – | – | – | 21 | 75 |
| Capital market notes | – | (500) | – | – | – | – | (500) |
| Syndicated bank loan | – | – | – | (4,270) | – | (4,751) | |
| Bank loans – unsecured | (41) | (41) | (41) | (180) | (2) | – | (305) |
| Bank overdrafts | (79) | – | – | – | – | – | (79) |
| Preference shares | – | – | – | – | (120) | – | (120) |
| Other loans | – | – | – | (8) | (15) | (328) | (351) |
| 356 | (541) | (41) | (188) | (4,407) | (307) | (5,128) | |
| Floating rate by currency: | |||||||
| AUD | 57 | – | – | – | – | – | 57 |
| CAD | 39 | – | – | – | (120) | – | (81) |
| EUR | 10 | – | – | – | – | – | 10 |
| US$ | 20 | (540) | (40) | (188) | (4,287) | (133) | (5,168) |
| ZAR | 209 | (1) | (1) | – | – | (174) | 33 |
| GBP | 1 | – | – | – | – | – | 1 |
| ARS | 14 | – | – | – | – | – | 14 |
| CLP | 1 | – | – | – | – | – | 1 |
| Other | 5 | – | – | – | – | – | 5 |
| 356 | (541) | (41) | (188) | (4,407) | (307) | (5,128) |
The interest rate risk profile of the Group as at 31 December 2006 was as follows:
| US$m | Falling due within 1 year | Falling due between 1-2 years | Falling due between 2-3 years | Falling due between 3-4 years | Falling due between 4-5 years | Falling due more than 5 years | 2006 |
|---|---|---|---|---|---|---|---|
| Fixed rate by balance sheet category: | |||||||
| Cash and cash equivalents | 467 | – | – | – | – | – | 467 |
| Capital market notes* | (5) | (320) | (14) | (14) | (391) | (3,388) | (4,132) |
| Equity minority interest loans | – | – | – | – | – | (81) | (81) |
| Convertible borrowings* | – | – | – | (201) | – | (324) | (525) |
| Finance leases/hire purchase contracts | (147) | (14) | (16) | (10) | (27) | (28) | (242) |
| Preference shares | – | (134) | (67) | – | – | – | (201) |
| Other loans | – | – | – | – | – | (1) | (1) |
| 315 | (468) | (97) | (225) | (418) | (3,822) | (4,715) | |
| Fixed rate by currency: | |||||||
| AUD | (95) | (8) | (8) | (10) | (22) | (21) | (164) |
| CAD | – | (289) | (67) | – | (5) | (7) | (368) |
| EUR | – | – | – | – | – | (1) | (1) |
| GBP | 11 | – | – | – | – | – | 11 |
| US$ | 397 | (55) | (22) | (215) | (391) | (3,793) | (4,079) |
| Other | 2 | (116) | – | – | – | – | (114) |
| 315 | (468) | (97) | (225) | (418) | (3,822) | (4,715) | |
| Floating rate by balance sheet category: | |||||||
| Cash and cash equivalents | 1,181 | – | – | – | – | – | 1,181 |
| Other financial assets | – | – | – | – | – | 77 | 77 |
| Capital market notes | – | – | (500) | – | – | – | (500) |
| Syndicated bank loan | – | (3,353) | – | (4,063) | – | (9,093) | |
| Bank loans – other | (39) | (64) | (41) | (41) | (172) | – | (357) |
| Bank overdrafts | (143) | – | – | – | – | – | (143) |
| Preference shares | – | – | – | – | – | (103) | (103) |
| Other loans | – | – | – | – | – | (162) | (162) |
| (678) | (64) | (3,894) | (41) | (4,235) | (188) | (9,100) | |
| Floating rate by currency: | |||||||
| AUD | 57 | – | – | – | – | – | 57 |
| CAD | (132) | – | – | – | – | (130) | (262) |
| EUR | 13 | – | – | – | – | – | 13 |
| GBP | 1 | – | – | – | – | – | 1 |
| US$ | (658) | (64) | (3,893) | (41) | (4,235) | 10 | (8,881) |
| ZAR | 32 | – | (1) | – | – | (68) | (37) |
| Other | 9 | – | – | – | – | – | 9 |
| (678) | (64) | (3,894) | (41) | (4,235) | (188) | (9,100) | |
| *These borrowings are subject to interest rate swaps. | |||||||
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.
IFRS 7 requires interest rate sensitivity analysis that shows the effects of changes in market interest rates on the income statement and, if appropriate, shareholders’ equity. The interest rate sensitivity analyses are based on the following assumptions:
- For non-derivative financial instruments with fixed interest rate terms a change in market interest rates only affects income if these are measured at their fair value. Consequently, all non-derivative financial instruments with fixed interest rate terms that are carried at amortised cost are excluded from this analysis (with the exception of those subject to a fixed to floating rate swap – refer below);
- Items subject to an effective fixed to floating interest rate swap hedge are assumed to be floating instruments for the purpose of this analysis;
- For floating rate instruments, income statement impacts assume adjustments to interest income and expense for a 12-month period;
- The Group does not have significant cash flow hedges related to interest rate risk. As such, movements that would occur in equity as a result of a hypothetical change in interest rates at reporting date has been excluded from this analysis;
- Changes in the carrying value of derivative financial instruments designated as fair value hedges are assumed to be fully effective with no impact on the income statement or equity;
- Changes in the carrying value of derivative financial instruments not in hedging relationships are assumed to impact the income statement;
- The Group does not have material exposure to interest rate risk from available for sale financial instruments. As such, these financial instruments have been excluded from this analysis;
- The balance of interest bearing financial instruments at reporting date is representative of the balance for the year as a whole and hypothetical interest rate movements are deemed to apply for the entire reporting period; and
- The impact of interest rate movements on the carrying value of pension obligations has been excluded.
If the market interest rates had been 100 basis points higher (lower) at 31 December 2007 income would have been US$71 million (2006 US$124 million) lower (higher). There would be no material effect on equity reserves other than those relating directly to movements in the income statement.
Foreign currency risk
Owing to the Group’s significant operations in Australia, North America, South America, South Africa and Europe, the balance sheet and results can be affected significantly by movements in exchange rates. The long-term relationship between commodity prices and the currencies of most of the countries where the Group operates provides a degree of natural protection however, in the short term it can be quite volatile. The presentation currency of the Group is the US$.
Foreign currency hedges
Group subsidiaries located in Australia and Canada have entered into AUD/US$ and CAD/US$ exchange contracts to hedge a portion of their US$ 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 2007 are as follows:
Classified as cash flow hedges:
| US$m | Contract amount 2007 | Average forward rate 2007 | Fair value 2007 | Contract Amount 2006 | Average forward rate 2006 | Fair value 2006 |
|---|---|---|---|---|---|---|
| Forward contracts – sell US$/buy AUD: | ||||||
| Maturing in less than 1 year | 125 | 0.8544 | 1 | 143 | 0.7550 | 6 |
| Maturing between 1 to 2 years | – | – | – | 11 | 0.7397 | 1 |
| 125 | 0.8544 | 1 | 154 | 0.7539 | 7 | |
| Forward contracts – sell US$/buy EUR: | ||||||
| Maturing in less than 1 year | – | – | – | 19 | 1.3125 | – |
| – | – | – | 19 | 1.3125 | – | |
| Forward contracts – sell US$/buy EUR: | ||||||
| Maturing between 4 to 5 years* | 675 | 1.35 | 56 | – | – | – |
| Maturing after 5 years* | 675 | 1.35 | 56 | – | – | – |
| 1,350 | 1.35 | 112 | – | – | – | |
| Forward contracts – sell ZAR/buy EUR: | ||||||
| Maturing in less than 1 year | – | – | – | 3 | 7.9685 | – |
| – | – | – | 3 | 7.9685 | – | |
| Forward contracts – sell AUD/buy GBP: | ||||||
| Maturing in less than 1 year | – | – | – | 1 | 0.3884 | – |
| – | – | – | 1 | 0.3884 | – | |
| Forward contracts – sell US$/buy JPY: | ||||||
| Maturing in less than 1 year | 2 | 103.85 | – | 9 | 108.3762 | (1) |
| 2 | 103.85 | – | 9 | 108.3762 | (1) | |
| Forward contracts – sell US$/buy CAD: | ||||||
| Maturing in less than 1 year | – | – | – | 5 | 1.5290 | 3 |
| – | – | – | 5 | 1.5290 | 3 | |
| Forward contracts – sell CAD/buy US$: | ||||||
| Maturing in less than 1 year | – | – | – | 1 | 1.5290 | – |
| – | – | – | 1 | 1.5290 | – | |
| *Relates to the Unsecured notes (refer to note 28) | ||||||
An Australian subsidiary has designated its US$ denominated capital market notes as a fair value hedge of an investment in a US$ denominated South American operation (refer to note 28). The hedge is being used to reduce exposure to foreign currency risk.
Classified as other derivatives:
| US$m | Contract amount 2007 | Average forward rate 2007 | Fair value 2007 | Contract Amount 2006 | Average forward rate 2006 | Fair value 2006 |
|---|---|---|---|---|---|---|
| Forward contracts – sell US$/buy AUD: | ||||||
| Maturing in less than 1 year | 931 | 0.8664 | 15 | – | – | – |
| 931 | 0.8664 | 15 | ||||
| Forward contracts – sell CAD/buy US$: | ||||||
| Maturing in less than 1 year | 18 | 0.983 | – | – | – | – |
| Maturing between 3 to 4 years | 300 | 1.535 | (142) | – | – | – |
| Maturing between 4 to 5 years | – | – | – | 300 | 1.54 | (96) |
| 318 | 1.504 | (142) | 300 | 1.54 | (96) | |
| Forward contracts – sell US$/buy CAD: | ||||||
| Maturing in less than 1 year | 1,330 | 1.0452 | 65 | 790 | 1.14 | (17) |
| Maturing between 1 to 2 years | – | – | – | 111 | 1.57 | 48 |
| 1,330 | 1.0452 | 65 | 901 | 1.19 | 31 | |
| Forward contracts – sell US$/buy EUR: | ||||||
| Maturing in less than 1 year | 12 | 1.3429 | 1 | – | – | – |
| 12 | 1.3429 | 1 | – | – | – |
For the purpose of IFRS 7 sensitivity analysis currency risks arises because financial instruments are denominated in a currency that is not the functional currency of the subsidiary or joint venture. The movements shown below largely result from trade payables and receivables that are not denominated in the local entity’s functional currency. Trade payable and receivables generally arise as a result of the operations of the Group in the ordinary course of business.
The currency sensitivity analysis is based on the following assumptions:
- Differences resulting from the translation of financial statements of subsidiaries or joint ventures into the Group’s presentation currency, US$, are not taken into consideration;
- The major currency exposures for the Group relate to the US$ and local currencies of subsidiaries and joint ventures. Foreign currency exposures between two currencies where one is not the US$ are deemed insignificant to the Group and have therefore been excluded from the sensitivity analysis;
- Derivative financial instruments designated as cash flow hedges are assumed to be fully effective hedges and therefore any movements in carrying value are captured within equity and have no impact on the income statement analysis;
- Changes in the carrying value of derivative financial instruments designated as fair value hedges are assumed to be fully effective with no impact on the income statement or equity;
- Changes in the carrying value of derivative financial instruments not in hedging relationships are assumed to impact the income statement; and
- The impact of foreign currency movements on the carrying value of pension obligations has been excluded.
In accordance with IFRS 7, the impact of foreign currencies has been determined based on the balances of financial assets and liabilities at 31 December 2007. This sensitivity does not represent the income statement impact that would be expected from a movement in foreign currency exchange rates over the course of a period of time.
If the US$ had gained (lost) 10% against all currencies significant to the Group at 31 December 2007 income would have been US$29 million higher (lower) (2006 US$1 million lower (higher)) and equity would have been US$5 million lower (higher) (2006 US$4 million lower (higher)) as a result of movements in the fair value of effective cash flow hedges.
Commodity price risk
The Group is exposed to fluctuations in commodity prices, with the commodity mix spread between those which are priced by reference to prevailing market prices on terminal markets and those that are set on a contract basis with customers, generally on an annual basis. Commodity price risks arise in all major commodities that the Group produces. Commodity price risk is managed by maintaining a diversified portfolio of commodities and typically does not involve large-scale strategic hedging or price management initiatives.
Due to the volatile nature of commodity prices and the historical relationship between prices and the currencies of most of the countries where the Group operates, hedging may be entered into only in limited circumstances and subject to strict limits laid down by the Board of Directors.
Commodity hedging
The Australian and Americas operations have gold forwards and collars to hedge prices of future sales. The Australian and South African operations have entered into coal forwards to hedge prices of future sales of coal. The open forwards and collars commodity contracts as at 31 December 2007 are as follows:
Classified as cash flow hedges:
| Ounces 2007 | Average price US$ 2007 | Fair value US$m 2007 | Ounces 2006 | Average price US$ 2006 | Fair value US$m 2006 | |
|---|---|---|---|---|---|---|
| Cash flow hedges: | ||||||
| Gold forwards – AUD denominated contracts: | ||||||
| Maturing in less than 1 year | 61,700 | 740.12 | (13) | 74,250 | 563.16 | (7) |
| Maturing between 1 to 2 years | 87,800 | 747.47 | (22) | 84,200 | 579.62 | (9) |
| Maturing between 2 to 3 years | – | – | – | 87,800 | 589.44 | (12) |
| 149,500 | 744.44 | (35) | 246,250 | 578.16 | (28) | |
| Gold forwards – US$ denominated contracts: | ||||||
| Maturing in less than 1 year | – | – | – | 104,166 | 386.30 | (27) |
| – | – | – | 104,166 | 386.30 | (27) | |
| Gold collars – US$ denominated contracts: | ||||||
| Maturing in less than 1 year | 94,500 | 475-594 | (24) | 93,500 | 500-595 | (7) |
| Maturing between 1 to 2 years | 150,000 | 495-640 | (36) | 126,000 | 475-595 | (13) |
| Maturing between 2 to 3 years | – | – | – | 150,000 | 495-640 | (15) |
| 244,500 | 475-640 | (60) | 369,500 | 475-640 | (35) |
| Tonnes 2007 | Average price US$ 2007 | Fair value US$m 2007 | Tonnes 2006 | Average price US$ 2006 | Fair value US$m 2006 | |
|---|---|---|---|---|---|---|
| Coal forwards – US$ denominated contracts: | ||||||
| South African FOB | ||||||
| Maturing in less than 1 year | 3,840,000 | 57.29 | (125) | 3,495,000 | 50.01 | (7) |
| Maturing between 1 to 2 years | – | – | – | 1,350,000 | 54.48 | (1) |
| 3,840,000 | 57.29 | (125) | 4,845,000 | 51.26 | (8) | |
| South African CIF | ||||||
| Maturing in less than 1 year | 600,000 | 68.72 | (27) | 1,140,000 | 65.46 | (4) |
| Maturing between 1 to 2 years | – | – | – | 600,000 | 68.72 | – |
| 600,000 | 68.72 | (27) | 1,740,000 | 66.58 | (4) | |
| Australian FOB | ||||||
| Maturing in less than 1 year | – | – | – | 350,000 | 50.51 | (1) |
| – | – | – | 350,000 | 50.51 | (1) | |
| Colombian FOB | ||||||
| Maturing in less than 1 year | 200,000 | 77.70 | (3) | 200,000 | 51.55 | – |
| 200,000 | 77.70 | (3) | 200,000 | 51.55 | – |
The maturities of these hedges reflects the expected timing of cash flows related to these instruments.
Classified as other commodity derivatives:
| Tonnes 2007 | Average price US$ 2007 | Fair value US$m 2007 | Tonnes 2006 | Average price US$ 2006 | Fair value US$m 2006 | |
|---|---|---|---|---|---|---|
| Copper forwards – US$ denominated contracts: | ||||||
| Maturing in less than 1 year | 4,914 | 6,671.28 | 3 | – | – | – |
| 4,914 | 6,671.28 | 3 | – | – | – |
| Ounces 2007 | Average price US$ 2007 | Fair value US$m 2007 | Ounces 2006 | Average price US$ 2006 | Fair value US$m 2006 | |
|---|---|---|---|---|---|---|
| Gold forwards – AUD denominated contracts: | ||||||
| Maturing in less than 1 year | 22,500 | 721.00 | (5) | 14,250 | 541.20 | (1) |
| 22,500 | 721.00 | (5) | 14,250 | 541.20 | (1) | |
| Gold forwards – US$ denominated contracts: | ||||||
| Maturing in less than 1 year | – | – | – | 20,834 | 386.30 | (5) |
| – | – | – | 20,834 | 386.30 | (5) | |
| Gold options – US$ denominated contracts: | ||||||
| Maturing in less than 1 year | 31,500 | 475-594 | (8) | 8,500 | 500-560 | (1) |
| 31,500 | 475-594 | (8) | 8,500 | 500-560 | (1) |
| Ounces 2007 | Average price US$ 2007 | Fair value US$m 2007 | Ounces 2006 | Average price US$ 2006 | Fair value US$m 2006 | |
|---|---|---|---|---|---|---|
| Gold swaps – AUD denominated contracts: | ||||||
| Maturing in less than 1 year | 40,600 | 1.5 | – | 30,000 | 1.5 | 2 |
| Maturing between 1 to 2 years | 10,600 | 1.5 | – | 40,600 | 1.5 | – |
| Maturing between 2 to 3 years | – | – | – | 10,600 | 1.5 | – |
| 51,200 | 1.5 | – | 81,200 | 1.5 | 2 |
The IFRS 7 sensitivity analysis below has been prepared using the following assumptions:
- This analysis only takes into account commodities for which the Group has significant exposure;
- Fixed price sale and purchases contracts will not fluctuate with movements in commodity prices and are therefore excluded from this analysis;
- Derivative financial instruments designated as cash flow hedges are assumed to be fully effective hedges and therefore any movements in carrying value are captured within equity and have no impact on the income statement analysis;
- Changes in the carrying value of derivative financial instruments designated as fair value hedges are assumed to be fully effective with no impact on the income statement or equity; and
- Changes in the carrying value of derivative financial instruments not in hedging relationships are assumed to impact the income statement.
In accordance with IFRS 7, the impact of commodity prices has been determined based on the balances of financial assets and liabilities at 31 December 2007. This sensitivity does not represent the income statement impact that would be expected from a movement in commodity prices over the course of a period of time.
If prices for all commodities for which the Group has significant exposure had been 10% higher (lower) at 31 December 2007, income would have been US$105 million higher (lower) (2006 US$120 million higher (lower)) and equity reserves would have been US$77 million lower (higher) (2006 US$108 million lower (higher)) as a result of changes to reserves for commodity cash flow hedges. There would be no other material changes in reserves of the company as at 31 December 2007 or 2006 other than those relating directly to income statement movements.
Fair values
Set out below is a comparison by category of carrying value and fair values of the Group’s financial instruments that are not carried at fair value in the financial statements at 31 December:
| US$m | Carrying value 2007 | Fair value 2007 | Carrying value 2006 | Fair value 2006 |
|---|---|---|---|---|
| Financial Liabilities: | ||||
| Capital market notes | 6,216 | 6,001 | 4,132 | 4,200 |
| Convertible borrowings | 327 | 305 | 525 | 519 |
| Equity minority interest loans | 81 | 83 | 81 | 80 |
| Finance leases | 132 | 132 | 242 | 242 |
| Preference shares | 348 | 348 | 201 | 203 |
| Other loans | 54 | 54 | 1 | 1 |
Market rates at 31 December 2007 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 note 28).
The following table shows the carrying amounts as at 31 December for each category of financial assets and liabilities as required by IFRS 7:
| US$m | 2007 | 2006 |
|---|---|---|
| Financial Assets: | ||
| Cash and cash equivalents | 1,148 | 1,860 |
| Financial assets designated at fair value through profit and loss | 54 | 44 |
| Loans and receivables | 3,150 | 3,054 |
| Available-for-sale financial assets | 203 | 170 |
| Derivative financial assets | 299 | 68 |
| Financial Liabilities: | ||
| Financial liabilities measured at amortised cost | 16,922 | 18,681 |
| Derivative financial liabilities | 411 | 250 |
The following table shows the gains/(losses) for each category of financial assets and liabilities as required by IFRS 7:
| US$m | 2007 | 2006 |
|---|---|---|
| Financial Assets: | ||
| Available-for-sale financial assets gain recognised in equity | 49 | 1,892 |
| Available-for-sale financial assets gain recognised in the income statement | – | 63 |
| Derivative financial instruments loss recognised in equity | (261) | (78) |
| Derivative financial instruments loss recognised in the income statement | (115) | (125) |
Interest revenues and expenses are not included in the calculation of the gains/(losses) of financial assets and liabilities.
37. Events After Balance Sheet Date
Issue of share capital
On 16 January 2008, 6,000,000 shares were issued to the ESOP at a market price of GBP34.90 per share (refer to note 26).
Jubilee Mines NL
On 29 October 2007 the Group announced a cash offer for shares in Jubilee Mines NL (Jubilee) of AUD23 per share. On 31 January 2008, the Group declared the offer free from all conditions, including a minimum 90% acceptance condition. As at 22 February 2008, the Group held 97% of the total issued shares of Jubilee and commenced compulsory acquisition procedures under Australian law. The total cost of this acquisition is expected to be US$2.9 billion. No further information is presented on this business combination due to the short time period between the acquisition and the approval of these financial statements.
Resource Pacific Holdings Limited
On 5 December 2007 the Group announced an unconditional cash offer for shares in Resource Pacific Holdings Limited (Resource Pacific) of AUD2.85 per share and on 8 February 2008 the offer price was increased to AUD3.20 per share. As at 10 March 2008, the Group held 99% of the total issued shares of Resource Pacific and commenced compulsory acquisition procedures under Australian law. The total cost of this acquisition is expected to be US$1.0 billion. No further information is presented on this business combination due to the short time period between the acquisition and the approval of these financial statements.