Business Review

Business overview

From its initial public offering in March 2002, Xstrata has pursued a strategy of acquisition-led and organic growth to become one of the world’s largest mining companies, with a meaningful position in seven major commodity markets, over 56,000 employees including contractors, and operations and projects in 18 countries. Xstrata plc is listed on the London and Swiss Stock Exchanges and the Group is headquartered in Zug, Switzerland. At the end of 2007, the Group’s market capitalisation had grown to approximately US$68 billion (£34 billion). An overview of Xstrata’s operations and commodity businesses is provided on the inside cover of this report.

As a FTSE100 diversified mining company, Xstrata’s key competitors are Anglo American plc, BHP Billiton plc and Rio Tinto plc. A broader industry peer group is used to benchmark remuneration and other policies. In addition to the three London-listed peer companies the industry peer group comprises Alcoa Inc, Arch Coal Inc, Coal & Allied Industries Ltd., Elkem ASA, Eramet SA, Grupo Mexico SA de CV, Korea Zinc Inc, Lonmin plc, Norddeutsche Affinerie AG, Peabody Energy Corp, Teck Cominco Ltd and Umicore SA.

Xstrata’s activities are organised into five major commodity business units, each of which is fully resourced to function as an autonomous business. Xstrata also owns an industry-leading metals extraction and minerals processing technology business. Xstrata differentiates itself from its industry peers by devolving maximum responsibility and authority to its commodity businesses. Each business unit is accountable for its EBIT and all aspects of its operations from exploration to post-closure remediation and bolt-on acquisitions, within defined authority levels and within the Group’s sustainable development and governance framework. We believe this approach directly benefits our operations by creating a strong sense of local ownership, where entrepreneurial managers are empowered and incentivised to address site-specific challenges and seize opportunities to create value.

Xstrata’s commodity businesses are supported by a small corporate centre, split between the head office in Zug, Switzerland and the registered office in London, United Kingdom.

Strategy

Xstrata’s primary strategic aim is to create superior shareholder value by growing and managing a diversified portfolio of mining and metals businesses. Our Mission recognises that, to continue to grow and create value over the long term, we must operate in a responsible, ethical and transparent way, forming mutually beneficial partnerships with our stakeholders.

From its inception through an IPO on the London Stock Exchange in 2002, Xstrata recognised the value of creating a diversified, growing mining group with a vast array of world-class brownfield and greenfield internal growth options and further acquisitive opportunities. Xstrata has pursued this aggressive growth and diversification strategy through transformational acquisitions, bolt-on additions and developing new production from the portfolio.

At the Group level, Xstrata’s strategy remains focused on participating in ongoing industry consolidation, through transformation acquisitions and through facilitating the Group’s entry into new commodities.

Consolidation is also taking place within each commodity sector and Xstrata’s commodity businesses are well positioned to continue to play an active role in this process, following on from over $6 billion of bolt-on acquisitions completed in 2007 and early 2008. Xstrata’s commodity businesses will also achieve lower risk, higher return organic growth through the ongoing development of the Group’s exceptionally strong suite of internal growth projects. In addition, Xstrata has developed an industry-leading reputation in the area of operational excellence, specifically in the business unit teams’ abilities to contain costs, dramatically improve safety and environmental performance and deliver year-on-year increases in the NPV (net present value) of the asset base through ongoing cost reductions, mine-life extensions and reconfiguring mine plans.