Chairman’s Statement

Xstrata recorded a very strong financial performance in 2008, second only in the Company’s history to the record year of 2007. Xstrata’s businesses achieved production records in a number of its key commodities, successfully integrated and optimised acquired operations, created a meaningful new platinum business, commissioned new, lower-cost operations and achieved a seventh consecutive year of real cost savings. Yet the Group’s overall strong performance for the year masks a period of extreme turbulence in financial and commodity markets. The unprecedented speed and severity of the financial crisis in the second half of the year dealt a severe blow to global economic growth and led to sharp and sudden declines in the price of most of Xstrata’s commodities.

Strategy

The Board remains committed to Xstrata’s long-term strategy of growth and diversification in pursuit of value. However, the financial crisis that has gripped the world’s major economies and most industry sectors has led Xstrata’s Board and management to direct attention to ensuring the Group remains robust through the period of uncertainty that lies ahead of us. This short-term imperative led, in the first instance, to our decision not to proceed with a full offer for Lonmin plc in early October, in view of the risks associated with the requirement to refinance a significant portion of the acquisition debt facililties within 12 months. At the same time, the Group took the opportunity to arrange a new, three-year bank facility to refinance existing short-term debt, removing any significant refinancing obligations for three years – a truly valuable attribute in current markets.

Between August and early October, Xstrata acquired a substantial stake of 24.9% of Lonmin. While, with the benefit of hindsight, the subsequent decline in Lonmin’s share price would have afforded Xstrata an opportunity to purchase its stake at a lower average price at a later stage, your Board remains confident that Xstrata’s significant stake in one of the world’s leading platinum producers represents a valuable long-term investment and adds to Xstrata’s strategic optionality.

My fellow Board members and I have remarked on the scale and speed of actions being implemented across Xstrata’s businesses over the past few months to secure the Group’s financial position and preserve cash, amidst challenging conditions. From initiatives to secure an appropriate capital structure, to innovative approaches to significantly reduce capital and production costs to maintain profitability even at current low commodity prices, it is clear that decisive action is being taken at every level of the organisation, as outlined further in the reports that follow. Of course, some of these actions result in difficult decisions to suspend or close higher cost operations. Where compulsory redundancies have been unavoidable, every effort is being made to mitigate the impacts on employees, their families and communities, including through the provision of appropriate employee assistance programmes and other support.

The successful development of Xstrata’s strategy over the past seven years has positioned the Group to capture the benefit of recent historically strong commodity markets. It has also provided Xstrata with an excellent pipeline of prospective internal and external growth options. While current conditions mean that capital expenditure at a number of Xstrata’s projects is being deferred or curtailed, Xstrata’s management teams have been careful to preserve our valuable acquisition and organic growth options, which can be exercised as and when the conditions are right. We look forward to resuming Xstrata’s longer-term growth strategy in earnest at the appropriate time.

Xstrata management’s capacity and willingness to act quickly and decisively has been underlined by the recent announcement of a substantial rights issue. The proceeds from the rights issue will provide a significant capital injection, allowing the repayment of debt and providing a firm footing for future growth. Further details about the rights issue and acquisition of the Prodeco coal operations have been provided in a comprehensive circular and prospectus, sent to each eligible registered shareholder and available from Xstrata’s website.

All of the resolutions relating to the proposed Prodeco acquisition and rights issue were approved by shareholders at an Extraordinary General Meeting on 2 March 2009.

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Governance

Xstrata benefits from a robust Board of some six independent non-executives, three executive directors and two non-executive directors nominated by Glencore International. An external evaluation of the Board’s effectiveness and performance was conducted in 2007 and in 2008 the Board conducted an internal assessment, led by Senior Independent Director David Rough. We are now implementing the recommendations arising from these assessments, in particular to address medium-term succession planning. During 2008, the Board agreed that an external evaluation exercise will be regularly undertaken every three years.

Robert MacDonnell has indicated that he intends to retire as an independent non-executive director at the next Annual General Meeting (AGM) in May 2009. Robert has served as a director of Xstrata plc since its initial public offering and before that, was a non-executive director of the former Swiss company, Xstrata AG. During his tenure, he has overseen the significant growth of the Company into a global mining major and I thank him on behalf of the Company and Board for his guidance and the contribution he has made to Xstrata’s development over the past several years.

I am delighted to announce that Peter Hooley has agreed to stand as an independent, non-executive director for election by shareholders at the AGM on 5 May 2009. Peter held the position of Group Finance Director of Smith & Nephew plc until 2006 and is currently a non-executive director and Chairman of the Audit Committee of Cobham plc and a director and Chairman of BSN Medical. I am confident that Peter’s appointment to the Board will add significant value to Xstrata. Peter brings with him extensive financial markets and corporate transactions experience and a strong track record of creating shareholder value. Peter has agreed to act as an independent external consultant to the Board with effect from 3 March 2009 until the AGM.

Sustainable development

Xstrata’s commitment to the principles of sustainable development remains at the centre of our strategy and is increasingly integrated into the Group’s day-to-day management practices and strategic decision-making. The most important of our many targets and objectives is our aim that no fatalities or serious injuries are sustained by the men and women who work at Xstrata. We did not achieve this objective in 2008 and I am deeply saddened to report that six workers lost their lives at Xstrata’s operations or projects last year. Safety is a particular challenge during times of uncertainty and this is an area to which we will continue to dedicate significant resources and management attention.

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Outlook and prospects

Economic prospects in 2009 remain uncertain. However, the directors believe that some support for commodities is likely to be provided by the significant stimulus packages announced by many major countries, which prioritise commodity-intensive infrastructure investment. Another positive development is the mining industry’s action to curtail uneconomic supply and limit the build-up of excess inventories, which has occurred more rapidly and to a greater extent than in previous downturns.

Notwithstanding the global economic downturn, the economic development and urbanisation of emerging economies remains a significant trend that is set to positively influence the fortunes of the mining sector over an extended timeframe. With this in mind, Xstrata’s management and employees remain focused on taking the appropriate action to ensure the Group remains well positioned to weather current challenging conditions and benefit from encouraging medium- to longer-term prospects for demand for commodities.

In view of Xstrata’s rights issue to repay debt, approved by Xstrata’s shareholders at the EGM on 2 March, the Board has decided not to pay a final dividend for 2008. We will, of course, review the potential to resume dividends at the earliest opportunity, taking into account the Group’s financial position and prospects.

There is no doubt that 2009 will represent a challenging operating environment for Xstrata and the mining sector as a whole. Your Board has every confidence that Xstrata has the requisite skills, management structure and financial flexibility to mitigate the risks and seize the opportunities created by current economic conditions, with the overarching objective of continuing to create value for its shareholders over the long term.

Willy Strothotte

Chairman

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