Earnings

The effective tax rate in the year declined to 25% compared to 28% in 2007, due to lower earnings in higher tax jurisdictions and a strengthening US dollar impacting entities which for tax purposes, lodge returns in local currencies. Minority interests decreased due to lower profits from Minera Alumbrera, particularly in the second half of 2008.

Earnings summary
$m	Year ended 31.12.08	Year ended 31.12.07
EBIT (before exceptional items)	7,261	8,792
Net finance costs	(660)	(793)
Income tax expense	(1,634)	(2,301)
Effective tax rate	25%	29%
Minority interests	(269)	(326)
Attributable profit (before exceptional items) from continuing operations	4,698	5,372
Earnings per share (before exceptional items) from continuing operations	4.90	5.60
Loan issue costs written-off		(60)
Net losses from recycled foreign currency translation reserve	(226)	(62)
LionOre break fee (after costs)		275
Restructuring and closure costs	(125)
Liability fair value adjustments	(194)	(25)
Profit from discontinued operations		53
Impairment of assets	(974)
Share of loss from associates	(34)
Inventory write downs	(93)
Profit on restructure of joint venture	213
Income tax on exceptional item	330	(10)
	(1,103)	171
Attributable profit	3,595	5,543
Earnings per share	3.75	5.78

Post-tax exceptional items amounted to $1,103 million and include a tax credit on exceptional items of $330 million and net losses from recycled foreign translation reserves of $226 million. Exceptional EBIT items of $1,207 million include $974 million of asset impairments following Xstrata’s early actions to close or suspend marginal operations in the light of the low commodity price environment. The Group-wide impairment assessment that has been performed confirms that, on an overall Group basis, the recoverable amounts of Xstrata’s assets exceed book value as at 31 December 2008 by some $25 billion. However, as a result of the IFRS requirement to perform impairment testing at an asset or cash-generating unit level, impairments in certain assets have been identified. The strengthening US dollar has reduced, in US dollar terms, the carrying value of a number of Xstrata’s operations which have local functional currencies (mainly the Australian dollar, South African Rand and Euro). The overall impact of these exchange rate movements has been to reduce the net book value of Xstrata’s assets by approximately $5 billion between 30 June 2008 and 31 December 2008, with a corresponding movement in the foreign currency translation reserve.

The value of the Xstrata Nickel’s Falcondo assets in the Dominican Republic was impaired by $455 million including goodwill of $176 million, following the decision to place the operation on prolonged care and maintenance. In the copper business, the Kidd operations in Canada incurred an impairment of $227 million following a re-evaluation of closure and rehabilitation costs. In north Chile, Altonorte and Lomas Bayas incurred an impairment of the carrying value of property, plant and equipment assets of $92 million and $144 million respectively including goodwill of $37 million. This was due predominantly to the impact of weaker domestic demand for sulphuric acid and medium-term environmental capital expenditure requirements on future cash flows.

In addition to these material impairment charges, restructuring and closure costs amounting to $53 million were incurred to close the Lennard Shelf zinc operation in Western Australia in August and $18 million of asset impairments. In November 2008, Xstrata announced the early closure of the Craig and Thayer-Lindsley nickel mines in Canada, incurring $52 million of closure costs and $20 million of asset impairments. An impairment of $93 million was applied to nickel inventory in light of lower nickel prices and consequently lower net realisable value. Volumes of inventory were higher than usual at year-end, due to product from XNA mines being transferred to feed the Sudbury operations in Canada in the final quarter, which resulted in a build-up of inventory in the operational pipeline.

Additional closure costs of $12 million for Falcondo and $8 million for the corporate office downsizing. Xstrata Alloys’ minerals reserves were subject to an impairment of $18 million and a net impairment charge of $34 million was recorded in respect of the Group’s investment in Lonmin.

A restructuring of the Group’s interest in the Douglas Tavistock Joint Venture (DTJV) was undertaken in the first half of 2008. Under the terms of the restructuring, the Group acquired and now manages mobile equipment and reserves equivalent to its 16% interest of the joint venture, in an area contiguous to its 100%-owned Arthur Taylor Colliery Open-cast Mine (ATCOM). This is classified as a business combination under IFRS and recognising the fair value of the assets acquired in place of an interest in the DTJV resulted in an exceptional gain of $213 million. Additional exceptional items were also reported in South Africa, ensuing from an adjustment in the liability due to BEE partners, as a result of a change in the valuation of the assets’ ability to generate returns, resulting in a net exceptional charge of $194 million.

The following table indicates EBIT sensitivities for 2009 after allowing for contracted sales and any commodity or currency hedging in place at 2008 year-end, together with sensitivities assuming no contracted sales or hedging.

EBIT sensitivities
$m	Impact on 2009 EBIT*	Indicative full-year EBIT**
1¢/lb movement in ferrochrome price	10	11
$1/kg movement in ferrovanadium price	3	3
$1/tonne movement in Australian thermal export FOB coal price	27	37
$1/tonne movement in Australian coking export FOB coal price	3	5
$1/tonne movement in South African export thermal FOB coal price	8	11
1¢/lb movement in copper price	27	27
$10/oz movement in gold price	5	5
$1/lb movement in nickel price	144	144
1¢/lb movement in zinc price	22	22
$100/tonne movement in zinc treatment charge price	68	10
1¢/lb movement in lead price	6	6
$100/oz movement in platinum price	12	12
$100/oz movement in palladium price	6	6
10% movement AUD	392	403
10% movement CAD	191	199
10% movement EUR	32	32
10% movement ZAR	132	142