Treasury Management and Financial Instruments

The Group is generally exposed to US dollars through its revenue stream and seeks to source debt capital in US dollars directly or by borrowing in other currencies and swapping them into US dollars. Over 90% of the Group’s debt is priced with reference to short-dated US floating interest rates, ensuring that Xstrata reaps the full benefit of the natural hedge to commodity prices provided by US interest rates. In a low commodity price environment, this capital structure significantly reduces the cost of the Group’s debt financing.

Currency cash flow hedging may be used to reduce the Group’s short-term exposure to fluctuations in the US dollar against local currencies. The unrealised mark-to-market gain at 31 December 2008 was $4 million. Currency hedging losses reflected in the income statement for the year amounted to $9 million.

The Group did not enter into any strategic, long-term base metals hedging contracts in the period. The unrealised mark-to-market loss on coal and gold hedges at 31 December 2008 for contracts maturing in 2009 was $75 million, based on the forward curve at that date.