Coal

Operations

Financial and operating data
$m	Year ended 31.12.08	Year ended 31.12.07
Revenue: operations†	7,633	3,965
Coking Australia	1,595	587
Thermal Australia	4,139	1,996
Thermal South Africa	1,058	864
Thermal Americas	841	518
Revenue: other	311	236
Coking Australia	2	–
Thermal Australia	260	180
Thermal South Africa	49	56
Total revenue	7,944	4,201
Coking Australia	1,597	587
Thermal Australia	4,399	2,176
Thermal South Africa	1,107	920
Thermal Americas	841	518
EBITDA	4,173	1,194
Coking Australia	1,022	214
Thermal Australia	2,191	508
Thermal South Africa	542	235
Thermal Americas	418	237
Depreciation and amortisation	(624)	(504)
Coking Australia	(92)	(71)
Thermal Australia	(317)	(231)
Thermal South Africa	(131)	(126)
Thermal Americas	(84)	(76)
EBIT	3,549	690
Coking Australia	930	143
Thermal Australia	1,874	277
Thermal South Africa	411	109
Thermal Americas	334	161
Capital employed	8,343	8,557
Australia	5,194	5,269
South Africa	1,317	1,481
Americas	1,832	1,807
Share of Group EBIT	48.9%	7.8%
Australia	38.6%	4.8%
South Africa	5.7%	1.2%
Americas	4.6%	1.8%
Return on capital employed*	37.0%	9.2%
Australia	44.6%	10.0%
South Africa	27.7%	7.6%
Americas	18.2%	8.9%
Capital expenditure	1,204	807
Australia	776	489
South Africa	346	231
Americas	82	87
Sustaining	459	460
Expansionary	745	347

EBIT variances
	$m
EBIT 31.12.07*	690
Sales price*	2,823
Volumes	63
Unit cost – real	117
Unit cost – CPI inflation	(230)
Unit cost – mining industry inflation	(206)
Unit cost – foreign exchange	81
Other income and expenses	47
Depreciation and amortisation (excluding foreign exchange)	(83)
Business combinations	247
EBIT 31.12.08	3,549

Very strong demand for thermal and coking coal in both the Pacific and Atlantic markets for the majority of the year drove coal prices to unprecedented levels. Robust prices were complemented by a strong operating performance and record sales volumes at Xstrata Coal’s operations, which contributed an additional $63 million to EBIT compared to 2007. Overall, Xstrata Coal EBIT rose more than four-fold to $3.5 billion, with stronger prices contributing an additional $2.8 billion to 2008 earnings.

Sales volumes increased for all operating regions except South Africa, which struggled with rail constraints. Coking coal production benefited from a full year of Tahmoor sales and opportunistic sales from the Oaky Creek Complex to take advantage of excess capacity during the Queensland floods in the first quarter of 2008. Australian thermal coal sales benefited from the continued ramp up at Ulan Underground and the commencement of the owner-operated Glendell operation. Cerrejón continues to increase sales in line with its expansion to 32 million tonnes per annum total operating capacity.

Inflationary pressures in mining sector input costs continued in 2008, in particular for fuel and explosives and impacted EBIT by $436 million compared to 2007. Excluding the effect of CPI, royalties and coal mining sector inflation, real unit cost savings of $117 million year-on-year were achieved due to productivity improvements at the Newlands Northern Underground, the improved Ulan underground performance, changes in the domestic sales mix in South Africa, partially offset by cost increases at Bulga Opencut due to an increase in contractor overburden removal, ongoing geological issues at Beltana and Rolleston, geotechnical issues at Newlands Opencut operations, and the planned closure of the Impunzi Underground.

The rapid depreciation in exchange rates in the last quarter of the year more than offset stronger operating currencies in the early part of the year, with foreign exchange contributing an additional $81 million to EBIT compared to the prior year.

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Australian Thermal Coal

The strength of the Asian coal markets drove up the price of coal during 2008, with the average realised thermal price in 2008 rising to $96 per tonne, an increase of 87% on the prior year. Average realised semi-soft prices also increased relative to the 2007 levels, up by 152% to $158 per tonne, leading to an increase in EBIT of 577%, to $1.9 billion.

Saleable production increased by 15% over 2007 levels to 40 million tonnes, due to an improved performance at the Newlands Northern Underground, continued ramp up at Ulan Underground and the commencement of the owner-operated Glendell operation at the Mount Owen Complex. Improved performance by Port Waratah Coal Services (PWCS) in New South Wales decreased demurrage expenditure in 2008.

Australian coking coal

In 2008, market prices for coking coal reached record levels, driven by strong demand and a shortage of supply due to the floods in Queensland in the first quarter of the year. EBIT from the coking coal operations increased to $930 million, up 550% on 2007, as a result of significantly higher average received prices of $233 per tonne, an increase of 137% over the previous year.

Overall coking coal sales volumes increased in 2008, benefiting from the inclusion of Tahmoor for the full 12 months, plus opportunistic sales from the Oaky Creek Complex during the floods in the first quarter. This was partially offset by the impacts of the global economic crisis and the significant downturn in demand from steel and manufacturing industries in the fourth quarter. As a consequence, Xstrata Coal made the decision to suspend longwall operations at the Oaky Number 1 mine and will continue to meet customer demand via existing stockpiles and production from the Oaky North operation.

South Africa

EBIT from the South African operations increased by 277% to $411 million due to significantly higher average realised prices, which were 52% higher than in 2007 at $78 per tonne, on the strength of the Atlantic Coal market, real unit cost savings and the weaker South African Rand.

Sales volumes decreased by 4% to 24 million tonnes in 2008, predominantly due to the rail constraints experienced during the year which resulted in a decline in export tonnes of 10% to 12.3 million tonnes. To mitigate this reduction in export capacity, efforts were made to secure additional domestic sales to supplement lost export sales, resulting in a 5% increase in domestic sales to 11.7 million tonnes. The domestic sales were primarily for ESKOM to assist in alleviating the power issues across the country. Production for 2008 decreased by 2 million tonnes, mainly due to the planned closure of the Impunzi Underground operation.

Real unit costs, excluding removing the effect of inflation and one-off costs, improved significantly due to the continued ramp up at the low cost Goedgevonden operation and the change in the sales mix due to a higher proportion of lower cost domestic sales, partially offset by the closure of the Impunzi Underground. The South African Rand depreciated approximately 17% during the year, which also benefited EBIT.

Americas

The Cerrejón operation in Colombia achieved a record operating result for 2008, with Xstrata Coal’s share of EBIT more than doubling to $334 million compared to the previous year. This result was due to the strength of the Atlantic coal market during the year which enabled Cerrejón to achieve average realised prices of $81 per tonne, 55% up on 2007.

Sales volumes increased to 10.5 million tonnes, up 6% on 2007. Productivity improvements were achieved as a result of the investments made in equipment to achieve increased total production capacity of 32 million tonnes per annum by year’s end. Xstrata Coal’s share of production has increased to 10.4 million tonnes in 2008.

Operating costs at Cerrejón were impacted by significant inflationary pressures in 2008, in particular fuel and explosives. After removing the effect of inflation and one-off costs, real unit cost savings have been achieved through productivity improvements.

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Summary production data
(million tonnes)	Year ended 31.12.08	Year ended 31.12.07
Total consolidated production	85.5	82.8
Australian coking	6.9	6.8
Australian semi-soft coking	5.3	6.4
Australian thermal	40.2	35.0
South African thermal*	22.7	24.7
Americas thermal	10.4	9.9
Consolidated Australian sales total	51.8	46.5
Coking export	7.0	6.0
Semi-soft coking export	5.3	6.4
Thermal export	31.3	26.6
Thermal domestic	8.2	7.5
Consolidated South African sales total*	24.0	24.9
Thermal export	12.3	13.7
Thermal domestic	11.7	11.2
Consolidated Americas sales total	10.5	9.9
Attributable Australian sales total	49.5	43.9
Coking export	7.0	6.0
Semi-soft coking export	4.8	5.8
Thermal export	29.6	24.7
Thermal domestic	8.1	7.4
Attributable South African sales total*	19.6	20.1
Thermal export	9.8	11.0
Thermal domestic	9.8	9.1
Average received export FOB coal price ($/t)
Australian coking	232.5	98.1
Australian semi-soft coking	157.5	62.5
Australian thermal	95.6	51.2
South African thermal	78.4	51.7
Americas thermal	80.9	52.3