Copper

Operations

Financial and operating data
$m	Year ended 31.12.08	Year ended 31.12.07
Revenue	11,464	12,794
Argentina
Alumbrera	1,216	1,401
Australia
North Queensland	1,949	1,991
Canada*	4,373	4,755
Chile
Collahuasi†	1,131	1,384
North Chile	1,338	1,456
Peru
Antamina‡	731	885
Tintaya	515	785
Marketing and trading	211	137
EBITDA	3,160	4,987
Argentina
Alumbrera	488	756
Australia
North Queensland	951	1,203
Canada*	101	340
Chile
Collahuasi†	673	1,038
North Chile	85	363
Peru
Antamina‡	530	699
Tintaya	275	537
Marketing, trading and other	57	51
Depreciation and amortisation	(863)	(824)
Argentina
Alumbrera	(97)	(96)
Australia
North Queensland	(215)	(161)
Canada*	(85)	(84)
Chile
Collahuasi†	(150)	(144)
North Chile	(91)	(85)
Peru
Antamina	(145)	(144)
Tintaya	(80)	(110)
EBIT	2,297	4,163
Argentina
Alumbrera	391	660
Australia
North Queensland	736	1,042
Canada*	16	256
Chile
Collahuasi†	523	894
North Chile	(6)	278
Peru
Antamina‡	385	555
Tintaya	195	427
Marketing, trading and other	57	51
Share of Group EBIT	31.6%	47.4%
Capital employed‡‡	14,732	14,824
ROCE	19.2%	35.8%
Capital expenditure	1,115	721
Argentina	77	72
Australia	273	214
Canada*	135	82
Chile
Collahuasi†	183	80
North Chile	282	167
Peru
Antamina‡	63	25
Tintaya and others	102	81
Sustaining	557	425
Expansionary	558	296

EBIT variances
	$m
EBIT 31.12.07	4,163
Sales price*	(829)
Volumes	(395)
Unit cost – real	(40)
Unit cost – CPI inflation	(100)
Unit cost – mining industry inflation	(304)
Unit cost – foreign exchange	(38)
Other income and expenses	(126)
Depreciation and amortisation (excluding foreign exchange)	(34)
EBIT 31.12.08	2,297

The dramatic fall in copper prices, in the last quarter of 2008 heavily influenced the EBIT for the year, compounded by lower prices for Xstrata Copper’s other by-products, with the exception of gold. Lower commodity prices reduced earnings by $829 million compared to the prior year.

The impact of 2007 provisional price settlements on the realised copper price for 2008 was to increase earnings by $349 million compared to the impact of 2006 provisional price settlements in 2007. As at 31 December 2008, provisionally priced sales amounted to 243,000 tonnes to be settled in 2009. Provisionally priced sales at year-end were valued at prevailing market rates resulting in a negative mark-to-market December adjustment of $2 million.

With the dramatic collapse of copper prices in the second half of the year, the EBIT impact attributable to the difference in final settlements of provisionally priced sales during the first half of the year relative to settlements in the second half is $611 million.

Reduced sales volumes eroded EBIT by $395 million, with production reduced by 3% for the full year, mainly as a result of lower head grades at Alumbrera and Mount Isa mines. The reduced production also had an unfavourable impact on real unit costs.

Higher CPI and mining industry related inflation, particularly in electricity, sulphuric acid, fuel and steel prices, reduced earnings by $404 million, while the weaker US dollar against all local currencies during the first eight months of the year offset the impact of a marked strengthening of the US dollar from September and decreased EBIT by $38 million. Other income and expenses include the introduction of export retentions taxes in Argentina and negatively impacted earnings by $104 million.

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Argentina

Lower realised copper prices together with reduced gold and copper head grades decreased EBIT at Minera Alumbrera by 41% to $391 million. EBIT was also impacted by the higher costs of fuel, electricity, grinding balls and the commencement of the first full year of export tax payments to the national government.

Copper in concentrate and gold production decreased by 13% and 18% respectively compared to 2007, due to planned lower head grades, reduced throughput in the third quarter due to difficulties in treating high gypsum content in ore, and the delayed commissioning of the flotation expansion project. A difficult first half performance was partially offset by an overall strong second half copper in concentrate production which increased by 39% compared to the first six months of the year. For the full year, copper in concentrate sales volumes were 13% lower compared to the previous year.

Australia

The North Queensland division, comprising the Ernest Henry and Mount Isa operations, registered EBIT of $736 million for 2008, 29% lower than 2007 mainly due to lower copper prices, reduced volumes of copper sales from the division’s own operations, lower volumes of gold sales and mining industry inflation, in particular increases to diesel, steel, explosives and reagents. Copper sales for 2008 were in line with the previous year at 279,400 tonnes.

The North Queensland mining operations produced 262,500 tonnes of copper in concentrate, a decrease of 2% compared to 2007 due to planned lower head grades at Mount Isa, partially offset by higher milled tonnes and grades at Ernest Henry. Production of copper in concentrate decreased by 12% at Mount Isa to 151,600 tonnes, but increased by 16% to 110,900 tonnes at Ernest Henry.

Mount Isa smelter anode production improved by 8% to 236,200 tonnes as the smelter expansion project delivered improved productivities in the second half. This, together with purchased anode from Xstrata Copper’s Altonorte smelter in Chile, resulted in an increase of 15% in copper cathode production from the Townsville refinery compared to 2007.

Canada

EBIT at the Canada division declined significantly from 2007 to $16 million, due to lower copper and zinc prices, reduced copper sales volumes, lower treatment and refining revenue, higher sea freight costs and a stronger Canadian dollar.

Copper in concentrate production at Kidd decreased by 8% to 42,700 tonnes due to planned lower copper head grades. Zinc in concentrate production increased by 24% to 116,300 tonnes compared to the same period in 2007, due to higher zinc head grades.

The combined impact of a planned maintenance shutdown, an additional three-week outage to reduce the dependence on marginal offshore concentrate and a 36-day strike at the metallurgical site reduced throughput at the Kidd smelter by 25% to 340,400 tonnes of concentrate, contributing to a 32% decrease in copper cathode production at the Kidd refinery.

The Horne smelter produced 171,500 tonnes of anodes, 3% less than the prior year due to an unplanned maintenance shutdown that reduced throughput by 4%. The volume of recycled feeds, procured by Xstrata Recycling for processing at the Horne smelter, increased by 7% to 127,800 tonnes.

Higher anode supply helped boost copper cathode production at the CCR refinery by 8% to 344,800 tonnes compared to 2007, when output was affected by a labour dispute in the first half.

Chile

Collahuasi

Xstrata’s 44% share in Collahuasi generated EBIT of $523 million, a decrease of 41% compared to 2007, due to the significant impact of provisional price revaluations on the final quarter sales revenue of $283 million, lower molybdenum sales prices and volumes, higher ocean freight costs and significant mining industry inflation, offset partially by increased copper production.

Despite adverse weather conditions, metallurgical difficulties in the concentrator and unplanned maintenance shutdowns, including a 14-day stoppage of the main SAG mill, Xstrata’s share of total copper production increased by 3% to 204,300 tonnes compared to 2007 when the main SAG mill was shut down for 46 days to replace the stator. Strong production was achieved in the last quarter of 2008, improving 21% over the average of the first three quarters, following an organisational review and restructuring of the executive and operational management teams of the joint venture.

During 2008, Collahuasi received $33 million in partial payments from insurers to cover the SAG mill stator failure. Negotiations are ongoing and final settlement of the claim is expected in the first half of 2009.

North Chile

Two earthquakes in the last quarter of 2007 impacted the performance of the North Chile division during 2008, contributing to lower anode and sulphuric acid production at Altonorte and decreased cathode production at Lomas Bayas. Force majeure was declared in March 2008 on Altonorte acid and anode sales contracts due to earthquake damage to acid plants numbers 2 and 3. In September, the number 2 acid plant was decommissioned and acid supply contracts terminated. New acid supply contracts have subsequently been agreed.

Anode and acid production volumes declined by 15% and 10% respectively compared to 2007 as a result of the restricted sulphuric acid capture and storage capacity and, to a lesser extent, lower copper in concentrate feed grades.

Cathode production at Lomas Bayas decreased by 4% to 59,100 tonnes compared to 2007 due to the impacts of the earthquakes on crushing and conveyor lines and from the impact of lower ore grades and recoveries. Record monthly cathode production of 6,500 tonnes was achieved in December reflecting the operation of the leach pad and EW plant at the new design capacity of 75,000 tonnes per annum.

The North Chile division generated an EBIT loss of $6 million in 2008 on a pre-exceptional basis, due to lower copper prices, reduced copper production at Lomas Bayas and lower acid production and sales at Altonorte and higher energy and purchased acid prices.

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Peru

Antamina

Xstrata’s 33.75% attributable share of Antamina’s financial performance is divided between Xstrata Copper and Xstrata Zinc on the basis of sales revenues for copper and zinc respectively. Xstrata Copper’s share of Antamina EBIT declined by 31% to $385 million in 2008 compared to the previous year mainly due to lower realised copper, molybdenum and silver prices and higher costs due to mining industry inflation.

Higher copper head grades boosted copper in concentrate production by 4% to 116,000 tonnes, and more than offset the impact of an unplanned 11-day shutdown of the SAG mill and consequent reduced mill throughput and speed. The successful commissioning of a pebble crushing plant in mid-2008 compensated for the SAG mill’s performance.

Tintaya

EBIT decreased by 54% at Tintaya to $195 million in 2008, due to lower realised copper prices, mining cost inflation, impacting particularly the costs of sulphuric acid, grinding media, lime, tyres, fuel, and explosives, and reduced sales volumes as a result of lower production compared to the previous year.

A strong production performance in the second half largely offset adverse weather conditions and high clay content ores in the earlier part of the year, resulting in copper concentrate production slightly below the prior year. Increased annual concentrator throughput of 5% compensated for lower copper sulphide grades and recoveries. Gold in concentrate production decreased by 5% due to a 26% decline in gold head grades.

Copper cathode production from the SX/EW plant decreased by 24% to 27,300 tonnes due to lower oxide ore mined, reduced recoveries and grade on leach pads compared to 2007, as lower grade stockpiles were used for blending to mitigate the difficulties of processing ores with unusually high clay content.

Summary production data
	Year ended 31.12.08	Year ended 31.12.07
Total mined copper (t) (contained metal)	952,426	986,663
Total mined gold (oz) (contained metal)	687,213	777,257
Total copper cathode (t)(from mined and third-party material)	806,783	802,271
Consolidated C1 cash cost – post by-product credits (US¢/lb)	89.3	56.9