Nickel

Developments

Koniambo Project

During 2008, the Koniambo Nickel project in New Caledonia continued to advance with a number of large construction contracts awarded, including the module construction programme, power station, equipment, technology packages, mass earthworks and dredging. With capital conservation a priority for 2009, re-sequencing activities at Koniambo are under way, resulting in reduced capital expenditures in 2009 and deferral of the related spending to subsequent years. As a result of the re-sequencing, the Koniambo implementation timeline has changed, with the first ore planned to be processed during the first half of 2012 and target ramp up expected to reach full annual production of 60,000 tonnes of nickel in ferronickel within the following two years. The Group has undertaken these activities in consultation with its joint venture partner and local authorities.

Kabanga Nickel

The Kabanga project in Tanzania is a 50:50 joint venture between Xstrata Nickel and Barrick Gold Corporation. Indicated resources at Kabanga are estimated at 23.2 million tonnes at 2.64% nickel and an additional 28.5 million tonnes of inferred resources at 2.7% nickel, at a 1% nickel cut-off grade. The pre-feasibility study for the project was completed at the end of 2008. Work plans for the execution phase are currently under review to ensure the project’s timing coincides with improved market conditions.

Araguaia

The Araguaia project is located in the north-western Brazilian state of Para. Mineral resources include a measured resource of 16.1 million tonnes at 1.44% nickel, an indicated resource of 88.6 million tonnes at 1.3% nickel and an inferred resource of 37.6 million tonnes at 1.3% nickel at a 0.9% nickel cut-off grade. Drilling has now been completed. Engineering studies of the project at the scoping study level are still ongoing and environmental baseline evaluations have commenced, although further development is being deferred given current market conditions.

Nickel Rim South

The Nickel Rim South project in the Sudbury basin remains on schedule to ramp up to 60% of its ultimate 1.25 million tonne per annum production capacity in 2009, equivalent to approximately 7,400 tonnes of nickel. The project’s first phase, budgeted at C$627 million (approximately US$517 million) was completed in December 2008. Phase 1 included construction of the main and vent shafts, which were completed without a lost-time injury, on time and within budget. The remaining project capital expenditure of C$300 million (approximately $270 million) is for the completion of mine development and infrastructure, which commenced in 2008 and will continue through 2009 and early 2010. Nickel Rim South is expected to provide a high-value ore feed for more than 15 years while significantly reducing Sudbury’s unit costs and will play a key role in transforming the Sudbury operations.

In Canada, Nickel Rim South is on schedule to ramp up to 60% capacity in 2009. Nickel Rim South will provide high-value ore feed that will significantly reduce Sudbury’s costs

Sudbury

Following the November 2008 announcement of the accelerated closure of the end-of-life Craig and Thayer-Lindsley operations at Sudbury, Xstrata Nickel announced in February 2009 the immediate placing on care and maintenance of the Fraser Mine Complex. The Strathcona Mill will be reduced to two work shifts from four as a result of reduced feed. Total production from the Sudbury smelter is expected to remain at a similar level compared to 2008 production as shortfalls arising from the cessation of Sudbury mines will be offset by concentrates from Nickel Rim South and Xstrata Nickel Australasia. Concentrates will also continue to be processed from Xstrata Nickel’s Montcalm and Raglan operations, together with third-party feed.

Fraser Morgan

In February 2009, Xstrata Nickel announced the indefinite deferral of the 7,700 tonne per annum Fraser Morgan project as part of its restructuring of the Sudbury operations. The Fraser Morgan project will be evaluated on an ongoing basis and may be re-initiated if market conditions allow.

Nikkelverk

Feasibility studies confirmed expansion plans for the Nikkelverk refinery to a sustained capacity of 92,000 tonnes of nickel per year by 2011 without investing additional capital.

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Falcondo

On 19 August 2008, Falcondo announced the temporary suspension of its ferronickel mining and processing operations in the Dominican Republic, as a result of market conditions. Subsequently, on 4 December 2008, Falcondo announced the continued shutdown of its nickel production operations, placing them under care and maintenance. Around 30% of the operation’s full-time equivalent employees were retained to maintain the operating assets, operate the power plant to provide electricity to the Dominican Republic national grid, conduct progressive mine rehabilitation and reforestation activities and continue work on the energy conservation project, aimed at investigating the potential to convert the operation’s main energy source from oil to a viable alternative energy source.

Work relating to the maintenance of surface rights and local permitting continues at the Loma Miranda project. Following an extensive drilling programme, a preliminary resource estimate indicates a 50% increase in indicated resources.

Raglan

The scoping study for the high-grade Zone 5-8, the largest mineralised zone in Raglan’s history, was completed during 2008 and the pre-feasibility for Mine 7 is planned for completion by the end of the first quarter of 2009. An extension to Raglan’s permanent accommodation complex and the rehabilitation of the Deception Bay wharf were also completed in 2008. In 2009, emphasis will be placed on existing mines and sustaining production at 1.3 million tonnes per annum.

Sinclair

XNA’s Sinclair Nickel Project completed construction and commenced operations in the third quarter. With an expected capacity of approximately 300,000 tonnes of ore, producing 5,500 to 6,000 tonnes of nickel-in-concentrate, the Sinclair Nickel mine’s deposit shows promising potential for increased resource size. The ramp up of this project is under review and subject to adjustment based on prevailing market conditions.

Sales volumes
	Year ended 31.12.08	Year ended 31.12.07
North America – Sudbury, Montcalm, Raglan and Sudbury Smelter
Total nickel (t) (payable metal)	89,567	92,548
Copper in concentrate (t)
inter-company (payable metal)	16,997	18,606
Total copper (t) (payable metal)	54,292	52,968
Australia – XNA
Nickel in concentrate (t) third-parties (payable metal)	2,774	–
Copper in concentrate (t) third-parties (payable metal)	77	–
Cobalt in concentrate (t) third-parties  (payable metal)	16	–
Dominican Republic
Ferronickel (t) (payable metal)	19,847	31,357
Europe - Nikkelverk
Refined nickel from own mines (t)(payable metal)	43,748	55,928
Refined nickel from third parties (t) (payable metal)	45,819	36,620
Total nickel (t) (payable metal)	89,567	92,548
Total nickel sales (t) (payable metal)	92,341	92,548
Total ferronickel sales (t) (payable metal)	19,847	31,357
Total copper sales (t) (payable metal)	54,369	52,968
Total cobalt sales (t) (payable metal)	3,153	3,523
Average LME nickel cash price ($/tonne)	21,104	37,089
Average Metal Bulletin cobalt low grade price ($/lb)	35.16	27.70
Average LME copper cash price ($/tonne)	6,956	7,139