Strategy in focus

Xstrata continues to pursue a core strategy of value creation and growth. However, since mid-September 2008 the global financial crisis has led to an unprecedented liquidity shortage in financial markets leading to markedly lower expectations for global economic growth and sudden and severe declines in the price of commodities produced by Xstrata. Given the lack of visibility into economic prospects and the uncertain outlook for commodity prices in the short term, Xstrata’s near-term strategic imperatives are to:

• implement operating plans to reposition operations lower on the cost curve;
• optimise cash in the short term to ensure the Company remains financially robust with an investment grade balance sheet even under a scenario in which the period of uncertainty is unexpectedly prolonged; and
• position Xstrata to emerge from the current downturn with improved financial flexibility, allowing the Group to pursue value-accretive growth opportunities presented by the current dislocation of market values and underlying valuations.

Xstrata’s businesses have acted rapidly and decisively in response to the sudden lower demand for key commodities and need to conserve cash by:

• suspending or closing higher cost or unprofitable production;
• aligning production with demand;
• redoubling efforts to drive down operating costs and working capital;
• substantially reducing discretionary sustaining and expansionary capital expenditure; and
• securing a robust capital structure through refinancing and restructuring existing debt and through a substantial, fully pre-emptive rights issue to repay existing debt.