Strong cash generation from our operations of just under $10 billion contributed to a significantly improved balance sheet. In addition, Glencore International AG exercised its option to acquire the Prodeco coal operations in the first half of 2010, providing a cash inflow of $2.25 billion plus the net balance of earnings and cash invested in the operation by Xstrata – an annualised return of around 25% over the original purchase price. Consequently, net debt was reduced by 38% compared to 2009 to $7.6 billion. Gearing fell to 15% (on a net debt to net debt plus equity basis) compared to 26% at the end of 2009, despite total capital expenditure of $6.1 billion, including $4.3 billion of expansionary capital.
As Xstrata progressively commits to the substantial capital required over the next several years to deliver growth from the portfolio, financial flexibility becomes increasingly important. In 2010, our bank facilities were extended through a $4 billion syndicated loan on favourable terms including the removal of financial covenants from our lending agreements. With increased headroom of some $8.7 billion, a stable investment grade credit rating and ongoing strong cash generation from our operations, I am comfortable that Xstrata is well positioned to meet the capital requirements of our extensive growth ambitions, while preserving sufficient flexibility to identify and rapidly act on opportunities to create further value, should they arise.
