Operating EBITDA*
$bn
In 2010, Xstrata achieved record production of coking coal and nickel while volumes of mined copper, chrome and lead in concentrate rose compared to the previous year. Xstrata Zinc Australia and Xstrata Nickel delivered on the promise of increased volumes and reduced operating costs, a direct result of the restructurings undertaken in late 2008 and 2009. Indeed, every one of Xstrata’s commodity businesses reported real unit cost savings compared to the prior year as lower cost production was commissioned and initiatives to improve productivity took effect.
Xstrata Zinc
At Xstrata Zinc, recent capital-efficient expansions at Mount Isa and McArthur River Mine delivered a 10% increase in volumes from the Australian zinc operations and further reduced unit costs. Operational productivity improvements across our zinc operations contributed $208 million to operating profit in 2010, including $163 million of sustainable cost savings. In total, Xstrata Zinc C1 cash costs on an integrated mine and smelter basis have been reduced by 40% over the last two years from 50.8¢ per pound in 2008 to less than 31¢ per pound at the end of 2010. This is a remarkable achievement, attained despite the significant, unfavourable headwind of a weakening US dollar against producer currencies. A feasibility study into a further expansion of McArthur River Mine aims to reduce operating costs by a further 20% and is expected to be tabled for approval this year.
Xstrata Nickel
Xstrata Nickel also starts 2011 in a superior position following the restructurings undertaken in 2008 and 2009 to close high cost, end of life operations while continuing to invest in the development of new, low cost production from Nickel Rim South and Koniambo. The world-class Nickel Rim South operation reached nameplate capacity six months ahead of schedule in October and, together with the reopening of the Fraser Mine and further expansions at Raglan and Xstrata Nickel’s Australian mines, enabled Xstrata Nickel to achieve record mined and refined nickel production in 2010, despite the closure of a number of higher cost operations in 2009. C1 cash costs have been dramatically reduced from a starting position amongst the higher cost producers in the industry of over $5 per pound in 2008 to a sustainable cost position towards the lower end of the second quartile of the industry cost curve today. In 2010, C1 costs were reduced ahead of expectations to $2.16 per pound, thanks to the significant by-product credits generated by Nickel Rim South. The Falcondo operation in the Dominican Republic will resume production profitably at a reduced rate of approximately 50% of full capacity during the first quarter, further benefiting volumes, while we continue to work towards the permanent conversion of the operation’s fuel source to convert Falcondo into a sustainable, lower cost producer.
Xstrata Coal
Xstrata Coal’s operations encountered adverse weather conditions in the early part of the year and again from December, including unprecedented flooding in Queensland. While the full impact on production in 2011 is being assessed and depends in part on the speed of recovery in the logistics chain and future rainfall, current spot prices have responded to the inevitable supply constraints. Excluding the impact of difficult weather conditions across its portfolio and protracted strike action at Tahmoor, Xstrata Coal delivered $181 million of real cost savings, primarily due to a 44% increase in production from the Oaky Creek complex, a reduced strip ratio and cost savings initiatives at Cerrejón, and the successful commissioning of the new Goedgevonden open cut mine in South Africa.
Xstrata Copper
Xstrata Copper continued to offset successfully the significant cost impact of lower grades at some of the older operations and stronger local currencies. The overall cost profile of the business also benefited from the permanent closure in May of the Kidd Metallurgical site in Canada. In total, net cost savings of $52 million were achieved, despite a $47 million cost impact from lower grades. This is a highly creditable cost performance which enabled C1 cash costs to be reduced to 89.4¢ per pound. The substantial increases in copper resources announced during the year bring Xstrata’s total estimated in-situ copper resources to almost 90 million tonnes, supporting our industry-leading copper growth pipeline of projects that will increase copper production by over 50% in the next three years, with significant further growth potential thereafter from earlier stage projects.
Xstrata Alloys
At Xstrata Alloys, a recovery in market conditions together with our strategy to retain skilled employees throughout the downturn enabled the efficient restart of idled capacity, increasing chrome production by just under 50%. Initiatives to improve energy efficiency at our smelters and to reduce the amount of higher priced coking coal required in the furnaces further reduced operating costs, offsetting some of the cost pressures attributable to the persistently strong South African rand against the US dollar which has continued into 2011 and the significant rise in the cost of electricity.
Safety and environmental performance
Group safety performance
per million hours worked
Safety and environmental performance are equally important indicators of management and operational performance. In 2010, Xstrata plc was recognised as the industry leader in the Dow Jones Sustainability Index for the fourth consecutive year, and for the first time all managed operations achieved our target of operating without any moderate or more serious (category three or above) environmental incidents. Our businesses also continued to make good progress in reducing the frequency of all injuries sustained, reducing the rate of total recordable injuries, including contractors, by 20% year-on-year to seven per million hours worked, a 79% improvement over the last eight years. While we should justifiably be proud of this ongoing improvement in injury rates, the greatest challenge we face is in eliminating fatalities from our business. We did not achieve our goal in 2010 and three people lost their lives at managed operations. Already in 2011, four fatalities have occurred at Xstrata operations. Every Xstrata employee or contractor has the rightful expectation that they will arrive and leave work in good health and free of injury and I am deeply saddened by this loss of life. My management team and I are resolved that we will do everything in our power to address the underlying causes of any critical or near-miss incidents at our operations, with the ultimate objective of operating without harm to our people.