Investors / Debt investors
Debt investors
Risk Management
Xstrata does not seek to hedge interest rates, commodity price and currency exchange rate exposure in the normal course.Interest rates
Xstrata’s strategy is generally to borrow and invest at floating (short-term) rates of interest rather than fixing for long periods of time. Short-term US dollar interest rates are generally lower than long-term rates, resulting in lower interest costs to the Group. Furthermore, cyclical movements of interest rates tend broadly to counteract those of commodity prices.
Exchange rates
The US dollar is the currency in which the majority of the Group’s sales are denominated. Operating costs are influenced by the currencies of those countries where the Group’s operations are located and also by the currencies in which imported goods and services are purchased.
The US dollar is also the currency in which financial performance is measured and in which financial results are presented both internally and externally.
Commodity prices
The Group is exposed to fluctuations in commodity prices, with the commodity mix spread between those which are priced by reference to prevailing market prices on terminal markets and those that are set on a contract basis with customers, generally on an annual basis.
Credit risk
The Group's financial assets include cash on hand, trade and other receivables and investments. Credit risk also arises on derivative financial instruments.
The Group limits exposure to credit risk on surplus cash and derivative financial instruments by allocating counterparty limits which are set with reference to credit limits assigned by S&P and Moody’s;
Further, given the diverse nature of the Group's operations (both in relation to commodity markets and geographically) it also does not have significant concentration of credit risk in respect of trade receivables, with exposure spread over a large number of customers.
Last Modified on September 12 2007, 13:48:29 PST