News Releases

2009 Annual Report (PDF)

Zug,  19 March 2010

In accordance with Listing Rule 9.6.1R, Xstrata has today submitted two copies of the 2009 Annual Report to the UK Listing Authority. They will shortly be available for inspection at the Document Viewing Facility which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS

Tel:  020 7066 1000

Xstrata plc will hold its 2010 Annual General Meeting in Zug, Switzerland on 5 May 2010. The 2009 Annual Report, Notice of Annual General Meeting, and Proxy Form will be posted or made available to shareholders on 29 March 2010. A copy of the 2009 Annual Report will be delivered to the UK Registrar of Companies in due course.   The 2009 Annual Report is available from Xstrata’s website at:  http://www.xstrata.com/investors/reports/2009

The Disclosure and Transparency Rules (DTR) require that an announcement of the publication of an Annual Report should include the disclosure of such information from the Annual Report as is of a type that would be required to be disseminated in a Half-yearly Report in compliance with the DTR 6.3.5(2) disclosure requirement.  Accordingly the following disclosures are made below. This disclosure should be read in conjunction with and not as a substitute for reading the 2009 Annual report. 

The following Chairman’s Statement is extracted in full from the 2009 Annual Report.

Chairman’s statement

2009 commenced amidst extremely challenging circumstances for our industry, with ongoing volatility and uncertainty over the short-term economic outlook. Against this background, Xstrata’s robust operational and financial results are commendable and demonstrate the significant efforts undertaken by management to reduce operating costs, restructure operations and conserve cash. Throughout the downturn, the full value of our portfolio of organic growth projects was preserved and these options are now being progressed to meet rising demand. In addition to record production in a number of commodities, over half a billion dollars of real cost savings were achieved and the Group’s financial position was substantially strengthened through a rights issue in the first half and a recovery in operating cash flows in the second half.

In view of the major rights issue in the first quarter of 2009, the final 2008 and interim 2009 dividends were suspended and in my report last year, I set out the Board’s commitment to recommence dividend payments as soon as possible, while maintaining a prudent capital structure. I am pleased to report that the Group’s robust performance in 2010 and the Board’s confidence in the medium-term outlook for Xstrata have enabled us to propose a final dividend of 8 cents per share for payment in respect of 2009, marking a resumption of a progressive dividend policy.

Commodity markets
Stimulus spending by several major governments, notably China, prompted a recovery in commodity markets during 2009 and demand from the industrialising countries offset the full impact of recession in the OECD economies. In early 2010, there is much speculation about the short-term direction of exchange-traded commodity prices and the sustainability of Chinese demand. Volatility is also an increasingly prevalent aspect of our markets, particularly for traded commodities which have become a recognised investment class, and this is unlikely to reduce in the medium term. Nonetheless, we remain confident that the medium-term fundamentals underpinning the outlook for commodities are compelling.

Export industries within China will require a recovery in the US and other Western economies to return to strong growth in the near term and the outlook for the OECD remains more subdued for now. But China’s relentless industrialisation programme and investment in domestic infrastructure will continue to provide a bedrock of demand for Xstrata’s products, which are particularly geared to the construction and electricity sectors. Restocking has not yet fully taken place in many industrial sectors following the very rapid destocking events of late 2008 and early 2009 and we expect this to provide some support for commodities in the near term, before a sustainable global recovery takes hold.

A supply shortage now seems very likely in a number of commodities and it is increasingly difficult to identify sufficient new sources of supply to fulfil anticipated levels of future demand, particularly in commodities such as copper. Even before the financial crisis, a dearth of major projects and the declining production profile of existing operations contributed to a tight outlook for mined supply. Due to the downturn, many projects have been delayed further or suspended and difficulties in obtaining financing have contributed to the cancellation or postponement of exploration programmes, particularly those conducted by smaller mining companies. Many major projects are also located in increasingly complex operating environments with associated pressures on development timelines, permitting and the increasingly important requirement to gain and maintain a broader social licence to operate that often lead to higher costs and longer lead times. In sum, your Board continues to hold a strong conviction that the supply of commodities will fall short of demand. This view underpins our investment in Xstrata’s organic growth programme that will deliver significant additional and lower cost volumes at a time when we expect supply to be tight and demand to continue to grow.

Strategy
It is very satisfying to see Xstrata reach maturity as a major mining company, after the consistent application of a strategy to deliver industry-leading returns to our shareholders in a sustainable manner over the past eight years since IPO.

Xstrata is now entering into another exciting period of its development. We will continue to assess opportunities to add value to shareholders through acquisitions, but the Group’s pipeline of expansionary projects is providing an internal engine of growth that is to a greater extent within our control.  Construction is under way at a number of projects with many further investment decisions expected this year and next. The Board carefully assesses each project brought for approval against the requirement to deliver robust returns on conservative long-run prices, to reduce operating costs compared to current production and in the light of anticipated market conditions and our ability to manage the associated risks.

Xstrata’s approach to developing projects is in line with its overall devolved management model which emphasises accountability at the operational level. The responsibility for each project rests with the appropriate commodity business management team, so that the team responsible for building the project is the team that will also eventually run the project once it commissions. Operational management is encouraged to find innovative ways to manage capital costs and develop projects more efficiently and the Board has been impressed with the progress being made in particular at the Koniambo project and at our range of copper projects to deliver on this objective. Xstrata also benefits from a cadre of senior executives within its commodity businesses who have extensive experience of developing major projects and are providing invaluable oversight and expertise to our expansion programme.

To realise this extensive growth from within the portfolio, your Board recently approved a budget and business plan which anticipates substantial levels of capital spending over the next three years without any material increase in debt levels. Our investment in growth will see production volumes rise by around 50% over current levels to deliver additional volumes of low-cost predominantly coal, copper and nickel production into an increasingly supply-constrained environment.

Sustainability
Xstrata’s objective is to create value for its shareholders in a sustainable manner, minimising our environmental impact, working in collaboration with communities and other groups and prioritising the health and safety of our workforce over production or profits.

Our Business Principles and commitment to sustainable development have provided an important touchstone for the Group during the recent recession. These principles and our Sustainable Development framework have guided the way in which we engage with employees and contractors when difficult decisions over redundancies have to be made. We have taken a risk-based approach to reducing capital expenditure and costs, to ensure that we do so responsibly, without sacrificing safety, environmental performance or operational integrity.  Our investment in community initiatives has continued throughout 2009, enabling us to invest around $65 million in projects that directly benefit the communities in which we operate.

Our ability to manage environmental performance, work in partnership with communities and governments and demonstrate a broader benefit from our presence is all the more important as we enter into a phase of significant organic growth. We aim to run our operations and develop new projects in a manner that creates lasting economic and social benefits for the countries and communities in which we operate, protecting the environment to the greatest extent possible and ensuring that safety standards are of the highest level wherever we operate.

However, sometimes we do not meet our own high standards and I am saddened to report that in 2009, nine people lost their lives while working at Xstrata’s operations or projects. We simply must do better to prevent fatalities and improving safety performance remains of the utmost importance to Xstrata’s Board and management. As usual, a comprehensive Sustainability Report is published separately from the Annual Report and key sustainability risks, strategy and performance data are also provided throughout this report.

Governance
At the Annual General Meeting (AGM) in May 2009, Robert MacDonnell retired from the Board and Peter Hooley was elected by shareholders to join the Board as an independent non-executive director. Dr Con Fauconnier will be proposed for election at the AGM in May 2010 as an independent non-executive director. Dr Fauconnier has particularly extensive experience of the mining industry and the Board is confident that if elected, his expertise will be of significant value to Xstrata.

In addition, Paul Hazen has indicated that he will retire from the Board at the AGM in May. Paul has served as a director on the Xstrata plc Board since the initial public offering in 2002 and I thank him on behalf of the Board and Xstrata management for his commitment and contribution to Xstrata during his tenure.

The Board’s annual assessment of its effectiveness included a review by every director of the effectiveness of the Board committees and structure and an individual director appraisal. In general the evaluation demonstrated that the Board is functioning effectively but a number of useful recommendations were identified from this process, including the decision to transfer the primary responsibility for risk management from the Audit Committee to the full Board. In 2010, an external evaluation of the Board will be conducted, in line with our commitment to conduct an external evaluation every three years. A comprehensive corporate governance report is provided on pages 108 to 115 of Xstrata’s 2009 Annual Report.

Conclusion
Xstrata’s management and employees have successfully cut costs, restructured operations and repositioned the Group to benefit from economic recovery in our key markets. From a robust financial position, Xstrata is poised to deliver substantial volume growth, attractive returns and further cost reductions from the development of its organic growth pipeline. 2010 may well see short-term volatility in economic conditions arising from the withdrawal of stimulus spending and various economies’ efforts to correct imbalances in advance of a full global recovery. But these near-term risks seem unlikely to disrupt a full global recovery in due course and the markets for our products remain highly attractive, with supply shortages likely in a number of commodities and demand set to remain robust over the medium term. In view of this encouraging outlook, the Board remains confident that Xstrata will continue to deliver superior returns to its shareholders.

Willy Strothotte
Chairman

1. Audit reports

The Preliminary Announcement includes a condensed set of financial statements. Audited financial statements for 2009 are contained in the 2009 Annual Report. The Independent Auditor's Report on the consolidated financial statements is set out in full on page 131 of the 2009 Annual Report and Accounts and the Independent Auditor's Report on the parent company financial statements is set out in full on page 219 of the 2009 Annual Report. Both audit reports are unqualified and do not contain any statements under section 498(2) or section 498(3) of the Companies Act 2006.

2. Important events during the year

During 2009 and until the date of the 2009 Annual Report, the important events affecting the Group have been:

On 29 January Xstrata announced a 2 for 1 fully underwritten Rights Issue of approximately 1.96 billion new shares at £2.10 per share to raise approximately £4.1 billion (approximately $5.9 billion) (before costs), to repay debt.  Xstrata received valid acceptances in respect of 1,944,012,662 new shares, representing approximately 99.42% of the total number of new shares offered to shareholders pursuant to the Rights Issue. On 18 March 2009, 1,955,341,080 ordinary shares were issued under a rights issue, raising $5,667 million after expenses.

On 3 March 2009, the Group acquired 100% of the Prodeco Colombian coal operations from Glencore International AG (“Glencore”) for a net consideration, after the cost of granting the call option, of $2 billion with an effective date of 1 January 2009. Glencore had a call option to repurchase Prodeco up to 4 March 2010 for $2.25 billion, plus all profits of Prodeco accrued but not distributed and the net amount of cash paid into Prodeco by the Group. In the statutory accounts, Prodeco is included as a financial asset during the call option period with the net earnings and pro-rata Glencore call option premium included in finance income during this period.

Since the date of the Annual Report, Xstrata received formal notification on 4 March 2010 by Glencore of Glencore’s exercise of its option to acquire the Prodeco coal operations.  Under the option agreement, Glencore will pay Xstrata $2.25 billion in cash upon completion of the sale to Glencore pursuant to the exercise of the option, plus any profits accrued but not distributed to Xstrata during the period 1 January 2009 to the completion date and the net balance of any cash invested by Xstrata.

At the Annual General Meeting on 5 May 2009, Peter Hooley was elected to the Board as an independent non-executive director and Robert MacDonnell retired from the Board.

On 21 June 2009 Xstrata confirmed that it sent a written proposal to the Board of Anglo American plc seeking their consideration of a merger of equals of the two companies that would realise significant value for both companies’ shareholders.  On 2 October 2009, the Takeover Panel Executive announced a deadline of 20 October 2009 for Xstrata to either announce a firm intention to make an offer for Anglo American under Rule 2.5 of The City Code on Takeovers and Mergers or announce that it does not intend to make an offer for Anglo American. Xstrata announced on 15 October 2009 that it had no intention of making an offer for Anglo American. 

In October 2009, Xstrata entered into an irrevocable sale agreement to dispose of its 70% interest in El Morro, the holder of the El Morro copper-gold project, and associated rights and assets to New Gold Inc. which held 30% of El Morro, for a total cash consideration of $463 million. On 16 February 2010 New Gold completed the purchase of Xstrata’s 70% interest after exercising its right of first refusal. The Group recognised a gain of $194 million in respect of the sale.

On 1 Decermber 2009 Xstrata announced that it had entered into an agreement with Zijin Mining Group Co Ltd (“Zijin”) in respect of Xstrata’s 19.9% stake in Indophil Resources NL (“Indophil for AUD 1.28 per share, subject to certain conditions. Indophil’s only major asset is a 34.23% interest, with a right to acquire an additional 3.27%, in the Tampakan copper-gold project in the southern Philippines.  Xstrata holds the remaining 62.5% interest in the Tampakan project which is managed by Xstrata’s affiliate company, Sagittarius Mines, Inc.

3.Principal risks and uncertainties

The risks detailed below represent the principal risks and uncertainties which may impact our ability to execute Xstrata’s strategy at a Group level. These risks have been assessed according to materiality, likelihood and residual risk after controls. Further information about Xstrata’s risk management processes and controls is provided in the corporate governance report on pages 108 to 115 of the Annual Report.

4. Related party transactions

Information about material related party transactions of Xstrata is set out below:

During the year, the Group entered into the following transactions, in the ordinary course of business, with related parties:

* Includes share of joint ventures.
** No provision for doubtful debts has been raised in respect of transactions with related parties.

Included in the transactions with Glencore International AG (Glencore) are US$1,329 million (2008 US$1,136 million) of back-to-back sales whereby the title to the goods has passed to Glencore but they are then on-sold to customers at the same sales price that the Group received.

Amounts payable and receivable, are included in Trade and other receivables (refer to note 19) and in Trade and other payables (refer to note 27), are unsecured and will be settled in cash.

Glencore International AG – substantial shareholder
As at 31 December 2009, Glencore owned 34.4% (2008 34.4%) of the issued share capital of the Company representing 1,010,403,999 ordinary shares (2008 336,801,333 ordinary shares).

Chrome
Xstrata Alloys entered into a ferrochrome marketing agreement with Glencore on 21 April 1995, appointing Glencore as its exclusive world-wide marketing agent for the sale of Xstrata Alloys entire production of ferrochrome other than ferrochrome sold into the US, Canada and certain Asian countries. The agreement continues for as long as Xstrata Alloys produces ferrochrome. Glencore is obliged to use its best endeavours to arrange sales at prevailing market rates subject to initial agreement and approval by Xstrata Alloys prior to effecting the sale. Glencore assists Xstrata Alloys in negotiating sales contracts with third parties. Glencore is entitled to receive an agency fee of 3.5% on FOB sales revenues and an additional fee of
0.75% on FOB sales revenues for assuming the risk of non-payment by customers on this material. Glencore assumes 60% of the risk of non-payment by customers in relation to ferrochrome sales.

If at any time Xstrata Alloys notifies Glencore that it is able to find purchasers for its production at prices higher than those generally obtainable by Glencore, Xstrata Alloys may, unless Glencore is able to obtain similar prices, sell its products in the market. Glencore is nevertheless entitled to an agency fee of 3.5% of FOB sales revenue in respect of such sales. Glencore is also entitled to receive a US$50,000 monthly fee in connection with market analysis and certain administrative tasks it performs for Xstrata Alloys.

Ferrochrome sold into the US and Canada is distributed by Glencore Ltd and Glencore Canada Inc respectively, under two distribution agreements. These agreements continue indefinitely, with both parties having the right to terminate the agreement at 12 months’ notice. The percentage of distribution fees payable by the Group in respect of ferrochrome sold under the distribution agreement is substantially the same as the commission paid in respect of ferrochrome sold under the marketing agreement.

Mitsui & Co. Ltd is the appointed distributing agent for ferrochrome sales into China, Japan and South Korea up to a maximum of 105,000 tonnes per annum. A change in distributing agent for sales into these countries must be done with the consent of Glencore.

Vanadium
In December 1997, the Group, entered into a 20-year marketing agreement with Glencore in respect of Rhovan’s and Vantech’s (closed in 2004) entire production of vanadium other than vanadium sold into the US and Canada.

Glencore is obliged to use its best endeavours to arrange sales of vanadium pentoxide and ferrovanadium to customers at prevailing market rates subject to initial agreement and approval by Xstrata Alloys prior to affecting the sale. Xstrata Alloys is obliged to pay to Glencore an agency fee of 3.5% on FOB sales revenues and an additional fee of 1.5% on FOB sales revenues for assuming the risk of non-payment by customers on this material. Glencore assumes 100% of the risk of non-payment by customers in relation to vanadium sales.

If at any time Xstrata Alloys notifies Glencore that it is able to find purchasers for its production at prices higher than those generally obtainable by Glencore, Xstrata Alloys may, unless Glencore is able to obtain similar prices, sell its products in the market. Glencore is nevertheless entitled to the 3.5% agency fees described above in respect of such sales.

Vanadium pentoxide and ferrovanadium sold into the US and Canada is distributed by Glencore Ltd and Glencore Canada Inc respectively, under two distribution agreements. The distribution agreements have the same term as the marketing agreement and consequently, the percentage of distribution fees payable by the Group in respect of vanadium pentoxide and ferrovanadium is substantially the same as the commission paid in respect of vanadium pentoxide and ferrovanadium sold under the marketing agreement.

Coal
In 2002, the Group entered into a 20-year market advisory agreement with Glencore with fee reviews at the end of every fifth year of the agreement. Pursuant to this agreement, Glencore acts as the Group’s market advisor with respect to its export production of coal (other than for Xstrata Coal’s share of production from the Cerrejón thermal coal operation in Colombia). The fee payable to Glencore is US$0.50 per attributable tonne of coal exported by the Group from Australia or South Africa. The first 5 year fee review has not yet been finalised and both parties are currently operating under the original terms of the agreement.

In 2009, the Group entered into market standard forward commodity price derivatives for 4,455,000 tonnes (2008 1,965,000 tonnes) with Glencore as counterparty. During the year ended 31 December 2009, 3,180,000 tonnes at an average FOB price of US$71.78 per tonne were delivered (2008 105,000 tonnes at an average FOB price of US$64.59 per tonne). At 31 December 2009, 3,195,000 tonnes (2008 1,920,000 tonnes) were contracted with Glencore for delivery in 2010. These derivatives are on arm’s length terms and conditions and are included within derivative financial assets and liabilities (refer to notes 23, 30 and 37).

During the year ended 31 December 2009, 2,550 tonnes were borrowed from Glencore (2008 142,414 tonnes) and 2,550 tonnes were transferred back to Glencore (2008 342,620 tonnes) with nil tonnes owed to Glencore at 31 December 2009 (2008 nil tonnes) on arm’s length terms and conditions.

In 2006, the Group entered into a three-year fuel supply agreement with Glencore to supply diesel fuels to coal mines in New South Wales and Queensland. Under this supply agreement US$113 million (2008 US$116 million) worth of fuel was delivered during the year ended 31 December 2009. The supply agreement is on arm’s length terms and prices change monthly according to the world market price per barrel (US$/BBL). The contract was due to expire in March 2009, however it has been extended until March 2010 under the same terms. Xstrata Coal has put forward a global fuel tender, however, negotiations are still ongoing and no contract has yet been entered into.

In 2005 Cerrejón entered into a five-year fuel supply agreement which expires in February 2010 with Glencore to supply diesel fuels. The Group’s share of the fuel purchases for the year ended 31 December 2009 was US$44 million (2008 US$92 million). The supply agreement is on arms length terms and prices change for each shipment according to the world market price per barrel (US$/BBL). Xstrata Coal South America has also put forward a global tender, however, no contracts have yet been signed.

All coal purchases and sales with Glencore are on arm’s length terms and conditions.

Refer to note 24 for details of the Group’s acquisition of the Prodeco coal assets from Glencore.

Copper
Xstrata Copper has entered into a service agreement with Glencore for a three-year period effective from 1 January 2007 and ‘evergreen’ thereafter with a 12-month cancellation notice for the supply of advice, support and assistance with regard to its marketing and operational hedging activities.

Copper cathode sales agreements were entered into between Xstrata Copper Canada/Xstrata Copper North Chile/Xstrata Commodities Middle East and Glencore for the period 1 January to 31 December 2009. All sales are based on either spot or benchmark terms in accordance with prevailing market conditions.

Xstrata Copper (Minera Alumbrera Limited) has entered into a five-year frame contract with Glencore on an ‘evergreen’ basis. The sales terms for the copper concentrate are negotiated annually on arm's length terms and conditions. Minera Alumbrera Limited on occasions sells concentrate to Glencore at prevailing spot market prices.

A copper precipitate purchase agreement was entered into between Xstrata Copper Canada and Glencore for the period 1 January to 31 December 2009, at prevailing market terms.

Copper concentrate purchase agreements were entered into between Xstrata Copper North Chile and Glencore for a four-year frame contract commencing 1 January 2007. All purchases are based on benchmark terms in accordance with prevailing market conditions.

Copper concentrate sales agreements were entered into between Xstrata Copper Tintaya and Glencore for the period 1 January to 31 December 2009. All sales are based on either spot or benchmark terms in accordance with prevailing market conditions.

A copper concentrate sales agreement was entered into between Xstrata Commodities Middle East and Glencore for a three-year frame contract starting 1 January 2007 at benchmark terms. Xstrata Commodities Middle East also sells concentrate to Glencore based on a spot basis on occasions throughout the year at prevailing market terms.

Copper concentrate purchase agreements were entered into between Xstrata Commodities Middle East and Glencore for the period 1 January to 31 December 2009 at prevailing market terms. Xstrata Copper North Queensland has entered into a sales agreement with Glencore for copper Concentrate for a three-year period effective from 1 June 2008 and ‘evergreen’ thereafter. This agreement consists of an annual benchmark and spot component.

A copper anode purchase agreement was entered into between Xstrata Commodities Middle East and Glencore on a spot basis during the year.

A molybdenum concentrate spot sales contract was entered into between Mineral Alumbrera Limited and Glencore in 2009 at market related terms.

All sales transactions with Glencore are on arm’s length terms and conditions.

Nickel
Xstrata Nickel has entered into a purchase agreement with Glencore for up to 250 wmt per month of copper cobalt white alloy raw material feed to the Nikkelverk refinery in Norway, effective from 1 July 2009. The contract includes both a metal purchase and a metal return component for copper and cobalt, respectively. The term of the contract is to the end of 2011, continuing indefinitely thereafter unless terminated by either party with six months notice given not earlier than 1 July 2011. Pricing terms are based on prevailing market rates. Treatment, refining and penalty deductions were negotiated on arm’s length terms and conditions. This contract replaces white alloy agreements entered into in 2004 that were due to expire at the
end of 2009. Other short-term or one-time feed purchase agreements were entered into with Glencore, with pricing terms based on prevailing market rates. During 2009, Xstrata Nickel purchased from Glencore 287 tonnes of nickel, 563 tonnes of copper, and 250 tonnes of cobalt (2008 1 tonne, 74 tonnes, 44 tonnes, respectively). In addition, during 2009, Xstrata Nickel returned to Glencore 297 tonnes of cobalt (2008 35 tonnes).

In March 2007, Xstrata Nickel entered into sole distributorship agreements with Glencore, for its nickel, cobalt and ferronickel production. These agreements continue until 31 December 2012 and are automatically renewed for successive three year periods unless terminated by either party with not less than 12 months notice prior to the end of the original term or any renewal terms, or unless Xstrata Nickel permanently ceases production of these metals. Xstrata Nickel, at its sole discretion, may cease, suspend or reduce production at any time. Glencore is obliged to distribute the products with all due care and diligence and shall cultivate and maintain good relations with purchasers and potential purchasers in accordance with sound commercial principles and taking into account Xstrata Nickel’s business principles. All sales terms and conditions are set on an arm’s length basis. For nickel and cobalt sales, the price basis is the month following the month of delivery. For ferronickel sales, the price basis is the quotational period provided for in customer contracts. Accordingly, provisionally priced nickel, cobalt and ferronickel revenues are subject to final price adjustments due to future price changes. During 2009, Xstrata Nickel sold to Glencore 88,457 tonnes of nickel (2008 89,567 tonnes), 3,066 tonnes of cobalt (2008 3,137 tonnes) and 236 tonnes of ferronickel (2008 19,847 tonnes). In addition, Glencore prepays monthly to Xstrata Nickel in two equal instalments 100% of the value of the month’s planned production. The prepayment balance as at 31 December 2009 amounted to US$49 million (2008 US$54 million).

Xstrata Nickel sells refined copper to Glencore on arm’s length terms and conditions under spot arrangements, which are based on prevailing market rates. During 2009, Xstrata Nickel sold to Glencore 1,547 tonnes of copper (2008 nil).

Zinc
On 1 January 2007, Xstrata Zinc renewed a service agreement for a period of 3 years with Glencore (the Xstrata Zinc Service Agreement), under the terms of which Glencore provides advice and assistance with respect to pricing and structural issues regarding hedging and the optimisation of internal flows of raw materials. The fees to be paid by Asturiana under the Asturiana Service Agreement are US$2 million per annum.

In 2009, Xstrata Zinc (San Juan de Nieva and Nordenham) agreed to supply Glencore with 315,000 tonnes (2008 210,000 tonnes) of SHG zinc slabs or CGG ingots based on market FOB/CPT prices plus the respective market premium.

In 2009 Xstrata Zinc (McArthur River) supplied Glencore with 313,600 wmt of zinc concentrate (2008 313,600 wmt). Xstrata Zinc has an agreement to supply 281,600 wmt each year on an ‘evergreen’ basis. Treatment charges are negotiated annually on arm’s length terms and conditions. Further to the aforementioned agreement, an additional 25,000 wmt of McArthur River zinc concentrates were sold to Glencore on a spot basis.

In 2009 Xstrata Zinc (Mt Isa) had three agreements with Glencore for the supply of zinc concentrate. The two agreements are ‘evergreen’ in nature. The first agreement is to supply 90,000 wmt per annum. The second agreement is to supply up to 330,000 wmt per annum for the purpose of swapping Mt Isa concentrate in exchange for the same volume to be delivered to Xstrata’s European smelters at equivalent terms. Treatment charges are negotiated annually on arm’s length terms and conditions. Further to the aforementioned two agreements, an additional 100,000 wmt of Mt Isa concentrates were sold to Glencore on a spot basis.

During 2009, Xstrata Zinc Canada has made agreements to supply Glencore with approximately 77,700 tonnes of SHG zinc. Of this approximately 63,700 tonnes were SHG zinc slabs, and the balance SHG zinc jumbos. Furthermore, during 2009 Xstrata Zinc Canada made agreements to supply Glencore with approximately 33,000 tonnes of corroding grade lead metal. All agreements are based on market delivery duty paid plus the respective market premium.

During 2009, Xstrata Zinc Canada arranged the sale to Glencore of approximately 380,000 dry metric tonnes of zinc and bulk concentrates from various sources, as well as the purchase from Glencore of approximately 15,000 dry metric tonnes of lead concentrate, at terms prevailing in the market.

All purchase and sales transactions with Glencore are on arm’s length terms and conditions.

Technology
In 2006, Xstrata Technology was contracted to install a copper ISASMELT furnace, a lead ISASMELT furnace and an IsaProcess copper refinery at Kazzinc, a Glencore subsidiary for US$99 million. The project commenced in May 2006 and will be commissioned in 2010. This transaction with Kazzinc is on arm’s length terms and conditions.

Associates
Platinum
The Group acquired 24.9% of Lonmin PLC shares on 6 Oct 2008 and equity accounts this investment as an associate. During 2009, a net impairment of US$241 million (2008 US$34 million) was taken on this investment directly to the income statement.

Coal
Xstrata Coal has a number of investments in export coal terminals allowing it to export coal into overseas markets.

Xstrata Coal South Africa holds a 20.9% (2008 20.9%) interest in Richards Bay Coal Terminal Company Ltd (RBCT), a company that operates the coal terminal in Richards Bay, South Africa. Xstrata Coal South Africa reimburses RBCT for its share of operating and capital expenditure.

Xstrata Coal Australia has a 33% (2008 35.6%) interest in Port Kembla Coal Terminal Limited and a 31% (2008 31%) interest in Newcastle Coal Shippers Pty Limited. Xstrata Coal Australia reimburses these coal terminals for its share of coal loading and handling charges.

Zinc
The Group has a 25% economic and voting interest in the Noranda Income Fund (NIF), which owns a zinc refinery in Salaberry-de-Valleyfield, Quebec. The Group’s interest in the NIF are held as ordinary units of the partnership, which are subordinate to the priority units in respect of cash distributions in any month until 3 May 2017. In addition, the Group has entered into a supply and processing agreement that continues until 2 May 2017 and is obligated to sell to the NIF up to 550,000 tonnes of zinc concentrate per year. The NIF pays the Group a concentrate price, based on the price of zinc metal on the London Metal Exchange, for the payable zinc metal contained in the concentrate less a processing fee of US$0.33311 per pound (2008
US$0.35205 per pound) of such payable zinc metal at 31 December 2009.

Joint venture entities
Coal
Xstrata Coal has a 33 1/3% interest in the Cerrejón thermal coal operation in Colombia. All purchase terms and conditions are set on an arm’s length basis.

Copper
Xstrata Copper has a 44% interest in the Collahuasi joint venture in Chile. The Collahuasi joint venture has fixed term contracts for the sale of copper concentrate to Xstrata Copper for 60,000 dmt per year expiring in 2009 and for 120,000 dmt per year expiring in 2014. The treatment and refining charges are based on benchmark terms in accordance with the prevailing market. In addition, Xstrata Copper, via its 44% equity share in Collahuasi,
purchases 44% of the uncommitted copper concentrates production in each calendar year. These tonnes are purchased from Collahuasi in line with prevailing benchmark terms.

Xstrata Copper has a 33.75% interest in the Antamina joint venture in Peru. The Antamina joint venture has fixed term contracts for the sale of copper concentrate to Xstrata Copper for 170,000 dmt per year expiring in 2013. The treatment and refining charges are based on benchmark terms in accordance with the prevailing market. In addition, Xstrata Copper, via its 33.75% equity share in Antamina, purchases 37.5% of the uncommitted copper concentrates production in each calendar year. These tonnes are purchased from Antamina in line with prevailing benchmark terms.

All other purchases between the joint venture entities and the Group are set on an arm’s length basis based on either spot or benchmark terms in accordance with prevailing market conditions.

Directors’ loans
An interest free short-term loan of US$3 million was provided to the Chief Executive in accordance with the Group’s policy to cover periods where employees of the Group are exposed to overlapping periods of double taxation due to the requirement of working in multiple jurisdictions. The terms of the loan agreement require repayment of the loan amount on realisation of the foreign taxation credit claimed.

5.         Statement of Directors’ responsibilities in relation to the Group and the parent Company financial statements

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and regulations. The directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and have elected to prepare Company financial statements in accordance with United Kingdom Generally Accepted Accounting Principles (“UK GAAP”). In the case of the Group’s IFRS financial statements, the directors are required to prepare Group financial statements for each financial year which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing the Group financial statements the directors are required to:

• select suitable accounting policies in accordance with IAS 8:‘Accounting Policies, Changes in Accounting Estimates and Errors’ and then apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance;
• state that the Group has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and
• prepare the accounts on a going concern basis unless, having assessed the ability of the Group to continue as a going concern, management either intends to liquidate the entity or to cease trading, or have no realistic alternative but to do so.

In the case of the Company’s UK GAAP financial statements, the directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit and loss of the Company for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the Group financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable UK law and regulations the directors are responsible for the preparation of a directors’ report, directors’ remuneration report and corporate governance report that comply with the Companies Act 2006 and regulations. In addition the directors are responsible for the maintenance and integrity of the corporate and financial information included on Xstrata’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Under the requirements of section 4 of the Disclosure and Transparency Rules, the directors are responsible for including a fair review of the development and performance of the business and the position of the Group taken as a whole, together with a description of the principal risks and uncertainties that they face. 

6.         Disclosure of information to auditors

The directors in office at the date of the report have each confirmed that:

Having made enquiries of fellow directors and of Xstrata’s auditors, and so far as each director is aware, there is no relevant audit information of which Xstrata’s auditor is unaware and each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that Xstrata’s auditor is aware of that information.

This declaration is made in accordance with a resolution of the board.

 END

For further information, please contact

• Home
• Investors +
• group information +
• Sustainability +
• Media centre
  • News releases
  • Regulatory announcements
  • Media contacts
  • Email news alerts
  • Image library
• Publications +
• Careers
• Contacts +
• Sitemap
• Search