$m		Year ended 31.12.09	Year ended 31.12.08	% Change
Revenue†		23,530	27,952	(16)
Operating EBITDA*†		7,046	9,645	(27)
Operating profit*†		4,476	7,249	(38)
EBIT*		4,313	7,261	(41)
Attributable profit*		2,773	4,698	(41)
Earnings per share (basic)* ‡		$1.05	$2.77	(62)
Dividends proposed per share		8¢	-	-
Net debt to net debt plus equity		26%	40%	(35)
Net assets		34,919	24,399	43
Net assets per share**‡		$12.04	$14.44	(17)
* ** † ‡	Excludes exceptional items Excluding own shares Includes Prodeco for 2009 (refer to note 10 of the Consolidated Financial Statements and the Supplementary Information) 2008 restated after applying a rights issue bonus factor of 0.57

 

Highlights

¡ Operating EBITDA of $7 billion despite unprecedented destocking in the first half and lower demand and average prices in 2009 as a result of the global downturn

¡ Rapid and comprehensive response to the downturn delivered real cost savings of $501 million, representing a 5% reduction in the operating cost base

¡ Accelerated transformation of Xstrata Nickel operations and restructuring and expansion of Xstrata Zinc's Australian operations reduced average C1 nickel and zinc costs by 33% and 25% respectively

¡ Operational cash flow of over $5.3 billion, with stronger second half cash generation of $3.7 billion

¡ Dividend of 8 cents per share proposed for payment in May 2010, reflecting the Board's confidence in Xstrata's near and medium term prospects and financial position

¡ Gearing reduced to 26% from 40%, as a result of robust cash flows and a successful rights issue in the first quarter to repay a net $3.7 billion of debt

¡ Over $8 billion of projects currently in construction, with a further $9 billion of projects due to be approved in 2010, providing Xstrata with significant volume growth to benefit from continued robust demand from Asian and other industrialising economies

 

CEO Report

The dramatic and rapid slowdown in industrial production and destocking which began in late 2008 continued to exert a significant influence over Xstrata's markets in 2009.  From the nadir of the global economic slowdown in March, stimulus initiatives in most major economies, especially China, prompted a resurgence in global markets during the remainder of the year.  Improving demand for commodities during 2009 was underpinned by investment in Asian infrastructure, which lessened the impact of a more anaemic response in OECD economies.  Nonetheless, despite the improving trend, average commodity prices in 2009 were significantly lower than in 2008.  The full benefit of rising prices in the second half was also partially offset by the negative impact of a progressively weaker US dollar in the last three quarters of the year against many producer currencies.

Against this challenging background, Xstrata's businesses delivered a robust operating and financial performance, with a strong second half production and sales performance as market conditions improved.  Overall the Group achieved earnings before interest, tax, depreciation and amortisation (EBITDA) of over $7 billion, net earnings of $2.8 billion, and strong operating cash flows of $5.3 billion.  This solid result was achieved despite substantially lower commodity prices, and reflects the rapid and far-reaching actions taken by our commodity business management teams in response to the downturn.  Real unit operating costs were reduced by some $501 million in 2009, representing over 5% of Xstrata's operating cost base. 

The Board's increased confidence in the medium term outlook for commodities and Xstrata's encouraging prospects and financial position have enabled the resumption of dividend payments, with a proposed final dividend of 8 cents per share to be paid to shareholders on the record at 23 April 2010.

Rapid response to downturn

I outlined in my report last year a range of short-term initiatives which our businesses implemented to conserve cash and ensure Xstrata's operations remained profitable and robust, even in a prolonged downturn.  Higher cost operations and production capacity that could not be supported by market demand were suspended or closed, capital expenditure was slowed down at certain longer term greenfield growth projects and capital and operating cost savings initiatives were accelerated across the Group.  Despite the extent of the measures taken over the past 18 months, our operational management teams ensured that our actions did not impair the valuable growth options we have accumulated within our portfolio. 

The devolved nature of our business model emphasises accountability and responsibility at the local level and encourages an entrepreneurial approach to running our operations.  Nowhere is this approach more apparent than in the timely and decisive actions taken by every commodity business at every level, to ensure that the Group emerged from recession in a strengthened position.  I commend all of our operational management for their timely and innovative responses to conserving cash and cutting cost without impairing safety performance, operational integrity, or growth optionality.

At a Group level, we announced a pre-emptive major rights issue in January to further bolster Xstrata's financial position, following the refinancing of near-term debt obligations in late 2008.  Over 99% of Xstrata's shareholders took up their rights in one of the first major rights issues on the UK market in 2009, well in advance of a number of other substantial equity issuances.  This strong shareholder support enabled the prompt pay-down of debt by a net $3.7 billion, and provided the Group with a firm financial footing for the year ahead.  Gearing at December 2009 is a comfortable 26% compared to 40% at the end of 2008.  The Prodeco operations in Colombia were acquired as part of the rights issue transaction for a net sum of $2 billion, including a call option under which Glencore International AG may repurchase the Prodeco business for $2.25 billion, plus Xstrata's earnings from Prodeco from 1 January 2009 to the exercise or expiry of the option and any cash paid into the business by Xstrata.  The option expiry date is 4 March 2010.

Longer term strategic restructuring

In addition to the range of immediate actions implemented by each of our commodity business teams to reduce costs, conserve cash and improve productivity, Xstrata's nickel and zinc commodity businesses accelerated a fundamental restructuring of their operations during the downturn.  The successful completion of these initiatives has radically reduced operating costs and improved the competitive position of these businesses for the longer term. 

Operating and capital cost savings were realised across the zinc portfolio, while zinc in concentrate production increased by 20% and zinc metal by 4% compared to 2008, maintaining Xstrata's position as the premier integrated global zinc producer.  Xstrata Zinc undertook a series of initiatives to optimise its Australian operations, including a 40% reduction in unit costs at the Mount Isa complex and a cost reduction of 18% at McArthur River Mine compared to 2008.  Production was ramped up from the higher grade George Fisher mine and the large scale Black Star operation with a reduced workforce and lower capital spending, substantially improving productivity.  The higher cost Handlebar Hill operation was suspended and is currently operating as a swing producer, sharing resources with Black Star.  Recoveries and throughput at the zinc-lead concentrator were maximised at an expanded rate of over 7.4 million tonnes per annum.

Prior to their acquisition by Xstrata in 2003, the Mount Isa zinc operations and McArthur River Mine were under review and likely to be closed.  Since that time, Xstrata Zinc's management have identified numerous opportunities to progressively expand the mines and the zinc-lead concentrator at a low capital cost, develop new open cut mines and carry out near-mine exploration to extract maximum value from the resource base.  The most recent restructuring is the latest example of an ongoing process to optimise the Australian operations and Mount Isa now represents a large-scale, long life and low cost zinc complex that continues to deliver value to the Group. 

Further capital and operating cost savings across the European, Canadian and Australian operations contributed to a 25% reduction in C1 cash costs at the mines from 58.3 cents per pound in 2008 to 43.5 cents per pound in 2009, or to 39.1 cents per pound on an integrated basis including the benefit of the smelters, and real unit cost savings of some $192 million.

Xstrata Nickel accelerated the transformation of its portfolio amidst a severe deterioration in market conditions, including the suspension of the Fraser Mine complex in Sudbury and Falcondo operation in the Dominican Republic, the early closure of the end of life Craig and Thayer-Lindsley mines and a 30% reduction in corporate and operational headcount.  Performance at the downstream facilities was optimised by replacing lower quality Sudbury and third party feed with additional volumes of nickel in concentrate from the Australian operations, the higher-grade Raglan mine and initial feed from Nickel Rim South.  Consequently, consolidated nickel C1 cash costs fell by 33% to an average of $3.80 per pound in 2009 from $5.63 per pound in 2008 and at the end of 2009, Xstrata Nickel was operating with a run rate of less than $3 per pound.  The next stage of Xstrata Nickel's transformation is currently under way with the development of the Nickel Rim South mine and the Koniambo project in New Caledonia.  Both mines will benefit from low cash costs and their development will position Xstrata Nickel amongst the lowest-cost producers in the industry. 

Xstrata's strategy evolves

From inception, Xstrata has pursued a strategy of value creation through growth and asset improvement for its owners. This strategy has focused on:

¡ Growth through acquisition;

¡ Operational transformation and enhancements to net present value; and

¡ Organic growth from the portfolio.

In its early days as a London-listed mining company, Xstrata's strategy was focused, by necessity, on acquisition-led growth to build a portfolio diversified by commodity and geographic region, with the scale to compete for access to resources, financial and human capital and the capacity and capabilities to build large-scale, new operations.  An equally important imperative of this acquisition-led phase was to bring a range of organic growth projects and prospective exploration sites into our portfolio, providing each commodity business with an additional stream of options to increase production and lower operating costs.  Three major transformational acquisitions were completed over a period of four years to provide scale and diversity and were supplemented by opportunistic and targeted bolt-on acquisitions to further optimise our existing businesses and facilitate our entry into new commodities.  During 2009, we approached Anglo American to propose a transformational merger of the two companies.  Anglo American's rejection of our proposal is, in my view, a lost opportunity to create value for both companies' shareholders.  In October, Xstrata confirmed that it did not intend to make an unsolicited offer for Anglo American.

The second phase of Xstrata's strategy focused on the transformation of acquired operations to develop integrated, global commodity businesses with a devolved management structure and an owner-operator culture.  Operational management within Xstrata have an enduring mandate to enhance the net present value of our operations year-on-year notwithstanding the 'wasting' nature of mining assets and to strive for continuous improvements at operations.  Our businesses have consistently risen to this challenge to relentlessly pursue operational excellence, realising year-on-year real cost savings, productivity improvements, adding reserves and resources and extending mine lives, improving health, safety and environmental performance and pro-actively engaging with the broad range of stakeholders in our business.

During the first two phases of Xstrata's development into a major mining group, our businesses have also developed a strong track record for the successful development of major mines and metallurgical operations.  Around $9 billion has been spent to deliver 13 organic growth projects in the last five years in coal, chrome, platinum and zinc, all of which have been delivered on or within original budget estimates.  In addition to these completed projects, a further 3 mines will be commissioned in 2010, Goedgevonden thermal coal, Nickel Rim South and the Blakefield South longwall coal operation, as Xstrata's organic growth pipeline gathers pace.

The successful delivery of this strategy to date has created a diversified major mining group with five integrated global business units, positioned towards the bottom half of their respective industry cost curves with long mine lives and extensive growth options.  Dramatic increases have been achieved in the measured and indicated resource base, with a 445% increase in copper resources and a 61% increase in coal resources since 2005 despite increasing production, a 90% increase in nickel resources since 2007 and a 162% increase in zinc reserves from 2004.

We have in place a world-class sustainable development framework which governs every managed operation and project towards achieving our aim of industry-leading performance in environmental management, health and safety performance and stakeholder engagement.  Total recordable and lost time injury frequency rates have been reduced by 68% and 73% respectively since 2003 or an average reduction of around 20% each year, including dramatic improvements at acquired operations.  This is very pleasing and an indication of our businesses' success in prioritising safety resources at the site level and in encouraging a strong safety culture.  Nonetheless, I am in no way complacent about the scale of the challenge that still faces us if we are to achieve our objective of operating without injuries or fatalities.  Nine people lost their lives working at Xstrata's managed operations in 2009.  This tragic loss of life is wholly unacceptable to Xstrata's Board and management and improving safety performance remains a core priority.

Delivering future growth

Opportunistic acquisitions and an ongoing focus on NPV enhancement and operational excellence will continue to play a significant role in Xstrata's strategy.  Indeed, during the year, we gained an entry into the early stage Zanaga iron ore project in the Republic of Congo.  Under the agreement, Xstrata will fund at least $50 million towards ongoing exploration and a pre-feasibility study in return for an option to acquire a majority (50% plus one share) interest in the owner of the project, including a pathway to acquire 100% of the project following completion of the feasibility study.

However, this next stage of our growth and transformation is secured and will be delivered from the development of the projects within our portfolio.  Many of the brownfield and greenfield growth projects that have been guided through conceptual and feasibility studies by Xstrata's operational management in recent years are now reaching the approval and construction stage  Each of these projects will deliver robust returns with average returns in the mid 20% range at conservative long-run prices.  In the past 6 months, 5 projects have been approved with a total capital spend of $2 billion and construction decisions are expected on a further 10 projects in 2010 with a total capital spend of over $9 billion, the majority of which are low cost, low risk brownfield expansions.  Capital expenditure will rise accordingly with expected expansionary capital spending of approximately $14 billion over the next three years, including $4.9 billion in 2010.  This expenditure will realise the next phase of transformation of Xstrata, both in terms of volume growth, delivering a 50% increase in volumes, but importantly also delivering substantial reductions in the operating cost profile of our businesses.

The proposed substantial investments in organic growth and expansion of mineral resources by Xstrata and our industry peers can only be made in stable regulatory and fiscal environments.  Mining investments involve significant capital expenditure over a number of years to construct operations that generate economic benefits for shareholders, governments, employees and communities for two or more decades.  In this regard, we remain supportive of an eventual global regulatory framework for carbon emissions that is equitable, effective and that incentivises government and industry investment in new technologies to address climate change, without irreparably damaging national export industries.  Similarly, it is imperative that royalty and taxation regimes imposed on the minerals industry are transparent and stable, to enable our industry to develop the basic resources required to satisfy the world's growing demands for social and economic development.

Alloys

Xstrata Alloys benefits from low capital cost, brownfield expansion options in its chrome and platinum operations.  The Lion project, which uses proprietary Premus technology to reduce energy consumption and operating costs compared to conventional smelting technology, was designed to support two further phases of expansion to a total capacity of one million tonnes per annum.  Phase two would increase capacity by 360,000 tonnes but is dependent on appropriate market conditions for ferrochrome and greater certainty on electricity supply and pricing in South Africa, where lack of generation capacity remains a concern for industry and households alike. 

Platinum production from Eland is expected to double to 300,000 ounces of platinum in 2014 through its expansion into a major underground mine with the sinking of the Western Decline commencing this year.  In addition, Xstrata Alloys continues to assess its medium to long term PGM growth options through the development of its exploration portfolio with emerging junior BEE companies.

Coal

Xstrata Coal's management team has transformed its portfolio consolidating a range of diverse, smaller operations into tier one large-scale complexes with world class operating costs, regional scale and the ability to leverage shared infrastructure in New South Wales, Queensland and South Africa.  In New South Wales, 20 separate operations have developed into four main complexes providing asset-level synergies, economies of scale and a range of high-return brownfield expansion possibilities.  In South Africa, the commissioning of Goedgevonden open cut operation (a joint venture with ARM Coal) and the ongoing development of ATCOM East are continuing the transformation of the South African division into three major complexes comprising mainly open cut operations to deliver further productivity and cost savings.

Xstrata Coal has an impressive track record in successful project delivery including the construction of seven major mines since 2005.  Three major projects are currently in construction (Mangoola, Blakefield South, ATCOM East) and will deliver over 15 million tonnes of annual production.  A further six projects are planned to deliver double digit growth in output over the next five years.  Looking further ahead, a feasibility study is examining the potential to build a 30 million tonne per annum thermal coal mine at Wandoan in the Surat Basin, Queensland with significant additional upside potential from the project's substantial resource base and drilling programmes under way in the region.  The development of our pipeline of organic growth in coal will deliver a significant reduction in operating costs, cementing Xstrata Coal's position as the world's premier producer of export thermal coal.

Copper

Xstrata Copper's portfolio comprises one of the premier suites of copper growth projects in the industry.  Three expansion projects have been approved in the past four months, namely the second phase of expansion at Lomas Bayas, the conversion of Ernest Henry into an underground operation and the expansion of Antamina, approved by the joint venture partners at the beginning of 2010.  A further three advanced projects are due to come to the Xstrata plc Board for approval during 2010, Antapaccay and Las Bambas in southern Peru and an expansion to the world-class Collahuasi operation in north Chile.  Together, these six advanced projects will deliver a 60% increase in copper output by 2015.

A significant proportion of this growth will come from the development of a new major copper-producing region in Southern Peru, which will deliver over 600,000 tonnes of copper annually, from the development of Antapaccay, which will use Tintaya's existing infrastructure, the greenfield Las Bambas project (which will also benefit from interacting with Tintaya infrastructure) and, in time, the development of resources from the Coroccohuayco deposit.  In addition to the advanced projects now reaching the construction stage, three further greenfield projects have the possibility of delivering another 700,000 annual tonnes of attributable copper.  This is in addition to the future stages of copper production growth that will emerge from the major brownfield expansion studies under way at Collahuasi, providing an exciting subsequent phase of growth in this highly attractive commodity.

Xstrata Copper's approach to delivering its significant pipeline of growth includes the formation of alliances with Bechtel, FLSmidth and Siemens to ensure availability of the appropriate skills and capabilities.  A standard concentrator design concept being applied across the various projects is achieving engineering and capital cost savings, while minimising long lead delivery times.  The optimisation and prioritisation of our extensive copper pipeline saw the divestment of Xstrata's 70% interest in the El Morro project for $465 million in 2009, with the transaction expected to complete in the first half of 2010.

Nickel

The nickel business has retained a highly attractive suite of longer term growth options despite the substantial restructuring of its operations in 2009 and has the potential to double 2008 production by 2013.  The commissioning of Nickel Rim South is progressing well with nameplate capacity already proven and projected production of over 13,000 tonnes of contained nickel and 29,000 tonnes of copper in 2010, reaching full production in 2011. This accelerated project has been constructed in five years and remains on time and on budget with an exceptional safety and environmental performance, including achieving a continuous period of over 5 million hours without a lost time injury during 2009.

The world class Koniambo project remains on budget and is targeting first production in early 2012 with full production of 60,000 tonnes by 2014.  I recently visited the impressive engineering yard in Qingdao, China where the immense modules that will join together to form Koniambo's metallurgical plant are being constructed. The modules are on track to be delivered to New Caledonia in mid 2010 and it is particularly pleasing to note that safety performance has been exemplary, following the full adoption by Chinese contractors of Xstrata's Sustainable Development policy and standards and ongoing performance monitoring.

The Kabanga project in Tanzania is one of the world's few undeveloped, large-scale, nickel sulphide projects and a retention licence is currently in place to allow the project to be developed when market conditions allow.  Additional growth opportunities include the prospective Araguaia exploration project in Brazil and a suite of brownfield expansion options at Raglan, Sinclair in Western Australia, Falcondo in the Dominican Republic and the Fraser Morgan project in Sudbury.

Zinc

Xstrata Zinc continues to identify and execute low capital cost expansions to existing operations. Several feasibility studies are underway including a well advanced study into the construction of an Albion Process atmospheric pressure leaching plant, which is expected to be completed by the end of 2010.  The plant would enable bulk lead-zinc concentrate from the McArthur River mine, currently processed predominantly by imperial (ISF) smelters, to be processed more efficiently, supporting the further expansion of McArthur River which benefits from a very extensive resource base.

Further projects are under way to examine the potential to expand the George Fisher and Black Star mines in Queensland, following an 80% increase in reserves at George Fisher over the last four years.  The Bracemac-McLeod project in Canada which would use existing infrastructure at Perseverance has also been advanced to the feasibility study stage with a decision expected in 2010, and a $10 million exploration and delineation programme at the greenfield Pallas Green project in Ireland has recently been approved by Xstrata Zinc and joint venture partner Minco Plc. 

Impacts of the recession

Although the full implications of the financial crisis and global recession have not yet fully played out, it is clear that the experiences of the past 18 months will have profound and long-lasting effects on the world in which we operate. 

In the commodities sector, one of the most significant impacts has been the extent to which the downturn has exacerbated the supply constraints that already existed.  Prior to the crisis, our industry was already struggling to maintain or increase production in the face of declining grades, unplanned outages at aging operations and more stringent permitting requirements.  The mining industry's swingeing cuts to expenditure on exploration, projects and infrastructure has delayed the onset of new capacity by at least 18 to 24 months and means the supply-side will fall further behind in its ability to supply even modest increases in future demand. 

The recession also emphasised the pre-eminence of China, Brazil and India as consumers of commodities and in 2009, China represented over 100% of the growth in global consumption in a number of metals including copper and zinc.  Despite the severity of the downturn, most commodity prices did not test historical lows in real terms and rebounded strongly during 2009, demonstrating both the support provided by demand from industrialising nations in Asia and the inability of supply from the mining sector to satisfy even a modest increase in demand. 

Outlook

Robust economic growth and demand for commodities from industrialising nations is likely to continue, with many forecasters anticipating Chinese GDP growth of around 9% in 2010.  While inflation poses a risk, the recent measures taken by the Chinese authorities to tighten monetary policy and curb inflation are positive and reflect the need to bring planned lending rates to the previously announced target of RMB7.5 trillion, following a stronger than expected first month of 2010.  By contrast, the OECD seems set to experience low growth for a while, as consumers continue to deleverage, giving rise to a so-called 'two-speed world' and reinforcing the position of the East as the main driver of global commodity demand growth. 

The US consumer remains pivotal to a full recovery in global trade, including China's export industry.  While consumer spending will inevitably rise again, it is not yet certain when this will begin, or indeed what level of consumption Western consumers will adopt in the aftermath of such a severe recession.  Unemployment levels, regulatory reforms to the banking industry, rising national debts and the imperative to withdraw stimulus packages without dampening economic recovery indicate that there are a number of risks that must be carefully managed on the path to a sustainable OECD recovery.  However, many of the short- and medium-term leading indicators we monitor are showing signs of recovery, including improving manufacturing output and confidence, notwithstanding the fact that credit expansion in OECD economies remains sluggish.

In my opinion, the medium term outlook for commodity demand remains very promising.  The secular trend in demand for commodities will continue to be driven by the ongoing urbanisation and industrialisation of high-growth, populous economies, with China and other industrialising nations taking active steps to rebalance their economies towards domestic consumption-led growth over the next decade.  In time, the return to a more normalised level of growth of the OECD economies will add further impetus to the growth of the global economy and commodity demand.

Against this background, the shift of emphasis in Xstrata's strategy to a phase more dominated by organic growth is timely and coincides with our view that the supply of many commodities will struggle to keep pace with demand growth.  Our businesses' rapid and comprehensive response to the downturn in the early part of the year enabled a creditable result in extremely challenging markets in 2009.  It has been matched by a swift resumption of investment in key growth projects that will drive substantial volume growth and reductions in operating costs, marking the next stage of Xstrata's transformation.  These projects will progressively reach production during a timeframe in which demand for commodities from industrialising nations seems set to remain robust, augmented by a return to demand growth from the OECD in due course and ongoing structural constraints to the supply of many commodities. 

Xstrata has been well positioned over the last few years to benefit in this environment.  The investments over recent years have delivered a diversified portfolio with the scale and capabilities to develop major new mines. As we enter into this next phase of Xstrata's transformation, I am confident that the Group's prospects remain very encouraging.

 

 

 

Basis of presentation of financial information

Financial information is presented in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The reporting currency of Xstrata plc is US dollars. Unless indicated to the contrary, revenue, operating earnings before interest, taxation, depreciation and amortisation (EBITDA) and operating profit are reported in the Chief Executive's Report and the Operating and Financial Review before exceptional items. Exceptional items are significant items of income and expense which, due to their nature or expected infrequency, are presented separately on the face of the income statement. All dollar and cent figures provided refer to US dollars and cents. Operating profit excludes Xstrata's share of earnings from associates.

Pro forma results include earnings from the acquired Prodeco thermal coal operations on a fully consolidated basis from 1 January 2009, the effective date for the acquisition.  Xstrata is entitled to all earnings and cash flows from Prodeco in the period.  In the statutory results, net earnings from Prodeco are included in financial income, due to the option for repurchase granted to Glencore, exercisable up to the business day following the first anniversary of the closing date (4 March 2010).  In the event the option is exercised, Xstrata will receive a consideration of $2.25 billion from Glencore, retain the earnings from Prodeco from 1 January 2009 until the date of exercise and be reimbursed for the net balance of any cash invested by Xstrata and any profits accrued but not distributed to Xstrata during this period.

 

 

Consolidated operational results

CONSOLIDATED RESULTS   $m	Pro forma Year ended 31.12.09	Statutory Year ended 31.12.09	Statutory Year ended 31.12.08
Alloys	1,305	1,305	2,002
Coal	7,547	6,749	7,944
Copper	9,223	9,223	11,464
Nickel	1,891	1,891	3,105
Zinc	3,450	3,450	3,202
Technology	114	114	235
Total Group Revenue	23,530	22,732	27,952
Attributable Total Group Revenue	22,588	21,790	27,092
Alloys	70	70	1,094
Coal	3,013	2,755	4,170
Copper	2,922	2,922	3,160
Nickel	427	427	816
Zinc	860	860	435
Technology	28	28	38
Corporate and unallocated	(274)	(274)	(68)
Total Group Operating EBITDA	7,046	6,788	9,645
Attributable Total Group EBITDA	6,608	6,350	9,458
Alloys	(23)	(23)	1,007
Coal	2,145	2,038	3,546
Copper	2,126	2,126	2,297
Nickel	(18)	(18)	341
Zinc	506	506	104
Technology	22	22	32
Corporate and unallocated	(282)	(282)	(78)
Total Group Operating profit	4,476	4,369	7,249
Attributable Total Group Operating profit	4,106	4,009	7,144

 

The impact of the global downturn and subsequent rapid global destocking had a dramatic effect on Xstrata's markets in 2009.  Following depressed commodity markets and weak demand in late 2008, prices remained low in the first quarter of 2009.  Tentative signs of recovery emerged in the second quarter and gained momentum in the second half of the year.  A number of commodity prices rose significantly through the second half, as fiscal stimulus packages introduced in most major economies boosted physical demand and investment in commodities returned.

Despite a recovery in prices throughout 2009, average prices remained significantly below 2008 levels.  The net impact of lower commodity prices reduced operating profit by $2.7 billion, with a particularly significant impact of $1.2 billion from lower coal prices.  Earnings from the alloys business were $941 million lower, primarily due to lower chrome prices as demand for ferrochrome from stainless steel producers remained extremely low in the first half of 2009.  Average nickel, copper and zinc prices were 30%, 26% and 11% lower than 2008, despite the recovery in exchange traded metal prices during 2009. 

Xstrata's copper and zinc earnings were impacted by the provisional pricing of copper and zinc sales.  The terms on which Xstrata normally sells copper and zinc include a provisional pricing mechanism whereby the sales price is calculated on the average price for the metal during the 'quotational period'.  This period ranges from 30 days after the date of the sale in respect of cathode sales to 180 days for some concentrate sales.  Any outstanding provisionally priced sales at year-end are marked to market using the prevailing forward curve.  Subsequent movements in commodity prices will impact on earnings in the following period. Consequently in times of rising prices, Xstrata will tend to outperform the average LME price whilst the opposite applies in times of falling prices.

The average LME copper price fell by 26% in 2009 compared to the previous year however the benefit of rising prices over quotational periods restricted the impact on Xstrata Copper's operating profit to $185 million.  The copper sales subject to provisional pricing were 190,000 tonnes at the end of 2009.  Provisional sales pricing also impacted significantly on Xstrata Zinc's earnings in 2009 resulting in a favourable sales price variance of $149 million despite the average LME zinc price falling by 11% compared to 2008.  The zinc sales that are subject to provisional pricing were 108,000 tonnes at the end of 2009.

AVERAGE COMMODITY PRICES		Unit	Average price 2009	Average price 2008	% Change
Australian FOB export coking*		$/t	145.0	232.5	(38)
Australian FOB export semi-soft coking*		$/t	122.5	157.5	(22)
Australian FOB export thermal coal*		$/t	80.3	95.6	(16)
Americas FOB export thermal coal*		$/t	74.8	80.9	(8)
South African export thermal coal*		$/t	68.1	78.4	(13)
Copper (average LME cash price)		$/t	5,150	6,956	(26)
Nickel (average LME cash price)		$/t	14,712	21,104	(30)
Lead (average LME cash price)		$/t	1,726	2,084	(17)
Zinc (average LME cash price)		$/t	1,659	1,870	(11)
Ferrochrome (Metal Bulletin)		¢/lb	85.0	175.8	(52)
Ferrovanadium (Metal Bulletin)		$/kg	25.0	61.2	(59)
Platinum (average LBM cash price)		$/oz	1,205	1,578	(24)
*	average received price

 

Real unit cost savings of $501 million, equating to some 5% of the operating cost base were recorded in 2009 as the Group's businesses restructured and transformed their businesses in response to the tough economic environment.

Xstrata Zinc reduced real unit costs by $192 million and C1 cash costs were significantly reduced, falling by 25% from 58.3 cents per pound in 2008 to 43.5 cents per pound in 2009 or, on an integrated basis, including the benefit of smelters, from 50.8 cents per pound to 39.1 cents per pound in 2009.  The Australian zinc-lead operations were substantially restructured during the year to increase production at McArthur River, George Fisher and Black Star while the higher-cost Handlebar Hill operation was placed on care and maintenance for the first seven months of the year.  In addition to higher volumes of zinc in concentrate, recoveries were enhanced and record throughput was achieved at the expanded Mount Isa zinc-lead concentrator.  Xstrata Zinc also benefited from a full year's production at Perseverance mine in Canada, which commenced in July 2008. 

The accelerated transformation of Xstrata Nickel towards a second quartile cash cost producer saw the early closure of high-cost, end of life operations at Sudbury.  Production commenced successfully at the Nickel Rim South mine and costs began to benefit from its richer polymetallic ore grade.  Mine plans were revised and optimised, and headcount was reduced at the business unit corporate centre with resources focused towards lower cost operations.  Nickel production increased at Raglan by 13% due to ongoing efficiency improvements and improved grades.  At Xstrata Nickel Australasia, production from Cosmos and Sinclair increased by 119% to 16,700 tonnes.  The Falcondo integrated ferronickel facility in the Dominican Republic remained on care and maintenance following its suspension in August 2008.  In total $134 million of real unit cost savings were realised as the nickel business repositioned itself lower on the cost curve. 

The Australian thermal coal operations achieved cost savings of $107 million year-on-year despite a challenging first half. In the second half, a number of factors impacted positively on costs including productivity improvements in New South Wales at Ravensworth Underground and Baal Bone, the benefits of moving to owner-operator production at Mount Owen, the relocation of the longwall at Beltana in the second half and savings in Queensland due to improved productivity at Newlands Northern Underground.  As market conditions improved, production recommenced at Xstrata Coal's Oaky Creek No. 1 longwall operation, following its temporary suspension in December 2008. 

Xstrata Copper achieved real unit cost savings of $55 million as a result of productivity improvements and higher production rates at most of its operations relative to 2008, procurement savings through the revision of all major contracts, reductions in contractor numbers and improved consumption rates for key consumables.  This positive cost performance came despite lower copper and gold production from North Queensland and Alumbrera, both related to lower ore grades in line with the mine plan. The positive cost performance offset a significant total negative cost impact from lower grades of $113 million.

At Xstrata Alloys up to 80% of ferrochrome production was suspended progressively from late 2008 in response to rising inventories and weak demand.  Chrome demand steadily returned to the market in 2009, albeit at lower prices than had been achieved in 2008. As the year progressed, improving market conditions enabled the resumption of approximately 85% of the Xstrata-Merafe Chrome Venture's annual ferrochrome production capacity.  Despite reduced production volumes due to idled capacity, Xstrata Alloys achieved real cost savings of $13 million by prioritising production from its low-cost furnaces at Lion and Lydenburg.

The Group also benefited from the impact of foreign exchange gains of $216 million, due to a stronger average US dollar against local currencies in the countries in which Xstrata operates in the first half, more than offsetting a weaker US dollar in the later part of the year.

In 2009, CPI inflation of $301 million represented a 2.9% increase in the operating cost base while inflationary impacts specific to the mining industry added a further 1.9%.  Of the total impact of $194 million of mining inflation, $183 million was incurred in the first six months of the year as contracted prices from the previous year remained in place.  Inflation in the mining sector is calculated with reference to externally verified indices, and in 2009 the primary impacts were cost increases in South Africa and Australia, with a particularly significant impact on Xstrata's coal operations, partially offset by deflation in Canada and South America.  Higher port charges and the lagging impact of higher prices for steel-related spares and consumables from 2008 were still flowing through into Group costs into 2009. Furthermore, the dramatic increases in South African energy and rail costs contributed significantly to the impact of inflation.  Mining sector inflation eased markedly in the second half and has continued to decline in early 2010 as the impact of the global downturn flows through to mining inputs.

The average US dollar exchange rate against the local currencies of many of Xstrata's operations strengthened in 2009 compared to 2008, lowering costs in US dollar terms.  This favourable impact was partially offset by the rapid weakening of the US dollar against these currencies at the end of the year, resulting in a negative year-on-year impact due to the revaluation of working capital balance sheet items from US dollars into local currencies.

Other income and expense charges relate mainly to non-cash share-based provisions under IFRS which are largely due to the steep rise in the Xstrata plc share price and volatility in 2009 compared to a significant reduction to provisions in 2008.  Standing charges and additional winter start-up costs in relation to the suspension of the Xstrata Alloys ferrochrome furnaces are also included, in addition to costs relating to the suspension of the Oaky No. 1 coking coal operations.  Prodeco's pro forma operating profit of $107 million, after depreciation on the fair value uplift adjustment of $52 million, is included in business combinations.  Higher depreciation and amortisation charges were driven by volume-related increases in the coal and zinc businesses.

OPERATING PROFIT VARIANCES		$m
Operating profit 31.12.08		7,249
Sales price*		(2,695)
Volumes		115
Unit cost - real		501
Unit cost - CPI inflation		(301)
Unit cost - mining industry inflation		(194)
Unit cost - foreign exchange		216
Other income and expenses		(391)
Depreciation and amortisation (excluding foreign exchange)		(131)
Business combinations		107
Operating profit 31.12.09 (pro forma)		4,476
*	Net of commodity price linked costs, treatment and refining charges

 

 

 

Average commodity prices declined significantly compared to 2008, but increased during the course of the year, as higher demand from China and the impact of fiscal stimulus packages in several countries boosted demand for infrastructure-related commodities.  Investment funds also returned to commodities, further bolstering commodity prices.  Realised hard coking coal prices declined as a result of lower contracted prices for the 2009/2010 Japanese Financial Year and the deferral of higher priced coking coal contracts from the previous contract period, together with the impact of selling into the Chinese spot market at lower than contracted prices.  Lower contract thermal coal prices were mitigated by a strong recovery in spot prices in the second half of 2009 due to strong demand for electricity from China and India.

CURRENCY TABLE TO $	Average 2009	Average 2008	% change	At  31.12.09	At 31.12.08
USD:ARS	3.73	3.16	18	3.80	3.45
AUD:USD	0.79	0.85	7	0.90	0.70
USD:CAD	1.14	1.07	7	1.05	1.22
USD:CHF	1.09	1.08	1	1.04	1.07
USD:CLP	559	524	7	507	637
USD:COP	2,153	1,968	9	2,043	2,249
USD:PEN	3.01	2.92	3	2.89	3.13
EUR:USD	1.39	1.47	5	1.43	1.40
GBP:USD	1.57	1.85	15	1.62	1.46
USD:ZAR	8.41	8.27	2	7.39	9.32

 

EARNINGS SUMMARY $m	Year ended 31.12.09	Year ended 31.12.08
Operating profit statutory (before exceptional items)	4,369	7,249
Share of results from associates	(56)	12
Net finance costs	(347)	(660)
Income tax expense	(993)	(1,634)
Effective tax rate	25%	25%
Minority interests	(200)	(269)
Attributable profit (before exceptional items)	2,773	4,698
Earnings per share (before exceptional items) *	$1.05	$2.77
Loan issue costs written-off	(41)	-
Net losses from recycled foreign currency translation reserve	-	(226)
Restructuring and closure costs	(156)	(125)
Liability fair value adjustments	350	(194)
Impairment of assets	(2,553)	(974)
Inventory write downs	-	(93)
Profit on restructure of joint venture	-	213
Profit on loss of control of interest in El Morro	194	-
Write down of investment in associates	(277)	(34)
Foreign exchange gain on rights issue proceeds	47	-
Income tax on exceptional items	324	330
	(2,112)	(1,103)
Attributable profit†	661	3,595
Earnings per share*†	$0.25	$2.12
* Restated after applying a rights issue bonus factor of 0.57

 

The pre-exceptional items effective tax rate in the year remained at 25%, unchanged compared to the prior year.  Net earnings for the year before exceptional items were $2,773 million, a decrease of 41% compared to 2008, corresponding to earnings per share of $1.05. 

During the course of 2009, Xstrata announced a number of exceptional non-cash impairments to the carrying value of assets. Under IFRS, impairments are assessed on a "cash generating unit" basis, with no ability to allocate surpluses between assets.  Consequently, while the value of Xstrata's assets continues to exceed book value by some $35 billion at a Group level, an increase of $10 billion over last year, this surplus cannot be reallocated to assets, giving rise to impairments. The following exceptional items were recorded during 2009:

¡ Xstrata Nickel undertook a full assessment of the fair value of its assets following the substantial restructuring of its business in 2009 and as part of the annual business planning process. As a result, a total impairment charge of $2.1 billion before tax ($1.9 billion after tax) has been incurred in respect of the Group's Australian, Norwegian and Canadian nickel assets;

¡ As a result of the impairment analysis, copper and zinc assets in Canada were impaired by $273 million ($194 million after tax), following the announcement on 8 December 2009 that the Kidd Metallurgical site will permanently cease operations of its copper and zinc metallurgical plants in Timmins on 1 May 2010, as part of a plan to restructure the Canadian metallurgical operations;

¡ An impairment charge of $241 million was recorded in respect of the Group's investment in Lonmin following changes in foreign exchange rates, operating costs, production and commodity price outlook that have occurred since the acquisition date. An amount of $36 million was also recognised in relation to the Group's share of the restructuring and closure costs, impairments and the loss on forward exchange contracts in respect of a rights issue recognised by Lonmin;

¡ The Altonorte copper operations in Chile incurred impairment charges of $170 million before tax ($141 million after tax) against the carrying value of property, plant and equipment assets due to the ongoing challenging market conditions for custom smelting operations.

¡ The investment by African Rainbow Minerals Limited (ARM) in Xstrata's South African coal business is  accounted for as a debt instrument, carried at fair value under IFRS. Non-cash movements in the fair value of this investment gave rise to a gain of $350 million in 2009;

¡ In October 2009, the Group entered into an irrevocable sale agreement to dispose of the Group's 70% interest in the El Morro copper-gold project in Chile, and associated rights and assets, for a total cash consideration of $465 million. The Group recognised a gain of $194 million before tax ($144 million after tax) in respect of the sale.

¡ Restructuring and closure costs of $156 million before tax ($116 million after tax) were recognised during 2009, including a charge of $40 million in respect of the closure of Xstrata Nickel operations at Sudbury. Restructuring and closure costs of $105 million were incurred in relation to the planned closure of the Kidd metallurgical plant on 1 May 2010.  Xstrata Alloys also incurred restructuring costs of $11 million related to the sale of the Maloma anthracite mine.

The Group also recognised an exceptional foreign currency hedging gain of $47 million in respect to Xstrata's rights issue and a charge of $41 million in relation to the write-off of capitalised borrowings costs from the early repayment of syndicated loans. In total the Group recognised an exceptional tax benefit of $324 million, as a result of the impairment of assets and restructuring and closure costs, partly offset on the gain of the sale of El Morro. 

The following table indicates operating profit sensitivities for 2010 after allowing for contracted sales and any commodity or currency hedging in place at 2009 year-end, together with sensitivities assuming no contracted sales or hedging.

OPERATING PROFIT SENSITIVITIES   $m		Impact on 2010*	Indicative full year**
1¢/lb movement in ferrochrome price		11	13
$1/kg movement in ferrovanadium price		3	4
$1/tonne movement in Australian thermal export FOB coal price		26	39
$1/tonne movement in Australian coking export FOB coal price		5	7
$1/tonne movement in South African export thermal FOB coal price		8	12
1¢/lb movement in copper price		25	25
$10/oz movement in gold price		6	6
$1/lb movement in nickel price		141	141
1¢/lb movement in zinc price		22	22
$100/tonne movement in zinc treatment charge price		78	6
1¢/lb movement in lead price		6	6
$100/oz movement in platinum price		10	10
$100/oz movement in palladium price		5	5
10% movement AUD		446	541
10% movement CAD		242	231
10% movement EUR		57	57
10% movement ZAR		185	210
* **	After impact of currency and commodity hedging, and contracted, priced sales as at 31 December 2009 Assuming current annualised production and sales profiles, no currency or commodity hedging and no contracted, priced sales and purchases at 31 December 2009

Cash Flow, Net Debt and Financing Summary

Xstrata's operations generated $5.3 billion of cash in 2009.  Tax paid decreased substantially, predominantly due to lower earnings.  Sustaining capital expenditure was reduced by $384 million as a result of successful capital conservation initiatives across each business unit.  Expansionary capital spending was also scaled back to $2.3 billion.

The Group's policy of maintaining its borrowings in US dollars subject to a floating rate of interest enabled Xstrata to benefit from lower three month US Libor rates of less than 1% for the period compared to an average of 2.9% in the prior year.  The average interest rate paid on Group borrowings in 2009 fell to 2.3%, decreasing further to below 2% by early 2010.

On 29 January, Xstrata announced a fully underwritten 2 for 1 rights issue, which was successfully completed on 17 March, with 99.42% shareholder acceptance.  The net proceeds from the rights issue were $3.7 billion, after costs and the net acquisition cost of $2 billion for the Prodeco coal operations.

As a result of the successful rights issue, net debt decreased to $12.3 billion from $16 billion, with a commensurate reduction in gearing (net debt/net debt plus equity) from 40% to 26% at 31 December 2009.

With no material debt maturities until mid-2011, the Group continues to maintain a strong liquidity buffer with $6.3 billion of headroom on bank facilities at year end.  The average maturity date on outstanding debt facilities is currently greater than five years and gearing at year end was 26%.

Other investing activities included Xstrata's subscription to the Lonmin rights issue in June 2009 for a total of $112 million.

 

MOVEMENT IN NET DEBT                                                       $m	Year ended 31.12.09	Year ended 31.12.08
Cash generated from operations	5,304	8,888
Net interest paid	(424)	(550)
Tax paid	(749)	(1,753)
Cash flow before capital expenditure	4,131	6,585
Sustaining capital expenditure	(1,266)	(1,650)
Disposals of fixed assets	10	101
Free cash flow	2,875	5,036
Expansionary capital expenditure	(2,318)	(3,200)
Cash flow before acquisitions	557	1,836
Purchase of Prodeco	(2,000)	-
Purchase of investments	-	(155)
Purchase of share in associate	(112)	(1,878)
Purchase of subsidiaries and operations net of cash acquired	-	(3,654)
Other investing activities	(66)	43
Net cash flow before financing	(1,621)	(3,808)
Sale and purchase of own shares	9	(525)
Sale and issue of own shares	5,667	64
Equity dividends paid	-	(499)
Dividends paid to minority interests	(199)	(221)
Debt acquired with operations	-	(14)
Payments from minority interests	-	301
Loan issue costs written off	(41)	-
Other non-cash movements	(79)	86
Movement in net debt	3,736	(4,616)
Net debt at the start of the year*	(16,026)	(11,410)
Net debt at the end of the year*	(12,290)	(16,026)
* Includes derivative financial instruments that have been used to provide an economic hedge

 

RECONCILIATION OF OPERATING EBITDA TO CASH GENERATED FROM OPERATIONS $m	Year ended 31.12.09	Year ended 31.12.08
Operating EBITDA statutory	6,788	9,645
Exceptional items	(156)	(125)
Share based charges	334	6
Increase in inventories	(665)	167
Increase in trade and other receivables	(1,344)	868
Increase in deferred stripping and other assets	(186)	(299)
Increase in trade and other payables	318	(913)
Movement in provisions and other non-cash items	215	(461)
Cash generated from operations	5,304	8,888

 

Dividends of $199 million were paid to minority shareholders of Alumbrera.

The exceptional items of $156 million in 2009 shown above relate to restructuring and closure costs.  Non cash share-based charges increased as a result of Xstrata's stronger share price compared to the prior year.

 

NET DEBT SUMMARY $m	As at 31.12.09	As at  31.12.08
Cash	1,177	1,156
External borrowings	(13,286)	(17,072)
Finance leases	(181)	(110)
Net debt	(12,290)	(16,026)
Net debt to net debt plus equity*	26%	40%
* Includes derivative financial instruments that have been used to provide an economic hedge

Working Capital

WORKING CAPITAL $m	As at 31.12.09	As at 31.12.08
Inventories	4,570	3,573
Trade and other receivables	3,306	1,941
Prepayments	232	288
Trade and other payables	(3,697)	(3,233)
Net working capital	4,411	2,569

 

Increased net working capital was driven by increases in commodity prices at 31 December 2009 compared to the end of 2008 which resulted in a significant upwards adjustment to provisionally priced debtors.  Trade receivables increased due to higher-value sales whilst inventories and trade payables increased due to the higher cost of smelter feed-stocks and stronger local currency exchange rates against the US dollar at the end of 2009.

Treasury Management and Financial Instruments

The Group is generally exposed to US dollars through its revenue stream and seeks to source debt capital in US dollars directly or by borrowing in other currencies and swapping them into US dollars.  Over 90% of the Group's debt is priced with reference to short-dated US floating interest rates, ensuring that Xstrata reaps the full benefit of the natural hedge to commodity prices provided by US interest rates. In a low commodity price environment, this capital structure significantly reduces the cost of the Group's debt financing.

Currency cash flow hedging may be used to reduce the Group's short-term exposure to fluctuations in the US dollar against local currencies. The unrealised mark-to-market gain at 31 December 2009 on the balance sheet was $144 million.  Realised currency hedging gains reflected in the income statement for the year amounted to $362 million and are related to coal sales for which prices were contractually fixed.

The Group did not enter into any strategic, long-term base metals hedging contracts in the year.

Consolidated Capital Expenditure

CAPITAL EXPENDITURE SUMMARY (excludes deferred stripping expenditure) $m	Pro forma Year ended 31.12.09	Statutory Year  ended 31.12.09	Statutory Year  ended 31.12.08
Alloys	114	114	101
Coal	437	424	459
Copper	498	498	557
Nickel	93	93	267
Zinc	133	133	278
Technology	2	2	3
Unallocated	1	1	9
Total Sustaining	1,278	1,265	1,674
Attributable Sustaining	1,256	1,243	1,633
Alloys	49	49	121
Coal	890	687	745
Copper	436	436	558
Iron Ore	23	23	-
Nickel	1,049	1,049	1,645
Zinc	114	114	377
Technology	1	1	3
Total Expansionary	2,562	2,359	3,449
Attributable Expansionary	2,196	1,993	2,983
Alloys	163	163	222
Coal	1,327	1,111	1,204
Copper	934	934	1,115
Iron Ore	23	23	-
Nickel	1,142	1,142	1,912
Zinc	247	247	655
Technology	3	3	6
Unallocated	1	1	9
Total	3,840	3,624	5,123
Attributable total	3,452	3,236	4,616

 

In late 2008 and early 2009, Xstrata's businesses adopted a more defensive approach to capital expenditure, to conserve cash in light of a highly uncertain outlook for commodity prices.  Spending was deferred or reduced across the business following bottom up reviews of capital projects, while care was taken to preserve the options inherent in the Group's growth pipeline.  As a result, capital expenditure reduced to $3.8 billion, or $3.6 billion excluding Prodeco.  Expansionary capital expenditure in the period decreased by 26% to $2,562 million, including $203 million of expenditure at Prodeco, compared to $3,449 million in 2008.

The Group has a substantial pipeline of over 40 greenfield and brownfield growth projects.  During 2009, capital expenditure was prioritised to focus on the delivery of near-term, high return growth projects.

Significant expansionary capital was spent on three near-term expansionary projects: Nickel Rim South (an 18,000 tonne per annum nickel mine in Sudbury), Goedgevonden (a 7 million tonne per annum open-pit coal mine in South Africa) and Blakefield South (a replacement underground longwall operation in New South Wales).  Nickel Rim South and Goedgevonden contributed volumes and earnings in 2009 and all three projects will be fully commissioned in 2010.

The capital spend at the Koniambo nickel project in New Caledonia was optimised during 2009, reducing spending to $674 million in the period.  The project remains within budget and on schedule to start up in the first half of 2012, with full ramp up to an annual production capacity of 60,000 tonnes of nickel within the following two years.

Xstrata Coal's Mangoola project commenced major earthworks in December and the ATCOM East project South Africa was approved during the year at a capital cost of $407 million. Feasibility studies continue into the massive Wandoan project in Queensland which has reserves of 1 billion tonnes.

Capital expenditure at Xstrata Copper enabled the completion of several feasibility studies at brownfield and greenfield projects, resulting in Xstrata plc Board approval in the fourth quarter of a further expansion of Lomas Bayas in Chile and an underground extension to Ernest Henry mine in Queensland.  Both projects have now commenced construction.  At the Antamina joint venture in Peru, a 38% milling capacity expansion to 130,000 tonnes per day was approved in early 2010.  A further three copper projects have completed feasibility studies and will be presented to the Xstrata plc Board for approval during the next year.

Xstrata Zinc has initiated several feasibility studies including the construction of an Albion pressure leaching plant to upgrade bulk concentrates from McArthur River Mine and projects to expand the George Fisher and Black Star mines in Queensland.  This follows an 80% increase in reserves at George Fisher over the last four years.  The Bracemac-McLeod project in Canada has also been advanced to the feasibility study stage, and an extensive exploration and delineation programme at the Pallas Green project in Ireland is planned for 2010.

Acquisitions and disposals

On 3 March 2009, Group acquired 100% of the Prodeco Colombian coal operations from Glencore International AG for a net consideration, after the cost of granting the call option, of $2 billion with an effective date of 1 January 2009. Glencore has 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.  If the Glencore call option is not exercised, Prodeco will be consolidated as a fully-owned subsidiary from the date the option lapses.

In October 2009, the Group entered into an irrevocable sale agreement to dispose of the Group's 70% interest in El Morro for a total cash consideration of $465 million. The Group recognised a gain of $194 million in respect of the sale.

Rights issue

On 18 March 2009, 1,955,341,080 ordinary shares were issued under a rights issue which was structured as an issue of 2 new ordinary shares at a price of GBP 2.10 per share for every 1 existing ordinary share held, raising $5,667 million after expenses. The theoretical ex-rights price for an ordinary share was GBP3.405. The 2008 comparative dividends and earnings per share have been restated after applying a factor of 0.57 in order to adjust for the bonus element of the rights issue and 2009 figures have also been adjusted for this bonus element.

Dividends

The directors have proposed a recommencement of dividend payments following the improvement in Xstrata's financial position, with a final dividend of 8 cents per share for 2009.  While no interim dividend was paid in 2009, the final dividend ordinarily constitutes two-thirds of Xstrata's total dividend in any year, with the interim dividend comprising the remaining one third.  The final dividend payment of 8 cents per share implies a total dividend level of 12 cents per share for 2009, and this level will be used as a basis for Xstrata's future dividend payments.  The dividend will be paid on 14 May to shareholders on the register at 23 April.

Dividend dates	XTA LSE (GBP)
Ex-dividend date	21 April
Record date	23 April
Last date to receive currency election forms and completed mandate forms	23 April
AGM	5 May
Applicable exchange rate date	7 May
Payment date	14 May

 

 

Share Data

Under IFRS, own shares (treasury stock) are deducted from the total issued share capital when calculating earnings per share.  Through the rights issue, 16,377,594 shares were subscribed to from the rights issue on 18 March 2009 using proceeds from the sale of rights entitlements.  During the year, 4,228,231 shares were disposed of and six million shares were issued to the Share Ownership Trust (an employees' share scheme as that term is defined for the purposes of the Companies Act 1985 and within the provisions) to service the exercise of employee share options.

SHARE PRICE	XTA LSE (GBP)	XTA SWX (SFR)
Closing price 31.12.08*	3.62	5.55
Closing price 31.12.09	11.21	18.45
Year high	11.48	19.00
Year low	2.98	4.75
Year average	7.18	12.18
* Share price adjusted for the rights issue in March 2009

 

SHARES IN ISSUE FOR EPS CALCULATIONS	Number of shares (000s)
Weighted average for year ended 31.12.09 used for statutory eps calculation	2,646,871
Weighted average for year ended 31.12.08 used for statutory eps calculation*	1,693,504
Total issued share capital as at 31.12.09	2,900,787
* The 31 December 2008 comparative earnings per share have been restated after applying a rights issue bonus factor of 0.57.

 

PUBLICLY DISCLOSED MAJOR SHAREHOLDERS Name of shareholder	Number of Ordinary shares of $0.50 each	% of Ordinary issued share capital
Glencore International AG*	1,010,403,999	34.38
BlackRock, Inc	175,809,581	5.98
Capital Research and Management	145,466,653	4.94
AXA S.A.	88,770,657	3.02
* The voting rights comprised in this interest are directly controlled by Finges Investment B.V., a wholly-owned subsidiary of Glencore International AG

 

 

 

Ferrochrome and Vanadium

Significantly weakened demand for stainless steel in the early part of the year resulted in a severe reduction in stainless steel melt production and continued destocking.  While Western European, Japanese and American producers materially reduced production, stainless steel melt production from China continued to increase.  Reduced demand for ferrochrome from the stainless steel sector led to a sharp fall in the European Benchmark base price from record highs in mid-2008 of 205¢ per pound to 79¢ per pound in the first quarter of 2009 and 69¢ per pound in the second quarter.  However responsive production cuts by ferrochrome producers, led by the South African producers, were timely and more pronounced than those of the stainless steel producers, resulting in ferrochrome stocks normalising by the end of the first half of 2009.

Restocking of stainless steel commenced in the second half, leading to increased demand for ferrochrome as stainless steel melt production increased.  The historically slower third quarter saw further increases in stainless steel production.  Despite this recovery in the latter part of the year, annual stainless steel melt production was lower for the third consecutive year and global production declined during 2009 by approximately 6% to 24.3 million tonnes.

A tightening ferrochrome market as a result of the cutbacks to production implemented during 2009, coupled with price increases by South Africa's power utility Eskom and the strengthening South African rand, led to an increase in the benchmark price in the second half of 2009.  The European Benchmark base price was settled at 89¢ per pound in the third quarter and rose to 103¢ per pound in the fourth quarter.  The annual average European Benchmark price of 85¢ per pound in 2009 was 51% lower than the previous year's average price, which had reached a historical high of 175.8¢ per pound.

Lower ferrochrome prices and higher priced chrome ore inventories led to the majority of Chinese domestic ferrochrome production becoming uncompetitive in the first half of 2009 and thus ferrochrome imports into China increased by 98% in 2009, with ore imports declining by 1%.

Global crude steel production in 2009 decreased by approximately 11% compared to 2008 to around 1.08 billion tonnes, significantly reducing vanadium demand.  In response, vanadium producers proactively reduced production and temporarily suspended operations. The average annual price for ferrovanadium in 2009 was $25.02 per kilogram, 65% lower than in 2008, but considerably higher than historic lows in previous recessions.

Outlook

Planned expansions to South African ferrochrome capacity will be limited by the cost and availability of electricity in South Africa and the persistently high South African rand. In the short to medium term, increased ferrochrome capacity will emanate mainly from Asia, particularly China, where production is underpinned by competitively priced power, labour and capital, together with readily available chrome ore for import.  

Simultaneously China continues to be the fastest growing stainless steel producing market globally, driving strong demand for ferrochrome.

The outlook for ferrochrome remains robust in the medium to long term, with stainless steel production expected to recover and grow from current low levels, supported by major global economic stimulus plans, including significant investment in infrastructure.

The short term outlook for vanadium remains relatively positive as steel mills are anticipated to replenish depleted vanadium inventories in early 2010. Vanadium demand and prices are expected to increase in the medium to long term in line with economic recovery.

Platinum Group Metals

Platinum producers reduced production in the early part of 2009 in response to a significant decrease in automobile sales, especially in OECD countries. Automobile scrapping incentive schemes and tax breaks introduced to stimulate sales had a positive impact but did not fully compensate for the severe decrease in demand.

Reduced demand from the automobile sector was partly offset by the introduction of tighter automotive tailpipe emissions legislation in Europe, strong investment and speculative activity, as well as strong demand from the price-elastic jewellery sector. The robust performance of the investment, speculative and jewellery segments, together with the weakening dollar, supported an increase in platinum prices in the second half of the year to a high of $1,497 per ounce from a low in 2008 of $760 per ounce.

The decrease in demand led a number of PGM producers to scale back production and defer expansions during the year.  Operational issues continue to challenge South African producers.

While the platinum price ended 2009 58% higher than the beginning of the year, the average platinum price was 24% lower than in 2008.  Similarly, palladium and rhodium prices ended 2009 over 100% higher than the beginning of the year, but were 25% and 76% lower than in 2008 respectively.

Outlook

Continuing improvements in auto sales and economic recovery, tightening emission legislation, an increase in industrial demand, as well as the recent launch of the US ETF is expected to support the platinum price during 2010.

The medium to long term outlook for PGMs remains positive. Recent deferrals of capital projects and ongoing operating issues are likely to lead to further supply-side constraints, while demand is expected to improve in line with economic conditions and the tightening of emissions legislation globally.

 

FINANCIAL AND OPERATING DATA $m	Year ended 31.12.09	Year ended 31.12.08
Ferrochrome and Vanadium
Revenue	1,105	1,733
Operating EBITDA	15	959
Depreciation and amortisation	(62)	(52)
Operating profit/(loss)	(47)	907
Share of Group Operating profit	(1.0)%	12.5%
Capital  employed	1,176	969
Return on capital employed*	(4.5)%	83.0%
Capital  expenditure	103	108
Sustaining	102	95
Expansionary	1	13
Platinum Group Metals
Revenue	200	269
Operating EBITDA*	55	135
Depreciation and amortisation	(31)	(35)
Operating profit*	24	100
Share of Group Operating profit	0.5%	1.4%
Capital  employed*	1,740	1,333
Return on capital employed**	1.6%	6.7%
Capital expenditure	60	114
Sustaining	12	6
Expansionary	48	108
* Excludes share in Lonmin Plc ** ROCE % based on average exchange rates for the year

 

OPERATING PROFIT/(LOSS) VARIANCES		$m
Operating profit 31.12.08		1,007
Sales price*		(941)
Volumes		214
Unit cost - real		13
Unit cost - CPI inflation		(45)
Unit cost - mining industry inflation		(54)
Unit cost - foreign exchange		(121)
Other income and expenses**		(88)
Depreciation and amortisation (excluding foreign exchange)		(8)
Operating loss 31.12.09		(23)
* **	Net of commodity price linked costs, treatment and refining charges Includes standing charges US$46 million, furnace restart cost US$16 million

 

The downturn in global economic conditions created a significantly weaker pricing environment for all of Xstrata Alloys' commodities.  Lower ferrochrome, PGM and vanadium prices reduced operating profit by $941 million, resulting in an operating loss of $23 million compared to an operating profit of over $1 billion in 2008.  The negative impact of the stronger South African rand further reduced operating profit by $121 million compared to 2008, exacerbated by higher consumer price index inflation in South Africa and ongoing mining sector inflation, particularly from power and raw material costs, which contributed a total of $99 million to the operating loss.  Data from Statistics South Africa is used by Xstrata Alloys to measure mining sector inflation.  Up to 80% of ferrochrome smelting capacity was progressively suspended from late 2008 in response to weak market conditions.  Despite difficult operating conditions and a material curtailment of ferrochrome production, Xstrata Alloys achieved real cost savings of $13 million due to the prioritisation of low cost production to energy efficient furnaces using Xstrata's proprietary Premus technology.

Operations

Ferrochrome and Vanadium

The ferroalloys division reported an operating loss of $47 million, primarily due to the halving of ferrochrome prices and a stronger South African rand.  While production was significantly curtailed, sales volumes rose as stockpiled ferrochrome from 2008 was sold into a steadily improving market in 2009.

Attributable saleable production of 786,000 tonnes of ferrochrome in 2009 was 30% lower than the previous year, following significant production cuts in response to the worldwide economic slowdown. As demand improved, Xstrata Alloys increased ferrochrome capacity utilisation from 20% in early January 2009 to approximately 85% by the end of the year.  The Premus technology furnaces remained in operation throughout the downturn, contributing a 5% improvement in ore consumption efficiency and a 5% increase in electricity efficiency, compared to 2008. 

Despite improved efficiencies, nominal variable costs rose by 20% in rand terms, due to ongoing inflationary pressures, including a 46% increase in electricity prices and a 30% increase in average reductant prices.  Ferrochrome unit costs, excluding standing charges, increased by 17% over the comparable period.  A range of cost savings initiatives were implemented to limit the impact of inflationary cost increases, including reduced use of contractors, limited maintenance expenditure and lower overtime all of which limited fixed cost increases to approximately 3% compared to 2008.

Cost savings and efficiency initiatives enabled the Xstrata-Merafe Chrome Venture to avoid retrenching any permanent employees, in order to retain its skilled labour force in anticipation of a market upturn.  During the suspension of production capacity, training programmes, maintenance and repairs were carried out, which enabled operations to be restarted quickly and efficiently during the second half of the year.  Mining activities were scaled down to align with smelter requirements and contractual production obligations at opencast activities were reduced to a minimum.  UG2 chromite ore consumption was optimised to reduce input costs.

Production was suspended at Rhovan, Xstrata's integrated vanadium operation, during the third quarter for extended maintenance reducing ferrovanadium volumes by 37% in 2009.  The operation returned to full production on 17 October 2009.

Platinum Group Metals

Operating profit from Xstrata Alloys' PGMs division decreased by 76% to $24 million, due to the impact of reduced demand on prices.

The Mototolo joint venture increased throughput by 418,000 tonnes a 23% increase over 2008 and ramped up to nameplate ROM capacity of around 200,000 tonnes per month during the third quarter of the year.  All major capital infrastructure is complete.

At Eland, total volumes mined were around 6% lower than the previous year, mainly due to the unusually heavy rainfall experienced during the first quarter of 2009.  Production was also impacted by delays by the mining regulator issuing a mining right for planned opencast mining area extensions.

Overall PGM volumes remained nearly unchanged at 222,000 ounces compared to 2008, despite production being adversely affected at Eland due to rainfall and unforeseen geological anomalies at Mototolo, which negatively affected the head grade.

 

SUMMARY PRODUCTION DATA		Year ended 31.12.09	Year ended 31.12.08
Ferrochrome (kt)*		786	1,126
Vanadium**
Ferrovanadium (k kg)		2,284	3,622
V2O5 (k lbs)		11,492	16,604
Platinum Group Metals**
Platinum (oz)		132,969	138,098
Palladium (oz)		67,435	65,774
Rhodium (oz)		21,182	18,644
Indicative average published prices (Metal Bulletin)
Ferrochrome (c/lb)		85.0	175.8
V2O5 ($/lb)		6.0	13.5
Ferrovanadium ($/kg V)		25.0	61.2
Average (London Platinum and Palladium Market) Platinum price ($/oz)		1,205	1,578
Average (London Platinum and Palladium Market) Palladium price ($/oz)		264	353
Average (Johnson Matthey) Rhodium price ($/oz)		1,559	6,558
* **	Including Xstrata's 79.5% share of the Xstrata-Merafe Chrome Venture 100% consolidated

Developments

Xstrata Alloys benefits from low capital cost, brownfield expansion options in its chrome and platinum operations. 

Ferrochrome

Developments were curtailed to preserve cash in light of poor market conditions.  Normal production ceased at the Horizon mine facilitating the commencement of the mine's next phase of development, which will increase capacity from 180,000 to 480,000 tonnes per annum in 2013.

The Waterval mine development has been temporarily suspended and the commissioning of the new development at the mine has been delayed.  The Magareng mine development at the Thorncliffe complex continues, although at a slower rate than anticipated and it will share the beneficiation plant at Helena Mine until demand recovers.  The mining division has received all of its New Order Prospecting and Mining Rights and Mining Right conversions from the Department of Mineral Resources.

Platinum Group Metals

The sinking of the Western Decline System, the Kukama Shaft, at the Eland mine commenced during the third quarter of 2009. The shaft system is currently 180 metres below the high-wall position. Most major contracts pertaining to the Western Decline System have been finalised and the remainder are in the final tender phase. 

This project will be followed by the development of the Eastern Decline System, the Nyala Shaft, and the doubling of current concentrator capacity. This expansion project is scheduled to commence approximately 18 months after the start of the Western Decline System, depending on market conditions.

Production from underground operations will replace opencast tonnage, maintaining milling throughput and, with the commencement of the Eastern Decline System, the mine will gradually increase production from the fourth quarter of 2011.  Production from underground operations will reach 250,000 tonnes per month by 2012 and a steady state of 500,000 tonnes per month during 2014, doubling current PGM production to 300,000 platinum ounces per annum. Eland will have an estimated mine life of approximately 21 years (excluding the Madibeng reserves).

Xstrata Alloys continues to assess its medium to long term PGM growth options through the development of its exploration portfolio with emerging black economic empowerment junior companies. 

Thermal Coal Markets

Global demand for seaborne thermal coal increased by 6% in 2009, principally benefiting from the growth in Chinese net import demand. Global demand growth remains underpinned by Asia where coal retains its attractive cost position for base load electricity generation, supporting continued investment in coal fired power generation capacity.

Net imports into China grew substantially. The resumption of rapid economic growth in China fuelled strong domestic demand which, coupled with a programme of mine consolidation and closure, led to domestic coal prices which were higher than international market prices. Consumers in coastal and southern regions of China were able to use imported coal at lower delivered prices than domestic coal, leading to a surge in import demand. As a result, in 2009 China imported 92 million tonnes of thermal coal, 173% higher than in 2008. In addition, China's exports for 2009 fell to 18 million tonnes, a 47% reduction from the 35 million tonnes exported in 2008, as higher domestic prices drove Chinese producers to reduce exports in favour of domestic sales.  Overall, net imports rose to 73 million tonnes in 2009 following a 1 million tonnes net export position in 2008.

Demand for thermal coal imports in India also grew.  Thermal coal imports during 2009 were an estimated 56 million tonnes, 49% higher than the 38 million tonnes imported in 2008. A significant portion of this demand was met from South Africa, whose exports to India grew by approximately 130% compared to 2008. This marked shift in trade flows driven by Asian demand growth more than offset reduced Atlantic Basin demand. In Europe and the US, lower levels of economic activity and lower gas prices reduced import demand by approximately 9%.

Thermal coal supply did not keep up with demand in 2009. Supply increases from Australia (11%), Indonesia (6%), and Russia (17%) were offset by reductions from China and the USA, resulting in overall export supply growth of 2%. With global demand growing by 6% year-on-year and supply increasing at a lower 2% annual rate, there was a significant reduction in stocks that had built up at the end of the previous year. 

Xstrata Coal secured contract price settlements with Japanese Power Utilities for the year commencing 1 April 2009 in the range of $70 - $72 per tonne FOB basis 6322 GAR and at $75 per tonne for the year commencing 1 October 2009. Calendar year contracts commencing 1 January 2010 were recently settled at $85 per tonne. These settlements are referenced for contracts with other customers in the Pacific market, where term and annual contracts represented 65% of Xstrata Coal's thermal coal sales in 2009. Xstrata was able to retain its strong position in the key thermal markets of Japan, Korea and Taiwan, which together account for 79% of Xstrata's Pacific market thermal coal sales.

Approximately 59% of export sales from South Africa in 2009 were priced on a spot or index basis with the balance being fixed price sales under term or annual contracts. FOB prices, as indicated by the API4 index, ranged from $56 to $81 per tonne in 2009.

Outlook

Strong demand for imported coal from China and India and a recovery in demand from other Asian consumers led to improved conditions in the Pacific coal markets and also supported stronger API4 prices in the final quarter of 2009. While the spark spread currently favours gas ahead of coal in Europe, the strong growth outlook in Asia, which is attracting Atlantic coal to the Pacific basin, coupled with continuing recovery from the economic slowdown in Atlantic markets suggests a positive outlook for seaborne thermal coal demand in 2010.

In the longer term, coal demand is expected to continue to grow strongly, driven primarily by Asian economies where coal-fired power underpins economic growth. Import demand will grow strongly in economies where current domestic supplies cannot meet demand.  This demand growth profile is not matched by projected supply growth, suggesting a robust long-term outlook for thermal coal markets.

 

 

Coking coal markets

Despite the unprecedented impact of the global financial crisis on steel production in many markets, prices for imported coking coal remained relatively resilient during 2009. The main factor underpinning prices was a surge in Chinese demand from 3 million tonnes in 2008 to an estimated 33 million tonnes in 2009, which almost entirely offset lower demand from nearly all other markets. Global coking coal demand declined by approximately 4% in 2009.

Following the precipitous declines in global blast furnace iron production in the second half of 2008, production stabilised and gradually recovered during 2009 to end the year at an annualised rate of just under 1 billion tonnes, or close to June 2008 levels. Increased steel production in China and the consequent increase in coking coal demand coincided with a programme of enforced closure of many small domestic mines that supplied a significant proportion of Chinese hard coking coal demand. As a result, domestic coking coal prices rose, boosting demand for relatively cheaper and higher quality imported coking coal.

Coking coal prices progressively strengthened during 2010. At the start of the year, coking coal spot prices fell to $110 per tonne and a number of coking coal customers slowed offtake against contracts. This resulted in reduced shipments and necessitated some adjustments to mine production, including Xstrata's Oaky Creek operations. In March, long-term contract prices for 2009 were settled with Japanese Steel Mills at a reference price of $128-129 per tonne for premium hard coking coal, and $78-80 per tonne for semi-soft coking coal.

During the second half of 2009, global steel industry capacity utilisation continued to recover resulting in increased demand for coking coal, reductions in stockpiles and steadily improving spot prices. By the end of 2009, spot prices reached approximately $180 per tonne and have further improved to in excess of $220 per tonne in 2010 to date.

Term and annual contracts represented 50% of Xstrata's hard coking coal and semi-soft coking coal sales in 2009. Japan remains the major market for semi-soft coking coal. Xstrata's hard coking coal in 2009 was sold to a diverse range of markets, with significant sales realised with new customers in China. 

Outlook

The coking coal market in 2010 is expected to remain robust as recovery from the global economic downturn gathers pace and steel production and consumption continues to recover to pre-financial crisis levels. Continued coking coal demand in China, new demand in India and an anticipated recovery in the rest of the world is expected to result in significant growth in global demand. Supply growth will be constrained by scarcity of coking coal resources and potential infrastructure limitations. Consequently, coking coal markets are expected to remain tight. 

 

 

FINANCIAL AND OPERATING DATA   $m		Year ended 31.12.09	Year ended 31.12.08
Revenue: operations†*		7,222	7,633
Coking Australia		965	1,595
Thermal Australia		3,749	4,139
Thermal South Africa		968	1,058
Thermal Americas*		1,540	841
Revenue: other*		325	311
Coking Australia		22	2
Thermal Australia		294	260
Thermal South Africa		9	49
Total revenue*		7,547	7,944
Coking Australia		987	1,597
Thermal Australia		4,043	4,399
Thermal South Africa		977	1,107
Thermal Americas*		1,540	841
Operating EBITDA*		3,013	4,170
Coking Australia		430	1,022
Thermal Australia		1,712	2,188
Thermal South Africa		259	542
Thermal Americas*		612	418
Depreciation and amortisation*		(868)	(624)
Coking Australia		(87)	(92)
Thermal Australia		(397)	(317)
Thermal South Africa		(148)	(131)
Thermal Americas*		(236)	(84)
Operating profit*		2,145	3,546
Coking Australia		343	930
Thermal Australia		1,315	1,871
Thermal South Africa		111	411
Thermal Americas*		376	334
Share of Group Operating profit*		47.9%	48.9%
Australia		37.0%	38.6%
South Africa		2.5%	5.7%
Americas*		8.4%	4.6%
Capital employed		13,250	8,297
Australia		6,843	5,148
South Africa		2,239	1,317
Americas*		4,168	1,832
Return on capital employed**		17.6%	37.2%
Australia		27.4%	45.0%
South Africa		5.6%	27.7%
Americas*		9.1%	18.2%
Capital expenditure*		1,327	1,204
Australia		662	776
South Africa		373	346
Americas*		292	82
Sustaining*		437	459
Expansionary*		890	745
* **†	Includes Prodeco for the year 2009 ROCE % based on average exchange rates for the year Includes purchased coal for blending with mine production

 

OPERATING PROFIT VARIANCES		$m
Operating profit 31.12.08 (statutory)		3,546
Sales price*		(1,235)
Volumes		(142)
Unit cost - real		107
Unit cost - CPI inflation		(172)
Unit cost - mining industry inflation		(131)
Unit cost - foreign exchange		255
Other income and expenses		(78)
Depreciation and amortisation (excluding foreign exchange)		(113)
Business Combinations**		108
Operating profit 31.12.09 (pro forma**)		2,145
* **	Net of commodity price linked costs, treatment and refining charges Includes Prodeco for the year 2009 after adjusting for FV depreciation

 

Xstrata Coal achieved pro forma operating profit of $2.1 billion in 2009, despite difficult market conditions and lower received prices, which reduced operating profit by $1.2 billion compared to 2008.  Xstrata Coal's performance was positively impacted by the stronger US dollar on average compared to the prior year, real unit cost savings of $107 million and the earnings contribution of the Prodeco operations in Colombia, which contributed $159 million to operating profits (excluding fair value uplift depreciation and amortisation). 

Sales volumes increased in all operating regions except South Africa, where sales were impacted by weaker market conditions partially offset by the start-up of the new Goedgevonden open pit mine. Total thermal sales volumes, including semi-soft, were up 9% on the prior year as a result of the inclusion of Prodeco and increased volumes at the Ravensworth Underground Mine in New South Wales and the highly productive Newlands Northern Underground mine in Queensland.

Coking sales in Australia were marginally down on the prior year due to lower sales resulting from the deferral of shipments by some customers and industrial action at Tahmoor, which were materially offset by increased sales from Oaky North. 

Mining and CPI inflationary pressures adversely impacted Xstrata Coal's earnings, reducing operating profit by $303 million when compared to the previous year. Higher cost inputs, including an extraordinary increase in rail freight and port charges, higher labour costs and continued price escalation for spare parts, were partially offset by savings from fuel following the reduction in oil prices during the year. The Australian operations experienced an increase in excess of 19% year on year in the cost of spare parts as a result of a lag effect in the industry, with reductions expected to be realised in 2010. In South Africa, rail freight charges increased by 39% industry-wide, as a result of increases introduced by the sole rail supplier. 

Real unit cost savings of $107 million were achieved, primarily due to productivity improvements at a number of Australian operations, including Newlands Northern Underground and Ravensworth Underground as well as from the benefit of the transition to lower cost owner-operator mining at Mount Owen. Cost savings were partially offset by geotechnical issues at Rolleston, a faulted region impacting resource recovery at Beltana (as anticipated in the mine plan), and the impact of mining higher cost contractor mini-pits while transitioning to large lower cost open-cut operations in South Africa.

Other income and expenses include certain market related impacts including the suspension of longwall operations at Oaky No 1, the change in product type at GGV as well as redundancy costs.

Operations

Australian thermal coal

Australian thermal coal's operating profit of $1,315 million is 30% lower than the previous year, primarily due to a weakening of the market resulting in lower prices received for 2009 Japanese Financial Year contracts, partly offset by the benefit of the weaker Australian dollar against the US dollar.  The average realised export thermal price decreased by 16% to $80 per tonne and average realised semi-soft prices decreased by 22% to $123 per tonne. 

Despite coal chain outages during the year, the Australian thermal coal operations recorded an increase in sales volumes.  Consolidated sales increased by 1 million tonnes to 46 million tonnes compared to the previous year as a result of increased overall rail and port capacity and increased production from Newlands Northern Underground.

Australian coking coal

Operating profit from coking coal operations reduced by approximately two thirds to $343 million in comparison to 2008, as a result of the collapse in demand from global steel and manufacturing markets in the early part of the year.  Poor market conditions led to the deferral of a number of shipments by customers in the first half of the year and the suspension of longwall operations at Oaky No. 1, which were subsequently restarted in August.

In the second half of 2009, improved market conditions led to a substantial improvement in second half operating profit which increased to $219 million compared to $124 million in the first half of the year.

Real unit cost savings were achieved, primarily from productivity improvements at Oaky North from new longwall efficiencies.  The renegotiation of contracts in the first half of the year resulted in approximately 3 million tonnes of metallurgical coal to be delivered over the course of the next 18 to 24 months. 

South Africa

The second half of 2009 saw a strong recovery for the South African operations, achieving an operating profit of $111 million for the year after a first half operating profit of $17 million. Nonetheless, operating profits were $300 million lower than the previous year due to reduced demand from the Atlantic and local South African energy markets resulting in lower sales volumes and prices, as well as cost increases resulting from reduced domestic sales and costs associated with the transition to large lower cost open pit operations.

South African sales were 20 million tonnes, down 17% against the prior year mostly as a result of decreased demand in the domestic market due to the reduced domestic power demand and lower industrial use for part of the year. 

In December 2009, Goedgevonden secured a 17-year agreement with Eskom, the national power utility, to supply 3.5 million tonnes per annum of thermal coal to Eskom's Majuba coal-fired power station until December 2026. The remaining 3.5 million tonnes per annum production from the mine will be sold as export coal.

Americas

Xstrata Coal America's 2009 pro forma operating profit increased by 13% to $376 million from the previous year, including $107 million from the newly acquired Prodeco operation in Colombia.

Cerrejón's operating profit fell to $269 million (Xstrata's share), 20% lower than in 2008, as a result of lower demand from the Atlantic market resulting in lower sales volumes and lower realised prices than in the previous year.

In 2009 Prodeco continued to ramp up operations to 10.5 million tonnes. However, lower demand from the Atlantic market impacted sales volumes, production and increased stocks. Distribution costs have also been impacted by night time railing restrictions. 

SUMMARY PRODUCTION DATA (million tonnes)		Year ended 31.12.09	Year ended 31.12.08
Total consolidated production		95.2	85.5
Total thermal coal		82.6	73.3
Australian thermal		41.1	40.2
South African thermal*		20.8	22.7
Americas thermal**		20.7	10.4
Australian coking		6.4	6.9
Australian semi-soft coking		6.2	5.3
Total consolidated sales		92.6	86.3
Consolidated Australian sales total		52.2	51.8
Coking export		6.4	7.0
Semi-soft coking export		6.2	5.3
Thermal export		31.6	31.3
Thermal domestic		8.0	8.2
Consolidated South African sales total*		19.8	24.0
Thermal export		11.9	12.3
Thermal domestic		7.9	11.7
Consolidated Americas sales total**		20.6	10.5
Total attributable sales		86.4	79.6
Attributable Australian sales total		49.8	49.5
Coking export		6.4	7.0
Semi-soft coking export		5.5	4.8
Thermal export		30.0	29.6
Thermal domestic		7.9	8.1
Attributable South African sales total*		16.0	19.6
Thermal export		9.6	9.8
Thermal domestic		6.4	9.8
Attributable Americas sales total**		20.6	10.5
Average received export FOB coal price ($/t)
Australian coking		145.0	232.5
Australian semi-soft coking		122.5	157.5
Australian thermal		80.3	95.6
South African thermal		68.1	78.4
Americas thermal**		74.8	80.9
*	For production reporting DTJV is included for the full year ended 31 December 2009.  As a result of the DTJV re-structuring announced on 3 March 2008, for financial reporting DTJV was excluded from Xstrata Coal's ex-mine results from this date until 1 July 2009.
**	Includes Prodeco for the year ended 31 December 2009

 

Developments

In 2009, Xstrata Coal advanced its world class project portfolio of low-cost internal growth expansions and development opportunities. Xstrata Coal has six major projects in implementation, Blakefield South, Mangoola, Goedgevonden (recently completed and in the final phase of commissioning its Coal Handling and Processing Plant), ATCOM East, Newlands Northern Underground extension and the Prodeco expansion, and is on track to deliver in excess of 30 million tonnes per annum product on a consolidated basis by the end of 2013.

Australia

Development of the first longwall panel continued at the Blakefield South underground operation, part of the Bulga Complex in New South Wales. In early 2010, the project was 88% complete, with first longwall coal expected to be produced on schedule in the third quarter. Blakefield South will replace the highly productive Beltana underground mine once it ceases operations in late 2010. 

In July 2009, the Xstrata plc Board approved the re-engineered and optimised development of the Mangoola open cut thermal coal mine in New South Wales. Major earthworks for the rail loop, infrastructure area and dams commenced in December 2009. The project remains within budget and is scheduled to commission its new coal handling and processing plant in the second half of 2011. The mine will produce up to 10.5 ROM million tonnes of both export and domestic quality thermal coal annually and has an expected mine life of at least 18 years.

Development applications have been submitted to the New South Wales Department of Planning for Ulan West and Ravensworth North, both having completed environmental assessment studies and Ulan West having completed its feasibility study. Ravensworth North feasibility studies are expected to be completed in the first quarter of 2010. These projects are expected to progress to implementation in 2010, dependent on external approvals. 

The United open cut and Bulga optimisation projects both progressed into prefeasibility during 2009 and are expected to complete the option analysis and selection phase and commence feasibility studies in 2010. 

The Newlands Northern Underground extension in Queensland was approved in June and the development of the first extended underground longwall block has commenced. The project remains on budget and schedule with longwall coal expected in the first half of 2012.

Further development of the Surat Basin in Queensland focused on the Wandoan Coal project which is currently advancing through feasibility stage. The Supplementary Environmental Impact Statement was submitted in November with a response expected in the first quarter of 2010. Over 1 billion tonnes of reserves have now been identified to underpin thermal coal exports from the initial stage of up to 30 million tonnes per annum. Exploration and development planning is also underway on a further 4.1 to 7.7 billion tonne exploration target, which could underpin a new basin in Queensland with capacity in excess of 100 million tonnes per annum. 

Given the long-term demand for thermal coal from the southern Bowen Basin and the potential of the Surat Basin, Xstrata has also progressed pre-feasibility studies under its exclusive right to develop a new coal export terminal in the vicinity of Port Alma, approximately 40 kilometres north of Gladstone.

In June 2009 the Rolleston expansion project commenced its prefeasibility study. The Oaky Creek open cut expansion project commenced its prefeasibility study in September 2009 for an additional 1 million tonne per annum of saleable coking coal. 

South Africa

The recently completed Goedgevonden Colliery project is in the final phase of commissioning its coal handling and processing plant, which is expected to reach full production in the first quarter of 2011.

In October, the Xstrata Board approved the full implementation of the ATCOM East project, with a capital commitment of approximately $407 million. Full integrated run of mine production of 5.7 million tonnes per annum is expected to ramp up during 2011.

The Tweefontein Optimisation Project completed its prefeasibility study in November 2009 and proceeded into the feasibility phase to develop a 9 million tonne per annum operation with an indicative start up date of 2013.

Americas

Following the purchase in March 2009 of the Prodeco coal operations, the necessary permits were secured for the expansion of coal production from 10 million tonnes per annum to 17 million tonnes per annum by 2013.  In March, Prodeco received a 12 month extension from the Colombian government to the lease concession of the existing Santa Marta port contingent upon the timely development of a new direct loading port. Prodeco is at this time the solde participant in the Puerto Nuevo project to construct a new multi-user direct ship loading port facility at Cienaga, south of Santa Marta. The first phase of the facility is expected to be completed by 2013 with a capacity of 23million tonnes per annum.

In November 2009, the joint venture shareholders at Cerrejón gave approval to complete an options analysis and selection study of a proposed larger staged expansion project. The 40 million tonnes per annum feasibility study which was completed in January will have a majority of its engineering incorporated into this larger expansion project.

The Donkin project, situated in Nova Scotia Canada, continued feasibility studies during 2009 and development options continue to be considered.

 

 

 

The copper market proved robust in the face of very challenging macroeconomic conditions in 2009.  Demand from developing markets in Asia along with multiple supply disruptions ensured that copper prices climbed steadily throughout the year, from a low of $1.38 per pound in mid-January to $3.33 per pound at year-end.  LME cash prices averaged $2.33 per pound during the year, 26% or 82¢ per pound lower than in 2008.

The global financial crisis that began in late 2008 continued to weigh on copper demand throughout 2009 in major Western markets where the construction and transportation sectors were worst hit.  These markets began to emerge from recession during the second half of the year as government stimulus efforts took effect, and by year-end the outlook for Western copper demand had improved. 

Weakness in Western markets was offset by very strong Chinese copper consumption, which recovered rapidly from the slowdown in late 2008 as government stimulus efforts generated strong demand from the power and infrastructure projects, with further buying from consumer goods and automotive sectors. 

A shortage of global scrap resulted in increased imports of refined copper into China. Chinese net imports of refined copper increased by 130% compared to the previous year to 3.1 million tonnes and absorbed much of the surplus copper from Western markets. 

A rapid rise in global exchange inventories in early 2009 was reversed by Chinese buying during the second quarter.  However, inventories rose steadily during the second half of the year to reach 688,000 tonnes or around 14 days' supply by year-end, an increase of 293,000 tonnes on the closing level in 2008. This stock-build largely reflects the impact of rising copper prices, leading to softer Chinese copper imports in the second half and the minimisation of consumer inventories.

On the supply side, growth was constrained by the suspension of production at several copper mines in response to the financial crisis as well as ongoing underperformance at existing mining operations.  Labour unrest disrupted output at several major mines during the second half of the year; while operational difficulties, lower grades and power disruptions continue to constrain supply. 

Supply losses and growing smelter demand ensured continued tightness in the concentrate market.  Contract treatment and refining terms for 2010 declined to $46.50 per dry metric tonne and 4.65¢ per pound from $50 per tonne and 5¢ in the mid-year talks, while spot terms have declined to levels below $15 per dry metric tonne and 1.5¢ per pound.

Outlook

Continued improvement in macroeconomic conditions in the OECD economies is expected to drive a recovery in copper consumption in 2010, although demand will remain below pre-crisis levels.  Despite the expectation that government stimulus measures will be slowly withdrawn in China, copper demand is likely to stay at a high level amid strong domestic consumption and recovering export markets.  However, until the OECD recovery gathers pace, global exchange stocks are unlikely to fall significantly from current levels.  Considerable fund activity evidenced in the buying of copper and copper-related instruments will result in continued price volatility.

Many supply cuts undertaken at the height of the financial crisis are in the process of being reversed, but project delays and ongoing constraints on existing operations will limit mine supply growth in 2010 and beyond.

The reduced availability of capital following the financial crisis has added to the existing constraints to mine development, which include access to infrastructure, water and power as well as sovereign and political risk.  The delays have extended mine development timelines and are limiting the industry's ability to meet forecast demand in the medium term. Probable mine project supply in 2015 has been reduced by an estimated 2.2 million tonnes compared with a comparable forecast eighteen months ago.  Tight physical market conditions will return as the demand recovery outpaces supply growth over the coming years.

The outlook for custom smelting remains challenging in an environment where the gap between constrained concentrate supply growth and installed concentrate smelting capacity continues to widen.  The collapse in treatment and refining charges to near record lows coupled with weak by-product credits will generate difficult trading conditions for smelters in the year ahead.

 

FINANCIAL AND OPERATING DATA $m	Year ended 31.12.09	Year ended 31.12.08
Revenue	9,223	11,464
Argentina: Alumbrera	1,256	1,216
Australia: North Queensland	913	1,743
Canada*	2,335	4,162
Chile
Collahuasi††	1,514	1,131
North Chile	1,766	1,834
Peru
Antamina‡	790	840
Tintaya	649	538
Operating EBITDA	2,922	3,160
Argentina: Alumbrera	543	488
Australia: North Queensland	436	954
Canada*	84	117
Chile
Collahuasi††	771	673
North Chile	242	90
Peru
Antamina‡	495	543
Tintaya	351	295
Depreciation and amortisation	(796)	(863)
Argentina: Alumbrera	(94)	(97)
Australia: North Queensland	(160)	(215)
Canada*	(84)	(85)
Chile
Collahuasi††	(199)	(150)
North Chile	(98)	(91)
Peru
Antamina‡	(86)	(145)
Tintaya	(75)	(80)
Operating profit	2,126	2,297
Argentina: Alumbrera	449	391
Australia: North Queensland	276	739
Canada*	-	32
Chile
Collahuasi††	572	523
North Chile	144	(1)
Peru
Antamina‡	409	398
Tintaya	276	215
Share of Group Operating Profit	47.5%	31.7%
Capital Employed†	16,335	14,732
ROCE	16.8%	19.2%

 

FINANCIAL AND OPERATING DATA $m		Year ended 31.12.09	Year ended 31.12.08
Capital Expenditure		934	1,115
Argentina		43	77
Australasia		263	272
Canada*		94	135
Chile
Collahuasi††		229	183
North Chile and Others		147	282
Peru
Antamina‡		38	64
Tintaya		120	102
Sustaining		498	557
Expansionary		436	558
† †† * ‡	Includes goodwill allocation on acquisition of Falconbridge Xstrata's 44% share of Collahuasi Canada includes Xstrata Recycling that operates businesses in Canada, the United States of America and Asia Xstrata Copper's pro rata share of Xstrata's 33.75% interest in Antamina

 

OPERATING PROFIT VARIANCES		$m
Operating profit 31.12.08		2,297
Sales price*		(185)
Volumes		(80)
Unit cost - real		55
Unit cost - CPI inflation		(48)
Unit cost - mining industry deflation		16
Unit cost - foreign exchange		89
Other income and expenses		(37)
Depreciation and amortisation (excluding foreign exchange)		19
Operating profit 31.12.09		2,126
*	Net of commodity price linked costs, treatment and refining charges

 

Xstrata Copper's operating profit of $2,126 million was $171 million lower than in 2008, as a result of lower average copper prices and reduced volumes of by-product sales, partially offset by real unit cost savings and US dollar exchange rate benefits.

Provisional price settlements in respect of sales booked in 2008 but priced in 2009 added $156 million to 2009 earnings, a lower benefit than the prior year provisional price settlements.  As at 31 December 2009, provisionally priced sales amounted to 190,000 tonnes to be settled in 2010.

Reduced sales volumes of gold and other by-products offset higher sales volumes of mined copper, impacting operating profit by a net amount of $80 million.  Lower gold sales were mainly as a result of lower volumes from Alumbrera and Ernest Henry due to planned lower ore grades whilst lower acid production from the Canadian custom smelters as well as lower molybdenum production from Antamina also contributed to the unfavourable sales volume variance.  Mined copper sales were higher year on year from higher sales volumes at Collahuasi, Canada, Tintaya and Lomas Bayas, partially offset by lower sales from North Queensland.

Real unit cost savings contributed $55 million to Xstrata Copper's operating profit, driven by an ongoing focus on productivity improvements and operational efficiencies, including labour and contractor cost reductions, the renegotiation of contracts with main suppliers and increased throughput and production at the Chilean operations. These cost savings were net of the $113 million real unit cost impact of lower ore grades

Mining sector deflation increased operating profit by $16 million due to improved energy and fuel costs compared to 2008 across the five divisions, which were partially offset by inflationary impacts on labour, contracts and consumables in Australia and Canada.

A stronger US dollar against all operating currencies on average compared to 2008 increased operating profit by $89 million.

Depreciation and amortisation contributed $19 million to operating profit due to an increased reserve base at Antamina and lower production at Ernest Henry, partially offset by higher production at Collahuasi.

Other income and expenses include $37 million which mainly relate to disputed export tax payments in Argentina.

Operations

Argentina

Lower operating and sea freight costs, together with higher realised copper and gold prices, improved Minera Alumbrera's operating profit in 2009 by 15% to $449 million, partially offset by lower sales volumes and higher export taxes and provincial royalties. Alumbrera benefited from higher valuations of its six month quotational period provisionally priced sales due to higher year end prices relative to December 2008, offsetting the lower average 2009 LME price compared to 2008.

Operating cost savings were achieved as a result of a reduction in labour and contractors costs and the renegotiation of major contracts. Copper in concentrate production decreased by 9% to 143,100 tonnes, as a result of ore profiles reducing in line with the mine plan planned lower grades. Total gold production of 422,000 ounces was 16% lower than in 2008 due to lower head grades and recoveries.

Australia

The North Queensland copper division achieved an operating profit of $276 million in 2009, significantly lower than $739 million the previous year, primarily due to the impact of lower realised copper prices and reduced production at Ernest Henry mine.  The total volume of refined copper sales in 2009, including inter-party and third party sourced material, was 4% higher than 2008 at 276,600 tonnes.

Overall the North Queensland mining operations, comprising the Mount Isa and Ernest Henry mines, produced 197,500 tonnes of copper in concentrate in 2009, a decrease of 25% over 2008.  Increased mill throughput and higher grades increased production by 7% at the Mount Isa operations, partially compensating for a 68% decrease in production at Ernest Henry due to the impact of record wet season flooding that required extensive pit dewatering in the first half, planned lower grades and the higher rate of stripping required to access the next ore zone. 

The Mount Isa smelter produced 214,350 tonnes of anode, a decrease of 9% over 2008 as a result of lower feed from Ernest Henry. The Townsville refinery produced a record 277,300 tonnes of cathode a 4% improvement compared to 266,500 tonnes in 2008, from North Queensland mined production and anode predominantly from the Altonorte smelter in north Chile.

Canada

In 2009, the profitability of the Canadian division was severely impacted by reduced metal production and sales following unplanned metallurgical plant closures and slowdowns in response to the dramatic collapse in demand for sulphuric acid, lower North American demand for cathodes and a global shortage of concentrates.  Higher energy prices also impacted divisional profitability.

Copper in concentrate production from Kidd Mine increased by 2% to 43,600 tonnes.  Volumes were affected by two seismic events which impacted mining rates, offset by a 5% improvement in head grades.  Zinc in concentrate production declined by 7% to 108,100 tonnes mainly due to a 2% decline in head grades, lower recoveries and reduced mining rates. 

The collapse in sulphuric acid demand in North America together with the consequent impact on prices and a shortage of third party concentrate led the Kidd Metallurgical site to implement two temporary shutdowns during the year. As a result, anode production from the Kidd smelter decreased by 26% to 73,200 tonnes. Refined copper production reduced by 38% to 54,100 tonnes due to less feed from the smelter and as Kidd began to send spent anodes to CCR for processing.

The Horne smelter responded to the collapse in demand for sulphuric acid and excessive inventories by reducing anode production by 5% to 163,700 tonnes compared to the previous year. Consequently, the volume of recycled feeds procured by Xstrata Recycling for processing at the Horne smelter declined by 23% to 99,000 tonnes.

The CCR refinery produced 278,200 tonnes of copper cathode, 19% lower than in 2008, due to reduced supplies of third party anodes as a result of the Vale-Inco strike and lower production at the Horne smelter. To align the operation to projected lower production, the refinery implemented a reduced work schedule in March, moving from seven to five days.  

Chile

Collahuasi

Xstrata's 44% share in Collahuasi generated an operating profit of $572 million, an increase of 9% compared to 2008, due to increased copper production and sales volumes, real unit cost savings and proceeds from the final settlement of an insurance claim to cover the previous SAG mill stator failure. This was partially offset by increased plant and equipment depreciation charges.

Collahuasi achieved record sales volumes, copper production and tonnes of ore milled in 2009.  Xstrata's share of total copper production increased by 15% to 235,800 tonnes compared to 2008, despite process water supply restrictions, multiple mill stator insulation failures during the year and the catastrophic failure of the main feed conveyor to the concentrator plant that resulted in reduced throughput for 44 days while repairs were implemented. Increased copper production was achieved through higher ore milled volumes, grades and metallurgical recoveries, with more stable production performances emerging in the final quarter.

North Chile

The North Chile division generated an operating profit of $144 million in 2009 compared to a loss of $1 million in 2008, as higher cathode and anode production and sales compensated for lower average annual copper prices than the previous year. The division's sales of payable copper metal rose by 11% to 340,600 tonnes over the period. Real unit cost savings of $35 million were achieved as a result of increased throughput and production volumes, major contract reviews, lower consumable consumption rates and reduced acid plant operating and acid purchase costs.  Altonorte's long term contract treatment charges and realised acid sales prices achieved in 2009 also positively impacted profitability.

During the year, the Altonorte metallurgical complex achieved record levels of concentrate throughput and acid production volumes as a result of the commissioning of the new acid plant in October 2008 and more stable operating conditions during 2009. Concentrate throughput volumes increased by 11%, consequently improving anode and acid production volumes by 16% and 30% respectively compared to 2008. 

Lomas Bayas mine achieved a record 73,000 tonnes of copper cathode production, 24% higher than in 2008, following the successful completion of a project to expand capacity by 15% to 75,000 tonnes per annum in the last quarter of 2008.  Higher volumes were partially offset by the impact of an eight day strike in May and unplanned crusher and mine equipment maintenance.

Peru

Antamina

Xstrata's 33.75% attributable share of Antamina's financial performance is divided between Xstrata Copper and Xstrata Zinc on the basis of sales revenue. Xstrata Copper's share of Antamina revenue decreased by 6% to $790 million in 2009 compared to the previous year mainly due to an 84% reduction in molybdenum sales revenue. This was partially offset by higher sales volumes of silver and lead concentrate. 

Operating profit increased by 3% to $409 million as lower depreciation and amortisation charges were due to the 77% increase in the mineral reserve base announced in late 2008.

Xstrata Copper's share of copper in concentrate production decreased by 8% to 106,700 tonnes due to lower copper grades and recoveries as the mine plan moved into a copper-zinc ore zone, displacing the mainly copper-only ores that were mined in 2008.  The reduction in mined copper was significantly offset by a 10% increase in mill throughput.  Molybdenum production declined by 59% to 838 tonnes due to lower molybdenum grades and recoveries.  Copper and molybdenum recoveries were particularly impacted by the processing of oxidised copper-zinc ores from Phase 4. Sales volumes were 4% and 59% lower for copper and molybdenum respectively.

Actions taken to prevent stoppages resulting from the SAG mill failure continue to work effectively, and contingency plans are well established.  During 2009, Xstrata received $26 million as its share of the insurance payment following Antamina's SAG mill failure in 2008.

Tintaya

Operating profit increased by 28% to $276 million in 2009 due to higher sales volumes.  Total copper metal sales volumes increased by 18% to 115,400 tonnes and an improved sales schedule ensured there were minimal inventory holdings at the port at year end.

Despite record sulphide material mined, copper in concentrate production decreased by 2% to 81,700 tonnes in 2009 due to reduced mill throughput as a result of the high moisture content in the material treated and mill maintenance and process performance related issues. This was further compounded by lower recoveries due to treating sulphide material with higher oxide and native copper content, but partially offset by a 1% increase to grades.

Copper cathode production from the SX/EW plant was 7% lower at 25,500 tonnes in 2009 compared to the prior year mainly due to lower grades of the oxide material mined, partly offset by higher recoveries due to the lower carbonate content in the material treated.

In response to the global financial crisis, contracts were renegotiated with key suppliers to reduce the cost of major consumables resulting in overall improvements to operating costs.

 

SALES VOLUMES	Year ended 31.12.09	Year ended 31.12.08
Argentina - Alumbrera †
Copper in concentrate (t) inter-company (payable metal)	3,421	10,267
Copper in concentrate (t) third-parties (payable metal)	135,173	141,053
Total copper (t) (payable metal)	138,594	151,320
Gold in concentrate (oz) inter-company (payable metal)	10,016	28,013
Gold in concentrate (oz) third-parties (payable metal)	352,886	402,980
Gold in doré (oz) (payable metal)	57,924	59,559
Total gold (oz) (payable metal)	420,826	490,552
Australia - North Queensland
Refined copper - mined copper (t)	212,770	231,283
Refined copper - inter-company and third party sourced(t)	63,835	34,502
Copper in concentrate (t) (payable metal)	1,139	12,404
Other products (payable metal)	(204)-	1,218
Total copper (t) (payable metal)	277,540	279,407
Gold in concentrate and slimes (oz) (payable metal)	75,302	121,391
Canada
Refined copper - mined copper (t)	38,216	27,286
Refined copper - inter-company sourced (t)	165,968	232,643
Refined copper - third party sourced(t)	126,214	176,834
Other products inter-company (t) (payable metal)	-	17,670
Other products third-parties (t) (payable metal)	6,326	25,445
Total copper (t) (payable metal)	336,724	479,878
Total zinc in concentrate (t) (payable metal)		73,966
Gold in concentrate and slimes (oz) (payable metal)	696,485	856,118
Chile - Collahuasi ††
Copper in concentrate (t) inter-company (payable metal)	33,146	33,005
Copper in concentrate (t) third-parties (payable metal)	174,788	142,556
Copper cathode (t) (payable metal)	18,679	21,839
Total copper (t) (payable metal)	226,613	197,400
Chile - Lomas Bayas and Altonorte
Copper cathode (t) (payable metal)	74,604	59,475
Copper anode - inter-company  (payable metal)	169,872	124,999
Copper anode - third parties (payable metal)	96,084	122,587
Total copper (t) (payable metal)	340,560	307,061
Gold in anodes and slimes (oz) (payable metal)	36,845	24,177
Peru - Antamina ‡
Copper in concentrate (t) inter-company (payable metal)	5,948	22,908
Copper in concentrate (t) third-parties (payable metal)	99,257	87,065
Total copper (t) (payable metal)	105,205	109,973

 

SALES VOLUMES		Year ended 31.12.09	Year ended 31.12.08
Peru Tintaya
Copper in concentrate (t) inter-company (payable metal)		-	8,804
Copper in concentrate (t) third-parties (payable metal)		87,546	63,312
Refined copper - mined copper (t)		27,364	25,455
Refined copper - third party sourced(t)		501	-
Total copper (t) (payable metal)		115,411	97,571
Gold in concentrate (oz) (payable metal)		34,855	23,841
Mined copper sales (t) (payable metal)		911,847	887,930
Custom copper sales (t) (payable metal)		628,800	734,680
Inter-company copper sales (t) (payable metal)		(212,387)	(217,653)
Total copper sales (t) (payable metal)		1,328,260	1,404,957
Total gold sales (oz) (payable metal)		1,254,297	1,488,066
Average LME copper cash price ($/t)		5,150	6,956
Average LBM gold price ($/oz)		973	872
† †† ‡	100% consolidated figures Xstrata's 44% share of Collahuasi Xstrata Copper's pro rata share of Xstrata's 33.75% interest in Antamina

 

SUMMARY PRODUCTION DATA	Year ended 31.12.09	Year ended 31.12.08
Total mined copper (t) (contained metal)	906,898	952,426
Total mined gold (oz) (contained metal)	502,967	687,212
Total copper cathode (t) (from mined and third party material)	727,050	806,782
Consolidated C1 cash cost - post by-product credits (US¢/lb)	91.2	89.3

 

Developments

Argentina

Alumbrera

In July 2009, Alumbrera commissioned a $15 million upgrade and expansion to the cleaner flotation circuit, which has delivered improvements to both milling capacity and metallurgical performance. A project to improve the capacity and efficiency of the pebble crushing circuit will be completed during 2010.

Exploration activities in the tenements surrounding the Alumbrera concession continue under an agreement with local partner YMAD. 

El Pachón

During 2009, work continued to update the previous feasibility study.  Previous financial estimates are being revised to incorporate the 41% mineral resource increase announced in August 2009, as well as current market conditions for consumables, construction and equipment and are scheduled for completion during the first half of 2010. 

Australia

The feasibility study to convert the open pit Ernest Henry operation into a large scale underground sub-level cave mine was completed and the Xstrata plc Board approved its development in December 2009.  The project will extend the life of Ernest Henry's operation by at least 12 years to 2024 and produce an average of 50,000 tonnes of copper per annum with gold and magnetite credits.  Decline development continued during the second half of 2009, reaching a total of 2,928 metres on 31 December 2009.  Construction of a facility to extract 1.2 million tonnes per annum of magnetite from the Ernest Henry tailings was also approved and site work will commence during 2010.  The high-grade magnetite product will be exported through the Townsville port operations and sold to international steel mills from 2011.

At Mount Isa underground copper operations, a scoping study into a 'starter pit' mine to add incremental copper production of around 20,000 tonnes per annum has concluded that it is potentially viable and a prefeasibility study will be completed in 2010.  During the year, a prefeasibility study also commenced into the potential for underground mass mining of low-grade remnant and halo mineralised zones in the 1100 orebody.  Underground exploration drilling has been focused on mineralisation associated with the Western 1100 orebody at the X41 Mine, the Southern 3500 orebody in Enterprise mine and the 500 orebody in X41 Mine to extend the mineral resource base.  Drilling activities in 2010 will continue to target extensions of the Western 1100 orebody and the 500 orebody.

Regional exploration drilling is currently focused on targets in the Cloncurry and Mount Isa regions that have the potential to provide additional ore feed to the Ernest Henry and Mount Isa plants. 

Canada

The project to extend the mining zone at Mine D from 9,100 feet to 9,500 feet at Kidd Mine remains on schedule and is due to be completed in the first half of 2011.  Requiring investment in excess of $100 million, the project will allow Kidd to maintain a mining rate of 2.7 million tonnes per annum until 2012 and extend the mine life by one year until 2017.

In December, Xstrata Copper Canada announced its decision to permanently cease operations at its Kidd Metallurgical facilities in June 2010.  The Canadian copper division will be consolidated during 2010 and the copper concentrate production from Kidd mine will be processed by the Horne smelter and CCR refinery, strengthening the overall performance and sustainability of the division.

Reclamation activities continued at the Murdochville project.  All work at the former mine site has now been completed, and the remaining buildings will be given to the town of Murdochville to be converted into an industrial park. All residential properties at the nearby Port of Gaspé were cleaned and some buildings and equipment previously used for concentrate handling were removed.

Exploration efforts continued on three target properties located in British Columbia, north-western Ontario and eastern Quebec.

Chile

Collahuasi

In December 2009, the Collahuasi shareholders approved a $92 million project to enlarge the pebble crushing plant and concentrator water and electrical distribution systems, to achieve an intermediate ore processing capacity of 150,000 tonnes per day by the first quarter of 2011.  The full phase 1 expansion to 170,000 tonnes per day, as part of a strategy to sustain total copper production levels of 600,000 tonnes per annum, will be considered for approval by the shareholders in the first half of 2010.

North Chile

In October 2009, the Xstrata plc Board approved a $293 million investment to extend the Lomas Bayas mine life to 2020 and sustain production capacity at the recently expanded rate of 75,000 tonnes per year of copper cathode.

A successful exploration programme at Lomas Bayas identified significant sulphide mineralisation directly beneath the existing oxide mining operation. An initial Mineral Resource has been published of 195 million tonnes at a copper grade of 0.44% using a cut off grade of 0.30%. Following the 20,000 metre drill programme completed in 2008, a further 29,000 metres was completed in the second half of 2009 to increase the tonnage and improve the category of the sulphide Mineral Resource.

Energía Austral

Engineering studies and environmental impact assessments progressed in 2009 into a proposed 1,000MW hydro-electric project, comprising three generating facilities and a dedicated transmission line in southern Chile's Aysén Region.

The revised Environmental and Social Impact Study for the Rio Cuervo dam was completed and submitted in August 2009. The Chilean environmental authorities reviewed the report and responded in late 2009 with further questions and requirements. The project team will progressively respond to the authorities on these matters during 2010.

It is anticipated that regulatory approvals will be sought in relation to each project segment on a progressive basis through to 2012. Concurrently, commercial assessments, engineering activities and early procurement and construction activities will be undertaken.

El Morro

Submitted in November 2008, the El Morro project advanced its Environmental and Social Impact Study through the regulatory approval process during 2009. In October, Xstrata Copper announced that a conditional agreement had been reached to sell its 70% interest in the El Morro project to Barrick Gold for $465 million.  In January 2010, New Gold Inc. notified Xstrata Copper that New Gold was exercising its right of first refusal to acquire Xstrata's 70% share in the project. New Gold holds the remaining 30% of the project. Barrick is contesting the legality of New Gold's exercise of the right of first refusal.  It is anticipated that the transaction will be completed in the first half of 2010, although the timing of completion may be affected by the progress of legal proceedings.

Peru

Antamina

Following the increase to its mineral reserve base announced in late 2008, Antamina completed a feasibility study to expand milling capacity by 38% to 130,000 tonnes per day for a total investment of $1.3 billion.  Following a successful and comprehensive internal peer review, the expansion project received shareholder approval in the first week of January 2010.  Project development activities have now commenced and commissioning of the project is scheduled to start at the end of 2011.

Tintaya / Antapaccay

In August 2009, Xstrata Copper announced a 38% increase to the Antapaccay Mineral Resource to 720 million tonnes at a grade of 0.56% copper.

The feasibility study into the development of the Antapaccay deposit as a brownfield expansion to the Tintaya operation was successfully completed in October 2009.  The feasibility study identified an estimated investment of $1.4 billion to construct an operation that will produce an average of 160,000 tonnes of copper per annum over at least 20 years. The Environmental and Social Impact Assessment was finalised and filed with the Ministry of Mining in December. Final project approvals will be sought by the end of the first half of 2010. As part of Xstrata Copper's integrated strategy in Southern Peru, further progress was made to evaluate the potential of the Coroccohuayco deposit to provide additional feed for the sulphide concentrator and SX/EW facility at Tintaya.  Following the approval of the Environmental Impact Declaration, a drilling campaign of 20,000 metres commenced in November 2009 which will be used to improve the Reserve and Resource base as a future potential feed for the sulphide concentrator and SX/EW facility at Tintaya and results will be known during 2010.

Las Bambas

The Las Bambas project in the Apurimac region completed its exploration campaign in early 2009. A new geological model and updated reserve and resource statement was announced in August 2009, increasing the mineral resource by 26% to 1.1 billion tonnes at a grade of 0.77% copper.

Significant progress was made on the bankable feasibility study during 2009, with all study work completed and peer reviews now being progressed. The feasibility study has indicated production profiles of over 400,000 tonnes of copper per annum for the first five years for an estimated investment of $4.1 billion.  The Environmental and Social Impact Assessment is progressing and is due for submission in the first half of 2010.

Philippines                                                                                  

Tampakan

In the first half of 2009, Xstrata Copper, through its Philippines affiliate Sagittarius Mines Inc (SMI), initiated a final feasibility study for the Tampakan copper-gold project which is expected to be completed in the first half of 2010. The results of the pre-feasibility study indicate annual average production of 340,000 tonnes of copper and 350,000 ounces of gold over at least 20 years at an indicative capital cost of approximately $5.2 billion (100% basis), including the provision of associated infrastructure.

In October 2009, the project's measured, indicated and inferred resource estimate was updated to 2.4 billion tonnes at a grade of 0.6% copper and 0.2 grams per tonne gold, containing 13.5 million tonnes of copper and 15.8 million ounces of gold using a 0.3% copper cut-off grade.

On 1 December, the Board of Indophil Resources NL, Xstrata's joint venture partner at Tampakan, announced that in the absence of a superior offer it supports a takeover offer from Zijin Mining Group, valuing Indophil at approximately $500 million.  Xstrata has agreed to sell its 19.9% shareholding in Indophil to Zijin Mining Group in a conditional pre-bid agreement.  Xstrata will retain the direct management interest in the Tampakan Project through its SMI shareholding of 62.5%.

Papua New Guinea

Frieda River

In January 2009, the Frieda River project pre-feasibility study commenced and is scheduled for completion in the third quarter of 2010. Current estimates indicate that the project can produce 160,000 tonnes of copper and 250,000 ounces of gold per annum for at least 25 years.

Since assuming management control of the Frieda River Project in January 2007, Xstrata Copper has conducted an ambitious resource evaluation programme, completing 65,000 metres of drilling as part of scoping and pre-feasibility studies. This resulted in the publication in January 2010 of a new mineral resource statement for the Horse-Ivaal-Trukai (HIT) porphyry deposit, containing total mineral resources of 1.06 billion tonnes at 0.53% copper, 0.29 g/t gold and 0.8 g/t silver, using a cut-off grade of 0.3% copper, representing a 26% tonnage increase over the previously published mineral resource estimate.

 

 

 

 

 

During 2009, nickel prices continued to be volatile.  Weaker prices prevailed in the first five months of the year as the global economic slowdown weighed on the market and reached a low of $9,405 per tonne was attained in March.  Early signs of stronger Chinese demand and anticipation of a global recovery saw prices rise from May, reaching over $17,000 per tonne in late July and remaining above this level until mid-November.  The closing weeks of 2009 saw prices strengthen further, despite a fourth quarter slowdown in key stainless steel markets and the LME inventory reaching an all time high of 158,000 tonnes of nickel as a result of significant de-stocking by consumers and nickel producers who aggressively responded to slumping demand by cutting working capital to a bare minimum and, in the case of consumers, operated on a hand-to-mouth basis. The average price of nickel for 2009 of $14,712 per tonne was some 30% lower than the prior year.

The slump in global stainless steel production continued in most countries in the early part of the year, offset by a recovery in China, where stainless melt rates surpassed market expectations and historic levels in the second and third quarters. Surging Chinese production and a more muted recovery in the rest of the world in the second half of the year led to a build up in stainless steel inventory as user demand lagged production.  In response, producers cut back melt rates in the fourth quarter to rebalance stocks.  Overall, global stainless steel melt rates in 2009 were lower than in 2008. However, primary nickel demand from the stainless steel sector rose compared to 2008, reversing the downward trend in consumption of primary nickel which has prevailed since 2006.  Increased primary demand resulted from an improved austenitic ratio compared to the prior year, due to lower nickel prices and cutbacks in key ferritic sectors such as automotives, together with reduced scrap availability.

Non-stainless steel nickel demand, which makes up 37% of total demand, fell in 2009 in response to the global economic crisis, following steady growth in the prior year.  As a result, total primary nickel demand in 2009 for stainless steel and non-stainless sectors combined was at a similar level to 2008.

On the supply side, output of refined nickel reduced by approximately 5% compared to 2008.  Slowdowns of planned production, the suspension of operations and deferrals or delays to new projects initiated in late 2008 in response to market conditions continued as lower prices prevailed in the first half of 2009.  In the second half of the year, strikes at Vale Inco's facilities at Sudbury and Voisey's Bay, together with a slower ramp-up than initially planned for a number of new projects across the industry offset the resumption of additional Chinese nickel pig iron production in response to higher prices.

Outlook

The nickel market is expected to recover in 2010, led by improving stainless steel demand, continued growth in Chinese stainless steel production and melt rates elsewhere improving in response to economic recovery.  A recovery in non-stainless steel demand is expected to be more subdued.  Restocking, as a result of improved demand, is expected to draw down LME inventory and physical availability will be influenced by the prevalence and duration of industrial action, including at Vale Inco's Canadian facilities, and the speed at which growth projects are commissioned.  In the near term, substantial supply capacity, including Chinese nickel pig iron production, will overhang the market and ease any emerging tightness in availability.

In the longer term, nickel fundamentals remain favourable with healthy demand growth driven by increased intensity of stainless steel use in major developing economies such as China and continued challenges for new nickel supply from a number of large hydrometallurgical projects that are currently commissioning or scheduled to be commissioned over the next few years.

FINANCIAL AND OPERATING DATA $m		Year ended 31.12.09	Year ended  31.12.08
Revenue		1,891	3,105
INO†		1,887	2,622
Dominican Republic		4	483
Operating EBITDA		427	816
INO†		436	697
Dominican Republic		(9)	119
Depreciation and amortisation		(445)	(475)
INO†		(440)	(432)
Dominican Republic		(5)	(43)
Operating (loss)/profit		(18)	341
INO†		(4)	265
Dominican Republic		(14)	76
Share of Group Operating profit		(0.4)%	4.7%
INO†		(0.1)%	3.7%
Dominican Republic		(0.3)%	1.0%
Capital employed		9,037	9,463
Return on capital employed*		(0.3)%	4.8%
Capital expenditure		1,142	1,912
INO†		443	907
Dominican Republic		8	63
South America		3	24
Africa		15	52
New Caledonia		673	866
Sustaining		93	267
Expansionary		1,049	1,645
† *	Includes Canadian mines, Xstrata Nickel Australasia (XNA) mines in Western Australia, Sudbury smelter and Nikkelverk refinery ROCE % based on average exchange rates for the year

 

OPERATING PROFIT VARIANCES		$m
Operating profit 31.12.08		341
Sales price*		(483)
Volumes		6
Unit cost - real		134
Unit cost - CPI inflation		(11)
Unit cost - mining industry inflation		(3)
Foreign exchange		(47)
Other income and expenses		15
Depreciation and amortisation (excluding foreign exchange)		30
Operating loss 31.12.09		(18)
*	Net of commodity price linked costs, treatment and refining charges

 

Following the dramatic decline in nickel demand and prices in the latter half of 2008 and throughout 2009, Xstrata Nickel restructured its business in 2009 to reduce average operating costs to the bottom half of the industry cost curve, while retaining growth potential.  Xstrata Nickel's restructuring included the closure of high-cost, end-of-life mines in Sudbury, the suspension of the Falcondo operations, significant reductions in operational and corporate costs and the deferral of the Fraser Morgan and Sinclair underground growth projects.  In addition, the Montcalm operations were suspended due to unsafe ground conditions.  These actions resulted in real unit cost savings of $134 million and a 65% reduction in sustaining capital expenditure compared to 2008. 

Average consolidated cash costs fell by 33% to an average of $3.80 per pound in 2009 from $5.63 per pound in 2008, driven by restructuring activities, efficiency improvements, the ramping-up of the negative cash cost Nickel Rim South project and the impact of the strengthening of the US dollar on an average basis year-on-year.  In the fourth quarter of 2009, Xstrata Nickel was operating with a C1 cash cost of below $3.00 per pound based on prevailing metal prices and exchange rates.  The significant actions taken to reduce costs and conserve cash, combined with lower cost production from Nickel Rim South and, commencing in 2012, from Koniambo, are expected to continue to move Xstrata Nickel significantly down the cost curve.

The substantial fall in average nickel prices in 2009, some 30% lower than the previous year, combined with lower prices for by-products, reduced operating earnings by $483 million. EBITDA of $427 million was recorded for 2009, reflecting the positive impact of real cost savings, which mitigated the impact of lower prices and exchange rates.  In 2009, average US dollar exchange rates strengthened against Xstrata Nickel's local currencies and lowered costs in US dollar terms.  However, this favourable impact was more than offset by a year-on-year unrealised foreign exchange loss relating to the revaluation of net non-US dollar liabilities at year-end, as a result of the weaker US dollar at the end of 2009.

 

Operations

INO

Integrated Nickel Operations (INO) comprise the Sudbury mines and smelter, Montcalm and Raglan mines in Canada, Xstrata Nickel Australasia (XNA) and the Nikkelverk refinery in Norway.  Nickel sales from INO fell by 2% compared to 2008.  The loss of feed from restructuring activities was largely offset by initial ore from Nickel Rim South, higher production from Raglan and significantly higher volumes from the Australian operations.  Higher grade supply from Xstrata Nickel's own operations fed into INO's downstream facilities, offsetting reduced third party volumes, which were down by 11% year-on-year, as a number of suppliers suspended or reduced production in response to weak market conditions. 

Low-cost de-bottlenecking at INO metallurgical facilities continued to improve unit costs and increase capacity.  The Sudbury restructuring and INO mine plan optimisation reduced unit production costs by 33% compared to the prior year.  However, reduced by-product credits from lower average copper, cobalt and precious metal prices largely offset these savings.  Unit costs at INO are expected to continue to decline as the low-cost Nickel Rim South operation ramps up production throughout 2010.

Sudbury and Montcalm

Mined nickel production from the Sudbury operations was impacted by the closure of the high-cost, end-of-life Craig and Thayer-Lindsley mines as part of Xstrata Nickel's restructuring to focus on the development of the cornerstone Nickel Rim South operation. In addition, Montcalm mine was suspended indefinitely following a geotechnical review that showed structural damage to the mine as a result of unplanned ground movement.  In response to decreased local feed volumes, Strathcona's milling capacity was reduced by 50% and total mined ore processed declined by 45% in 2009 compared to last year.

At the Sudbury Smelter, feed volumes decreased by 8% to 491,824 tonnes compared to 2008 due to the suspension or closure of the Craig, Thayer-Lindsley and Montcalm mines.  Nickel in matte output increased by 2% year-on-year due to higher grade feed from XNA and a 31% increase in concentrate from Raglan.  Production of copper-in-matte increased by 4% to 18,560 tonnes as a result of the higher copper volumes from Raglan and XNA, while cobalt-in-matte decreased by 6% to 2,476 tonnes, driven primarily by lower volumes of cobalt-rich third party feed.

Raglan

Raglan achieved record production in 2009 with 1.31 million tonnes ore milled.  Nickel grade improved by 11%, increasing to 2.56% from 2.30% in 2008. Production of concentrate increased by 13% to 172,668 tonnes, containing 29,262 tonnes nickel metal.  Increased nickel production enabled additional shipments of concentrate to the Sudbury Smelter to fully utilise downstream facilities following Sudbury's restructuring.  Raglan's production record was achieved while reducing unit production costs by 21% year-on-year, despite its remote location and challenging operating conditions.

Xstrata Nickel Australasia (XNA)

XNA produced a record 16,678 tonnes of nickel in concentrate in 2009, more than double 2008 production levels due to increased ore production and higher nickel grade at both Cosmos and Sinclair operations.  Total ore treated at Cosmos increased by 54% to 347,665 tonnes, mainly as a result of increased mining at the Prospero deposit.  Nickel grade increased to 3.71% in 2009 from 3.60% in 2008.

The open-pit operation at Sinclair produced 300,816 tonnes of ore at a nickel grade of 3.28%, including commissioning ore.  Optimisation of the open-pit operation to increase recovery and processing of stockpiled ore, together with surplus Cosmos ore enabled mill capacity at Sinclair to be maintained to the end of the year, despite the deferral of underground development.  Total nickel in concentrate output from Sinclair for the period was 6,011 tonnes.

Nikkelverk

Nickel production at the Nikkelverk refinery was virtually unchanged compared to 2008 at 88,577 tonnes as the loss of direct feed following the restructuring of the Sudbury operations and the suspension of Montcalm was largely offset by initial ore from Nickel Rim South and increased volumes from Raglan and XNA.  Copper, cobalt and precious metals production was impacted by the loss of by-product rich Sudbury feed and decreased by 8%, 6% and 17%, respectively, compared to 2008.

Capacity at the Nikkelverk refinery has been increased to 92,000 tonnes of nickel per year without the investment of additional capital and production was maintained at this increased annualised rate throughout the second half of 2009.  Debottlenecking was achieved through a series of process and productivity improvements which enabled increased capacity in the leach and purification sections, and in the tankhouse.

Falcondo

The Falcondo operation in the Dominican Republic remained on care and maintenance throughout 2009, having suspended operations in August 2008 due to weak market conditions. Falcondo is traditionally a swing producer and oil prices impact the majority of the operation's costs.

SALES VOLUMES	Year ended  31.12.09	Year ended  31.12.08
INO - Europe - Nikkelverk
Refined nickel from own mines (t) (payable metal)	47,862	43,748
Refined nickel from third parties (t) (payable metal)	40,596	45,819
Refined copper from own mines and third parties (t) (payable metal)	34,021	37,295
Refined cobalt from own mines and third parties (t) (payable metal)	3,066	3,137
INO - North America
Copper in concentrate (t) inter-company (payable metal)	11,684	16,997
INO - Australia - XNA
Nickel in concentrate (t) third-parties (payable metal)	2,020	2,774
Copper in concentrate (t) third-parties (payable metal)	58	77
Cobalt in concentrate (t) third-parties (payable metal)	12	16
Falcondo - Dominican Republic
Ferronickel (t) (payable metal)	236	19,847
Total nickel sales (t) (payable metal)	90,478	92,341
Total ferronickel sales (t) (payable metal)	236	19,847
Total copper sales (t) (payable metal)	45,763	54,369
Total cobalt sales (t) (payable metal)	3,078	3,153
Average LME nickel cash price ($/tonne)	14,712	21,104
Average Metal Bulletin cobalt low grade price ($/lb)	15.17	35.16
Average LME copper cash price ($/tonne)	5,150	6,956

 

SUMMARY PRODUCTION DATA	Year ended  31.12.09	Year ended 31.12.08
Total mined nickel production (t) (contained metal)	57,052	54,523
Total mined copper production (t) (contained metal)	25,428	27,703
Total mined cobalt production (t) (contained metal)	1,326	1,341
Total refined nickel production (t) (payable metal)	88,577	88,741
Total mined ferronickel production (t) (contained metal)	-	18,782
Consolidated cash cost (C1) - post by-product credits (US$/lb)	3.80	5.63

 

Developments

Koniambo Project

The Koniambo project in New Caledonia is currently under construction and significant progress was made during the year.  Koniambo is on track for first ore to be processed in the first half of 2012, ramping up to annual capacity of 60,000 tonnes of nickel in ferronickel within the following two years.  The metallurgical plant for the site is being constructed in modules in China and remains on schedule, with the first module shipment to the Koniambo site expected in the third quarter of 2010.  Industrial site earthworks are substantially complete, dredging is expected to be complete in early 2010 and the construction of the main wharf is under way.

The Koniambo project is continuing to take up opportunities to optimise capital costs.  Re-sequencing activities in 2009 deferred capital expenditures for the year by approximately 50%, as the project team took advantage of the economic downturn and consequent lower capital costs to secure unordered goods and services at lower prices, renegotiate contractor terms and access greater availability of skilled labour.

Nickel Rim South

The Nickel Rim South project in the Sudbury basin continued its ramp up, producing more than 500,000 tonnes of ore in 2009.  Steady-state operations are on schedule to commence in the second quarter of 2010 with continued ramp up to reach the 1.25 million tonne per annum nameplate production capacity in 2011, delivering 18,000 tonnes of nickel contained-in-ore.  The five year, CAD920 million project is on track to be completed on time and within budget.  Improvements at the Strathcona mill, including increased copper capacity, were completed in 2009 in order to handle Nickel Rim South feed.

Definition drilling has proven up 9.6 million tonnes of reserves.  The project has increased resources by more than 25% since project execution began.  Nickel Rim South is expected to be a negative cash cost operation as a result of its high grade, poly-metallic resource, which will further transform the average cash cost position of Xstrata Nickel's operations.

Sudbury

In February 2010, Xstrata Nickel successfully renewed a three-year collective agreement with the Canadian Auto Workers Sudbury Mine, Mill and Smelter Workers Union Local 598, which represents Sudbury's production and maintenance employees at its operations in Sudbury.  Xstrata Nickel plans to reactivate copper mining at the Fraser Mine in February 2010 and the accord provides for a workforce transition agreement that enables the recall of 100 workers to fill vacant positions, while minimising any impact on the existing Nickel Rim South workforce as this project ramps up to full production in the second quarter of 2010.

Raglan

Raglan continues to optimise mine production and sequencing, maximise nickel grade in feed and reduce production costs, while maintaining its maximum processing throughput of 1.3 million tonnes per annum.  In 2010, Raglan will resume the development of the new Kikialik underground mine.  Exploration will focus on extending the life of operating mines and expanding the mineral resources of the Kikialik mine and Qakimajurq, another new mine to be developed from this significant nickel region.

Xstrata Nickel Australasia (XNA)

A low-cost expansion of the Cosmos mill was completed in 2009 to increase capacity to 13,500 tonnes of nickel in concentrate per annum and lower unit costs.  Development of the Prospero deposit continued throughout 2009, contributing to a 54% increase in production at Cosmos.

The open pit mine at Sinclair was completed in the third quarter of 2009 while development of the underground mine was deferred in April 2009 due to market conditions.  Sinclair has been repositioned as a swing producer and will operate as a satellite operation, leveraging the infrastructure and capacity available from Cosmos to limit overheads. 

Falcondo

The feasibility study to convert the energy source for Falcondo's process plant from oil to natural gas and to optimise mining and plant processes is scheduled to be completed in 2010.  These initiatives aim to transform Falcondo from a traditional swing producer into a sustainable operation, with minimum capital outlay.  While under care and maintenance, Falcondo continues to support the Dominican Republic by providing an ongoing supply of electricity and through increased contributions to the Falcondo Foundation's numerous social responsibility programmes.  Mine rehabilitation and reforestation activities also continue.

Kabanga Nickel

In 2009, the Kabanga Nickel project, a 50:50 joint venture with Barrick Gold Corporation, received a retention license for a period of five years from the Tanzanian government, the first such retention license to be granted in Tanzania.  Completion of the feasibility study is scheduled for 2010.  Plans for the execution phase are under review to align the project's development with market conditions.

Since entry in 2005, resource tonnes and contained nickel tonnes at Kabanga have more than doubled.  Measured and indicated resources at Kabanga are estimated at 37.4 million tonnes at 2.59% nickel and an additional 16 million tonnes of inferred resources at 2.9% nickel, with a 1% nickel equivalent and 1% nickel cut off grade.

Araguaia

Further development at the Araguaia project located in the north-western Brazilian state of Para was deferred in response to poor market conditions.  With a measured and indicated resource base of 104.7 million tonnes at 1.33% nickel and an additional 18 million tonnes of inferred resources at 1.29% nickel with a 0.9% nickel cut off grade, Araguaia remains a promising resource and an important component of Xstrata Nickel's growth optionality.

 

 

 

Zinc

During 2009, global zinc demand was severely impacted by weak economic conditions. Consumer and business spending in the zinc-consuming construction and automobile industries stalled and was particularly weak in the first quarter.  Compounding the contraction in end user consumption, inventories were significantly reduced and remained low through to the end of 2009.  Demand recovered somewhat in the second half, primarily as a result of government stimulus spending and 'cash for clunkers' car scrapping incentive schemes in North America and Europe. 

Despite lower zinc demand in most countries, demand from China continued to grow throughout 2009, as domestic consumption was supported by infrastructure spending and increased lending rates.  In total, global demand for zinc fell by over 4% compared to 2008 to 10.5 million tonnes. 

An oversupply of zinc metal in the face of poor demand led LME warehouse stocks to rise to 489,125 tonnes by the end of 2009 or approximately 18 days of global consumption.  While this level represents a significant increase of over 235,650 tonnes compared to December 2008, it remains slightly below the annual average of the past two decades. 

LME zinc prices climbed during the year to a monthly average of $2,376 per tonne in December compared to $1,101 per tonne in December 2008.  The average LME price for 2009 was $1,659 per tonne.

Global refined zinc production declined by approximately 2% in 2009 to 11.2 million tonnes due to unprecedented mine and smelter cutbacks in 2008 and early 2009.  Mine closures in China led to record imports of zinc concentrate to feed Chinese smelters as refined production continued to rise. This trend was in stark contrast to the cuts in refined zinc production elsewhere, in particular in Europe.  Rising metal prices in 2009 resulted in a gradual increase of global zinc mine output during 2009 which eased the tightness in concentrate availability seen in early 2009.  Average European benchmark treatment charges for 2009 settled at $198.50 per tonne of concentrate on a $1,250 per tonne zinc price basis, down from 2008 levels of $300 per tonne on a $2,000 per tonne zinc price basis.

Outlook

The gradual economic recovery in Western markets and continued growth from Asia will drive increased zinc consumption from the galvanised sector, underpinned by vehicle production, infrastructure projects and consumer goods.

In the medium to longer term global demand growth is expected to average over 5% per annum as China and the developing economies mature.  A market deficit is expected to emerge within the next four years as the significant new projects required to satisfy the forecast growth in demand are yet to be defined.

Lead

Global demand for lead fell by approximately 4% compared to 2008, as Chinese demand growth substantially offset significantly lower demand in most regions.  Chinese consumption increased by almost 10% year-on-year fuelled by demand for both stationary and automotive batteries during a year in which Chinese vehicle production exceeded that of the USA for the first time. 

Global supply of refined lead decreased by approximately 2% to 8.2 million tonnes, following cutbacks by producers world-wide, notably in Peru, Italy and Mexico.  As a result, demand and supply for refined lead remained balanced.

Global mine production was relatively unchanged in 2009 as cuts to mine production in many regions, including Peru, North America and Australia, were offset by increases in other countries including India, Bolivia and Mexico.  The availability of and prices of scrap and secondary materials, which make up roughly half of the world's feed for lead smelters and refineries, declined slightly during 2009 in a market that approached equilibrium.

LME lead prices climbed during the year due to strong Chinese demand and an improvement in demand from other regions in the second half, averaging $2,329 per tonne in December compared to $963 per tonne in December 2008.  The average LME price for 2009 was $1,726 per tonne, compared to $2,084 in 2008. LME stocks of lead increased, partly in response to the gradual rise in the lead price throughout 2009.  By the end of the year, LME stocks had risen to 146,500 tonnes, equivalent to less than one week of global consumption.

Outlook

Demand for lead is expected to continue to grow as lead batteries, the main application for lead, are expected to play an increasingly important part in the urbanisation and industrialisation of developing nations, in particular in Asia.  Lead consumption will rise as increasingly prosperous Indian and Chinese consumers switch from electric bicycles to motorcycles and automobiles.  Lead batteries are also required for mobile equipment throughout industry and for standby power requirements of larger cities worldwide.

FINANCIAL AND OPERATING DATA $m		Year ended  31.12.09	Year ended  31.12.08
Revenue		3,450	3,202
Zinc lead Australia		545	360
Lead Europe		490	486
Zinc Europe		1,185	1,308
Zinc North America		1,126	971
Zinc Peru**		104	77
Operating EBITDA		860	435
Zinc lead Australia		304	41
Lead Europe		32	16
Zinc Europe		134	195
Zinc North America		284	124
Zinc Peru**		106	59
Depreciation and amortisation		(354)	(331)
Zinc lead Australia		(112)	(95)
Lead Europe		(2)	(4)
Zinc Europe		(36)	(44)
Zinc North America		(172)	(155)
Zinc Peru**		(32)	(33)
Operating profit		506	104
Zinc lead Australia		192	(54)
Lead Europe		30	12
Zinc Europe		98	151
Zinc North America		112	(31)
Zinc Peru**		74	26
Share of Group Operating profit		11.3%	1.4%
Australia		4.3%	(0.7)%
Europe		2.9%	2.2%
North America		2.5%	(0.5)%
Zinc Peru**		1.6%	0.4%
Capital employed†		5,348	5,292
Return on capital employed*		14.1%	2.6%
Capital expenditure		247	655
Australia		152	460
Europe		51	91
North America		44	104
Sustaining		133	278
Expansionary		114	377
* ** †	ROCE % based on average exchange rates for the year Xstrata Zinc's pro-rata share of Xstrata's 33.75% interest in Antamina Includes goodwill allocation on acquisition of Falconbridge

 

 

OPERATING PROFIT VARIANCES		$m
Operating profit 31.12.08		104
Sales price*		149
Volumes		117
Unit cost - real		192
Unit cost - CPI inflation		(25)
Unit cost - mining industry inflation		(22)
Unit cost - foreign exchange		40
Other income and expenses		10
Depreciation and amortisation (excluding foreign exchange)		(59)
Operating profit 31.12.09		506
*	Net of commodity price linked costs, treatment and refining charges

 

Xstrata Zinc's operating profit increased to $506 million from $104 million in 2008.  Over $300 million of the increase is attributable to the actions taken by Xstrata Zinc in the face of the global downturn to restructure its operations, improve productivity and achieve sustainable cost savings.  Real cost savings of $192 million were realised through the restructuring of the Mount Isa complex, efficiency improvements at the Canadian operations and rescheduling production at Nordenham.  Mined zinc and zinc metal volumes rose by 20% and 4% year-on-year respectively and lead metal volumes rose by 10%. In total, improved volumes added $117 million to operating profits. The impact of provisional pricing in a rising market throughout the year enabled Xstrata Zinc to realise higher zinc and lead prices compared to 2008, benefiting operating earnings by $149 million, despite average LME prices falling compared to 2008. At the end of 2009, 108,000 tonnes of zinc were provisionally priced.

C1 cash costs were significantly reduced, falling by 25% from 58.3 cents per pound in 2008 to 43.5 cents per pound in 2009.  Xstrata Zinc's mined production has been progressively increased in recent years to the point where the business is now a fully integrated zinc producer.  On this basis, integrating mine and smelter production costs, C1 costs fell from 50.8 cents per pound in 2008 to 39.1 cents per pound in 2009.  The modest positive impact of the stronger average US dollar against local currencies was offset by the impact of CPI and mining sector inflation in Europe, mostly fuelled by electricity price increases, which reduced earnings by a total of $47 million, a significantly lower rate of inflation than in previous years.

Operations

Zinc Lead Australia

The Australian operations achieved material reductions in operating costs and improved productivity as a result of the restructuring of the Mount Isa complex and expansion of McArthur River Mine.  Together, increased volumes and real cost savings added $130 million to 2009 operating profit for the Australian zinc operations, which increased to $192 million, compared to a loss of $54 million in 2008.  Operational improvements and higher volumes more than offset the negative impact of record rainfall at Mount Isa in early 2009 which disrupted rail availability and the temporary suspension of mining at McArthur River Mine before regulatory approvals were finalised. 

Record production was achieved at Mount Isa, together with operational efficiencies and higher recoveries as a result of increased production from the high grade George Fisher and large-scale Black Star operations.  Black Star open cut produced a record 3.4 million tonnes, 51% higher than 2008 production, more than offsetting the temporary suspension of the Handlebar Hill operation, which was put onto care and maintenance in January to reduce costs and conserve reserves at a time of low prices.  Handlebar Hill resumed operations in August in line with recovering market conditions.

Increased mine production enabled the Mount Isa zinc-lead concentrator to achieve record throughput of 7.4 million tonnes, a 22% increase on 2008.  Zinc metal production rose by 15%, while lead metal production declined by 10% due to lower lead grades.  Smelter production of crude lead of 146,100 tonnes was 12% lower than in 2008, mainly as a result of the significant decrease in third party concentrate supply. 

Overall, unit costs for the Mount Isa complex were reduced by 40% compared to 2008.

McArthur River Mine (MRM) began the year on care and maintenance following the invalidation in December 2008 by the Australian Federal Court of the operation's original approval for its conversion from an underground to an open cut operation. Mining operations recommenced on 20th February 2009 and, despite only being operational for just over 10 months, the mine achieved its planned production profile for 2009.  This enabled mill throughput to increase to a nameplate capacity run-rate of 2.5 million tonnes per annum from late February to the end of the year.  Total ore milled increased by 3% compared to 2008 to 2.1 million tonnes. Higher average head grades resulted in the production of 166,400 tonnes zinc metal for the year from MRM, a 17% increase over 2008. This included 10,800 tonnes of zinc in concentrate with low lead content, which is suitable for treatment in electrolytic smelters.

Cost savings activities throughout the year resulted in an 18% reduction in average C1 cash costs at MRM from 73.23 cents per pound in 2008 to 59.8 cents per pound in 2009.

Zinc Lead Europe

Operating profit for the European operations of $128 million was 21% lower compared to 2008 mainly due to lower realised metal prices and the negative impact of reduced sulphuric acid prices, which trimmed earnings by $35 million as a result of very weak demand for acid. Production increases and real cost savings at all the operations partly offset lower prices and reduced sulphuric acid sales.

At San Juan de Nieva plant, saleable zinc production was 11% higher than the previous year, a new production record.  Since March, the operation has run at an increased annualised production rate of 510,000 tonnes.  Production of silver concentrate rose by 24% to 22,800 tonnes, with a silver content of 68,337kg and 6,400 tonnes of  lead, as a result of improvements to the silver recovery circuit completed in March 2008.  San Juan de Nieva smelter also produced 665,200 tonnes of saleable sulphuric acid.  In May, a new three and a half year electricity supply contract was signed with one of the main power companies in Spain at competitive market conditions.

At Nordenham, production in the first half of the year was reduced by approximately 13%, in order to optimise power usage during difficult market conditions.  In the second half, production was increased to produce a total of 146,600 tonnes for the full year, 3% lower than 2008.

At Britannia Refined Metals at Northfleet, lead production increased to 157,900 tonnes, 14% higher than in 2008 as a result of a continuous supply of crude lead from Mount Isa compared to the prior year. Silver production reached 8.8 million ounces, 11% higher than the previous year.

Zinc Lead Americas

Operating profit for the Zinc Lead Americas division increased to $186 million compared with a $5 million loss in 2008 due to higher realised prices, increased volumes reflecting the first full year of production at Perseverance mine and cost reduction initiatives. At Brunswick mine, ore processed remained at a similar level to 2008 at 3.3 million tonnes. However, mine head grades and zinc metallurgical recoveries were slightly higher at 8.59% and 88.43% respectively, mainly due to a newly implemented zinc circuit stabilisation project which led to a 4% increase in zinc in concentrate production to 252,400 tonnes.

The Brunswick smelter processed a total of 244,400 tonnes of new feed materials in 2009, a 4% increase over 2008.  Despite increased production, operating costs were reduced by 4% compared to 2008 as a result of optimising labour and supplies.  Refined lead and alloys produced totalled 83,600 tonnes, 3% more than 2008.  An 85% increase in silver doré production resulted from the treatment of higher-margin complex concentrates and a reduction of in-process metal levels.

Perseverance mine, which started commercial production on 1 July 2008, completed its first full year of operation, producing 135,700 tonnes of zinc metal and 8,600 tonnes of copper in concentrate.

The CEZinc refinery in Quebec produced 228,600 tonnes of saleable zinc, 260,400 tonnes of cathode zinc and 371,800 tonnes of sulphuric acid, a 13% decrease in zinc metal production compared to 2008. Production was reduced by 20% from March to September due to constraints resulting from weak sulphuric acid market conditions and returned to full capacity on 1 October 2009.

The Kidd Zinc hydrometallurgical plant produced 112,700 tonnes of zinc metal, 8,500 tonnes lower than last year as difficult market conditions for zinc metal and sulphuric acid constrained production volumes. 

In 2009, zinc ore processed at Antamina rose by 10% to 11.3 million tonnes (Xstrata's 33.75% attributable share) and zinc metal in concentrate produced was 154,000 tonnes, 31% higher than in 2008.

 

SALES VOLUMES	Year ended  31.12.09	Year ended  31.12.08
Australia - Mount Isa
Zinc in concentrate (t) third party sales (payable metal)	266,227	171,137
Zinc in concentrate (t) inter-company sales (payable metal)	7,140	69,580
Total zinc (t) (payable metal)	273,367	240,717
Lead in concentrate (t) third party sales (payable metal)	2,696	3,656
Lead in bullion (t) inter-company sales (payable metal)	149,605	155,401
Total lead (t) (payable metal)	152,301	159,057
Silver in concentrate (koz) third party sales (payable metal)	563	385
Silver in bullion (koz) inter-company sales (payable metal)	7,853	9,172
Total silver (koz) (payable metal)	8,416	9,557
Australia - McArthur River
Zinc in concentrate (t) third party sales (payable metal)	143,462	115,241
Lead in concentrate (t) third party sales (payable metal)	26,929	29,945
Silver in concentrate (koz) third party sales (payable metal)	374	318
Australia - Lennard Shelf *
Zinc in concentrate (t) third party sales (payable metal)	-	13,617
Zinc in concentrate (t) inter-company sales (payable metal)	-	3,561
Total zinc in concentrate (t) (payable metal)	-	17,178
Lead in concentrate (t) third party sales (payable metal)	-	2,117
Lead in concentrate (t) inter-company sales (payable metal)	-	2,291
Total lead in concentrate (t) (payable metal)	-	4,408
Europe - San Juan de Nieva
Refined zinc (t)	481,588	432,507
Europe - Nordenham
Refined zinc (t)	140,615	144,994
Europe - Northfleet
Refined lead (t)	166,010	134,445
Refined silver (koz)	8,677	7,729
North America - Brunswick
Zinc in concentrate (t) third party sales (payable metal)	103,866	95,755
Zinc in concentrate (t) inter-company sales (payable metal)	85,728	89,933
Total zinc (t) (payable metal)	189,594	185,688
Lead concentrate (t) third party sales (payable metal)	-	5,982
Lead concentrate (t) inter-company sales (payable metal)	43,906	49,285
Zinc in bulk concentrate (t) third party sales (payable metal)	22,732	10,111
Lead in bulk concentrate (t) third party sales (payable metal)	18,492	8,290
Silver in bulk concentrate (koz) third party sales (payable metal)	1,162	522
Refined lead & Alloys (t)	87,036	77,228
Silver doré (koz) inter-company sales	8,650	4,810
North America - CEZ **
Refined zinc (t)	60,995	64,669

 

 

SALES VOLUMES			Year ended 31.12.09		Year ended  31.12.08
Perseverance
Zinc in concentrate (t) third party sales (payable metal)			10,202		8,269
Zinc in concentrate (t) inter-company sales (payable metal)			104,462		39,140
Total zinc (t) (payable metal)			114,664		47,409
North America - Kidd Creek
Refined zinc (t)			115,833		124,917
Peru - Antamina zinc***
Zinc in concentrate (t) third party sales (payable metal)			124,481		99,441
Zinc in concentrate (t) inter-company sales (payable metal)			-		-
Total zinc (t) (payable metal)			124,481		99,441
Total zinc metal third party sales (t)			799,031		767,087
Total zinc in concentrate third party sales (t)			670,970		513,571
Total lead metal third party sales (t)			253,046		211,673
Total lead in concentrate third party sales (t)			48,117		49,990
Total silver metal third party sales (koz)			8,677		7,729
Total silver in concentrate third party sales (koz)			2,099		1,225
Average LME zinc price (US$/t)			1,659		1,870
Average LME lead price (US$/t)			1,726		2,084
* ** ***	Xstrata Zinc's pro rata share of Lennard Shelf sales volumes (50%) Xstrata Zinc's pro rata share of CEZ sales volumes (25%) Xstrata Zinc's pro rata share of zinc sales from Xstrata's 33.75% interest in Antamina
SUMMARY PRODUCTION DATA		Year ended 31.12.09		Year ended 31.12.08
Total zinc in concentrate production (t)		1,032,755		861,033
Total zinc in metal production (t)		825,208		795,565
Total lead in concentrate production (t)		229,782		251,496
Total lead in metal production (t)		241,485		220,391
Consolidated Zinc cash cost (C1) - post by-product credits (US¢/lb)		43,45		58.33

 

 

Developments

Zinc Lead Australia

During 2009, Xstrata Zinc continued to invest in its Australian operations.  An expansion feasibility study was initiated at George Fisher mine following an 80% increase in reserves from 33.6 million tonnes to 60.6 million tonnes over the past four years.  A proposed expansion to the underground mine will increase total output from 3.5 million tonnes per annum to 4.5 million tonnes per annum. The feasibility study is expected to be completed by the second half of 2010. 

The Black Star Open Cut Deeps feasibility study was started in 2009 and will focus on a potential single stage cutback to the existing Black Star Stage 4 Pit. It is anticipated that the proposed pit will add 12 million tonnes of ore and, potentially extend Black Star's mine life by a further three years. Additional projects are being studied to further extend the life of the mine. The feasibility study is expected to be completed during 2010. 

Following the regulatory approval of the open pit development on 20 February 2009 and the completion of the $37 million concentrator expansion in 2008, production capacity at McArthur River Mine (MRM) has increased from 1.8 million tonnes per annum to 2.5 million tonnes per annum.  While MRM continues to produce its traditional high grade bulk zinc/lead/silver concentrate used by Imperial Smelting Process smelters, technological advances to the concentrator have enabled MRM to also produce a new low lead content zinc concentrate, which is suitable for electrolytic smelters, opening a new market for MRM concentrate.

Zinc Lead Americas

Following the successful completion of the Perseverance mine, further exploration work is continuing in the region. The Bracemac-McLeod project, located 6 kilometres east of the Matagami mill complex, has advanced to the feasibility study stage.  The feasibility study will be completed in mid 2010. Definition drilling is progressing to confirm mineral resources and should be completed in the first quarter of 2010.

In December, Xstrata announced the permanent closure of the Kidd Zinc plant in May 2010 as part of a rationalisation of its Canadian metallurgical operations.

Zinc Lead Europe

In the Republic of Ireland, Xstrata Zinc's exploration efforts with its 23.6 % JV partner, Minco Plc, have identified zinc mineralisation at the Pallas Green property near Limerick. An exploration programme carried out in 2009 to define economic reserves and initiate baseline studies confirmed the project's potential. On 1 February 2010, a $10 million (€7 million) exploration and delineation programme was announced for 2010. 

 

A feasibility study for the construction of an Albion Process atmospheric pressure leaching plant at San Juan de Nieva is expected to be completed by the end of 2010. The plant would enable an alternative processing route for bulk lead-zinc concentrate from McArthur River, currently processed predominantly by imperial (ISF) smelters.

 

 

FINANCIAL AND OPERATING DATA $m		Year ended  31.12.09	Year ended 31.12.08
Revenue		114	235
EBITDA		28	38
Depreciation and amortisation		(6)	(6)
EBIT		22	32
Capital expenditure		3	6

 

Xstrata Technology Services provides expertise and technology to support the processes involved in mining and metallurgy.  It comprises Xstrata Technology, based in Brisbane, a specialist technology solutions provider and Xstrata Process Support, based in Sudbury, an independent group which provide highly specialised technological support both to Xstrata's operations and to third-party customers.

Revenue for Xstrata Technology Services declined by 51% to $114 million. However, proactive cost saving actions and a focus on working capital resulted in a decline in EBITDA of 26% to $28 million compared to 2008.

Xstrata Technology

In 2009, the global downturn impacted demand for Xstrata Technology products and services as capital constraints resulted in delayed or cancelled projects.  However, work continued during the year on several previously awarded projects and interest in Xstrata Technology's products improved in the second half of the year.

Interest continued to grow strongly in the Albion Process, a low cost, simple atmospheric leach process to recover metals from refractory ores.  Several plants using the Albion Process are currently under construction, including a refractory gold plant in the Dominican Republic that will be commissioned in 2010.

There was a year on year reduction in new orders for IsaMill Technology, a revolutionary grinding technology that significantly increases the efficiency of mineral grinding and processing. Nonetheless, work continued with existing orders, including a major installation programme for Anglo Platinum in both coarse grinding and regrinding and commissioning of two large mills for Goldcorp in Mexico, with a further two to be commissioned in 2010. A new design of copper circuit featuring IsaMill and Jameson Cell technology was successfully commissioned at Prominent Hill in Australia, enabling the production of export quality concentrate.  Pilot scale trials around the world continue to demonstrate that the IsaMill grinds more efficiently than conventional technology and results in improvements in yield.

Work continued on two new lead and copper installations using the ISASMELT smelting technology at the Kazzinc smelting complex in Kazakhstan, where the copper and lead furnaces are scheduled for commissioning in 2010 and 2011 respectively. During 2009, repeat orders for the ISASMELT technology were received from Yunnan Metallurgical Group (YMG) in China and Sterlite (a Vedanta subsidiary) in India

New orders were received during 2009 for the Jameson Cell, a high intensity flotation technology which provides more efficient and reliable flotation circuits.  New installations were successfully implemented at the Prominent Hill copper operation and Cosmos nickel mine.

The copper refining technologies of the Tankhouse Group experienced another strong year, albeit at a reduced level compared to 2008.  New orders were received from Africa, South America, India and China, for both new installations and replacement cathode and machine spares.

Xstrata Process Support

Xstrata Process Support provides expert technical services to the minerals sector through four separate specialist departments - Extractive Metallurgy, Process Mineralogy, Materials Technology and Process Control.  The impact of the financial downturn resulted in a 30% decrease in demand for Xstrata Process Support's services. As in 2008, external customers accounted for 25% of total revenue in 2009.

Process Mineralogy is a mineral processing and mineral science group that utilises quantitative mineralogy, sampling, statistics and ore benefication test work to improve concentrate grade and maximise metal recoveries for new mine projects and existing operations.  During 2009, Process Mineralogy provided services to Xstrata Nickel, Xstrata Copper and Xstrata Zinc in Canada and has ongoing demand from PGM operations, including Xstrata Alloys' Eland.  Demand from external companies slowed in the second half of 2009, but has begun to recover in early 2010.

The Extractive Metallurgy business, which provides expert pyrometallurgical and hydrometallurgical services to smelters and refineries, continued to see demand for process modelling expertise on roasters and smelters from both internal and external clients.  This engineering service combined with laboratory testing and piloting facilities is used to optimise process design and support environmental compliance projects.

The highly experienced engineers that make up Process Control delivered numerous improvements to the concentrators at Xstrata Alloys Eland mine in South Africa, Xstrata Nickel's Raglan and Strathcona sites in Canada and at Xstrata Copper's Kidd operation, also in Canada.  At Xstrata Nickel's Nickel Rim South mine and Fraser project, Process Control is contributing to improved automation and control, particularly for energy savings in the ventilation systems. 

During the year, the Materials Technology business completed planned inspections, aimed at minimising unexpected shutdowns, to a number of smelter acid plants, two of which were for external customers.  Services were provided to Xstrata's copper and zinc businesses to implement risk based inspection programmes and select construction materials and to resolve corrosion issues.

 

 

Name of Operation		Participation	Annual Production Capacity (Full plant/time basis)	100% Production 2009	100% Production 2008	Accounting Status	Location
Xstrata Alloys
South Africa
Boshoek plant		79.5%	240kt	131kt	190kt	Joint venture	Boshoek
Lion plant		79.5%	360kt	190kt	242kt	Joint venture	Steelpoort
Lydenburg plant		69.6%	396kt	220kt	283kt	Joint venture	Lydenburg
Rustenburg plant		79.5%	430kt	168kt	302kt	Joint venture	Rustenburg
Wonderkop plant		79.5%	553kt	281kt	400kt	Joint venture	Marikana
Boshoek opencast mine		79.5%	1,344kt	0kt	1,331kt	Joint venture	Boshoek
Horizon mine		79.5%	144kt	0kt	38kt	Joint venture	Pilansberg
Kroondal mine		79.5%	1,320kt	640kt	1,134kt	Joint venture	Rustenburg
Thorncliffe mine		79.5%	1,320kt	889kt	1,150kt	Joint venture	Steelpoort
Helena mine		79.5%	960kt	386kt	434kt	Joint venture	Steelpoort
Waterval mine		79.5%	480kt	0kt	66kt	Joint venture	Rustenburg
Rhovan	V2O5	74%	22,000k lbs	11,492k lbs	16,604k lbs	Joint venture	Brits
	FeV	74%	6,000k kg	2,284k kg	3,622k kg
Maloma mine		75%	660kt	130kt	280kt	Subsidiary	Maloma
Char Technologies		100%	112kt	37kt	92kt	Subsidiary	Witbank
African Carbon Manufacturers		100%	153kt	80kt	125kt	Subsidiary	Witbank
African Carbon Producers		100%	158kt	91kt	124kt	Subsidiary	Witbank
African Fine Carbon		100%	156kt	82kt	101kt	Subsidiary	Middelburg
African Carbon Union		74%	133kt	74kt	102kt	Subsidiary	Witbank
Mototolo		37%	240koz	197kt	158koz	Joint venture	Steelpoort
Eland		73.99%	240koz	125kt	145koz	Joint venture	Brits

 

 

Name of Operation

Ownership

Annual Production Capacity (Full plant/time basis)

100% Production 2009

100% Production 2008

Accounting Status

Location

Xstrata Coal

Americas

Cerrejón

33.3%

32,000kt

30,569kt

31,231kt

Joint venture

Colombia

Prodeco

100%

12,000kt

10,487kt

-

Financial asset

Colombia

Australia

Cumnock*

90%

-

-

824kt

Joint venture

Hunter Valley

Liddell

67.5%

4,900kt

3,578kt

3,032kt

Joint venture

Hunter Valley

Macquarie Coal JV - West Wallsend - Westside

80% 80%

2,400kt 700kt

2,202kt 787kt

1,910kt 751kt

Joint venture Joint venture

Newcastle Newcastle

Mt Owen

100%

8,000kt

8,247kt

7,188kt

Subsidiary

Hunter Valley

Ravensworth Operations

100%

4,300kt

4,598kt

4,255kt

Subsidiary

Hunter Valley

Ravensworth Underground

70.2%

3,000kt

2,105kt

1,101kt

Joint venture

Hunter Valley

Oakbridge Group - Baal Bone - Beltana - Bulga

74.1% 68.3% 68.3%

1,800kt 5,000kt 6,000kt

1,517kt 2,711kt 5,598kt

1,220kt 4,507kt 4,819kt

Subsidiary Joint venture Joint venture

Western Coal Fields Hunter Valley Hunter Valley

Tahmoor

100%

2,000kt

1,232kt

1,486kt

Subsidiary

Southern coal fields

Ulan - Ulan Underground - Ulan Opencut

90% 90%

6,200kt -

4,255kt -

6,199kt 797kt

Joint venture Joint venture

Western Coal Fields

United

95%

2,300kt

2,098kt

2,217kt

Joint venture

Hunter Valley

Oaky Creek

55%

8,700kt

7,118kt

6,743kt

Joint venture

Bowen Basin

Newlands - Thermal - Coking

55% 55%

8,600kt 1,400kt

9,945kt 1,176kt

6,277kt 1,913kt

Joint venture Joint venture

Bowen Basin

Collinsville - Thermal - Coking

55% 55%

3,600kt 1,700kt

3,151kt 1,119kt

2,657kt 1,126kt

Joint venture Joint venture

Bowen Basin

Rolleston

75%

8,000kt

7,263kt

7,235kt

Joint venture

Bowen Basin

South Africa

Southstock Division - Open cast - Underground

79.8% 79.8%

700kt 5,000kt

371kt 4,350kt

681kt 4,647kt

Subsidiary Subsidiary

Witbank Witbank

Mpumalanga Division - Spitzkop - Tselentis

79.8% 79.8%

1,400kt 1,400kt

771kt 926kt

1,108kt 1,322kt

Subsidiary Subsidiary

Ermelo Breyten

Impunzi Division - Open cast - Underground**

79.8% 79.8%

5,400kt -

4,009kt -

2,287kt 1,079kt

Subsidiary Subsidiary

Witbank Witbank

Tweefontein - Open cast - Underground

79.8% 79.8%

3,500kt 2,700kt

3,511kt 1,760kt

3,481kt 2,699kt

Subsidiary Subsidiary

Witbank Witbank

Goedgevonden

74%

6,000kt

2,995kt

2,919kt

Joint Venture

Witbank

* ** ***

Current operations completed, decision on remaining reserves pending Capacity once commissioned Planned closure due to the exhaustion of reserves

Name of Operation

Ownership

Annual Production Capacity (Full plant/time basis)

100% Production 2009

100% Production 2008

Accounting Status

Location

Xstrata Copper

Argentina

Alumbrera

50%

40mt ore 150kt Cu in conc 400koz Au in conc 50koz Au in dore

37.5mt ore 143kt Cu in conc 366koz Au in conc 56koz Au in dore

37.5mt ore 157kt Cu in conc 444koz Au in conc 60koz Au in dore

Subsidiary

Catamarca

Australia

Mount Isa

100%

6.2mt ore 170kt Cu in conc 290kt Cu in anode

6.0mt ore 162kt Cu in conc 214kt Cu in anode

5.9mt ore 152kt Cu in conc 236kt Cu in anode

Subsidiary

North West Queensland

Ernest Henry

100%

11mt ore 90kt Cu in conc 110koz Au in conc

8.0mt ore 36kt Cu in conc 45koz Au in conc

11.4mt ore 111kt Cu in conc 146koz Au in conc

Subsidiary

North West Queensland

Townsville Refinery

100%

300kt Cu cathode

277kt Cu cathode

267kt Cu cathode

Subsidiary

North Queensland, Australia

Canada

CCR

100%

370kt Cu cathode

278kt Cu cathode

345kt Cu cathode

Subsidiary

Quebec

Horne

100%

180kt Cu in anode

164kt Cu in anode

171kt Cu in anode

Subsidiary

Quebec Canada

Kidd Creek

100%

50kt Cu in conc 135kt Cu in cathode

44kt Cu in conc 54kt Cu in cathode

43kt Cu in conc 87kt Cu in cathode

Subsidiary

Ontario

Chile

Altonorte

100%

300kt Cu in anode

268kt Cu in anode

232kt Cu in anode

Subsidiary

Antofagasta Region

Collahuasi

44%

48mt ore 530kt Cu in conc 60kt Cu cathode

45.3mt ore 493kt Cu in conc 43kt Cu cathode

42.6mt ore 415kt Cu in conc 49kt Cu cathode

Joint-Venture

Tarapacá Region

Lomas Bayas

100%

14mt ore 75kt Cu cathode

13.4mt ore 73kt Cu cathode

13.7mt ore 59kt Cu cathode

Subsidiary

Antofagasta Region

Peru

Antamina*

33.75%

35mt ore 370kt Cu in conc

33.6mt ore 316kt Cu in conc

30.4mt ore 344kt Cu in conc

Joint-Venture

Ancash Region

Tintaya

100%

10mt ore 85kt Cu in conc 35kt Cu cathode

7.0mt ore 82kt Cu in conc 36kt Cu cathode

7.1mt ore 84kt Cu in conc 37kt Cu cathode

Subsidiary

Espinar Province

Name of Operation

Ownership

Annual Production Capacity (Full plant/time basis)

100% Production 2009

100% Production 2008

Accounting Status

Location

Xstrata Nickel

Australia

Cosmos

100%

350kt ore 13kt Ni in conc

347kt ore 11kt Ni in conc

226kt ore 7.3kt Ni in conc

Subsidiary

Mt Keith-Leinster, Western Australia

Sinclair

100%

300kt ore 6kt Ni in conc

301kt ore 6kt Ni in conc

37kt ore 0.3kt Ni in conc

Subsidiary

Mt Keith-Leinster, Western Australia

Canada

Montcalm

100%

Suspended 1H2009

226kt ore 2kt Ni in conc

927kt ore 9kt Ni in conc

Subsidiary

Ontario

Sudbury

100%

2.7mt ore 130kt Ni-Cu matte

1.1mt ore 116kt Ni-Cu matte

1.9mt ore 114kt Ni-Cu matte

Subsidiary

Ontario

Raglan

100%

1.3mt ore 30kt Ni in conc

1.3mt ore 29kt Ni in conc

1.3mt ore 26kt Ni in conc

Subsidiary

Quebec

Dominican Republic

Falcondo

85.3%

4.0mt ore 28.5kt Ni in FeNi

Care and Maintenance 2009

2.7mt ore 18.8kt Ni in FeNi

Subsidiary

Bonao

Norway

Nikkelverk

100%

92kt Ni 39kt Cu 5.2kt Co

88.6kt Ni 33.9kt Cu 3.5kt Co

88.7kt Ni 37.0kt Cu 3.7kt Co

Subsidiary

Kristiansand

 

Name of Operation	Ownership	Annual Production Capacity (Full plant/time basis)	100% Production 2009	100% Production 2008	Accounting Status	Location
Xstrata Zinc
Australia
McArthur River	100%	2.5mt ore 181kt Zn in conc	2.1mt ore 166kt Zn in conc	2mt ore 142kt Zn in conc	Subsidiary	Northern Territory
Mount Isa	100%	6.4mt ore 283kt Zn in conc 170kt Pb in bullion 300t Ag in bullion	7.4mt ore 324kt Zn in conc 146kt Pb in bullion 243t Ag in bullion	6.4mt ore 283kt Zn in conc 167kt Pb in bullion 317t Ag in bullion	Subsidiary	North West Queensland
Canada
Brunswick Mine	100%	3.6 mt ore 275kt Zn in conc 80 kt Pb in conc 210t Ag in conc 8kt Cu in conc	3.3mt ore 252kt Zn in conc 66kt Pb in conc 179t Ag in conc 7kt Cu in conc	3.3mt ore 242kt Zn in conc 70kt Pb in conc 194t Ag in conc 6kt Cu in conc	Subsidiary	New Brunswick
Brunswick Smelting	100%	110kt refined lead 450t silver doré	83.6kt refined lead 282t silver doré	81.3kt refined lead 152t silver doré	Subsidiary	New Brunswick
CEZ Refinery	25%	301kt Zn	260kt Zn	292kt Zn	Associate	Quebec
Perseverance Mine	100%	949Kt ore 113.9kt Zn in conc 6.9kt Cu in conc	1,011Kt ore 135.7kt Zn in conc 8.6kt Cu in conc	511Kt ore 60.3kt Zn in conc 3.8kt Cu in conc	Subsidiary	Quebec
General Smelting	100%	27kt Zn and Pb foundry products	6kt Zn and Pb foundry products	8kt Zn and Pb foundry products	Subsidiary	Quebec
Kidd Creek Refinery	100%	153kt Zn	112.7kt Zn	121kt Zn	Subsidiary	Ontario
Germany
Nordenham	100%	157kt Zn 151kt saleable Zn	147kt Zn 140kt saleable Zn	151kt Zn 144kt saleable Zn	Subsidiary	Nordenham
Peru
Antamina (joint with Xstrata Copper)	33.75%	35mt ore 403kt Zn	38mt ore 456kt Zn	348kt Zn	Joint venture	Ancash
Spain
San Juan de Nieva	100%	507kt Zn 487kt saleable Zn	500.8 kt Zn 479.7kt saleable Zn	450kt Zn 431kt saleable Zn	Subsidiary	Asturias
Hinojedo	100%	47kt calcine 31kt SO2	37kt calcine 24kt SO2	40kt calcine 26kt SO2	Subsidiary	Cantabria
Arnao	100%	24kt ZnO	11kt ZnO	16kt ZnO	Subsidiary	Asturias
Name of Operation	Ownership	Annual Production Capacity (Full plant/time basis)	100% Production 2009	100% Production 2008	Accounting Status	Location
Xstrata Zinc continued
UK
Northfleet	100%	180kt primary Pb 360t refined Ag	158kt primary Pb 273t Ag	139kt primary Pb 246t Ag	Subsidiary	Northfleet