XSTRATA’S PROPOSED MERGER OF EQUALS WITH ANGLO AMERICAN

Zug, 24 June 2009

Xstrata plc (“Xstrata”) notes the response by Anglo American plc (“Anglo American”) on 22 June 2009.

Xstrata today publishes the letter sent to the Board of Anglo American on Wednesday 17 June 2009, which sets out the highly compelling rationale for an all-share merger of equals, in which both sets of shareholders would share equally in the substantial benefits of a combination (see Appendix I).

Additional points to note:

· The proposed transaction is a merger of two companies of equal size where both sets of shareholders will share equally in the benefits which flow from that combination. The proposal bears none of the characteristics of a takeover, in which a premium would typically be payable.

· The combined group would have a Board and a management team sourced from both companies to bring together the team best capable of delivering the synergies and other benefits of the merger.

· This merger is the natural combination of two highly complementary companies in the mining industry to realise significant value for both companies’ shareholders. Both companies have very similar market values1, financial positions, asset qualities, reserve and resource lives and aggregate earnings estimates.  

· The strategic rationale for a merger is very compelling, based on the two companies’:

o contiguous or proximate assets in Australia, South Africa and South America; 

o shared ownership of Collahuasi copper and Cerrejón coal operations;

o broad geographic distribution of operations and projects; 

o complementary portfolios of commodities; and

o ability to optimise each company’s significant portfolios of organic growth options to enhance returns equally to shareholders of both companies.  

· Significant pre-tax synergies have been quantified of over US$1 billion per annum by the third full year following completion of the proposed merger. Gross one-off realisation costs of not more than US$500 million in total will be incurred in full in the first two years following completion2. Xstrata’s estimate of these core synergies has been reported on under the City Code on Takeovers and Mergers by Ernst & Young LLP and Xstrata’s financial advisors, Deutsche Bank and J.P. Morgan Cazenove. Copies of their letters are included in Appendix III. 

· Xstrata’s synergy estimate does not assume nor envisage any workforce retrenchments at the combined group’s South African operations and Xstrata believes that South Africa would be a net beneficiary of the transaction. 

· In addition to these core synergies, Xstrata has identified further longer term, potential tax, financial and project synergies.

· The quantified synergies accrue from both companies and as such, should be shared by Xstrata and Anglo American shareholders through equal participation in the combined group. A joint review by both companies is expected to result in further synergies being identified. 

· There are several material assumptions underlying the synergies estimate which might therefore be materially greater or less than those estimated. For further details, see Appendix II and the letters from Ernst & Young LLP and Xstrata’s financial advisors in Appendix III.

· Anglo American first announced targeted savings from its asset optimisation and procurement initiatives in 2008 and its share price should already fully reflect the investment market’s view of the probability and value of the announced savings. A merger therefore represents no dilution in value to Anglo American shareholders from these savings. Xstrata believes the synergies it has quantified are in addition to any savings under these initiatives.

· Xstrata’s operational management has a strong track record of best-in-class cost performance, delivering year-on-year average real cost savings of 1% per annum from 2003 to 2008, compared to an average real cost increase at its FTSE100 mining sector peers of 2% per annum over the same time period. A combined management team would more rapidly and effectively realise sustainable reductions in operating costs across the combined portfolio.

· A further significant uplift in value and in returns will be delivered through the combination and prioritisation of Xstrata’s and Anglo American’s organic growth pipelines.

Through acquisitions and a continuous programme of asset improvement initiatives, Xstrata has built a portfolio of assets which generate similar earnings to the Anglo American portfolio and which enjoy a similar reserve/resource life. A comparative analysis is presented in Appendix 4 to the Letter to Anglo American. It is evident that Xstrata’s base metals businesses enjoy similar C1 costs to the equivalent Anglo American businesses. Xstrata’s coal business also has a similar C1 cost but substantially higher margins than Anglo Coal, given that Xstrata sells a greater portion of its thermal coal into the export market. 
Xstrata would contribute world-class coal and copper assets to the enlarged group, creating a premier suite of base metals and coal operations to the benefit of Anglo American’s shareholders. 
· The combined group’s enhanced diversification and cash generative base metals and coal portfolio would provide greater support for businesses such as platinum and diamonds, which currently do not generate significant EBITDA and may well require significant capital at a time when their industry fundamentals are not robust.

· Geographically, Xstrata’s shareholders will take on greater emerging country exposure, while Anglo American’s shareholders will benefit from increased diversification with approximately equal contributions to the combined group’s earnings from Africa, South America and Australia.

· The combined group would benefit from enhanced access to capital and improved financial flexibility to resume dividend payments and support further growth whilst maintaining an investment grade rating.

Mick Davis, Xstrata Chief Executive, commented: 

“It is well recognised that the combination of Xstrata and Anglo American is a natural fit and the most compelling major transaction available in our industry. We have already quantified substantial synergies that can only be achieved by combining our portfolios to increase scale and realise logistics, product flow, procurement and operational efficiencies. In my experience, we have always found that, when effectively led, a joint team is able to review identified synergies and unlock incremental value from the combination, ultimately resulting in savings in excess of initial estimates. 

“In addition, the substantial synergies we have delivered in previous transactions have not come from redundancies at the operations but rather from improved productivity and efficiencies from economies of scale. In general, Xstrata’s approach has been to augment our operations’ capacity by putting management and resources back at the operational level, almost universally leading to improved safety performance and operational efficiency.

“We remain convinced of the undeniable logic for a merger of equals between Anglo American and Xstrata. Xstrata’s proposal is about unlocking the significant shareholder value inherent in the combination of our companies and is not dependent on any pre-determined concept of management positions or structure. It is regrettable that Anglo American’s Board rejected this proposal without any engagement with Xstrata, just days after receiving our approach.  

“It must surely be in the interests of both companies’ shareholders for Xstrata and Anglo American to work together to test in more detail the attractive proposition we have put to the Anglo American Board. We will continue to seek to engage with Anglo American’s Board and management to investigate the value that would accrue to their shareholders and to ours from a combination. I feel sure that, in time, Anglo American’s Board will want to examine comprehensively the merits of this transaction for its shareholders.”