core sector communique

Xstrata plc announces Half Yearly Results for the period to 30 June 2012

Zug, 7 August 2012

Key Financials

$m		Six months to 30.06.12	Six months to 30.06.11	% Change
Revenue		15,550	16,777	(7)
Operating EBITDA*		4,007	5,820	(31)
Operating profit*		2,454	4,246	(42)
EBIT*		2,439	4,254	(43)
Attributable profit*		2,194	2,865	(23)
Attributable profit		1,941	2,916	(33)
Earnings per share (basic)*		$0.75	$0.98	(23)
Earnings per share (basic)		$0.66	$1.00	(34)
Dividends declared and paid per share		27.0¢	20.0¢	35
Dividends proposed per share		14.0¢	13.0¢	8
Net debt to net debt plus equity		19%	15%	27
Net assets		47,359	45,533	4
Net assets per share**		$16.03	$15.53	3
* **	Excludes exceptional items Excluding own shares

Highlights:

¡ Strong financial and operational performance despite cyclical downturn in commodity prices and ongoing cost inflation

¡ Good cost performance with real unit cost savings of $105 million. Significant additional cost saving opportunities identified in second half

¡ Improvement in second quarter volumes provides good momentum for stronger second half production as new projects are progressively commissioned

¡ $1.47 billion Antapaccay copper project reached commissioning on schedule and on budget with first copper on track for October

¡ Approval of US$360 million (AUD360 million) Phase 3 expansion of Xstrata Zinc’s McArthur River Mine to produce average of 380,000 tonnes of zinc from 2014 from conventional concentrate

¡ In total, 10 major projects will commence commissioning on schedule by the end of 2012 across every commodity business, transforming volumes, costs and asset quality

¡ Full review of current and future projects, with 2012 expansionary capital spending reduced by $1 billion while retaining growth targets and schedule

¡ Robust balance sheet with gearing at 19% in our peak year for capital investment, providing resilience and optionality

¡ Return on capital to normalise from increased cash flows from new growth projects

¡ Proposed interim dividend of 14¢ per share, 8% increase over the 2011 interim dividend

¡ Safety performance continues to improve to 5 total recordable injuries per million hours worked for the year to date, including contractors

Mick Davis, Xstrata plc Chief Executive Officer commented:

“2012 is a landmark year for Xstrata and marks the tipping point of the strategy to transform our portfolio through organic growth that we have consistently pursued for the past five years. By the end of the year, a total of ten major projects will reach commissioning during 2012 and accelerate our transition from certain legacy, end of life operations to new and expanded efficient operations. A further eleven projects will commence production in the next two years. Our business will be transformed in terms of asset quality, cost competitiveness and further capital-efficient growth potential. The completion of our current organic growth strategy will be as important in the life of Xstrata as the initial acquisition-led growth of the first five years following our IPO.

“The impact on the quality of our business is striking. We will introduce seven new tier one, world class assets into our portfolio and expand another four. We will realise significant reductions in real unit costs in every commodity. Average mine lives will be substantially extended, our projects will deliver robust returns on our investment throughout the commodity cycle and we will gain another raft of low capital cost, brownfield expansion options embedded within the world class assets we have developed.

“Our financial performance in the first half of the year reflected a cyclical downturn in commodity prices and the transition to our next generation of lower cost mines. Against the background of lower prices and ongoing cost inflation, our operational performance remained robust. Second quarter volumes rose across the Group, providing us with good momentum to achieve our expectations of higher volumes in the second half.

“Despite these headwinds and the challenges of operations reaching the end of their lives, our businesses cut unit costs in real terms by a net $105 million in the first six months of the year, led by the nickel and zinc business units which together accounted for $87 million of savings.

“Just as in the previous cyclical downturn of late 2008 and early 2009, we are once again taking pre-emptive action to ensure our business remains competitive and to defend margins. Identified savings will not only offset in full our expectations of non inflation increased unit costs of around $580 million for the full year resulting from the inevitable cost pressures of ageing operations reaching the end of their lives, including lower grades, but will reduce our operating cost base and improve our competitive position. The resultant expected net real cost saving for the year of around $390 million is a creditable cost performance against the very complex operating environment in 2012.

“Following a review of our project pipeline, we have resequenced capital spending and deferred $1 billion of expenditure originally planned for 2012. Our 2013 budgeted spending will increase by $400 million, with $600 million deferred beyond that, without affecting the commissioning schedule of any of our approved projects. Consequently, we expect capital spending in 2012 to reduce to $7.2 billion, $1 billion less than our previous guidance, smoothing the profile of capital spending across the next two years.

“We expect the volume growth we are bringing to fruition to be well timed for a cyclical recovery. Our pro-active response to the cyclical downturn will defend margins and ensure our business emerges in a stronger competitive position to capture the benefits of stronger global economic growth. And in the medium term, rising demand for commodities from emerging economies, coupled with ongoing industry underperformance from ageing operations, increasingly complex operating conditions and deferred capital projects will continue to support commodity prices in excess of historical averages. The next stage of our transformation from modest beginnings ten years ago to one of the world’s great mining companies is unfolding.”