Continuous Transformation

Mick Davis - CEO Deutsche Bank BRICs Conference - November 2011

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This presentation contains references to “cost curves”. A cost curve is a graphic representation in which the total production volume of a given commodity across the relevant industry is arranged on the basis of average unit costs of production from lowest to highest to permit comparisons of the relative cost positions of particular production sites, individual producers or groups of producers across the world or within a given country or region. Generally, a producer’s position on a cost curve is described in terms of the particular percentile or quartile in which the production of a given plant or producer or group of producers appears. To construct cost curves, industry analysts compile information from a variety of sources, including reports made available by producers, site visits, personal contacts and trade publications. Although producers may participate to some extent in the process through which cost curves are constructed, they are typically unwilling to validate cost analyses directly because of commercial sensitivities. Inevitably, assumptions must be made by the analyst with respect to data that such analyst is unable to obtain and judgment must be brought to bear in the case of virtually all data, however obtained. Moreover, all cost curves embody a number of significant assumptions with respect to exchange rates and other variables. In summary, the manner in which cost curves are constructed means that they have a number of significant inherent limitations. Notwithstanding their shortcomings, independently produced cost curves are widely used in the industries in which Xstrata operate. 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Long-term demand drivers remain intact

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Slow but positive growth in most of the OECD; sustained growth in China

China, y-o-y change US, y-o-y change

Eurozone, y-o-y change Japan, y-o-y change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2005 2006 2007 2008 2009 2010 United States industrial production United States leading indicator

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 China industrial production China leading indicator

-40% -30% -20% -10%

0% 10% 20% 30% 40%

2005 2006 2007 2008 2009 2010 Japan industrial production Japan leading indicator

-25% -20% -15% -10% -5% 0% 5%

10% 15%

2005 2006 2007 2008 2009 2010 Eurozone industrial production Eurozone leading indicator

5 5

A multi-decade secular change

Percentage of US per capita GDP at PPP

Source: Citi Investment Research and Analysis, Dragonmonics-GaveKal Research

Contribution to Global GDP

China has sustained rapid GDP growth for 30 years but is still a long way below

developed world income levels

Developing economies are expected to account for almost 80% of global GDP

by 2050

48%

30% Advanced Economies;

21%

27%

44% Developing Asia; 49%

25% 26% Other

Developing Economies;

30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2030 2050

GDP in 2010 PPP $US

Developing Economies as % of total: 52% 70% 79%

6 6

Social housing key driver of Chinese construction

With social housing offsetting a potential softening of private construction

Source: Dragonomics- GaveKal Research

Chinese urban housing has significant further growth

China has a severe urban housing shortage with many rural migrants living

in inadequate housing

M households and M units

0

50

100

150

200

250

300

1998 2005 2009 2015e

Urban households Migrant households Units of housing

0

2

4

6

8

10

12

14

2006

2007

2008

2009

2010

2011

f

2012

f

2013

f

2014

f

2015

f

Commerical housing Off market housing Social housing

China can absorb 10m units/year new housing, up from 6m historically. This

will be filled by additional social housing

New Housing supply, M units

7 7

Chinese consumption intensity and capital stock still lagging developed economies

Investment also remains well below that of the US

Energy consumption is expected to grow rapidly

0

2000

4000

6000

8000

10000

12000

14000

0

2

4

6

8

10

12

2010 2015 2020 2030 Energy consumption (trillion kWh) LHS

Per capita energy consumption (kWh) RHS

China needs an additional 1bn tonnes of coal by 2020

Flags show 2010 kWh per capita consumption

Source: International Copper Association, Xstrata Estimates Note: Assuming today’s energy mix

$0

$20'000

$40'000

$60'000

$80'000

$100'000

$120'000

$140'000

China 2010

China 2010 at

PPP

US 1930 US 2009

Source: Dragonomics- GaveKal Research

Capital Stock per GDP

Capital stock per capita is just 7% of that in the US

8 8

Despite 10 years of investment, the supply-side is still struggling to keep pace

Disruptions continue to limit output

Quarterly mined copper production

Source: Company production reports, Brook Hunt, Xstrata estimates

60

70

80

90

100

110

120

130

140

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

Anglo American BHP Billiton Rio Tinto Xstrata

-1600 -1400 -1200 -1000 -800 -600 -400 -200

0

2005 2006 2007 2008 2009 2010 2011e

Indexed from 1Q10

Kt Cu Difference between planned vs actual production

Annual change in global mine production

592

378

-207

150

848

182 212

588

112 179 187 40

-400 -200

0 200 400 600 800

1000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

e

Kt Cu

Running Hard to Stand Still

The importance of investment

10 10

More than ever, existing miners must “Run hard to stand still”

The Curse of Wasting Assets

Historical Future

The Strategic

Gap

Time

Val

ue

$m

Today

Shareholder Demands

Source: Company data

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

Export Tonnage

Inland Tonnage

0

20

40

60

80

Opex US$/t material moved (real 2008)

2008 2011

Labour

Other Energy

Consumables

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1980 1985 1990 1995 2000 2005 2010e 2015e

Primary copper head grade, %

Dep

letin

g re

serv

es

Incr

easi

ng c

osts

D

eclin

ing

grad

es

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Sovereign and community issues remain key challenges for the industry

Government and community challenges

Examples and Potential Impact

Resource nationalism •Windfall taxes, royalties, carried interest, ‘empowerment’ of indigenous people, allocation of licences, mining licence reviews, etc. – increased complexity and cost

Social licence to operate

•Rising community expectations, NGO activity - delayed mining expansion, cost of compliance, focus on community involvement

Growing legislation/regulation

•Increased legislation across the board – UK Bribery Act, transparency initiatives, anti-trust, etc., growing organisation complexity and cost of compliance

Environmental/Climate Change regulation impacts

•Growing complexity, legislation by country, increased costs, impact on competitiveness

Water shortage •Competition with communities for water in arid areas, cost of providing alternatives (e.g. desalination)

Large diversifieds best positioned to mitigate these risks

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A symbiotic relationship between miners, communities and governments

Mining Companies

Communities

Governments

Governments Benefit from: § Investment in country § Taxes § Employment § Infrastructure § Products vital to

society

In return provide: § Security of tenure and

a stable investment regime

§ Transparency § Infrastructure § A skill base

Mining Companies Benefit from:

§ The Social Licence to Operate § New resources and business

opportunities § Access to diverse sources of

capital § Key skills

In return:

§ Provide vital products § Take on risk of investment

§ Provide skills and capabilities § Employ sustainable practices

§ Provide world-class technologies § Contribute to national and local

coffers

Communities Benefit from: § New infrastructure and advanced technology § Jobs, training and development § Corporate Social investment § Development of and procurement from local

suppliers and enterprises

In return provide: § The Social Licence to Operate § Employees § Suppliers

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Case Study: Las Bambas - investing since 2004

§ Initiated projects jointly with community early on to address key issues, including § Water and sanitation, agriculture and

livestock breeding, health, education, power supply and transportation

§ Building of Nueva Fuerabamba town including 450 homes, schools, medical clinic, police station and recreation facilities

§ 36 projects completed, another 29 under implementation

§ Xstrata has been investing in and engaging with the Las Bambas community since 2004; 10 years prior to the project’s commissioning date

• Provided training and employment: • 3,600 direct jobs during

construction and 1,350 permanent jobs when operating (37% locals)

§ Supplier/enterprise development (use of 40 local contractors)

Transforming Xstrata

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Xstrata’s path to value

Xstrata’s Strategic Framework Xstrata growth: 2002 to 2010

Coal Zinc Alloys Australia Africa Europe

2002

20

10

Coal Zinc Alloys Copper Nickel

Australia Africa Europe South America North America

EBITDA: $0.4bn Revenue: $1.8bn

EBITDA: $10.4bn Revenue: $30.5bn

2003: MIM

2002: IPO and Duiker / Enex

2006: Falconbridge

9 consecutive years of real cost savings

Mergers and Acquisitions

Operational Excellence

Organic Growth

$11bn growth capex including 17 major projects

delivered since 2002

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Sustained cost reduction and resource and mine life expansion have been a focus for Xstrata’s management

100

120

140

160

180

200

220

2006 2007 2008 2009 2010 2011

Industry Peers Xstrata Copper

Xstrata Copper mine costs vs peers Xstrata Zinc mine costs vs peers

40 50 60 70 80 90

100 110 120

2006 2007 2008 2009 2010 2011

Industry Peers Xstrata Zinc

Source: Xstrata, Company reports, Brook Hunt

Xstrata Zinc Reserve Growth

81 (64)

+162 179

0

50

100

150

200

2004 Ore mined Increase in reserves

2010

C1 Normal Cash Costs post by product credits indexed from 2006

C1 Normal Cash Costs post by product credits indexed from 2006

Xstrata Copper Resource Growth

0

20

40

60

80

100

2005 2007 2010

Greenfield Projects Canada North Chile Southern Peru Minera Alumbrera North Queensland

Mt contained copper +472% increase

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Xstrata’s sustainability record is a source of competitive advantage

Group Safety Performance

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 2009 2010

TRIFR LTIFR

79% improvement since 2002

84% improvement since 2002

Sustainability Rewards

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Operational excellence is at the core of the transformation of Xstrata’s portfolio

0 0.5 0 0

Percentile cost position

Coking coal 2011

Zinc 2011 Nickel

2011

Chrome 2011

Thermal Coal 2011

Zinc 2008

Nickel 2008

Copper 2008

Chrome 2008

Generic cost

curve

50th

Cas

h Cos

t

10th 90th

Copper 2011

Note: As the largest exporter of thermal coal from Australia, Xstrata’s thermal coal cost position disproportionally impacted by the 21% appreciation of the AUD since 2008, compared to most seaborne thermal coal suppliers

Coking coal 2008

Thermal Coal 2008

Improvement in Relative Competitive Position

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Industry-leading organic growth underway § On track to deliver 50% copper-equivalent volume growth by end 2014 (2009 base) § Track record of successful major project delivery

§ 6 have commissioned and $6.6bn of capex has been spent in past 18 months § Further 5 projects commissioning in H2 2011

§ All projects remain on schedule § Organic growth will result in significantly reduced operating costs and robust returns at long-

run prices

22 major approved projects

9 major projects with near-term approvals

$15bn approved

capex

$7bn potential

capex

$1bn to advance studies

Feasibility and scoping Existing business Approved Near term approval

0 20 40 60 80

100 120 140 160 180

2009

2010

2011

2012

2013

2014

2015

Xstrata volume growth(1)

50% growth to end 2014

Project pipeline; go-forward capex

(1) Copper equivalent volume growth from 2009 base

20 20

Creating a Tier 1 asset portfolio

Current operations and approved Tier 1 projects only

Project Operation

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Strong organic growth allows for a selective approach to M&A

2011 bolt on acquisitions

Location Business Unit

Cost Remarks

Lady Loretta Mount Isa, Australia Zinc AUD30M Outstanding 25%

Pallas Green Republic of Ireland Zinc USD19.4M Minco’s 23.6% interest

At pre-feasibility study stage

Two Exco Resources copper projects Australia Copper AUD175M

Increases Ernest Henry’s production profile from the second half of 2012

Hackett River and Wishbone exploration properties

Canada Zinc CAD50M Early stage opportunities

First Coal Canada Coal USD153M Coking coal optionality

Lossan deposit Canada Coal CAD40M Next to First Coal deposits

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Supported by a strong balance sheet and conservative financial strategy

0

1'000

2'000

3'000

4'000

5'000

6'000

7'000

8'000

9'000

2006

2007

2008

2009

2010

2011

H1

FCF (pre capex) Total capex

Free cash flow and capex ($m) § Xstrata has a strong balance sheet designed to ensure the organic growth strategy will be delivered

§ Gearing 18%

§ Significant undrawn headroom in banking facilities

§ No covenants on bank debt

§ A very benign bond repayment schedule over the next 5 years

§ Robust operational cash flows with net cashflow of US$8.2bn in 2010 and US$3.9bn in H1 2011

Free cash flow is pre capex

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Continuous Transformation § Portfolio of long life, low cost, cash generative businesses with diverse

pricing cycles § Diversification by geography, currency, commodity and customer § Mix of bulk and listed commodities § Continuously improving portfolio with next generation of Tier 1 assets

§ Industry leading growth in diverse mix of attractive commodities § Well placed to benefit from a recovery in OECD markets and continued strong

demand from Asia and other developing markets § Prolific growth and further cost reduction being delivered

§ Balance sheet to support organic growth and opportunistic M&A

§ Devolved organisation model encourages value creation and entrepreneurship