Xstrata PLC : Chairman’s AGM 2012 Opening Address

Zug, 1 May 2012

2011 HIGHLIGHTS
Against a challenging global backdrop, we had an outstanding year in 2011.  A strong operational performance and robust demand for our products resulted in the Group's best ever financial performance, with net earnings rising to $5.8 billion, and operating EBITDA of $11.6 billion. Over $390 million of year-on-year sustainable real cost savings meant that all of our commodity businesses are now amongst the most efficient in their respective industries and in each case in the lower half of industry cost curves.

The delivery of our organic growth strategy continued apace and we commissioned 10 new operations or expansions within budget, many of them ahead of schedule.

Construction of our next phase of major new operations is progressing very well, including the Koniambo nickel operation and the Tintaya-Antapaccay copper expansion, both of which are on track to commence production later this year. By 2015, our organic growth strategy will increase copper-equivalent volumes by over 50% over 2009 production and reduce average operating costs from a suite of approved growth projects that will deliver robust returns, even at conservative long-run price assumptions.

Our reserves and resources base continues to grow and during 2011 we announced significant increases to copper resources, particularly in South America, a key region for our future growth plans. In total, copper resources increased by 15% to 100 million tonnes. Six bolt-on acquisitions during the year have further enhanced our pipeline of further potential growth options.

This excellent performance in challenging market conditions and despite a number of uncontrollable one-off events in our business has been reflected in executive remuneration for 2011.  This is in line with our policy of aligning pay arrangements with strategy and rewarding excellent performance with excellent rewards, rather than adopting a conformist approach, where that may limit our ability to incentivise exceptional performance or recruit and retain the best talent in the highly competitive and tight global labour market for mining executives.

FIRST QUARTER 2012 AND OUTLOOK
Xstrata enters its second decade in a strong position and the group has continued to perform well into 2012. We have today published our first quarter production report and interim management statement.

Total consolidated coal production increased by 9% to over 21 million tonnes in the first quarter, primarily due to increased Australian and South African thermal coal volumes boosted by consistent, uninterrupted production compared to the same period in 2011.

Xstrata Coal expanded its presence in the Peace River Coalfield of northern British Columbia by acquiring the Sukunka hard coking coal deposit and sold 25% of the combined assets to form a joint venture with JX Nippon Oil & Energy Corporation in a transaction that realised immediate value from the coking coal complex we have rapidly established in Western Canada.

Nickel production rose by 8% more than during the same period last year as a result of improved mined production, with a significant increase in ferronickel volumes thanks to the restart of our Falcondo operation in the Dominican Republic.   The major Koniambo ferronickel operation in New Caledonia is on track to send its first ore to the furnace later this year.

In zinc, a 12% increase in production from our Australian operations offset planned lower production from the Antamina copper-zinc joint venture. Mined zinc and zinc metal volumes were maintained at a similar level to last year. We have also today announced the accelerated development of the new Lady Loretta mine in north west Queensland which we now expect to begin production later this year and the extension of the Handlebar Hill mine life to 2014.

In a transitional year for our copper business, new expansions at operations including Lomas Bayas, and Ernest Henry underground mine in Australia are on track to start production in the second half of the year. At Antamina, an expansion project to increase processing capacity to 130,000 tonnes per day was successfully commissioned and has already reached nameplate capacity.

Looking forward, whilst significant short term uncertainty remains, the medium to long-term outlook for commodities remains very positive. As the pace of major emerging markets' growth moderates to more sustainable levels, economic indicators signify a steady recovery for global growth, with the US economy showing encouraging signs of recovery and the Chinese government's policy tending towards easing as they navigate towards a 'soft landing'.  The European sovereign debt crisis remains unresolved, but it seems that steps are being taken to give the policy decisions in each of the Eurozone countries time to take effect. Our own indicators point to stable growth prospects for the two largest economies of the US and China which, coupled with rising prosperity in south-east Asian and African countries, will continue to underpin demand for commodities.

In the longer term, strong demand for the commodities we produce, coupled with continued supply-side constraints, looks set to continue, driven by a recovery in mature economies and growing demand in emerging nations through the increasing number of middle class consumers, rising living standards and large-scale investment in physical infrastructure - all of which point to continued growth in the intensity of use for our products. Xstrata's portfolio is particularly exposed to a suite of commodities for which demand remains strong across the entire economic development cycle, in countries such as China, India, Brazil, Indonesia, Turkey and other rapidly developing economies.

OUTSTANDING TEN YEARS
Xstrata's record year in 2011 was a fitting conclusion to an exceptional first decade of growth, operational excellence and value creation for the many stakeholders in our business.  At this important milestone, I would like to take a moment to reflect on the extraordinary success Xstrata plc has enjoyed over its first ten years.  In late 2001, when the current management team joined the former Xstrata AG, the company was in a very different position to today - a small $500 million business with significant debts, a narrowly focused commodity portfolio, modest profits and an uncertain future.  Today, Xstrata's market value is more than 100 times greater than in 2001, we now employ around 70,000 people and we enjoy leading positions in seven major commodities, with an industry-leading organic growth pipeline and a robust balance sheet. Our record EBITDA in 2011 reached $11.6 billion, compared to $140 million just before the IPO ten years ago and $400 million in 2002.

This remarkable performance is, we believe, to a great extent the result of our stable and cohesive management team which has remained almost entirely intact over ten years.  Our decentralised structure and entrepreneurial culture, together with remuneration policies that link pay firmly to performance, incentivise outperformance and successfully retain key personnel have been important factors in this regard.  Over the first ten years of Xstrata plc's life, its management has delivered returns to our shareholders of some 350% compared to a FTSE100 index average of around 55% over the same timeframe, indeed the return to shareholders since October 2001 when this team joined Xstrata AG is in excess of 750%.

Our success is not only measured in terms of shareholder value - we also aim to make a lasting, positive contribution to society. We are proud that the natural resources we extract are at the heart of many essential products and services, from the building blocks of new cities to everyday items we all use in our daily lives.  Our multi-billion dollar investments and the taxation and royalties we pay contribute to national and local government revenues in over 20 countries. Community support for our activities is essential for our long-term success and we engage with communities in a spirit of openness and collaboration as early as we can and throughout the life of our operations.  In 2011, we invested $109 million in direct community initiatives on a voluntary basis, and over ten years we have invested more than $550 million, often in partnership with local government, civil society and community groups, to support health, education, community development and enterprise development programmes in the communities in which we work.

Our sustainability framework aims to ensure all of our global operations and projects are managed to consistent, industry-leading standards, with rigorous third-party assurance oversight.  Since joining Xstrata a year ago, I have been very impressed by the extent to which our people display a genuine commitment to health and safety, environmental responsibility and mutually beneficial partnerships with communities at every level of the organisation.  This year I was able to see at first hand Xstrata's commitment to sustainability and health and safety in action on my recent visit with other directors to the Koniambo nickel project in New Caledonia, and our Mount Isa copper and zinc operations in north-west Queensland.

Safety is, of course, a primary concern for our Board and management team. Last year we achieved another substantial reduction of 26% in total recordable injuries across our global operations and our safety performance ranks amongst the leading companies in our industry.  This is a significant achievement, but I deeply regret to report that six people lost their lives while working at our managed operations during the year.  Any loss of life at our operations is unacceptable. Prevention of fatalities remains our utmost priority and we continue to ensure we act on the lessons learnt from these incidents.

PROPOSED MERGER WITH GLENCORE
The most important task for the independent directors of your Board in 2011 was our consideration of an all-share merger proposal from our largest shareholder, Glencore.   The proposal has required a high degree of scrutiny to assess fairness of the terms, the protections in place for Xstrata's shareholders and the ability of the merged entity to deliver superior returns.

Xstrata's prospects as a standalone company remain very strong. Therefore the independent directors' decision to recommend unanimously the proposed merger to shareholders rests on our assessment that the combination represents an opportunity to create more value for our shareholders than could be created by Xstrata on a standalone basis.

The combined company will create a unique business model in the mining sector, positioned to compete in a complex and changing landscape where the locus of demand has shifted from OECD to developing economies, and where new supplies are being produced from a more diverse range of producers, many located in new and emerging mining regions. It is against this backdrop that an integrated business with capabilities in mining, markets and logistics will be able to unlock value along the entire value and distribution chain, from the mine to the customer.

Our shareholders will continue to benefit from Xstrata's growth projects, operational expertise and dynamic management team. Through the merger you will gain additional exposure to Glencore's portfolio of high-return, near-term growth projects, new commodities including alumina, agricultural products and oil, and a portfolio of mining assets in highly prospective emerging regions in which we do not yet have a presence. Glencore is the world's leading commodities marketing business and its marketing capabilities, logistics network and relationships with thousands of suppliers and customers will provide the merged group with unparalleled insight into opportunities to grow our business that may not be visible to our competitors - a very exciting proposition for the future company. 

Together, Glencore Xstrata will have increased scale, the most diverse earnings in the sector and an improved financial position. We will benefit from a governance structure that is designed to protect the interests of Xstrata shareholders and that reflects the earnings profile of the combined group, which will be substantially weighted towards the industrial assets. A number of Glencore managers who are significant shareholders in the company have indicated their support for the governance structure for two years and retention packages will be put in place for key Xstrata managers whose continued commitment is essential to achieve the new company's full potential and ensure a smooth integration. Xstrata management will optimise the value of the mining portfolio while Glencore management will focus on marketing the combined company's products and seeking out new opportunities.  Both management teams will work together to identify new value creation opportunities for the combined group. 

The proposed merger ratio is earnings accretive for Xstrata shareholders and provides them with a disproportionate share of the combined company based on a number of historic and forward-looking metrics, and the undisturbed market values of both companies before merger discussions became public. Xstrata shareholders will also share in the $500 million of annual pre-tax synergies we expect to achieve from the first full year.  In the judgment of the independent directors, the terms of the proposal are fair and reasonable and the proposal represents a significant opportunity to create a distinctive business with very strong prospects to generate superior returns for our shareholders. 

We have therefore recommended that shareholders vote in favour of the proposal at the Court-convened and general meeting of the Company which are likely to be convened in early July.  Approval is also required from Glencore's shareholders at a general meeting to be convened at around the same time.  We expect to send out formal documents relating to the transaction by the end of this month and we continue to expect the merger to become effective in the third quarter of this year.

To conclude ahead of the formal business of this meeting, Xstrata enters its second decade in a strong position, well placed to benefit from ongoing demand growth for commodities from Asia, with a robust balance sheet to fund our substantial organic growth programme and to pursue opportunistic value accretive bolt-on acquisitions. The proposed merger with Glencore offers a number of benefits that are uniquely available from the combination, with a governance structure that protects the interests of Xstrata shareholders and harnesses the best of both management teams, a unique business model and an entrepreneurial management team capable of executing the many opportunities we see in the combination.

End

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Xstrata contacts:

Alison Flynn
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Claire Divver
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Aura Financial
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Andy Mills
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Notes to editors

About Xstrata plc

We are a major producer of a range of vital commodities used in everything from constructing buildings and delivering electricity, to developing jet engines and mobile phones. We are one of the top five global producers of copper, thermal and metallurgical coal, ferrochrome, zinc and nickel and we also produce silver, lead, platinum, gold, cobalt and vanadium.

Founded in 2002 and headquartered in Switzerland, we operate in over 20 countries and employ over 70,000 people at more than 100 operations and projects around the world. We work in a responsible and sustainable way, with an entrepreneurial spirit and dynamic approach. For more information, visit www.xstrata.com.