1

Mining: opportunities and challengesMick Davis – CEO

MCA Minerals WeekJune 2011

22

Disclaimer:

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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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33

§ A secular trend§ An industry transformed§ Mining’s contribution to Australia§ Challenges ahead§ Conclusion

Agenda

4

A secular trend

55

Multi-decade secular change…

Global urban migration

Source: Citi Investment Research and Analysis, IMF , UN Department of Economic & Social Affairs , McKinsey Global Institute

Contribution to Global GDP

Urban

Rural

India

China

0%

20%

40%

60%

80%

100%

1950

1960

1970

1980

1990

2000

2010

2020

2030

% urbanised

China will have 221 one million plus population cities by 2025 – compared to

Europe with 35 today

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%

66

0

25

50

75

100

0 5 10 15 20 25 30 35 40 45 50

...driving a structural shift in commodity demand

0

5'000

10'000

15'000

0 2'000 4'000Population (cumulative bn)

Energy consumption per capita (kWh/capita)

Growing populous nations have a multiplier effect on commodity demand

IndonesiaIndia

China: 3,438bn kWh

Japan

Europe

USA: 3,873bn kWh

China: ~7,000bn kWh by 2020

Increasing intensities driven by a demand shift for commodities in

emerging markets

China’s per capita energy consumption is expected to double by 2020

Commodity Intensity1

GDP per capita (real, 2005 $US)

Mid-cycle commoditiese.g. copper, lead, zinc

Late cycle commoditiese.g. platinum, nickel

Early cycle commoditiese.g. steel, iron ore

US GDP: ~$42k/capita

India GDP: ~$3.2k/capita

China GDP: ~$7.3k/capita

Source: IMF, USGS, CIA FactbookNote: 1 Stylised intensity curves based on developed countries, Indexed to 100 at maximum

77

Commodity supply continues to be constrained

Source: BrookHunt, MEG, Xstrata estimates

2020 Copper supply/demand forecasts

More than 80% of new copper supply is from emerging markets with more complex and challenging environments suffering from a lack of infrastructure to sovereign risk issues

Geographic origin of new copper supply

Copper industry grade decline Zinc/lead industry grade decline

2

3

4

5

6

7

8

9

10

1990 1995 2000 2005 2010 2015 2020

ZincLead

Australia9%

North America

and Europe

9%CIS4%

Africa16%

Asia23%

South America

39%

Cumulative probable mine project supply 2011 to 2020

0.91.01.11.21.31.41.5

1980 1985 1990 1995 2000 2005 2010 2015 2020

Per cent Per cent Per cent

19212325272931

2007 2008 2009 2010 2011Date of 2020 forecast

Mt Cu Despite sustained high prices, closing the 2020 supply/demand

gap remains challenging

Dem

and

Sup

ply

88

OVERVIEW5. INDUSTRY LANDSCAPE

A decade ago, the industry was fragmented with no clear winning business model

Global mining and metals industry - 2001

MultiSingle 1–3 commodities 3+ commodities 8+ commodities

GLOBAL DIVERSIFIEDS

LOCAL HEROES

Implats$3bn

Lonmin$2bn

Inco

Falconbridge

Phelps Dodge$7bn

Antofagasta$2bn

Teck Cominco

Xstrata$1bn

AngloAmerican

$29bn

Rio Tinto$30bn

Alcoa

Alcan

Freeport

CVRD (Vale)$12bn

COMMODITY FOCUS

NU

MB

ER O

F K

EY G

EOG

RA

PH

IES

Regional Player

Global Player

3+ r

egio

ns1–

3 re

gion

s

BHP$26bn

Billiton$12bn

INTEGRATED MONOLITHS

FOCUSED LOCALS

Noranda

WMC

MIM

Source: Bubble sizes represent market capitalisation as 1 January 2001

99

OVERVIEW

Today mining is consolidated, with the Diversified Model proving best positioned to compete into the future

COMMODITY FOCUS

Global mining and metals industry – 2011*

Global Player

AngloAmerican

$66bn

BHPBilliton$245bn

2

6

Xstrata$70bn

Vale$158bn Rio Tinto

$139bn

GLOBAL DIVERSIFIEDS

LOCAL HEROES

INTEGRATED MONOLITHS

FOCUSED LOCALS

NU

MB

ER O

F K

EY G

EOG

RA

PH

IES

Regional Player

3+ r

egio

ns1–

3 re

gion

s

MultiSingle 1–3 commodities 3+ commodities 8+ commodities

Xstrataat IPO

Source: Bloomberg, market capitalisation as at 6 May 2011

1010

The Virtuous Circle

- Proprietary control of timing, sequencing and size of options

- Asymmetrical M&A options- Operational options- Geographic options

- Strong and stable cash flow through commodity cycle

- Higher returns- Lower cost of capital- Improved funding capacity

- Ability to shoulder risk- Licence to operate- Multiple regional synergy opportunities

- Geographic, commodity, customer and currency diversification

- Scale to take necessary risks- High-quality operations

Access to External Growth Options

Embedded Optionality

Scale and Diversification

Higher quality earnings

- Financial acumen- Operating excellence- Marketing capability- Governments and NGOs- ‘Licence to operate’

Superior Capabilities

1111

Mining majors manage the majority of large, low cost assets

Asset managed by the major mining companies

Copper Iron Ore Thermal Coal

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Global Tier 1

Oth

ers

XstrataBHPB

RioValeAnglo

Mined Cu production (2010)

18.7Mt 8.3Mt

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Global Tier 1*

Xstrata

BHPB

RioValeAnglo

639Mt 175Mt

Thermal Coal exports (2010)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Global Tier 1

Oth

ers

BHPB

Rio

Vale

Anglo

1,162Mt 588Mt

Production (2010)

Codelco

Freeport

Oth

ers

Note: Tier 1 is defined as being in first half of global cost ranked by C1 cost, and upper quartile of the world’s mines ranked by output*Tier 1 is as production >1.5Mtpa and margin of >USD30 in 2010

Source: Wood Mackenzie (2010), Metalytics (2010), Xstrata estimates

1212

Majors own most major growth options across diverse geographic regions

Copper Iron Ore Nickel PGMsOwnership by Majors: 53% 64% 73% 65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%1,264kt 500Mt 237kt 1,055koz

Las Bambas

Toromocho

Esperanza

KonkolaDeep

Escondida3rd Mill

Carajas

Pilbara 320

Pilbara RGP 5 & 6

Chichester, Solomon

Casa de Pedra Exp

Ambatovy

OncaPuma

Barro-Alto

Koniambo

Goro

Eland

Styldrift

Pandora

Garatau

Impala #16

BHPB, Vale, Rio, Anglo and Xstrata

Five largest mine projects by output in 2015

Note: 5 largest projects (greenfield and brownfield) by output in 2015. Copper : “highly probable” or “probable” in Brook Hunt, including projects ramping up in last 6 months. Nickel; CRU Group Nickel Quarterly; Iron Ore: Metalytics; PGM: Xstrata Estimates. Internal project pipeline assessment made for all Xstrata projects.

Source: Brook Hunt (2011 Q1); Wood Mackenzie; Metalytics; CRU Group; Xstrata estimates

1313

Miners are amongst the world’s leading companies and a core holding for investors

Source: Datastream- FTSE All Share, Bloomberg Global Titans-the largest 100 companies globally by market capitalisation

Market cap of world’s largest 100 companiesMining as a % of UK equity markets

23%

17%

13%7%6%

34%

2011Financials

Oil & Gas

Mining

Pharma & Bio

Telecom

Other

27%

17%

3%12%11%

30%

2002

FinancialsOil & GasMiningPharma & BioTelecomOther

Xstrata

0 100 200 300 400Market Capitalisation ($US billion)

Miners

1414

$0

$500

$1,000

$1,500

$2,000

$2,500

Aver

age

Wee

kly

Earn

ings

: Tot

al E

arni

gs

Q t

Mining All Industries

Mining makes a major (and growing) contribution to Australia’s prosperity

•0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Fracti

on of

Econ

omy-w

ide To

tal

Contribution by Total Factor Income

Contribution by Gross Value Added

Mining sector contribution to Australian economy

Average Weekly Earnings, Mining Sector and All other industries

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

60

70

80

90

100

Frac

tion

of T

otal

Exp

orts

(Per

Cen

t)

Empl

oym

ent (

'000

s of

per

sons

)

Total Employment in Metal Ore Mining and Coal Mining ('000s, LHS)

Mining Exports as a Fraction of Total Exports by Value (Per Cent, RHS)

Employment in Metal Ore and Coal Mining and Mining’s Export Share

Source: Australian Bureau of Statistics, Feb 2010. ABARE, Australian Mineral Statistics

Source: Australian Bureau of Statistics

Sou

rce:

Aus

tral

ian

Bur

eau

of S

tatis

tics

Charts from The Economic Contribution of the Australian Mining Industry,Deloitte for the MCA, 2010

1515

Xstrata in AustraliaIn 2010 Xstrata contributed AUD$8.6bn to the Australian economy

Xstrata employs around 14,000 people (including contractors) in Australia

In 2010, Xstrata’s Australianbusinesses contributed:– 39% of Group EBITDA– 29% of total assets– 29% of Group revenue– 41% of Group capex

AUD$10bn of Australian growth projects are in feasibility or implementation

1616

Recent capexannouncements

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

Historical Future

The Strategic

Gap

Time

Bridging the strategic gap

Val

ue

$m

Today

Shareholder Demands

Source: Company data

Declining grades

Increasing costs

5000

10000

15000

20000

25000

30000

35000

40000

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

0

Export Tonnage

Inland Tonnage

Depleting reserves

0

20

40

60

$80

Opex US$/t material moved(real 2008)

2008 2011

Labour

OtherEnergy

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, %

Xstrata• $21bn approved or soon-

to-be-approved projects

Anglo American• $16bn approved for next 3

years

BHP Billiton• $15bn in 2011

Rio Tinto• $12bn major capital project

approvals in 2010/11

1717

Mining industry faces increasing complexity, competition and costs

Emerging Challenges Examples and Potential ImpactIncreasing complexity of public policy

• Windfall taxes, royalties, carried interest, allocation of licences, mining licence reviews, etc. Potential for unintended, damaging consequences and loss of relative competitiveness.

Constrained inputs (especially for project development)

• Key engineering and project management skills, fabrication capacity, contractors, etc. – project delays and increased costs

Higher input costs • Energy, fuel, steel, explosives, labour and contractors, strong producer currencies – higher long-term costs

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

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/ClimateChange regulation impacts

• Growing complexity, legislation by country rather than global framework, increased costs, impact on competitiveness

Competition for access to new resources

• New ‘strategic’ and commercial acquirers - higher price for control, scarce resources

1818

Climate change principles

• Industry has a valid and important role to play in:• Limiting greenhouse gas emissions• Investing in low emissions baseload technology• Participating as a valid and important interlocutor in policy

development

• A consensus is emerging on sound principles for climate change policy:• Clear, predictable and long-term price on greenhouse gas emissions • Single objective to reduce emissions with revenues raised applied to

initiatives to support the transition to a low-carbon economy• Protection of trade-exposed industries; avoid ‘carbon leakage’• Gradual, predictable legislation introduced at an appropriate level

1919

Conclusion

• A secular shift in demand for commodities is underway• Mining industry has consolidated giving rise to global,

diversified miners with the ability to allocate capital across several jurisdictions

• Significant challenges remain for the industry, including increasingly complex legislation

• Industry has a legitimate and important role to play in policy development