Xstrata Copper: Driving the next stage of growth through South America Charlie Sartain, Chief Executive 18 September 2011
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Agenda Introduction Copper market update Xstrata Copper overview South American Operations Project Development South America Antamina and Collahuasi expansions Antapaccay Project Las Bambas Project El Pachón Project Agua Rica Project Conclusions Coffee break 3
The team presenting today Charlie Sartain Chief Executive Xstrata Copper José Marún Executive General Manager, South America operations division Bob Drabik Executive General Manager, Project Development South America Max Combes Project Director Antapaccay Joe Albright Project Director Las Bambas Michael Holmes General Manager Minera Alumbrera Xavier Ochoa General Manager El Pachón Project Dave Dicaire General Manager Studies, Project Development South America 4
Copper market update 5
Copper market update Copper demand has held firm despite challenging macroeconomic environment While macroeconomic concerns dominate current market sentiment, copper is well placed to show continued demand growth over the coming months. Chinese demand has shown signs of recovery, with strengthening cathode imports in July/August, diminishing inventory and tightening availability of copper scrap; while end-use markets have shown strong growth throughout 2011. Despite slower first half y/y growth, China will account for almost half of global demand growth this year, and is expected to return to a trend growth rate of around 8% from 2012. In Western markets, copper demand remains stable despite economic uncertainty. Data: China NBS, trade statistics, Analyst reports, Xstrata Copper estimates 1050 950 850 750 650 Strong end-use growth in China Chinese Output of Industrial Products, % growth Jan-July 2011 y/y Generating capacity Copper Materials AC Motors Refrigerators Air conditioners Washing machines Freezers Automobile 4.0% 8.7% 13.3% 11.6% 17.7% 19.1% 20.0% 41.6% -5% 5% 15% 25% 35% 45% US demand has recovered from lows US apparent refined consumption, kt Cu (Bars) % growth y/y H1 2008 H2 H1 2009 H2 H1 2010 H2 H1 2011 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% 6
Copper market update Existing copper production continues to underperform This year has seen high rates of mine disruption, once again shaving around 5% from forecast supply. Underperformance has been caused by lower grades, adverse weather conditions in Chile, technical issues, labour disputes and project ramp up difficulties. Labour unrest has featured highly in Q3, with strikes disrupting output at major mines, including Escondida, Grasberg and Cerro Verde. Equipment lead times and labour shortages are mounting; while economic uncertainty and cost volatility are adding to project financing difficulties. Just 3 new mines with capacity >50kt have entered production in 2011, limiting mine supply growth to <2% for the fourth year running. Next year will see mine supply growth recover to around 7% - its highest rate since 2004. Data: Brook Hunt Copper Mine Costs, Brook Hunt Long-Term Outlook for Copper, Xstrata Copper estimates 1.5 1.4 1.3 1.2 1.1 1 0.9 Primary copper head grades, % 1980 1985 1990 1995 2000 2005 2010 2015 2020 0-100 -200-300 -400-500 -600-700 -800-900 -1000 Mine production actual vs plan 2005 2006 2007 2008 2009 2010 2011e -952-917 -987-966 -800-700 -850 7
Copper market update Summary: Above trend copper pricing outlook remains intact Demand Western macroeconomic uncertainty will constrain copper demand in Europe and the USA over the balance of 2011 and into next year. However, developing markets have proven resilient to the downturn, as governments invest heavily in copper-intensive sectors such as power infrastructure and construction. Low inventory levels and tightening copper scrap availability will also support cathode demand over the balance of the year. Global demand is set to grow at just under 4% this year, recovering to 4.5-5% in 2012. Supply High rates of disruption and underperformance amongst operating mines have led to minimal supply growth this year of less than 2%. Few new mine projects have been developed in recent years, and although the pipeline is stronger over the medium term, the risk of delays remains high. In the long term, the current pipeline of projects remains insufficient to meet demand requirements. Balance Supply has failed to keep pace with demand again this year, generating a substantial market deficit. We anticipate a more modest deficit next year, as a number of greenfield and brownfield mine projects ramp up. 8
Charlie Sartain, Chief Executive 18 September 2011 9
Xstrata Copper is a fundamental pillar of Xstrata s diversified model Headquartered in Brisbane, employing over 20,000 people in eight countries Top five global mined and refined copper producer with copper output of 913,500 tonnes in 2010 Diversified geographic exposure Robust cost position in the second quartile Projects under construction to further transform business and increase production by more than 50% to 1.5Mtpa in 2015 Near-term approval projects hold potential to increase production to 2Mtpa in 2016 Xstrata Copper profit * by region Contribution to Xstrata profit* Peru 26% Argentina 15% Australia 20% Canada 8% Alloys 3% Zinc 13% Coal 27% Nickel 13% Chile 31% *Based on earnings before interest, depreciation, tax and amortisation for 1H11 Copper 44% 10
Best practice sustainability performance underpins our business activities Xstrata retains Mining Sector leadership in Dow Jones Sustainability Index 2011/12 for fifth consecutive year and is also named Super Sector leader for Basic Resources industries the second consecutive year Xstrata Copper annually receives numerous recognitions for Sustainability best practice (22 in 2010, 21 in 2009) Application of Sustainability principles enables social licence to operate Environmental best practice is feeding into successful ESIA approval processes Significant ongoing improvements to safety performance Safety performance 2007-Aug 2011 (YTD) Antapaccay ESIA public consultation meeting 11
Xstrata Copper s Business Strategy Generation and evaluation of new projects to replenish the pipeline 1.5Mtpa of further copper production under evaluation New quality growth through project development/construction USD4.2bn growth capex approved for 400ktpy copper USD3bn capex approved for expansions/extensions; continuous improvement Maximise NPV of existing operations including capitalising on regional leverage opportunities 2011 E1, Monakoff, Agua Rica 2006 Falconbridge 2006 Tintaya 2003 MIM Growth through acquisitions and optimisation of asset portfolio 12
Bolt-on acquisitions at regional level E1 and Monakoff E1 & Monakoff projects in North Queensland acquired from Exco Resources for AUD175M in June 11 Open pit resources with completed feasibility studies close to Ernest Henry Mine Ore will be trucked to Ernest Henry and processed in existing concentrator Scheduled to commence production in 2H12, adding 40ktpa to production from underground operations at Ernest Henry Agua Rica Minera Alumbrera acquired exclusive fouryear option in August 2011 to acquire and develop Agua Rica project Project is 35km from Alumbrera operations Feasibility study underway Subject to positive construction decision in 2013, start-up planned for 2016 Transformation of Alumbera s profile expanded production to 250ktpa copper (and gold/moly by-products) with +25 year mine life extension Insert photo of E1 and Monakoff 13
Organic growth strategy enabled through targeted mineral resource expansions 459% increase in resource base since 2005 to 86Mt copper in 2010. Further increase pending in 2011 Generation of new projects for evaluation: Coroccohuayco, Lomas Bayas sulphides, Agua Rica, West Wall, MIOP Further resource expansions to Frieda River, Antamina and Coroccohuayco in 2011, and inclusion of Agua Rica Provides the platform to develop new world class mines Las Bambas El Pachón Tampakan Provides the basis to extend and/or expand production at existing mines Lomas Bayas, Ernest Henry, Antamina, Collahuasi, Isa, Tintaya 100 90 80 70 60 50 40 30 20 10 0 Growth of Xstrata Copper resource base Mt contained copper Greenfield Projects Canada North Chile Southern Peru Minera Alumbrera North Queensland +459% increase 2005 2007 2010 14
Relentless pursuit of cost savings and NPV enhancements Mine expansions and extensions By-product benefits Project Lomas Bayas II Ernest Henry u/g Antamina 130ktpd Antapaccay Collahuasi 160ktpd Investment USD293M USD542M USD435M USD1,473M USD92M Ernest Henry exported first magnetite in June 2011 - AUD79M investment - 1.2Mtpa magnetite capacity Feasibility study underway to leach residual copper and cobalt from Mount Isa concentrator Minera Alumbrera molybdenum plant commenced operations in 2008 Xstrata s share 3% 32% 8% 12% 31% 13% Sites responding well to industry cost pressures H1 2011 operating costs Labour Contractors Electricity Fuel Consumables Other Operational efficiencies maintenance processes & organisational alignments Energy new contracts achieving savings of USD300M Consumables synergies providing savings in NQ and South America Labour owner operated savings C1 costs have remained at 90c/lb +/- 2c/lb for past 4 years 15
South America: Transformational growth through high quality projects +1.2Mt Cu Approved and in construction Near-term approvals Antapaccay +160ktpa copper Agua Rica +250ktpa copper On budget and schedule: will start production in 2H12 In Feasibility: decision to construct anticipated in 2013 Las Bambas +400ktpa copper El Pachón +400ktpa copper On budget and schedule: will start production in 2H14 In Feasibility: decision to construct anticipated in 2012 16
Next generation growth projects offer significant optionality +450ktpa copper Tampakan, Philippines: completed feasibility study, decision expected 2013, potential start-up 2016 +260ktpa copper Frieda River, Papua New Guinea: feasibility study to be completed January 2012, decision expected post FS review, potential start-up 2017 +500ktpa copper Collahuasi, Chile: brownfield expansion to 1Mtpa in pre-feasibility study stage, potential start-up 2017 +70ktpa copper Lomas Bayas III, Chile: brownfield expansion in prefeasibility study stage, potential start-up 2017 +50ktpa copper Coroccohuayco, Peru: brownfield expansion entering pre-feasibility stage, potential start-up 2016 All estimated copper production figures on a 100% basis 17
Entering the organic growth era Projects under construction will lift production by 50% to 1.5Mtpa in 2015 Near term South American projects hold potential to increase production by further 33% to 2Mtpa in 2016 Production Growth Profile 2.000 1.500 1.000 500 0 2010 2011 2012 2013 2014 2015 2016 Existing Production Approved / Implementation El Pachon Agua Rica 18
Conclusions Xstrata Copper is currently constructing six projects that will increase production by 50% to 1.5Mtpa by the end of 2014 Near-term approval South American projects hold potential to lift production a further 33% to 2Mtpa in 2016 Focus on continuous improvements at existing operations provides further potential for enhanced business performance Project commissioning dates Project 2H11 1H12 2H12 1H13 2H13 1H14 2H14 2015 1H16 2H16 Antamina Collahuasi 150ktpd Lomas Bayas II Tintaya Antapaccay E1 and Monakoff * Collahuasi 160ktpd Ernest Henry u/g Las Bambas El Pachón * Agua Rica * Approved projects Near-term Anticipated * approval projects approvals 19
Questions? 20
Agenda Introduction Copper market update Xstrata Copper overview South American Operations Project Development South America Antamina and Collahuasi expansions Antapaccay Project Las Bambas Project El Pachón Project Agua Rica Project Conclusions Coffee break 21