ARM Annual Report

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1 ARM Coal experiened a hallenging year, with the weak priing environment ompounded by operational issues and a marked redution in demand and pries in the seond half. ARM Annual Report

ARM Coal Divisional struture Xstrata 100% XSA 49% 49% 51% Goedgevonden (GGV) 70% 51% * 20% XSA s Coal operations (PCB)** 10% ** ARM Coal holds the following: ** aess to Xstrata s 20.

2 ARM Coal Divisional struture Xstrata 100% XSA 49% 49% 51% Goedgevonden (GGV) 70% 51% * 20% XSA s Coal operations (PCB)** 10% ** ARM Coal holds the following: ** aess to Xstrata s 20.9% interest and entitlement in the Rihards Bay Coal Terminal (RBCT); ** an export entitlement of 3.2 mtpa in the Phase V expansion at the RBCT whih is expeted to be ommissioned during the seond half of the 2009 alendar year. ** Partiipating Coal Business (PCB) refers to Xstrata Coal South Afria s existing oal operations. 50 ARM Annual Report 2009

Mangisi Gule Chief Exeutive: ARM Coal Soreard F2009 objetives F2009 performane F2010 objetives Partiipating Coal Business (PCB) Maintain export sales volumes.

3 Mangisi Gule Chief Exeutive: ARM Coal Soreard F2009 objetives F2009 performane F2010 objetives Partiipating Coal Business (PCB) Maintain export sales volumes. Export volumes dereased by 18% due to lower demand and transport logistis problems. Continue with the transition from high-ost underground mining to low-ost open ast mining. Maintain domesti sales but at inreased pries per energy unit of sales. Inrease underground prodution at Southstok 5 Seam. Domesti sales volumes dereased by 30% due to lower demand but pries inreased by 33%. Prodution at Southstok 5 Seam on target. Improve domesti sales and pries reeived through Eskom ontrat. Improve train loading time. Synergy with plant, mahinery and infrastruture (DTJV with BECSA). Goedgevonden (GGV) Conlude prie negotiations for Eskom volume off-take ontrat. ATCOM East projet delayed due to problems experiened with pit formation. Coal buy-in arrangement extended. Long-term oal supply agreement onluded in F2009. Inrease export sales. Export sales inreased by 11%. Maintain domesti sales but at inreased pries per energy unit of oal sales inrease. Start Coal handling proessing plant and ramp-up in seond half of Ensure GGV projet remains on shedule and within budget. Operational overview attributable to ARM Long-term oal supply agreement with favorable pries onluded in F2009. Commissioning of plant delayed to seond half of C2009 as a result of poor weather onditions and problems with steel onstrution. Start implementation of ATCOM/ATCOM East onsolidation. Implementation of oal supply agreement. Suessfully ramp-up prodution at GGV to ahieve full prodution by F2009 F2008 % hange Attributable sales PCB Mt (22) Export Mt (18) Domesti Mt (27) GGV Mt (28) Export Mt Domesti Mt (33) ARM total Mt (17) Export Mt (18) Domesti Mt (28) ARM Coal operating margin % Headline earnings attributable to ARM R million (23) Operational target F ARM Annual Report

ARM COAL ontinued ARM Coal operational statistis PCB & GGV ombined 100% basis F2009 F2008 % hange Total prodution sales (PCB & GGV) Saleable prodution Mt 23.7 25.3 (12) Export thermal oal sales Mt 11.

0 (35) * The F2008 on-mine saleable ost reported was R148/t, whih inluded 1.8 mt of stokpile oal sold to Eskom.

4 ARM COAL ontinued ARM Coal operational statistis PCB & GGV ombined 100% basis F2009 F2008 % hange Total prodution sales (PCB & GGV) Saleable prodution Mt (12) Export thermal oal sales Mt (18) Domesti thermal oal sales Mt (30) Average reeived oal prie Export (FOB) US$/t Domesti (FOR) R/t On-mine saleable ost* R/t (35) * The F2008 on-mine saleable ost reported was R148/t, whih inluded 1.8 mt of stokpile oal sold to Eskom. Loading of oal at Goedgevonden Coal Mine Review of the year ARM Coal experiened a hallenging six months to June 2009, with the weak priing environment being ompounded by a range of operational hallenges. Attributable ash operating profit in the urrent year inreased by 18% ompared to the previous finanial year but attributable headline earnings delined by 23%. There was a substantial inrease in the normal depreiation mainly due to depreiation of the apitalised value of the Douglas Tavistok JV off-take agreement. Saleable prodution for the year was 12% lower than the previous finanial year, mainly due to a fire at the Tweefontein plant in November 2008, and abnormally high rainfall in the first quarter of the 2009 alendar year. This derease was to some extent offset by an inrease in saleable prodution from 1.6 mtpa to 2.5 mtpa at the Goedgevonden (GGV) open ast mine during the urrent finanial year. Total on-mine osts per tonne inreased by 35% in F2009, mainly as a result of an inrease in ontrator and onsumable osts and the redution of 12% in saleable prodution. Commissioning of the GGV plant has been delayed from the first quarter to the third quarter of alendar This was mostly attributable to the abnormally high rainfall referred to above, as well as re-work on steel fabriated for use in the oal proessing plant. From January 2009 there was a marked redution in demand for inland- and Eskom-quality oal. Although average pries ahieved during the finanial year were higher than the previous finanial year, the last six months of F2009 experiened a deline of 30% for Eskom sale pries ompared to the first six months of F ARM Annual Report 2009

5 The benefit that GGV enjoyed in the previous finanial year, of a signifiant inrease in sales volumes to Eskom, did not ontinue during F2009. Eskom s purhases of oal on shortterm ontrats dereased as the shortage of oal experiened by the utility was largely resolved in the seond half of the 2008 alendar year. A long-term oal supply agreement with a oneyear ramp-up and a six-year supply was onluded with Eskom. Export volumes were lower during F2009 due to a delay in the ommissioning of the RBCT oal proessing plant and logistial problems experiened with transporting oal to the port. At GGV ash osts per sales tonne inreased by 11% year-onyear to R89.66 as the long-term ost per saleable tonne (whih is used to determine the amount of working osts to be apitalised) was realulated. This first-time apitalisation of working osts was oasioned by large volumes of in-pit inventory being exposed during the development stage, whih will benefit the operation in the future. Reoniliation of headline earnings to operating profit Earnings from the Coal Division attributable to ARM were negatively impated by a number of aounting issues: The IFRS aounting requirement related to imputed interest on the Xstrata debt failitation; and Additional amortisation at the ARM level provided as a result of the IFRS purhase prie alloation rules. F2009 F2008 ARM attibutable headline earnings reported Add: Additional amortisation Imputed interest on Xstrata R4 billion debt failiation Less: Taxation (13) (14) ARM attributable headline earnings exluding IFRS adjustment Add: Normal interest Normal amortisation Taxation ARM s attributable operating profit ARM Annual Report

ARM COAL ontinued Constrution of oal valve at staker at Goedgevonden Logistis RBCT will ommission the Phase V expansion projet in the fourth quarter of 2009.

6 ARM COAL ontinued Constrution of oal valve at staker at Goedgevonden Logistis RBCT will ommission the Phase V expansion projet in the fourth quarter of Transnet Freight Rail (TFR) is urrently unable to supply RBCT its existing oal export apaity of 76 mtpa and it appears that, as a result of a mismath between TFR rail apaity and the RBCT terminal apaity, the additional apaity (15 mtpa) that was to be reated by the Phase V expansion will not be utilised for some time. ARM Coal is optimisti, however, that a solution will be found to satisfy all shareholders. The proposed ramp-up profile for GGV export oal over the next three years is expeted to be ahieved as GGV will be a very low-ost produer and has a modern rapid load-out terminal. Mining rights status The doumentation supporting the appliation for the onversion of old order mining rights to new order rights has been submitted for all of XCSA s mining properties, and efforts ontinue to expedite approval. There are 20 prospeting rights that have been granted. Of these, XCSA has applied for mining rights for some, and will be applying for the renewal of the remaining prospeting rights. During F2008, the old order mining right over the GGV property was onverted and notarially exeuted. The new order mining right in respet of the Zaaiwater property was also granted and notarially exeuted during this period. ARM Coal and XCSA will apply for a Setion 11 transfer to inorporate both these lienes into one liene in their respetive names as partners in the GGV joint venture. Capital expenditure Capital expenditure during the year inreased by 81% ompared to the previous year, reahing R5.8 billion. Capital expenditure at GGV is progressing to plan for the ommissioning of the Coal handling proessing plant (CHPP) in the third quarter of At year end over 91% of the apital ost to build and equip the mine had been ommitted. Abnormally high rainfall during January and February 2009 resulted in a delay in the ompletion of the projet. Current indiations are that the projet will be ompleted during the seond half of the 2009 alendar year. The main apex items were: GGV: R1.96 billion. PCB: Southstok Phase 2 underground development R43 million; Butterfly projet R117 million; 54 ARM Annual Report 2009

7 Soure: Xstrata Coal South Afria presentation 13 August ATCOM East Projet R48 million; ATCOM East-mineral rights R1 831 million; CHPP projet at Tweefontein R12 million; and Two Seam Projet at Tweefontein R49 million. Prospets The GGV long-term supply agreement onluded with Eskom during the year will improve the stability of ash flows from ARM Coal amid the urrent market volatility. In the export market, oal s ompetitiveness relative to alternative fuels will ontinue to underpin its position as a base load fuel for power generation as eonomi growth reovers. China s net import position, the ommissioning of further generating units and higher demand from power generators in Korea, as well as India s growing requirement for imported oal to meet its domesti eletriity needs, ontribute to a positive outlook for seaborne thermal oal demand in the Paifi market. Despite high stoks in both the Paifi and Atlanti markets, the thermal oal market remains in ontango, suggesting stronger priing in GGV is expeted to be a lower-quartile ost produer on the global thermal oal ost urve. This will improve the overall struture of ARM Coal s mining from more expensive under - ground mining to ost ompetitive open ast mining. We are ontinually evaluating our prospeting rights in the Witbank area for future opportunities. However, the future development of potential mining operations will be onstrained by rail and road infrastruture. ARM Annual Report

ARM COAL ontinued Market review Export market Lower oal demand from most traditional importers, in response to the eonomi downturn, has been offset to some extent by a surge in demand from China and

8 ARM COAL ontinued Market review Export market Lower oal demand from most traditional importers, in response to the eonomi downturn, has been offset to some extent by a surge in demand from China and India, along with slower supply growth from exporters inluding Indonesia and Colombia. For the year to date, the market remains broadly balaned. Xstrata Coal South Afria (XCSA) has seured ontrat prie settlements with Japanese power utilities for the year ommening 1 April 2009, in the range of US$70 to US$72 per tonne FOB basis GAR, and US$75 per tonne for the year ommening 1 July These settlements are generally used as benhmark pries for ontrats with other ustomers in the Paifi markets, whereas term and annual ontrats represented 65% of XCSA s thermal oal sales in the first half of Approximately 60% of export sales from South Afria for the first half of 2009 were pried on a spot or indexed basis, with the balane pried under term or annual ontrats. FOB pries, as indiated by the API4 index, have delined from US$80 per tonne in January to trade within a range of approximately US$55 to US$65 per tonne from Marh. Under an off-take agreement with Glenore, oal from Prodeo operations is sold at US$75 per tonne basis Btu/Ib. 5 Seam oal floor at GGV Domesti (Eskom) market The Coal Supply Agreement (CSA) with Eskom for the 3.5 mtpa thermal loal prodution has been agreed, on favourable dynami priing terms with ompensation for superior quality. Salient details of the ontrat inluding the following: The CSA has a term of 17 years (one year ramp-up and four periods of four years eah). Pries are determined based on a number of fators: base prie is linked to a base oal value of 21.5 MJ/kg on an air dried basis over the life of the CSA; a penalty/reward sheme is set up around the base prie; the base prie is adjusted aording to an agreed annual esalation lause; and eah tranhe has a different base prie from the effetive date. The CSA has two tranhes. Tranhe 1: based on a fixed Rand prie per tonne of saleable produt; total sales volumes of 48 mt over the 17-year term; one-year ramp-up sales volume range of 2.4 mt to 3.2 mt; four periods of four years eah sales volumes of 2.6 mtpa; and the base prie is reviewed three months before expiration of eah four-year period. Tranhe 2: initial base prie fixed, but at a higher level than Tranhe 1; based on variable volumes over the 17-year term; total sales volumes of 3.3 mt or 0.7 mtpa for the first four years from June 2010 to June 2014; and renegotiable before the ommenement of the following four-year period. 56 ARM Annual Report 2009

9 ARM Coal Operational Statistis Partiipating Coal Business (PCB) ARM s eonomi interest 20.2 % Management Total labour Life-of-mine Governed by a supervisory ommittee with five Xstrata representatives and three ARM representatives. Eonomi life-of-mines range from six to 26 years. PCB Refer to pages 163 and 164 for ARM Coal segmental information. F09/08 F2009 F2008 % hange Cash operating profits Rm Cash operating margin % Capex Rm Average prie reeived Export FOB US$/t Inland FOR R/t Cash ost per saleable tonne R/t (18) Total saleable prodution Mt (11) Impunzi Mt (19) Mpumalanga Mt (11) South Stok Mt (11) Tweefontein Mt (11) DTJV* Mt (9) Total sales Mt (23) Export 27.3 MJ/kg Mt (19) Domesti MJ/kg Mt (29) * Inluded in saleable prodution for omparison purposes. ARM Annual Report

10 ARM COAL ontinued Goedgevonden (GGV) ARM s eonomi interest 26.01% Management Reserves and Resoures (total) Reserves and Resoures (attributable) Total labour 263 Life-of-mine Governed by a management ommittee, ontrolled by ARM Coal, with four ARM representatives and three Xstrata representatives mt (Saleable Reserves) 99 mt (Saleable Reserves) 32 years GGV Refer to pages 163 and 164 for ARM Coal segmental information. F2009 F2008 F09/08 % hange Cash operating profits Rm Cash operating margin % Average prie reeived R/t Export FOB US$/t Eskom FOR R/t Cash ost per saleable tonne R/t (11) Capex* Rm Total saleable prodution Mt Total sales (25) Export 27.3 MJ/kg Mt Domesti MJ/kg Mt (33) * Exludes apitalised interest. Goedgevonden projet update Goedgevonden Coal Projet (GGV) is 51% owned by ARM Coal and 49% owned by Xstrata 6.7 mtpa saleable thermal oal 3.2 mtpa export sales (27 MJ/kg) ARM Coal has seured 3.2 mtpa additional apaity at Rihard s Bay Coal Terminal (RBCT) 3.5 mtpa domesti sales (21.5 MJ/kg) Eskom off-take negotiations finalised Close proximity to four power stations Supplying a premium produt (washed and sized) Projet released 2007 Open ast mine expeted to produe in lower quartile of global ost urve Ramp-up: 2009 Full prodution: 2011 Capital ost of R3.5 billion, 90% ommitted, funded by Xstrata Coal 58 ARM Annual Report 2009

Laboratory worker at Goedgevonden Coal Mine

82 Laboratory worker at Goedgevonden Coal Mine Integrated Annual Report 2013 Operational review ARM Coal 83 ARM Coal F2013 F2012 % change ARM Coal attributable sales volumes (000t) Headline earnings Rm