(XTA) Xstrata

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION (IN WHOLE OR IN PART) IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

7 February 2012

RECOMMENDED ALL-SHARE MERGER OF EQUALS
of
GLENCORE INTERNATIONAL PLC
and
XSTRATA PLC
TO CREATE UNIQUE $90 BILLION NATURAL RESOURCES GROUP

The Glencore Directors and the Independent Xstrata Directors have reached agreement on the terms of a recommended all-share merger of equals of Glencore and Xstrata.  The terms of the Merger will provide holders of Scheme Shares with 2.8 New Glencore Shares for each Xstrata Share held.  The Merger will be effected by way of a Court sanctioned scheme of arrangement of Xstrata under Part 26 of the UK Companies Act, pursuant to which Glencore will acquire the entire issued and to be issued ordinary share capital of Xstrata not already owned by the Glencore Group. 

1.         The Merger

Under the terms of the Merger, which will be subject to the Conditions and further terms set out in Appendix 1 to this announcement and to be set out in the Scheme Document and the Forms of Proxy, Scheme Shareholders at the Scheme Record Time will be entitled to receive:

            for each Scheme Share                   2.8 New Glencore Shares

On the basis of Glencore's closing share price of 460.75 pence on 6 February 2012, the Merger values each Xstrata Share at 1,290.10 pence and the entire issued and to be issued share capital of Xstrata at approximately £39.1 billion ($61.9 billion).  This represents a premium of:

·     approximately 15.2 per cent. to Xstrata's closing share price of 1,119.50 pence on 1 February 2012, being the last business day prior to the announcement by Xstrata that it was in discussions with Glencore; and

·     approximately 27.9 per cent. to Xstrata's volume weighted average closing share price of 1,008.91 pence for the three-month period ended 1 February 2012, being the last business day prior to the announcement by Xstrata that it was in discussions with Glencore.

2.  Recommendation

The Independent Xstrata Directors, who have been so advised by each of the Xstrata Financial Advisers, consider the terms of the Merger to be fair and reasonable.  Accordingly, the Independent Xstrata Directors intend unanimously to recommend Xstrata Shareholders to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Xstrata General Meeting as the Independent Xstrata Directors who hold or are beneficially entitled to Xstrata Shares have irrevocably undertaken to do in respect of their own Xstrata Shares (representing approximately 0.1 per cent. of the issued ordinary share capital of Xstrata).  In providing its advice, each of the Xstrata Financial Advisers has taken into account the commercial assessments of the Independent Xstrata Directors.

The Glencore Directors consider the Merger to be in the best interests of Glencore Shareholders taken as a whole.  Accordingly, the Glencore Directors intend unanimously to recommend Glencore Shareholders to vote in favour of the resolution to be proposed at the Glencore General Meeting to approve the Merger and related resolutions as the Glencore Directors who hold or are beneficially entitled to Glencore Shares have irrevocably undertaken to do in respect of their own Glencore Shares (representing approximately 16.8 per cent. of the issued ordinary share capital of Glencore). 

3.         Background to and reasons for the Merger

Logical next step that transforms both businesses into a natural resources super-major

The Merger will bring together two highly complementary businesses with a long-standing relationship.  Both companies have proven track records of growth and value creation for shareholders:

•     Xstrata has delivered total shareholder returns of over 370 per cent. since IPO in March 2002 and has grown from an equity value of approximately $500 million at creation in 2001 to a market value of approximately $59 billion as at 6 February 2012; and

•     Glencore has grown from an equity value of approximately $1.2 billion at its management buy-out in 1994 to a market value (including the Glencore Group's 34.08 per cent. holding in Xstrata) of approximately $50 billion as at 6 February 2012.

The Combined Group will benefit from enhanced scale and  diversity in the global resources industry:

•     Fourth largest global diversified natural resource company;

•     Major producer and marketer of 18 commodities:

•     global leader in export thermal coal, ferrochrome and integrated zinc production;

•     third largest producer of copper growing into the largest independent producer within four years; and

•     fourth largest producer of nickel;

•     Operations and projects in 33 countries with 101 mines and over 50 metallurgical facilities and offices in 40 countries with approximately 130,000 employees;

•     Presence at each stage of the commodities chain providing superior market insight and access to opportunities, particularly in emerging pinch points in the new commodities chain;

•     Established footprint in emerging regions for natural resources investment, including the African copper-belt, Kazakhstan and South America, as both an operator as well as a provider of marketing and logistics services to new producers; and

•     Substantial new optionality and greater strategic flexibility.

A unique business model, fully integrated along the value chain to capture value in an evolving competitive landscape

The combination of the world's largest trader and marketer of commodities with a leading portfolio of industrial mining and metals assets will create a fully integrated natural resources group to capture value at each stage of the commodities chain - from extraction, processing, freight, logistics, technology and storage to marketing and trading. 

The Combined Group will benefit from superior growth from Xstrata and Glencore's complementary project pipelines.  In aggregate, the two companies are developing over 25 approved copper, thermal coal, nickel, zinc and alloys growth projects, with an extensive range of further unapproved growth options.  Together, the approved projects are expected to deliver a compound annual growth rate in production of 11 per cent. per annum in copper equivalent units from 2011 to 2015 weighted towards copper, nickel and thermal coal.  The Combined Group will have the ability to prioritise the highest return projects, further enhancing returns.

Positioned to respond to changing industry dynamics

Commodity trade flows are shifting as demand growth is centred on emerging Asian economies and the supply of commodities is increasingly sourced from more remote, challenging and often logistically-constrained locations, with a range of new industry entrants. 

The Combined Group will benefit from:

•     Access to new sources of growth, prospective geographies and new commodities at multiple points along the value chain;

•     Optimisation of product, marketing and trading interfaces;

•     Superior industry insight through unique network and market intelligence;

•     Entrepreneurial culture, devolved authority, and strong momentum;

•     Operational excellence, proven cost improvement track record and leading sustainability framework;

•     Scale and diversity and organic growth options;

•     Appropriate financial strategy, strongly positioned for continuous access to equity and bond markets;

•     Access to a fleet of over 200 vessels and strategically located logistical infrastructure;

•     Expanded product flow to provide customers with a greater range of product qualities, specifications and commodities from a more flexible, geographic base of operations including from access to third party supply;

•     Improved ability to compete for access to resources, with enhanced financial flexibility and an established sustainability and governance framework; and

•     Best in class sustainability and operating credentials combined with a commitment to transparency to maintain a social licence to operate and ongoing access to resources.

Governance and organisation designed to maximise effectiveness

The terms of the Merger set out a robust governance and management structure for the Combined Group.  The Combined Group's Board will comprise eleven directors, including nine non-executive directors.  A majority of the Combined Group's Board will be independent non-executive directors. The Combined Group's Board will be led by non-executive Chairman, Sir John Bond, currently the Xstrata Chairman, who will have the casting vote on all matters before the Combined Group's Board.  Current Xstrata CEO, Mick Davis, will be CEO of the Combined Group, Ivan Glasenberg, current Glencore CEO, will be Deputy CEO and President, Trevor Reid, current Xstrata CFO, will be CFO and Steven Kalmin, current Glencore CFO, will be Deputy CFO.

All management and governance arrangements are intended to remain in place for a period of at least two years following completion.

Each committee of the Combined Group's Board will comprise three non-executive directors: one Xstrata-nominated non-executive director and one Glencore-nominated non-executive director (in the case of the Nominations Committee, both of whom are acceptable to Glencore) and the Chair of the Committee.  Sir John Bond will Chair the Nominations Committee.  An Xstrata-nominated non-executive director will chair the Health, Safety, Environment and Community committee while Glencore-nominated non-executive directors will chair the Audit & Risk and Remuneration committees. 

The organisation structure is designed to optimise the application of Glencore and Xstrata's capabilities and leverage their respective strengths. Under the Merger, Glencore's mining and processing operations will be fully integrated into Xstrata's global commodity businesses, led by Xstrata's existing operational management teams.  Xstrata commodity business unit Chief Executives will continue to report directly to Mick Davis, Chief Executive Officer.  The Combined Group's marketing business will be responsible for marketing the Combined Group's output.  The marketing, logistics and trading functions will continue to be led by existing Glencore segmental business heads, reporting to Ivan Glasenberg, Deputy CEO and President. 

In addition, Ivan Glasenberg has irrevocably undertaken in his personal capacity and in respect of his shareholding of approximately 8.8 per cent. of the Combined Entity's enlarged issued share capital not to use his voting rights or other influence to depart from the agreed governance principles for the Combined Group referred to above for a period of not less than two years following the Scheme becoming effective.  In addition, Steven Kalmin and each of the Principal Shareholders, who in aggregate will hold approximately 12.8 per cent. of the Combined Entity's enlarged issued share capital, have indicated their support for the governance principles referred to above.

4.         Irrevocable Undertakings

In aggregate, Glencore has received irrevocable undertakings from those of the Independent Xstrata Directors who hold or are beneficially entitled to Xstrata Shares to vote in favour of the Scheme in respect of 3,153,387 Xstrata Shares, representing in aggregate approximately 0.1 per cent. of Xstrata's existing issued share capital.

In aggregate, Xstrata and Glencore have received irrevocable undertakings from those of the Glencore Directors who hold or are beneficially entitled to Glencore Shares and also from the Principal Shareholders to vote in favour of the resolutions to be proposed at the Glencore General Meeting to approve the Merger and related resolutions in respect of 2,574,072,797 Glencore Shares, representing in aggregate approximately 37.2 per cent. of Glencore's existing issued share capital.

Further details of the irrevocable undertakings are set out in Appendix 3.

5.         Information relating to Glencore

Glencore is a leading integrated producer and marketer of commodities, with worldwide activities in the marketing of metals and minerals, energy products and agricultural products and the production, refinement, processing, storage and transport of these products. Glencore operates on a global scale, marketing and distributing physical commodities sourced from third party producers and own production to industrial consumers, such as those in the automotive, steel, power generation, oil and food processing industries. Glencore also provides financing, logistics and other services to producers and consumers of commodities. Glencore's long experience as a commodity merchant has allowed it to develop and build upon its expertise in the commodities which it markets and cultivate long-term relationships with a broad supplier and customer base across diverse industries and in multiple geographic regions. Glencore's marketing activities are supported by investments in industrial assets operating in Glencore's core commodities. Glencore's industrial, geographical, commodity, supplier and customer diversity, in combination with its long-term supplier and customer relationships, has enabled Glencore to operate profitably, even during periods in which a particular commodity, industry, customer or geographic region may be experiencing some weakness. In addition, Glencore's marketing operations are less correlated to commodity prices than its industrial operations, which makes Glencore's earnings less volatile than those of producers of metals and mining products and energy products that do not also have marketing and logistics operations.

Glencore conducts its operations in three business segments: Metals and Minerals, Energy Products and Agricultural Products. Glencore's business segments are responsible for managing the marketing, sourcing, hedging, logistics and industrial investment activities relating to the commodities which they cover.

Glencore's marketing and industrial investment activities are supported by a global network of more than 50 offices located in more than 40 countries throughout Europe, North, Central and South America, the CIS, Asia, Australia, Africa and the Middle East. Glencore's main offices are located in Baar (Switzerland), Stamford (Connecticut), London, Rotterdam, Beijing, Moscow and Singapore. This network provides Glencore with significant worldwide sourcing and distribution capabilities.

Glencore Shares are traded on the London Stock Exchange and the Hong Kong Stock Exchange. Glencore is a member of the FTSE 100 index.

Glencore continues to evaluate a number of opportunities in relation to its business, whether M&A, joint ventures or otherwise. Glencore will continue to pursue these opportunities between the date of this announcement and the Effective Date.

Glencore will announce its preliminary results for the financial year ended 31 December 2011 on 5 March 2012.  See Appendix 4 for the Glencore Trading Update, which includes the Glencore Profit Estimate for the financial year ended on 31 December 2011.

6.         Information relating to Xstrata

Xstrata is the fifth largest diversified mining group in the world, with top five industry positions in copper, export thermal coal, export coking coal, ferrochrome, zinc and nickel, meaningful positions in vanadium and additional exposure to gold, cobalt, lead and silver. Xstrata also includes a growing platinum group metals business, iron ore projects, recycling facilities and a suite of global technology products, many of which are industry leaders.

Xstrata's operations and projects span more than 20 countries: Argentina, Australia, Brazil, Canada, Chile, China, Colombia, the Dominican Republic, Germany, Mauritania, New Caledonia, Norway, Papua New Guinea, Peru, the Philippines, the Republic of Congo, Singapore, South Africa, Spain, Tanzania, the United Kingdom and the United States.

Xstrata's business is organised in the following five principal business units:

Xstrata Copper: Xstrata is an integrated producer of copper metal and is the world's fourth largest global copper producer, with mining and processing operations in Australia, Chile, Peru, Argentina and Canada. Xstrata Copper has a world-class portfolio of seven copper development projects, located in Peru, the Philippines, Chile, Argentina and Papua New Guinea.

Xstrata Coal: On a managed basis, Xstrata is the world's largest exporter of bituminous thermal coal and a significant producer of premium quality hard coking coal and semi-soft coking coal. Xstrata Coal has interests in over 30 operating coal mines in Australia, South Africa and Colombia and exploration projects in Nova Scotia and British Columbia, Canada. Xstrata Coal has world-class coal development projects in Australia and also manages Xstrata's growing iron ore business.

Xstrata Nickel: Xstrata is the fifth largest global nickel producer and one of the world's largest producers of cobalt. Xstrata Nickel's operations include mines and processing facilities in Canada, the Dominican Republic and Australia, and a refinery in Norway. Xstrata Nickel has world-class development projects in Canada, Tanzania and New Caledonia.

Xstrata Zinc: Xstrata is one of the world's largest miners and producers of zinc. Operations span Spain, Germany, Australia, the UK and Canada, with an interest in the Antamina copper/zinc mine in Peru.

Xstrata Alloys: Xstrata is one of the world's largest and amongst the world's lowest cost integrated ferrochrome producers (through the Xstrata-Merafe Chrome Venture), one of the largest producers of primary vanadium and a growing producer of platinum group metals. Xstrata Alloys also owns carbon operations which supply key raw materials to its ferrochrome production operations. All of Xstrata Alloys' operations are based in South Africa.

In addition to its five principal businesses, Xstrata also operates Xstrata Process Support and Xstrata Technology, mining and processing technology businesses with operations in Australia, Canada, Chile and South Africa.

Xstrata Shares are traded on the London Stock Exchange and the SIX Swiss Exchange. Xstrata is a member of the FTSE 100 index.

Xstrata today announced its preliminary results for the financial year ended 31 December 2011. A copy of that announcement is available from the Xstrata website at www.xstrata.com.

7.         Synergies and earnings

The combination of Xstrata and Glencore will deliver estimated annual EBITDA synergies of at least $500 million in the first full year of the Combined Group, which are predominantly marketing related.  The combination is expected to be earnings per share accretive to Xstrata Shareholders.^*

*      This statement should not be interpreted to mean that earnings per share for Xstrata Shareholders will necessarily be greater than those for the year ended 31 December 2011.

8.         Dividends

Concurrent with the release of its annual results on 5 March 2012, Glencore intends to announce a final dividend of $0.10 per Glencore Share for the financial year ended 31 December 2011, which is subject to the approval of the Glencore Directors and Glencore Shareholders and will be paid in accordance with Glencore's normal timetable.  Further, Glencore also intends to pay an interim dividend for the year ending 31 December 2012, which will be in an amount in the normal and regular course.

Xstrata expects to pay the Xstrata 2011 Final Dividend of $0.27 per Xstrata Share on 23 May 2012 and, if the Effective Date falls after the record date for the Glencore 2012 Interim Dividend, Xstrata will also pay an interim dividend for the year ending 31 December 2012, which will be in an amount in the normal and regular course.

Glencore and Xstrata will work together so that both sets of shareholders have the opportunity to receive a 2012 interim dividend, if one is paid.

9.         Management and employees

Key elements of the post-merger organisation and joint integration approach have been agreed.  The proposed management structure for the Combined Group will ensure that the benefits of Xstrata's devolved organisational model are maintained and that the Combined Group benefits fully from complementary skills of the two companies.  The new business model resulting from the merger of these companies relies on the ability to retain key personnel.  In this regard, existing contractual arrangements will be preserved and appropriate remuneration arrangements will be offered to key personnel to ensure that they transition into the Combined Group and are motivated to remain in position and contribute to the execution of the Combined Group's business strategy.  All of the remuneration arrangements being offered will have conditions attached. 

In addition, all participants in Xstrata's existing Long Term Incentive Plan will be able to maintain an ongoing shareholding in the Combined Group and convert existing options into new options over shares in the Combined Entity on terms that are equivalent to the existing exercise price and duration.

Details of these arrangements will be set out in the Scheme Document and some elements of these arrangements will require the consent of the Xstrata Independent Shareholders.

Glencore and Xstrata attach great importance to the skills and experience of the existing management and employees of Xstrata and believe that they will benefit from greater opportunities within the Combined Group.  Glencore has given assurances to the Independent Xstrata Directors that, following completion of the Merger, the pre-existing monetary rights of all Xstrata employees, including employment, share scheme, bonus scheme and pension rights will be fully safeguarded.

10.        Xstrata Share Schemes

Details of the proposals to be put to participants in the Xstrata Share Schemes will be set out in the Scheme Document and in separate letters to be sent to participants in the Xstrata Share Schemes.

11.        Offer-related arrangements

Glencore and Xstrata entered into a mutual confidentiality agreement on 12 December 2011 (the "Confidentiality Agreement") pursuant to which each of Glencore and Xstrata has undertaken to keep confidential information relating to the other party and not to disclose it to third parties (other than to permitted disclosees) unless required by law or regulation.  These confidentiality obligations will remain in force until completion of the Merger, or for a period of two years from any date of termination of discussions or negotiations relating to the Merger.

Glencore and Xstrata also entered into a reverse break fee agreement on 7 February 2012 (the "Break Fee Agreement") pursuant to which Glencore has agreed to pay to Xstrata by way of compensation a fee in the amount of £298 million (inclusive of irrecoverable value added tax), payable in the event that Glencore's Board withdraws, amends, modifies or qualifies its recommendation of the Merger or resolves or agrees to do the same so as to cause the Merger not to proceed (a "Glencore Change in Recommendation"), save where the Glencore Change in Recommendation occurs, directly or indirectly, as a result of an event or events outside the control of Glencore.

12.        Structure of the Merger

It is intended that the Merger will be implemented by way of a Court sanctioned scheme of arrangement between Xstrata and the Scheme Shareholders, under Part 26 of the UK Companies Act. 

The purpose of the Scheme is to provide for Glencore to become the holder of the entire issued and to be issued ordinary share capital of Xstrata not already owned by the Glencore Group. This is to be achieved by the cancellation of the Scheme Shares held by Scheme Shareholders and the application of the reserve arising from such cancellation in paying up in full such number of new Xstrata Shares as is equal to the number of Scheme Shares cancelled, and issuing the same to Glencore in consideration of the issue of New Glencore Shares to Scheme Shareholders on the register of members at the Scheme Record Time on the basis set out in paragraph 1 of this announcement.

The Scheme will include a reorganisation of the share capital of Xstrata whereby, in accordance with the terms of the Scheme, the Excluded Shares will be reclassified into A ordinary shares and the Scheme Shares will be reclassified into B ordinary shares.  The share capital reorganisation will only take place at the time at which the Scheme Court Order is delivered to the Registrar of Companies, at which point the B ordinary shares will carry the right to receive New Glencore Shares on the basis set out in paragraph 1 of this announcement. The A ordinary shares will not participate in the Scheme and Glencore will procure that the holders of the Excluded Shares consent to the Scheme. The B ordinary shares will be cancelled and holders will receive New Glencore Shares as described above. No temporary documents of title will be issued to Xstrata Shareholders in respect of the A ordinary shares or B ordinary shares.

If for any reason the Scheme does not become effective, the share capital reorganisation described above will not take effect (or will be reversed) and Xstrata Shareholders will retain their current holdings of Xstrata Shares.

The Merger is subject to the Conditions and certain further terms referred to in Appendix 1 to this announcement and to be set out in the Scheme Document and the Forms of Proxy, and will only become effective if, among other things, the following events occur on or before 31 October 2012 or such later date as Glencore and Xstrata agree:

·   a resolution to approve the Scheme is passed by a majority in number of the Scheme Shareholders present and voting (and entitled to vote) at the Court Meeting, either in person or by proxy, representing three-quarters or more in value of the Scheme Shares held by those Scheme Shareholders.  For the avoidance of doubt, Glencore is not a Scheme Shareholder and therefore is not entitled to vote on any resolution at the Court Meeting;

·   the Special Resolution necessary to implement the Scheme and to sanction the related Capital Reduction is passed by the requisite majority of Xstrata Shareholders at the Xstrata General Meeting;

·   the Scheme is sanctioned (with or without modification, on terms agreed by Glencore and Xstrata) and the related Capital Reduction confirmed by the Court; 

·   office copies of the Scheme Court Order and the Reduction Court Order are delivered to the Registrar of Companies and the Reduction Court Order is registered by the Registrar of Companies together with the Statement of Capital attached to it; 

·   anti-trust and regulatory approvals in certain jurisdictions are obtained;

·   a resolution to approve the Management Incentive Arrangements, inter-conditional with the other resolutions referred to above, is passed by the Xstrata Independent Shareholders; and

·   the resolutions to be proposed at the Glencore General Meeting to approve the transaction as a "Class 1" transaction under the Listing Rules and to grant authority to the Glencore Directors to allot the New Glencore Shares are passed by the requisite majority of Glencore Shareholders, but, for the avoidance of doubt, not the resolution relating to Glencore's proposed change of name following the Merger becoming effective (which shall not be a condition to the Merger).

Upon the Scheme becoming effective: (i) it will be binding on all Scheme Shareholders, irrespective of whether or not they attended or voted at the Court Meeting or the Xstrata General Meeting (and if they attended and voted, whether or not they voted in favour); and (ii) share certificates in respect of Xstrata Shares will cease to be valid and entitlements to Xstrata Shares held within the CREST system will be cancelled.

Xstrata Shares will be acquired by Glencore pursuant to the Scheme fully paid and free from all licences, charges, equities, encumbrances, rights of pre-emption and any other interests of any nature whatsoever and together with all rights attaching thereto, including voting rights and the rights to receive and retain in full all dividends and other distributions declared, made or paid on or after the Effective Date, save where the record date for such dividend or other distribution falls prior to the Effective Date or otherwise where Xstrata and Glencore agree.  The New Glencore Shares issued to Scheme Shareholders pursuant to the Scheme will rank pari passu in all respects with existing Glencore Shares.

If the Scheme does not become effective on or before 31 October 2012, it will lapse and the Merger will not proceed (unless Glencore and Xstrata agree and the Panel otherwise consents and (if required) if the Court allows).

The Scheme Document will include full details of the Scheme, together with notices of the Court Meeting and the Xstrata General Meeting.  The Scheme Document will also contain the expected timetable for the Merger, and will specify the necessary actions to be taken by Xstrata Shareholders.  It is expected that the Scheme Document will be posted to Xstrata Shareholders and, for information only, to persons with information rights and to holders of options granted under the Xstrata Share Schemes in April 2012, after the publication of the 2011 annual reports of each of Xstrata and Glencore.  For the purposes of Appendix 7 to the Code and with the agreement of Xstrata, the Panel has consented to these arrangements.  Subject, amongst other things, to the satisfaction or waiver of the Conditions, it is expected that the Scheme will become effective in the third quarter of 2012.

It is also expected that the Glencore Prospectus, containing information about the New Glencore Shares, will be published at the same time as the Scheme Document is posted to Xstrata Shareholders.

The Glencore Circular will include full details of the Merger, together with notice of the Xstrata General Meeting of Glencore at which the relevant resolutions will be proposed for the approval of the Merger by Glencore Shareholders as a "Class 1" transaction under the Listing Rules, to grant authority to the Glencore Directors to allot the New Glencore Shares and to approve Glencore's proposed change of name. The Glencore Circular is expected to be posted to Glencore Shareholders at the same time as the Scheme Document is posted to Xstrata Shareholders.

13.        Listing, dealings and settlement

Applications will be made to the UK Listing Authority for the New Glencore Shares to be admitted to the Official List and to the London Stock Exchange for the New Glencore Shares to be admitted to trading on the London Stock Exchange's market for listed securities ("Admission").

It is expected that Admission will become effective and that dealings for normal settlement in the New Glencore Shares will commence on the London Stock Exchange at 8.00 a.m. on the Effective Date.

Application will also be made for the New Glencore Shares to be admitted to listing and trading on the Main Board of the Hong Kong Stock Exchange.

14.        Delisting and re-registration

It is intended that an application will be made to the UK Listing Authority for the cancellation of (i) the listing of the Xstrata Shares on the Official List and to the London Stock Exchange for the cancellation of trading of the Xstrata Shares on the London Stock Exchange's main market for listed securities, and (ii) the primary listing and trading of the Xstrata Shares on the SIX Swiss Exchange, with effect as of or shortly following the Effective Date.

It is also intended that, following the Scheme becoming effective, Xstrata will be re-registered as a private company under the relevant provisions of the UK Companies Act.

15.        Glencore Shareholder approval

As a result of the size of the transaction, the Merger constitutes a Class 1 transaction (as defined in the Listing Rules) for Glencore.  Accordingly, Glencore will be required to seek the approval of Glencore Shareholders for the Merger at the Glencore General Meeting.  Glencore is required to prepare and send to Glencore Shareholders a circular summarising the background to and reasons for the Merger (which will include a notice convening the Glencore General Meeting).  The Merger is conditional on, amongst other things, the resolutions to approve the Merger as a "Class 1" transaction and to grant authority to the Glencore Directors to allot the New Glencore Shares (but not, for the avoidance of doubt, the resolution to approve the proposed change of Glencore's name following the Merger becoming effective) being passed by Glencore Shareholders at the Glencore General Meeting.

The Glencore Circular containing the notice of the Glencore General Meeting will be sent to Glencore Shareholders at or around the same time as the posting of the Scheme Document to Xstrata Shareholders, which is expected to be in April 2012, after the publication of the 2011 annual reports of each of Xstrata and Glencore.

Glencore will also be required to make the Glencore Prospectus to be prepared in connection with the issue of the New Glencore Shares available to the public in accordance with the Prospectus Rules. The Glencore Prospectus will contain information relating to the Combined Group and the New Glencore Shares. It is expected that the Glencore Prospectus will be published at the same time as the Scheme Document is posted to Xstrata Shareholders.

16.        Disclosure of interests in relevant securities

Glencore confirms that it has made an Opening Position Disclosure, setting out the details required to be disclosed by it under Rule 8.1(a) of the Code.

In the interests of maintaining secrecy prior to the announcements made on 2 February 2012, Glencore has not yet completed enquiries in respect of the matters referred to in this paragraph of certain parties who may be deemed by the Panel to be acting in concert with Glencore for the purposes of the Merger.  Enquiries of such parties will be completed as soon as practicable following the date of this announcement and, in accordance with Note 2(a)(i) to Rule 8 of the Code, further disclosures, if any, required in respect of such parties will be made as soon as possible and in any event by no later than 12 noon (London time) on 16 February 2012.

17.        Overseas shareholders

The availability of the Merger to persons not resident in, and distribution of this announcement to Xstrata Shareholders who are not resident in, the United Kingdom may be affected by the laws of their relevant jurisdiction.  Such persons should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdiction.  Xstrata Shareholders who are in any doubt regarding such matters should consult an appropriate independent professional adviser in the relevant jurisdiction without delay.

This announcement does not constitute an offer for sale for any securities or an offer or an invitation to purchase any securities.  Xstrata Shareholders are advised to read carefully the Scheme Document and related Forms of Proxy once these have been dispatched.

18.        Documents on display

Copies of the following documents will, by no later than 12 noon (London time) on 8 February 2012, be published on Xstrata's website at www.xstrata.com and Glencore's website at www.glencore.com until the Effective Date:

·   the irrevocable undertakings referred to in paragraph 4 above and summarised in Appendix 3 to this announcement;

·   the Break Fee Agreement; and

·   the Confidentiality Agreement.

19.        General

The Merger will be subject to the Conditions and certain further terms set out in Appendix 1 and the further terms and conditions set out in the Scheme Document and the related Forms of Proxy when issued. 

The Scheme will be governed by English law and will be subject to the jurisdiction of the courts of England and Wales.  The Scheme will be subject to the applicable requirements of the Code, the Panel, the London Stock Exchange and the FSA.

The bases and sources of certain financial information contained in this announcement are set out in Appendix 2.  Certain terms used in this announcement are defined in Appendix 5.

Enquiries

Strategic consultant to each of Xstrata and Glencore

M. Klein and company, LLC and its affiliates

Michael Klein

Further information

This announcement is for information purposes only.  It is not intended to and does not constitute, or form part of, an offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to the Merger or otherwise nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law.  The Merger will be made solely by means of the Scheme Document, which, together with the Forms of Proxy, will contain the full terms and conditions of the Merger including details of how to vote in respect of the Merger.  Xstrata will prepare the Scheme Document to be distributed to Xstrata Shareholders. Xstrata urges Xstrata Shareholders to read the Scheme Document when it becomes available because it will contain important information in relation to the Merger. Glencore will prepare the Glencore Circular to be distributed to Glencore Shareholders. Glencore urges Glencore Shareholders to read the Glencore Circular when it becomes available because it will contain important information in relation to the Merger.  Any vote in respect of the Scheme or other response in relation to the Merger should be made only on the basis on the information contained in the Scheme Document.

This announcement does not constitute a prospectus or prospectus equivalent document. 

Please be aware that addresses, electronic addresses and certain other information provided by Xstrata Shareholders, persons with information rights and other relevant persons for the receipt of communications from Xstrata may be provided to Glencore during the offer period as required under Section 4 of Appendix 4 of the Code to comply with Rule 2.12(c).

Citigroup Global Markets Limited, which is authorised and regulated in the United Kingdom by the FSA, is acting exclusively for Glencore and no-one else in connection with the matters set out in this announcement and will not be responsible to any person other than Glencore for providing the protections afforded to clients of Citigroup Global Markets Limited or for providing advice in relation to the matters set out in this announcement.

Morgan Stanley & Co. Limited is acting as financial adviser to Glencore and no one else in connection with the Merger and will not be responsible to anyone other than Glencore for providing the protections afforded to the clients of Morgan Stanley & Co. Limited nor for providing advice in relation to the potential Merger, the contents of this announcement or any other matter or arrangement referred to herein.

Deutsche Bank AG is authorised under German Banking Law (competent authority: BaFin - Federal Financial Supervisory Authority) and authorised and subject to limited regulation by the FSA. Details about the extent of Deutsche Bank AG's authorisation and regulation by the FSA are available on request. Deutsche Bank AG, London Branch is acting as financial adviser and corporate broker to Xstrata and no one else in connection with the Merger and will not be responsible to anyone other than Xstrata for providing the protections afforded to clients of Deutsche Bank AG, London Branch, nor for providing advice in relation to Merger or for any of the matters referred to in this announcement.

J.P. Morgan Limited, which conducts its UK investment banking business as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the FSA, is acting as financial adviser and corporate broker to Xstrata and for no one else in connection with the Merger and will not be responsible to anyone other than Xstrata for providing the protections afforded to its clients nor for providing advice in relation to the Merger of for any of the matters set out in this announcement.

Goldman Sachs International, which is authorised and regulated in the United Kingdom by the FSA, is acting as financial adviser to Xstrata and for no one else in connection with the Merger and will not be responsible to anyone other than Xstrata for providing the protections afforded to clients of Goldman Sachs International nor for providing advice in relation to the Merger, the content of this announcement or any matter referred to herein.

Nomura International plc, which conducts its UK investment banking business as Nomura and is authorised and regulated in the United Kingdom by the FSA, is acting as financial adviser to Xstrata and for no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than Xstrata for providing the protections afforded to its clients nor for providing advice in relation to the matters set out in this announcement.

Notice to US holders of Xstrata Shares

The Merger will involve an exchange of the securities of a UK company for the securities of a Jersey company and will be subject to Jersey and UK disclosure requirements, which are different from those of the United States. The financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards and thus may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States.

The Merger will be made by means of a scheme of arrangement under the UK Companies Act and otherwise in accordance with the requirements of the Code. The scheme of arrangement will relate to the shares of a UK company that is a 'foreign private issuer' as defined under Rule 3b-4 under the US Exchange Act.

Accordingly, the proposed combination will be subject to disclosure and other procedural requirements applicable in the UK to schemes of arrangement, which differ from the disclosure requirements of the US proxy and tender offer rules under the US Exchange Act.

Any securities to be issued under the Merger have not been and will not be registered under the US Securities Act, or under the securities laws of any state, district or other jurisdiction of the United States, or of Australia, Canada or Japan. Accordingly such securities may not be offered, sold or delivered, directly or indirectly, in or into such jurisdictions except pursuant to exemptions from applicable requirements of such jurisdictions. It is expected that the New Glencore Shares will be issued in reliance upon the exemption from such registration provided by Section 3(a)(10) of the US Securities Act.  Under applicable US securities laws, persons (whether or not US persons) who are or will be "affiliates" (within the meaning of the US Securities Act) of Xstrata or Glencore prior to, or of Glencore after, the Effective Date will be subject to certain transfer restrictions relating to the Glencore Shares received in connection with the Scheme. It may be difficult for US holders of Xstrata Shares to enforce their rights and any claim arising out of the US federal securities laws, since Glencore and Xstrata are located in a non-US jurisdiction, and some or all of their officers and directors may be residents of a non-US jurisdiction. US holders of Xstrata Shares may not be able to sue a non-US company or its officers or directors in a non-US court for violations of the US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court's judgment.

If Glencore exercises its right, subject to the consent of the Panel (where necessary) and with Xstrata's prior written consent, to implement the Merger by way of a Merger Offer, the Merger will be made in compliance with applicable US laws and regulations, including applicable provisions of the tender offer rules under the US Exchange Act, to the extent applicable.

Overseas jurisdictions

The availability of the Merger to Xstrata Shareholders who are not resident in the UK may be affected by the laws of the relevant jurisdictions in which they are located.  Persons who are not resident in the UK should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdictions.  Further details in relation to overseas shareholders will be contained in the Scheme Document.

The release, publication or distribution of this announcement in or into jurisdictions other than the UK may be restricted by law and therefore any persons who are subject to the law of any jurisdiction other than the UK should inform themselves about, and observe, any applicable requirements.  Any failure to comply with the applicable restrictions may constitute a violation of the securities laws of any such jurisdiction.  To the fullest extent permitted by applicable law, the companies and persons involved in the Merger disclaim any responsibility or liability for the violation of such restrictions by any person.  This announcement has been prepared for the purposes of complying with English law, the Listing Rules, the rules of the London Stock Exchange and the Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside of England.

Unless otherwise determined by Glencore or required by the Code, and permitted by applicable law and regulation, the Merger will not be made, directly or indirectly, in, into or from any Restricted Jurisdiction where to do so would violate the laws in that jurisdiction and no person may vote in favour of the Merger by any such use, means, instrumentality or form within a Restricted Jurisdiction.  Accordingly, copies of this announcement and formal documentation relating to the Merger will not be and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from any Restricted Jurisdiction where to do so would violate the laws of that jurisdiction and persons receiving this announcement and all documents relating to the Merger (including custodians, nominees and trustees) must not mail or otherwise distribute or send them in, into or from such jurisdictions where to do so would violate the laws in that jurisdiction.

Forward-looking statements

This announcement contains statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature. All statements other than statements of historical fact are forward-looking statements. They are not based on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects", "is expected", "is subject to", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", "believes", "targets", "aims", "projects" or words or terms of similar substance or the negative thereof, are forward-looking statements, as well as variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of Glencore's or Xstrata's operations and potential synergies resulting from the Merger; and (iii) the effects of global economic conditions on Glencore's or Xstrata's business.

Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions.  Many factors may cause the actual results, performance or achievements of Glencore or Xstrata to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause actual results, performance or achievements of Glencore or Xstrata to differ materially from the expectations of Glencore or Xstrata, as applicable, include, among other things, general business and economic conditions globally, commodity price volatility, industry trends, competition, changes in government and other regulation, including in relation to the environment, health and safety and taxation, labour relations and work stoppages, changes in political and economic stability, disruptions in business operations due to reorganisation activities (whether or not Glencore combines with Xstrata), interest rate and currency fluctuations, the failure to satisfy any conditions for the Merger on a timely basis or at all, the failure to satisfy the conditions of the Merger when implemented (including approvals or clearances from regulatory and other agencies and bodies) on a timely basis or at all, the failure of Glencore to combine with Xstrata on a timely basis or at all, the inability of the Combined Group to realise successfully any anticipated synergy benefits when the Merger is implemented, the inability of the Combined Group to integrate successfully Glencore's and Xstrata's operations and programmes when the Merger is implemented, the Combined Group incurring and/or experiencing unanticipated costs and/or delays or difficulties relating to the Merger when the Merger is implemented. Such forward-looking statements should therefore be construed in light of such factors.

Neither Xstrata nor Glencore, nor any of their respective associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Other than in accordance with its legal or regulatory obligations (including under the Listing Rules and the Disclosure and Transparency Rules of the FSA), neither Xstrata nor Glencore is under any obligation and Xstrata and Glencore each expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

No profit forecasts

Other than the Glencore Profit Estimate, no statement in this announcement is intended as a profit forecast and no statement in this announcement should be interpreted to mean that earnings per Glencore or Xstrata ordinary share for the current or future financial years would necessarily match or exceed the historical published earnings per Glencore or Xstrata ordinary share.

The Glencore Profit Estimate is a profit forecast for the purposes of Rule 28 of the Code. As such it is a requirement under the Code that the Glencore Profit Estimate be reported on by Glencore's reporting accountants and financial advisers. The bases and assumptions behind the Glencore Profit Estimate and the reports of the Glencore Financial Advisers and Deloitte LLP are set out in Appendix 4 to this announcement. The Glencore Financial Advisers and Deloitte LLP have given and not withdrawn their consent to publication of their reports in the form and context in which they are included. In accordance with Rule 28.8 of the Code your attention is drawn to the announcement issued by Glencore on 25 August 2011 containing the unaudited results of Glencore for the six months ended 30 June 2011.

Glencore Directors' responsibility statement

The Glencore Directors accept sole responsibility for the Glencore Trading Update which includes the Glencore Profit Estimate.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified.

An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any paper offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0) 20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on website

A copy of this announcement will be available on Xstrata's website at www.xstrata.com and on Glencore's website at www.glencore.com.

You may request a hard copy of this announcement, free of charge, by contacting the Company Secretary of Glencore, John Burton, at john.burton@glencore.com or the Company Secretary of Xstrata, Richard Elliston, at relliston@xstrata.com. You may also request that all future documents, announcements and information to be sent to you in relation to the Merger should be in hard copy form.