Glencore
Annual Report 2012

Plain-text annual report

AnnuAl RepoRt 2012 AnnuAl RepoRt 2012 Prodeco, Colombia tABLE OF cONtENts 1 | Overview 1.1 | Performance highlights 1.2 | Chairman’s statement 1.3 | Chief Executive Officer’s review 1.4 | Business overview 1.5 | Sustainability 1.6 | Key performance indicators 1.7 | Principal risks and uncertainties 2 | Business review 2.1 | Financial review 2.2 | Metals and minerals 2.3 | Energy products 2.4 | Agricultural products 2.5 | Reserves and resources 3 | Corporate Governance 3.1 | Chairman’s introduction 3.2 | Officers 3.3 | Corporate governance report 3.4 | Directors’ remuneration report 3.5 | Directors’ report 4 | Financial Statements Confirmation of directors’ responsibilities Independent auditors’ report Consolidated statement of income Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the financial statements 5 | Additional information 5.1 | Glossary 5.2 | Shareholder information 9 12 13 14 18 20 22 36 46 54 60 64 82 83 86 93 101 108 109 110 111 112 113 114 115 166 167 Kamoto Copper Company, DRC OvErviEw 1 | Overview 1.1 | Performance highlights 1.2 | Chairman’s statement 1.3 | Chief Executive Officer’s review 1.4 | Business overview 1.5 | Sustainability 1.6 | Key performance indicators 1.7 | Principal risks and uncertainties 9 12 13 14 18 20 22 1.1 | Performance highlights • Resilient Adjusted EBITDA / EBIT 1 performance driven by Glencore’s marketing business and volume growth in indus- trials. • Adjusted EBIT down 17% to $ 4.5 billion; marketing Adjust- ed EBIT up 11%, industrial Adjusted EBIT down 27%. • Continued growth of operating cash flow (FFO 2), up 17% to $ 4.1 billion. • Strong balance sheet with $ 9 billion of committed liquidity. • Completed the acquisition of Viterra, a transformational deal for our agricultural business, providing access to the grain markets in Canada and reinforcing our position in Australia. • Industrial growth projects continue to deliver overall volume increase; sector leading growth pipeline remains on budget. • Continuation of bolt-on acquisition strategy: – increased interest in Kazzinc to 69.6%, Optimum to 67% and Mutanda to 60%. – acquisition of Vale’s European manganese ferroalloy operations. • Kazzinc own gold production up 22% with recovery rates continuing to improve; successful ramp-up of new copper smelter resulting in increased copper cathode production of 25,800 tonnes. • Katanga copper metal up 2%, with cathode production up 7%, in spite of significant disruption from power shortage. New power converter and synchronous condenser commis- sioned in December 2012. • Mutanda copper production up 37%. Following completion of the cobalt plant, Mutanda now has capacity in place to produce up to 110,000 tonnes of copper and 23,000 tonnes of cobalt. • Murrin Murrin own sourced production was 33,400 tonnes of nickel, a record production year. • Prodeco own production up 1% despite the three month strike at La Jagua. • Significant growth in South African coal production, up 104%, following the acquisitions of Optimum and Umcebo. • Aseng oil field ahead of initial schedule producing 61.7k bbls/day, with Alen field on schedule to start producing in Q3 2013. • The Directors propose a final dividend of $  0.1035 per share, bringing the total dividend for the year to $ 0.1575 per share, up 5% compared to 2011. 1 Refer to glossary on page 166 for definitions and calculations. 2 Refer to page 42. 3 Refer to page 41. Adjusted EBIT n o i l l i m $ S U 6 000 5 000 4 000 3 000 2 000 1 000 0 2010 2011 2012 Marketing activities Industrial activities 2010 2011 2012 2 337 1 911 2 130 2 953 3 487 2 340 Copper equivalent volume growth 0 1 0 2 n i 1 o t d e s a b e R 1.5 1.4 1.3 1.2 1.1 1.0 2010 2011 2012 Marketing activities Industrial activities 2011 2012 7% 28% 16% 20% Net debt and FFO 2 to net debt 3 60 50 40 30 % 20 10 0 n o i l l i m $ S U 15 000 12 500 10 000 7 500 5 000 2 500 0 2010 2011 2012 1 Net debt (US $ million) FFO to net debt (%) 1 Adjusted for Viterra acquisition | Annual Report 2012 | 9     Glencore’s business segments are responsible for managing the marketing, sourcing, hedging, logistics and industrial investment and production activities for their respective commodities. Glencore’s key strengths are its global scale, strong growth platform, diversity of products, ability to add value, extensive and well established customer and supplier base and industrial and market- ing information flows. Metals and minerals Key commodities: zinc, copper, lead, alumina, aluminium, ferro alloys, nickel, cobalt and iron ore, including smelting, refining, mining, processing and storage related operations of the relevant commodities. Energy products Key commodities: crude oil, oil products, steam coal and metallurgical coal supported by investments in coal mining and oil production operations, ports, vessels and storage facilities. Agricultural products Key commodities: wheat, corn, barley, rice, oil seeds, meals, edible oils, bio­ fuels, cotton and sugar supported by investments in farming, storage, handling, processing and port facilities. Adjusted EBIT by segment 2012 6 000 5 000 n 4 000 o i l l i m $ S U 3 000 2 000 1 000 0 5 290 5 398 4 470 2010 2011 2012 Metals and minerals Energy products Agricultural products Corporate and other 10 | Annual Report 2012 | Main office Office Independent agent Metals and minerals asset Energy products asset Agricultural products asset   oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion Glencore is a leading globally integrated producer and marketer of commodities with worldwide activities in the production, refinement, processing, storage, transport and marketing of metals and minerals, energy and agricultural products. Revenue 1 by region 2012 Non current assets by region 2012 8% 1% 20% 13% 25% $ 214 bn $ 45 bn 7% 40% 15% 21% 50% Africa Oceania The Americas Europe Asia 1 Revenue by geographical destination is based on the country of incorporation of the sales counterparty however this may not necessarily be the country of the counterpart’s ultimate parent and/or final destination of product. | Annual Report 2012 | 11 1.2 | Chairman’s statement 2012 was marked by a number of historic milestones for Glencore. The Company celebrated its first full year as a listed business on the London and Hong Kong Exchanges. It completed the acquisition of Viterra. Most notably, it also announced its merger with Xstrata. Looking beyond transactions, Glencore further proved the merits of its integrated model by delivering robust results for its shareholders. Despite the industry continuing to be impacted by low economic growth globally, Glencore successfully expanded its industrial business, producing strong performances in mining and a record performance in the oil division. With the merger of Xstrata, the Board of Directors remains confident that the expanded industrial base, coupled with Glencore’s proven marketing capability will create a group with the expertise and scale to play a leading role in meeting the growing global demand for commodities. Furthermore, the combined Group will enable the countries possessing key natural resources to generate value from their natural endowments. On 17 December Glencore completed its acquisition of Viterra. With this transaction, Glencore solidified its position as one of the leading participants in the global agricultural commodities industry. The expanded footprint in agriculture reflects Glencore’s strong belief in the future potential of the Canadian and Austra­ lian grain and seeds markets. Sustainability is a core tenet of Glencore. Be it through providing support to local communities where it operates or safeguarding the well­being of its employees, we are determined that our investments will be environmentally and socially, as well as financially, rewarding for all our stakeholders. This year Glencore’s commitment to sustainability was underscored when Glencore Corporate Practice was extended to include a full programme of sustainability targets which will measure the Company’s progress over the coming years. These achievements and ongoing focus on improvement across the Group leave Glencore well positioned to continue to deliver value to its customers, partners, employees and shareholders in the years to come. Simon Murray Chairman 12 | Annual Report 2012 | oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion 1.3 | Chief Executive Officer’s review 2012 was a year in which the health of the global economy began to improve slowly albeit against a familiar backdrop established during the global financial crisis. It was also a year of major political change, which in itself brings greater uncertainty over future policy. Although too early to tell definitively, the regime transition in China and the election result in the US have so far been reasonably smooth and predictable. China looks well positioned to continue the substantial progress it has made since WTO entry in 2001. The US meanwhile has begun to show signs of underlying economic improvement notwithstanding the on­going debate about long term fiscal balance. The pick­up in construction of new houses is particularly noteworthy in the context of what appears to be a clear and growing energy advantage versus the rest of the world. The fact that the world’s largest economy is regaining its feet is good news for everyone. Against this background and despite highly accommodative global monetary policy, commodities experi­ enced a relatively lacklustre year with average prices down 10 – 20% year on year. We are therefore particu­ larly pleased that Glencore’s results proved to be far more robust than the sector. Our marketing operations’ performance and the growth delivered within our industrial energy business were especially pleasing. The performance of the marketing business reinforces the strength and resilience of Glencore’s business model and the diversification benefits associated with combining and integrating a portfolio of industrial assets with large scale physical sourcing, marketing and logistics capabilities. We continued to main­ tain a clear focus on organic growth across the industrial business through our key industrial expansion projects, which remain broadly on track and on budget. Both the marketing and industrial operations are underpinned by the highly diversified nature of our business across commodity, geography and operation. This provides a natural hedge in times of economic uncertainty as well as enabling the Group to be at the forefront of spotting emerging trends and opportunities. We believe 2012 will also prove to have been a turning point in the history of the mining industry in respect of capital allocation. It has been evident for some time that capital discipline in the sector had been eroded by the period of higher commodity prices. The result has been a material misallocation of capital across the sector in respect of organic capex and acquisitions. This year investors called time with results for all to see. This de­ velopment augurs well for long term returns in the sector though investors are likely to have to remain vigilant. Outside of our robust financial performance, 2012 also saw some major strategic landmarks for Glencore. Most importantly, we commenced the process to reunite Xstrata with Glencore following a decade in the public markets. We continue to work on closing the merger with Xstrata. Completion of the merger remains conditional upon the receipt of the outstanding regulatory approval in China and completion of the Xstrata court process as further set out in the New Scheme Document in connection with the merger published by Xstrata on 25 October 2012 and Glencore giving effect to the commitments required by the European Com­ mission. Accordingly, Glencore and Xstrata have agreed, with the consent of the Panel, to extend further the long stop date for the merger to 16 April 2013. When completed it will provide Glencore with full access to Xstrata’s production flows and allow optimisation of the combined capex pipeline and operating structure. Our approach to integration will be to incorporate the best of both businesses and plans to this effect are well advanced. The benefits of this process will accrue to all stakeholders in the combined business. Our second major step during 2012 was to acquire Viterra. This acquisition transforms our agricultural busi­ ness into a global operation through entry into the Canadian grain market and significant expansion of our Australian operations. This materially strengthens our ability to assist in ensuring that the world’s grain and oilseeds production flows to those areas where it is most needed. This is likely to become increasingly important given the shift towards more energy intensive diets globally. The Board of Directors proposes a final dividend of $ 0.1035 per share resulting in a total dividend of $ 0.1575 per share for 2012, up 5% on 2011, reflecting our confidence in our business and the continued ramp­up of our brownfield industrial assets. Looking forward we will continue to take nothing for granted whether it be economic circumstances or the good­ will of our stakeholders. We continue to see a healthy long term outlook for our commodities based on the contin­ uing growth within emerging market economies and sustained levels of consumption within developed markets. Ivan Glasenberg Chief Executive Officer | Annual Report 2012 | 13 1.4 | Business overview 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 (Swit­ zerland), Stamford (Connecticut), London, Rotterdam, Beijing, Moscow and Singapore. This network provides Glencore with significant worldwide sourcing and distribution capabilities. Glencore’s marketing operations employ close to 3,000 people worldwide, while industrial operations directly or indirectly em­ ploy over 58,000  people in 33  countries. Refer to the map on page 10 and 11 for more details on the locations of offices and operations. Glencore has an established record of successful strategic in­ vestments in industrial assets which have become an important component of its physical marketing activities. Glencore in­ tends to continue to pursue selective strategic acquisitions and alliances to support and strengthen its core physical marketing activities as and when opportunities arise. Glencore evaluates each industrial asset investment opportunity on a stand­alone basis, however, also recognising its potential to support and strengthen Glencore’s physical marketing activities or its existing industrial operations. Similarly, Glencore evaluates dis­ posals of industrial assets when they are no longer deemed to support its marketing activities and/or when compelling selling opportunities arise. Glencore’s three business segments focus on the following commodity segments: • The metals and minerals business segment focuses on: zinc/ copper/lead, alumina/aluminium and ferroalloys/nickel/co­ balt/iron ore. The activities of Glencore’s metals and minerals business segment are supported by ownership interests in controlled and non­controlled industrial assets such as mining, smelting, refining and warehousing operations; • The energy products business segment focuses on: oil/oil products and coal/coke. The activities of Glencore’s energy products business segment are supported by ownership in­ terests in controlled and non­controlled coal mining and oil production operations as well as investments in strategic han­ dling, storage and freight equipment and facilities; and • The agricultural products business segment focuses on: grains (including wheat, maize and barley), oils/oilseeds, cotton and sugar. The activities of Glencore’s agricultural products busi­ ness group are supported by investments in controlled and non­controlled storage, handling and processing facilities in strategic locations. OuR BusinEss Overview Glencore is a leading integrated producer and marketer of met­ als and minerals, energy and agricultural products. Glencore operates globally, marketing and distributing physical com­ modities sourced from third party producers and its own pro­ duction. Glencore’s customers and suppliers number in excess of 8,000 and span the automotive, steel, power generation, oil and food processing industries. Glencore also provides financ­ ing, logistics and other essential services to producers and consumers. Glencore’s long experience as a commodity marketer has allowed it to develop its expertise in the commodities which it markets. Glencore has also cultivated long­term relationships with a broad supplier and customer base across diverse indus­ tries and geographic regions. Glencore’s marketing activities are supported by investments in industrial assets operating in Glencore’s core commodities. Glencore’s marketing operations are believed to be less correlated to commodity prices than its industrial operations, due to commodity price risk being sub­ stantially hedged. As a marketer, Glencore is able to differentiate itself from other production entities as, in addition to focusing on minimising costs and delivering operational efficiencies, Glencore focuses on maximising the efficiency of the entire supply chain, taking into account its extensive and global third party supply base, its logistics, risk management and working capital financing capa­ bilities, extensive market insight, business optionality, extensive customer base, competitive market position in most commodi­ ties and economies of scale. In contrast, this is not the busi­ ness model of Glencore’s mainly industrial competitors who are generally not set up to exploit the full range of value added margin and arbitrage opportunities which exist throughout the commodity supply chain. Businesses 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 Metals and minerals Energy products Agricultural products Zinc/copper/lead Oil Alumina/aluminium Coal/coke Ferroalloys/nickel/ cobalt/iron ore Grains Oils/oilseeds Cotton/sugar 14 | Annual Report 2012 | oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion OuR stRAtEgy MARKEting ACtiVitiEs Glencore’s strategy is to maintain and strengthen its position as one of the world’s leading diversified natural resources groups. Strategic objectives for 2013 • Focus on capital efficient growth to maintain sector lead- ing return on equity: Glencore’s objective is to generate and sustain market leading shareholder returns by harnessing the potential of its marketing platform and industrial asset base. • Integration of Xstrata and Viterra (leading grain handler in Canada and Australia): Glencore will seek to optimise the operational and development potential of these major acqui­ sitions. • Continue to leverage geographic scope and diversification of operations: Glencore intends to extend product and geo­ graphical range offered to suppliers and customers where appropriate. • Capitalise on strategic investments in industrial assets: Glencore’s strategic investments in industrial assets are an important component of its physical sourcing strategy for its marketing activities. Glencore believes these investments underpin Glencore as a reliable supplier for its customers. • Use additional capital and liquidity to grow the business when compelling opportunities present themselves. • Focus on cost management and further enhancing logistical capabilities: Glencore intends to continue its focus on cost control and operational efficiencies at its industrial assets and on the sourcing of competitively priced physical commodities from reliable third party suppliers. • Maintain conservative financial profile and investment grade ratings: Glencore’s conservative financial profile and invest­ ment grade credit ratings have enabled it to consistently access the required funding on competitive terms and main­ tain healthy levels of liquidity. Glencore intends to maintain its investment grade credit ratings. • Disciplined risk management: Glencore intends to continue its focus in this key area by maintaining and expanding its risk management resources, information systems and culture. • Place highest priority on employees, the environment and local communities: Glencore places the highest priority on its employees, the environment and the local communities where it operates. Function of marketing activities Glencore’s marketing activities source a diversified range of physical commodities from third party suppliers and from industrial assets in which Glencore has full or part ownership interests. These commodities are sold, often with value added services such as freight, insurance, financing and/or storage, to a broad range of consumers and industrial commodity end users, with many of whom Glencore enjoys long­term commer­ cial relationships. Types of arbitrage strategies Many of the physical commodity markets in which Glencore operates are fragmented or periodically volatile. As a result, discrepancies often arise in respect of the prices at which the commodities can be bought or sold in different geographic locations or time periods, taking into account the numerous relevant pricing factors, including freight and product quality. These pricing discrepancies can present Glencore with arbi­ trage opportunities whereby Glencore is able to deploy capital to generate profit by sourcing, transporting, blending, storing or otherwise processing the relevant commodities. Whilst the strategies used by Glencore’s business segments to generate such margin vary from commodity to commodity, the main arbi­ trage strategies can be generally described as follows: • Geographic: where Glencore leverages its relationships and production, processing and logistical capabilities in order to source physical commodities from one location and deliver them to another location where such commodities can com­ mand a higher price (net of transport and/or other transac­ tion costs); • Product related: where it is possible to exploit the blending or multi­use characteristics of the particular commodities being marketed, such as the various crude oil products, coal or metal concentrates, in order to supply products which attract higher prices than their base constituents, or exploit existing and/or expected price differentials; and • Time­related: where it is possible to exploit a difference be­ tween the price of a commodity to be delivered at a future date and the price of a commodity to be delivered immediately, where the available storage, financing and other related costs until the future date are less than the forward pricing difference. Arbitrage ensures markets function more efficiently by deliver­ ing supply to where it is most needed, in time, geography or product. Glencore uses market information made available by its mar­ keting and industrial teams across its many locations to identify arbitrage opportunities. Glencore’s marketing and investment activities and relationships with producers and consumers of raw materials are supported by a global network providing Glencore with visibility over shifting supply and demand dynamics in respect of sizeable volumes of physical commodities across the globe. The detailed information from Glencore’s widespread operations and close relationships with producers, consumers and logistics providers often enables Glencore to identify oppor­ tunities, taking into account its extensive logistics capabilities, to source and supply physical commodities at attractive margins. | Annual Report 2012 | 15 Logistics Glencore’s logistics operations are a key part of its marketing operations. They enable Glencore to fulfil its marketing obliga­ tions and to maximise arbitrage opportunities created by de­ mand and supply imbalances. Physical sourcing and marketing of commodities requires highly professional handling and ship­ ment of such goods from the supplier to the customer, including storage activities, as required. Typically, the staff handling the physical movement of goods (the “traffic team”) account for a significant proportion of the headcount of a business segment. Glencore’s dedicated chartering teams actively trade freight to gain market knowledge and volume benefits. The freight ele­ ment of transactions is furthermore used to maintain maximum physical optionality so that full value can be extracted from the underlying commodity positions of each department. This complements Glencore’s overall ability to seize geographic and time spread arbitrage opportunities as they arise. inDustRiAL ACtiVitiEs Glencore’s ownership of controlled and non­controlled indus­ trial assets is designed to generate attractive stand­alone returns and overall business diversification. They also serve as a way to source physical supply for Glencore’s marketing arm and provide further market insight and technical know­how. Glencore believes that its corresponding reduced reliance on third parties helps to ensure that suppliers and customers alike see Glencore as a more reliable counterparty. Glencore capitalises on investment opportunities created by, among other things, (i) the privatisation of natural resources producers primarily in emerging markets, (ii) the rebalancing of asset portfolios by other players in the natural resources indus­ try and (iii) further industry consolidation as smaller producers sell out and/or seek capital to fund growth. Any decision to acquire or dispose of an industrial asset is based on the stand alone potential of the asset and its poten­ tial contribution to Glencore’s marketing activities and requires group level approval. Once acquired, an asset is held within one of the business segments. The business segments man­ age the controlled and non­controlled industrial assets via hands­on “asset controllers” to interface between the asset and Glencore in respect of day to day operating, financial and commercial matters. Glencore’s approach to the management of its industrial assets differs from some of its key competitors in that Glencore encourages its industrial assets to focus on the elements of operating performance, which businesses can directly control. MARKEt REViEw Markets started 2012 on a more positive footing after the sover­ eign debt­related headwinds of 2011. However, the initial opti­ mism faded as the year progressed, with the key constraints for economic recovery that we have seen since the global financial crisis remaining in place for the remainder of 2012. The major factors have been: • Very weak Eurozone growth, including a mild contraction in Q2  2012, driven by limited consumer demand and industrial output. Despite numerous crisis meetings, decisive consen­ sual action was impossible to sustain with key issues simply deferred; • A loss of growth momentum in Asia, particularly in China as a result of their tightening of monetary and fiscal policy in 2011. Although both started an easing process over the course of the year, these actions have a reasonably extended lead time and as such the effects will not immediately be felt. The planned political transition in China also hindered any stimulative ef­ fects. China’s manufacturing sector, while still generally buoy­ ant, is starting to feel the pressure of falling profitability; and • the US Federal Reserve’s further stimulus packages. However, with interest rates already low, the scope to impact consumer behaviour was limited. Separately, the US started to feel the benefits of sustainable lower power prices and the housing market showed the first signs of improvements as household formation rate improved. The pattern for commodity prices during 2012 was to generally trend downwards, albeit with frequent spikes around key policy events. Volatility also continued the downward trend it has been on since the end of the financial crisis, and finished the year appreciably lower than the levels experienced in the second half of 2011. Going forward, growth in China is expected to continue to be sufficiently strong to create a favourable environment in com­ modity markets in general. However, the rate of growth is clearly slowing and signs of variability across different regions and sec­ tors are starting to emerge. Prior to the current political transi­ tion, it was clear that the Chinese government was comfortable with a slower rate of growth as it still had concerns over inflation potential (mainly housing and food). Under the new generation of leaders in China, led by President Xi Jinping, the precise future growth path of China is still to be clarified. The movement in commodity prices generally mirrored the poor performance of financial markets as a mark of investors’ lower global risk appetite. Compared to 2011, base metals were broadly down 10­20% in 2012 reflecting global growth concerns. Energy commodities, with the exception of US natural gas (in­ creased by 24%) and coal (sizeable declines for many origins), es­ sentially returned to the levels they were at the beginning of the year. In agriculture, prices were generally up during Q3 2012 with a particularly strong performance from corn, wheat and soya beans. Looking forward, we anticipate further modest improvements in global economic growth, in the absence of any major unantici­ pated policy decisions. The US looks increasingly well positioned for the medium to long term with their abundance of competitively priced power a key positive factor. Meanwhile, we expect China and other major emerging economies to remain committed to their stated plans to improve the living standards of their people. The key chal­ lenge for all markets remains to balance required social spend with growth in economic activity required to sustain this spend over the long term. 16 | Annual Report 2012 | oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion New capital investment Glencore is focused on delivering industry­leading organic pro­ duction growth which in turn will help drive growth within its marketing business. In this regard, Glencore is very focused on delivering this growth in a capital efficient manner. In addition, the West African oil portfolio will further contrib­ ute to the Energy Products industrial asset’s growth. After Aseng (Block I) commenced first oil production in November 2011 ahead of schedule, the development of the Alen gas/con­ densate field (Block O) remains on track for first production in Q3 2013 with a target flow rate of 37,500 bbl per day. Glencore’s first operated exploration well on the Oak prospect in the Bolongo Block, offshore Cameroon, was successfully drilled and declared an oil discovery in July 2012. The appraisal programme is planned for H2 2013. In the Agricultural products business unit, sugar crushing ca­ pacity will further increase due to the on­going expansion at Rio Vermelho. During 2012 industrial growth projects continued to deliver overall volume improvement and expansion is on track to de­ liver growth in the next few years. The African Copper assets continued their expansion plans, with Mutanda / Kansuki expected to have a combined installed capac­ ity of 200,000  tonnes of copper and 23,000  tonnes of cobalt by 2013. In addition the feasibility study for the construction of a 100,000 tonnes (of copper contained) sulphide concentrator remains on track to be completed shortly. Katanga produced its first copper cathode from the new sol­ vent extraction plants and converted electro­winning facil­ ity during December 2012 as part of the Phase 4 project. The completion of this project will enable Katanga to increase total capacity. The Phase 4 project remains on target for mechanical completion in Q3 2013, which should allow Katanga to increase its annualised copper production capacity to 200,000  tonnes and thereafter to 300,000 tonnes per annum, by Q4 2014. Mutanda, Katanga and Kansuki are collectively undertaking a project to secure power for all three operations via the refurbishment of two turbines at the Inga dam. This project is expected to provide 450 megawatts of power by the end of 2015 (the “Power Project”). The project has started and is be­ ing executed in partnership with Société Naturale d’Electricité (‘SNEL’) and EGMF, the project contractor. The estimated cost of $  284  million will be paid by Mutanda, Katanga and Kansuki, the investment in which will be recovered via lower future energy tariffs. At Mopani the $  323  million Synclinorium shaft project to in­ crease mine production, which is expected to come online dur­ ing 2015, and the associated project to improve and modernise the smelter remain on track. In 2012, Mopani announced that the smelter upgrade project (including improving SO2 emission capture to above 97%) is expected to be completed by Decem­ ber 2013, 18 months ahead of the schedule initially agreed with the Zambian authorities. Prodeco’s expansion project is progressing to plan and remains on track to deliver annualised production of 20 million tonnes by 2014. The construction of the new direct loading port, Puerto Nuevo, is also on track and to budget, with commission­ ing expected in H1 2013. The South African Coal portfolio including Shanduka Coal, Umcebo Mining and Optimum Coal is currently focusing on a number of expansion and development projects; at Umcebo the Wonderfontein project railed its first coal during December 2012, at Optimum, construction has started at the Pullenshope underground brownfield project with first coal expected in Q2 2013 and licensing for the Koornfontein project is expected shortly, with construction scheduled to start in Q2 2013. | Annual Report 2012 | 17 1.5 | sustainability Glencore Corporate Practice (GCP) is designed to ensure ro­ bust business practice for sustainability and other non­financial business areas, throughout all Glencore business segments and commodity departments, at both corporate and local levels. It meets internationally­accepted best practice standards for corporate governance and the management of non­financial activities. We use it to continuously improve performance in these areas, and to develop internal and external understand­ ing and acceptance of how we manage sustainability. International law Best practice standards GCP principles GCP management Group and local policies Local law tHE sCOPE OF gCP The GCP requirements are mandatory for everyone at Glencore. This applies throughout our marketing activities, and in all indus­ trial activities where we have operational control. gCP gOVERnAnCE Responsibility for GCP development and implementation lies with our management and the Health, Safety, Environment and Communities (HSEC) committee, established by Glencore’s Board in 2011. Chaired by an independent Board member, this committee provides the leadership, control and guidance that seeks to ensure group­wide GCP adherence. The committee evaluates how effectively we identify and man­ age environmental and health and safety risks, and assesses our compliance with the relevant regulations. It assesses the impact of Glencore sustainability programmes on our employees, local communities and other third parties, as well as the impact on our reputation. The committee receives management reports on all fatalities and serious accidents (and the resulting actions), and evaluates and oversees all sustainability reporting to external stakehold­ ers, on behalf of the Board. It reviews the results of any inde­ 18 | Annual Report 2012 | pendent audits of Glencore’s sustainability performance, and any management strategies and action plans created in re­ sponse to issues raised, making recommendations to the Board as appropriate and providing guidance to management. PROgREss OVERViEw FOR 2012 Health and safety We regret to report 22 fatalities at our operations in 2012 (com­ pared to 18 in both 2011 and 2010). It is quite clear that we must continue with our unwavering focus on improving health and safety practices. Despite the unacceptably high level of fatali­ ties, we were able to reduce our lost time injury frequency rate to 2.84 (per million hours worked), down from 3.58 in 2011. In 2012 we conducted independent health and safety assess­ ments, combined with baseline studies of our environmental activities, at almost all our major assets. We used this compre­ hensive data to create and introduce a systematic improvement plan, in conjunction with our external assessor DuPont. Among a range of initiatives, the plan includes stringent fatality inves­ tigation procedures. The essence of our learning from these assessments is summarised in the new GCP programme’s health and safety section. This was made public in our 2011 sustainability report, published in November 2012. Environment We experienced no serious environmental incidents (classified as “Class A: Major” within our environmental incident reporting system) in 2012, as in 2011 and 2010. We believe that this posi­ tive result demonstrates the robust nature of our procedures and policies, which enable us to effectively manage our extensive and complex business activities with minimal environmental impact. The GCP programme also commits us to a path of continuous improvement in our environmental performance. 2012 saw a num­ ber of initiatives commenced, implemented or completed. One of the most important is the upgrade to our smelter in Mufulira, Zambia. In this final stage of work, we are installing further gas capturing equipment and a second acid plant. The upgrade will be completed by the end of 2013, allowing the plant to capture over 97% of its sulphur dioxide emissions. This is approximately 18 months ahead of the timetable set by the Zambian government in the environmental management plan agreed during privatisation. Another achievement in 2012 was the agreement in April to re­ sume operations at our Mufulira heap leach facilities. While op­ erations at this plant were within prescribed environmental limits, residents of the nearby Butondo township had raised objections. This led to the temporary suspension of operations while con­ ducting an investigation into the community’s concerns. An all­ inclusive stakeholder consultation process, including local repre­ sentatives, NGOs and the Zambian environmental management agency, facilitated an amicable resolution of the situation and led to enhanced safety and environmental measures. oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion Reporting We issued our second public sustainability report (cover­ ing 2011) in the last quarter of 2012. This is available to read online or download at www.glencore.com/sustainability. Annual reporting will continue this year with the publication covering progress and changes in 2012. tHE gCP PROgRAMME 2012 also saw the enhancement of our GCP programme (pub­ lished in our 2011 sustainability report), incorporating Board­ approved group­wide sustainability targets and objectives into the existing GCP framework. Progress is monitored closely by the HSEC Board committee on a regular basis. The programme has two elements: strategic objectives, which are updated as they are achieved, and ongoing projects. Together, these address our key sustainability goals and set out our strategy for the next three to five years, allowing us to measure and report on our progress towards fulfilling our GCP commitments. Communities Our Calenturitas coal project in Cesar province, Colombia, con­ tinues with the previously reported resettlement project initiat­ ed due to air quality concerns. Prodeco is working together with three other mining companies and an external team of local and international resettlement experts appointed in 2011. Together, the stakeholders have formed the negotiation committees that are now working to agree a resettlement action plan. We also continued our established programme of social devel­ opment projects; the representative examples below are taken from our activities in the DRC. The operations involved are Katanga and Mutanda and the main areas of focus are infrastruc­ ture, health and education. Infrastructure: Katanga has paved over 19 kilometres of roads in Kolwezi and maintains a further 30 kilometres between nearby villages. It has also refurbished roads in Lubumbashi and contributed to the commissioning of a new ferry for the Lualaba river. Separately, Mutanda has funded the construc­ tion of a new bridge over the Lualaba as well as maintaining roads. Both operations have also provided infrastructure to supply drinking water for several villages. They have donated farming supplies to the Provincial Ministry of Agriculture, and Katanga has assisted individual farmers with seed, tools and fertilisers, while Mutanda provides ongoing funding for a fish farm in Kando. A joint programme with the DRC’s national electricity utility will see us fund a major $ 284 million power refurbishment pro­ gramme. Funding started in the second quarter of 2012 and will continue until the end of 2015. The programme will increase capacity to the public power grid and improve the general reliability and stability of supplies for the region. Health: both operations have built state­of­the­art on­site hospitals and run comprehensive HIV/AIDS training and treat­ ment programmes. Katanga donates pharmaceuticals for ma­ laria and other common diseases, such as diarrhoea, coughs and fever. Mutanda’s two clinics in neighbouring communities offer weekly open clinics. Katanga’s malaria programme in­ cludes vector control spraying for nearly ten thousand house­ holds, while both operations’ programmes include spraying of homes, plants, mines, offices and local government offices. Mutanda has worked with the government to open a vaccina­ tion clinic for children under five, as well as an independent mother and baby programme to help eliminate infant malnutri­ tion. These programmes have helped reduce infant mortality rates to a third of previous levels. Katanga has also built two new hospitals in Kisangani (Orientale province) and Pweto (Katanga province). Education: Katanga and Mutanda have assisted in renovating and supporting local schools, benefitting 9,500 pupils with desks, books, computers and buildings. Both have made finan­ cial contributions and supplied raw materials, engineers and labour to a number of schools, colleges and universities. This includes UNIKOL (University of Kolwezi), Matendo school in Kolwezi, Nyumba ya Heri school and ISTA (Institut Supérieur de Techniques Appliquées). | Annual Report 2012 | 19 1.6 | Key performance indicators Glencore’s financial and sustainable development key performance indicators (KPIs) provide some measure of our performance against key drivers of our strategy. Adjusted EBIT 6 000 5 000 n 4 000 o i l l i m $ S U 3 000 2 000 1 000 0 2010 2011 2012 Funds from operations (FFO) n o i l l i m $ S U 4 000 3 000 2 000 1 000 0 Adjusted EBIT is a measure that provides insight into Glencore’s overall business performance (a combination of cost management, seizing market opportunities and growth) and the corresponding flow driver towards achieving an industry leading return on equity. Adjusted EBIT as defined in the glossary on page 166 consists of rev­ enue less cost of goods sold and selling and administrative expenses plus share of in­ come from associates and jointly controlled entities and dividend income as disclosed on the face of the consolidated statement of income, excluding significant items. 2012 Adjusted EBIT was down 17% to $ 4,470 million compared to 2011 due to lower contributions from our industrial activities which were affected by generally lower year on year average commodity prices for the key commodities which we and our associates (primarily Xstrata) produce. FFO is a measure that reflects Glencore’s ability to generate cash for investment, debt servicing and distributions to shareholders as well as an indication of Glencore’s ability to deliver against its growth and financial flexibility objectives. FFO comprises cash provided by operating activities before working capital changes less tax and net inter­ est payments plus dividends received and adding back listing related expenses in 2011. 2010 2011 2012 2012 FFO was up 17% to $ 4,115 million compared to $ 3,522 million in 2011, reflecting the higher Adjusted EBITDA from marketing activities. 60 50 40 30 % 20 10 0 Net debt is an absolute measure of how we are managing our balance sheet and capi­ tal structure, while of equal or greater importance, the relationship of FFO to net debt is an indication of our financial flexibility and strength, a key driver of our strategy. Net debt is defined as total current and non­current borrowings less cash and cash equivalents, marketable securities and readily marketable inventory. Net debt as at 31 December 2012 increased to $ 15,416 million from $ 12,938 million as at 31 December 2011. $ 359 million of net debt was assumed in the Viterra acquisi­ tion and $ 3.6 billion of net debt was incurred to finance Glencore’s effective share of the equity purchase consideration. Adjusting for the increase in net debt attribut­ able to the Viterra acquisition (completed mid­December 2012), net debt would be $ 11,457 million, a decrease of $ 1,481 million compared to 2011. The ratio FFO to Net debt (adjusted for the Viterra acquisition) improved from 27.2% in 2011 to 35.9% in 2012. A healthy positive free cash flow generation/FFO is expected from the Viterra asset base going forward, which is expected to offer support to debt coverage ratios and deleveraging initiatives into the future. We deeply regret the 22 fatalities at our managed operations in 2012. This was an increase compared to 2011 and 2010 (both of which saw 18 fatalities) and included a tragic car accident in Argentina where four people lost their lives. Net debt/FFO to net debt n o i l l i m $ S U 15 000 12 500 10 000 7 500 5 000 2 500 0 2010 2011 2012 1 1 Adjusted for Viterra acquisition Fatalities 25 r 20 e b m u n 15 10 5 0 2010 2011 2012 20 | Annual Report 2012 |       oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion Lost time injury frequency rate (LTIFR) R F T L I 14 12 10 8 6 4 2 0 2010 2011 2012 Metals and minerals Energy products Agricultural products The lost time injury frequency rate (LTIFR) is a key measure of how we are deliver­ ing against our commitment to the health and safety of our employees. The LTIFR is calculated based on the total number of injuries per million hours worked (by both employees and contractors) In 2012, our group LTIFR fell from 3.58 to 2.84. This improvement primarily came from our metals and minerals and agricultural product segments, while the energy prod­ ucts segment saw a slight increase (however, this was from a much lower original rate). Metals and minerals (representing 70% of our industrial workforce) reduced its LTIFR from 3.06 to 2.37, agriculture (representing 10%) from 12.61 to 10.78, while energy products (representing 20%) increased from 0.81 to 0.86. Number of Class A environmental incidents We undertake an extensive and complex range of activities, which are not limited to the extraction of natural resources but also include significant logistical operations such as maritime transportation. One way in which we measure the robustness of our procedures and policies is the frequency of Class A environmental incidents in the group. This is our classification for disastrous or close­to disastrous incidents and involves accidents or spills with a major environmental impact and a long­term effect, reversible only by long­term remediation with aftercare. No Class A environmental incidents were reported in 2012 (as in 2011 and 2010). Community investments are Glencore’s contributions to, and financial support of, the broader communities in the regions where we operate. In 2012 Glencore’s community investments amounted to $  95  million, compared to $ 140 million in 2011 and $ 71 million in 2010. A large part of the difference between 2012 and 2011 was due to the conclusion of an extensive investment project at Kazzinc. Water withdrawal is a measure of our operational resource efficiency. In 2012, we used 484  million m3 of water, representing a 3.3% reduction in water withdrawal compared to 500 million m3 in 2011 (in 2010 the figure was 413 million m3), despite the acquisition of additional operations, largely due to the implementation of technical improvements. Community investments n o i l l i m $ S U 160 120 80 40 0 2010 2011 2012 Water withdrawal 3 m n o i l l i m 600 500 400 300 200 100 0 2010 2011 2012 Greenhouse gas emissions (Scope 1 and 2) s e n n o t n o i l l i m 18 15 12 9 6 3 0 Our GHG emission reporting is separated into Scope 1 and Scope 2 emissions. Scope 1 includes emissions from combustion in owned or controlled boilers, furnaces and vehicles/vessels, and Scope 2 consists of those generated in creating the electricity (the majority of contributions), steam, heat, etc, provided to the organisation by exter­ nal utility companies. 2010 2011 2012 In 2012, Glencore accounted for 15.7 million tonnes of CO2e, compared to 12.8 million tonnes in 2011 and 11.2 million tonnes in 2010. This increase is primarily due to newly ac­ quired assets (especially coal assets) and continued refinement of our GHG reporting. | Annual Report 2012 | 21   1.7 | Principal risks and uncertainties The Group’s business, results of operations or financial condition could be materially and adversely affected by competitive, eco­ nomic, political, legal, regulatory, social, business and financial risks and uncertainties. The risks described below are those that the Group currently believes may materially affect it (including following completion of the merger with Xstrata) although this is not an exhaustive list. Additional risks and uncertainties not currently known to the Group, or those which are currently deemed to be im­ material, may become material and adversely affect the Group’s business, results of operations, financial condition and/or prospects. The results may differ significantly from those previously projected as a result of certain factors, including the risks which it faces, as described below. The order in which the following is presented does not necessarily reflect the likelihood of their occurrence or the relative magnitude of their potential material adverse effect on the Group’s business, results of operations, financial condition and/or prospects. These principal risks and uncertainties should be considered in connection with any forward looking statements in this document and the cautionary statement. EXTERNAL Fluctuation in expected volumes of supply or demand for the commodities in which the Group markets The Group is dependent on the ex­ pected volumes of supply or demand for commodities in which the Group is ac­ tive, which can vary over time based on changes in resource availability, govern­ ment policies and regulation, costs of production, global and regional econom­ ic conditions, demand in end markets for products in which the commodities are used, technological developments, in­ cluding commodity substitutions, fluc­ tuations in global production capacity, global and regional weather conditions, natural disasters and diseases, all of which impact global markets and de­ mand for commodities. Fluctuation of commodity prices The revenue and earnings of the Group’s industrial asset activities and, to a lesser extent, its marketing activities are de­ pendent upon prevailing commodity prices. Commodity prices are influenced by a number of external factors, including the supply of and demand for commodi­ ties, speculative activities by market par­ ticipants, global political and economic conditions and related industry cycles and production costs in major producing countries. 22 | Annual Report 2012 | Impact: Fluctuations in the volume of each commodity produced or marketed by the Group could materially impact the Group’s business, results of operations and earn­ ings. These fluctuations could result in a reduction or increase in the income generated in respect of the volumes handled by the Group’s marketing activities, or a reduction or increase in the volume and/or margin in respect of commodities produced by the Group’s industrial assets. mItIgatIon: The risk of fluctuations in demand for the commodities in which the Group markets is managed by maintaining a diversified portfolio of commodities to market, reducing the impact of movement in any one commodity market. Individual commodi­ ties, even apparently closely linked products such as barley and wheat, have their own demand cycles reducing over­reliance on any single product. Impact: Fluctuations in the price of commodities produced or marketed could materi­ ally impact the Group’s business, results of operations and earnings. The impacts that fluctuating commodity prices have on the Group’s business differ between its market­ ing activities and industrial activities. Marketing activities: In a market environment in which prices for a particular com­ modity are higher on average, the premiums/margins that the Group generates in its physical marketing operations relating to such commodity as a result of geographical, time and quality imbalances tend to be higher. The Group also generally benefits from fluctuating market prices, rather than long periods of stable prices, as it seeks to physically arbitrage such resulting price differentials. As prices of commodities rise, the Group generally has higher working capital financing requirements over the same quantity of commodities in question. During periods of falling commodity prices, the opposite applies in that the Group will require less working capital financing for its marketing activities. Industrial activities: Higher prices will be particularly favourable to the profitability of the Group in respect of those commodities which the Group produces at its industrial assets or are produced by its associated companies and other investees. Similarly, low prices will negatively impact the Group’s industrial activities and could result in such activities incurring losses. oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion Fluctuation in currency exchange rates The vast majority of the Group’s trans­ actions are denominated in U.S. Dollars, while operating costs are spread across several different countries the currencies of which fluctuate against the U.S. Dollar. A significant downturn in the price of commodities generally results in a decline in the Group’s profitability during such a period and could potentially result in a devaluation of inventories and impairments. Although the impact of a downturn on commodity prices affects the Group’s marketing and industrial activities differently, the negative impact on its industrial activities is generally greater, as the profitability in the industri­ al activities is more directly exposed to price risk due to its higher level of fixed costs, while the Group’s marketing activities are ordinarily substantially hedged in respect of price risk and principally operate a service­like margin­based model. mItIgatIon: The risk of fluctuations in commodity prices is managed by maintaining a diversified portfolio of commodities, reducing the impact of movement to any in­ dividual commodity price. In addition, the Group continuously reviews and looks to optimise its asset portfolio to ensure it is sufficiently cost effective and efficient and a substantial portion of our inventory is either under contract for sale at a predeter­ mined price or hedged through futures and options on commodity exchanges or with highly rated counterparties. Therefore, at any one time, the commodity price risk is restricted to a small proportion of the working capital balance. Financial expense risk during periods of low commodities prices is mitigated by maintaining an investment grade rating and a mix of floating and fixed rate funding options, the former generally passed on via the transactional terms in marketing arrangements. Impact: The vast majority of transactions undertaken by both the Group’s marketing and industrial activities are denominated in U.S. Dollars. However, the Group is ex­ posed to fluctuations in currency exchange rates: • through its industrial activities, because a large proportion of the operating costs of these assets are denominated in the currency of the country in which each asset is located, the largest of such currency exposures being to the Australian Dollar, the Kazakhstan Tenge, the Colombian Peso, the Euro, the Chilean Peso, the Norwegian Kroner, the South African Rand, the Argentine Peso, the Peruvian Sol and the Cana­ dian Dollar (including via Glencore’s stake in Xstrata); • through the costs of the Group’s global office network, which are denominated largely in the currency of the country in which each office is located, the largest of such currency exposures being to the Swiss Franc, the Pound Sterling and the Euro; and • through its marketing activities, although only a small minority of purchase or sale transactions are denominated in currencies other than U.S. Dollars. Foreign exchange rates have seen significant fluctuation in recent years and a depre­ ciation in the value of the U.S. Dollar against one or more of the currencies in which the Group incurs significant costs will therefore, to the extent it has not been hedged, result in an increase in the cost of these operations in U.S. Dollar terms and could ad­ versely affect the Group’s financial results. mItIgatIon: The Group manages the risk of fluctuating currency exchanges rates by operating in a number of different geographies and by hedging specific future non U.S. Dollar denominated commodity purchase or sale commitments. | Annual Report 2012 | 23 Impact: The geopolitical risks associated with operating in a large number of regions and countries, if realised, could affect the Group’s ability to manage or retain interests in its industrial activities and could have a material adverse effect on the profitability, ability to finance or, in extreme cases, viability of one or more of its industrial assets. Although the Group’s industrial assets are geographically diversified across various countries, disruptions in certain of its industrial operations at any given time could have a material adverse effect on the Group’s marketing business. mItIgatIon: Geopolitical risk is managed through geographical diversification of commodities and operations, continuous monitoring and dialogue through and with the Group’s network of field offices and a commitment to engage proactively with em­ ployees and the communities in which it operates, in order to maintain and improve its licence to operate. Geopolitical risk The Group operates and owns assets in a large number of geographic regions and countries some of which are categorised as developing, complex and having un­ stable political or social climates and, as a result, is exposed to a wide range of political, economic, regulatory and tax environments. These environments are subject to change in a manner that may be materially adverse for the Group, includ­ ing changes to government policies and regulations governing industrial produc­ tion, foreign investment, price controls, import and export controls, tariffs, subsi­ dies, income and other forms of taxation (including policies relating to the granting of advance rulings on taxation matters), nationalisation or expropriation of prop­ erty, repatriation of income, royalties, the environment and health and safety. Compliance with a significant number of laws and regulations As a diversified production, sourcing, marketing and distribution company conducting complex transactions global­ ly, the Group is exposed to and subject to extensive laws and regulations governing various matters. These include laws and regulations relating to bribery and cor­ ruption, taxation, anti­trust, financial mar­ kets regulation, environmental protection, management and use of hazardous sub­ stances and explosives, management of natural resources, licences over resources owned by various governments, explora­ tion, development of projects, produc­ tion and post­closure reclamation, the employment of expatriates, labour and occupational health and safety standards, and historic and cultural preservation. Liquidity risk The Group’s failure to obtain funds could limit its ability to engage in desired ac­ tivities and grow its business. 24 | Annual Report 2012 | Impact: These laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon damages to property and injury to persons re­ sulting from the environmental, health and safety and other impacts of the Group’s past and current operations, and could lead to the imposition of substantial fines, penalties, other civil or criminal sanctions, the curtailment or cessation of opera­ tions, orders to pay compensation, orders to remedy the effects of violations and/ or orders to take preventative steps against possible future violations. Moreover, the costs associated with compliance with these laws and regulations are sub­ stantial. Any changes to these laws or regulations or more stringent enforcement or restrictive interpretation of current laws and regulations could cause additional expenditure (including capital expenditure) to be incurred or impose restrictions on or suspensions of the Group’s operations and delays in the development of its properties. In addition, obtaining the necessary governmental permits can be a par­ ticularly complex and time­consuming process and may involve costly undertakings. The duration and success of permit applications are contingent on many factors, including those outside the Group’s control. Failure to obtain or renew a neces­ sary permit could mean that such companies would be unable to proceed with the development or continued operation of a mine or project, which, in turn, may have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. mItIgatIon: The Group is committed to complying with or exceeding the laws, regu­ lations and best practice guidelines applicable to its operations and products in the jurisdictions in which it operates and through continuous monitoring of legislative requirements and engagement with government and regulators it strives to ensure full compliance. Liquidity, or ready access to funds, is essential to the Group’s businesses. Liquidity risk is the risk that the Group is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis, to borrow funds in the market on an unsecured or secured basis at an acceptable price to fund actual or proposed commitments. While the Group adjusts its minimum internal liquidity targets in response to changes in market conditions, these minimum internal liquidity targets may be breached due to circumstances it is unable to control, such as general market disruptions, sharp oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion increases in the prices of commodities or an operational problem that affects its sup­ pliers or customers or itself. Impact: A lack of liquidity may mean that the Group will not have funds available to maintain or increase its marketing activities and industrial activities. Marketing activities: The Group’s marketing activities employ significant amounts of working capital to fund purchases of commodities for future delivery to its end cus­ tomers, to meet margin requirements under derivative contracts and to fund the ac­ quisition and maintenance of certain transport and storage assets which complement its marketing activities. Any inability to fund these amounts of working capital may prevent the Group from maintaining its historic levels of marketing activity or from increasing such levels in the future. Industrial activities: The Group’s industrial activities may be capital intensive and the continued funding of such activities is critical to maintain its ownership interests in its industrial assets, to maintain production levels in periods when net operating cash flow is negative or insufficient to cover capital expenditures, to increase production levels in the future in accordance with its business plans and to grow its industrial activities through the acquisition of new assets. Any inability to fund these operating and capital expenditure requirements may prevent the Group from maintaining or growing its industrial activities’ production output. mItIgatIon: The Group operates a policy of liquidity risk management, whereby it seeks to maintain (via a minimum prescribed level) sufficient cash and cash equiva­ lents and other sources of committed funding available to meet anticipated and unanticipated funding needs. Impact: Many of the physical commodity markets in which the Group operates are fragmented or periodically volatile. As a result, discrepancies generally arise in respect of the prices at which the commodities can be bought or sold in different forms, geographic locations or time periods, taking into account the numerous relevant pricing factors, including freight and product quality. These pricing discrep­ ancies can present the Group with arbitrage opportunities whereby the Group is able to generate profit by sourcing, transporting, blending, storing or otherwise processing the relevant commodities. Profitability of the Group’s marketing activities is, in large part, dependent on its ability to identify and exploit such arbitrage opportunities. A lack of such opportunities, for example due to a prolonged period of pricing stability in a particular market, or an inability to take advantage of such opportunities when they present themselves, because of, for example, a shortage of liquidity or an inabil­ ity to access required logistics assets or other operational constraints, could adversely impact the Group’s business, results of operations and financial condition. mItIgatIon: The Group mitigates the risk of an inability to take advantage of arbitrage opportunities or lack thereof by maintaining a diversified portfolio of products and through informational advantages the Group enjoys via its global network, its size­ able market share and logistics capabilities in many commodities enabling it to move quickly in response to arbitrage opportunities afforded by fluctuations and disequi­ librium in commodity markets. MARKETING ACTIVITIES Arbitrage opportunities The Group’s marketing activities are de­ pendent, in part, on its ability to identify and take advantage of arbitrage oppor­ tunities. Hedging strategy The Group’s hedging strategy may not always be effective, does not require all risks to be hedged and may leave an ex­ posure to basis risk. Impact: The Group’s marketing activities involve a significant number of purchase and sale transactions across multiple commodities. To the extent the Group purchases a commodity from a supplier and does not immediately have a matching contract to sell the commodity to a customer, a downturn in the price of the commodity could result | Annual Report 2012 | 25 in losses to the Group. Conversely, to the extent the Group agrees to sell a commodity to a customer and does not immediately have a matching contract to acquire the com­ modity from a supplier, an increase in the price of the commodity could result in losses to the Group, as it then seeks to acquire the underlying commodity in a rising market. In the event of disruptions in the commodity exchanges or markets on which the Group engages in hedging transactions, the Group’s ability to manage commodity price risk may be adversely affected and this could in turn materially adversely affect its business, financial condition and results of operations. In addition, there are no traded or bilateral derivative markets for certain commodities that the Group purchases and sells, which limits the Group’s ability to fully hedge its exposure to price fluctuations for these commodities. mItIgatIon: In order to mitigate the risks in its marketing activities related to commod­ ity price fluctuations and potential losses, the Group has a policy, at any given time, of hedging substantially all of its marketing inventory not already contracted for sale at pre­determined prices through futures and swap commodity derivative contracts, either on commodities’ exchanges or in the over the counter market. In instances where there are no traded or bilateral derivative markets for certain com­ modities, the Group’s ability to hedge its commodity exposure is limited to forward contracts for the physical delivery of a commodity or futures and swap contracts for a different, but seemingly related, commodity. Impact: Non­performance by the Group’s suppliers, customers and hedging counter­ parties may occur in a range of situations, such as: • a significant increase in commodity prices could result in suppliers being unwilling to honour their contractual commitments to sell commodities to the Group at pre­ agreed prices; • a significant reduction in commodity prices could result in customers being unwilling or unable to honour their contractual commitments to purchase commodities from the Group at pre­agreed prices; • customers may take delivery of commodities from the Group and then find them­ selves unable to honour their payment obligations due to financial distress or any other reasons; and • hedging counterparties may find themselves unable to honour their contractual commitment due to financial distress or other reasons. Non­performance by a counterparty could have an adverse impact on its business, results of operations and financial condition, including by creating an unintended, unmatched commodity price exposure. In addition, financial assets consisting principally of cash and cash equivalents, marketable securities, receivables and advances, derivative instruments and long­ term advances and loans could potentially expose the Group to concentrations of credit risk. mItIgatIon: The Group seeks to reduce the risk of customer non­performance by requiring credit support from creditworthy financial institutions including making extensive use of credit enhancement products, such as letters of credit, insurance policies and bank guarantees, where appropriate, and by imposing limits on open accounts extended. Whilst these limits are believed appropriate based on current levels of perceived risk, there is a possibility that a protracted difficult economic en­ vironment would negatively impact the quality of these exposures. In addition, mark­ to­market exposures in relation to hedging contracts are regularly and substantially collateralised (primarily with cash) pursuant to margin arrangements put in place with such hedge counterparties. Counterparty credit and performance risk The Group, in particular via its marketing activities, is subject to non performance risk by its suppliers, customers and hedg­ ing counterparties. 26 | Annual Report 2012 | oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion Risk management policies and procedures Identifying, quantifying and managing risk is complex and challenging and al­ though it is the Group’s policy and prac­ tice to identify and, where appropriate and practical, actively manage such risks to support its objectives in managing its capital and future financial security and flexibility, the Group’s policies and procedures may not adequately identify, monitor and quantify risk. Supply of commodities from third parties The Group purchases a portion of the physical commodities sold by its market­ ing activities from its controlled indus­ trial operations and associates, including Xstrata. The remainder of the commodi­ ties sourced by its marketing operations are purchased from third party suppli­ ers and entities in which the Group has a minority stake (excluding associates). The Group expects to continue to source commodities from such third parties in the future. The Group is potentially ex­ posed to both price and supply risks with respect to commodities sourced from third parties and entities in which it holds a minority stake. The Group is reliant on third parties to source the majority of the commodities purchased by its marketing operations. The Group actively monitors the credit quality of its counterparties, including the risk of non­performance by suppliers and customers alike, through internal reviews, strong relationships and industry experience and a credit scoring process which in­ cludes, where available, public credit ratings. Impact: The Group’s marketing activities are exposed to commodity price, foreign exchange, interest rate, counterparty (including credit), operational, regulatory and other risks. The Group has devoted significant resources to developing and imple­ menting policies and procedures to manage these risks and expects to continue to do so in the future. Nonetheless, the Group’s policies and procedures to identify, monitor and manage risks have not been fully effective in the past and may not be fully effec­ tive in the future. Some of the Group’s methods of monitoring and managing risk are based on historical market behaviour that may not be an accurate predictor of future market behaviour. Other risk management methods depend on evaluation of infor­ mation relating to markets, suppliers, customers and other matters that are publicly available or otherwise accessible by the Group. This information may not in all cases be accurate, complete, up to date or properly evaluated. Management of operational, legal and regulatory risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events, and these poli­ cies and procedures may not be fully effective in doing so. Failure to mitigate all risks associated with the Group’s business could have a material adverse effect on the Group’s business, results of operations and financial condition. mItIgatIon: The Group uses, among other techniques, Value­at­Risk, or VaR, as a key market risk measurement technique for its marketing activities. VaR does not purport to represent actual gains or losses in fair value on earnings to be incurred by the Group, nor does the Group expect that VaR results are indicative of future market movements or representative of any actual impact on its future results. VaR has certain limitations; notably, the use of historical data as a proxy for estimating future events, market illiquidity risks and tail risks. While the Group recognises these limitations and continuously refines its VaR analysis, there can be no assurance that its VaR analy­ sis will be an effective risk management methodology. Management of counterparty non­payment risk is mitigated by substantial use of credit enhancement products, in­ cluding letters of credit, insurance and bank guarantees. Please refer to section 2.1 Fi­ nancial review for further explanation on the use of VaR. Impact: Any disruptions in the supply of product by factors such as weather and other natural disasters, unexpected maintenance problems, collapse or damage to mines, labour disruptions and changes in laws and regulations could adversely affect the Group’s margins. The Group’s business, results of operations, financial condition and prospects could be materially adversely impacted if it is unable to continue to source required volumes of commodities from its suppliers on reasonable terms or at all. mItIgatIon: The Group sources product from a large range of suppliers (industrial as­ sets and third parties) and is not reliant on any one supplier to satisfy its performance. This enables the Group to source alternative product in the event of supply disruption. The Group benefits from investments in numerous communities and shared owner­ ship with local entities that helps to mitigate against some country specific risks. | Annual Report 2012 | 27 Freight, storage, infrastructure and logistics support The Group’s marketing activities require access to significant amounts of freight, storage, infrastructure and logistics sup­ port and it is exposed to increases in the costs thereof. In addition, the Group of­ ten competes with other producers, pur­ chasers or marketers of commodities or other products for limited storage and berthing facilities at ports and freight terminals, which can result in delays in loading or unloading the Group’s prod­ ucts and expose the Group to significant delivery interruptions. INDUSTRIAL ACTIVITIES Impact: Increases in the costs of freight, storage, infrastructure and logistics support or limitations or interruptions in the supply chain which impedes the Group’s ability to deliver its products on time, could adversely affect the Group’s business, results of operations or financial condition. mItIgatIon: The risk of disruptions to or limitations of freight, storage, infrastructure and logistics support is mitigated through the Group’s market position, global reach and its longstanding relationships with third party suppliers of freight. These give the Group an advantage in ensuring its commodity transport needs are met along with its investments in storage and logistic assets such as vessels, oil terminals and tank farms, metals and other warehouses and grain silos. Non-controlling stakes, joint ventures and strategic, partnership arrangements Some of the Group’s industrial assets are held through non­controlling stakes or joint ventures and strategic partnership arrangements. Impact: The Group does not control a number of its industrial investments. Although the Group has various structures in place which seek to protect its position where it does not exercise control, the boards of these companies may: • have economic or business interests or goals that are inconsistent with or are opposed to those of the Group; • exercise veto rights or take shareholders’ decisions so as to block actions that the Group believes to be in its best interests and/or in the best interests of all shareholders; • take action contrary to the Group’s policies or objectives with respect to its invest­ ments or commercial arrangements; or • as a result of financial or other difficulties, be unable or unwilling to fulfil their obli­ gations under any joint venture or other agreement, such as contributing capital to expansion or maintenance projects. Improper management or ineffective policies, procedures or controls of a non­con­ trolled entity could adversely affect the business, results of operations and financial condition of the relevant investment and, therefore, of the Group. mItIgatIon: Where projects and operations are controlled and managed by the Group’s co­investors or where control is shared on an equal basis, the Group may provide expertise and advice, but it has limited or restricted ability to mandate com­ pliance with the Group’s policies and/or objectives. Project development The Group has a number of significant expansions planned for its existing op­ erations and plans for certain new pro­ jects, the development of which is ex­ posed to a number of risks outside of its control such as technical uncertainties, availability of suitable financing, infra­ structure constraints, cost overruns, in­ sufficient labour skills or resources and delays in permitting or other regulatory matters. Impact: Any future upward revisions in estimated project costs, delays in completing planned expansions, cost overruns, suspension of current projects or other operation­ al difficulties after commissioning, may have a material adverse effect on the Group’s business, results of operations, financial condition or prospects, in turn requiring the Group to consider delaying discretionary expenditures, including capital expendi­ tures, or suspending or altering the scope of one or more of its development projects. mItIgatIon: Project development risks are mitigated and managed through the Group’s continuous project status evaluation and reporting processes, the significant focus of such being appropriate approval processes and transparent and timely reporting of costs and progress relative to plan. Significant projects are regularly audited against the project plan and reporting processes. 28 | Annual Report 2012 | oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion Operating risks and hazards The Group’s industrial activities are sub­ ject to numerous operating risks and haz­ ards normally associated with the devel­ opment and operation of natural resource projects, many of which are beyond the Group’s control. These operating risks and hazards include unanticipated variations in grade and other geological problems, seismic ac­ tivity, climatic conditions such as flood­ ing or drought, metallurgical and other processing problems, technical failures, unavailability of materials and equip­ ment, interruptions to power supplies, industrial actions or disputes, industrial accidents, labour force disruptions, un­ anticipated logistical and transportation constraints, tribal action or political pro­ tests, force majeure factors, environmen­ tal hazards, fire, explosions, vandalism and crime. Impact: These risks and hazards could result in damage to, or destruction of, proper­ ties or production facilities, may cause production to be reduced or to cease at those properties or production facilities, may result in a decrease in the quality of the prod­ ucts, personal injury or death, environmental damage, business interruption and legal liability and may result in actual production differing from estimates of production. The realisation of such operating risks and hazards and the costs associated with them could materially adversely affect the Group’s business, results of operations and finan­ cial condition, including by requiring significant capital and operating expenditures to abate the risk or hazard, restore the Group or third party property, compensate third parties for any loss and/or pay fines or damages. mItIgatIon: Operating risks and hazards are managed through the Group’s continuous assessment, reporting and communication of the risks that affect its business through its annual risk review processes and updates to its risk register. In addition, risk is miti­ gated somewhat through geographic and multiple project diversification. Title to the land, resource tenure and extraction rights The Group has industrial activities in­ vestments in certain countries where ti­ tle to land and rights in respect of land and resources (including indigenous ti­ tle) has not been and may not always be clear, creating the potential for disputes over resource development. Title to the Group’s mining and hydrocarbon rights may be challenged or impugned, and title insurance may not generally be avail­ able. In many cases, the government of the country in which a particular asset is located is the sole authority able to grant such rights and, in some cases, may have limited limited re­ sources which may constrain the Group’s ability to ensure that it has obtained se­ cure title to individual exploration licenc­ es or extraction rights. infrastructure and Availability of infrastructure The production, processing and product delivery capabilities of the Group’s in­ dustrial assets rely on their infrastructure being adequate and remaining available. Impact: Any dispute, relating to a material industrial asset, could disrupt or delay relevant mining, processing or other projects and/or impede the Group’s ability to develop new industrial properties, which may have a material adverse effect on the Group’s business, results of operations and financial condition. mItIgatIon: Title and tenure risks are managed through geographical diversification of commodities and operations, continuous monitoring and dialogue through and with the Group’s network of local offices and a commitment to engage proactively with employees, governments and the communities in which the Group operates to maintain and better its licence to operate. Impact: The mining, drilling, processing, development and exploration activities of the industrial assets in which the Group holds an interest depend on adequate infra­ structure. Certain of these assets are located in areas that are sparsely populated and difficult to access. Reliable roads, power sources, transport infrastructure and water supplies are essential for the conduct of these operations and the availability and cost of these utilities and infrastructure affect capital and operating costs and therefore the Group’s ability to maintain expected levels of production and results of opera­ tions. Unusual weather or other natural phenomena, sabotage or other interference in the maintenance or provision of such infrastructure could impact the development of a project, reduce production volumes, increase extraction or exploration costs or delay the transportation of raw materials to the mines and projects and commodities to end customers. Any such issues arising in respect of the infrastructure supporting | Annual Report 2012 | 29 or on the Group’s sites could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. mItIgatIon: Availability of infrastructure risk is mitigated through the continuous moni­ toring and dialogue through and with the Group’s network of local offices, a com­ mitment to engage proactively with governments and the communities in which the Group operates to maintain and improve its licence to operate, and where appropri­ ate, the establishment of back­up sources of power. Impact: Production costs are heavily influenced by the extent of ongoing develop­ ment required, ore grades, mine planning, processing technology, logistics, energy and supply costs and the impact of exchange rate fluctuations on costs of opera­ tions. All of the Group’s industrial assets are, to varying degrees, affected by increas­ es in costs for labour and fuel. Unit production costs are also significantly affected by production volumes and therefore production levels are frequently a key factor in determining the overall cost competitiveness of the Group’s industrial activities. Any increase in input costs will adversely affect the Group’s results of operations and financial condition. mItIgatIon: Maintaining costs and where appropriate lowering them is supported by the Group’s continuous reporting on these measures, coupled with the inclusion of certain cost control evaluation measures in assessing management performance. In addition, risk is mitigated somewhat through geographic and multiple project diversification. Impact: Actual reserves, resources or mineralised potential may not conform to ge­ ological, metallurgical or other expectations, and the volume and grade of ore or product recovered may be below the estimated levels. Lower market prices, increased production costs, reduced recovery rates and other factors may render the Group’s reserves, resources or mineralised potential uneconomical to exploit and may result in revision of its reserve estimates from time to time. If the Group’s actual mineral, coal and hydrocarbon reserves and resources are less than current estimates or if the Group fails to develop its resource base through the realisation of identified or new mineral potential, the Group’s business, results of operations and financial condition may be materially and adversely affected. mItIgatIon: The Group updates annually the quantity and quality of the estimated proven and probable reserves to reflect extraction, additional drilling and other avail­ able data in accordance with internationally recognised reporting frameworks, includ­ ing JORC, SAMREC and PRMS. For the major deposits, the estimates are prepared and signed off by independent competent persons. Impact: Where the Group holds or has interests in industrial activities, these assets are generally subject to environmental hazards as a result of the processes and chemicals used in traditional extraction, production, storage, disposal and transportation meth­ ods. Environmental hazards may exist on the Group’s owned or leased properties or at those of the industrial activities in which it holds an interest, or may be encountered while its products are in transit. The storage of tailings at the Group’s industrial assets may present a risk to the environment, property and persons, where there remains a risk of leakage from or failure of the Group’s tailings dams, as well as theft and vandal­ ism during the operating life of the assets or after closure. Additionally, the Group conducts oil exploration and drilling activities and also stores and transports crude oil and oil products around the world. Damage to exploration or drilling equipment, a vessel carrying oil or a facility where oil is stored could lead to a spill, causing environmental damage with significant clean­up or remediation costs. Cost control As commodity prices themselves are outside of the Group’s control, the com­ petitiveness and sustainable long­term profitability of its industrial asset port­ folio depends significantly on its ability to closely manage costs and maintain a broad spectrum of low­cost, efficient operations. Costs associated with the operation of the Group’s industrial as­ sets can be broadly categorised into la­ bour costs and other on­site expenses, including power and equipment costs. Resources and reserves The Group’s stated mineral, coal and hy­ drocarbon reserves, resources and min­ eralised potential are only estimates and the anticipated volumes or grades may not be achieved. Environmental hazards The processes and chemicals used in the Group’s extraction and production methods, as well as its shipping and storage activities, are subject to environ­ mental hazards. 30 | Annual Report 2012 | oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion The Group may be liable for losses associated with environmental hazards, have its licences and permits withdrawn or suspended or may be forced to undertake exten­ sive remedial clean­up action or to pay for government­ordered remedial clean­up actions, even in cases where such hazards have been caused by any previous or subse­ quent owners or operators of the property, by any past or present owners of adjacent properties, by independent third party contractors providing services to the Group or by acts of vandalism by trespassers. Any such losses, withdrawals, suspensions, ac­ tions or payments may have a material adverse effect on the Group’s business, results of operations and financial condition. mItIgatIon: Compliance with international and local regulations and standards, pro­ tecting our people, communities and the environment from harm and our operations from business interruptions are top priorities for the Group. The Group operating procedures and those of its partners in relation to owned tankers conform to industry best practise working under the guidelines of the International Maritime Organisa­ tion (“IMO”), relevant Flag States and top tier Classification societies. Tankers char­ tered from third parties are required to meet strict vetting inspection requirements in line with OCIMF (Oil Companies International Marine Forum) and the Group’s own standards. The Group’s oil exploration activities engage best industry practises and procedures and utilise first class drilling contractors with proven expertise and experience. Additionally, wide­spread and comprehensive insurance cover is actively procured, to reduce the financial impact of operational risks, property damage, busi­ ness interruption and environmental liabilities to the extent possible. Impact: Increasing regulation of greenhouse gas emissions, including the progressive introduction of carbon emissions trading mechanisms and tighter emission reduction targets is likely to raise production, transportation and administrative costs. In addi­ tion, regulation of greenhouse gas emissions in the jurisdictions of the Group’s major customers and in relation to international shipping could also have a material adverse effect on the demand for some of the Group’s products. mItIgatIon: The Group, through its sustainability program, strives to ensure emissions and climate change issues are identified, understood and effectively managed and monitored in order to meet international best practice standards and ensure regulatory compliance. Impact: If it is perceived that the Group is not respecting or advancing the economic and social progress and safety of the communities in which it operates, the Group’s reputa­ tion and shareholder value could be damaged, which could have a negative impact on its ‘‘social licence to operate’’, its ability to secure new resources and its financial perfor­ mance. The consequences of negative community reaction could also have a material adverse impact on the cost, profitability, ability to finance or even the viability of an oper­ ation. Such events could lead to disputes with national or local governments or with local communities or any other stakeholders and give rise to material reputational damage. If the Group’s operations are delayed or shut down as a result of political and community instability, its earnings may be constrained and the long­term value of its business could be adversely impacted. Even in cases where no action adverse to the Group is actually taken, the uncertainty associated with such political or community instability could nega­ tively impact the perceived value of the Group’s assets and industrial investments and, consequently, have a material adverse effect on the Group’s financial condition. mItIgatIon: The Group believes that the best way to manage these vital relationships is to adhere to the principles of open dialogue and co­operation and in doing so it engages with local communities to present and demonstrate the positive communal | Annual Report 2012 | 31 SUSTAINABLE DEVELOPMENT Emissions and climate change regulation The Group’s global presence exposes it to a number of jurisdictions in which regulations or laws have been or are be­ ing considered to limit or reduce emis­ sions. The likely effect of these changes will be to increase the cost for fossil fu­ els, impose levies for emissions in excess certain permitted levels and increase administrative costs for monitoring and reporting. Community relations The continued success of the Group’s ex­ isting operations and its future projects are in part dependent upon broad sup­ port and a healthy relationship with the respective local communities. Employees The maintenance of positive employee and union relations and the ability to at­ tract and retain skilled workers are key to the success of the Group. Health, safety and environment The Group’s operations are subject to health, safety and environmental regula­ tions and legislation along with complying with the Group’s corporate sustainability framework. attributes of the Group’s local operations and ensure that appropriate measures are taken to prevent or mitigate possible adverse effects on them, along with the regular reporting of such. Impact: Some of the Group’s employees, as well as employees in non­controlled industrial investments, are represented by labour unions under various collective labour agreements. The Group or the industrial investments in which it holds an inter­ est may not be able to satisfactorily renegotiate its collective labour agreements when they expire and may face tougher negotiations or higher wage demands than would be the case for non­unionised labour. In addition, existing labour agreements may not prevent a strike or work stoppage at its facilities in the future, and any strike or other work stoppage could have a material adverse effect on the Group’s business, results of operations and financial condition. The success of the Group’s business is also dependent on its ability to attract and retain highly effective marketing and logistics personnel as well as highly qualified and skilled engineers and other industrial, technical and project experts to operate its industrial activities in locations experiencing political or civil unrest, or in which they may be exposed to other hazardous conditions. The Group may not be able to attract and retain such qualified personnel and this could have a material adverse effect on the Group’s business, results of operations and financial condition. mItIgatIon: The Group understands that one of the key factors in its success is a good and trustworthy relationship with its people. This priority is reflected in the principles of its corporate practice and its related guidance, which require regular, open, fair and respectful communication, zero tolerance for human rights violations, fair remunera­ tion and, above all, a safe working environment. Impact: New or amended environmental, health and safety legislation or regula­ tions may result in increased operating costs or, in the event of non compliance or accidents or incidents causing personal injury or death or property or environmental damage at or to the Group’s mines, smelters, refineries, concentrators, drill rigs or re­ lated facilities (such as logistics and storage facilities) or surrounding areas may result in significant losses, interruptions in production, expensive litigation, imposition of penalties and sanctions or suspension or revocation of permits and licences, even in cases where such hazards have been caused by any previous or subsequent owners or operators of the property, by any past or present owners of adjacent properties, by independent third party contractors providing services to the Group or by acts of van­ dalism by trespassers. Any such losses, withdrawals, suspensions, actions or payments may have a material adverse effect on the Group’s business, results of operations and financial condition. mItIgatIon: The Group is committed to comply with or exceed the laws, regulations and best practice guidelines applicable to its operations and products in the jurisdic­ tions in which it operates and through its extensive compliance program, including continuous monitoring of legislative requirements and engagement with government and regulators, it strives to ensure full compliance. 32 | Annual Report 2012 | oveRview | BuSineSS Review | CoRpoRAte GoveRnAnCe | FinAnCiAl StAteMentS | AdditionAl inFoRMAtion OTHER RISKS Mergers and acquisitions The Group may fail to integrate mergers or acquisitions effectively, including in connection with the merger with Xstrata, or fail to realise the anticipated business growth opportunities or other synergies in connection with such mergers or ac­ quisitions. Impact: Business combinations entail a number of risks, including the ability of the Group to integrate effectively the businesses acquired with its existing operations such as the realisation of anticipated synergies, significant one­time write­offs or restructuring charges, difficulties in achieving optimal tax structures, unanticipated costs, addressing possible differences in business culture, processes, controls, proce­ dures and systems and failing to integrate and motivate key employees and/or retain certain individuals during the integration period. For example, the performance of the Group in the future will, amongst other things, depend on its ability to integrate Xstrata successfully without disruption to the existing business. Failure to successfully integrate a business, including in connection with the merger with Xstrata, could have a material adverse effect on the Group’s business, financial condition, results of operations and/or prospects. All of these may be exacerbated by the diversion of management’s attention away from other ongoing business concerns. The Group may also be liable for the past acts, omissions or liabilities of companies or businesses it has acquired, which may be unforeseen or greater than anticipated at the time of the relevant acquisition. In addition, various factors could impact the estimated synergies for potential acquisitions and have a material adverse impact on the Group’s business, results of operations and financial condition. mItIgatIon: The Group understands that businesses combinations, whether as a re­ sult of a merger or an acquisition, entail a number of risks. Such risks are mitigated through detailed integration planning and by establishing dedicated integration teams to ensure effective integration of businesses. In particular, the Group believes that, in the case of the merger with Xstrata, integration risks are reduced by bringing two highly complementary businesses with a long­standing relationship. | Annual Report 2012 | 33 FPSO Aseng sailaway, Singapore Business review 2 | Business review 2.1 | Financial review 2.2 | Metals and minerals 2.3 | Energy products 2.4 | Agricultural products 2.5 | Reserves and resources 36 46 54 60 64 2.1 | Financial review BASIS OF PRESENTATION OF FINANCIAL INFORMATION The financial information has been prepared on a basis as outlined in note 1 of the financial statements. It is presented in the Overview and the Financial review sections before significant items unless otherwise stated to provide an enhanced understanding and comparative basis of the underlying financial perfor- mance. Significant items are items of income and expense which, due to their financial impact and nature or the expected infrequency of the events giving rise to them, are separated for internal reporting and analysis of Glencore’s results. PERFORMANCE HIgHLIgHTS US $ million 2012 2011 Change Key statement of income and cash flows highlights: Revenue Adjusted EBITDA 1 Adjusted EBIT 1 Net income attributable to equity holders pre significant items 2 Net income attributable to equity holders Earnings per share (Basic) pre significant items (US $) Earnings per share (Basic) (US $) Funds from operations (FFO) 3 214 436 186 152 5 943 4 470 3 060 1 004 0.44 0.14 4 115 6 464 5 398 4 060 4 048 0.72 0.72 3 522 15% – 8% – 17% – 25% – 75% – 39% – 81% 17% US $ million 2012 2011 Change Key financial position highlights: Total assets Equity attributable to equity holders Current capital employed (CCE) ¹ Net debt 3 Net debt, adjusted for the Viterra acquisition Ratios: FFO to Net debt FFO to Net debt, adjusted for the Viterra acquisition Net debt to Adjusted EBITDA Net debt, adjusted for the Viterra acquisition, to Adjusted EBITDA Adjusted EBITDA to net interest ¹ Refer to glossary on page 166 for definitions and calculations. 2 Refer to page 39. ³ Refer to page 42. 105 537 31 266 23 945 15 416 11 457 26.7% 35.9% 2.59x 1.93x 6.13x 86 165 29 265 22 479 12 938 12 938 27.2% 27.2% 2.00x 2.00x 7.63x 22% 7% 7% 19% – 11% – 2% 32% 30% – 4% – 20% 36 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN RESuLTS Adjusted EBIT decreased by 17% to $ 4,470 million in 2012 compared to 2011 due to lower contributions from our industrial activities which were affected by generally lower year on year average commodity prices for the key commodities which we and our associates (primarily Xstrata) produce. Given the largely fixed cost nature of ‘depreciation and amortisation’ (non-cash) over a certain level of production, Adjusted EBITDA was only 8% lower in 2012, compared to 2011. Adjusted EBIT contribution from marketing was $ 2,130 million (2011: $ 1,911 million) representing 48% of Adjusted EBIT for the year, an increase from 35% in the prior year. These results highlight the reinforcing the strength and resilience of Glencore’s business model and the di- versification benefits associated with combining and integrating, across a broad spectrum of commodities, a portfolio of industrial assets with large scale physical sourcing, marketing and logistics capabilities. Adjusted EBIT Adjusted EBIT by business segment is as follows: US $ million Metals and minerals Energy products Agricultural products Corporate and other ¹ Total Marketing activities Industrial activities 2012 Adjusted EBIT Marketing activities Industrial activities 2011 Adjusted EBIT 1 363 435 371 – 39 2 130 708 594 – 10 1 048 2 340 2 071 1 029 361 1 009 46% 23% 8% 23% 1 242 697 – 8 – 20 4 470 100% 1 911 1 357 375 – 39 1 794 3 487 2 599 1 072 – 47 1 774 48% 20% – 1% 33% 5 398 100% ¹ Corporate industrial activities include $ 1,174 million (2011: $ 1,893 million) of Glencore’s equity accounted share of Xstrata’s income. Marketing Adjusted EBIT was $ 2,130 million up 11% over 2011. 2012 saw an improved performance by met- als and minerals, with generally good volume growth e.g. copper and nickel and healthy physical premia for many of Glencore’s core products. The energy result was weaker due to fewer arbitrage opportunities, against a backdrop of relatively low volatility and the continuing weak freight markets. Agricultural products showed a marked improvement over 2011, with the events surrounding cotton now behind us and on an adjusted comparable basis, its performance was relatively stable year over year. Industrial Adjusted EBIT declined by 33% to $ 2,340 million in 2012, primarily due to weaker average com- modity prices, including nickel, coal (API 2), zinc and copper, down 23%, 24%, 11% and 10% respectively. These lower prices impact our own controlled operations as well as our share of Xstrata’s earnings. The commencement of oil production at the Aseng field in Q4 2011 was largely accountable for the increase in energy products’ industrial performance. Corporate and other primarily relates to the equity accounted interest in Xstrata and also includes the variable pool bonus cost, the net result of which was down 43% to $ 1,009 million in 2012 compared to 2011. | Annual Report 2012 | 37 Revenue Revenue for the year ended 31  December 2012 was $  214,436  million, a 15% increase compared to $ 186,152 million in 2011. The increase was primarily due to higher oil volumes handled (+39%), partially offset by lower period-on-period metals prices as noted above. Cost of goods sold Cost of goods sold for the year ended 31  December  2012 was $ 210,435 million, a 16% increase from $ 181,938 million in 2011 primarily due to the higher oil volumes noted above. Selling and administrative expenses Selling and administrative expenses for the year ended 31 December 2012 were $ 997 million, a 16% increase from $ 857 million in 2011, due to somewhat higher employee compensation charges, commensurate with an expansion of business activities and performance. Share of income from associates and jointly controlled entities Share of income from associates and jointly controlled entities for the year ended 31 December 2012 was $ 367  million, a 81% decrease from $ 1,972 million in 2011. The decrease reflects reduced earnings flow- through from Xstrata primarily due to the lower commodity prices and various impairment charges which it took ($ 299 million equity earnings, including $ 875 million of significant items; 2011: $ 1,868 million, including $ 25 million of significant items). (Loss)/gain on disposal of investments Loss on disposal of investments for the year ended 2012 was $ 128 million, compared to a gain of $ 9 million in 2011. The amount in 2012 primarily comprised an accounting dilution loss following an Xstrata share issu- ance in March 2012 (part of its employee stock ownership plan), which saw Glencore’s effective ownership reduce from 34.5% to 34.2%. Other expense – net Net other expense for 2012 was $ 1,214 million, compared to $ 511 million in 2011. 2012 primarily comprised impairments of $ 1,650 million, $ 120 million acquisition related expenses and $ 109 million of expense re- lated to phantom equity awards granted upon Glencore’s listing, offset by a net $ 497 million accounting gain mainly related to the revaluation of Glencore’s initial 40% interest in Mutanda upon acquisition of an additional 20% interest in April 2012. There were also $ 179 million of positive mark to market adjustments related to certain fixed priced forward coal sales contracts in respect of Prodeco’s future production. The impairment amount mainly comprises $ 1.2 billion of previously recognised negative fair value adjust- ments reclassified from ‘other comprehensive income’ to the statement of income in respect of Glencore’s interest in UC Rusal. This reclassification had no impact on Glencore’s net asset/equity position which has consistently, for many years, reflected the mark-to-market fair value of this holding. Evidence of this ‘lack of impact’ is clear on page  111, where ‘total comprehensive income attributable to equity holders’ was lower by a mere 10% in 2012 compared to 2011, contributing to a 7% increase in total equity, excluding non- controlling interests. The net amount in 2011 primarily comprised $ 344 million of expenses related to Glencore’s listing, a $ 92 mil- lion of mark-to-market loss in respect of various minority holdings in listed companies, $ 63 million related to final costs associated with the settlement of the Prodeco option and $ 32 million of asset impairments. See notes 4 and 5 to the consolidated financial statements for further explanations. Interest income Interest income for the year ended 31 December 2012 was $ 401 million, an 18% increase over 2011 due to higher average advance balances outstanding. Interest income includes interest earned on various loans extended, including to OAO Russneft. Interest expense Interest expense for the year ended 31 December 2012 was $ 1,371 million, a 16% increase from $ 1,186 mil- lion in 2011. The increase was mainly due to higher average debt levels. 38 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Income taxes A net income tax credit of $ 76 million was recognised during the year ended 31 December 2012 compared to a tax credit of $ 264 million in 2011. The 2012 credit resulted primarily from the recognition of crystallised tax benefits (resulting in losses carried forward), following an internal reorganisation of our existing owner- ship interest in Xstrata. The 2011 credit resulted primarily from the recognition of tax deductions associated with the conversion of the Glencore Group from private to public ownership as part of its listing. It has been Glencore’s historical experience that its effective tax rate pre significant items on pre-tax income, excluding share of income from associates and jointly controlled entities and dividend income, has been approxi- mately 10%, particularly in years where the marketing to industrial profit contribution mix is higher. This rate has been reflected in the table below. It is likely that the future effective tax rate will increase relative to the past, however, as noted above, this will largely be a function of Glencore’s profit mix (marketing vs industrial). Earnings A summary of the differences between Adjusted EBIT and income attributable to equity holders, including significant items, is set out below: US $ million Adjusted EBIT Net finance costs Foreign exchange loss ¹ Income tax expense Non controlling interests Income attributable to equity holders pre significant items Earnings per share (Basic) pre significant items (US $) 2012 2011 4 470 – 970 – 4 – 224 – 212 3 060 0.44 5 398 – 847 – 5 – 250 – 236 4 060 0.72 Other expense – net, excluding foreign exchange loss ¹ – 1 210 – 506 Net (loss)/gain on disposal on investments Mark to market valuation of certain natural gas forward contracts ² Unrealised intergroup profit elimination ² Share of Associates’ exceptional items ³ Net deferred tax asset recorded – mainly restructuring benefits (2011 – Listing/Restructuring benefits) 4 Non controlling interest portion of significant items 5 Total significant items Income attributable to equity holders Earnings per share (Basic) (US $) – 128 – 123 – 84 – 875 300 64 – 2 056 1 004 0.14 9 0 0 – 45 514 16 – 12 4 048 0.72 ¹ Recognised within other expense – net, see note 4 of the financial statements. ² Recognised within cost of goods sold, see note 2 of the financial statements. 3 Recognised within share of income from associates and jointly controlled entities, see note 2 of the financial statements. 4 Recognised within income tax credit, see note 6 of the financial statements. 5 Recognised within non controlling interests. | Annual Report 2012 | 39 SIgNIFICANT ITEMS Significant items are items of income and expense which, due to their financial impact and nature or the expected infrequency of the events giving rise to them, are separated for internal reporting and analysis of Glencore’s results to provide a better understanding and comparative basis of the underlying financial performance. In 2012, Glencore recognised $  2,056 million of significant expenses on a net basis which comprised primarily impairment charges of $ 1,650 million (2011: $ 32 million) and our share of Xstrata’s exceptional items (2012: $ 875 million, 2011: $ 25 million), offset by a $ 497 million accounting gain on the revaluation of previously held interests in subsidiaries acquired during the year. In 2011, Glencore recognised $ 12 million of significant expenses on a net basis which comprised primarily $ 344 million of expenses related to Glencore’s listing, a $ 92 million of mark-to-market loss in respect of various minority holdings in listed companies, $ 63 million related to final costs associated with the settle- ment of the Prodeco option and $ 32 million of asset impairments. These expenses were largely offset by the recognition of $ 514 million of net tax credits relating primarily to certain income tax deductions that were crystallised, following the reorganisation of Glencore prior to Listing. See comments in other expense – net above and notes 2, 4 and 5 of the financial statements for additional details. LIquIdITy ANd CAPITAL RESOuRCES – CASH FLOw Cash generated by operating activities before working capital changes Cash generated by operating activities before working capital changes for the year ended 31 December 2012 was $ 4,782 million, an increase of $ 681 million (17%) compared to 2011, reflecting the higher Adjusted EBITDA from marketing activities. On a more comparable basis, the increase is 8%, taking into account $ 325 million of listing related cash expenses in the 2011 period (see movement in net debt table below). Working capital changes Cash net working capital decreased by $ 727 million during the year ended 31 December 2012 compared to an increase of $ 3,174 million in 2011. Much of the 2011 increase occurred in Q4 2011, as Glencore was presented with highly attractive ‘funded’ commodity sourcing opportunities. 2012 saw a partial release of this increase, via the movement in receivables and payables, however marketing related inventory balances increased dur- ing the year. Inventory levels were higher in metals and naturally in the agricultural division, which took on substantial levels of working capital towards the end of 2012, in no small part due to the mid-December ac- quisition of Viterra – see note 24 of the financial statements. In 2013, we are focused on working capital levels associated with the 2012 acquisitions, including a natural release of working capital once various ‘earmarked’ non-core components of Viterra have been sold. Net cash used by investing activities Net cash used by investing activities was $ 9,539 million in 2012 compared to $ 3,690 million in 2011. The net outflow in 2012 primarily related to the acquisition of Viterra, an additional 32% interest in Optimum, an ad- ditional 20% interest in Mutanda, two European manganese operations and an 80% interest in Rosh Pinah (see note 24 of the financial statements), along with continued capital expenditure programs in respect of the various E&P upstream oil development projects, the development of the Mutanda and Kansuki copper/ cobalt operations and the production expansions at Katanga, Cobar and Prodeco. Net cash generated by financing activities During 2012, Glencore issued $ 2,951 million bonds – 6 year 4.125% EUR 1,250 million bonds, 10 year 5.5% GBP 500 million bonds and 6.5 year 2.625% CHF 450 million bonds. 40 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN ASSETS, LEVERAgE ANd wORKINg CAPITAL Total assets were $ 105,537 million as at 31 December 2012 compared to $ 86,165 million as at 31 Decem- ber 2011. Over the same time period current assets increased from $ 45,731 million to $ 54,059 million. The adjusted current ratio at 31 December  2012 reduced to 1.16x, as the Xstrata secured bank loans and the October 2013 Eurobonds moved from non current to current borrowings. Adjusting for these two move- ments (given our c. $ 9 billion of long term committed liquidity could have been drawn to repay short term debt), the Adjusted current ratio improves to 1.27x. Non current assets increased from $ 40,434 million as at 31 December 2011 to $ 51,478 million as at 31 December 2012, primarily due to the acquisitions and capital expenditure programs noted above, including large non controlling interest asset gross-ups in relation to Mutanda and Optimum, where Glencore moved from equity to consolidated accounting during the year. Consistent with 31 December 2011, 99% ($ 17,290 million) of total marketing inventories were readily market- able inventories at 31 December 2012. These inventories are readily convertible into cash due to their liquid nature, widely available markets, and the fact that any associated price risk is or could be covered either by a physical sale transaction or a hedge transaction on a commodity exchange or with a highly rated coun- terparty. Given the highly liquid nature of these inventories, which represent a significant share of current assets, Glencore believes it is appropriate to consider them together with cash equivalents in analysing Group net debt levels and computing certain debt coverage ratios and credit trends. Balance sheet liquidity remains very healthy such that current capital employed plus investments in listed associates (at book carry- ing value) covers 115% of Glencore’s total gross debt as at 31 December 2012. Net debt US $ million Gross debt Cash and cash equivalents and marketable securities Net funding Readily marketable inventories Net debt 2012 2011 35 526 – 2 820 32 706 – 17 290 15 416 28 068 – 1 345 26 723 – 13 785 12 938 | Annual Report 2012 | 41 Movement in net debt US $ million Cash generated by operating activities before working capital changes Listing related cash expenses included in number above (via statement of income) Net interest paid Tax paid Dividends received from associates Funds from operations 2012 2011 4 782 0 – 784 – 344 461 4 115 4 101 325 – 798 – 472 366 3 522 Working capital changes, excluding readily marketable inventory movements and other 2 776 – 3 741 Non current advances and loans Acquisition and disposal of subsidiaries, net of asset acquirer loans Purchase and sale of investments Purchase and sale of property, plant and equipment Margin receipts in respect of financing related activities Acquisition and disposal of additional interest in subsidiaries Dividends paid Share issuance, net of issue costs and Listing related cash expenses included in the statement of income (see above) Cash movement in net debt Net debt assumed in business combinations Foreign currency revaluation of non current borrowings and other non cash items Profit participation certificates redemptions Non cash movement in net debt Total movement in net debt Net debt, beginning of period Net debt, end of period – 203 – 3 602 – 610 – 3 005 176 – 624 – 1 066 0 – 2 043 – 359 – 76 0 – 435 – 2 478 – 12 938 – 15 416 – 320 – 346 – 764 – 2 626 21 – 315 – 364 7 291 2 358 – 204 – 68 – 268 – 540 1 818 – 14 756 – 12 938 Net debt as at 31 December 2012 increased to $ 15,416 million from $ 12,938 million as at 31 December 2011. $ 359 million of net debt was assumed in the Viterra acquisition and $ 3.6 billion of net debt was incurred to finance Glencore’s effective share of the equity purchase consideration. Adjusting for the increase in net debt attributable to the Viterra acquisition (completed mid-December 2012), net debt would be $ 11,457 million, a decrease of $ 1,481 million compared to 2011. The ratio of Net debt (adjusted for the Viterra acquisition) to Adjusted EBITDA improved from 2.00 times in 2011 to 1.93 times as at 31 December 2012, while the ratio of FFO to Net debt (adjusted for the Viterra acquisition) improved from 27.2% in 2011 to 35.9% in 2012. A healthy positive free cash flow generation/FFO is expected from the Viterra asset base going forward, which is expected to offer support to debt coverage ratios and deleveraging initiatives into the future. 42 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN CAPITAL RESOuRCES ANd FINANCINg During the year ended 31 December 2012, the following notable financing activities took place: • In April 2012, Glencore issued EUR 1,250 million 4.125% bonds maturing in 2018 and GBP 300 million 5.5% bonds maturing in 2022, totalling $ 2.15 billion equivalent; • In April 2012, Glencore updated its revolving credit facilities totalling $ 12.8 billion. The facilities comprise: 1) a $ 4,435 million 14 month revolving credit facility with a 10 month term-out option and 10 month ex- tension option, that refinanced Glencore’s existing $ 3,535 million 364-day revolving credit facility, i.e. an increase of $ 900 million and 2) an amount of $ 8,030 million of the existing $ 8,370 million 3-year revolving credit facility was extended for a further year to May 2015; • In April 2012, Glencore signed a $ 3.1 billion syndicated loan backing the proposed merger with Xstrata, after raising $ 11 billion in syndication from 31 banks, a scale-back exceeding 70%; • In June 2012, Glencore concluded a 1 year syndicated term loan facility with a 1 year term out option at Glencore’s discretion of some $ 1.5 billion in support of the announced acquisition of Viterra, once again scaling back an oversubscribed syndication process; • In July 2012, Glencore issued CHF 450 million 2.625% bonds maturing in 2018; • In October 2012, Glencore signed a new 364 day committed $ 2.2 billion secured inventory and receivables borrowing base facility, which renewed the existing $ 1.7 billion facility; and • In November 2012, Glencore issued GBP 200 million 5.5% bonds maturing in 2022. As at 31 December 2012, Glencore had available committed undrawn credit facilities and cash amounting to $ 9 billion (as an internal financial policy, Glencore has a $ 3 billion minimum threshold requirement). Value at risk (VaR) One of the tools used by Glencore to monitor and limit its primary market risk exposure, namely commodity price risk related to its physical marketing activities, is the use of a VaR computation. VaR is a risk measure- ment technique which estimates the potential loss that could occur on risk positions as a result of move- ments in risk factors over a specified time horizon, given a specific level of confidence. The VaR methodology is a statistically defined, probability based approach that takes into account market volatilities, as well as risk diversification by recognising offsetting positions and correlations between commodities and markets. In this way, risks can be measured consistently across all markets and commodities and risk measures can be aggregated to derive a single risk value. Glencore has set a consolidated VaR limit (1 day 95%) of $ 100 million representing less than 0.3% of equity. Glencore uses a VaR approach based on Monte Carlo simulations and is computed at a 95% confidence level with a weighted data history using a combination of a one day and one week time horizon. Average market risk VaR (1 day 95%) during the year ended 31 December 2012 was $ 40 million (2011: $ 39 mil- lion), representing a modest 0.1% of shareholders’ equity. Whilst it is Glencore’s policy to substantially hedge its commodity price risks, there remains the possibility that the hedging instruments chosen may not always provide effective mitigation of the underlying price risk. The hedging instruments available to the marketing businesses may differ in specific characteristics to the risk exposure to be hedged, resulting in an ongoing and unavoidable basis risk exposure. Residual basis risk exposures represent a key focus point for Glencore’s commodity department teams who actively engage in the management of such. Credit ratings In light of our extensive funding activities, investment grade ratings are of utmost importance to us. Follow- ing the Viterra acquisition, the Xstrata merger shareholder approval and assumed completion thereof, the enlarged Group’s credit ratings were confirmed as Baa2 (stable) from Moody’s and BBB (stable) from S&P. Glencore’s current ratings are Baa2 (review with direction uncertain) from Moody’s and BBB (stable) from S&P. | Annual Report 2012 | 43 Dividend The Directors have proposed a 2012 final dividend of $  0.1035 per share, amounting to $  735  million. An interim dividend of $ 0.054 per share, amounting to $ 374 million, was paid on 13 September 2012. Dividend dates Annual General Meeting Ex-dividend date (UK and Hong Kong) Last time for lodging transfers in Hong Kong Record date in Hong Kong Record date in UK Deadline for return of currency election form (Jersey shareholders) Applicable exchange rate date Payment date 2013 16 May 22 May 4:30 pm (HK) 23 May Opening of business (HK) 24 May Close of business (UK) 24 May 28 May 31 May 7 June Shareholders on the Jersey register, may elect to receive the dividend in Sterling, Euro or Swiss Franc. The Sterling, Euro or Swiss Franc amount will be determined by reference to the exchange rates applicable to the U.S. Dollar seven days prior to the dividend payment date. Shareholders on the Hong Kong branch reg- ister will receive their dividends in Hong Kong Dollars. Further details on dividend payments, together with currency election and dividend mandate forms, are available from Glencore’s website (www.glencore.com) or from the Company’s Registrars. The Directors have proposed that the final dividend will be paid out of capital contribution reserves. As such, the final dividend would be exempt from Swiss withholding tax. As at 31 December 2012, Glencore International plc had CHF 13.4 billion of such capital contribution reserves in its statutory accounts. 44 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Notional allocation of debt and interest expense Glencore’s indebtedness is primarily arranged centrally, with the proceeds then applied to marketing and industrial activities as required. Glencore does not allocate borrowings or interest to its three operating segments. However, to assist inves- tors in the assessment of overall performance and underlying value contributors of its integrated business model, Glencore notionally allocates its borrowings and interest expense between its marketing and indus- trial activities as follows: • At a particular point in time, Glencore estimates the borrowings attributable to funding key working capital items within the marketing activities, including inventories, net cash margining and other accounts receiv- able/payable, through the application of an appropriate loan to value ratio for each item. The balance of Group borrowings is allocated to industrial activities (including Glencore’s stake in Xstrata). • Once the average amount of borrowings notionally allocated to marketing activities for the relevant period has been estimated, the corresponding interest expense on those borrowings is estimated by applying the Group’s average variable rate cost of funds during the relevant period to the average borrowing amount. The balance of Group interest expense and all interest income is allocated to industrial activities. The al- location is a company estimate only and is unaudited. The table below summarises the notional allocation of borrowings and interest and corresponding implied earnings before tax of the marketing and industrial activities for the year ended 31 December 2012. US $ million Adjusted EBIT Interest expense allocation Interest income allocation Allocated profit before tax Allocated borrowings – 31 December 2012 Allocated borrowings – quarterly average Marketing activities Industrial activities 2 130 – 342 – 1 788 16 668 14 765 2 340 – 1 029 401 1 712 18 858 15 714 Total 4 470 – 1 371 401 3 500 35 526 30 479 Based on the implied equity funding for the marketing activities’ working capital requirements, as well as the relatively modest level of non current assets employed in the marketing activities (assumed to be equity funded), the return on notional equity for the marketing activities continued to be very healthy in 2012. The industrial activities’ return on notional equity, although respectable, is being held back by mostly mid stage oil, copper, coal and gold development and expansion projects, where significant investments have been made to date, however the projects did not contribute to earnings in the year at anywhere near where their full production potential is expected to be and given the timing of certain acquisitions, noteably Viterra, the full effect of the earnings is yet to be reflected as allocated profits. SuBSEquENT EVENTS AFFECTINg OuR FINANCIAL POSITION On 26  February  2013, Glencore-controlled Kazzinc purchased an 89.5% interest in two gold deposits in northern Kazakhstan with combined resources of 75,727 tonnes of gold for $ 179 million. The transaction was accomplished via the purchase of Kazakh company Orion Minerals which owns subsoil rights at the Raigoro- dok field in the Akmola Region and the Komarovskoye field in the Kostanai region. | Annual Report 2012 | 45 2.2 | Metals and minerals “during 2012, the metals and minerals division exhibited a solid performance despite lower average metal prices in the period impacting our industrial activities. Of particular note were the respective performances of Mutanda and Murrin Murrin which increased production by 37% and reached record production levels respectively. Marketing continued its strong track record capitalising on increased volumes. with continued demand expected from emerging markets, we remain confident about future prospects.” Daniel Maté, Telis Mistakidis Highlights Metal and minerals’ total Adjusted EBIT in 2012 was $ 2,071 million, 20% lower than in 2011. This was driven by the performance of the industrial activities which was impact- ed by lower average metal prices. Marketing activities delivered a strong performance during 2012. Adjusted EBIT was $ 1,363 million, 10% higher than in 2011 as volumes increased and physical premia remained strong. Metals and minerals’ industrial activi- ties generated Adjusted EBIT of $ 708 million, a decrease of 48% compared to 2011. The reduction in EBIT was driven by lower metal prices and production setbacks at Katanga and Cobar. However Mutanda delivered an excellent performance, with own sourced copper production up 37% and Murrin Murrin registered a record year of nickel production. Outlook Significant production ramp-ups are expected at Mutanda and Katanga, underpinned by further power supply improvements and the installation of new processing equip- ment. We expect demand in the markets where we operate to remain healthy with emerging market demand increasing with economic development and improving liv- ing standards. Adjusted EBIT 3 000 2 500 n 2 000 o i l l i m $ S U 1 500 1 000 500 0 2010 2011 2012 Marketing activities Industrial activities 2010 2011 2012 1 401 1 242 1 363 708 1 160 1 357 Marketing activities T M k l , t n e a v i u q e u C 6 000 5 000 4 000 3 000 2 000 1 000 0 2010 2011 2012 Volumes 2010 2011 2012 5 986 5 864 6 217 Industrial activities 1 000 T 800 M k l , t n e a v i u q e u C 600 400 200 0 2010 2011 2012 Volumes 2010 2011 2012 805 783 692 46 | Annual Report 2012 |   overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN US $ million Revenue Adjusted EBITDA Adjusted EBIT Adjusted EBITDA margin (%) Allocated average CE 1 Adjusted EBIT return on average CE Marketing activities Industrial activities 48 254 1 379 1 363 3% 8 083 17% 8 420 1 625 708 19% 18 535 4% 2012 56 674 3 004 2 071 – 26 618 8% Marketing activities Industrial activities 43 317 1 247 1 242 3% 7 746 16% 8 667 2 122 1 357 24% 15 108 9% 2011 51 984 3 369 2 599 – 22 854 11% 1 The simple average of segment current and non current capital employed (see note 2 of the financial statements), adjusted for production related inventories, is applied as a proxy for marketing and industrial activities respectively. MARKET CONdITIONS Selected average commodity prices S&P GSCI Industrial Metals Index LME (cash) zinc price ($/t) LME (cash) copper price ($/t) LME (cash) lead price ($/t) Gold price ($/oz) Metal Bulletin alumina price ($/t) LME (cash) aluminium price ($/t) LME (cash) nickel price ($/t) Metal Bulletin cobalt price 99.3% ($/lb) Iron ore (Platts 62% CFR North China) price ($/DMT) Currency table AUD : USD USD : COP EUR : USD GBP : USD GBP : CHF USD : CHF USD : KZT USD : ZAR 2012 382 1 948 7 958 2 062 1 669 319 2 022 17 530 13 130 2011 Change 440 2 193 8 813 2 397 1 573 374 2 398 22 843 16 169 – 13% – 11% – 10% – 14% 6% – 15% – 16% – 23% – 19% – 23% Average 2012 Spot 31 Dec 2012 Average 2011 Spot 31 Dec 2011 Change in average prices 1.04 1 797 1.29 1.59 1.49 0.94 149 8.21 1.04 1 767 1.32 1.63 1.49 0.92 150 8.47 1.03 1 848 1.39 1.60 1.42 0.89 147 7.26 1.02 1 939 1.30 1.55 1.46 0.94 148 8.09 1% – 3% – 7% – 1% 5% 6% 1% 13% Metals prices generally decreased over 2012 compared to 2011 with the GSCI Industrial Metal Index lower by 13%. The main excep- tion was gold which increased by 6%. | Annual Report 2012 | 47 Zinc/Copper/Lead Global copper markets continued to be impacted by a combination of declining ore grades and delays in new projects which were expected to replace lost production from mines that are currently in decline. It is expected that rising costs, on-going production disruptions, project delays and declining grades will remain a feature of the copper industry for the foreseeable future despite the material scheduled expansions in global mined production. On the demand side, underlying Chinese copper consumption continued to increase although headline statistics remain subject to the inventory cycle. 2012 also saw the first tentative signs of life from the US housing market. Zinc markets experienced another tough year with demand from Europe and US remaining weak through most of the year. Chinese refined zinc metal imports increased during 2012, reaching some 600,000 tonnes. Looking forward, there are a number of major scheduled zinc mine closures in the next several years which can be expected to bring the market closer to balance. This should in turn create an incentive price which better matches the need for sustained invest- ment in new mines in the longer term. Alumina/Aluminium The average LME aluminium prices during 2012 were below the averages for 2011. Although premium levels increased significantly compared to 2011, pressure on producers remains with many no longer able to cover their production costs. Indications for alu- minium premiums for duty unpaid, in-warehouse material at the beginning of 2012 were $ 100 to $ 125 per tonne, with an average 2012 range of approximately $ 140 to $ 165 per tonne and a more recent level of $ 200 to $ 230 per tonne. Ferroalloys/Nickel/Cobalt/Iron Ore Global stainless steel production increased by 3% in 2012, thanks largely to increased output in China. However, macroeconomic uncertainty and subdued end user demand, especially during Q2 and Q3  2012, ensured that destocking activity continued throughout the distribution chain in most stainless steel markets. By contrast, speciality steel markets catering for the oil, gas and aerospace industries continued to enjoy robust demand conditions. Cobalt prices continued to decrease in 2012, losing 19% compared to 2011. This trend was due to lower economic activity in Europe, a drop in Japanese metal demand and a Chinese destocking cycle, all of which contributed to an oversupply of cobalt metal during the year. Iron ore prices were in the $ 135 to $ 150 range for the first four months of the year; however the Chinese crude steel industry then went through a difficult period during Q3 2012 and aggressively destocked. Iron ore prices fell to a level of $ 86 per DMT in September 2012, the lowest in the past three years. From this point, the market recovered quickly to reach $ 140 per DMT by the end of the year, fuelled by aggressive restocking and a pick-up in crude steel production. MARKETINg Highlights Adjusted marketing EBITDA and EBIT for 2012 were $ 1,379 million and $ 1,363 million respectively, an increase of 11% and 10% compared to 2011. 2012 was characterised by lower prices across all base metals, however volumes and physical premia remained strong which enabled the generation of higher profits compared to 2011. Financial information US $ million Revenue Adjusted EBITDA Adjusted EBIT 48 | Annual Report 2012 | 2012 2011 Change 48 254 1 379 1 363 43 317 1 247 1 242 11% 11% 10% overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Selected marketing volumes sold Zinc metal and concentrates 1 Copper metal and concentrates 1 Lead metal and concentrates 1 Gold Silver Alumina/aluminium Ferroalloys (incl. agency) Nickel Cobalt Iron ore 1 Estimated metal unit contained. Units 2012 2011 Change million MT million MT million MT thousand toz thousand toz million MT million MT thousand MT thousand MT million MT 2.8 2.3 0.7 746 2.7 1.9 0.7 756 22 544 11 128 11.5 3.0 232.3 16.1 19.8 11.4 2.7 191.4 22.9 10.3 4% 21% –  – 1% 103% 1% 11% 21% – 30% 92% Zinc/Copper/Lead While zinc and lead volumes were relatively consistent between 2012 and 2011, copper volumes increased by 21%. The increase was partly a timing difference, reflecting Chinese restocking with large shipments arriving Q1 2012 for material contracted in Q4 2011 when prices were considered low. Alumina/Aluminium In 2012, the marketed volumes for alumina/aluminium remained at a strong level with a small increase to 11.5 million tonnes, from 11.4 million tonnes in 2011. Ferroalloys/Nickel/Cobalt/Iron Ore Overall nickel volumes were 21% higher than 2011. For nickel metal, record production at Murrin Murrin and a full year’s production from Xstrata’s Falcondo ferronickel operation aided volumes. Nickel ore almost doubled during 2012, attributable to Glencore’s continued growth in this particular market segment. China destocking and a decrease of concentrate production in the DRC, impacted volumes of cobalt in intermediates during the year. In iron ore, spot units offered by the majors have increased substantially enabling us to increase our overall tonnage by 9.5 mil- lion tonnes to 19.8 million tonnes. INduSTRIAL ACTIVITIES Highlights Metals and minerals’ industrial activities performance was down in 2012, driven primarily by lower average metal prices, including nickel, aluminium (impacting alumina), zinc and copper. The production scorecard was mixed with some excellent performances including own sourced copper production up 37% at Mutanda and a record year of nickel production at Murrin Murrin. Overall volume growth was however lower than expected, particularly due to lost production/power disruption issues in the DRC, (mainly impacting Katanga), temporary operational issues at Cobar and nationalisation of the Colquiri tin mine in Bolivia in June 2012. Total industrial revenues for metals and minerals were $ 8,420 million, down 3% from $ 8,667 million in 2011. Adjusted EBITDA and Adjusted EBIT for 2012 were $ 1,625 million and $ 708 million, down 23% and 48% compared to $ 2,122 million and $ 1,357 million in 2011. The higher EBIT % reduction reflects the largely fixed cost nature of ‘depreciation and amortisation’ (non-cash) over a constant level of production. | Annual Report 2012 | 49 Financial information US $ million Revenue Kazzinc Other Zinc Zinc Katanga Mutanda Mopani Other Copper Copper Alumina/Aluminium Ferroalloys/Nickel/Cobalt/Iron ore Total Adjusted EBITDA Kazzinc Other Zinc Zinc Katanga Mutanda Mopani Other Copper Copper Alumina/Aluminium Ferroalloys/Nickel/Cobalt/Iron ore Share of income from associates and dividends (includes Mutanda) Total Adjusted EBITDA margin (%) Adjusted EBIT Kazzinc Other Zinc Zinc Katanga Mutanda Mopani Other Copper Copper Alumina/Aluminium Ferroalloys/Nickel/Cobalt/Iron ore Share of income from associates and dividends (includes Mutanda) Total Capex Kazzinc Other Zinc Zinc Katanga Mutanda Mopani Other Copper Copper Alumina/Aluminium Ferroalloys/Nickel/Cobalt/Iron ore Total 50 | Annual Report 2012 | 2012 2011 Change 2 839 970 3 809 497 511 990 1 475 3 473 426 712 8 420 890 167 1 057 46 161 182 150 539 8 19 2 1 625 19% 537 46 583 – 47 100 83 87 223 – 4 – 96 2 708 341 306 647 586 76 197 204 1 063 25 74 1 809 2 262 1 029 3 291 528 – 1 155 2 493 4 176 520 680 8 667 862 297 1 159 198 – 328 219 745 60 83 75 2 122 24% 561 191 752 141 – 207 161 509 50 – 29 75 1 357 439 131 570 325 – 163 116 604 20 76 1 270 26% – 6% 16% – 6% – – 14% – 41% – 17% – 18% 5% – 3% 3% – 44% – 9% – 77% – – 45% – 32% – 28% – 87% – 77% – 97% – 23% – – 4% – 76% – 22% n.m. – – 60% – 46% – 56% n.m. n.m. – 97% – 48% – – – – – – – – – – – overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Production data thousand ¹ Using feed from own sources Using feed from third party sources Using feed from own sources 2012 Total Using feed from third party sources 2011 Total Own feed change 74.0 55.7 3.0 87 15 031 MT MT MT MT MT MT 93.0 2.13 99.0 0.07 87.0 8.50 MT MT MT toz toz 227.3 26.8 49.6 474 4 777 Kazzinc Zinc metal Lead metal ² Copper metal ³ Gold Silver Katanga Copper metal ³ Cobalt Mutanda Copper metal ³ Cobalt 4 Mopani Copper metal ³ Cobalt 4 Other Zinc (Los Quenuales, Sinchi Wayra, AR Zinc, Portovesme, Rosh Pinah) Zinc metal Zinc oxide Zinc concentrates Lead metal Lead concentrates Tin concentrates Silver metal Silver in concentrates Other Copper (Cobar, Pasar, Punitaqui, Sable) Copper metal Copper concentrates Cobalt Silver in concentrates Alumina/Aluminium (Sherwin) Alumina Ferroalloys/Nickel/Cobalt (Glencore Manganese, Murrin Murrin) Ferro manganese Silicon manganese Nickel metal Cobalt 53.0 52.5 425.0 11.8 67.2 2.35 783 7 279 MT DMT DMT MT DMT DMT toz toz – 179.2 – 941 – – 33.41 2.39 MT DMT MT toz MT MT MT MT MT – – – – – 88.1 0.16 81.7 – – – – – – – 98.4 0.1 0.71 – 1 379 17.34 15.91 3.02 0.10 Total Zinc contained Total Copper contained Total Lead contained Total Tin contained Total Gold (incl. Gold equivalents) 5 Total Alumina Total Ferro manganese Total Silicon manganese Total Nickel Total Cobalt MT MT MT MT toz MT MT MT MT MT 534.4 376.7 76.3 1.15 731 – – – 33.41 13.09 155.7 189.6 55.7 – 367 1 379 17.34 15.91 3.02 0.97 301.3 82.5 52.6 561 19 808 93.0 2.13 87.0 8.50 246.0 35.6 51.2 390 4 299 91.2 2.43 63.7 7.87 54.8 66.2 1.8 39 5 571 – – – – 300.8 101.8 53.0 429 9 870 91.2 2.43 63.7 7.87 187.1 0.23 101.4 0.56 103.0 0.33 204.4 0.89 134.7 52.5 425.0 11.8 67.2 2.35 783 7 279 98.4 179.3 0.71 941 1 379 17.34 15.91 36.43 2.49 690.1 566.3 132.0 1.15 1 098 1 379 17.34 15.91 36.43 14.06 61.0 30.9 461.2 11.9 61.0 4.74 754 7 978 – 204.9 – 1 035 92.7 – – – – – – – 164.1 – 0.16 – 153.7 30.9 461.2 11.9 61.0 4.74 754 7 978 164.1 204.9 0.16 1 035 – 1 460 1 460 – – 28.50 2.02 563.1 362.6 82.5 2.23 706 – – – 28.50 12.88 – – 1.50 0.07 147.5 268.9 66.2 – 164 1 460 – – 1.50 0.56 – – 30.00 2.09 710.6 631.5 148.7 2.23 870 1 460 – – 30.00 13.44 – 8% – 25% – 3% 22% 11% 2% – 12% 37% 8% – 2% – 88% – 13% 70% – 8% – 1% 10% – 50% 4% – 9% n.m. – 13% n.m. – 9% n.m. n.m. n.m. 17% 18% – 5% 4% – 8% – 48% 4% n.m. n.m. n.m. 17% 2% 1 Controlled industrial assets only (with the exception in 2011 of Mutanda, which was 40% owned). Production is included on a 100% basis. 2 Lead metal includes lead contained in lead concentrates. 3 Copper metal includes copper contained in copper concentrates and blister copper. 4 Cobalt contained in concentrates and hydroxide. 5 Gold/Silver conversion ratios of 1/53.54 and 1/44.53 for 2012 and 2011 respectively based on average prices. | Annual Report 2012 | 51 OPERATIONAL HIgHLIgHTS Kazzinc (Glencore interest: 69.6%) 2012 gold production from own sources was 474,000 toz, an increase of 22% compared to 2011. This higher production reflects the continued growth at Altyntau as well as the benefits from gold recovered from the copper smelter. Silver production from own sources was 4.8 million toz, an increase of 11% compared to the prior year, reflecting an increase in the level of own silver-bearing copper concentrates processed. Total silver production also increased significantly during 2012 as a result of processing more high silver content concentrates from third parties. Copper production from own sources in 2012 was 49,600 tonnes, a reduction of 3% compared to 2011. However, copper cathode production increased by 25,800 tonnes to 47,300 tonnes, following the ramp-up at Kazzinc’s new copper smelter which was commis- sioned in 2011. 2012 lead production from own sources was 26,800 tonnes, a decrease of 25% compared to 2011. This reflects the ramp-up at the new lead smelter which was commissioned in August 2012 and the processing of gold rich concentrates at the old lead smelter prior to its decommissioning. Zinc production from own sources was 227,300  tonnes, a decrease of 8%, resulting from the expected small reduction in grade during 2012. Katanga (Glencore interest: 75.2%) Katanga produced 93,000 tonnes of copper in metal and in concentrate from own sources during 2012, a 2% increase compared to 2011. Cobalt production in 2012 was 2,100 tonnes, a 12% decrease compared to 2011. Production during the year was severely disrupted by the recurrent general power disruptions in the DRC which resulted in 67 days of lost production. The new power converter (part of the World Bank power project) and new synchronous condenser (under Katanga’s agreement with La Société Naturale d’Electricité (‘SNEL’), DRC’s national power operator) were commissioned in December 2012 and have subse- quently resulted in a decrease in power disruption. Further improvements in the reliability and availability of the electricity supply are expected in the medium term as a result of the joint Power Project (announced in March 2012, see below) currently underway and being undertaken by Katanga, Mutanda and Kansuki in partnership with SNEL. Katanga produced its first copper cathode from the new solvent extraction plants and converted electro-winning facility during December 2012 as part of the Phase 4 project. The completion of this project will enable Katanga to increase total processing capacity and upgrade the quality of copper produced through the application of modern technologies. The Phase 4 project remains on target for mechanical completion in Q3 2013. For further information please visit www.katangamining.com Mutanda (Glencore interest: 60.0%) In 2012, Mutanda produced 87,000 tonnes of copper in metal and concentrate from own sources, a 37% increase compared to 2011. 2012 copper cathodes production increased 90% to 83,500 tonnes. 2012 cobalt production was 8,500 tonnes, an 8% increase from 2011. Mutanda continues to increase cobalt production through the use of SO2 from its sulphuric acid and SO2 plant. A new power generation plant, dedicated to providing reliable power to the acid and SO2 plant, was commissioned in December 2012. Following completion of the cobalt circuit in Q4 2012, Mutanda has installed cobalt in hydroxide capacity of 23,000 tonnes per annum. The feasibility study for the construction of a 100,000 tonnes (of copper contained) sulphide concentrator remains on track to be completed in Q1 2013. In May 2012, Glencore acquired an additional 20% of Mutanda for a cash consideration of $ 420 million plus acquired shareholder debts of approximately $ 60 million. Glencore also has the right, subject to the terms of a put and call option agreement exercis- able in December 2013, to acquire a further 20% in Mutanda for a cash consideration of $ 430 million. As previously announced, the above transaction was the first step to achieve the merger of Mutanda and Kansuki, which is expected to form a combined entity having an installed capacity of 200,000 tonnes per annum of copper by the end of 2013. It is anticipated that the merger will be completed during H1 2013. 52 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Kansuki (Glencore interest: 37.5%) Glencore holds a 50% interest in Kansuki Investments Sprl which in turn holds a 75% interest in the owner of the Kansuki conces- sion, thereby giving Glencore an effective interest of 37.5%. Kansuki is a 185 square kilometre copper and cobalt pre-development project which borders the Mutanda concession. A total of $ 507 million of capital expenditure for mine and plant development has been committed to, of which $ 413 million had been spent as at 31 December 2012. Exploration of the Kansuki concession is on-going. Katanga, Mutanda and Kansuki – Power Project Mutanda, Katanga and Kansuki are collectively undertaking a project to secure power for all three operations via the refurbish- ment of two turbines at the Inga dam. This project is expected to provide 450 megawatts of power by the end of 2015 (the ‘Power Project‘). The project has started and is being executed in partnership with SNEL and EGMF, the project contractor. The estimated cost of $ 284 million will be paid by Mutanda, Katanga and Kansuki. This investment will be recovered via lower future energy tariffs. Mopani (Glencore interest: 73.1%) Mopani produced 99,000 tonnes of own copper in 2012 and 187,100 tonnes of total copper including third party sourced and toll material, reflecting a 2% and 8% decline respectively compared to 2011. The reduction in total finished copper production primarily resulted from the planned biennial smelter shutdown. The small reduc- tion in Mopani’s own copper production was due to the temporary suspension of the heap leach process earlier in the year. The $ 323 million Synclinorium shaft project to increase mine production, which is expected to come online during 2015, and the associated project to improve and modernise the smelter remain on track. In 2012, Mopani announced that the smelter upgrade project (including improving SO2 emission capture to above 97%) is expected to be completed by December 2013, 18 months ahead of the schedule initially agreed with the Zambian authorities. Other Zinc (Los Quenuales, Sinchi Wayra, AR Zinc, Portovesme, Rosh Pinah) The acquisition of Rosh Pinah (from 1 June 2012) and a strong performance by AR Zinc resulted in higher production of silver metal and lead concentrates in 2012. This was offset by lower production at Los Quenuales and Sinchi Wayra, as a result of the planned shift towards lower grade ore bodies, union issues at Los Quenuales and the nationalisation of the Colquiri mine at Sinchi Wayra. The nationalisation of the Colquiri mine resulted in no tin being produced post June 2012. Los Quenuales recently received community approval to develop a new ore area at Iscaycruz (Santa Este), which has estimated ore resources of five to seven million tonnes. The mine is expected to be operational in Q4 2013 and will reach an annual production of 20,000 tonnes of zinc contained in concentrates in 2014. Other Copper (Cobar, Pasar, Punitaqui, Sable) Metal production in 2012 was 40% lower than in 2011, due to a fire at Pasar that stopped production for approximately six months. Since the restart in July 2012, production has been in line or above levels achieved during 2011. 2012 copper concentrate and silver contained in concentrate production were lower than 2011 levels by 13% and 9% respectively, primarily due to temporary operational issues at Cobar resulting from electrical failures and delays in underground development activities. Completion of the new mine shaft at Cobar has been delayed due to poor ground conditions and is now expected in 2015. Alumina/Aluminium Sherwin Alumina (Glencore interest: 100%) 2012 production was 1.4 million tonnes, a 6% reduction compared to 2011. This reduction primarily relates to the overhaul of the calciner which was completed in Q1 2012. Production since then has been as expected. Ferroalloys/Nickel/Cobalt Glencore Manganese (Glencore interest: 100%) Glencore acquired 100% of Vale’s European manganese ferroalloys operations on 1 November 2012. The operations, located in Dunkirk, France and Mo I Rana, Norway, currently have the capacity to produce 150,000 tonnes and 110,000 tonnes of manganese ferroalloys per annum respectively. Murrin Murrin (Glencore interest: 100%) Own sourced production in 2012 was 33,400 tonnes of nickel and 2,400 tonnes of cobalt, an increase of 17% and 18% respectively compared to 2011, reflecting a record year of production for Murrin Murrin based on best ever throughput levels and plant avail- ability. Murrin Murrin has also successfully contained costs as part of its on-going ‘Margin Improvement Plan’ (in response to the lower nickel price and high Australian dollar environment) with further cost savings targeted in 2013. | Annual Report 2012 | 53 2.3 | Energy products “The energy products segment delivered a solid perfor- mance in 2012 despite the challenging environment faced in marketing. The significant increase in production from the Aseng oil field and the acquisitions of Optimum and umbeco drove the strong industrial performance and leave the division well placed heading into 2013.” Alex Beard, Tor Peterson Highlights Energy products’ total Adjusted EBIT in 2012 was $ 1,029 million, 4% lower than in 2011. Marketing activities delivered Adjusted EBIT of $ 435 million, 38% lower than in 2011. The decrease was driven by a combination of low volatility and weak freight markets, which limited arbitrage opportunities, and our residual direct long wet freight ex- posure. This wet freight exposure will decline materially in 2013. Industrial activities delivered a strong performance generating Adjusted EBIT of $ 594 million, an increase of 58% compared to 2011. The strong performance was driven by the significant in- crease of oil production from the Aseng oil field, representing its first full year of pro- duction, and the acquisitions of Optimum and Umcebo. Outlook Looking forward, the oil price is likely to continue to be driven by the interaction of economics and geo-politics. We expect the US to continue to drive maximum domes- tic benefit from its burgeoning energy advantage, rather than export energy. Coal markets appear to have stabilised following the shale gas related displacements seen in 2012. With the economics of coal remaining compelling globally relative to other fuels we would expect demand to continue to increase. At the same time, current spot coal prices mean that many of the world’s producers are unable to make a reasonable return on their assets. Adjusted EBIT 1 400 1 200 1 000 n 800 o i l l i m $ S U 600 400 200 0 2010 2011 2012 Marketing activities Industrial activities 2010 2011 2012 435 697 594 375 450 235 Marketing activities 120 000 100 000 80 000 T M k 60 000 40 000 20 000 0 1 100 000 1 000 000 900 000 800 000 700 000 600 000 500 000 s l b b k 400 000 300 000 200 000 100 000 0 2010 2011 2012 Coal (k MT) Oil (k bbls) 2012 2011 2010 100 900 82 560 95 400 897 849 849 271 1 163 655 Industrial activities 44 000 40 000 36 000 32 000 28 000 T M k 24 000 20 000 16 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 s l b b k 2010 2011 2012 Coal (k MT) Oil (k bbls) 2010 17 433 – 2011 20 506 595 2012 41 835 4 770 54 | Annual Report 2012 |   overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN US $ million Revenue Adjusted EBITDA Adjusted EBIT Adjusted EBITDA margin (%) Allocated average CE 1 Adjusted EBIT return on average CE Marketing activities Industrial activities 133 296 494 435 0.4% 5 065 2 9% 3 641 983 594 27% 6 764 2 9% 2012 136 937 1 477 1 029 – 11 829 2 9% Marketing activities Industrial activities 114 756 724 697 1% 5 168 13% 2 309 571 375 25% 4 762 2 8% 2011 117 065 1 295 1 072 – 9 930 2 11% 1 The simple average of segment current and non current capital employed (see note 2 of the financial statements), adjusted for production related inventories, is applied as a proxy for marketing and industrial activities respectively. 2 For the purposes of this calculation, capital employed has been adjusted to exclude various long-term loans (primarily Russneft and Atlas – see note 10 of the financial statements), which generate interest income and do not contribute to Adjusted EBIT. MARKET CONdITIONS Selected average commodity prices S&P GSCI Energy Index Coal API2 ($/t) Coal API4 ($/t) Prodeco realised price ($/t) 1 South African Coal average realised export price ($/t) South African Coal average realised domestic price ($/t) Oil price – Brent ($/bbl) 2012 2011 Change 330 93 93 85 90 31 112 333 122 116 95 108 43 111 – 1% – 24% – 20% – 11% – 17% – 28% 1% 1 As of 31 December 2012, 24 million tonnes had been sold forward at an average price of $ 89 per tonne. Coal Atlantic markets Increased US exports, displaced in a low domestic natural gas price environment, manifestly contributed to significant thermal coal price declines during H1 2012. The situation stabilised during H2 2012 with a modest recovery on the back of healthy coal consumption across most European markets, due to positive coal versus natural gas spreads and limited availability of hydro and other renewables alternatives. End of year API2 and API4 prices were down 20% and 15% respectively in 2012, compared to 2011. Pacific markets Increased exports from Australia and Indonesia, coupled with some customer non-performance, induced downward pressure on prices at the beginning of 2012. However, strong overall demand from the traditional Chinese and Indian markets, together with improved economic expectations, allowed markets to recover in H2 2012, with Australia’s Newcastle index making significant gains towards the end of the year. Metallurgical markets were relatively depressed throughout the year due to the macroeconomic concerns and slowing steel demand in most markets. Signs of a recovery appeared towards the end of the year, with significant increases in spot prices. Oil Nearby Brent started 2012 at $ 107 per barrel and finished at $ 111 per barrel, but this belied a yearly range of $ 89 to $ 126, slightly wider than the equivalent range for 2011. In particular, H1 2012 saw significant price volatility, wide day ranges and fast price moves, reminiscent of the darker days of the financial crisis. Uncertainty over Greece and the Eurozone, combined with unclear fiscal and monetary policy backdrops were all contributory factors. At the same time, reasonable refining margins and a renewed focus on emerging market demand provided trading opportunities. H2 2012 experienced less volatility, reflecting the broad trend in capital markets and seemingly more market optimism in a managed outcome for the economic crisis. The growing supply of domestic crude oil in the US, the visible manifestation of the shale oil revolution, provoked an increasing dislocation of WTI from other global benchmarks. The WTI/Brent spread started the year at $ 9 per barrel and closed at $ 19 per barrel. Brent term structure tended to backwardation during the year. | Annual Report 2012 | 55 MARKETINg Highlights Generally low volatility across the oil and coal markets in H2 2012 and the protracted weak freight environment provided fewer arbitrage opportunities, contributing to a reduced performance from energy marketing compared to 2011. A direct, but declining, long wet freight (tanker) exposure continued to provide headwinds during 2012, however, as we look at 2013, light can be seen at the end of this tunnel. Adjusted marketing EBITDA and EBIT for 2012 were $ 494 million and $ 435 million respectively, a decrease, compared to 2011, of 32% and 38%. Financial information US $ million Revenue Adjusted EBITDA Adjusted EBIT Selected marketing volumes sold million Thermal coal (MT) Metallurgical coal (MT) Coke (MT) Crude oil (bbls) Oil products (bbls) 2012 2011 Change 133 296 114 756 494 435 724 697 16% – 32% – 38% 2012 78.3 4.1 0.2 421.4 742.2 2011 Change 91.0 4.1 0.3 271.4 577.8 – 14% –  – 33% 55% 28% Coal Thermal coal volumes were lower year on year due to reduced price volatility and lower freight rates, thereby limiting price and geographical arbitrage opportunities between markets and accordingly third party volumes sold. Volumes for the more specialised metallurgical products were stable year-on-year with a focus on maintaining existing relationships. Oil Traded volumes, on an overall basis, increased significantly (by 39%) from 2.3 million barrels per day in 2011 to 3.2 million barrels per day in 2012. Higher volumes of crude oil, with Russian origin barrels amongst others a key driving factor, contributed half the gain. The remainder of the gain was derived from our marine bunker fuels affiliate Chemoil, into the Oil group figures. 56 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN INduSTRIAL ACTIVITIES Highlights Energy products’ industrial performance delivered a significantly stronger performance during 2012 mainly driven by the growth in oil production volumes and the associated strong profit margins from the Aseng oil field. Own sourced coal production volumes were also up significantly during 2012, following the acquisitions of Optimum and Umcebo in South Africa, and a modest increase at Prodeco, despite a three month strike at its La Jagua mine. Notwithstanding the volume growth, realised coal prices were substantially lower in 2012, resulting in a decline in overall coal EBITDA of 5%. Total industrial revenues for energy products were $  3,641  million, up 58% from $  2,309  million in 2011. Adjusted EBITDA and Adjusted EBIT for 2012 were $ 983 million and $ 594 million, up 72% and 58% compared to $ 571 million and $ 375 million in 2011. Financial information US $ million Revenue Prodeco South African Coal Coal Oil Total Adjusted EBITDA Prodeco South African Coal Coal Oil Share of income from associates and dividends Total Adjusted EBITDA margin (%) Adjusted EBIT Prodeco South African Coal Coal Oil Share of income from associates and dividends Total Capex Prodeco South African Coal Coal Oil Total 2012 2011 Change 1 216 1 123 2 339 1 302 3 641 150 316 466 488 29 983 27% – 4 162 158 407 29 594 295 279 574 311 885 1 344 323 1 667 642 2 309 418 75 493 23 55 571 25% 281 49 330 – 10 55 375 510 29 539 706 1 245 – 10% 248% 40% 103% 58% – 64% 321% – 5% 2 022% – 47% 72% – n.m. 231% – 52% n.m. – 47% 58% – – – – – | Annual Report 2012 | 57 Production data thousand MT 1 Thermal coal Prodeco Shanduka (Export) Shanduka (Domestic) Umcebo (Export) Umcebo (Domestic) Optimum (Export) Optimum (Domestic) Total Own Buy-in Coal 2012 Total Own Buy-in Coal 2011 Total Own production change 14 762 440 6 017 205 6 798 7 347 6 266 41 835 142 – 1 084 – 31 – 495 1 752 14 904 440 7 101 205 6 829 7 347 6 761 14 586 498 5 422 – – – – 195 – 802 – – – – 14 781 498 6 224 – – – – 1% – 12% 11% n.m. n.m. n.m. n.m. 43 587 20 506 997 21 503 104% 1 Controlled industrial assets only. Production on a 100% basis. thousand bbls 1 Oil Block I Total 1 On a 100% basis. Glencore’s ownership interest in the Aseng field is 23.75%. 2012 Total 2011 Total Change 22 570 22 570 2 785 2 785 710% 710% 58 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN OPERATIONAL HIgHLIgHTS Prodeco (Glencore interest: 100%) Own production for 2012 was 14.8 million tonnes, up 1% on 2011. The significant growth at Calenturitas was offset by lower produc- tion at the La Jagua mine, due to a three month strike that concluded in October 2012. Prodeco’s expansion project is progressing to plan, excluding the short term impact of the La Jagua strike, and remains on track to deliver annualised production of 20 million tonnes by 2014. The construction of the new direct loading port, Puerto Nuevo, is also on track and to budget, with commissioning expected in H1 2013. Puerto Nuevo will provide substantially higher annual throughput capacity with a lower operating cost per tonne. South African Coal (Glencore interest: Shanduka Coal: 49.99%, Umcebo Mining: 43.66% and Optimum Coal: 67.01%) 2012 own production was 27.1 million tonnes, reflecting a significant increase compared to 2011. This increase largely resulted from the consolidation of production from Optimum and Umcebo from 1 January 2012. South African Coal is currently focused on a number of expansion and development projects which are progressing well. At Umcebo, the Wonderfontein project started production and railed its first coal during December 2012. At Shanduka and Umcebo, the definitive feasibility studies relating to the Springboklaagte and Argent projects remain on track to be completed in April 2013. At Optimum, construction has started at the Pullenshope underground brownfield project with first coal expected in Q2 2013, while licensing for the Koornfontein project has been delayed slightly to Q1 2013, with construction expected to start in Q2 2013. In addition, South African Coal, along with the other shareholders, has recently taken an active role in the management of the Kusipongo project at Kangra Coal (30% owned by Shanduka Coal). Oil Exploration & Production (Glencore interest: Block I: 23.75%/Block O: 25.0%) The Aseng field (Block I) in Equatorial Guinea has continued to perform well during 2012, producing 22.57  million  barrels of cumulative gross production at an average gross rate of approximately 61,700 barrels per day. Development of the Alen field (Block O) in Equatorial Guinea remains on budget with first production scheduled for Q3 2013. All of the development wells have been drilled and completed and construction of the production platform continues as planned. Glencore’s first operated exploration well on the Oak prospect in the Bolongo Block, offshore Cameroon, was successfully drilled and declared an oil discovery in July 2012. The appraisal programme is planned for H2 2013. | Annual Report 2012 | 59 2.4 | Agricultural products “2012 saw the division produce a resilient performance with a healthy recovery in marketing supported by an increase in the profitability of industrial due to higher processing volumes. Looking ahead, the integration of Viterra’s Canadian and Australian operations in 2013 should significantly enhance the division. Furthermore, the recent softseed oilseed crushing acquisitions, new- build activities in Central Europe, and the newly con- structed soyabean facility at Timbues in Argentina should also begin to contribute to the division.” Chris Mahoney Highlights Grain and oilseed marketing performed satisfactorily in 2012. Cotton’s contribution was a small positive following the challenges of 2011. The acquisition of Viterra closed on 17 December 2012 and Glencore has since moved rapidly to streamline and fully integrate Viterra operations. Outlook Crop production recoveries are expected in 2013, led by a record Brazilian crop. Baring weather problems in the Northern Hemisphere, prices and trade patterns are likely to normalise. 2013 results are expected to benefit from the incorporation of Viterra’s Canadian and Australian operations. Drought in South Australia reduced the 2012 crop which will adversely impact the 2013 grain handling business in that region. 2013 will also see a full year contribution from our recent softseed oilseed crushing acquisitions and newbuild in Central Europe and the newly constructed soyabean facility at Timbues in Argentina. Activity in Russia, including at the recently acquired port of Taman, will be limited until the new crop is harvested in July 2013. Adjusted EBIT n o i l l i m $ S U 800 600 400 200 0 – 200 2010 2011 2012 2010 2011 2012 371 – 10 – 8 – 39 659 58 Marketing activities Industrial activities Marketing activities 50 000 45 000 40 000 T 35 000 M k 30 000 25 000 20 000 15 000 2010 2011 2012 Volumes 2010 31 042 2011 37 214 2012 45 875 Industrial activities 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 T M k 2010 2011 2012 Volumes 2010 4 312 2011 6 563 2012 7 428 60 | Annual Report 2012 |   overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN US $ million Revenue Adjusted EBITDA Adjusted EBIT Adjusted EBITDA margin (%) Allocated average CE 1 Adjusted EBIT return on average CE Marketing activities Industrial activities 17 751 394 371 2% 6 046 2 6% 3 3 074 59 – 10 2% 2 188 2 0% 2012 20 825 453 361 – 8 234 2 4% Marketing activities Industrial activities 13 744 – 8 – 8 n.m. 3 323 0% 3 359 23 – 39 1% 1 631 – 2% 2011 17 103 15 – 47 –  4 954 – 1% 1 The simple average of segment current and non current capital employed (see note 2 of the financial statements), adjusted for production related inventories, is applied as a proxy for marketing and industrial activities respectively. 2 For the purposes of this calculation, capital employed has been adjusted to move the Viterra related property, plant and equipment from industrial activities into marketing activities. 3 Adjusted EBIT return on average capital employed includes the relevant elements of Viterra’s balance sheet, but given the mid-December acquisition date, negligible Viterra EBIT has been recorded. This distorts the return ratio in 2012, which otherwise would have exceeded 10%. MARKET CONdITIONS Selected average commodity prices S&P GSCI Agriculture Index CBOT corn no.2 price (US¢/bu) ICE cotton price (US¢/lb) CBOT soya beans (US¢/bu) NYMEX sugar # 11 price (US¢/lb) CBOT wheat price (US¢/bu) 2012 459 695 80 1 466 22 751 2011 Change 490 680 137 1 317 27 709 – 6% 2% – 42% 11% – 19% 6% The year was characterised by severe drought in the US in the May to July  2012 period which resulted in a more than 20% decline in the US corn crop from initial expectations. US soyabean production also suffered but not to the extent of corn or to the extent initially feared. The drought, combined with poor growing conditions in the FSU and Central Europe, led a sig- nificant price rally of more than 30%, with grain markets reaching their peak in mid-August 2012 and oilseeds in early September 2012. Between September and mid-December 2012, prices consolidated before weakening towards year-end on the prospect of record South American new crop production. Cotton prices, which fell sharply early in 2012, were particularly subdued compared to 2011 and tightly range bound in the second half of the year. MARKETINg/INduSTRIAL Highlights Grain and oilseed volumes all exceeded 2011 by more than 20%, in part due to the overall increase in non-US seaborne trade as US exports, a market in which Glencore only has a small presence, were particularly curtailed by the drought. Marketing Adjusted EBIT/EBITDA for 2012 saw a healthy recovery compared to 2011, a year significantly impacted by the exceptional cotton market disruptions. 2012 Industrial EBITDA, admittedly off a low base, was sharply up on 2011, reflecting higher processing volumes, on the back of the three recent plant acquisitions and organic expansion initiatives. 2013 should benefit from a full year of crushing at Timbues, following its start-up in Q4 2012, increased sugarcane processing in Brazil and the addition of various industrial facilities emanating from the Viterra acquisition. | Annual Report 2012 | 61 2012 2011 Change 17 751 394 371 13 744 – 8 – 8 29% n.m. n.m. 2012 2011 Change 30.9 13.6 0.5 0.9 2012 3 074 59 – 10 2% 260 2012 Total 674 2 779 876 534 248 1 061 1 256 7 428 25.3 10.8 0.5 0.7 22% 26% –  29% 2011 Change 3 359 23 – 39 1% 221 – 8% 157% n.m. – – 2011 Total 827 2 008 948 569 304 1 001 906 6 563 Change – 19% 38% – 8% – 6% – 18% 6% 39% 13% Financial information US $ million Revenue Adjusted EBITDA Adjusted EBIT Selected marketing volumes sold million MT Grains Oil/oilseeds Cotton Sugar INduSTRIAL ACTIVITIES Financial information US $ million Revenue Adjusted EBITDA 1 Adjusted EBIT 1 Adjusted EBITDA margin (%) Capex 1 Includes share of income from associates and dividends of $ 15 million (2011: $ 18 million). Production data thousand MT Farming Oilseed crushing Oilseed crushing long term toll agreement Biodiesel Rice milling Wheat milling Sugarcane processing Total 62 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN OPERATIONAL HIgHLIgHTS Viterra (Glencore interest: 100%) On 17 December 2012, Glencore completed the acquisition of Viterra, bringing immediate critical mass in the key grain markets of North America, via Viterra’s Canadian operations, as well as materially expanding Glencore’s existing operations in Australia. Rio Vermelho (Glencore interest: 100%) 1.3 million tonnes of sugarcane were crushed in 2012, a 39% increase compared to 2011, which in turn produced 108,400 tonnes of Very High Pol (‘VHP’) sugar and 34,000 cubic metres of hydrous ethanol. The on-going expansion plan at Rio Vermelho continues to progress on schedule. The first phase of the cogeneration plant, eventually capable of supplying 200,000 megawatt hours per annum of surplus electricity to the power grid at maturity of the project in 2015, will become operational during H2 2013. Other Agricultural Products Oilseed crushing In 2012, oilseed crushing volumes increased 38%, reflecting the additional volumes crushed at the three acquired plants (Czech Republic, Poland and Ukraine) and the completion of the new plant constructed in Hungary. Following the successful commissioning of Timbues (Argentina) in October 2012, the plant commenced crushing in December 2012. | Annual Report 2012 | 63 2.5 | Reserves and resources The reserves and resources data in the following tables is presented on a 100% asset basis, unless otherwise stated. All tonnage and volume information has been rounded to reflect the relative uncertainty in the estimates; there may therefore be small differ- ences in the totals. The Measured and Indicated Mineral and Coal Resources are reported inclusive of those resources modified to produce reserves. Ore reserves and mineral resources are reported in accordance with the 2004 edition of the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the ‘JORC Code’) or the 2007 edition (as amended 2009) of the South African Code for Reporting of Mineral Resources and Mineral Reserves (the ‘SAMREC Code’). METALS ANd MINERALS KAZZINC 1, 2 Mining method Attributable interest to Glencore OPERATING MINES Vasilkovskoye 3 Open Cut (‘OC’) 69.6% Maleevsky 4 Underground (‘UG’) 69.6% Ore Gold Gold Ore Gold Silver '000 MT Content, g/t Content, g/t Copper Content, % Lead Zinc Ore Gold Silver Content, % Content, % '000 MT Content, g/t Content, g/t Copper Content, % Lead Zinc Ore Gold Silver Content, % Content, % '000 MT Content, g/t Content, g/t Copper Content, % Lead Zinc Content, % Content, % Ore Gold Silver Copper Lead Zinc '000 MT Content, g/t Content, g/t Content, % Content, % Content, % Ridder-Sokolny 5 UG 69.6% Tishinsky 6 UG 69.6% Shubinsky 7 UG 69.6% 64 | Annual Report 2012 | Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred '000 MT Content, g/t Amount, '000 toz 124 740 28 960 153 700 163 600 100 630 264 230 40 820 1.88 7 540 1.48 1 378 1.80 8 918 1.78 9 363 1.33 1.61 4 303 13 666 1.72 2 257 11 710 4 950 16 660 14 430 5 240 19 670 0.54 69.55 2.10 1.00 6.04 0.42 49.53 1.43 0.97 5.71 0.51 63.53 1.90 0.99 5.94 0.64 81.51 2.46 1.16 6.86 0.56 65.14 1.79 1.23 7.08 0.62 77.15 2.28 1.18 6.92 5 170 0.25 50.11 1.16 1.79 5.82 9 070 27 850 36 920 24 450 67 780 92 230 32 940 1.25 5.96 0.64 0.24 0.60 2.15 8.80 0.52 0.25 0.52 1.93 8.22 0.55 0.25 0.54 1.58 10.23 0.72 0.37 0.87 2.16 9.27 0.64 0.33 0.68 2.01 9.52 0.66 0.34 0.73 1.56 9.26 0.47 0.32 0.72 18 200 4 900 23 100 19 920 7 900 27 820 5 010 0.53 7.99 0.52 0.91 4.19 1 452 0.22 9.71 0.83 0.24 1.44 0.47 9.36 0.40 0.88 4.13 523 0.22 8.30 0.80 0.23 1.29 0.52 8.28 0.49 0.91 4.18 1 975 0.22 9.34 0.82 0.24 1.40 0.48 7.65 0.48 0.83 3.72 1 980 0.52 18.19 1.51 0.42 2.44 0.42 6.92 0.40 0.72 3.66 870 0.41 12.87 1.05 0.37 2.07 0.46 7.44 0.46 0.80 3.70 2 850 0.49 16.57 1.37 0.40 2.33 0.27 8.45 0.50 1.41 3.77 1 310 0.41 11.59 0.95 0.36 1.77 overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Mining method Attributable interest to Glencore Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Staroye Tailings Dam OC 69.6% Shaimerden Stockpiles 69.6% OC KAZZINC 1, 2 Ore Gold Silver '000 MT Content, g/t Content, g/t Copper Content, % Lead Zinc Ore Zinc Content, % Content, % '000 MT Content, % – – – – – – – – 2 950 1.13 11.83 0.04 0.34 0.74 2 950 1.13 11.83 0.04 0.34 0.74 2 180 21.60 2 180 21.60 – – – – – – – – 3 790 1.14 12.36 0.04 0.34 0.74 3 790 1.14 12.36 0.04 0.34 0.74 2 790 0.96 10.96 0.04 0.29 0.62 2 270 21.71 2 270 21.71 – – Mining method Attributable interest to Glencore DEVELOPMENT PROJECTS Dolinnoye UG 69.6% Obruchevskoye UG 69.6% Chashinskoye Tailings Dam OC 69.6% Tishinsky Tailings Dam 69.6% OC Novo-Leninogorsky OC 34.8% Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Gold Silver Copper Lead Zinc Ore Gold Silver Copper Lead Zinc Ore Gold Silver Copper Lead Zinc Ore Gold Silver Copper Lead Zinc Ore Gold Silver Copper Lead Zinc '000 MT Content, g/t Content, g/t Content, % Content, % Content, % '000 MT Content, g/t Content, g/t Content, % Content, % Content, % '000 MT Content, g/t Content, g/t Content, % Content, % Content, % '000 MT Content, g/t Content, g/t Content, % Content, % Content, % '000 MT Content, g/t Content, g/t Content, % Content, % Content, % 3 660 3.93 53.76 0.20 0.75 1.41 890 1.73 42.80 0.81 4.27 8.98 960 2.38 29.82 0.14 0.50 1.02 3 250 0.90 33.21 0.83 2.66 6.50 4 620 3.61 48.77 0.19 0.70 1.33 4 140 1.08 35.26 0.82 3.01 7.03 4 010 4.47 61.83 0.24 0.92 1.76 1 150 1.62 40.68 0.88 4.02 8.87 – – – – – – – – – – – – – – – – – – 55 500 55 500 0.67 5.13 0.05 0.15 0.38 0.67 5.13 0.05 0.15 0.38 1 100 1 100 0.38 5.10 0.23 0.44 2.25 – – – – – – 0.38 5.10 0.23 0.44 2.25 – – – – – – – – – – – – – – – – – – – – – – – – 3 040 2.51 34.03 0.14 0.51 1.01 7 780 0.67 25.36 0.73 1.78 4.64 7 050 3.62 49.84 0.20 0.74 1.44 8 930 0.79 27.34 0.75 2.07 5.19 3 830 2.11 29.54 0.20 0.68 1.26 5 500 0.50 24.97 0.41 0.64 1.75 57 800 57 800 30 000 0.67 5.16 0.05 0.15 0.38 0.67 5.16 0.05 0.15 0.38 1 150 1 150 0.38 5.13 0.23 0.44 2.26 0.38 5.13 0.23 0.44 2.26 – – – – – – 0.50 4.57 0.06 0.19 0.45 – – – – – – – – – – – – 38 900 1.70 33.39 0.19 1.29 3.78 | Annual Report 2012 | 65 ¹ The information in the table above, in relation to mineral resources and ore reserves, has been estimated in accordance with the guidelines of the JORC Code and is dated as of 31 December 2012. ² Remaining mine life: different for each mine, ranging from seven to 21 years. Expiry date of relevant mining/concession licences: different for each mine, ranging from 19 June 2013 to 7 July 2028. There is a routine licence extension procedure in Kazakhstan which Kazzinc undertakes as required. 3 Vasilkovskoye Vasilkovskoye is a gold deposit of epigenetic (stockwork) type and beresite subtype of deposits hosting ores of gold-quartz formation. Gold ore mineralisation is confined to a steeply dipping zone of beresite alteration (quartz-potassium feldspar metasomatosis) which forms a conic stockwork thinning out with depth and located in the near-contact part of granodiorite and gabbro-diorite intrusions. 4 Maleevsky Maleevsky is a typical syngenetic VMS deposit hosting ores of sulphide-polymetallic formation (with associated gold and silver). Maleevsky comprises seven major (10-150m thick, 80-400m wide and 500-1,750m long) gently dipping stratified massive sulphides of lenticular and tabular morphology occurring in volcanogenic-sedimentary deposits changing with depth into steeply dipping linear zones with vein-dissem- inated ore mineralisation in underlying sequences of brecciated quartzites. In terms of mineral composition the ores express the following vertical zoning: in the hanging wall pyrite impregnation is consecutively underlain by massive barite-galena-sphalerite, sphalerite and pyrite- galena with barite, pyrite-chalcopyrite-sphalerite and chalcopyrite-pyrite ores in the lower part; the footwall contains pyrite vein-disseminated mineralisation. 5 Ridder-Sokolny Ridder-Sokolny gold-polymetallic deposit is also VMS type of syngenetic deposits hosting ores of gold bearing sulphide-polymetallic formation. Ridder-Sokolny comprises over thirty ore bodies of lenticular, vein-stockwork and veined morphology confined to three stratigraphic levels of volcanogenic-sedimentary deposits. Gently dipping massive sulphide ores of the upper stratigraphic layer are mostly mined out with the main part of Ridder-Sokolny unmined ore bodies being small pitching and steeply dipping veins and vein-stockwork zones. The ores of the upper stratigraphic level are mainly gold-barite-galena-sphalerites, with gold-galena-pyrite, chalcopyrite-sphalerite-pyrite and chalcopyrite within the middle level and gold-quartz, pyrite and pyrite-chalcopyrite-vein-disseminated mineralisation within the lower level. 6 Tishinsky The Tishinsky deposit is a syngenetic VMS deposit of Au- and Ag-bearing sulfide polymetallic ores. Tishinsky resources mainly occur in the Main ore shoot, which extends in EW direction over a strike length of 1,250m with almost vertical dip to the north. Originally the stratified ore body was flat but eventually became steep dipping due to intensive dynamic metamorphism and shearing. The mineralisation was deline- ated by drilling along the stratified mineralised formation of strongly fissile volcanogenic carbonate-sericite-quartz shale rock to the depth of 1,460m. The vein-disseminated polymetallic mineralisation prevails at the deposit though the central part of the Main Orebody contains three subvertical lenses of massive sulfides with 60m width, 500m length and thickness varying from 6.5 to 17m. There are two prevalent mineral associations: A polymetallic (chalcopyrite-galena-pyrite-sphalerite) association, and (2) A copper-zinc (chalcopyrite-sphalerite-pyrite) association. Pb content decreases with the depth while Cu content gradually increases eastward and Au content significantly decreases at the western flank of the deposit. 7 Shubinsky Shubinsky polymetallic deposit is a syngenetic VMS deposit hosting ores of sulphide-polymetallic formation (with associated gold and silver). Stratified vein-disseminated polymetallic ores in the near-contact part of volcanomictous chlorite-sericite-quartz shales with clayey siltstones underwent folded dislocation and occur at 65-80 dip extending down to the 580-725m depth as thin boudinaged lenses changing into sub- vertical ore shoots. Primary sulphide mineralisation includes four associations: pyrite, chalcopyrite-pyrite, chalcopyrite-sphalerite-pyrite and pyrite-galena-sphalerite. Oxidised copper, lead and zinc in the form of chalcosine, covelline, bornite, goslarite and chalcanthite are found down to the depth of 90m. Competent Persons: the mineral resource and ore reserve estimates set out above were reviewed and approved by Phil Newall of Wardell Armstrong International. The mineral resource and ore reserve estimates have been prepared in accordance with the JORC Code. Mr Newall is a Competent Person as defined by the JORC Code and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking. 66 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN interest to Glencore 3 56.4% Ore Copper Cobalt Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred ’000 MT % % 11 200 19 400 30 600 30 400 32 900 63 300 11 000 3.40 0.50 3.70 0.53 3.59 0.52 4.36 0.58 4.78 0.58 4.58 0.58 5.00 0.59 – – – – – – – – – – – – – – – 2 500 2 500 4 500 9 400 13 900 5 200 3.51 0.56 3.51 0.56 2.71 0.54 4.44 0.65 3.88 0.61 4.21 0.98 5 900 5 900 3.00 0.36 3.00 0.36 – – – 75 000 75 000 65 300 1.80 0.38 1.80 0.38 0.76 0.10 51 900 51 900 2 200 114 600 116 800 69 700 4.76 0.42 4.76 0.42 4.07 0.22 5.42 0.42 5.39 0.42 3.58 0.32 – – – – – – – – – – – – – – – – – – 4 100 4 100 4 000 1.61 0.79 1.61 0.79 2.00 0.98 9 500 9 500 13 800 1.89 0.60 1.89 0.60 1.75 0.60 KATANGA 1, 2 Mining method Attributable Kamoto UG T17 OC and UG 56.4% Ore ’000 MT Copper Cobalt % % Mashamba East OC 56.4% Ore ’000 MT Copper Cobalt % % KOV OC Kananga Tilwezembe 56.4% Ore ’000 MT Copper Cobalt % % 56.4% Ore ’000 MT Copper Cobalt % % 56.4% Ore ’000 MT Copper Cobalt % % 1 As at December 31 2012. The information in the table above, in relation to mineral reserves and resources, is in compliance with the JORC Code and has been extracted without material adjustment from the Competent Person’s Report compiled for Katanga. 2 Remaining life of mine: expected to be in excess of 20 years. Expiry date of relevant permits: 7  May  2022 for the Kananga Extension and 3 April 2024 for all remaining permits (KTO and Mashamba East Open Pit, T-17 Open Pit, KOV Open Pit, Kananga Mine), renewable in accord- ance with the DRC mining code for a period of 15 years. 3 Glencore owns 75.2% of Katanga, which in turn owns 75% of Kamoto Copper Company SARL (‘KCC’). KCC owns the material assets, including the mining and exploration rights related to the mining assets. La Generale des Carrieres et des Mines and La Société Immobilière du Congo, which are state-owned mining companies in the DRC, own the other 25% of KCC. With the exception of Tilwezembe, primary mineralisation, in the form of sulphides, within the Lower Roan is associated with the Stratified Dolomite and Silicified Rocks for the Ore Body Inferior and the Basal Schists and Upper Dolomitic Shales for the Ore Body Superior and is thought to be sys-sedimentary in origin. Typical primary copper sulphide minerals are bornite, chalcopyrite, chalcocite and occasional native copper while cobalt is in the form of carrolite. The mineralisation occurs as disseminations or in association with hydrothermal carbonate alteration and silicification. The mineralisation at Tilwezembe Mine is atypical being hosted by the Mwashya or R4 Formation. The mineralisation generally occurs as infilling of fissures and open fractures associated with the brecciation. The typical copper minerals are mainly chalcopyrite, malachite and pseudomalachite while cobalt is in the form of heterogenite, carrolite and spherocobaltite. Manganese minerals are psilomelane and manganite. Competent Persons: the mineral resources and ore reserve estimates set out above were reviewed and approved by Cornelius Willem Ries and Jacobus Lotheringen of Golder Associates. The mineral resources and ore reserve estimates have been prepared in accordance with the JORC Code. Mr Ries and Mr Lotheringen are Competent Persons as defined by JORC and have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration. | Annual Report 2012 | 67 MUTANDA 1, 2 Mining method Attributable interest to Glencore Mutanda pits OC 60% Stockpiles 60% Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Copper Cobalt Ore Copper Cobalt ’000 MT 39 100 6 800 45 900 96 500 28 400 124 900 166 600 % % ’000 MT % % 3.30 0.82 7 100 2.30 1.76 3.06 1.20 – – – 3.27 0.88 7 100 2.30 1.76 2.05 0.64 1.52 0.77 1.93 0.67 1.00 0.47 – – – – – – – – – – – – 1 As at 31 December 2012. The information in the table above, in relation to mineral reserves and resources, is in compliance with the JORC Code and has been extracted without material adjustment from the Competent Person’s Report compiled for Mutanda. 2 Remaining mine life: estimated in excess of 15 years. Expiry date of relevant permits: 26 May 2022 for Mutanda and 6 April 2022 for Ki-kolwezi, renewable in accordance with the DRC mining code for periods of 15 years. The main copper oxide minerals present are malachite and pseudomalachite and the main cobalt mineral is heterogenite. Carollite is the main Cobalt Sulphide mineral. Competent Persons: the mineral resources and ore reserve estimates set out above were reviewed and approved by Cornelius Willem Ries and Jacobus Lotheringen of Golder Associates. The mineral resources and ore reserve estimates have been prepared in accordance with the JORC Code. Mr Ries and Mr Lotheringen are Competent Persons as defined by JORC and have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration. KANSUKI 1, 2 Mining method Attributable interest to Glencore Area 3 Area 1 Area 2 East Area 2 West Kabwimia 37.5% Ore ’000 MT Copper Cobalt % % 37.5% Ore ’000 MT Copper Cobalt % % 37.5% Ore ’000 MT Copper Cobalt % % 37.5% Ore ’000 MT Copper Cobalt % % 37.5% Ore ’000 MT Copper Cobalt % % Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 16 700 1.72 0.17 400 0.93 0.14 17 100 1.70 0.17 63 900 63 900 1.13 0.37 1.13 0.37 – – – – – – – – – – – – 38 800 0.44 0.08 48 100 29 100 77 200 13 900 0.73 0.34 0.51 0.14 0.64 0.27 – – – – – – – – – 0.47 0.11 6 200 0.75 0.02 1 As at 31 December 2012. The information in the table above, in relation to mineral resources and ore reserves, is in compliance with the JORC Code and has been extracted without material adjustment from the Competent Person’s Report compiled for Kansuki. 2 Expiry date of relevant permit: 1 July 2022 for Kansuki, renewable in accordance with the DRC mining code for periods of 15 years. 68 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Drilling undertaken in Area 2 West during 2012 provided an increased level of geological knowledge and confidence in the resource, resulting in both an increase in the resource and a movement between resource categories. Similar to Mutanda, the main copper oxide minerals present are malachite and pseudomalachite and the main cobalt mineral is heterogenite. Carollite is the main Cobalt Sulphide mineral. Competent Person: the mineral resources estimates set out above were reviewed and approved by Cornelius Willem Ries of Golder Associates. The mineral resources estimates have been prepared in accordance with the JORC Code. Mr Ries is a Competent Person as defined by JORC and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration. MOPANI 1, 2 Mining method Attributable interest to Glencore Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Nkana Sulphides UG Nkana Oxides OC and UG 73.1% Ore ’000 MT 94 400 17 800 112 200 140 100 42 200 182 300 38 200 Copper Cobalt % % 1.88 0.09 1.84 0.11 1.88 0.09 2.01 0.11 1.79 0.12 1.96 0.11 1.66 0.11 73.1% Ore ’000 MT 2 200 5 400 7 600 8 600 7 400 16 000 1 100 Total copper % Acid soluble copper Cobalt % % 3.30 2.27 0.73 0.49 1.46 0.99 2.85 1.95 1.00 0.66 1.99 1.35 1.26 0.86 0.14 0.07 0.09 0.12 0.07 0.10 0.07 Mufulira Sulphides UG 73.1% Ore ’000 MT Copper % 12 800 2.15 3 600 2.21 16 400 21 500 2.16 2.48 8 700 2.62 30 200 35 700 2.52 2.52 Mufulira Oxides UG 73.1% Ore ’000 MT Total copper % Acid soluble copper % Mufulira Surface OC 73.1% Ore ’000 MT Total copper % Acid soluble copper % 2 000 1.38 0.90 300 1.25 0.65 2 300 1.36 0.87 4 500 2 000 6 500 1 200 1.58 1.01 1.37 0.79 1.52 0.94 1.53 0.93 – – – – – – – – – 3 000 1 800 4 800 1 300 1.81 0.50 1.80 0.48 1.81 0.49 1.76 0.39 1 As at 31 December 2012. The information in the table above, in relation to mineral reserves and resources, is in compliance with the JORC Code and has been extracted without material adjustment from the Competent Person’s Report compiled for Mopani. 2 Remaining life of mine: 26 years for Nkana and twelve years for Mufulira. Expiry date of relevant mining/concession licences: 31 March 2025 for both of these mines. Within the Nkana mining area there are four underground mines and a series of open pits with only one being operational (Area J). All open pits and Mindola Mines operations are situated on the eastern limb of the Nkana Syncline. Central and SOB operations are in other structures within the Nkana Syncline. Cupriferous Oxide zones are present in the nose and southwest limb of the syncline. The ore bodies are stratiform and are mainly confined to a recognisable ore formation, which occurs near the base of the Katangan sequence within the Lower Roan Group of the Mine Series. In the underground workings, the principal copper ore minerals are chalcopyrite and bornite with subordinate chalcocite. There is a zoning in the geographical distribution of these minerals. Cobalt occurs as carrollite and cobaltiferious pyrite. In the open pits, the principal ore minerals are malachite, pseudomalchite, chrysocolla, native copper, cuprite and libethenite in the zone of oxidation closer to the surface. In some places however, vermiculite, malachite pseudomalachite and accessory wad are more important. At deeper levels chalcopyrite, bornite and chalcocite are predominantly present. In the Mufulira mining area, the Basement Complex topography appears to have exerted a significant structural control during deformation. The distribution of ore minerals in all three ore bodies is stratigraphically controlled, occurring dominantly as disseminations, blebs and irregu- lar masses. The principal copper minerals are chalcopyrite (60%), bornite (40%), and minor/trace chalcocite. Oxide minerals are confined to near surface occurrences, and supergene enrichment zones. Generally the deposit is structurally simple being characterised by three main folds that are in part overturned with a plunge and dip approximately 10º the northeast. The basin is open and untested at depth. Competent Persons: the mineral resources and ore reserve estimates set out above were reviewed and approved by Cornelius Willem Ries and Jacobus Lotheringen of Golder Associates. The reserve and resources estimates have been prepared in accordance with the JORC Code. Mr Ries and Mr Lotheringen are Competent Persons as defined by JORC and have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. | Annual Report 2012 | 69 LOS QUENUALES 1, 2 Mining method Attributable interest to Glencore Iscaycruz 3 UG/OC 97.6% Yauliyacu 4 UG 97.6% Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Zinc Lead Copper Silver Ore Zinc Lead Copper Silver ’000 MT 1 449 4 165 5 614 % % % g/t 9.21 0.44 0.24 5.83 0.53 0.25 6.70 0.51 0.24 14.34 27.76 24.29 1 663 10.80 0.50 0.29 16.58 4 682 6 345 9 710 6.18 0.55 0.36 7.39 0.54 0.34 4.44 0.35 0.62 30.01 26.49 22.75 ’000 MT 1 066 2 917 3 983 1 727 8 062 9 789 12 754 % % % g/t 2.12 0.89 0.22 2.14 0.90 0.20 2.13 0.90 0.20 3.57 1.24 0.37 3.61 1.48 0.39 3.60 1.44 0.39 3.52 1.33 0.36 96.04 99.96 98.91 145.52 204.50 194.10 178.23 1 As at 31 December 2012. 2 Remaining mine life: the expected life of Iscaycruz is four years based on reserves and twelve years based on resources. The expected life of Yauliyacu is three years based on reserves and 17 years based on resources. Expiry date of relevant mining/concession licences: permanent. Iscaycruz shows a +100% increase in the reserve year on year due to the approval of the community surface access agreement for Santa Este and the conversion of the indicated resource to a probable reserve. 3 Iscaycruz Zinc, lead and copper mineralisation are exposed as subvertical massive sulphide ore bodies; described as skarn, breccias and carbonate replacement type along 12km corridor hosted in clay-rich limestone and dolomite rocks. Hydrothermal mineralisation assemblages are mainly composed of sphalerite, galena, pyrite, chalcopyrite distributed in five production zones named Limpe Centro, Chupa, Tinyag II, Tinyag I and Santa Este from North to South. 4 Yauliyacu Main mineralisation occurs as sphalerite, galena, tetrahedrite and chalcopyrite in 60° to 80° northwest dipping narrow veins, stockwork and minor replacement massive ore bodies exposed in about five kilometers length extension and +2 km depth extension. This hydrothermal mineralisation is strongly structurally controlled and hosted in folded rock units as calcareous sandstones (red beds), conglomerates, volcanic tuffs, andesites and limestones. Competent Person: the mineral resources and ore reserve estimates set out above were reviewed and approved by Glencore Competent Person, Chris Emerson, and have been prepared in accordance with the JORC Code. Mr Emerson is a Competent Person as defined by the JORC Code. Mr Emerson is a fellow of the Geological Society of London and a member of the Australasian Institute of Mining and Metallurgy and has more than ten years experience in underground polymetallic deposits, predominantly in Latin America. 70 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN SINCHI WAYRA 1, 2 Ore reserves Mineral resources Mining method Attributable Commodity Unit Proved Probable Total Measured Indicated Measured and indicated Inferred interest to Glencore 50% 100% 100% Bolivar UG Porco UG Poopo UG Caballo Blanco UG 100% Ore Zinc Lead Silver Ore Zinc Lead Silver Ore Zinc Lead Silver Ore Zinc Lead Silver ’000 MT % % g/t ’000 MT % % g/t ’000 MT % % g/t ’000 MT % % g/t 194 7.78 1.10 204.07 109 7.06 0.40 123.61 48 5.18 0.14 77.76 32 9.00 0.39 61.45 423 7.44 1.05 230.32 658 6.60 0.43 95.53 173 6.15 0.39 137.51 378 7.12 2.01 151.79 617 7.54 1.07 222.07 767 6.66 0.42 99.52 221 5.94 0.33 124.53 410 7.27 1.88 144.74 815 9.52 1.27 290.15 682 8.53 0.51 108.52 251 6.86 0.35 138.60 423 8.81 2.28 176.06 677 9.49 0.84 301.34 438 9.15 0.74 120.67 400 5.93 0.49 213.32 446 8.55 2.29 189.65 1 492 9.51 1.07 295.23 1 120 8.77 0.60 113.27 651 6.29 0.44 184.51 869 8.68 2.29 183.03 2 306 8.12 0.69 274.37 1 218 8.53 0.80 84.54 1 730 5.21 0.49 217.12 1 339 7.24 1.78 156.16 1 As at 31 December 2012. 2 Remaining mine life: the expected life of the mines as a group, considering current production capacities, is an average of two years based on reserves and ten years based on resources. Expiry date of relevant mining concessions/authorisations or contracts is different for each mine: Porco – June 2014 (lease agreement entered into in 1999), Poopo – January 2027 (lease agreement with a local co-operative entered into in 2002), Bolivar – May 2023 (joint venture agreement entered into in 1993) and permanent in respect of Caballo Blanco. Exploration drilling in the Poopo mine has resulted in the addition of 0.9 million metric tonnes of additional inferred resource base over 2011. The Colquiri mine was nationalised on 22 June 2012 and is no longer reported in Sinchi Wayra’s reserves and resources. According to the new Bolivian Constitution enacted in 2009, natural resources belong to the Bolivian people. The Bolivian State can enter into mining contracts with private investors to operate them. As with all private investors in Bolivia, Sinchi Wayra does not hold property rights over mining resources in the country, but holds the right to exploit them pursuant to Bolivian legislation. The majority of the deposits within the Sinichi Wayra portfolio are epigenetic-hydrothermal base metal type vein and fault filled mineralisation hosted within a variety of lithologies from volcanic tuffs to sedimentary packages. The main mineral assemblages are composed of sphalerite, marmatite, galena, silver rich galena and silver sulfosalts. The resources are usually based on multiple structures with Porco containing over 100 different veins. The typical dimensions of these structures is +500m in length and +450m depth profile with mineralisation open at depth; average vein widths from 0.2-4.0m. Competent Person: the mineral resources and ore reserve estimates set out above were reviewed and approved by Glencore Competent Person, Chris Emerson, and have been prepared in accordance with the JORC Code. Mr Emerson is a Competent Person as defined by the JORC Code. Mr Emerson is a fellow of the Geological Society of London and a member of the Australasian Institute of Mining and Metallurgy and has more than ten years experience in underground polymetallic deposits, predominantly in Latin America. | Annual Report 2012 | 71 AR ZINC 1, 2 Mining method Attributable interest to Glencore 100% Aguilar UG/OC Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Zinc Lead Silver ’000 MT % % g/t 2 741 6.61 7.95 982 6.77 8.23 3 723 4 281 1 070 5 351 1 072 6.65 8.02 5.79 6.53 7.32 8.73 6.10 6.97 8.61 9.74 169.78 174.40 171.00 149.05 186.51 156.54 197.79 1 As at 31 December 2012. 2 Remaining mine life: approximately six years based on reserves and nine years based on resources. AR Zinc plans to continue exploration with the aim of extending the life of mine. Expiry date of relevant mining/concession licences: permanent. The resource tonnage has remained at the same levels with continued exploration replacing the 2012 production. An extensive sampling programme has enabled a large portion of indicated resource to be converted to measured and subsequently increase the proved reserve. Mineralisation is classified as sedex type with sulphide layers in between siliciclastic and shale rocks with a post secondary metasomatic over print between two intrusive stocks. Galena-rich, sphalerite, marmatite pyrite ore bodies as lenses shape, locally brittle-style hydrothermal breccias, minor veinlets-stockworks and dissemination defines the economic portion of mineral inventories. Strike length extension of mineral geometries is variable and reaches up to 300m on North-South extension, about 55m width and reaches up to 160m in depth. Competent Person: the mineral resources and ore reserve estimates set out above were reviewed and approved by Glencore Competent Person, Chris Emerson, and have been prepared in accordance with the JORC Code. Mr Emerson is a Competent Person as defined by the JORC Code. Mr Emerson is a fellow of the Geological Society of London and a member of the Australasian Institute of Mining and Metallurgy and has more than ten years experience in underground polymetallic deposits, predominantly in Latin America. COBAR 1, 2 Mining method Attributable interest to Glencore 100% Cobar UG Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Copper Silver ’000 MT 2 606 3 395 6 001 2 257 3 181 5 438 5 974 % g/t 4.78 17.8 4.40 18.4 4.56 18.1 6.11 22.0 5.87 26.0 5.97 24.3 5.79 21.0 1 As at 31 December 2012. 2 Remaining mine life: current expected life of mine is approximately five years based on reserves and approximately 10 years based on resources, although Cobar has previously been able to extend its expected life of mine through exploratory drilling in the area covered by its concession. Expiry date of relevant mining/concession licences: 5 December 2028. Economic mineralisation at Cobar occurs mostly as narrow lenses with short strike lengths that are depth extensive. Lenses consist of vein or semi massive to massive chalcopyrite hosted by sub-vertical quartz-chlorite shear zones within a siltstone unit. The Cobar mineral resource is reported within four ‘systems’: Western, Eastern, QTS North and QTS South. Competent Person: the ore reserves estimates set out above were reviewed and approved by Glencore Competent Person, Aaron Nankivell. The mineral resources estimates set out above were reviewed and approved by Glencore Competent Person, Jason Hosken. The ore reserves and mineral resources estimates have been prepared in accordance with the JORC Code. Mr Nankivell has been a member of the Australasian Institute of Mining and Metallurgy since 2011 and has more than seven years of experience in underground polymetallic deposits in Australia. Mr Hosken has been a member of the Australasian Institute of Mining and Metallurgy for more than 13 years and has more than 17 years of experience in underground polymetallic deposits in Australia. 72 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN PUNITAQUI 1, 2 Mining method Attributable interest to Glencore Punitaqui UG 100% Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Copper Silver ’000 MT 1 891 1 510 3 401 3 734 3 311 7 045 2 081 % g/t 1.47 8.85 1.37 5.78 1.43 7.49 1.41 6.05 1.24 4.05 1.33 5.11 1.42 3.03 1 As at 31 December 2012. 2 Remaining mine life: approximately three and a half years based on reserves and nine years based on resources. Punitaqui plans to continue exploration with the aim of extending the life of mine. Expiry date of relevant mining/concession licences: permanent. The total resource for the Punitaqui mine has increased by two million metric tonnes due to the inclusion of the Dalmacia satellite deposit. Several epigenetic stratabound copper mineralisation (manto type) bodies with variable thicknesses between 20 to 40m are distributed along 900m strike length mineralised corridor named Cinabrio zone. Mineralisation is composed of crisocole, brochantite and malaquite in upper oxide levels turning into a mixed zone composed of malaquite, crisocole and chalcopyrite. Main sulphide zones are composed of pyrite, bornite and chalcopyrite. All mineralisation is distributed in calcareous shales also within minor pre-existing faults. Competent Person: the mineral resources and ore reserve estimates set out above were reviewed and approved by Glencore Competent Person, Chris Emerson, and have been prepared in accordance with the JORC Code. Mr Emerson is a Competent Person as defined by the JORC Code. Mr Emerson is a fellow of the Geological Society of London and a member of the Australasian Institute of Mining and Metallurgy and has more than ten years experience in underground polymetallic deposits, predominantly in Latin America. PERKOA 1, 2 Mining method Attributable interest to Glencore 50.1% Perkoa UG/OC Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Zinc Lead Silver ’000 MT % % g/t – – – – 6 300 13.90 6 300 13.90 – – – – 1 400 13.08 0.09 38.4 5 660 10.48 0.18 57.9 7 060 11.00 0.16 54.0 5 010 9.14 0.17 54.2 1 As at 31 December 2012 for 100% of the Perkoa Project. Reserve information produced July 2009, Resource information produced June 2012. 2 Remaining mine life: current expected life of mine is approximately 9.5 years based on reserves and approximately 12.1 years based on resources. Expiry date of relevant mining/concession licences: 20 March 2027. The information in the table above in relation to resources and reserves is in compliance with the JORC Code. Economic mineralisation at Perkoa occurs mainly as volcanic massive sulfide lenses of sphalerite, galena, pyrite, and pyrrhotite. These massive sulphide lenses vary in width from 1m to 30m thick in places. These massive sulfide lenses dip at an average of 75°, striking NorthEast – South- West and consist of two main ore bodies. Igneous intrusives have also caused endothermic and exothermic skarn like disseminated mineralisa- tion of remobilised galena, pyrite, and to a lesser extent pyrrhotite and sphalerite. Competent Person: The ore reserves estimates set out above were reviewed and approved by Mr John Miles. The mineral resources estimates set out above were reviewed and approved by Mr Danny Kentwell. Both Mr Miles and Mr Kentwell are Members of the Institute of Materials, Minerals and Mining which is a ‘Recognised Overseas Professional Organisation’ (‘ROPO’), and both have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined in the JORC Code. Mr Kentwell is a Fellow of the Australian Institute of Mining and Metallurgy and is a Principal Consultant of SRK Consulting (Australasia) Pty Ltd. Mr Miles is a Principal Associate of SRK Consulting (UK). | Annual Report 2012 | 73 ROSH PINAH 1, 2 Mining method Attributable interest to Glencore 80.08% Rosh Pinah UG Ore reserves Proved Probable Mineral resources Total Measured Indicated Measured and indicated Inferred Ore Zinc Lead Silver ’000 MT 2 268 1 962 4 230 3 711 4 488 8 199 7 707 % % g/t 8.46 1.89 34.1 7.29 2.43 34.3 7.91 2.14 34.2 8.44 1.95 52.2 6.73 2.33 45.4 7.50 2.16 48.5 7.92 1.12 32.1 1 As at 31 December 2012. 2 Remaining mine life: expected life of mine is 6.2 years based on reserves. Rosh Pinah has previously been able to extend its expected life of mine through exploratory drilling in the area covered by its concession. Potential Life of Mine based on resources and expected continuity of mineralisation is 20.2 years. The expiry date of ML 39+AW (Mining Licence and Accessory Works) is 11 February 2020. Mineralisation style: Sedimentary exhalative (SEDEX) type Zinc and lead sulphide ores are contained within the so-called Ore Equivalent Hori- zon, a stratiform horizon that is extensively folded, resulting in discreet, subvertical ore bodies that vary in size from 0.4– 2.0 million tonnes. Competent Persons: The mineral resources estimates have been reviewed and approved by Eric Mouton, Technical Service Manager, employed on a full time basis by Rosh Pinah Zinc Corporation, a Professional Natural Scientist affiliated to the South African Council for Natural Scientific Professions (‘SACNASP’). Eric Mouton has twelve years of experience in the style of mineralisation of the Rosh Pinah deposit. The ore reserve estimates were compiled by Phil Crowther, Long term Planning Consultant employed on a part-time basis with Rosh Pinah Zinc Corporation and a South African Council for Professional Land Surveyors and Technical Surveyors (‘PLATO’) affiliated professional. Phil Crowther has 21 years of experience in the type of deposit being mined as well as the mining method. The resources and reserve estimates have been prepared in accordance with the SAMREC Code. MURRIN MURRIN 1, 2 Mining method Attributable Proved3 Probable Total Measured3 Ore reserves Mineral resources Indicated Measured and indicated Inferred interest to Glencore Murrin Murrin OC 100% Ore Nickel Cobalt Nickel Cut Off Grade ’000 MT Content, % 4 Content, % 4 % 153 814 34 378 188 192 183 448 73 932 257 380 10 827 0.98 0.069 0.98 0.071 0.98 0.069 0.99 0.070 0.8 0.99 0.078 0.8 0.99 0.072 0.94 0.057 0.8 1 As at 31 December 2012. The position has been determined using survey information as at 31 October 2012 with adjustments applied for November actuals and December forecast performance. The above Resources and Reserves have been prepared in accordance with the JORC Code. 2 Remaining mine life: at the forecast throughput capacity of 4.0 million tonnes per annum, the project’s operating life is in excess of 30 years. Expiry dates for relevant tenements differ for each tenement and range from 2013 to 2032. The Murrin Murrin 31 December 2012 Ore Reserve estimate is based on the optimised Base Case pit shells for Measured and Indicated Mineral Resources. 3 Includes scats and stockpiles. 4 Ore Reserve grades have been subject to the application of grade modifying factors. These have been derived from analysis of the previous two years mine-to-mill grade performance and result in grade modifying factors of 94% and 88% for nickel and cobalt respectively. The estimated Ore Reserve tonnage has had the depletion of 0.6 Mt taken out of the Proved category for Measured and Indicated Mineral Resources. Competent Persons: The information in this report relating to mineral resources is based on information compiled by Mr Rob Embry (drill design, drilling, assay compilation and assay QA/QC) and Mr Stephen King (geostatistical analysis, modelling/estimation and resource clas- sification), the information relating to ore reserves is based on information compiled by Ms Kellie Gill and the information relating to Metal- lurgical Results is based on information compiled by Mr Bradley Adamson. Mr Embry, Mr King, Ms Gill and Mr Adamson are all Members of the Australasian Institute of Mining and Metallurgy and are all full time employees of Minara Resources Ltd. Mr Embry, Mr King, Ms Gill and Mr Adamson all have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking in order to qualify as Competent Persons as defined in the JORC Code and all consent to the inclusion in this report of the matters based on their information in the form and context in which it appears. 74 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN ENERgy PROduCTS EQUATORIAL GUINEA Aseng field 3, 4 Alen field 5 Reserves (MMstb) Gross field 1 2P 1P 75 47 84 72 Glencore working interest 2 1P 18 12 2P 20 18 3P 23 25 3P 98 101 1 As at 31 December 2012. The reserves information set out above were reviewed and approved by Gaffney, Cline & Associates (‘GCA’), has been prepared in accordance with the Petroleum Resources Management System (PRMS) and has been extracted without material adjustment from the GCA Report. 2 Glencore working interest in Block O is 25 per cent and Glencore working interest in Block I is 23.75 per cent. 3 Includes oil and condensate. 4 Aseng is in Block I. 5 Alen is 95% in Block O and 5% in Block I. EQUATORIAL GUINEA Liquids (MMstb) 3 Gas (Bscf) Contingent Resources 1 Gross field Glencore working interest 2 1C 39 2C 65 1 707 2 469 3C 99 3 376 1C 10 415 2C 16 601 3C 24 820 1 As at 31 December 2012. The resources information set out above were reviewed and approved by Gaffney, Cline & Associates (‘GCA’), has been prepared in accordance with PRMS and has been extracted without material adjustment from the GCA Report, save for the aggregation, which has been performed by Glencore. 2 Glencore working interest in Block O is 25 per cent and Glencore working interest in Block I is 23.75 per cent. 3 Includes oil and condensate. EQUATORIAL GUINEA Liquids (MMstb) 3 Gas (Bscf) Prospective Resources (Unrisked) 1 Gross Glencore working interest 2 P90 P50 P10 P90 P50 P10 65 451 176 1 039 338 1 767 16 111 42 254 81 432 1 As at 31 December 2012. The resources information set out above were reviewed and approved by Gaffney, Cline & Associates (‘GCA’), has been prepared in accordance with PRMS and has been extracted without material adjustment from the GCA Report, save for the aggregation, which has been performed by Glencore. 2 Glencore working interest in Block O is 25 per cent and Glencore working interest in Block I is 23.75 per cent. ³ Includes oil and condensate. | Annual Report 2012 | 75 PRODECO 1 Mining method Attributable interest to Glencore Calenturitas 2 OC 100% Commodity Unit Measured Indicated Inferred Proved Probable Proved Probable Total Coal resources Coal reserves Marketable coal reserves Thermal coal ’000 MT 160 000 190 000 60 000 107 100 101 000 107 000 101 000 208 000 CV kcal/kg 6 400 6 300 6 200 6 250 6 150 6 250 6 150 6 200 La Jagua 3 OC 100% Thermal coal ’000 MT 100 000 20 000 CV kcal/kg 7 100 7 100 – – 92 000 22 000 92 000 22 000 114 000 6 750 6 650 6 750 6 650 6 700 1 As at 31 December 2012. 2 Remaining mine life: expected to be 20 years. Expiry date of relevant mining/concession licenses: 2035. 3 Remaining mine life: expected to be 18 years. Expiry date of relevant mining/concession licenses: Carbones El Tesoro and Carbones de La Jagua expiring between 2027 and 2038, and Consorcio Minero Unido expiring in 2014 with renewal considered probable due to the fact that the integrated La Jagua mine plan has already been approved. Coal reserves and resources reported in accordance with the JORC Code. Tonnes and quality are reported at in situ moisture basis for coal resources and as received basis for coal reserves. Coal resource tonnages were estimated within a ‘geoshell’ defined by the limits of geological information within the geological model. As a result, there is minimal extrapolation of resources beyond the areal and vertical limits of the data. Competent Persons: Mr Grant Walker of Xenith Consulting and Mr Kerry Whitby of McElroy Bryan Geological Services are each Competent Persons as defined by JORC and have sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. The coal reserve and coal resource estimates set out above were reviewed and approved for publication by Mr Walker and Mr Whitby respectively. SHANDUKA 1, 2 Coal resources Extractable coal reserves Saleable coal reserves Commodity Unit Measured Indicated Inferred Proved Probable Proved Probable Attributable interest to Glencore Mining method Graspan OC Townlands OC Steelcoal OC 49.99% Thermal coal ’000 MT CV kcal/kg 49.99% Thermal coal ’000 MT CV kcal/kg 49.99% Thermal coal ’000 MT CV kcal/kg Lakeside Opencut 49.99% OC Lakeside Underground UG 49.99% Leeuwfontein OC 49.99% Springlake Opencut OC 49.99% Springlake Underground UG 49.99% Thermal coal ’000 MT CV kcal/kg Thermal coal ’000 MT CV kcal/kg Thermal coal ’000 MT CV kcal/kg Thermal coal ’000 MT CV kcal/kg 76 | Annual Report 2012 | 16 477 5 340 19 419 4 860 10 542 4 637 1 680 4 652 3 470 4 430 5 260 4 621 1 151 6 091 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 13 683 5 340 17 355 4 860 9 866 4 637 – – – – – – 982 6 091 Total saleable 9 966 6 300 12 051 5 600 6 995 5 600 – – – – – – 656 6 800 8 277 6 800 – – – – – – – – – – – – – – – – 9 966 6 300 12 051 5 600 6 995 5 600 – – – – – – 656 6 800 8 277 6 800 – – – – – – – – – – – – – – – – Thermal coal ’000 MT 17 562 10 196 CV kcal/kg 6 306 6 306 6 419 6 306 16 916 6 306 Mining method Argent OC overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Coal resources Extractable coal reserves Saleable coal reserves Commodity Unit Measured Indicated Inferred Proved Probable Proved Probable Total saleable Attributable interest to Glencore 49.99% Thermal coal ’000 MT kcal/kg 29 125 6 056 CV Springboklaagte Opencut 3 OC 49.99% Thermal coal CV Springboklaagte Underground 3 49.99% UG Thermal coal CV – – – – – – – – ’000 MT kcal/kg 13 249 5 182 ’000 MT kcal/kg 66 561 103 930 4 886 4 886 5 530 4 886 – – – – – – 24 830 6 056 3 350 5 182 44 608 4 886 – – – – – – 24 830 24 830 6 000 6 000 2 445 2 445 6 000 6 000 32 563 32 563 6 000 6 000 1 As at 31 December 2012. 2 Remaining mine life: individual mining operations have expected lives ranging from three to twelve years, based on their reserves. However, the Springboklaagte deposit extends Shanduka’s expected life by approximately 20 to 25 years. Expiry date of relevant mining/concession licenses: different for each mine, ranging from October 2015 to March 2027 in respect of Graspan, Townlands, Steelcoal reserve, Lakeside and Springlake. Leeuwfontein is still what is known as an ‘old order right’ or mining license, with applications pending for conversion into a ‘new order right’ or mining license (only upon conversion will the expiry date be known). Springboklaagte is still a prospecting right, which are granted for five year periods and are renewable for a further three year period. The main prospecting right expired on 3 August 2011 and an application for the renewal of the prospecting right was lodged on 3 June 2011. Further to this an application for a mining right was also lodged in April 2011. Argent has a prospecting right valid until 29 June 2013. 3 Springboklaagte is held as a Joint Venture between Shanduka and Umcebo, 100% of the Springboklaagte reserves and resources is included in the table above and also presented in the Umcebo table. Competent Persons: the mineral resource estimates set out above were compiled and approved by Karin van der Merwe (MSc Geochemistry; GSSA 965 295) and the mineral reserve estimates set out above were compiled and approved by Mark Cunney (BEng Hons Mining Engineering, MCC; Pr Cert ENg 2007 0114), both of whom are employed by Shanduka Coal (Pty) Ltd. The reserves and resources estimates have been prepared in accordance with the SAMREC Code. Both are Competent Persons as defined by SAMREC and each have sufficient experience (16 years each respectively) which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. Commodity Unit Measured Indicated Inferred Proved Probable Proved Probable Coal resources Extractable coal reserves Saleable coal reserves UMCEBO 1, 2 Mining method Attributable interest to Glencore Middelkraal OC 43.66% Kleinfontein OC 43.66% Klippan Opencut OC 43.66% Klippan Underground UG 43.66% Kleinfontein Jicama 43.66% OC Thermal coal ’000 MT CV kcal/kg 13 265 4 544 Thermal coal ’000 MT CV kcal/kg 1 583 5 230 – – – – Thermal coal ’000 MT CV kcal/kg 3 071 5 815 600 5 815 Thermal coal ’000 MT CV kcal/kg 1 198 5 803 Thermal coal ’000 MT CV kcal/kg 12 700 5 182 – – – – – – – – 5 638 5 182 11 093 4 544 1 145 5 230 694 5 815 531 5 803 1 908 5 182 – – – – 45 788 5 571 544 5 571 – – – – – – – – – – – – – – 9 756 5 000 686 5 600 486 6 300 385 6 300 1 427 6 300 35 155 6 300 423 6 300 – – – – – – – – – – – – – – – – – – – – – – Wonderfontein Opencast OC 43.66% Thermal coal CV Wonderfontein Underground 43.66% UG Thermal coal CV ’000 MT kcal/kg 63 118 5 571 ’000 MT kcal/kg 35 180 5 571 Total saleable 9 756 5 000 686 5 600 486 6 300 385 6 300 1 427 6 300 35 155 6 300 423 6 300 | Annual Report 2012 | 77 Commodity Unit Measured Indicated Inferred Proved Probable Proved Probable Attributable interest to Glencore Coal resources Extractable coal reserves Saleable coal reserves Mining method Norwesco OC Doornrug OC Hendrina UG Belfast UG 43.66% Thermal coal ’000 MT CV kcal/kg 43.66% Thermal coal ’000 MT CV kcal/kg 792 4 991 4 000 5 015 – – – – 43.66% Thermal coal ’000 MT 177 000 181 600 CV kcal/kg 4 239 4 239 21.83% Thermal coal ’000 MT 107 710 kcal/kg 5 110 ’000 MT kcal/kg 13 249 5 182 – – – – – – – – 8 500 4 239 6 640 5 110 – – ’000 MT kcal/kg 66 561 103 930 4 886 4 886 5 530 4 886 CV Springboklaagte Opencut 3 OC 43.66% Thermal coal CV Springboklaagte Underground 3 43.66% UG Thermal coal CV 300 4 991 – – – – – – – – – – – – – – – – – – 3 350 5 182 44 608 4 886 195 5 600 – – – – – – – – – – Total saleable 195 5 600 – – – – – – – – – – – – – – 2 445 6 000 2 445 6 000 32 563 32 563 6 000 6 000 1 As at 31 December 2012. 2 Remaining mine life: individual mining operations have expected lives ranging up to ten years, based on their reserves. However, the Spring- boklaagte deposit extends Umcebo’s expected life by approximately 20 to 25 years. Expiry date of relevant mining/concession licenses: dif- ferent for each mine, ranging from October 2015 to December 2021 in respect of Middelkraal, Kleinfontein, Klippan and Doornrug. Norwesco mining right lapsed on 28 September 2011, however a renewal has been lodged. Springboklaagte is still a prospecting right, which are granted for five year periods and are renewable for a further three year period. The main prospecting right expired on 3 August 2011 and an applica- tion for the renewal of the prospecting right was lodged on 3 June 2011. Further to this an application for a mining right was also lodged in April 2011. Wonderfontein prospecting right lapsed on 17 November 2011 however a renewal was lodged on 28 July 2011. A mining right application has been submitted and was granted in February 2012, but is not yet executed. 3 Springboklaagte is held as a Joint Venture between Shanduka and Umcebo. 100% of the Springboklaagte reserves and resources is included in the table above and also presented in the Shanduka table. Competent Persons: the mineral resource estimates set out above were compiled and approved by Gerrit Cronjé (BSc Hons Geology; Pr Sc Nat 400128/86) and the mineral reserve estimates set out above were compiled and approved by Thys de Bruin (BEng Mining Engineering, MCC; Pr Cert Eng 2008 900 31), both of whom are employed by Shanduka Coal (Pty) Ltd. The reserves and resources estimates have been prepared in accordance with the SAMREC Code. Both are Competent Persons as defined by SAMREC and each have sufficient experience (34 and 17 years re- spectively) which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. OPTIMUM 1, 2 Mining method Overvaal UG Vlakfontein OC Coal resources Extractable coal reserves Saleable coal reserves Commodity Unit Measured Indicated Inferred Proved Probable Proved Probable Total saleable Attributable interest to Glencore 67.01% Thermal coal ’000 MT 23 490 21 120 28 470 3 980 15 730 2 360 8 736 11 096 CV kcal/kg 6 272 6 272 6 272 6 272 6 272 6 500 6 500 6 500 67.01% Thermal coal ’000 MT CV kcal/kg 35 500 5 087 4 200 5 087 1 400 5 087 24 741 5 087 1 150 5 087 15 339 713 16 052 5 900 5 900 5 900 Koornfontein mines 67.01% UG Thermal coal ’000 MT 182 730 25 390 CV kcal/kg 4 653 4 653 TNC OC 67.01% Thermal coal ’000 MT 29 320 41 110 CV kcal/kg 5 331 5 331 – – – – 53 543 7 237 4 653 4 653 28 795 5 400 3 986 5 400 32 781 5 400 – – 40 981 5 331 – – 23 475 23 475 5 900 5 900 78 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Coal resources Extractable coal reserves Saleable coal reserves Commodity Unit Measured Indicated Inferred Proved Probable Proved Probable Total saleable Thermal coal ’000 MT 158 170 47 281 CV kcal/kg 5 237 5 237 – – 88 122 5 237 2 099 5 237 53 716 1 256 54 972 6 020 6 020 6 020 Thermal coal ’000 MT 11 704 39 576 CV kcal/kg 4 641 4 641 Thermal coal ’000 MT 21 587 12 370 CV kcal/kg 3 939 3 939 3 037 4 641 9 241 3 939 2 296 4 641 3 167 3 939 – – – – 1 217 6 020 1 708 6 020 – – – – 1 217 6 020 1 708 6 020 Mining method Attributable interest to Glencore Kwagga Opencast 67.01% OC Pullenshope Opencast OC 67.01% Zevenfontein Opencast OC 67.01% Kromdraai Opencast OC 67.01% Thermal coal ’000 MT 11 815 55 170 CV kcal/kg 4 378 4 378 Eikeboom OC 67.01% Thermal coal ’000 MT 3 419 18 238 CV kcal/kg 5 485 5 485 Boschmanspoort Underground 67.01% UG Thermal coal CV ’000 MT kcal/kg 45 389 50 739 4 729 4 729 Pullenshope Underground UG 67.01% Thermal coal CV ’000 MT kcal/kg 61 928 40 037 4 775 4 775 Schoonoord UG/OC 67.01% Thermal coal ’000 MT 19 179 34 667 CV kcal/kg 4 738 4 738 BMP Expl. UG 67.01% Thermal coal ’000 MT CV kcal/kg – – 25 910 4 527 – – – – – – – – – – – – 13 642 17 420 7 761 11 730 19 491 4 378 4 378 6 020 6 020 6 020 1 905 5 485 6 665 5 485 1 005 3 955 6 020 6 020 4 960 6 020 12 643 20 538 6 783 11 018 17 801 4 729 4 729 6 020 6 020 6 020 14 847 15 977 9 869 10 620 20 489 4 775 4 775 6 020 6 020 6 020 – – – – – – – – – – – – – – – – – – – – 1 As at 31 December 2012. 2 Remaining mine life. Individual mining operations have expected lives ranging from one to 17 years, based on their reserves. The Kwagga reserve is made up of different sub areas which includes Kwagga North, Kwagga Central, Kwagga Rail and Kwagga Mini Pits. The various number of years available to mine in the mentioned sub-areas range from two to twelve years. Pullenshope, Zevenfontein and Kromdraai reserves have an estimated nine years of mining left combined, as several overlapping of the reserves are done during the life of mine – in other words the reserves are at some points mined simultaneously. The Eikeboom reserve is planned to be mined over a total period (mining years) of 15 years – not in one continuous period though. The reserve is divided up into a portion of in situ coal and a portion of pillar areas. There is a planned period in-between when dewatering of the old underground mining areas will be done, prior to commencing with pillar mining. The Boschmanspoort Underground reserve has got eleven years remaining to be mined, and the Pullenshope Underground reserve is cur- rently plan to be mined out in 17 years (at the current rates). The BMP Expl. reserve block serves as an extension to the Boschmanspoort Underground reserve and more detailed work needs to be done around the block prior to inclusion in the life of mine. The Schoonoord reserve currently has not been included in the life of mine due to marginal economics associated with the specific project. Expiry date of relevant mining/concession licences: June 2028 for Optimum and October 2032 for Koornfontein. Competent Persons (Koornfontein Mines and TNC): the mineral resource estimates set out above were compiled and approved by Kobus Dippenaar (BSc Hons Geology; Pr Sc Nat 400079/94) and the mineral reserve estimates set out above were compiled and approved by Willem Heyneke (B Tech Mining Engineering, MCC; Pr Cert Eng 2008 900 44), both of whom are employed by subsidiary company of Optimum Coal (Pty) Ltd. The reserves and resources estimates have been prepared in accordance with SAMREC. Both are Competent Persons as defined by SAMREC and each have sufficient experience (22 and 30 years respectively) which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. Competent Persons (all other mines): the mineral reserve and resource estimates set out above were compiled and approved by Victor Nkam- bule (MSc Geology; Pr Sc Nat 400110/91) with support from Theunis van der Linde (B Tech Mining Engineering; MCC) and Hlayiseka Chauke (B Tech Mining Engineering; MCC), all of whom are employed by Optimum Coal (Pty) Ltd. The reserve and resource estimates have been pre- pared in accordance with the SAMREC Code. All are Competent Persons as defined by SAMREC and each have sufficient experience (33, eight and twelve years respectively) which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. | Annual Report 2012 | 79 Kazzinc, Kazakhstan Corporate GovernanCe 3 | Corporate Governance 3.1 | Chairman’s introduction 3.2 | Officers 3.3 | Corporate governance report 3.4 | Directors’ remuneration report 3.5 | Directors’ report 82 83 86 93 101 3.1 | Chairman’s introduction Welcome to our second Corporate Governance report. In preparing this report we have been mindful of the conflicting challenges of governance reporting – the objective on the one hand of keeping the report concise and the aim on the other of providing a full and complete report. Throughout 2012 the Company believes that it has been fully compliant with the UK Corporate Governance Code (as published in June 2010) (the ‘Code’) except in respect of board evaluation as stated below. We have sought to report on our governance in a user friendly and direct a manner as possible, giving a clear summary of the considered leadership which the Board and its Committees provides to the Group. We would welcome feedback on this report. Simon Murray Chairman 82 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 3.2 | Officers BOARd Of diReCtORs All of the Directors were appointed in March or April 2011, shortly before the Company’s IPO. siMON MURRAY 4 Chairman (age 72) Appointed to the Board as Non-Executive Chairman in April 2011. He is the founder and current chairman of GEMS Limited, a private equity investment group operating across Asia. Previously, Mr Murray led Jar- dine Matheson’s engineering and trading operations from 1966 to 1980, after which he set up Davenham Investments, a project advisory company. From 1984 until 1993, Mr Murray was group managing director of Hutchison Whampoa, leading its entry into the mobile telecommunication business, developing its energy business and expanding its container and port operations. Mr Murray served as a member of the Hutchison Whampoa Board until May 2007. From 1994 to 1997, Mr Murray was the executive chairman of Deutsche Bank group for the Asia Pacific region. Mr Murray is currently a member of the Board of Directors of a number of public companies including IRC, Essar Energy, Orient Overseas, Wing Tai Properties, Greenheart and Compagnie Financiere Richemont. Mr Murray was a non-executive director of Vodafone between July 2007 and July 2010. In 1993, Mr Murray was appointed a CBE in honour of his contribution to the Hong Kong community. Mr Murray has also been award- ed the Order of Merit of the French Republic and is a Chevalier de la Legion d’honneur. He holds an honorary B.A. degree in law from Bath University and has attended the Stanford Executive Programme (SEP) in the U.S. iVAN GLAseNBeRG 2, 4 Chief Executive Officer (age 56) Ivan Glasenberg joined Glencore in April 1984 and has been Chief Executive Officer since January 2002. Mr Glasenberg initially spent three years working in the coal/coke commodity department in South Africa as a marketer, before spending two years in Australia as head of the Asian coal/coke commodity division. Between 1988 and 1989, he was based in Hong Kong as head of Glencore’s Hong Kong and Beijing offices, as well as head of coal marketing in Asia, where his responsibilities included overseeing the Asian coal market- ing business of Glencore and managing the administrative functions of the Hong Kong and Beijing offices. In January 1990, he was made responsible for the worldwide coal business of Glencore for both marketing and industrial assets, and remained in this role until he became Chief Executive Officer in January 2002. Mr Glasenberg is a Chartered Accountant of South Africa and holds a Bachelor of Accountancy from the University of Witwatersrand. Mr Glasenberg also holds an M.B.A. from the University of Southern California. He is currently a director of Xstrata plc, United Company Rusal plc and JSC Zarubezhneft. Before joining Glencore, Mr Glasenberg worked for five years at Levitt Kirson Chartered Accountants in South Africa. steVeN KALMiN Chief Financial Officer (age 42) Steven Kalmin joined Glencore in September 1999 as general manager of finance and treasury functions at Glencore’s coal industrial unit (now part of Xstrata). Mr Kalmin moved to Glencore’s Baar head office in October 2003 to oversee Glencore’s accounting and reporting functions, becoming Chief Financial Officer in June 2005. Mr Kalmin holds a Bachelor of Business (with distinction) from the University of Technology, Sydney and is a member of the Institute of Chartered Accountants of Australia and the Financial Services Institute of Aus- tralasia. He is currently a director of Century Aluminum Co. Before joining Glencore, Mr Kalmin worked for nine years at Horwath Chartered Accountants in Sydney, leaving the firm as a director. | Annual Report 2012 | 83 ANtHONY HAYWARd 2, 3, 4* Senior Independent Director (age 55) He is CEO of Genel Energy plc, a partner and member of the European advisory Board of AEA Capital and a Member of the Advisory Board of Numis Corporation plc. He was group chief executive of BP plc from 2007 to 2010, having joined BP in 1982 as a rig geologist in the North Sea. Following a series of technical and commercial roles in Europe, Asia and South America, he returned to London in 1997 as a member of the upstream executive committee. He became group treasurer in 2000, chief executive for BP upstream activities and member of the main Board of BP in 2003. Dr. Hayward studied geology at Aston University in Birmingham and completed a PhD at Edinburgh University. He is also a fellow of the Royal Society of Edin- burgh and holds honorary doctorates from the University of Edinburgh, Aston University and the University of Birmingham. Li NiNG 4 Non-Executive Director (age 56) Li Ning has been an executive director of Henderson Land Development Company Limited since 1992. He was also an executive director of Henderson Investment Company Limited from 1990 to 2010. He has also been an executive director of Hong Kong (Ferry) Holdings Company Limited since 1989. Prior to joining the Henderson group, he began his career in the banking industry with Chekiang First Bank Limited. Mr Li holds a B.Sc. degree from Babson College. Mr Li also graduated in 1983 from the University of South- ern California with an M.B.A. degree. PeteR COAtes 1, 2* Non-Executive Director (age 67) Currently a non-executive director and chairman of Santos Ltd., and a non-executive director of Amalga- mated Holdings. Until April 2011, he was a non-executive director and chairman of Minara Resources Ltd, a position he had held since May 2008. Mr Coates has occupied many senior positions in a diverse range of resource companies, including those mining silver, lead, zinc, nickel, iron ore, bauxite and coal. Mr Coates was previously the chief executive of Xstrata’s coal business, having joined the company in 2002 when Glencore sold its Australian and South African coal assets to Xstrata. Mr Coates is a past chairman of the Minerals Council of Australia, the NSW Minerals Council and the Australian Coal Association. He was appointed to the Office of the Order of Australia in June 2009 and awarded the Australasian Institute of Mining and Metallurgy Medal for 2010. He holds a Bachelor of Science degree in Mining Engineering from the University of New South Wales. 84 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN LeONHARd fisCHeR 1*, 3 Non-Executive Director (age 50) Leonhard Fischer was appointed chief executive officer of RHJ International S.A. in January 2009, having been co-chief executive officer from May 2007. He has been a member of the board of directors of RHJ International S.A. since 18 September, 2007. He is also chief executive officer of Kleinwort Benson Group and chairman of the board of directors at Kleinwort Benson Bank Ltd. He is also a member of the board of directors at Julius Baer Gruppe AG (formerly Julius Bär Holding AG). Mr Fischer was chief executive officer of Winterthur Group from 2003 to 2006 and a member of the execu- tive board of Credit Suisse Group from 2003 to March 2007. He joined Credit Suisse Group from Allianz AG, where he had been a member of the management board and head of the Corporates and Markets Division. Prior to this, he had been a member of the executive boards of Dresdner Bank AG in Frankfurt. Mr Fischer holds an M.A. in Finance from the University of Georgia. WiLLiAM MACAULAY 1, 3* Non-Executive Director (age 67) He is the chairman and chief executive officer of First Reserve Corporation, a private equity investment firm focused on the energy industry, and has been with the company since its founding in 1983. Prior to joining First Reserve he was a co-founder of Meridien Capital Company, a private equity buyout firm. From 1972 to 1982, he was with Oppenheimer & Co., where he served as director of corporate finance with direct respon- sibility for the firm’s buyout business. He also served as president of Oppenheimer Energy Corporation. Mr Macaulay is chairman of the Board of Dresser-Rand and is a director of Weatherford International. He also serves on numerous private energy company Boards. In addition, he is chairman of the advisory Board of the City University of New York. Mr Macaulay holds a B.B.A. degree (with honours) in Economics from City College of New York, and an M.B.A. from the Wharton School of the University of Pennsylvania. He has also received an Honorary Doctor of Humane Letters degree from Baruch College. Committee membership for 2012 is designated as follows: 1 Audit 2 Health, Safety, Environment and Communities (HSEC) 3 Remuneration 4 Nomination * denotes Committee chair COMPANY seCRetARY JOHN BURtON Company Secretary (age 48) John Burton was appointed Company Secretary in September 2011. He was formerly Company Secretary and General Counsel of Informa plc and before that a partner at CMS Cameron McKenna in London special- ising in corporate law. Mr Burton holds a B.A. degree in Law from Durham University. He was admitted as a Solicitor in England and Wales in 1990. | Annual Report 2012 | 85 3.3 | Corporate governance report BOARd GOVeRNANCe Overview The Board believes that the Company has throughout the year complied with all relevant provisions contained in the Code except with regard to the implementation of an evaluation process as described below. The governance section sets out how Glencore has applied the main principles of the Code in a manner which enables shareholders to evaluate how these principles have been applied. The disclosures in this report relate to our responsibilities for preparing the annual report (including compliance with the Code to the extent required), our report on the effectiveness of the Group’s risk management and internal control systems, the functioning of our Audit Committee and our going concern statement. Details of the Company’s significant shareholders, voting rights, Directors’ powers and rules concerning the appointment and replacement of Directors and amendments to the articles of as- sociation are either contained in this section 3.3 or section 3.4. Glencore’s Board comprises six Non-Executive Directors (in- cluding the Chairman) and two Executive Directors. A list of the Directors, with brief biographical details, is provided in section 3.2. For the Chairman, those details include his other significant commitments. Board of Directors Independent Non-Executive Chairman Executive Directors Independent Non-Executive Directors CEO CFO Audit Committee Remuneration Committee Nomination Committee HSEC Committee Business segment heads Metals and minerals Energy products Agricultural products Zinc/copper/lead Alumina/aluminium Ferroalloys/nickel/cobalt/iron ore Oil Coal/coke Grains Oils/oilseeds Cotton/sugar NB: All board committees are chaired by Independent Non-Executive Directors Risk management Internal audit Corporate finance Legal & compliance Sustainability Treasury, accounting & tax IT Human resources Chairman and Chief Executive Officer Glencore has established a clear division between the respec- tive responsibilities of the Non-Executive Chairman of the Board, and the Chief Executive Officer, which are set out in a schedule of responsibilities that has been approved by the Board. While the Non-Executive Chairman is responsible for leading the Board’s discussions and decision-making, the Chief Executive Officer is responsible for leading Glencore’s operat- ing performance and day-to-day management. This, coupled with the schedule of reserved matters described below, en- sures that no individual has unfettered powers of decision. Non-Executive Directors The Company’s Non-Executive Directors provide a broad range of skills and experience to the Board which assists in their roles in formulating the Company’s strategy and in providing con- structive challenge to the Executive Directors. All of them are regarded by the Company as independent Non-Executive Di- rectors within the meaning of ‘‘independent’’ as defined in the Code and free from any business or other relationship which could materially interfere with the exercise of their independent judgment. This view has been taken having regard to all facts including the following: William Macaulay is chairman and chief executive of First Re- serve Corporation (First Reserve). First Reserve was, on Mr Ma- caulay’s appointment to the Board, the holder of a tranche of $  2.3  billion Convertible Bonds due 2014 issued by Glencore Finance (Europe) S.A. (First Reserve subsequently sold these bonds and now holds shares, or economic interests in respect of shares, totalling 160,909,810 in number, as further detailed in section 3.5). 86 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Peter Coates was until April 2011 the independent non-execu- tive chairman of Minara Resources Ltd., while that company was 70.6% owned by Glencore, and was until August 2009 a non-ex- ecutive chairman of Xstrata Australia and a former chief execu- tive of Xstrata Coal, part of Xstrata plc, a listed entity in which Glencore then held a 34.5% interest. Mr Coates joined Xstrata in 2002 with Glencore’s coal assets in Australia and South Africa when they were sold to Xstrata, simultaneous with its primary listing and capital raising in London. Board Committees There are in place the following Committees to assist the Board in exercising its functions: Audit, Nomination, Remuneration and Health, Safety, Environmental and Communities (HSEC). A report from each Committee is set out in section 3.3. Each Committee reports to, and has its terms of reference approved by, the Board and the minutes of the Committee meetings are reviewed by the Board. These terms of reference are available at www.glencore.com/corporate-governance.php. Board Meetings The Board has approved a formal schedule which sets out those matters which are reserved for its decision making alone such as strategy, the annual budget and material acquisitions and disposals. The Board held 5 scheduled meetings during the year togeth- er with numerous additional meetings as required. All of the Board’s scheduled meetings were held at the Company’s head- quarters in Baar, Switzerland. The Board and its Committees have standing agenda items to cover their proposed business at their scheduled meetings. The Chairman seeks to ensure that the very significant work of the Committees feeds into, and benefits as to feedback from, the full Board. Most Board meetings also benefit from a presenta- tion by the head of a division and some technical and investor relations updates. The Chairman holds meetings with the Non-Executive Direc- tors without the Executive Directors present, and at least once a year the Senior Non-Executive Director chairs a meeting of the Non-Executive Directors without the Chairman present. Attendance during the year for all scheduled Board and Board Committee meetings is given in the table below: Simon Murray Ivan Glasenberg Steven Kalmin Peter Coates Leonhard Fischer Anthony Hayward William Macaulay Li Ning Board of 5 Audit of 4 Nomination of 1 Remuneration of 3 HSEC of 5 5 5 5 5 4 5 5 5 – – – 4 4 – 4 – 1 1 – – – 1 – 1 – – – – 3 3 3 – – 5 – 5 – 5 – – In addition, two unscheduled meetings of the Audit Committee took place and numerous unscheduled meetings of the Board took place, mainly concerning the Xstrata Merger. Appointment and re-election of Directors The work of the Nomination Committee in respect of the ap- pointment and reappointment of Directors is contained in the Committee’s report below. any subsidiary undertaking of the Company in which any Direc- tor was materially interested subsisted during or at the end of the financial year. As previously announced, changes to the composition of the Board and its Committes are due to take place upon comple- tion of the Merger with Xstrata. Specific details will be set out in the Notice of the 2013 Annual General Meeting (AGM). All con- tinuing members of the Board as described above (including the Xstrata appointees) will be offering themselves for election or re-election at the 2013 AGM. All of the Directors have service agreements or letters of appointment and the details of their terms are set out in the Remuneration Report. No other contract with the Company or Information and professional development It is considered of great importance that the Non-Executive Directors (1) attain a good knowledge of the Company and its business and (2) allocate sufficient time to Glencore to dis- charge those responsibilities effectively. New Directors receive a full, formal and tailored induction on joining the Board, in- cluding meetings with senior management and advisers and visits to the Group’s operational locations. The Board calendar is planned to ensure that Directors are briefed on a wide range of topics. Directors are also given the opportunity to visit the Group’s industrial assets and discuss aspects of the business with employees, and regularly meet the heads of the Group’s | Annual Report 2012 | 87 main departments. As well as internal briefings, Directors at- tend appropriate external seminars and briefings. ACCOUNtABiLitY ANd AUdit All Directors have access to the advice and services of the Com- pany Secretary, who is responsible to the Board for ensuring the Board procedures are complied with, and have access to independent and professional advice at the Company’s ex- pense, where they judge this to be necessary to discharge their responsibilities as Directors. Board performance evaluation We have reviewed the interests declared by the Directors which could conflict with those of the Company, and we are satisfied that the Board’s powers to authorise potential conflicts is operat- ing effectively. Given that a majority of new Directors has been proposed to be appointed as part of the Xstrata Merger, the Board concluded that a full evaluation process should not be carried out in respect of 2012. Remuneration Remuneration is covered in the Remuneration report in section 3.4 which includes a description of the work of the Remunera- tion Committee. Financial reporting The Group has in place a comprehensive financial review cycle, which includes a detailed annual budgeting process where busi- ness units prepare budgets for approval by the Board. The Group uses a large number of performance indicators to measure both operational and financial activity in the business. Depending on the measure these are reported and reviewed on a daily, weekly or monthly basis. In addition, management in the business re- ceive weekly and monthly reports of indicators which are the basis of regular operational meetings, where corrective action is taken if necessary. At a Group level a well-developed man- agement accounts pack, including income statement, balance sheet, cash flow statement as well as key ratios is prepared and reviewed monthly by management. As part of the monthly re- porting process a forecast of the current year numbers is carried out. To ensure consistency of reporting, the Group has a global consolidation system as well as a common accounting policies and procedures manual. Management monitors the publication of new reporting standards and work closely with their external auditors in evaluating the impact of these standards. Risk management and internal control The Board has applied Principle C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the risks that are considered significant by the Group in accord- ance with the revised Turnbull Guidance on Internal Control published by the Financial Reporting Council. This process has been in place for the period under review and up to the date of approval of the Annual Report and Accounts. The process is designed to manage rather than eliminate risk, and can only provide reasonable and not absolute assurance against mate- rial misstatement or loss. The Directors confirm that they have reviewed the effectiveness of the risk management and internal control systems. This review excludes associates of the Group as Glencore does not have the ability to dictate or modify the internal controls of these entities. This report describes how the effectiveness of the Group’s structure of internal controls including financial, operational and compliance controls and risk management systems is reviewed. 1) Approach to risk management Effective risk management is crucial in helping the Group to achieve its objectives of preserving its overall financial strength for the benefit of all shareholders and other stakeholders and safeguarding its ability to continue as a going concern while generating sustainable long term profitability. Spanning the or- ganisational structure, Glencore’s disciplined approach to risk management and control originates with strategic responsibil- ity in the hands of the Board, which also retains operational au- thority on matters exceeding agreed thresholds of materiality. The Board retains final authority for assessing and approving the Group’s overall risk appetite and sets overall limits which are subject for review annually. Through delegation to the Audit Committee for oversight and to senior management for day-to- day operational issues, an effective risk management govern- ance apparatus has been established for the Group. 88 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN The Audit Committee retains responsibility for reviewing the overall effectiveness of Glencore’s risk management approach and systems. As a primary oversight and control, the CEO engages in a regu- lar and ongoing interrogatory exchange with the management team. He is supported in this challenge process by the Group’s organisational structure with its concentration of major decision making, as well as by the alignment of the economic interest of key senior staff with the medium term performance of the com- pany through shareholdings. The significant dilution of these shareholdings upon completion of the likely merger with Xstrata, implying a meaningful reduction in the proportionality of the existing senior management’s alignment (although no change to the dollar size of stakes) and the addition of new senior fig- ures from outside the existing shareholder model, look set to, over time, render the existing operational governance structure of the combined Group more generically that of a PLC. The CRO, the Group Risk Management Team and the multi-sourced reporting available to them, help to equip the CEO and senior management with appropriate analysis in order to allow them to conduct appropriate risk management of the group. The CRO and Group Risk Management Team act as facilitators of the control process with elements of consolidated reporting including counterparty credit exposure, the co-ordination of Group and departmental Value at Risk (“VaR”), stress and sce- nario testing amongst others. The departments and Group risk team are engaged in an ongoing dialogue concerning general aspects of risk management policy and the central team pro- vide oversight and input on those aspects of risk management and risk mitigation that remain the functional responsibility of the Group’s individual departments. The internal audit, compli- ance and business ethics committees also play key roles in man- aging Group operational risk and verifying process controls. Glencore recognises the need for continuous focus on this key area in the context of both the evolution of its business risks, and the unpredictable and volatile global economic environment. The Group continues to maintain and expand the resources and information systems used in its centralised risk management, whilst also adopting and following policies which are intended to mitigate and manage market price and credit risks. 2) Risk assessment and control tools Glencore’s finance and risk professionals, working in coordina- tion with the Group’s departments, monitor and report regularly to management on the financial risks and exposures Glencore is facing. The Group monitors its commodity price risk exposure by using a VaR computation assessing open commodity posi- tions which are subject to price risk. The credit quality of its coun- terparties is actively and continuously monitored by the Group through internal reviews and a credit scoring process which includes, where available, public credit ratings. The Group makes active and widespread use of credit enhancement through the use of products such as letters of credit and credit insurance to help manage and mitigate credit risk exposures. VaR is a risk measurement technique which Glencore uses to monitor and limit its primary market exposure related to its physical marketing exposures and related derivative positions. VaR estimates the potential loss in value of open positions that could occur as a result of adverse market movements over a defined time horizon, given a specific level of confidence. The methodology is a statistically defined, probability based ap- proach that takes into account market volatilities, as well as risk diversification benefits by recognising offsetting positions and correlations between commodities and markets. In this way, risks can be compared across all markets and commodities and risk exposures can be aggregated to derive a single risk value. The Board has maintained a one day, 95% VaR limit of $ 100 mil- lion which is typically subject to review and approval on an an- nual basis, and will be reviewed again following the proposed Xstrata Merger. The purpose of this Group limit is to assist senior management in controlling the Group’s overall risk pro- file. During 2012 Glencore’s average VaR was approximately $ 40 million, a similar amount to 2011. Glencore’s VaR computation covers the key base metals, coal, oil/natural gas and the main risks in the Agricultural products department (grain, oil seeds, sugar and cotton). It assesses open priced positions and those which are subject to price risk, but due to a lack of liquid terminal market, Glencore does not extend its VaR calculation to a number of business lines where price transparency is less dependable. Glencore reports VaR across the Group and also by commodity department, as well as at a variety of more detailed levels. VaR does not purport to represent actual gains or losses in fair value on earnings to be incurred by Glencore, nor does Glencore claim that these VaR results are indicative of future market movements or representative of any actual impact on its future results. VaR should always be viewed in the context of its limitations; notably, the use of historical data as a proxy for estimating future events, market illiquidity risks and risks asso- ciated with longer time horizons as well as tail risks. The Group recognises these limitations and so complements and refines its risk analysis through the use of stress and scenario analysis. Glencore regularly backtests its VaR to establish adequacy of accuracy and to facilitate analysis of breaks. Whilst it is Glencore’s policy to actively make use of hedging strategies to manage unwanted commodity price risk associ- ated with its marketing businesses, there remains the possibility that the hedging instruments chosen may not always provide effective mitigation of the underlying price risk. The hedging instruments available to the marketing businesses may differ in specific characteristics to the risk exposure to the hedged, resulting in an ongoing and unavoidable basis risk exposure. Residual basis risk exposures represent a key focus point for Glencore’s commodity department teams who actively engage in the management of such. Internal and External Audit Glencore has a dedicated Internal Audit function reporting directly to the Audit Committee. The role of Internal Audit is to evaluate and improve the effectiveness of risk management, control, and governance processes. | Annual Report 2012 | 89 The Company’s next AGM is due to be held in Zug on 16 May 2013. Full details of the meeting are set out in the letter from the Chairman and Notice of Meeting. Shareholders unable to attend are encouraged to vote using the proxy card mailed to them or electronically as detailed in the Notice of Meeting. All documents relating to the AGM are available on the Company’s website at: www.glencore.com. Internal Audit reviews areas of potential risk within the business and suggests control solutions to mitigate exposures iden- tified. The Audit Committee is regularly informed on audits performed and relevant findings, as well as the progress on implementing the actions agreed with management. During each financial year the Audit Committee reviews the external and internal audit work programmes and considers reports from internal and external auditors on the system of internal control and any material control weaknesses. It also receives responses from management regarding the actions taken on issues identified in audit reports. The Group’s policy on non-audit services provided by the external auditors is designed to ensure the external auditor’s independence and objectivity is safeguarded. A specified wide range of services may not be provided as they have the poten- tial to impair the external auditor’s independence (Excluded Services). The Audit Committee’s approval is required for (1) any Excluded Service (2) and other engagement where either (i) the fee is contingent, (ii) the fee may exceed $  500,000, or (iii) where the fees for all non-audit work may exceed $ 15  mil- lion. The external auditors are requested to provide certain non-audit services when it is concluded that they are the most appropriate supplier due to efficiency and status as a lead- ing firm for the specific services being requested. For 2012 the total non-audit fees paid to the auditors were $ 15 million, $ 4 million of which related to the auditors’ role as Reporting Ac- countant in connection with the pending Xstrata merger; further details are contained in note 27 to the financial statements. Relationships with shareholders The Board aims to present a balanced and clear view of the Group in communications with shareholders and believes that being transparent in describing how we see the market and the pros- pects for the business is extremely important. We communicate with shareholders in a number of different ways. The formal reporting of our full and half year results and interim management statements are a combination of presentations, group calls and one on one meetings. The full and half year re- porting is then followed by investor meetings in a variety of loca- tions where we have institutional shareholders. We also regularly meet with existing and prospective shareholders to update or to introduce them to the Company and periodically arrange visits to the business to give analysts and major shareholders a better understanding of how we manage our operations. These visits and meetings are principally undertaken by the CEO, CFO and Head of Investor Relations. In addition, many major shareholders have meetings with the Chairman and appropriate senior personnel of the Group including other Non-Executive Directors, the Company Secretary and Head of Sustainability. The Board receives regular updates on the views of shareholders through a briefing, which is a standing agenda item for all Board meetings, from the Company’s Head of Investor Relations, which is supplemented by input from the Chairman, CEO and CFO. In addition, the Senior Independent Director is available to meet shareholders if they wish to raise issues separately from the arrangements as described above. 90 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Main Activities During the year, the Committee’s principal work included the following: • reviewed the Company’s policy for the provision of non-audit services by the external auditors; • reviewed material engagements with the auditors in respect of non-audit services; • reviewed the policies detecting, reporting and preventing fraud and serious breaches of business conduct and whistle- blowing procedures; •  reviewed  the  Internal  Audit  Department’s  annual  audit  plan  and the performance assessment of the Internal Audit function; •  evaluated the effectivness of the external auditors;   • reviewed and agreed the global audit plan, scope and fees of the audit work to be undertaken by the external auditors; • considered the output from the Group-wide process used to identify, evaluate and mitigate risks; • monitored and reviewed the effectiveness of Glencore’s inter- nal controls; • reviewed and discussed the full year (audited), and half-year (unaudited), financial statements with management and the external auditors; • discussed various material accounting issues with manage- ment and the external auditors, particularly those involving key judgements and estimates primarily in relation to business combinations, fair value measurements, taxation and impair- ment considerations; and • reviewed and agreed the preparation and scope of the year- end reporting process. Reappointment of external Auditor The Committee has recommended to the Board that a pro- posal be put to shareholders at the 2013 AGM for the reap- pointment of Deloitte LLP as external auditor. There are no contractual restrictions on the Company’s choice of external auditor, and in making our recommendation we took into ac- count, amongst other matters, the objectivity and indepen- dence of Deloitte LLP and their continuing effectiveness and cost. Leonhard Fischer Chairman of the Audit Committee 22 March 2013 AUdit COMMittee RePORt Chairman Leonhard Fischer Other members Peter Coates William Macaulay is considered to be an All members of the Committee served throughout the year. independent Non-Executive Each Director and deemed to be financially literate by virtue of their business experience. Each of Leonhard Fischer and William Ma- caulay is considered by the Board to have recent and relevant fi- nancial experience and has competence in accounting. The Com- mittee met five times (two meetings being unscheduled) during the year and all the Committee members attended all of the scheduled meetings. John Burton is Secretary to the Committee. Role and responsibilities The primary function of the Audit Committee is to assist the Board in fulfilling its responsibilities with regard to financial reporting, external and internal audit, risk management and controls. This includes: •  monitoring and reviewing the Group’s financial and account- ing policies and practices; •  monitoring  the  integrity  of  the  annual  and  half  yearly  finan- cial statements and any formal announcements relating to the Group’s financial performance and reviewing significant finan- cial reporting judgments relating to them; •  considering the reappointment of the external auditors; •  considering  the  scope  of  the  annual  external  audit  and  the  work undertaken by external auditors; •  reviewing  and  monitoring  the  independence  of the  external  auditor and the provision of additional services by it; •  monitoring matters that influence or could distort the presen- tation of accounts and key figures; •  reviewing Glencore’s internal financial, operational and com- pliance controls and internal controls and risk management systems; •  monitoring and reviewing the effectiveness of Glencore’s in- ternal audit function; •  overseeing  the  Group’s  procedures  for  detecting  fraud  and  handling allegations from whistleblowers; and •  making recommendations to the Board for a resolution to be  put to the shareholders for their approval on the appointment of the external auditors and to authorise the Board to fix the remuneration and terms of engagement of the external audi- tors. Governance processes The Audit Committee usually invites the CEO, CFO, Group Financial Controller, Head of Risk and Head of Internal Audit and the lead partner from the external auditors to attend each meeting. Other members of management may attend as and when required. The Committee also holds private sessions with the external auditors and the Head of Internal Audit without members of management being present. The Committee has adopted guidelines allowing non-audit services to be contract- ed with the external auditors on the basis as set out above. | Annual Report 2012 | 91 NOMiNAtiON COMMittee HeALtH, sAfetY, eNViRONMeNt & COMMUNities (HseC) COMMittee Chairman Anthony Hayward Other members Simon Murray Ivan Glasenberg Li Ning As part of the deliberations concerning the Xstrata Merger, the Board agreed with the Xstrata Board the composition of the enlarged Board upon the Merger taking effect. Accordingly, there were no meetings of the Committee during 2012 other than to consider the composition of the Board prior to the 2012 AGM. It was agreed that the Board operated in a satisfactory manner and the Board agreed with the Committee’s view that all current serving Directors be recommended to share- holders for re-election at that following meeting, subject to the changes contemplated in connection with the proposed Xstrata Merger. Anthony Hayward Chairman of the Nomination Committee 22 March 2013 Chairman Peter Coates Other members Ivan Glasenberg Anthony Hayward Michael Fahrbach The Committee met five times during the year and each Com- mittee member attended all of the meetings. Every meeting had a substantial agenda, reflecting the Committee’s objective of providing leadership for the Group to achieve higher HSEC standards over time. Role and responsibilities The main responsibilities of the Committee are, in respect of the Group, to: •  Evaluate the effectiveness of policies and systems for identi- fying and managing environmental, health, safety and com- munity risks; •  Assess the policies and systems for ensuring compliance with  environmental, health and safety regulatory requirements; •  Assess performance with regard to the impact of HSEC relat- ed decisions and actions upon employees, communities and other third parties; •  Receive reports concerning all fatalities and serious accidents  and actions taken as a result of such incidents; •  Evaluate and oversee the quality and integrity of any report- ing to external stakeholders concerning HSEC matters; and •  Review the results of any independent reviews of performance  in regard to HSEC matters and strategies and action plans developed by management in response to issues raised. Main Activities During the year, the Committee •  Reviewed  the  current  corporate  practice  framework  for  the  Group, approved ongoing changes and reviewed their imple- mentation and practice; •  Reviewed  and  oversaw  the  Group’s  sustainability  report  for  2011; •  Undertook site visits; •  Set  a  clear  objective  to  reduce  fatalities.  For  this  purpose  it  received a report on, reviewed and made recommendations in respect of, each fatality; •  Received and considered baseline assessments of the Group’s  health, safety and environmental standards for the Group’s main zinc/copper assets in South America, Africa and Kazakhstan; and •  Considered  a  variety  of  other  material  HSEC  issues  such  as  resettlement programmes, incident reporting and emergency response preparedness. Peter Coates Chairman of the Health, Safety, Environmental and Communi- ties Committee 22 March 2013 92 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 3.4 | directors’ remuneration report ReMUNeRAtiON COMMittee OUR PHiLOsOPHY ON ReMUNeRAtiON Chairman William Macaulay Other members Anthony Hayward Leonhard Fischer Secretary John Burton LetteR fROM tHe CHAiRMAN Of tHe ReMUNeRAtiON COMMittee Dear Shareholder On behalf of the Remuneration Committee, I am providing an introduction to our Directors’ Remuneration Report for the year ending 31  December 2012. As with last year, we have sought to make this report as short, simple and straightforward as possible. I would like to highlight the following: •  We received strong shareholder support for our remuneration  arrangements for 2011, reflected in a 99% vote in favour of the 2011 Directors’ Remuneration Report at the 2012 AGM. •  There was no change to the structure of executive remunera- tion for 2012 and no change to base salaries. In addition, in 2012 the CEO again waived entitlement to both bonus and long term incentive awards (LTIs). The CFO also waived any entitlement to any LTIs. •  In recognition of his performance against a number of criteria  in 2012 the Committee determined that the CFO should be awarded a bonus of 200% of salary, half of which will be de- ferred into shares for three years. •  There was also no increase during 2012 in the fees paid to the  Chairman and the other Non-Executive Directors over their fees paid for 2011. •  We have prepared this 2012 Directors’ Remuneration Report  taking into account the UK Government’s proposals on exec- utive remuneration disclosure. Given, however, that the final regulations were not published at the time that this report was compiled, it was not considered feasible to reflect all of the UK Government’s current proposals. A resolution to approve this report will be put to shareholders at the Company’s 2013 AGM William Macaulay Chairman of Remuneration Committee We have the same philosophy as any other Remuneration Com- mittee, namely to set the Company’s remuneration policies and practices so that they facilitate the attraction, retention and motivation of the Executive Directors and other senior executives of appropriately high calibre to implement the Group’s strat- egy while aligning the interests of the Executive Directors and executives with those of shareholders generally. This policy has consistently underpinned our entire approach to executive remuneration at Glencore. One exceptional aspect of our Executive Directors’ remunera- tion is that, with their agreement and reflecting their status as major shareholders, the Executive Directors do not currently participate in our long term incentive arrangements, while the CEO has also agreed not to participate in our bonus arrange- ments. As a result, we are currently able to set overall remunera- tion for our Executive Directors at significantly lower levels than in comparable companies and for comparable performance. The Committee believes that the Executive Directors’ significant personal shareholdings create sufficient alignment of interest with shareholders in the absence of participation in a long term incentive arrangement. Since 2012 there have been no changes to the structure of the Executive Directors’ remuneration or any increase in base salary. Similarly, there have been no changes to the fees payable to the Chairman and the other Non-Executive Directors. GOVeRNANCe This Remuneration Report has been prepared on behalf of the Board by the Remuneration Committee. The Committee adopts the principles of good governance as set out in the UK Cor- porate Governance Code and complies with the Listing Rules of the Financial Services Authority and the relevant schedules of the UK Companies Act 2006 and the UK Directors’ Remu- neration Report Regulations in Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. These regulations require the Company’s auditors to report on the ‘Audited Information’ in the report and to state that this section has been properly prepared in accord- ance with these regulations. As such, the report is divided into audited and unaudited information. Membership and experience of the Remuneration Committee We believe that the members of the Committee provide a use- ful balance of abilities, experience and perspectives to provide the critical analysis required in carrying out the Committee’s function. In particular: •  William  Macaulay  has  had  a  long  tenure  in  private  equity  which has involved exposure to compensation issues many times and in a variety of situations; •  Leonhard Fischer is a career banker who similarly has had con- siderable exposure to issues of pay and incentives; and | Annual Report 2012 | 93 Company’s retained auditor and also provided other services to the Company. The Committee considers Deloitte to be inde- pendent. The Remuneration Committee adviser’s terms of refer- ence are in accordance with APB Ethical Standard 5 and restrict the provision of certain services in order to maintain auditor in- dependence. The scope and value of services to the Company is kept under review. Advice is provided with use of established methodologies and the advisers are not involved in the decision making process. Advisory partners and staff have no involvement in audit, and are not involved in the preparation of audited infor- mation. sHAReHOLdeR VOtiNG The table below shows the percentage and number of votes for, against and abstentions for the 2011 Directors’ Remuneration Report at the 2012 AGM: Votes “For” Votes “Against” Votes “Abstentions” 99.0% (5,027,476,872) 0.2% (12,038,368) 0.8% (41,185,667) •  Tony Hayward has for many years been a senior employee and  executive in the resources industry, most notably as CEO of BP, and therefore brings considerable experience as a senior executive to the Committee’s deliberations. All members of the Remuneration Committee are considered to be independent. Role of the Remuneration Committee The terms of reference of the Committee set out its role. They are available on the Company’s website at www.glencore.com/ corporate-governance.php. Its principal responsibilities are, on behalf of the Board, to: •  Set the Company’s executive remuneration policy (and review  its ongoing relevance and appropriateness); •  Establish the remuneration packages for the Executive Direc- tors including the scope of pension payments; •  Determine  the  remuneration  package  for  the  Chairman,  in  consultation with the Chief Executive; •  Have  responsibility  for  overseeing  schemes  of  performance  related remuneration (including share incentive plans) for, and determine awards for, the Executive Directors; •  Ensure  that  the  contractual  terms  on  termination  for  the  Executive Directors are fair and not excessive; and •  Monitor senior management remuneration. The Committee considers corporate performance on HSEC and governance issues when setting remuneration for the Executive Directors. The Committee seeks to ensure that the incentive structure for the Group’s senior management does not raise HSEC or governance risks by inadvertently motivating irrespon- sible behaviour. Remuneration Committee activities in 2012 The Committee met three times and considered, amongst other matters, the following: •  The remuneration policy applicable to the Executive Directors;  •  Senior  management  remuneration  policy,  including  its  level  and structure; •  The form and structure of the inaugural grants to employees  under the Company’s Deferred Bonus Plan and Performance Share Plan; •  The  amount  of  bonus  payable  to  the  CFO  in  respect  of  his  performance in 2011; and •  Monitoring the CFO’s bonus plan for 2012. Internal advisers to the Remuneration Committee The Chairman, CEO and CFO are usually invited to attend some or all of the proceedings of Remuneration Committee meet- ings. They do not participate in any decisions concerning their own remuneration. In addition, the Committee received advice from John Burton, the Company Secretary. External advisers to the Remuneration Committee The remuneration consultancy practice of Deloitte LLP remained the provider of independent advice to the Committee during 2012. Deloitte LLP is a member of the Remuneration Consultants Group and as such, voluntarily operates the Code of Conduct in relation to executive remuneration in the UK. Deloitte LLP is the 94 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN eXeCUtiVe diReCtORs’ ReMUNeRAtiON All emoluments to the Directors are paid in UK Pounds Sterling except for pension contributions and insurance benefits provided to the Executive Directors. As noted in the emoluments table below, these are presented in UK Pounds Sterling. In addition, as the finan- cial statements are denominated in U.S. Dollars, we have also provided the total remuneration figures for each Director in U.S. Dollars. Remuneration Framework The key elements of the current Executive Directors’ remuneration framework are shown in the table below. Each component is discussed in more detail on the pages that follow. Executive Directors Component Purpose and link to strategy Overview Policy for 2013 Fixed Base salary •  Provides market competi- tive fixed remuneration that rewards individual skills, responsibilities and contri- bution •  Salaries are positioned within a market  competitive range for companies of a similar size and complexity •  Reviewed annually with the next review  due to take place in December 2013 • CEO: £ 925,000 1 ($ 1,470,750) • CFO: £ 700,00 1 ($ 1,113,000) • No changes for 2013 Pension •  Provides basic retirement  •  Defined contribution scheme for all Swiss  •  Annual contribution of  benefits which reflects local market practice employees • Contributions are based on age • Both Executive Directors participate 15 – 19% of up to $ 296,170 (CHF 278,400) • No change for 2013 Other Benefits Variable Annual bonus •  Provides appropriate insur- ance cover benefits which contribute to a market competitive package •  Supports delivery of short  term operational, financial & strategic goals Deferred Bonus Plan •  Incentivises the creation of  shareholder value over the longer-term Performance Share Plan •  Incentivises the creation of  shareholder value over the longer-term •  Provision of standard company Swiss  • No change for 2013 insurances •  Award of maximum of 200% of salary •  Performance criteria described below •  The CEO continues not to  participate in the plan •  The CFO continues to  participate in the plan •  Applicable to CFO and certain senior  •  No changes for 2013 –  employees •  Provides for deferral of annual bonus  into Glencore shares above an agreed amount for a period of up to 3 years • Malus clauses apply half of CFO bonus for 2012 was deferred into shares •  Overall plan limit of 500% of salary •  Executive Directors do not participate  •  Both Executive Directors will  continue not to participate in the plan; accordingly, no performance conditions have yet been established for Executive Directors • Malus clauses apply Significant Personal Shareholdings •  Aligns the interests of execu- tives and shareholders •  No formal shareholding requirements are  needed given the size of shareholdings •  The CEO has a beneficial  ownership of c.15.5% •  The CFO has a beneficial  ownership of c.1% ¹ These amounts are set in UK Pounds Sterling and have been converted to U.S. Dollars using the exchange rates stated in the currency table on page 47. Non-Executive Directors Component Purpose and link to strategy Overview Policy for 2013 Fees •  Reflects time commitment,  experience and size of the Company •  Non-Executive Directors and the Senior  Independent Director receive a base fee. •  Refer to Audited section  below for details of fees. •  Additional fees are paid for chairing or  membership to a Board committee •  Chairman receives a single inclusive fee  for the role •  Non-Executive Directors are not eligible  to participate in the Company’s share incentive or pension scheme and do not receive any other remuneration or benefits •  Reviewed every year with the next review  due to take place in December 2013 | Annual Report 2012 | 95 The Role of Variable Pay at Glencore Throughout the organisation, a significant proportion of the re- muneration of our senior employees is based on performance during the year and, through partial deferral, including into shares, to incentivise the creation of shareholder value over the long term. These principles have served the Company well over a number of years and remain firmly in place. Annual bonus The maximum bonus opportunity for Executive Directors in 2012 was 200% of base salary and will remain unchanged for 2013. This opportunity is conservatively positioned against market practice in UK-listed resources companies of a similar size, which the Committee believes is appropriate at the cur- rent time. Our Executive Directors have significant personal sharehold- ings. They, and the Committee, believe that this currently pro- vides sufficient alignment between their interests and those of shareholders, regarding long term Company performance and shareholder value. As a result, the CEO does not currently participate in the annual or long term incentive arrangements and receives just a base salary and pension/benefits which are set at a lower level than for comparable companies. The CFO participates in the annual bonus plan but does not currently participate in any long term incentive arrangements. Although this results in a higher proportion of fixed remunera- tion (as a percentage of total remuneration) than would be the case in comparable companies the Committee believes this is appropriate given the current alignment created through the significant share ownership described above. The Committee also notes that it results in a lower level of over- all remuneration for the Executive Directors than would be the case in similar companies, which is beneficial to shareholders. Base Salary In 2012, the annual base salaries for the Executive Directors remained  unchanged  from  the  prior  year  at  £  925,000  and  £ 700,000 for the CEO and CFO respectively, which the Com- mittee considers to be within the market competitive range and appropriate. When the Committee originally set the remuneration for the Executive Directors in early 2011, it took into account market data from listed companies of a similar financial size, and pay and conditions in the wider Glencore group to ensure that pay for our most senior employees is consistent with, and aligned to, the rest of the organisation. When reviewed in December 2012 for the following year, it was decided that the base salaries for the Executive Directors would also remain unchanged for 2013. As described above, the CEO did not participate in the annual bonus arrangements in 2012 while the CFO did. This will remain the case for 2013. In respect of 2012, the Committee considered the performance of the CFO against a number of performance criteria including refinancing of the Group’s sizeable borrowings, management of the Group’s credit ratings/capital structure, ongoing input into development and improvement of the Group’s risk systems and having a pivotal role in the execution of major transactions. On this basis, the Committee determined that the CFO should be awarded a bonus of £ 1.4m, 200% of salary (the maximum op- portunity) for the 2012 financial year. Half of this will be deferred into shares over a three year period under the Deferred Bonus Plan (discussed below). The Glencore Deferred Bonus Plan (DBP) Under the DBP, all or part of a participant’s bonus is deferred as an award of ordinary shares (Bonus Awards) which vests at the end of a specified period subject to continued employment (for an Executive Director) and forfeiture for malus events. The use of a deferral plan strengthens the link between executive re- ward and long-term shareholder value. The award period of de- ferral may be up to three years depending on quantum. There will be no change in the structure of the plan for 2013. Half of the CFO’s 2012 bonus payment was deferred into shares which shall vest in three equal tranches on each of the three anniversaries following grant. Long term incentives As described above, the Executive Directors do not currently participate in any long term incentive arrangements, reflect- ing the significant alignment achieved through large personal shareholdings. The Committee will keep this under review to ensure it remains appropriate. In the event that long term incentive awards are made to Executive Directors, they would normally be made under the Glencore Performance Share Plan (described below) and would include performance targets measured over a pe- riod of at least three years. 96 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN The Glencore Performance Share Plan (PSP) The PSP was adopted on Admission. The table below sets out the key features of the plan, which the Committee believes to be aligned with UK best practice. Shareholding The Remuneration Committee believes that a significant share- holding by Executive Directors aligns their long-term economic interests with those of our shareholders and demonstrates their commitment to the business. Key features Details Form of award •  Conditional shares or nil-cost options Individual limits •  500% of base salary Aggregate limits •  The Company’s share plans include best  Malus clauses Change of control practice dilution limits: 10% in ten years under all share plans and 5% in ten years under discretionary plans. •  Awards can be reduced or extinguished in the  event that a participant’s actions or behaviour results in a material loss, or detriment, to the Company. •  Participants may be required or permitted to  exchange awards for equivalent awards over shares in the acquiring company; and •  Alternatively, the Committee has discretion to  determine that awards vest immediately, subject to time and (if applicable) perfor- mance proration. Leaver conditions •  Awards generally lapse except for death,  disability and when the Committee exercises its discretion otherwise; •  On death, awards generally vest in full, unless  the Committee decides otherwise; and •  In other circumstances the terms of vesting  will be determined by the Committee. Given the status of our current Executive Directors as major shareholders (see the Directors’ share interests table in section 3.5), the Committee considers formal shareholding require- ments unnecessary at this time. However, the Committee will keep this under review and may introduce a shareholding re- quirement if it becomes appropriate to do so in the future. Pensions The Executive Directors participate in the Group’s defined contribution pension scheme which is operated for all staff at its Baar office. Contributions are paid in CHF and represented amounts equivalent to c.15 – 19% (contributions are age related) of CHF 278,400 for each Executive Director. Other benefits The Executive Directors benefit from the same insurance ar- rangements provided to all its Swiss employees being salary loss (long term sickness) and accident insurance cover. Total shareholder return relative performance The graph below shows the Company’s performance, measured by total shareholder return, compared with the performance of the FTSE Mining Sector index. The Company is a constituent of this index and it has been chosen as it is the widely recognised performance comparison for large UK-listed mining companies. The time line on the graph starts on 24 May 2011, the date of Admission. In drawing up this graph it has been assumed that all dividends paid have been reinvested, which the Company believes is a fair method of calculation. 110 100 90 80 70 60 50 5/11 8/11 11/11 2/12 5/12 8/12 11/12 FTSE 350 Mining Glencore | Annual Report 2012 | 97 Executive Directors’ Contracts The table below summarises the key features of the Executive Directors’ service contracts. Provision Service contract terms Notice period Contract date •  12 months’ notice by either party •  Employment contracts for the CEO and CFO are dated 28 April 2011 Expiry date Termination payment •  No special arrangements or entitlements on termination Change in control •  Rolling service contract •  In the event of a change of control of the Company, the contracts of the Executive Directors do not provide for any  enhanced payments, nor for any liquidated damages External appointments The Executive Directors each held external appointments (being directorships of non-subsidiary companies) during 2012. These are referred to at the end of their respective biographical summaries in section 3.2. The Executive Directors assign to the Group any compensation which they receive from such external Board directorships. AUdited seCtiON Directors’ emoluments The total emoluments, including contributions made in respect of pension plans, for the Directors for the 2012 financial year were: GBP thousand Base salary/fees Annual bonus Pension and other benefits 1 2012 Total 2011 Total 2 Total US $ thousand 3 Executive Directors Ivan Glasenberg Steven Kalmin Non-Executive Directors Simon Murray Peter Coates Leonhard Fischer Anthony Hayward William Macaulay Li Ning Total 925 700 1 625 675 179 129 159 127 91 1 360 2 985 – 1 400 1 400 – – – – – – – 39 30 69 – – – – – – – 964 2 130 3 094 675 179 129 159 127 91 1 360 964 1 431 4 2 395 456 128 92 113 90 65 944 1 400 69 4 454 3 339 1 533 3 387 4 920 1 073 285 205 253 202 145 2 163 7 083 ¹ This constitutes the cost to the Company of the provision of the benefits referred to under Pension and Other Benefits above. These costs have been borne in Swiss Francs and have been converted to UK Pounds Sterling using the exchange rates stated in the currency table on page 47. 2 For the period from incorporation of Glencore International plc to 31 December 2011. The same methodology applies in the next table. 3 These amounts are paid in a foreign currency and have been converted to U.S. Dollars using the exchange rates stated in the currency table on page 47. 4 For the 2011 financial year, Mr Kalmin was awarded the same bonus as 2012, however he chose to waive half the award, which explains the difference between 2012 and 2011. Directors’ contracts All Directors’ contracts will be available for inspection on the terms to be specified in the Notice of the 2013 AGM. 98 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Single number for total remuneration This table presents a single figure of remuneration earned by the Executive Directors in respect of 2012, taking into account the draft UK government remuneration regulations. GBP thousand Executive Directors Ivan Glasenberg Steven Kalmin Base salary/ fees ¹ Benefits 2 Pension 2 Annual bonus 3 Long term incentives 4 2012 Total 2011 Total 2012 Total US $ 5 925 700 2 2 36 28 – 1 400 – – 964 2 130 964 1 431 1 533 3 387 ¹ Base salary/fees paid during the year. 2 This constitutes the cost to the Company of the provision of the benefits referred to under Pension and Other Benefits above. These costs have been borne in Swiss Francs and have been converted to UK Pounds Sterling using the exchange rates stated in the currency table on page 47. 3 Value of annual bonus awarded to the CFO, including any deferral amounts, in respect of 2012. For the 2011 financial year, Mr Kalmin was awarded the same bonus as 2012, however he chose to waive half the award, which explains the difference between 2012 and 2011. The CEO did not participate in the annual bonus plan in 2011 on 2012. 4 Executive Directors did not participate in the Company’s Performance Share Plan or in any other form of LTI. 5 These amounts are paid in a foreign currency and have been converted to U.S. Dollars using the exchange rates stated in the currency table on page 47. Non-Executive Directors Letters of appointment and re-election – all Non-Executive Directors have letters of appointment with the Company for an initial period of three years from their date of appointment, subject to reappointment at each AGM. Each letter is dated 28 April 2011. The Company may terminate each appointment by immediate notice and there are no special arrangements or entitlements on termination. Policy for determining Non-Executive Directors (NED) fees – the initial remuneration of the NEDs was determined by the Board prior to the IPO in 2011 within the limits set by the Arti- cles of Association. NEDs are only remunerated through fees. No increases in fees were made in respect of 2012 and none have been made for 2013. Further details are provided below. In particular, they are not eligible to participate in any of the Company’s share incentive schemes or join any Company pen- sion scheme. The Board’s policy is to review NED remuneration levels peri- odically to ensure that they remain aligned with those of other major listed companies. Annual fees for 2012 were paid in accordance with a Non-Exec- utive Director’s role and responsibilities as follows: 2012 Directors Chairman Senior Independent Director Non-Executive Director Remuneration Committee Chairman Member Audit Committee Chairman Member Nomination Committee Chairman Member HSEC Committee Chairman Member GBP thousand US $ thousand 1 675 109 79 28 15 35 20 23 12 80 12 1 073 173 126 44 24 56 32 37 19 127 19 ¹ These amounts are set in UK Pounds Sterling and have been con- verted to U.S. Dollars using the exchange rates stated in the currency table on page 47. | Annual Report 2012 | 99 diReCtORs’ PeNsiON eNtitLeMeNts Non-Executive Directors have no entitlement in respect of any pension arrangements. The Executive Directors have never been members of defined benefit schemes provided by the Group and accordingly they have no accrued entitlements un- der these schemes. For the Executive Directors, the following contributions have been made in 2012 to the Group’s defined contribution pension scheme which it operates for its Swiss based employees (which amounts have been included in the third numeric column in the table above): 2012 Ivan Glasenberg Steven Kalmin GBP thousand US $ thousand 36 ¹ 28 ¹ 51 39 ¹ These payments have been converted from Swiss Francs to UK Pounds Sterling and US dollars using the exchange rates stated in the Currency table on page 47. diReCtORs’ sHARe iNteRests The Directors who held office at 31  December 2012 have the beneficial interests in the issued share capital of the Company shown in the Directors’ share interests table in section 3.5. Approval Approved by the Board of Directors and signed on its behalf by: William Macaulay Chairman of the Remuneration Committee 22 March 2013 100 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 3.5 | directors’ report Introduction This Annual Report is presented by the Directors on the affairs of Glencore International plc (the Company) and its subsidiaries (the Group or Glencore), together with the financial statements and auditors’ report, for the year ended 31 December 2012. The Directors’ Report including details of the business, the develop- ment of the Group and likely future developments as set out in the Overview and Business review section, which together forms the management report for the purposes of the UK Finan- cial Services Authority’s Disclosure and Transparency Rule (DTR) 4.1.8R. The notice concerning forward looking statements is set out at the end of the Annual Report. References to the Company may also include references to the Group or part of the Group. Corporate Governance A report on corporate governance and compliance with the UK Corporate Governance Code is set out in sections 3.1 to 3.4 and forms part of this report by reference. Creditor payment policy and practice In view of the international nature of the Group’s operations there is no specific Group-wide policy in respect of payments to suppliers. Individual operating entities are responsible for agreeing terms and conditions for their business transactions and ensuring that suppliers are aware of the terms of payment. It is Group policy that payments are made in accordance with those terms, provided that all trading terms and conditions have been met by the supplier. Corporate structure Glencore International plc is a public company limited by shares, incorporated in Jersey and domiciled in Baar, Switzerland and its shares are listed on the London and Hong Kong Stock Exchanges. Glencore International plc is a holding company with no busi- ness activity other than the holding of investments in the Group and therefore had no trade creditors at 31 December 2012. Principal activities Glencore is one of the world’s leading integrated producers and marketers of commodities. It has worldwide activities in the production, sourcing, processing, refining, transporting, storage, financing and supply of metals and minerals, energy products and agricultural products. Financial results and dividends The Group’s financial results are set out in the financial state- ments and in the Financial review section of this annual report. The Board recommends a final dividend of $ 0.1035 per share; including the interim dividend of $ 0.054 per share which has already been paid, this provides for a total dividend for the 2012 financial year of $ 0.1575 per share. Shareholders will be asked to approve the final dividend at the Annual General Meeting due to be held on 16 May 2013, for payment on 7 June 2013 to ordinary shareholders whose names are on the register on 24 May 2013. Review of business, future developments and post balance sheet events A review of the business and the future developments of the Group is presented in the Overview and the Business review. A full description of acquisitions, disposals, and material chang- es to Group companies undertaken during the year, including post balance sheet events, is included in the Financial review and in note 24 of the financial statements. Financial instruments Descriptions of the use of financial instruments and Glencore financial risk management objectives and policies, including hedging activities and exposure to price risk, credit risk, liquid- ity risk and cash flow risk are included in section 1.7 Principal risks and uncertainties and in notes 25 and 26 of the financial statements. Health, safety, environment & communities (HSEC) An overview of health, safety and environmental performance and community participation is provided in section 1.5 Sustainability. Exploration and research and development The Group business units carry out exploration and research and development activities that are necessary to support and expand their operations. Charitable donations In addition to our large-scale community programmes, Glencore makes donations and provides sponsorship to various causes. Guidance on Glencore’s policy towards charitable contribu- tions is set out in the Glencore Corporate Practice programme. For the year ended 31 December 2012, the Group spent a total of $ 95 million (2011: $ 140 million), a large part of this difference due to the conclusion of an extensive investment project at Kazzinc on both purely philanthropic and community invest- ment initiatives. Employee policies and involvement Glencore operates an equal opportunities policy that aims to treat individuals fairly and not to discriminate on the basis of sex, race, ethnic origin, disability or on any other basis. Applica- tions for employment and promotion are fully considered on their merits, and employees are given appropriate training and equal opportunities for career development and promotion. Where disability occurs during employment, the Group seeks to accommodate that disability where reasonably possible, in- cluding with appropriate training. | Annual Report 2012 | 101 The Group places considerable value on the involvement of its employees which is reflected in the principles of Glencore Corporate Practice and its related guidance, which requires regular, open, fair and respectful communication, zero toler- ance for human rights violations, fair remuneration and, above all, a safe working environment. Employee communication is mainly provided by the Group’s in- tranet and corporate website. A range of information is made available to employees including all policies applicable to them as well as information on the Group’s financial performance and the main drivers of its business. Employee consultation de- pends upon the type and location of operation or office. The Group made its first grants under its Performance Share Plan in 2012. Directors’ conflicts of interest Under Jersey law and the Company’s Articles of Association (which mirror section 175 of the UK Companies Act 2006), a Direc- tor must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company. The duty is not infringed if the mat- ter has been authorised by the Directors. Under the Articles, the Board has the power to authorise potential or actual conflict situ- ations. The Board maintains effective procedures to enable the Directors to notify the Company of any actual or potential conflict situations and for those situations to be reviewed and, if appropri- ate, to be authorised by the Board. Directors’ conflict situations are reviewed annually. A register of authorisations is maintained. Directors’ liabilities and indemnities The Company has granted third party indemnities to each of its Directors against any liability that attaches to them in defend- ing proceedings brought against them, to the extent permit- ted by the Jersey Law. In addition, Directors and Officers of the Company and its subsidiaries are covered by Directors & Offic- ers liability insurance. Directors The names of the Company’s Directors who served during the year, together with their biographical details and other informa- tion, are shown in section 3.2. Directors’ interests Details of interests in the ordinary shares of the Company of those Directors who held office at 31 December 2012 are given below: Anthony Hayward William Macaulay ¹ Li Ning 0 139 996 976 123 000 0.0% 1.97% 0.0% ¹ Of these shares, 129,372,165 ordinary shares are held by FR Galaxy Hold- ings S.a.r.l. (FR) and 10,624,811 by ECP Galaxy Holdings S.a.r.l. (ECP). The Company has been notified that (1) FR is a connected person of William Macaulay and (2) ECP is an affiliate of FR. In addition, FR has an economic interest under swap arrangements in 19,787,834 shares and ECP in 1,125,000 shares (being an aggregate 20,912,834 shares, which is approximately 0.3% of the issued share capital of the Company). No Director has any other interest in the share capital of the Company whether pursuant to any share plan or otherwise. No changes in Directors’ interests have occurred between 31 December 2012 and 22 March 2013. Each of Mr Glasenberg and Mr Kalmin has executed a Lock-Up Deed, pursuant to which they have agreed, subject to certain customary exceptions, that during the period from 24 May 2011 to 24 May 2016 they will not dispose of the ordinary shares held by them at 24 May 2011. The percentage of Executive Director’s Ordinary Shares held at 24 May 2011 that is subject to restric- tions on disposal decreases on each anniversary date by 20 per cent of the original holding. Share capital and shareholder rights At the date of this report, the ordinary share capital of the Company was $ 70,994,560.31 represented by 7,099,456,031 or- dinary shares of $ 0.01 each. Major interests in shares As at 22 March 2013 Glencore had been notified of the following interests representing 3% or more of the issued ordinary share capital of the Company: Name of holder Number of shares Percentage of issued share capital Ivan Glasenberg 1 101 848 752 15.52% Daniel Francisco Maté Badenes Aristotelis Mistakidis Tor Peterson Alex Beard 417 468 330 414 730 597 366 074 885 320 260 410 5.88% 5.84% 5.16% 4.51% Name of Director Executive Ivan Glasenberg Steven Kalmin Non executive Simon Murray Peter Coates Leonhard Fischer Ordinary shares held as at 31 December 2012 Percentage of issued share capital 1 101 848 752 70 523 154 0 82 700 0 15.52% 1.0% 0.0% 0.0% 0.0% Share capital The rights attaching to the Company’s ordinary shares, being the only share class of the Company, are set out in the Com- pany’s Articles of Association (the ‘Articles’), which can be found at www.glencore.com. Subject to Jersey law, any share may be issued with or have attached to it such preferred, de- ferred or other special rights and restrictions as the Company may by special resolution decide or, if no such resolution is in effect, or so far as the resolution does not make specific provi- sion, as the Board may decide. No such resolution is currently in effect. Subject to the recommendation of the Board, holders of ordinary shares may receive a dividend. On liquidation, hold- ers of ordinary shares may share in the assets of the Company. 102 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Holders of ordinary shares are also entitled to receive the Com- pany’s Annual Report and Accounts (or a summarised version) and, subject to certain thresholds being met, may requisition the Board to convene a general meeting (‘GM’) or the proposal of resolutions at AGMs. None of the ordinary shares carry any special rights with regard to control of the Company. Holders of ordinary shares are entitled to attend and speak at GMs of the Company and to appoint one or more proxies or, if the holder of shares is a corporation, a corporate representa- tive. On a show of hands, each holder of ordinary shares who (being an individual) is present in person or (being a corpora- tion) is present by a duly appointed corporate representative, not being himself a member, shall have one vote and on a poll, every holder of ordinary shares present in person or by proxy shall have one vote for every share of which he is the holder. Electronic and paper proxy appointments and voting instruc- tions must be received not later than 48 hours before a GM. A holder of ordinary shares can lose the entitlement to vote at GMs where that holder has been served with a disclosure no- tice and has failed to provide the Company with information concerning interests held in those shares. Except as (1) set out above and (2) permitted under applicable statutes, there are no limitations on voting rights of holders of a given percentage, number of votes or deadlines for exercising voting rights. The Directors may refuse to register a transfer of a certificated share which is not fully paid, provided that the refusal does not prevent dealings in shares in the Company from taking place on an open and proper basis or where the Company has a lien over that share. The Directors may also refuse to register a transfer of a certificated share unless the instrument of transfer is: (i) lodged, duly stamped (if necessary), at the registered office of the Company or any other place as the Board may decide ac- companied by the certificate for the share(s) to be transferred and/or such other evidence as the Directors may reasonably require as proof of title; or (ii) in respect of only one class of shares. Transfers of uncertificated shares must be carried out using CREST and the Directors can refuse to register a transfer of an uncertificated share in accordance with the regulations govern- ing the operation of CREST. The Directors may decide to suspend the registration of trans- fers, for up to 30 days a year, by closing the register of share- holders. The Directors cannot suspend the registration of trans- fers of any uncertificated shares without obtaining consent from CREST. There are no other restrictions on the transfer of ordinary shares in the Company except: (1) certain restrictions may from time to time be imposed by laws and regulations (for example insider trading laws); (2) pursuant to the Company’s share dealing code whereby the Directors and certain employees of the Company require approval to deal in the Company’s shares; and (3) where a shareholder with at least a 0.25% interest in the Company’s is- sued share capital has been served with a disclosure notice and has failed to provide the Company with information concern- ing interests in those shares. There are no agreements between holders of ordinary shares that are known to the Company which may result in restrictions on the transfer of securities or on voting rights. The rules for appointment and replacement of the Directors are set out in the Articles. Directors can be appointed by the Company by ordinary resolution at a GM or by the Board upon the recommendation of the Nomination Committee. The Com- pany can remove a Director from office, including by passing an ordinary resolution or by notice being given by all the other Directors. The powers of the Directors are set out in the Articles and pro- vide that the Board may exercise all the powers of the Com- pany including to borrow money. The Company may by ordinary resolution authorise the Board to issue shares, and increase, consolidate, sub-divide and cancel shares in accordance with its Articles and Jersey law. The Company may amend its Articles by special resolution ap- proved at a GM. Purchase of Own Shares At the end of the year, the Directors had authority, under a shareholders’ resolution passed on 9  May 2012, to purchase through the market up to 10% of the Company’s issued ordinary shares immediately following the IPO. This authority expires at the conclusion of the AGM of the Company to be held in 2013. No shares have been purchased by the Company since its IPO. Going concern The financial position of the Group, its cash flows, liquidity posi- tion and borrowing facilities are set out in the Overview and the Business review sections. Furthermore, note  25 of the consoli- dated financial statements includes the Group’s objectives and policies for managing its capital, its financial risk management objectives, details of its financial instruments and hedging ac- tivities and its exposure to credit and liquidity risk. Significant financing activities that took place during the year are detailed in the Business review section. As a consequence, the Directors be- lieve that the Group is well placed to manage its business despite the current highly uncertain economic environment. The Directors believe, having made appropriate enquiries that the Group has adequate resources to continue its operational existence for the foreseeable future. For this reason they con- tinue to adopt the going concern basis in preparing the financial statements. The Directors have made this assessment after con- sideration of the Group’s budgeted cash flows and related as- sumptions, which incorporate the acquired operations of Viterra Inc. (see note 24), including appropriate stress testing thereof, key risks and uncertainties, undrawn debt facilities, debt maturity review, the likely impact on the Group of the proposed merger with Xstrata plc (see Note 28) and in accordance with the Going Concern and Liquidity Guidance for Directors of UK Companies 2009 published by the UK Financial Reporting Council. | Annual Report 2012 | 103 The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Jer- sey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregulari- ties. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Signed on behalf of the board: John Burton Company Secretary 22 March 2013 AUditORs Each of the persons who is a Director at the date of approval of this annual report confirms that: (a) so far as the Director is aware, there is no relevant audit infor- mation of which the Company’s auditors are unaware; and (b) the Director has taken all the steps that he ought to have taken as a director in order to make himself aware of any rel- evant audit information and to establish that the Company’s auditors are aware of that information. Deloitte LLP have expressed their willingness to continue in of- fice as auditors and a resolution to reappoint them will be pro- posed at the forthcoming AGM. stAteMeNt Of diReCtORs’ ResPONsiBiLities The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and International Financial Reporting Standards as adopted for use in the European Union (together ‘IFRS’). The financial state- ments are required by law to be properly prepared in accord- ance with the Companies (Jersey) Law 1991. International Ac- counting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, the Directors are also required to: •   properly select and apply accounting policies;  •   present information, including accounting policies, in a man- ner that provides relevant, reliable, comparable and under- standable information; •   provide  additional  disclosures  when  compliance  with  the  specific requirements in IFRSs are insufficient to enable us- ers to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and •   make an assessment of the Company’s ability to continue as  a going concern. 104 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN | Annual Report 2012 | 105 Viterra, outer harbour, South Australia financial StatementS 4 | Financial Statements Confirmation of directors’ responsibilities Independent auditors’ report Consolidated statement of income Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the financial statements 108 109 110 111 112 113 114 115 Financial StatementS ConfiRmAtion of diReCtoRs’ Responsibilities We confirm that to the best of our knowledge: • the financial statements, prepared in accordance with International Financial Reporting Standards and interpretations as adopted by the European Union, International Financial Reporting Standards and interpretations as issued by the International Account- ing Standards Board and the Companies (Jersey) Law 1991, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole; and • the management report, which is incorporated in the Overview and Business review sections, includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face. Ivan Glasenberg Chief Executive Officer Steven Kalmin Chief Financial officer 22 March 2013 108 | Annual Report 2012 | 108 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN independent AUditoR’s RepoRt to tHe membeRs of GlenCoRe inteRnAtionAl plC We have audited the group financial statements (the “financial statements”) of Glencore International plc for the year ended 31  December  2012 which comprise the Consolidated State- ment of Income, the Consolidated Statement of Comprehen- sive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and the related notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by European Union. Separate opinion in relation to iFRS as issued by the iaSB As explained in the accounting policies to the financial state- ments, the Group, in addition to complying with its legal obliga- tion to comply with IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Account- ing Standards Board (IASB). In our opinion the Group financial statements comply with IFRSs as issued by the IASB. matters on which we are required to report by exception We have nothing to report in respect of the following: This report is made solely to the company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or as- sume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this re- port, or for the opinions we have formed. Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion: • proper accounting records have not been kept by the parent company, or proper returns adequate for our audit have not been received from branches not visited by us; or • the financial statements are not in agreement with the ac- counting records and returns; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate Gov- ernance Code specified for our review. Other matters In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the provisions of the UK Companies Act 2006 as if that Act had applied to the company. We have reviewed the directors’ statement, contained within the Directors’ Report, in relation to going concern as if the company had been incorporated in the UK and have nothing to report to you in that respect. David Quinlin for and on behalf of Deloitte LLP Chartered Accountants and Recognized Auditor London, UK 22 March 2013 Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ Responsi- bilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opin- ion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Prac- tices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give rea- sonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been con- sistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the an- nual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent mate- rial misstatements or inconsistencies we consider the implica- tions for our report. Opinion on financial statements In our opinion the financial statements: • give a true and fair view of the state of the group’s affairs as at 31 December 2012 and of the group’s profit for the year then ended; • have been properly prepared in accordance with IFRS as adopted by European Union; • have been properly prepared in accordance with the Compa- nies (Jersey) Law 1991. | Annual Report 2012 | 109 | Annual Report 2010 | 109 Financial StatementS ConsolidAted stAtement of inCome foR tHe yeARs ended 31 deCembeR US $ million Revenue Cost of goods sold Selling and administrative expenses Share of income from associates and jointly controlled entities (Loss) /gain on sale of investments Other expense – net Dividend income Interest income Interest expense income before income taxes Income tax credit income for the year attributable to: Non controlling interests Equity holders earnings per share Basic (US $) Diluted (US $) The accompanying notes are an integral part of these consolidated financial statements. Notes 2012 2011 214 436 – 210 435 186 152 – 181 938 – 997 367 – 128 – 1 214 17 401 – 1 371 1 076 76 1 152 148 1 004 0.14 0.14 – 857 1 972 9 – 511 24 339 – 1 186 4 004 264 4 268 220 4 048 0.72 0.69 3 4 6 16 16 110 | Annual Report 2012 | 110 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN ConsolidAted stAtement of CompReHensive inCome foR tHe yeARs ended 31 deCembeR US $ million Income for the year Exchange loss on translation of foreign operations Loss on cash flow hedges Loss on available for sale financial instruments Notes Share of other comprehensive income /(loss) from associates and jointly controlled entities Income tax relating to components of other comprehensive income net loss recognised directly in equity Loss on available for sale financial instruments transferred to the statement of income 5 Cash flow hedges transferred to the statement of income Effect of foreign currency exchange differences transferred to the statement of income Other comprehensive income /(loss) total comprehensive income attributable to: Non controlling interests Equity holders The accompanying notes are an integral part of these consolidated financial statements. 2012 1 152 – 170 – 93 0 221 0 – 42 1 181 297 – 23 1 413 2 565 94 2 471 2011 4 268 – 59 – 15 – 1 206 – 25 – 2 – 1 307 0 6 0 – 1 301 2 967 214 2 753 | Annual Report 2012 | 111 | Annual Report 2010 | 111 Financial StatementS ConsolidAted stAtement of finAnCiAl position As At 31 deCembeR US $ million assets non current assets Property, plant and equipment Intangible assets Investments in associates and jointly controlled entities Other investments Advances and loans Deferred tax assets current assets Inventories Accounts receivable Other financial assets Prepaid expenses and other assets Marketable securities Cash and cash equivalents Assets held for sale total assets equity and liabilities capital and reserves – attributable to equity holders Share capital Reserves and retained earnings Non controlling interests total equity non current liabilities Borrowings Deferred income Deferred tax liabilities Provisions current liabilities Borrowings Viterra asset acquirer loans Accounts payable Deferred income Provisions Other financial liabilities Income tax payable Liabilities held for sale total equity and liabilities The accompanying notes are an integral part of these consolidated financial statements. 112 | Annual Report 2012 | 112 | Annual Report 2010 | Notes 2012 2011 7 8 9 9 10 6 11 12 26 13 14 15 19 20 6 21 19 14 23 20 21 26 14 23 238 2 664 18 767 1 589 3 758 1 462 51 478 20 682 24 882 2 650 235 38 2 782 51 269 2 790 54 059 105 537 71 31 195 31 266 3 034 34 300 19 028 601 2 955 1 504 24 088 16 498 2 580 23 501 116 62 3 388 257 46 402 747 47 149 105 537 14 639 210 18 858 1 547 4 141 1 039 40 434 17 129 21 895 5 065 297 40 1 305 45 731 0 45 731 86 165 69 29 196 29 265 3 070 32 335 19 844 158 1 399 953 22 354 8 224 0 18 136 24 98 4 804 190 31 476 0 31 476 86 165 Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN ConsolidAted stAtement of CAsH flows foR tHe yeARs ended 31 deCembeR US $ million Operating activities Income before income taxes adjustments for: Depreciation and amortisation Share of income from associates and jointly controlled entities Loss/(gain) on sale of investments Impairments Other non cash items – net Interest expense – net cash generated by operating activities before working capital changes Working capital changes Decrease /(increase) in accounts receivable 1 (Increase) /decrease in inventories Increase /(decrease) in accounts payable 2 total working capital changes Income tax paid Interest received Interest paid net cash generated/(used) by operating activities investing activities Payments of non current advances and loans Acquisition of subsidiaries, net of cash acquired Disposal of subsidiaries Purchase of investments Proceeds from sale of investments Purchase of property, plant and equipment Payments for exploration and evaluation Proceeds from sale of property, plant and equipment Dividends received from associates net cash (used) by investing activities Financing activities Share issuance, net of issue costs Repayment of Perpetual bonds Repayment of Euro bonds Proceeds from Xstrata secured bank loans Proceeds from issuance of Sterling, Swiss Franc and Euro bonds Proceeds from other non current borrowings Repayment of other non current borrowings Margin receipts in respect of financing related hedging activities Viterra asset acquirer loans Net proceeds from/(repayment of) current borrowings Acquisition of additional interest in subsidiaries Disposal of interest in subsidiaries Payment of profit participation certificates Dividend paid to non controlling interests Dividend paid to equity holders of the parent net cash generated by financing activities Increase /(decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year cash and cash equivalents, end of year Notes 2012 2011 1 076 4 004 3 5 24 24 15 19 19 19 19 19 19 24 19 19 17 1 473 – 367 128 1 650 – 148 970 4 782 720 – 1 611 1 618 727 – 344 206 – 990 4 381 – 203 – 6 463 281 – 633 23 – 2 970 – 147 112 461 – 9 539 0 0 0 0 2 951 303 – 594 176 2 580 3 463 – 669 45 – 554 0 – 1 066 6 635 1 477 1 305 2 782 1 066 – 1 972 – 9 32 133 847 4 101 – 1 797 239 – 1 616 – 3 174 – 472 121 – 919 – 343 – 320 – 350 4 – 919 155 – 2 606 – 204 184 366 – 3 690 7 616 – 681 – 700 384 237 200 – 169 21 0 – 1 493 – 315 0 – 861 – 18 – 346 3 875 – 158 1 463 1 305 1 Includes movements in other financial assets, prepaid expenses, other assets and other non cash current assets. 2 Includes movements in other financial liabilities, liabilities held for sale and current provisions. The accompanying notes are an integral part of these consolidated financial statements. | Annual Report 2012 | 113 | Annual Report 2010 | 113 Financial StatementS ConsolidAted stAtement of CHAnGes in eqUity foR tHe yeARs ended 31 deCembeR Total reserves and retained earnings Share capital Total equity attribut- able to equity holders Non control- ling interests Retained earnings Share premium 1 Other reserves 1 5 659 4 048 – 25 4 023 0 0 0 0 5 694 7 607 21 0 0 0 – 346 0 0 58 0 0 0 – 272 0 5 387 4 048 – 1 270 – 1 295 – 1 270 0 0 0 0 0 – 98 0 0 2 753 13 821 – 7 7 607 21 58 – 98 0 – 346 37 0 0 0 5 424 4 048 – 1 295 2 753 16 13 837 7 9 0 0 0 0 0 0 7 616 21 58 – 98 0 – 346 2 894 220 – 6 214 0 0 0 0 0 – 235 215 – 18 Total equity 8 318 4 268 – 1 301 2 967 13 837 0 7 616 21 58 – 333 215 – 364 4 039 26 797 – 1 640 29 196 69 29 265 3 070 32 335 4 039 1 004 221 1 225 0 111 0 0 0 0 5 375 26 797 – 1 640 29 196 69 29 265 3 070 32 335 0 0 0 957 0 0 0 0 – 1 066 26 688 0 1 246 1 246 0 0 0 1 004 1 467 2 471 957 111 0 – 474 – 474 0 0 0 – 1 066 0 0 0 2 0 0 0 0 0 1 004 1 467 2 471 959 111 0 – 474 0 – 1 066 148 – 54 94 0 0 – 419 – 971 1 260 1 152 1 413 2 565 959 111 – 419 – 1 445 1 260 0 – 1 066 – 868 31 195 71 31 266 3 034 34 300 Conversion of HPPS and PPS profit participation plans ¹ 0 13 821 Conversion of LTS and LTPPS profit participation plans ¹ – 5 701 US $ million at 1 January 2011 Income for the year Other comprehensive loss total comprehensive income Issue of share capital 1 Tax on Listing related expenses 2 Equity settled share-based payments 3 Change in ownership interest in subsidiaries Acquisition of subsidiaries 4 Dividends paid 5 at 31 December 2011 at 1 January 2012 Income for the year Other comprehensive income total comprehensive income Issue of share capital 1 Equity settled share-based payments 3 Put option relating to additional interest in subsidiary 4 Change in ownership interest in subsidiaries Acquisition of subsidiaries 4 Dividends paid 5 at 31 December 2012 1 See note 15. ² See note 6. ³ See note 18. 4 See note 24. 5 See note 17. The accompanying notes are an integral part of these consolidated financial statements. 114 | Annual Report 2012 | 114 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN notes to tHe finAnCiAl stAtements 1. ACCoUntinG poliCies corporate information The Glencore Group (Glencore) is a leading integrated marketer and producer of natural resources, with worldwide activities in the marketing of metals and minerals, energy products and agricultural products and the production, refinement, process- ing, storage and transport of these products. Glencore operates on a global scale, marketing and distributing physical commod- ities 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 produ- cers and consumers of commodities. Glencore’s long experi- ence 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 geo- graphic regions. Glencore’s marketing activities are supported by investments in industrial assets operating in Glencore’s core commodities. These consolidated financial statements were authorised for issue in accordance with a Directors’ resolution on 22 March 2013. listing/Restructuring of the Group On 24  May 2011, Glencore International plc (the “Company”) was admitted to the Official List of the UK Listing Authority and commenced trading on the London Stock Exchange’s premium listed market and on the Hong Kong Stock Exchange on 25 May 2011 via a secondary listing (the “Listing”). The Company is incorporated in Jersey, domiciled in Switzerland, and is the ultimate parent company of Glencore and owner of 100% of the issued share capital of Glencore International AG, following a restructuring of the ownership interests in Glencore Interna- tional AG immediately prior to admission (the “Restructuring”) (see note 15). The Company’s registered office is at Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES. The following accounting treatment was applied to account for the Restructuring in 2011: • the consolidated assets and liabilities of the subsidiary Glencore International AG were recognised and measured at the pre-Restructuring carrying amounts, without restatement to fair value; and • the retained earnings and other equity balances recognised in the consolidated statement of financial position reflect the consolidated retained earnings and other equity balances of Glencore International AG, as at 24  May 2011, immediately prior to the Restructuring, and the results of the period from 1  January 2011 to 24  May 2011, the date of the Restructur- ing, are those of Glencore International AG as the Company was not active prior to the Restructuring. Subsequent to the Restructuring, the equity structure reflects the applicable movements in equity of Glencore International plc, including the equity instruments issued to effect the Restructuring and the Listing. Statement of compliance The accounting policies adopted are in accordance with: • International Financial Reporting Standards (IFRS) and inter- pretations as adopted by the European Union (EU) effective as of 31 December 2012; and • IFRS and interpretations as issued by the International Accounting Standards Board (IASB) effective as of 31 Decem- ber 2012. Basis of preparation The financial statements are prepared under the historical cost convention except for the revaluation to fair value of certain financial assets, liabilities and marketing inventories and have been prepared on a going concern basis. The Directors have made this assessment after consideration of the Group’s budg- eted cash flows and related assumptions, which incorporate the acquired operations of Viterra Inc. (see note 24), including appropriate stress testing thereof, key risks and uncertain- ties, undrawn debt facilities, debt maturity review, the likely impact on the Group of the proposed merger with Xstrata plc (see Note 28) and in accordance with the Going Con- cern and Liquidity Guidance for Directors of UK Companies 2009 published by the Financial Reporting Council. Further information on Glencore’s business activities, cash flows, liquid- ity and performance are set out in the Business review and its objectives, policies and processes for managing its capital and financial risks are detailed in note 25. All amounts are expressed in millions of United States Dollars, unless other wise stated, consistent with the predominant func- tional currency of Glencore’s operations. Under Article 105(11) of the Companies (Jersey) Law 1991 the directors of a holding company need not prepare separate ac- counts (i.e. company only accounts) if consolidated accounts for the company are prepared, unless required to do so by the members of the company by ordinary resolution. The members of the Company have not passed a resolution requiring separate accounts and, in the Directors’ opinion, the Company meets the definition of a holding company. As permitted by the law, the Directors have elected not to prepare separate accounts. changes in accounting policies and comparability The following relevant amendments to the existing standards and interpretations were adopted as of 1 January 2012: • Amendments to IFRS 7 – Financial Instruments: Disclosures; • Amendments to IAS 12 – Deferred Tax: Recovery of Underly- ing Assets. The adoption of these revised standards and interpretations did not have a material impact on the recognition, measure- ment or disclosure of reported amounts. | Annual Report 2012 | 115 | Annual Report 2010 | 115 Financial StatementS At the date of authorisation of these financial statements, the following standards and interpretations applicable to Glencore were issued but not yet effective: • IFRS 9 – Financial Instruments • IFRS 10 – Consolidated Financial Statements • IFRS 11 – Joint Arrangements • IFRS 12 – Disclosure of Interests in Other Entities • IFRS 13 – Fair Value Measurement • IAS 19 – Employee Benefits (2011) • IAS 27 – Separate Financial Statements (2011) • IAS 28 – Investments in Associates and Joint Ventures (2011) • Amendments to IAS 1 – Presentation of Items of Other Com- prehensive Income • Amendments to IAS 32 – Offsetting Financial Assets and Financial Liabilities • Amendments to IFRS 7 – Disclosures – Offsetting Financial Assets and Financial Liabilities • IFRIC 20 – Stripping Costs in the Production Phase of a Surface Mine The Directors are currently evaluating the impact these new standards and interpretations will have on the financial state- ments of Glencore. An outline of the significant impacts identi- fied to date is set out below. IFRS 10, IFRS 11 and IFRS 12 (the “Consolidation Standards”) Glencore will adopt the Consolidation Standards on 1 Janu- ary 2013 with retrospective application. IFRS 10 provides a single basis for consolidation with a new definition of control based on having the power to direct the relevant activities of the investee. IFRS 11 impacts the accounting for joint arrangements, defined as investments or arrangements which are subject to joint con- trol through contractual agreed sharing of control between two or more parties. A joint arrangement is classified as either a joint operation or a joint venture, and the option to proportionately consolidate joint ventures has been removed, consistent with current Group policy under which joint ventures are accounted for using the equity method. IFRS 12 combines the disclosure requirements previously covered by existing standards and includes additional disclosure requirements. To date, Glencore has not identified any material changes in the accounting that is currently being applied to the Group’s subsidiaries, invest- ments or joint arrangements as a result of the Consolidation Standards. IAS 19 (2011) Glencore will adopt the amendments to IAS 19 on 1 January 2013 with modified retrospective application. The amendments require all actuarial gains and losses to be recognised imme- diately in other comprehensive income (which differs from Glencore’s current policy which applies the corridor method) and require the expected return on plan assets (recognised in the statement of income) to be calculated based on the rate used to discount the defined benefit obligation. Upon adop- tion, Glencore will recognise $ 164 million of unrecognised actu- arial losses as at 1 January 2012, increasing the post retirement benefits provision (Note 21) with a corresponding adjustment to shareholders’ equity and associated deferred tax impact. 116 | Annual Report 2012 | 116 | Annual Report 2010 | Amendments to IAS 1 Glencore will adopt the amendments to IAS 1 on 1  Janu- ary  2013 with retrospective application. The amendments to IAS 1 will not impact Glencore’s financial statement balances however they will impact the presentation within the Statement of Comprehensive Income as Glencore will classify components of other comprehensive income based on whether they may eventually be recycled into income (e.g. currency translation adjustments) versus those items that will never be recycled into income (e.g. actuarial gains and losses on pension plans). IFRIC 20 Glencore will adopt IFRIC 20 on 1 January 2013 with retrospec- tive application. IFRIC 20 provides a model for accounting for costs associated with the removal of waste during the produc- tion phase of a surface mine, including guidance on the appor- tionment of the costs incurred for obtaining a current and future benefit and how capitalised costs are depreciated. Principles of consolidation The consolidated financial statements of Glencore include the accounts of the Company and its subsidiaries. A subsidiary is an entity that is ultimately controlled by the Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control is usually assumed where Glencore ultimately owns or controls more than 50% of the voting rights, unless evidence exists to the contrary. The results of subsidiaries acquired or disposed of during the year are consolidated from the effective date of acquisition or up to the effective date of disposal, as appro- priate. All intercompany balances, transactions and unrealised profits are eliminated. Non controlling interests in subsidiaries are identified sepa- rately from Glencore’s equity and are initially measured either at fair value or at the non controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. Subsequent to acquisition, the carrying amount of non control- ling interests is the amount of those interests at initial recog- nition plus the non controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non controlling interests even if this results in the non controlling interests having a deficit balance. Changes in Glencore’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions with any difference between the amount by which the non control- ling interests are adjusted and the fair value of the considera- tion paid or received being recognised directly in equity and attributed to equity holders of Glencore. investments in associates, jointly controlled entities and joint venture operations Associates and jointly controlled entities (together Associates) in which Glencore exercises significant influence or joint control are accounted for using the equity method. Significant influ- ence is the power to participate in the financial and operating policy decisions of the investee but is not control over those policies. Significant influence is presumed if Glencore holds be- tween 20% and 50% of the voting rights, unless evidence exists to the contrary. Joint control is the contractually agreed sharing Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN of control over an economic entity where strategic and/or key operating decisions require unanimous decision making. Equity accounting involves Glencore recording its share of the Associate’s net income and equity. Glencore’s interest in an Associate is initially recorded at cost and is subsequently adjusted for Glencore’s share of changes in net assets of the Associate, less any impairment in the value of individual invest- ments. Where Glencore transacts with an Associate, unrealised profits and losses are eliminated to the extent of Glencore’s interest in that Associate. Changes in Glencore’s interests in Associates are accounted for as a gain or loss on disposal with any difference between the amount by which the carrying value of the Associate is adjusted and the fair value of the consideration received being recog- nised directly in the statement of income. Where Glencore undertakes activities under joint venture op- eration or asset arrangements, Glencore reports such interests using the proportionate consolidation method. Glencore’s share of the assets, liabilities, income, expenses and cash flows of jointly controlled operations or asset arrangements are con- solidated with the equivalent items in the consolidated financial statements on a line by line basis. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method of accounting, whereby the iden- tifiable assets, liabilities and contingent liabilities (identifiable net assets) are measured on the basis of fair value at the date of acquisition. Acquisition related costs are recognised in the statement of income as incurred. non current assets held for sale and disposal groups Non current assets and assets and liabilities included in dispos- al groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use, they are available for immediate disposal and the sale is highly probable. Non current assets held for sale are measured at the lower of their carrying amount or fair value less costs to sell. Revenue recognition Revenue is recognised when the seller has transferred to the buyer all significant risks and rewards of ownership of the assets sold. Revenue excludes any applicable sales taxes and is recognised at the fair value of the consideration received or receivable to the extent that it is probable that economic ben- efits will flow to Glencore and the revenues and costs can be reliably measured. In most instances sales revenue is recognised when the product is delivered to the destination specified by the customer, which is typically the vessel on which it is shipped, the destination port or the customer’s premises. For certain commodities, the sales price is determined on a provisional basis at the date of sale as the final selling price is subject to movements in market prices up to the date of final pricing, normally ranging from 30 to 90 days after initial book- ing. Revenue on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue adjustment mechanism embedded within provi- sionally priced sales arrangements has the character of a com- modity derivative. Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are recognised as an adjustment to revenue. In all cas- es, fair value is estimated by reference to forward market prices. Where a business combination is achieved in stages, Glencore’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date Glencore attains control) and the resulting gain or loss, if any, is recog- nised in the statement of income. Interest and dividend income is recognised when the right to receive payment has been established, it is probable that the economic benefits will flow to Glencore and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the applicable effective interest rate. Where the fair value of consideration transferred for a business combination exceeds the fair values attributable to Glencore’s share of the identifiable net assets, the difference is treated as purchased goodwill, which is not amortised but is reviewed annually for impairment and when there is an indication of impairment. Any impairment identified is immediately recog- nised in the statement of income. If the fair value attributable to Glencore’s share of the identifiable net assets exceeds the consideration transferred, the difference is immediately recog- nised in the statement of income. Similar procedures are applied in accounting for the purchases of interests in Associates. Any goodwill arising from such pur- chases is included within the carrying amount of the invest- ment in Associates, but not amortised thereafter. Any excess of Glencore’s share of the net fair value of the Associate’s identifi- able net assets over the cost of the investment is included in the statement of income in the period of the purchase. The main operating and finance subsidiaries and investments of Glencore are listed in note 32. Foreign currency translation Glencore’s reporting currency and the functional currency of the majority of its operations is the U.S. Dollar as this is assessed to be the principal currency of the economic environment in which they operate. Foreign currency transactions Transactions in foreign currencies are converted into the func- tional currency of each entity using the exchange rate pre- vailing at the transaction date. Monetary assets and liabilities outstanding at year end are converted at year end rates. The resulting exchange differences are recorded in the consolidat- ed statement of income. | Annual Report 2012 | 117 | Annual Report 2010 | 117 Financial StatementS Translation of financial statements For the purposes of consolidation, assets and liabilities of group companies whose functional currency is in a currency other than the U.S. Dollar are translated into U.S. Dollars using year end exchange rates, while their statements of income are translat- ed using average rates of exchange for the year. Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate. Translation adjustments are included as a separate component of share- holders’ equity and have no statement of income impact to the extent that no disposal of the foreign operation has occurred. Borrowing costs Borrowing costs are expensed as incurred except where they relate to the financing of construction or development of quali- fying assets in which case they are capitalised up to the date when the qualifying asset is ready for its intended use. Retirement benefits Glencore operates various pension schemes in accordance with local requirements and practices of the respective coun- tries. The annual costs for defined contribution plans that are funded by payments to separate trustee administered funds or insurance companies equal the contributions that are required under the plans and are accounted for as an expense. Glencore uses the projected unit credit actuarial method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost. Actuarial gains and losses are accounted for using the corridor method. Under this method, to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that excess is recognised in income over the expected average remaining working lives of the employees participating in the plan. Past service cost is recog- nised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight line basis over the average period until the benefits become vested. Share-based payments Equity-settled share-based payments Equity-settled share-based payments are measured at the fair value of the awards based on the market value of the shares at the grant date. Fair value excludes the effect of non market- based vesting conditions. The fair value is charged to the state- ment of income and credited to retained earnings on a straight- line basis over the period the estimated number of awards are expected to vest. At each balance sheet date, Glencore revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to retained earnings. Cash-settled share-based payments For cash-settled share-based payments, a liability is initially rec- ognised at fair value based on the estimated number of awards that are expected to vest, adjusting for market and non market based performance conditions. Subsequently, at each report- ing period until the liability is settled, the liability is remeasured to fair value with any changes in fair value recognised in the statement of income. income taxes Income taxes consist of current and deferred income taxes. Current taxes represent income taxes expected to be payable based on enacted or substantively enacted tax rates at the period end and expected current taxable income, and any adjustment to tax payable in respect of previous years. Deferred taxes are recognised for temporary differences between the carrying amounts of assets and liabilities in the financial state- ments and the corresponding tax bases used in the computa- tion of taxable income, using enacted or substantively enacted income tax rates which will be effective at the time of reversal of the underlying temporary difference. Deferred tax assets and unused tax losses are only recognised to the extent that their recoverability is probable. Deferred tax assets are reviewed at reporting period end and amended to the extent that it is no longer probable that the related benefit will be realised. To the extent that a deferred tax asset not previously recognised fulfils the criteria for recognition, an asset is recognised. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same authority and Glencore has both the right and the intention to settle its current tax assets and liabilities on a net or simultaneous basis. The tax effect of certain temporary differences is not recognised principally with respect to the initial recognition of an asset or liability (other than those arising in a business combination or in a manner that initially impacted accounting or taxable profit) and tem- porary differences relating to investments in subsidiaries and associates to the extent that Glencore can control the timing of the reversal of the temporary difference and it is probable the temporary difference will not reverse in the foreseeable future. Deferred tax is provided in respect of fair value adjustments on acquisitions. These adjustments may relate to assets such as extraction rights that, in general, are not eligible for income tax allowances. Royalties, extraction taxes and other levies/taxes are treated as taxation arrangements when they have the characteristics of an income tax including being imposed and determined in accordance with regulations established by the respective government’s taxation authority. Current and deferred tax are recognised as an expense or income in the statement of income, except when they relate to items that are recognised outside the statement of income (whether in other comprehensive income or directly in equity) or where they arise from the initial accounting for a business combination. 118 | Annual Report 2012 | 118 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN exploration and evaluation expenditure Exploration and evaluation expenditure relates to costs in- curred on the exploration and evaluation of potential mineral and petroleum resources and includes costs such as research- ing and analysing historical exploration data, exploratory drill- ing, trenching, sampling and the costs of pre-feasibility studies. Exploration and evaluation expenditure for each area of inter- est, other than that acquired from the purchase of another com- pany, is charged to the statement of income as incurred except when the expenditure is expected to be recouped from future exploitation or sale of the area of interest and it is planned to continue with active and significant operations in relation to the area, or at the reporting period end, the activity has not reached a stage which permits a reasonable assessment of the existence of commercially recoverable reserves, in which case the expenditure is capitalised. Purchased exploration and eval- uation assets are recognised at their fair value at acquisition. Capitalised exploration and evaluation expenditure is recorded as a component of mineral and petroleum rights in property, plant and equipment. All capitalised exploration and evaluation expenditure is moni- tored for indications of impairment. Where a potential impair- ment is indicated, an assessment is performed for each area of interest or at the cash generating unit level. To the extent that capitalised expenditure is not expected to be recovered it is charged to the statement of income. Development expenditure When commercially recoverable reserves are determined and such development receives the appropriate approvals, capital- ised exploration and evaluation expenditure is transferred to construction in progress. Upon completion of development and commencement of production, capitalised development costs are transferred as required to either mineral and petro- leum rights or deferred mining costs and depreciated using the unit of production method (UOP). Property, plant and equipment and intangible assets Property, plant and equipment, port allocation rights and intangible assets are stated at cost, being the fair value of the consideration given to acquire or construct the asset, includ- ing directly attributable costs required to bring the asset to the location or to a condition necessary for operation and the direct cost of dismantling and removing the asset, less accumulated depreciation and any accumulated impairment losses. Intangi- ble assets include goodwill, future warehousing fees and trade- marks. Property, plant and equipment are depreciated to their estimat- ed residual value over the estimated useful life of the specific asset concerned, or the estimated remaining life of the associ- ated mine, field or lease. Depreciation commences when the asset is available for use. Identifiable intangible assets with a finite life are amortised on a straight-line basis and/or UOP ba- sis over their expected useful life. Goodwill is not depreciated. The major categories of property, plant and equipment and intangible assets are depreciated/amortised on a UOP and/or straight-line basis as follows: Buildings Land Plant and equipment Mineral rights and development costs Deferred mining costs Port allocation rights 10 – 45 years not depreciated 3 – 30 years/UOP UOP UOP 25 – 40 years Assets under finance leases, where substantially all the risks and rewards of ownership transfer to the Group as lessee, are capitalised and amortised over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. All other leases are classified as operating leases, the expenditures for which, are charged against income over the accounting periods covered by the lease term. Biological assets Biological assets are carried at their fair value less estimated selling costs. Any changes in fair value less estimated selling costs are included in the statement of income in the period in which they arise. Deferred stripping costs Stripping costs incurred in the development of a mine (or pit) before production commences are capitalised as part of the cost of constructing the mine (or pit) and subsequently amor- tised over the life of the mine (or pit) on a unit of production basis. Production stripping costs are deferred when the actual stripping ratio incurred significantly exceeds the expected long term average stripping ratio and are subsequently amortised when the actual stripping ratio falls below the long term aver- age stripping ratio. Where the ore is expected to be evenly dis- tributed, waste removal is expensed as incurred. mineral and petroleum rights Mineral and petroleum reserves, resources and rights (together Mineral Rights) which can be reasonably valued, are recognised in the assessment of fair values on acquisition. Mineral Rights for which values cannot be reasonably determined are not rec- ognised. Exploitable Mineral Rights are amortised using the UOP over the commercially recoverable reserves and, in cer- tain circumstances, other mineral resources. Mineral resources are included in amortisation calculations where there is a high degree of confidence that they will be extracted in an economic manner. Restoration, rehabilitation and decommissioning Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the time such an obligation arises. The costs are charged to the statement of income over the life of the opera- tion through depreciation of the asset and the unwinding of the discount on the provision. | Annual Report 2012 | 119 | Annual Report 2010 | 119 Financial StatementS Costs for restoration of subsequent site disturbance, which is created on an ongoing basis during production, are provided for at their net present values and charged to the statement of income as extraction progresses. Other investments Equity investments, other than investments in Associates, are recorded at fair value unless such fair value is not reliably de- terminable in which case they are carried at cost. Changes in fair value are recorded in the statement of income unless they are classified as available for sale, in which case fair value move- ments are recognised in other comprehensive income and are subsequently recognised in the statement of income when real- ised by sale or redemption, or when a reduction in fair value is judged to be a significant or prolonged decline. impairment Glencore conducts, at least annually, an internal review of as- set values which is used as a source of information to assess for any indications of impairment. Formal impairment tests are carried out, at least annually, for cash generating units contain- ing goodwill and for all other non current assets when events or changes in circumstances indicate the carrying value may not be recoverable. A formal impairment test involves determining whether the car- rying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less costs to sell and its value in use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash generating unit level. If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in the income statement to reflect the asset at the lower amount. An impairment loss is reversed in the statement of income if there is a change in the estimates used to determine the recover- able amount since the prior impairment loss was recognised. The carrying amount is increased to the recoverable amount but not beyond the carrying amount net of depreciation or amortisation which would have arisen if the prior impairment loss had not been recognised. Goodwill impairments and impairments of available for sale equity investments are not subsequently reversed. Provisions Provisions are recognised when Glencore has a present obliga- tion, as a result of past events, and it is probable that an outflow of resources embodying economic benefits that can be reliably estimated will be required to settle the liability. inventories The majority of marketing inventories are valued at fair value less costs to sell with the remainder valued at the lower of cost or net realisable value. Unrealised gains and losses from chang- es in fair value are reported in cost of goods sold. 120 | Annual Report 2012 | 120 | Annual Report 2010 | Production inventories are valued at the lower of cost or net real- isable value. Cost is determined using the first in first out (FIFO) or the weighted average method and comprises material costs, labour costs and allocated production related overhead costs. Financing and storage costs related to inventory are expensed as incurred. cash and cash equivalents Cash and cash equivalents comprise cash held at bank, cash in hand and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Financial instruments Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to- maturity investments or available for sale financial assets depending upon the purpose for which the financial assets were acquired. Financial assets are initially recognised at fair value on the trade date, including, in the case of instruments not recorded at fair value through profit or loss, directly attrib- utable transaction costs. Subsequently, financial assets are car- ried at fair value (other investments, derivatives and marketable secur ities) or amortised cost less impairment (accounts receiv- able and advances and loans). Financial liabilities other than derivatives are initially recognised at fair value of consideration received net of transaction costs as appropriate and subse- quently carried at amortised cost. convertible bonds At the date of issue, the fair value of the liability component is determined by discounting the contractual future cash flows using a market rate for a similar non convertible instrument. The liability component is recorded as a liability on an amortised cost basis using the effective interest method. The equity com- ponent is recognised as the difference between the fair value of the proceeds as a whole and the fair value of the liability com- ponent and it is not subsequently remeasured. On conversion, the liability is reclassified to equity and no gain or loss is recog- nised in the statement of income and upon expiry of the conver- sion rights, any remaining equity portion will be transferred to retained earnings. Derivatives and hedging activities Derivative instruments, which include physical contracts to sell or purchase commodities that do not meet the own use exemp- tion, are initially recognised at fair value when Glencore be- comes a party to the contractual provisions of the instrument and are subsequently remeasured to fair value at the end of each reporting period. Fair values are determined using quoted market prices, dealer price quotations or using models and oth- er valuation techniques, the key inputs for which include current market and contractual prices for the underlying instrument, time to expiry, yield curves, volatility of the underlying instru- ment and counterparty risk. Gains and losses on derivative instruments for which hedge accounting is not applied, other than the revenue adjustment mechanism embedded within provisionally priced sales, are recognised in cost of goods sold. Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Those derivatives qualifying and designated as hedges are either (i) a Fair Value Hedge of the change in fair value of a recognised asset or liability or an unrecognised firm commit- ment, or (ii) a Cash Flow Hedge of the change in cashflows to be received or paid relating to a recognised asset or liability or a highly probable transaction. A change in the fair value of derivatives designated as a Fair Value Hedge is reflected together with the change in the fair value of the hedged item in the statement of income. A change in the fair value of derivatives designated as a Cash Flow Hedge is initially recognised as a cash flow hedge reserve in shareholders’ equity. The deferred amount is then released to the statement of income in the same periods during which the hedged transaction affects the statement of income. Hedge ineffectiveness is recorded in the statement of income when it occurs. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumula- tive gain or loss existing in equity at that time remains in share- holders’ equity and is recognised in the statement of income when the committed or forecast transaction is ultimately rec- ognised in the statement of income. However, if a forecast or committed transaction is no longer expected to occur, the cumulative gain or loss that was recognised in equity is immedi- ately transferred to the statement of income. A derivative may be embedded in a “host contract”. Such com- binations are known as hybrid instruments and at the date of issuance, the embedded derivative is separated from the host contract and accounted for as a stand alone derivative if the criteria for separation are met. The host contract is accounted for in accordance with its relevant accounting policy. critical accounting policies, key judgments and estimates The preparation of the consolidated financial statements re- quires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on his- torical experience and other factors that are considered to be relevant. Actual outcomes could differ from those estimates. Glencore has identified the following areas as being critical to understanding Glencore’s financial position as they require management to make complex and/or subjective judgments and estimates about matters that are inherently uncertain: Valuation of derivative instruments (Note 26) Derivative instruments are carried at fair value and Glencore evaluates the quality and reliability of the assumptions and data used to measure fair value in the three hierarchy levels, Level 1, 2 and 3, as prescribed by IFRS 7. Fair values are determined in the following ways: externally verified via comparison to quoted market prices in active markets (Level 1); by using models with externally verifiable inputs (Level 2); or by using alternative pro- cedures such as comparison to comparable instruments and/ or using models with unobservable market inputs requiring Glencore to make market based assumptions (Level 3). Depreciation and amortisation of mineral and petroleum rights, project development costs and plant and equipment (Note 7) Mineral and petroleum rights, project development costs and certain plant and equipment are depreciated/amortised using UOP. The calculation of the UOP rate of depreciation/amortisa- tion, and therefore the annual charge to operations, can fluctu- ate from initial estimates. This could generally result when there are significant changes in any of the factors or assumptions used in estimating mineral or petroleum reserves, notably changes in the geology of the reserves and assumptions used in determin- ing the economic feasibility of the reserves. Such changes in reserves could similarly impact the useful lives of assets depre- ciated on a straight line basis, where those lives are limited to the life of the project, which in turn is limited to the life of the proven and probable mineral or petroleum reserves. Estimates of proven and probable reserves are prepared by experts in extraction, geology and reserve determination. Assessments of UOP rates against the estimated reserve and resource base and the operating and development plan are performed regularly. Impairments (Notes 5, 7, 8 and 9) Investments in Associates and other investments, advances and loans and property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable or at least annually for goodwill and other indefi- nite life intangible assets. If an asset’s recoverable amount is less than the asset’s carrying amount, an impairment loss is rec- ognised. Future cash flow estimates which are used to calculate the asset’s fair value are based on expectations about future operations primarily comprising estimates about production and sales volumes, commodity prices, reserves and resourc- es, operating, rehabilitation and restoration costs and capital expenditures. Changes in such estimates could impact recover- able values of these assets. Estimates are reviewed regularly by management. Provisions (Note 21) The amount recognised as a provision, including tax, legal, res- toration and rehabilitation, contractual and other exposures or obligations, is the best estimate of the consideration required to settle the related liability, including any related interest charges, taking into account the risks and uncertainties sur- rounding the obligation. The Group assesses its liabilities and contingencies based upon the best information available, rel- evant tax laws and other appropriate requirements. | Annual Report 2012 | 121 | Annual Report 2010 | 121 Financial StatementS Restoration, rehabilitation and decommissioning costs (Note 21) A provision for future restoration, rehabilitation and decommis- sioning costs requires estimates and assumptions to be made around the relevant regulatory framework, the magnitude of the possible disturbance and the timing, extent and costs of the required closure and rehabilitation activities. To the extent that the actual future costs differ from these estimates, adjust- ments will be recorded and the statement of income could be impacted. The provisions including the estimates and assump- tions contained therein are reviewed regularly by management. Recognition of deferred tax assets (Note 6) Deferred tax assets are recognised only to the extent it is con- sidered probable that those assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse, and a judgement as to whether or not there will be sufficient taxable income available to offset the tax assets when they do reverse. These judgements are subject to risk and uncertainty and hence, to the extent assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognised in income in the pe- riod in which the change occurs. The recoverability of deferred tax assets including the estimates and assumptions contained therein are reviewed regularly by management. Fair value measurements (Notes 9, 11, 18, 24, 25 and 26) In addition to recognising derivative instruments at fair value, as discussed above, an assessment of fair value of assets and liabilities is also required in accounting for other transactions, most notably, business combinations and disclosures related to fair values of marketing inventories, financial assets and liabili- ties. In such instances, fair value measurements are estimated based on the amounts for which the assets and liabilities could be exchanged at the relevant transaction date or reporting period end, and are therefore not necessarily reflective of the likely cashflow upon actual settlements. Where fair value measurements cannot be derived from publicly available infor- mation, they are estimated using models and other valuation methods. To the extent possible, the assumptions and inputs used take into account externally verifiable inputs. However, such information is by nature subject to uncertainty, particularly where comparable market based transactions rarely exist. 122 | Annual Report 2012 | 122 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 2. seGment infoRmAtion Glencore is organised and operates on a worldwide basis in three core business segments – metals and minerals, energy products and agricultural products, with each business segment responsible for the marketing, sourcing, hedging, logistics and industrial investment activities of their respective products and reflecting the structure used by Glencore’s management to assess the performance of Glencore. The business segments’ contributions to the Group are primarily derived from the net margin or premium earned from physical marketing activities (net sale and purchase of physical commodities), provision of marketing and related value-add services and the margin earned from industrial asset activities (net resulting from the sale of physical commodities over the cost of production and/or cost of sales) and comprise the following underlying key commodities: • Metals and minerals: Zinc, copper, lead, alumina, aluminium, ferro alloys, nickel, cobalt and iron ore, including smelting, refining, mining, processing and storage related operations of the relevant commodities; • Energy products: Crude oil, oil products, steam coal and metallurgical coal supported by investments in coal mining and oil production operations, ports, vessels and storage facilities; • Agriculture products: Wheat, corn, canola, barley, rice, oil seeds, meals, edible oils, biofuels, cotton and sugar supported by investments in farming, storage, handling, processing and port facilities. Corporate and other: statement of income amounts represent Glencore’s share of income related to Xstrata and other unallocated Group related expenses (including variable pool bonus accrual). Statement of financial position amounts represent Group related balances. The financial performance of the segments is principally evaluated with reference to Adjusted EBIT/EBITDA which is the net result of revenue less cost of goods sold and selling and administrative expenses plus share of income from associates and jointly con- trolled entities and dividend income as disclosed on the face of the consolidated statement of income. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. Glencore accounts for inter-segment sales and transfers where applicable as if the sales or transfers were to third parties, i.e. at arm’s length commercial terms. | Annual Report 2012 | 123 | Annual Report 2010 | 123 Financial StatementS 2012 US $ million Metals and minerals Energy products Agricultural products Corporate and other Total Revenue from third parties 56 674 136 937 20 825 0 214 436 marketing activities Adjusted EBIT Depreciation and amortisation adjusted eBitDa industrial activities Adjusted EBIT Depreciation and amortisation adjusted eBitDa total adjusted eBitDa Depreciation and amortisation total adjusted eBit Significant items ¹ Other expense – net ² Share of Associates’ exceptional items ³ Mark to market loss on certain natural gas contracts 4 Unrealised intergroup profit elimination adjustments 5 Interest expense – net Loss on sale of investments Income tax credit income for the year 1 363 16 1 379 708 917 1 625 3 004 – 933 2 071 435 59 494 594 389 983 1 477 – 448 1 029 371 23 394 – 10 69 59 453 – 92 361 – 39 0 – 39 1 048 0 1 048 1 009 0 1 009 2 130 98 2 228 2 340 1 375 3 715 5 943 – 1 473 4 470 – 1 214 – 875 – 123 – 84 – 970 – 128 76 1 152 ¹ Significant items of income and expense which, due to their financial impacts, nature or the expected infrequency of the events giving rise to them, have been separated for internal reporting and analysis of Glencore’s results. ² See note 4. ³ Share of Associates’ exceptional items comprise Glencore’s share of exceptional charges booked directly by Xstrata relating mainly to various impairment charges including that associated with its platinum investments and operations in South Africa and nickel operations in Australia which were impacted by the challenging market environments and costs incurred by Xstrata in connection with the proposed merger with Glencore (see note 28). 4 Represents movements in fair value of certain fixed price forward natural gas purchase contracts entered into to hedge the price risk of this cost exposure in our alumina production activities. These contracts were initially concluded in 2008 with mark to market movements accounted for in equity (cash flow hedge reserves). Consistent with Glencore’s current policy not to hedge future operating expenditures there are no such contracts covering periods beyond 2012. 5 Represents the required adjustment to eliminate unrealised profit or losses arising on intergroup transactions. For Glencore, such adjustments arise on the sale of product, in the ordinary course of business, from its Industrial operations to its Marketing arm and management assesses segment performance prior to any such adjustments, as if the sales were to third parties. 124 | Annual Report 2012 | 124 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 2012 US $ million Current assets Current liabilities allocatable current capital employed Property, plant and equipment Intangible assets Investments in Associates and other investments Non current advances and loans allocatable non current capital employed Other assets 1 Other liabilities 2 total net assets Metals and minerals Energy products Agricultural products Corporate and other 20 024 – 9 500 10 524 14 134 180 2 881 921 18 116 18 256 – 13 941 4 315 5 347 1 098 799 2 688 9 932 9 520 – 3 746 5 774 3 757 1 386 461 149 5 753 28 640 14 247 11 527 649 – 137 512 0 0 16 215 0 16 215 7 072 – 43 913 – 20 114 Total 48 449 – 27 324 21 125 23 238 2 664 20 356 3 758 50 016 7 072 – 43 913 34 300 Additions to non current assets 5 761 3 311 4 262 0 13 334 1 Other assets include deferred tax assets, marketable securities, cash and cash equivalents and assets held for sale. 2 Other liabilities include borrowings, non current deferred income, deferred tax liabilities, non current provisions, Viterra asset acquirer loans and liabilities held for sale. 2011 US $ million Metals and minerals Energy products Agricultural products Corporate and other Total Revenue from third parties 51 984 117 065 17 103 0 186 152 marketing activities Adjusted EBIT Depreciation and amortisation adjusted eBitDa industrial activities Adjusted EBIT Depreciation and amortisation adjusted eBitDa total adjusted eBitDa Depreciation and amortisation total adjusted eBit Significant items ¹ Other expense – net ² Share of Associates’ exceptional items ³ Interest expense – net Gain on sale of investments Income tax credit income for the year 1 242 5 1 247 1 357 765 2 122 3 369 – 770 2 599 697 27 724 375 196 571 1 295 – 223 1 072 – 8 0 – 8 – 39 62 23 15 – 62 – 47 – 20 11 – 9 1 794 0 1 794 1 785 – 11 1 774 1 911 43 1 954 3 487 1 023 4 510 6 464 – 1 066 5 398 – 511 – 45 – 847 9 264 4 268 ¹ Significant items of income and expense which, due to their financial impacts, nature or the expected infrequency of the events giving rise to them, have been separated for internal reporting and analysis of Glencore’s results. ² See note 4. ³ Share of Associates’ exceptional items comprise Glencore’s share of exceptional charges booked directly by Xstrata ($ 25 million) and Century ($ 20 million). | Annual Report 2012 | 125 | Annual Report 2010 | 125 Financial StatementS 2011 US $ million Current assets Current liabilities allocatable current capital employed Property, plant and equipment Intangible assets Investments in Associates and other investments Non current advances and loans allocatable non current capital employed Other assets 1 Other liabilities 2 total net assets Metals and minerals Energy products Agricultural products Corporate and other 18 506 – 7 676 10 830 9 367 169 2 950 1 280 13 766 17 605 – 11 312 6 293 4 210 29 1 060 2 723 8 022 5 110 – 1 589 3 521 1 062 12 206 138 1 418 24 596 14 315 4 939 3 165 – 2 675  490 0 0 16 189 0 16 189 2 384 – 30 578 – 11 515 Total 44 386 – 23 252 21 134 14 639 210 20 405 4 141 39 395 2 384 – 30 578 32 335 Additions to non current assets 1 508 1 921 406 0 3 835 1 Other assets include deferred tax assets, marketable securities and cash and cash equivalents. 2 Other liabilities include borrowings, non current deferred income, deferred tax liabilities and non current provisions. Geographical information US $ million Revenue from third parties 1 The Americas Europe Asia Africa Oceania non current assets 2 The Americas Europe Asia Africa Oceania 2012 2011 42 295 108 904 44 274 16 910 2 053 45 836 70 323 47 759 20 538 1 696 214 436 186 152 6 918 17 707 5 652 11 255 3 137 44 669 4 535 17 293 5 838 4 555 1 486 33 707 1 Revenue by geographical destination is based on the country of incorporation of the sales counterparty however this may not necessarily be the country of the counterpart’s ultimate parent and/or final destination of product. ² Non current assets are non current operating assets other than other investments, advances and loans, and deferred tax assets. 3. (loss)/GAin on sAle of investments – net US $ million Loss on sale on investment in associates – net Gain on sale of subsidiaries – net total 2012 – 133 5 – 128 2011 – 10 19 9 The net loss on sale of investments in 2012 comprised primarily an accounting dilution loss of $ 121 million following Xstrata’s share issuance in March 2012, which saw Glencore’s effective ownership reduce from 34.5% to 34.2%. 126 | Annual Report 2012 | 126 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 4. otHeR expense – net US $ million Changes in mark to market valuations on investments held for trading – net Changes in mark to market valuation of certain coal forward contracts ¹ Changes in mark to market valuation of certain foreign currency forward contracts Revaluation of previously held interest in newly acquired businesses Acquisition related expenses Impairments Phantom equity awards granted on Listing Listing related expenses Foreign exchange loss Other ² total Notes 2012 5 18 2 179 65 497 – 120 – 1 650 – 109 0 – 4 – 74 – 1 214 2011 – 92 25 0 0 – 2 – 32 – 58 – 286 – 5 – 61 – 511 ¹ This item, if classified by function of expense would be recognised in cost of goods sold. All other amounts in Other expense – net are classified by function. ² Includes $ 7 million loss on disposal of property, plant and equipment (2011: $ nil million). Together with foreign exchange gains /(losses) and mark to market movements on investments held for trading, other expense – net includes other significant items of income and expense which due to their non operational nature or expected infrequency of the events giving rise to them are reported separately from operating segment results. Other expense – net includes, but is not limited to, impairment charges, revaluation of previously held interests in business combinations, restructuring and closure costs. changes in mark to market valuation of certain coal forward contracts Represents movements in fair value of certain fixed price forward coal sales contracts relating to Prodeco Group’s (Prodeco) future production, into which it plans to physically deliver. Following the legal reacquisition of Prodeco in March 2010, from an accounting perspective, these forward sales contracts could not technically be classified as ‘own use’ or as cashflow hedges, which would have deferred the income statement effect until performance of the underlying future sale transactions. As at year end, approximately 4.6 million tonnes (2011: 8.4 million tonnes) of such coal had been sold forward at a fixed price in respect of quarterly periods to the end of 2013. changes in mark to market valuation of certain foreign currency forward contracts Represents the realised gain on the settlement of CAD 2.7 billion forward foreign currency purchase contracts entered into to partially hedge foreign currency price risk associated with the Viterra transaction (see note 24). Revaluation of previously held interest in newly acquired businesses In March 2012, Glencore purchased an additional 31.8% interest in Optimum Coal Holdings Limited (“Optimum”) and in April 2012, acquired an additional 20% interest in Mutanda Group (Mutanda) (see note 24). At the date of the acquisitions, the previously held interests were revalued to their fair value and as a result, a $ 20 million loss and $ 517 million gain, respectively, were recognised. acquisition related expenses Professional advisor and other costs relating mainly to the Viterra (see note 24) and Xstrata (see note 28) transactions. listing related expenses Expenses incurred in connection with the Listing including the Restructuring and/or change in the employee shareholder profit attribution model, rather than the costs incurred solely in relation to the issuance of the new (primary) equity (see note 15), compris- ing $ 91 million of stamp duty costs, $ 42 million of professional advisors’ costs and $ 153 million of compensation related costs. | Annual Report 2012 | 127 | Annual Report 2010 | 127 Financial StatementS 5. impAiRments US $ million Available for sale instruments previously recognised in other comprehensive income Non current loans Property, plant and equipment Non current inventory and other ¹ total impairments ² Notes 2012 10 – 1 181 – 213 – 210 – 46 – 1 650 2011 0 0 – 6 – 26 – 32 ¹ These items, if classified by function of expense would be recognised in cost of goods sold. ² The impairment charges incurred during the year are allocated to the operating segments as follows: Metals and minerals $  1,337 (2011: $ 32 million), Energy products $ 248 million (2011: $ nil million) and Agricultural products $ 65 million (2011: $ nil million). available for sale instruments Glencore accounts for its interest in United Company Rusal plc (“UC Rusal”) as an available for sale investment at fair value with mark to market movements recognised in other comprehensive income (“OCI”). IAS 39 requires an entity to assess whether the cumulative loss recognised in OCI is of a significant and prolonged nature and if so, it shall be reclassified from OCI to the state- ment of income. As a result of the continuing challenging macro economic environment impacting the global aluminium market, UC Rusal’s share price has remained below Glencore’s acquisition fair value for what has now been determined to be of a pro- longed nature and therefore, as at 31 December 2012, $ 1.2 billion of previously recognised negative fair value adjustments have been reclassified from OCI to the statement of income. This reclassification had no impact on the balance sheet value which con- tinues to be carried at fair value (see note 9). Property, plant and equipment During the regular assessment of whether there is an indication of an asset impairment or whether a previously recorded impair- ment may no longer be required (as part of our regular portfolio review), the continuing challenging European biodiesel margin environment, the change in legal status of certain of our operations, particularly in Bolivia, and evaluation of below expectation exploration programs, resulted in impairment charges (none of which were individually material) of $ 110 million, $ 35 million and $ 65 million being recognised in our Metals and minerals, Energy and Agricultural products segments respectively. The recover- able amounts, where applicable, of the underlying assets were determined based on the fair value less costs to sell using dis- counted cash flow techniques. 6. inCome tAxes Income taxes consist of the following: US $ million Current income tax expense Deferred income tax credit total tax credit 2012 – 295 371 76 2011 – 417 681 264 128 | Annual Report 2012 | 128 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN The effective Group tax rate is different from the statutory Swiss income tax rate applicable to the Company for the following reasons: US $ million 2012 2011 income before income tax and attribution Less: Share of income from associates Parent company’s and subsidiaries’ income before income tax and attribution Income tax expense calculated a the Swiss income tax rate Effect of different tax rates from the standard Swiss income tax rate Tax exempt income, net of non-deductible expenses and other permanent differences Tax implications of restructuring, including deductions/losses triggered¹ Effect of available tax losses not recognised, and other changes in the valuation of deferred tax assets Effect of change in tax rate on deferred tax balances Other income credit 1 076 – 367 709 – 106 – 233 – 50 544 – 76 – 4 1 76 4 004 – 1 972 2 032 – 312 – 102 14 687 – 19 – 2 – 2 264 ¹ The 2012 credit amounting to $ 544 million resulted primarily from recognition of crystallised tax benefits (resulting in losses carried forward), following an internal reorganisation of our existing ownership interest in Xstrata. All of the resulting tax losses have been brought to account as a deferred tax asset. The 2011 tax benefit of $ 687 million resulted from income tax deductions and losses arising in Switzerland and other countries following settlement of various profit participation plans. $ 305 million (2011: $ 381 million) of deferred tax assets related to future deductible amounts and tax losses from the settlement have not been brought to account. The tax credit/(expense) relating to components of other comprehensive income/(loss) and share premium is as follows: US $ million Cash flow hedges ¹ Listing related expenses ² income tax relating to components of other comprehensive loss and share premium ¹ Recognised in other comprehensive income. ² Recognised in share premium. 2012 2011 0 0 0 – 2 21 19 | Annual Report 2012 | 129 | Annual Report 2010 | 129 Financial StatementS Deferred taxes as at 31 December 2012 and 2011, are attributable to the items detailed in the table below: US $ million Deferred tax assets 1 Tax losses carried forward Mark to market valuations Other total Deferred tax liabilities 1 Depreciation and amortisation Mark to market valuations Other total Deferred tax – net Reconciliation of deferred tax – net Opening balance Recognised in income for the year Recognised in other comprehensive loss and share premium Business combination Disposal of subsidiaries Other closing balance Notes 2012 2011 1 345 27 90 1 462 – 2 606 – 29 – 320 – 2 955 – 1 493 – 360 371 0 – 1 571 7 60 892 12 135 1 039 – 1 217 – 19 – 163 – 1 399 – 360 – 939 681 19 – 121 0 0 – 1 493 – 360 24 24 1 Asset and liability positions in the same category reflect the impact of tax assets and liabilities arising in local tax jurisdictions that cannot be offset against tax assets and liabilities arising in other tax jurisdictions. Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable. As at 31 December 2012, $ 1,816 million (2011: $ 1,445 million) of deferred tax assets related to available loss carry forwards have been brought to account, of which $ 1,345 million (2011: $ 892 million) are disclosed as deferred tax assets with the remaining balance being offset against deferred tax liabilities arising in the same respective entity. $  1,373  million (2011: $  889  million ($  861  million relating to tax losses and $  28  million relating to temporary differences)) of net deferred tax assets arise in entities that have been loss making for tax purposes in 2012 and/or 2011. In evaluating whether it is prob- able that taxable profits will be earned in future accounting periods, all available evidence was considered, including approved budgets, forecasts and business plans and, in certain cases, analysis of historical operating results. These forecasts are consistent with those prepared and used internally for business planning and impairment testing purposes. Following this evaluation, it was determined there would be sufficient taxable income generated to realise the benefit of the deferred tax assets. 130 | Annual Report 2012 | 130 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Available gross tax losses carried forward and deductible temporary differences, for which no deferred tax assets have been rec- ognised in the consolidated financial statements are detailed below and will expire as follows: US $ million 1 year 2 years 3 years Thereafter Unlimited total 2012 2011 114 165 253 1 786 590 2 908 11 28 127 956 978 2 100 As at 31 December 2012, unremitted earnings of $ 19,952 million (2011: $ 18,573 million) have been retained by subsidiaries and associates for reinvestment. No provision is made for income taxes that would be payable upon the distribution of such earnings. 7. pRopeRty, plAnt And eqUipment US $ million Gross carrying amount: 1 January 2012 Business combination Disposal of subsidiaries Additions Disposals Effect of foreign currency exchange movements Other movements 31 December 2012 accumulated depreciation and impairment: 1 January 2012 Depreciation Disposal of subsidiaries Disposals Impairments Effect of foreign currency exchange movements Other movements 31 December 2012 net book value 31 December 2012 Land and buildings Plant and equipment Mineral and petroleum rights Deferred mining costs Notes Total 24 24 24 5 1 521 12 045 953 0 92 – 21 – 5 69 3 429 – 301 2 054 – 200 – 65 2 4 617 3 284 – 7 866 0 – 92 6 2 609 16 964 8 674 323 87 0 – 10 0 0 – 3 397 2 212 2 997 1 087 – 29 – 74 151 – 4 – 98 4 030 12 934 770 233 0 1 59 – 5 119 1 177 7 497 675 18 858 48 0 89 0 0 – 69 743 129 31 0 – 19 0 0 7 148 595 7 714 – 308 3 101 – 221 – 162 8 28 990 4 219 1 438 – 29 – 102 210 – 9 25 5 752 23 238 | Annual Report 2012 | 131 | Annual Report 2010 | 131 Financial StatementS US $ million Gross carrying amount: 1 January 2011 Business combination Additions Disposals Other movements 31 December 2011 accumulated depreciation and impairment: 1 January 2011 Depreciation Disposals Impairments Other movements 31 December 2011 net book value 31 December 2011 Land and buildings Plant and equipment Mineral and petroleum rights Deferred mining costs Notes 24 5 1 281 108 36 – 17 113 9 187 591 2 411 – 431 287 1 521 12 045 239 36 – 6 7 47 323 1 198 2 556 710 – 263 15 – 21 2 997 9 048 4 484 76 416 0 – 359 4 617 548 260 2 0 – 40 770 3 847 542 0 148 – 2 – 13 675 63 56 0 10 0 129 546 Total 15 494 775 3 011 – 450 28 18 858 3 406 1 062 – 267 32 – 14 4 219 14 639 Plant and equipment includes expenditure for construction in progress of $ 2,294 million (2011: $ 1,389 million) and a net book value of  $ 281  million (2011:  $ 317  million) of obligations recognised under finance lease agreements. Mineral and petroleum rights include expenditures for exploration and evaluation of $ 277 million (2011: $ 306 million) and biological assets of $ 66 million (2011: $ 3 million). Depreciation expenses included in cost of goods sold are $ 1,421 million (2011: $ 1,049 million) and in selling and administrative expenses $ 17 million (2011: $ 13 million). During 2012, $ 37 million (2011: $ 44 million) of interest was capitalised within property, plant and equipment. With the exception of project specific borrowings, the rate used to determine the amount of borrowing costs eligible for capitalisation was 4% (2011: 4%). 8. intAnGible Assets US $ million cost: 1 January 2012 Business combination Addition Effect of foreign exchange differences 31 December 2012 accumulated amortisation and impairment: 1 January 2012 Amortisation expense ¹ 31 December 2012 Port allocation rights Notes Goodwill Other Total 24 0 1 182 21 – 102 1 101 0 16 16 169 1 251 0 0 1 420 0 0 0 45 104 33 0 182 4 19 23 159 214 2 537 54 – 102 2 703 4 35 39 2 664 net carrying amount 31 December 2012 1 085 1 420 ¹ Recognised in cost of goods sold. 132 | Annual Report 2012 | 132 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN US $ million Notes Goodwill Other Total cost: 1 January 2011 Business combination Reclassified from held for sale 31 December 2011 accumulated amortisation and impairment: 1 January 2011 Amortisation expense ¹ 31 December 2011 net carrying amount 31 December 2011 ¹ Recognised in cost of goods sold. 24 0 36 133 169 0 0 0 169 0 13 32 45 0 4 4 41 0 49 165 214 0 4 4 210 Port allocation rights Port allocation rights represent contractual entitlements to export certain amounts of coal on an annual basis from Richard Bay Coal Terminal in South Africa and have been recognised as part of the acquisitions of Optimum and Umcebo, see note 24. The rights are being amortised on a straight line basis over the estimated economic life of the port of 40 years. impairment testing of goodwill For the purpose of impairment testing, goodwill has been allocated to the CGUs, or groups of CGUs, that are expected to benefit from the synergies of the business combination and which represent the level at which management will monitor and manage the goodwill. Goodwill is tested annually for impairment for all CGUs containing goodwill with exception of goodwill acquired in a business combination in the current year which is tested at the date of acquisition, and when there is an indicator that the goodwill may be impaired. The carrying amount of goodwill has been allocated to cash generating units (CGUs), or groups of CGUs as follows: US $ million Grain marketing business Metals warehousing business Other total 2012 2011 1 251 133 36 1 420 0 133 36 169 Grain marketing business Goodwill of $ 1,251 million has been recognised as part of the acquisition of Viterra, see note 24. The goodwill is primarily related to the Viterra grain marketing and merchandising business and is substantively attributable to synergies which are expected to arise in conjunction with the grain marketing division’s increased geographic coverage and scale of activities. As at 31 Decem- ber 2012, the purchase price allocation, including the allocation of the goodwill to CGUs, has not been finalised, as the acquisition completed close to year end. Metals warehousing business Goodwill of $ 133 million relates to the Pacorini metals warehousing business and is attributable to synergies which arise in con- junction with the metals marketing division’s expected increased activities. In assessing whether goodwill has been impaired, the carrying amount of the cash generating unit was compared with its recoverable amount. The recoverable amount was determined by reference to the value in use which utilises pre-tax cash flow projections based on the approved financial budgets for 5 years which includes factors, such as inventory levels, volumes and operating costs (key assumptions are based on past experience and, where available, observable market data), discounted to present value at a rate of 10%. The cash flows beyond the 5 year period have been extrapolated using a declining growth rate of 10% per annum which is the projected long term reduction in average inventory levels for the warehousing business. Glencore believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the CGU to exceed the recoverable amount. | Annual Report 2012 | 133 | Annual Report 2010 | 133 Financial StatementS Other goodwill Goodwill held by other CGUs is $ 36 million (2011: $ 36 million), representing less than 1% of net assets at 31 December 2012 (2011: less than 1%). The goodwill has been allocated across a number of CGUs in the Energy products segment, with no CGU account- ing for more than $ 30 million of total goodwill. This goodwill has been tested for impairment and concluded to be recoverable. Other intangible assets Other intangible assets primarily consist of trademarks, licences, software and future warehousing fees. 9. investments in AssoCiAtes And otHeR investments A list of the principal operating, finance and industrial subsidiaries and Associates and other investments is included in note 32. US $ million Xstrata plc Other listed Associates listed associates Non listed Associates investments in associates 2012 2011 16 215 888 17 103 1 664 18 767 16 187 1 337 17 524 1 334 18 858 listed associates As at 31 December 2012, the fair value of listed Associates using published price quotations was $ 17,876 million (2011: $ 16,157 mil- lion). Following the recognition of Glencore’s share of impairments booked by its Associates, Glencore completed a detailed assessment of the recoverable amount of investments where indicators of impairment were identified and concluded that the recoverable value supports the carrying value of these investments and that no further impairment is required. During the year, Glencore acquired controlling interests in two companies which had been accounted for as Associates, Mutanda and Optimum. Refer to note 24 for further details. US $ million available for sale United Company Rusal (“UCR”) Fair value through profit and loss Volcan Compania Minera S.A.A. Nyrstar N.V. Century Aluminum Company cash settled equity swaps Jurong Aromatics Corporation Pte Ltd Blackthorn Resources Ltd Other Other investments 2012 2011 840 840 410 78 80 55 34 92 749 1 589 842 842 359 105 78 55 8 100 705 1 547 134 | Annual Report 2012 | 134 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Summarised financial information in respect of Glencore’s Associates, reflecting 100% of the underlying Associate’s relevant figures, are set out below. US $ million Current assets Non current assets Current liabilities Non current liabilities net assets Revenue Net profit 2012 2011 15 979 77 226 – 10 109 – 32 401 50 695 42 647 1 491 12 129 69 884 – 8 919 – 24 620 48 474 39 940 6 194 The amount of corporate guarantees in favour of joint venture entities as at 31 December 2012 was $ 22 million (2011: $ 50 million). Glencore’s share of joint venture entities’ capital commitments amounts to $ 34 million (2011: $ 301 million). 10. AdvAnCes And loAns US $ million Loans to Associates Other non current receivables and loans total 2012 2011 347 3 411 3 758 840 3 301 4 141 Loans to Associates generally bear interest at applicable floating market rates plus a premium. The decrease in loans to Associ- ates during the year is due to the acquisition of Mutanda (see note 24) which, at the time of acquisition, had outstanding loans to Glencore of $ 698 million (2011: $ 653 million). Other non current receivables and loans comprise the following: US $ million counterparty OAO Russneft Interest bearing loan at 7.75% per annum (see note below) Atlas Petroleum International Limited (“Atlas”) Interest bearing loans at LIBOR plus 3% 1 Secured marketing related financing arrangements 2 PT Bakrie & Brothers Tbk Interest bearing secured loans at LIBOR plus 9% Funds deposited in respect of rehabilitation and restoration obligations Other total 2012 2011 2 080 2 211 0 549 200 248 334 246 451 80 74 239 3 411 3 301 1 Primarily relates to carried interest loans associated with the development of the Aseng oil project in Equatorial Guinea, where Atlas is one of the equity partners. The operator of the field and project is Noble Energy, based in Houston. The Aseng project commenced oil production in Q4 2011, and loans are being repaid from oil proceeds. 2 Various marketing related financing facilities, generally secured against certain assets and/or payable from the future sale of production of the counterparty. The weighted average interest rate of the loans is 10% and on average are to be repaid over a 3 year period. | Annual Report 2012 | 135 | Annual Report 2010 | 135 Financial StatementS Russneft loans In November 2012, as part of a comprehensive agreement between OAO Russneft (“Russneft”), Glencore and Russneft’s other major creditor, Sberbank, Glencore agreed to amend the terms of its $ 2,080 million, 9% per annum loan. The revised terms lower the interest rate to 7.75% interest per annum and extend the expected maturity of the loan from 2020 to 2024. In exchange for this amendment, Glencore will receive additional annual payments of $ 50 million until substantial repayments of the loan will then commence, once Russneft’s debt reduces to certain thresholds and/or existing debt is refinanced. The loan is accounted for at amortised cost using the effective rate method with an effective interest rate of 8.4%. The new carrying amount of the loan was required to be recalculated as the present value of the estimated future cash flows under the revised terms using the loan’s original effective interest rate. In estimating the expected cash flows to be received over the life of the loan, a comprehensive cash flow forecast was prepared utilising Russneft’s current budget and strategic plan and an economic analysis of Russneft’s oil fields prepared by an independent petroleum engineering firm. The difference between the recalculated carrying value of $ 2,093 million and the pre-amendment carrying value of $ 2,306 million resulted in an income state- ment charge of $ 213 million (see note 5). 11. inventoRies US $ million Production inventories Marketing inventories total 2012 2011 3 153 17 529 20 682 3 150 13 979 17 129 Production inventories consist of materials, spare parts and work in process. Marketing inventories are saleable commodities held primarily by the marketing entities as well as finished goods and certain other readily saleable materials held by the industrial assets. Marketing inventories of $ 16,027 million (2011: $ 13,785 million) are carried at fair value less costs to sell. Glencore has a number of dedicated financing facilities, which finance a portion of its marketing inventories. In each case, the inventory has not been derecognised as the Group retains the principal risks and rewards of ownership. The proceeds received are recognised as current borrowings (see note 19). As at 31 December 2012, the total amount of inventory secured under such facilities was $ 2,946 million (2011: $ 1,834 million). The proceeds received and recognised as current borrowings were $ 2,248 mil- lion (2011: $ 1,670 million). 12. ACCoUnts ReCeivAble US $ million Trade receivables 1 Trade advances and deposits 1 Associated companies 1 Other receivables total 1 Collectively referred to as receivables presented net of allowance for doubtful debts. The average credit period on sales of goods is 29 days (2011: 28 days). 2012 2011 18 386 3 270 1 031 2 195 24 882 15 903 3 022 643 2 327 21 895 136 | Annual Report 2012 | 136 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN As at 31 December 2012, 8% (2011: 8%) of receivables were between 1– 60 days overdue, and 5% (2011: 3%) were greater than 60 days overdue. Such receivables, although contractually past their due dates, are not considered impaired as there has not been a significant change in credit quality of the relevant counterparty, and the amounts are still considered recoverable taking into account customary payment patterns and in many cases, offsetting accounts payable balances. The movement in allowance for doubtful accounts is detailed in the table below: US $ million Opening balance Released during the year Charged during the year Utilised during the year closing balance 2012 2011 129 – 7 112 – 22 212 155 – 28 43 – 41 129 Glencore has a number of dedicated financing facilities, which finance a portion of its receivables. In each case, the receivables have not been derecognised, as the Group retains the principal risks and rewards of ownership. The proceeds received are recognised as current borrowings (see note 19). As at 31 December 2012, the total amount of trade receivables secured was $ 4,398 million (2011: $ 2,934 million) and proceeds received and classified as current borrowings amounted to $ 3,146 million (2011: $ 2,265 million). 13. CAsH And CAsH eqUivAlents US $ million Bank and cash on hand Deposits and treasury bills total 2012 2011 2 496 286 2 782 981 324 1 305 As at 31 December 2012, $ 4 million (2011: $ 80 million) was restricted. As at 31 December 2011, $ 47 million was placed in escrow for the acquisition of Rosh Pinah (see note 24). 14. Assets And liAbilities Held foR sAle As part of Glencore’s acquisition of Viterra, Glencore entered into agreements with Agrium Inc (“Agrium”) and Richardson Inter- national Limited (“Richardson”) which provide for the ’back-to-back’ sale of certain operations of Viterra. Upon closing, Agrium and Richardson advanced the agreed consideration for these operations amounting to CAD 1,775 million ($ 1,781 million) and CAD 796  million ($  799  million) respectively (the “Asset Acquirer Loans”). Upon future closing of these divestitures, the relevant net assets will be transferred to Agrium and Richardson in satisfaction of the Asset Acquirer Loans advanced. See note 24. As a result of these agreed disposals, the corresponding assets of $ 2,790 million and liabilities of $ 747 million as at 31 Decem- ber 2012 have been classified as held for sale. | Annual Report 2012 | 137 | Annual Report 2010 | 137 Financial StatementS 15. sHARe CApitAl And ReseRves Number of shares (thousand) Share capital (US $ million) Share premium (US $ million) authorised: 31 December 2012 Ordinary shares with a par value of $ 0.01 each 50 000 000 issued and fully paid up: 1 January 2011 – Ordinary shares Ordinary shares issued in exchange for HPPS and PPS profit participation obligations Ordinary shares issued in exchange for LTS and LTPPS profit participation obligations Ordinary shares issued at Listing (“primary issuance”) Share issue costs associated with the primary issuance Tax on Listing related expenses Dividends paid 31 December 2011 – Ordinary shares Ordinary shares issued on acquisition of an 18.91% interest in Kazzinc Dividends paid 31 December 2012 – Ordinary shares 3 716 495 1 617 268 666 237 922 714 – – – 6 922 714 176 742 – 7 099 456 – 37 16 7 9 – – – 69 2 – 71 – 0 13 821 5 694 7 887 – 280 21 – 346 26 797 957 – 1 066 26 688 Restructuring Prior to the Listing, Glencore’s articles of incorporation authorised the issuance of non voting profit participation certificates (“PPC”) with no nominal value to its employees enabling them to participate in four profit sharing arrangements: Hybrid Profit Participation Shareholders (HPPS), Ordinary Profit Participation Shareholders (PPS), Glencore L.T.E. Profit Participation Sharehold- ers (LTS) and Long Term Profit Participation Shareholders (LTPPS). The profit sharing arrangements entitled the employees to a portion of Glencore shareholders’ funds accumulated during the period that such employees held the PPCs. The PPCs attributed Glencore International AG’s consolidated net income pro rata based on the 150,000 Class B shares issued as at 31 December 2010. Immediately prior to the Listing, Glencore implemented a Restructuring whereby amounts owing to the then shareholder employ- ees under the various active profit participation plans were settled in exchange for new ordinary shares and the ultimate ownership interests in Glencore International AG were assumed via Glencore International plc. The accounting outcome of these transactions is outlined below: Settlement of the profit participation plans The accounting for the settlement of the four profit participation plans was similar, whereby the outstanding balances under each plan prior to Listing were exchanged for an equivalent number of ordinary shares at the Listing price of 530 pence ($ 8.56) per share. The difference between the nominal and fair value of the new ordinary shares issued was recognised as a share premium. listing On 24 May 2011, Glencore International plc issued 922,713,511 ordinary shares which comprised 891,463,511 shares to institutional investors (the “International Offer”) at a price of 530 pence ($ 8.56) per share on the London Stock Exchange, and 31,250,000 shares to professional and retail investors in Hong Kong (the “Hong Kong Offer”) at a price of HK$ 66.53 ($ 8.56) per ordinary share. The gross proceeds raised were $ 7,896 million and total transaction (Restructuring and Listing) and related expenses incurred were  $ 566  million.  $ 280  million of the transaction costs were attributable to the issue of new (primary) equity and have been deducted against share premium while  $ 286  million were attributable to stamp duty and other expenses associated with the above noted Restructuring as well as an allocation of transaction costs that jointly related to the issuing of the new (primary) equity and the listing of the Company and as such have been charged to income during the year (see note 4). Joint transaction costs were allocated based on the ratio of new shares issued, in relation to total shares outstanding. Ordinary shares issued on acquisition of an 18.91% interest in Kazzinc In October 2012, Glencore completed the acquisition of an additional 18.91% interest in Kazzinc from Verny Investments, for a cash consideration of $ 400 million and the issue of 176,742,520 new ordinary shares of the Company (closing transaction date value of $ 959 million), thereby increasing its ultimate ownership in Kazzinc to 69.61%. 138 | Annual Report 2012 | 138 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Acquiring an additional interest in a subsidiary is considered to be a transaction between owners rather than an acquisition of a business. Therefore, this was accounted for as an equity transaction with the resulting difference of $ 506 million between the change in the Kazzinc non-controlling interest and the consideration paid charged to equity as a reserve. Other reserves US $ million at 1 January 2011 Exchange gain on translation of foreign operations Loss on cash flow hedges, net of tax Loss on available for sale financial instruments Cash flow hedges transferred to the statement of income, net of tax Change in ownership interest in subsidiaries Transla- tion adjust- ment Equity portion of Con- vertible bonds Cash flow hedge reserve Net unre- alised gain/ (loss) Net ownership changes in subsidiaries Other reserves Total 1 – 53 0 0 0 0 89 – 263 0 0 0 0 0 0 – 17 0 6 0 25 0 0 – 1 206 0 0 – 134 10 – 272 0 0 0 0 – 98 – 232 0 0 0 0 0 – 53 – 17 – 1 206 6 – 98 10 – 1 640 89 – 274 – 1 181 – 232 10 – 1 640 at 31 December 2011 – 52 89 – 274 – 1 181 at 1 January 2012 Exchange loss on translation of foreign operations Loss on cash flow hedges, net of tax Cash flow hedges transferred to the statement of income, net of tax Change in ownership interest in subsidiaries Loss on available for sale financial instruments trans- ferred to the statement of income, net of tax Effect of foreign currency differences transferred to the statement of income at 31 December 2012 – 52 – 116 0 0 0 0 – 23 – 191 0 0 0 0 0 0 0 – 93 297 0 0 0 89 – 70 0 0 0 0 1 181 0 0 0 0 0 – 474 0 0 0 0 0 0 0 0 – 706 10 16. eARninGs peR sHARe US $ million Notes Profit attributable to equity holders for basic earnings per share Interest in respect of Convertible bonds ¹ Profit attributable to equity holders for diluted earnings per share 2012 1 004 0 1 004 Weighted average number of shares for the purposes of basic earnings per share (thousand) 6 961 936 5 657 794 effect of dilution: Equity settled share-based payments Convertible bonds ¹ 18 19 26 847 0 22 790 406 738 Weighted average number of shares for the purposes of diluted earnings per share (thousand) 6 988 783 6 087 322 Basic earnings per share (US $) Diluted earnings per share (US $) 0.14 0.14 0.72 0.69 ¹ In 2012, the convertible bonds have been anti-dilutive and therefore have been excluded from the diluted earnings per share calculation. | Annual Report 2012 | 139 | Annual Report 2010 | 139 – 116 – 93 297 – 474 1 181 – 23 – 868 2011 4 048 135 4 183 Financial StatementS 17. dividends US $ million Paid during the year: Final dividend for 2011 – $ 0.10 per ordinary share (2010 – $ nil per class B share) Interim dividend for 2012 – $ 0.054 per ordinary share (2011 – $ 0.05 per ordinary share) total Proposed final dividend for 2012 – $ 0.1035 per ordinary share (2011 – $ 0.10 per ordinary share) 2012 2011 692 374 1 066 735 0 346 346 692 The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Dividends declared in respect of the year ended 31 December 2012 will be paid on 7 June 2013. The 2012 interim dividend was paid on 13 September 2012. 18. sHARe-bAsed pAyments 2011 Phantom equity awards In April and May 2011 in connection with the Listing, 24,024,765 phantom equity awards were made to certain employees in lieu of interests in Glencore’s existing equity ownership schemes. At grant date, each phantom equity award is equivalent to one ordinary share of Glencore. The phantom equity awards vest on or before 31 December 2013, subject to the continued employ- ment of the award holder. Phantom equity awards may be satisfied, at Glencore’s option, in shares by the issue of new ordinary shares, by the transfer of ordinary shares held in treasury or by the transfer of ordinary shares purchased in the market or in cash (with a value equal to the market value of the award at vesting, including dividends paid between Listing and vesting). Glencore currently intends to settle these awards in shares. The aggregate number of ordinary shares underlying the awards was 24,024,765. The fair value of the awards at the issue date was $ 8.56 per award for an aggregate fair value of $ 206 million determined by refer- ence to the Listing price at the grant date. As at 31 December 2012, the number of shares underlying the awards was 20,141,592 (2011: 22,789,924). The total expense recognised in the period was $ 109 million (2011: $ 58 million). 2012 Deferred Bonus Plan Under the Glencore Deferred Bonus Plan (DBP), the payment of a portion of a participant’s annual bonus is deferred for a period of one to two years as an award of either ordinary shares (a ‘‘Bonus Share Award’’) or cash (a “Bonus Cash Award”). The awards are vested at grant date with no further service condition however they are subject to forfeiture for malus events. In May 2012, awards were made under Glencore’s annual bonus arrangements. Bonus Cash Awards amounted to $ 15 million and will be paid on 30 June 2013. Bonus Share Awards equivalent to 3,710,652 ordinary shares will be settled on either 30 June 2013 or 30 June 2014. The share price at the issue date of the Bonus Share Awards settling on 30 June 2013 was $ 4.82 per award for an aggregate fair value of $ 9 million and the share price at the issue date of the Bonus Share Awards settling on 30 June 2014 was $ 5.40 per award for an aggregate fair value of $ 11 million. The Bonus Share Awards may be satisfied, at Glencore’s option, in shares by the issue of new ordinary shares, by the transfer of ordinary shares held in treasury or by the transfer of ordinary shares purchased in the market or in cash, with a value equal to the market value of the award at settling, including dividends paid between award and settling. Glencore currently intends to settle these awards in shares. As at 31 December 2012, the number of shares underlying the awards was 3,442,057 (2011: nil). The associated expense was recorded in the statement of income as part of the regular accrual for performance bonuses. 2012 Performance share plan Under the Glencore Performance Share Plan (PSP), participants are awarded PSP awards which vest in annual tranches over a speci- fied period, subject to continued employment and forfeiture for malus events. At grant date, each PSP award is equivalent to one ordinary share of Glencore. In 2012, 3,262,938 awards were granted that will vest in three equal tranches on 30 June 2013, 30 June 2014 and 30 June 2015 respectively. The fair value of the awards (determined by reference to the market price of Glencore’s ordinary shares at grant date) was $ 5.40 per award for an aggregate fair value of $ 18 million. The PSP awards may be satisfied, at Glencore’s option, in shares by the issue of new ordinary shares, by the transfer of ordinary shares held in treasury or by the transfer of ordinary shares purchased in the market or in cash, with a value equal to the market value of the award at vesting, including dividends paid between award and vesting. Glencore currently intends to settle these awards in shares. As at 31 December 2012, the number of shares underlying the awards was 3,262,938 (2011: nil). The expense recognised in the period was $ 2 million (2011: $ nil million). 140 | Annual Report 2012 | 140 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 19. boRRowinGs US $ million non current borrowings 144A Notes Xstrata secured bank loans Convertible bonds Euro, Sterling and Swiss Franc bonds Perpetual notes Ordinary profit participation certificates Committed syndicated revolving credit facilities Viterra senior unsecured notes Finance lease obligations Other bank loans total non current borrowings current borrowings Committed secured inventory/receivables facilities Uncommitted secured inventory/receivables facilities U.S. commercial paper Xstrata secured bank loans Eurobonds Viterra acquisition financing facility Ordinary profit participation certificates Finance lease obligations Other bank loans 1 total current borrowings Notes 2012 2011 948 0 2 172 7 530 348 332 5 881 592 233 992 19 028 3 702 1 692 726 2 696 1 061 1 503 418 48 4 652 16 498 947 2 688 2 152 5 490 347 750 5 907 0 278 1 285 19 844 2 640 1 295 512 0 0 0 533 39 3 205 8 224 24 28 28 ¹ Comprises various uncommitted bilateral bank credit facilities and other financings. 144a notes $ 950 million 6% coupon Notes due April 2014. The Notes are recognised at amortised cost at an effective interest rate of 6.15% per annum. Xstrata secured bank loans In June 2011, Glencore refinanced the $ 2.8 billion facilities with 2 year $ 2.7 billion equivalent facilities. The facilities have been accounted for as secured bank loans which bear interest at a rate of U.S. $ LIBOR plus 95 basis points per annum. As at 31 Decem- ber 2012, shares representing $ 5,397 million (2011: $ 5,343 million) of the carrying value of Glencore’s investment in Xstrata were pledged as security. convertible bonds $ 2,300 million 5% coupon convertible bonds due December 2014. The bonds are convertible at the option of the investors into 417,491,096 ordinary shares of Glencore International plc. The bonds consist of a liability component and an equity component. The fair values of the liability component ($ 2,211  million) and the equity component ($ 89  million) were determined, using the residual method, at issuance of the bonds. The liability component is measured at amortised cost at an effective interest rate of 5.90% per annum. | Annual Report 2012 | 141 | Annual Report 2010 | 141 Financial StatementS euro, Sterling and Swiss Franc bonds The Group has issued bonds denominated in Euro, Sterling and Swiss Franc where upon issuance, the principal amounts and the future interest payments were swapped (using instruments which qualify as cash flow hedges) into their U.S. Dollar equivalent. The details of amounts issued and outstanding are as follows: US $ million Euro 850 million 5.250% coupon bonds Euro 750 million 7.125% coupon bonds Euro 1 250 million 5.250% coupon bonds Euro 1 250 million 4.125% coupon bonds eurobonds GBP 650 million 6.50% coupon bonds GBP 500 million 5.50% coupon bonds Sterling bonds CHF 825 million 3.625% coupon bonds CHF 450 million 2.625% coupon bonds Swiss Franc bonds total non current Maturity Initial US $ equivalent US $ fixed interest rate in % 2012 2011 Oct 2013 April 2015 March 2017 April 2018 Feb 2019 April 2022 April 2016 Dec 2018 – 1 200 1 708 1 667 4 575 1 266 800 2 066 828 492 1 320 7 961 1 078 1 078 – 6.86 6.07 4.46 6.58 5.50 4.87 4.33 6.60 0 982 1 648 1 626 4 256 1 045 837 1 882 903 489 1 392 7 530 1 061 1 061 1 045 944 1 623 0 3 612 996 0 996 882 0 882 5 490 0 0 Euro 850 million 5.250% coupon bonds Oct 2013 total current In April 2012, Glencore issued EUR 1,250 million ($ 1,667 million) 4.125% interest bearing bonds due April 2018 and GBP 300 million ($ 480 million) 5.5% interest bearing bonds due April 2022. In November 2012, Glencore issued a further GBP 200 million ($ 320 mil- lion) bonds under the same terms as the April issuance. In July 2012, Glencore issued CHF 450 million ($ 492 million) 2.625% interest bearing bonds due December 2018. Perpetual notes $ 350 million of 7.5% Perpetual bonds outstanding. The bonds are callable at par every quarter starting October 2015. Ordinary profit participation certificates Profit participation certificates bear interest at 6 month U.S. $ LIBOR, are repayable over 5 years (with final payments due in 2016) and in the event of certain triggering events, which include any breach of a financial covenant, would be subordinated to unsecured lenders. committed syndicated revolving credit facility In April 2012 Glencore signed new committed revolving credit facilities, which renewed existing revolving credit facilities. Funding terms are essentially unchanged in comparison to the previous facilities. The facilities comprise a $ 4,435 million 14 month revolving credit facility with a borrower’s 10 month term-out option and a 10 month extension option, that refinanced Glencore’s existing $ 3,535 million 364-day revolving credit facility. The facility has two tranches of $ 3,725 million and $ 710 million respectively. In addition, the maturity of $ 8,030 million of the existing $ 8,370 million 3-year revolving credit facility has been extended for a further year to May 2015. Viterra senior unsecured notes As part of the acquisition of Viterra, Glencore assumed $ 596 million senior unsecured notes, of which $ 400 million mature in August 2020 and CAD 200 million ($ 196 million) in February 2021. The notes bear interest at 6.19% and 7.45% respectively. 142 | Annual Report 2012 | 142 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN committed secured inventory/receivables facilities US $ million Maturity Borrowing base Interest 2012 Metals inventory/receivables facility Oct 2013 2 220 U.S. $ LIBOR + 120 bpa 2 220 Agricultural products inventory/receivables facility Oil receivables facilities total Nov 2013 Jun/Aug 2013 300 U.S. $ LIBOR + 130 bpa U.S. $ LIBOR/EURIBOR + 105 to 115 bpa 1 250 3 770 232 1 250 3 702 2011 1 700 – 940 2 640 U.S. commercial paper Glencore has in place a stand alone U.S. commercial paper program for $ 1,000 million rated A2 and P2 respectively by S&P’s and Moody’s rating agencies. The notes issued under this program carry interest at floating market rates and mature not more than 270 days from the date of issue. Viterra acquisition financing facility In June 2012, Glencore signed a $ 1.5 billion multi-currency committed one year credit facility with a one year term-out option at Glencore’s discretion. Funds drawn under the facility bear interest at U.S. $ LIBOR plus 200 basis points per annum. 20. defeRRed inCome US $ million 1 January 2011 Utilised in the year 31 December 2011 1 January 2012 Assumed in business combination Utilised in the year Effect of foreign currency exchange difference 31 December 2012 ¹ Notes Unfavourable contract Prepayment Total – – – – 688 – 72 – 62 554 190 – 8 182 182 0 – 19 0 163 190 – 8 182 182 688 – 91 – 62 717 24 ¹ Includes the current portion of $ 92 million in respect of the unfavourable contract and $ 24 million in respect of the prepayment. Unfavourable contract Upon acquisition of Optimum in March 2012 (see note 24), Glencore recognised a liability of $ 688 million related to an acquired contractual agreement to deliver 44 million tonnes of coal over a period ending 31 December 2018 at fixed prices lower than the prevailing market price for coal of equivalent quality. This amount will be released to revenue as the underlying tonnes of coal are delivered to the buyer over the life of the contract at the rate consistent with the implied forward price curve at the time of the acquisition. As at year end, approximately 39 million tonnes of coal remain to be delivered. Prepayment During 2006, Glencore entered into an agreement to deliver, depending on mine production, up to 4.75 million ounces per year of silver, a by-product from its mining operations, for a period of 15 years at a fixed price for which Glencore received a partial upfront payment of $ 285 million. The outstanding balance represents the remaining portion of the upfront payment. The upfront payment is released to revenue at a rate consistent with the implied forward price curve at the time of the transaction and the actual quanti- ties delivered. As at 31 December 2012, 17.9 million ounces (2011: 15 million ounces) have been delivered. | Annual Report 2012 | 143 | Annual Report 2010 | 143 Financial StatementS 21. pRovisions US $ million Notes 1 January 2011 Provision utilised in the year Accretion in the year Assumed in business combination 24 Additional provision in the year 31 December 2011 1 January 2012 Provision utilised in the year Accretion in the year Assumed in business combination 24 Additional provision in the year Effect of foreign currency exchange difference 31 December 2012 ³ Post retirement benefits ¹ Employee entitlement Rehabilita- tion costs Onerous contracts Demurrage and related claims Other ² Total 60 – 1 0 0 2 61 61 – 1 0 19 14 0 93 98 – 17 0 0 35 116 116 – 2 0 19 14 0 147 379 – 14 24 43 142 574 574 – 41 33 325 83 – 23 951 93 – 89 0 0 0 4 4 – 4 0 0 0 0 0 61 – 10 0 0 23 74 74 – 60 0 0 0 0 14 200 – 64 0 14 72 222 222 – 80 0 49 170 0 361 891 – 195 24 57 274 1 051 1 051 – 188 33 412 281 – 23 1 566 ¹ See note 22. 2 Other includes provisions in respect of mine concession obligations of  $ 54  million (2011:  $ 52  million), construction related contractual provi- sions of  $ 79  million (2011:  $ 27  million), export levies of  $  37  million (2011:  $  45  million) and deferred purchase consideration of  $ 8  million (2011: $ 33 million). ³ Includes $ nil million (2011: $ 4 million) in respect of onerous contracts, $ 14 million (2011: $ 74 million) in respect of demurrage and related claims and $ 48 million (2011: $ 20 million) in respect of other disclosed as current. employee entitlement The employee entitlement provision represents the value of governed employee entitlements due to employees upon their termination of employment. The associated expenditure will occur in a pattern consistent with when employees choose to exercise their entitlements. Rehabilitation costs Rehabilitation provision represents the accrued cost required to provide adequate restoration and rehabilitation upon the comple- tion of extraction activities. These amounts will be settled when rehabilitation is undertaken, generally at the end of a project’s life, which ranges from 2 to 50 years. 22. peRsonnel Costs And employee benefits Total personnel costs, which includes salaries, wages, social security, other personnel costs and share-based payments, incurred for the years ended December 31, 2012 and 2011, were $ 2,013 million and $ 1,723 million, respectively. Personnel costs related to consolidated industrial subsidiaries of $ 1,368 million (2011: $ 1,203 million) are included in cost of goods sold. Other personnel costs, including the 2012 deferred bonus and performance share plans, are included in selling and administrative expenses and the 2011 phantom equity awards are included in other expense. The Company and certain subsidiaries sponsor various pension schemes in accordance with local regulations and practices. Eligibility for participation in the various plans is either based on completion of a specified period of continuous service, or date of hire. The plans provide for certain employee and employer contributions, ranging from 5% to 16% of annual salaries, depending on the employee’s years of service. Among these schemes are defined contribution plans as well as defined benefit plans. The main locations with defined benefit plans are Switzerland, the UK, Canada and the US. Defined contribution plans Glencore’s contributions under these plans amounted to $ 28 million in 2012 and $ 21 million in 2011. 144 | Annual Report 2012 | 144 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Defined benefit plans The amounts recognised in the statement of income are as follows: US $ million Current service cost Interest cost Expected return on plan assets Net actuarial losses recognised in the year Past service cost Exchange differences total The actual return on plan assets amounted to a gain of $ 40 million (2011: gain of $ 4 million). The amounts recognised in the statement of financial position are determined as follows: US $ million Present value of defined benefit obligations Less: fair value of plan assets Unrecognised actuarial losses Restrictions of assets recognised liability in the statement of financial position Notes 21 Movement in the present value of the defined benefit obligation is as follows: 2012 2011 24 22 – 15 15 5 1 52 2012 617 – 347 – 176 – 1 93 19 19 – 15 13 2 – 2 36 2011 513 – 284 – 164 – 4 61 US $ million Opening defined benefit obligation Current service cost Interest cost Past service cost Benefits paid Actuarial loss Exchange differences on foreign plans Business combination Other movements closing defined benefit obligation Movement in the present value of the plan assets is as follows: US $ million Opening fair value of plan assets Expected return on plan assets Contribution from the employer Actuarial gain /(loss) Exchange differences on foreign plans Other movements closing fair value of plan assets Notes 2012 2011 21 513 24 22 5 – 15 32 – 1 19 18 617 422 19 19 2 – 26 67 1 0 9 513 2012 2011 284 15 24 17 – 3 10 347 267 15 26 – 20 3 – 7 284 | Annual Report 2012 | 145 | Annual Report 2010 | 145 Financial StatementS The plan assets consist of the following: US $ million Cash and short term investments Fixed income Equities Other total 2012 2011 4 161 132 50 347 10 109 120 45 284 The overall expected rate of return is a weighted average of the expected returns of the various categories of plan assets held. Glencore’s assessment of the expected returns is based on historical return trends and analysts’ predictions of the market for the asset class in the next twelve months. The principal actuarial assumptions used were as follows: Discount rate Expected return on plan assets Future salary increases Future pension increases 2012 2011 3 – 6% 3 – 7% 2 – 5% 3 – 4% 3 – 7% 3 – 8% 2 – 5% 3 – 4% Mortality assumptions are based on the latest available standard mortality tables for the individual countries concerned. These tables imply expected future lifetimes (in years) for employees aged 65 as at the 31 December 2012 of 18 to 24 for males (2011: 18 to 24) and 20 to 25 (2011: 20 to 25) for females. The assumptions for each country are reviewed each year and are adjusted where necessary to reflect changes in fund experience and actuarial recommendations. The Group expects to make a contribution of $ 24 million (2011: $ 26 million) to the defined benefit plans during the next financial year. Summary historical information: US $ million 2010 2009 2008 23. ACCoUnts pAyAble US $ million Trade payables Trade advances from buyers Associated companies Other payables and accrued liabilities total 146 | Annual Report 2012 | 146 | Annual Report 2010 | Present value of defined benefit obligation Fair value of plan assets 422 363 324 267 232 190 2012 2011 19 890 546 1 552 1 513 23 501 14 523 828 1 511 1 274 18 136 Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 24. ACqUisition And disposAl of sUbsidiARies 2012 Acquisitions US $ million Viterra ¹ Mutanda ¹ Optimum ¹ Rosh Pinah ¹ European Manganese ¹ Other ¹ Total non current assets Property, plant and equipment Intangible assets Investments in Associates Loans and advances ² Deferred tax asset current assets Inventories Accounts receivable ² Cash and cash equivalents Assets held for sale 2 505 102 76 6 1 3 496 0 0 11 0 1 311 1 096 0 175 0 231 0 1 0 0 2 690 3 507 2 582 232 1 572 1 063 1 097 2 677 6 409 223 99 38 0 360 50 57 25 0 132 13 8 8 0 29 non controlling interest 0 – 807 – 460 – 28 non current liabilities Non current borrowings Other non current liabilities Non current deferred income Non current provisions Deferred tax liabilities current liabilities Current borrowings Accounts payable Current deferred income Current provision Liabilities held for sale total fair value of net assets acquired Goodwill arising on acquisition ³ Less: Amounts previously recognised through investments and loans Less: cash and cash equivalents acquired Acquisition related costs 4 net cash used in acquisition of subsidiaries Less: Asset acquirer loans net cash outflow – 592 0 0 – 114 – 279 – 985 – 1 222 – 1 496 0 – 6 – 461 – 3 185 4 929 1 251 0 1 097 5 083 2 580 2 503 – 5 – 6 0 – 7 – 882 – 900 0 – 152 0 0 0 – 152 2 008 0 1 528 38 442 0 442 – 99 – 9 – 591 – 235 – 335 – 1 269 – 6 – 100 – 97 0 0 – 203 782 0 381 25 376 0 376 – 1 0 0 – 10 – 56 – 67 0 – 16 0 0 0 – 16 150 0 0 8 142 0 142 72 0 0 0 5 77 127 85 16 0 228 0 0 0 0 0 0 0 – 2 – 113 0 0 0 – 115 190 0 0 16 174 0 174 259 0 0 0 0 7 874 1 198 77 192 6 259 9 347 44 11 11 0 66 2 029 1 323 1 195 2 677 7 224 – 28 – 1 323  – 1 0 0 – 40 – 25 – 66 0 – 43 0 0 0 – 43 188 0 51 11 126 0 126 – 698  – 15 – 591 – 406 – 1 577 – 3 287 – 1 230 – 1 920 – 97 – 6 – 461 – 3 714 8 247 1 251 1 960 1 195 120 6 463 2 580 3 883 1 The fair values are provisional due to the complexity of the valuation process. The finalisation of the fair value of the assets and liabilities acquired will be completed within 12 months of the acquisition. ² There is no material difference between the gross contractual amounts for loans and advances and accounts receivable and their fair value. 3 The goodwill arising on acquisition is not deductible for tax purposes. 4 Includes $ 58 million related to the Xstrata acquisition, see note 28. | Annual Report 2012 | 147 | Annual Report 2010 | 147 Financial StatementS Viterra On 17 December 2012, Glencore completed the acquisition of a 100% interest in Viterra Inc., a leading global agricultural commod- ity business for a cash consideration of $ 6.2 billion ($ 3.6 billion net of asset acquirer loans). As part of the acquisition, Glencore entered into agreements with Agrium and Richardson which provide for the on-sale of certain assets of Viterra. Agrium has agreed to acquire assets which comprise a majority of Viterra’s retail agri-products business including its 34% interest in Canadian Fertilizer Limited (“CFL”) for CAD 1,775 million ($ 1,781 million) in cash, subject to any final specified purchase price adjustments such as payment for working capital and required regulatory approvals. Richardson has agreed to acquire 23% of Viterra’s Canadian grain handling assets, certain agri-centres and certain processing assets in North America for CAD 796 million ($ 799 million) in cash, subject to any final specified purchase price adjustments such as payment for working capital. Upon clos- ing of the Viterra acquisition, Agrium and Richardson advanced the agreed consideration. The businesses which they will acquire have been presented in single line items as assets and liabilities held for sale (see note 14). Upon closing of these divestitures, the relevant net assets will be transferred to Agrium and Richardson and set off against the asset acquirer loans. The acquisition of Viterra brings Glencore critical mass in the key grain markets of North America through Viterra’s substantial Canadian operations and greatly expands Glencore’s existing operations in Australia. This acquisition is consistent with Glencore’s strategy to enhance its position as a leading participant in the global grain and oil seeds markets. It has been accounted for as a business combination. If the acquisition had taken place effective 1 January 2012, the operation would have contributed additional revenue of $ 12,816 mil- lion and an increase in attributable income of $ 264 million. From the date of acquisition the operation contributed $ 5 million and $ 898 million to Glencore’s attributable income and revenue, respectively. Glencore incurred acquisition related costs of $ 54 million and a realised foreign currency gain of $ 65 million on Canadian dollar hedges entered into in May in expectation of the acquisition (both items included within other expense – net, see note 4). Optimum In March 2012, Glencore acquired an additional 31.8% interest in Optimum, a South African coal mining company, for a total con- sideration of $ 401 million thereby increasing its ultimate ownership in Optimum from 31.2% to 63.0% and enhancing its existing South African coal market presence. Prior to acquisition, Glencore owned a 31.2% interest in Optimum which, in accordance with IFRS 3, at the date of acquisition was revalued to its fair value of $ 381 million and as a result, a loss of $ 20 million was recognised in other expense – net (see note 4). The acquisition has been accounted for as a business combination with the non controlling interest being measured at its percentage of net assets acquired. If the acquisition had taken place effective 1 January 2012, the operation would have contributed additional revenue of $ 196 mil- lion and additional attributable income of $ 19 million. From the date of acquisition the operation contributed $ 27 million and $ 541 million to Glencore’s attributable income and revenue, respectively. mutanda In April 2012, Glencore concluded its agreement to acquire an additional 20% interest in Mutanda, a copper and cobalt mining company located in the Democratic Republic of the Congo, for a total cash consideration of $ 480 million (equity of $ 420 million and shareholder debt of $ 60 million) thereby increasing its ultimate ownership in Mutanda from 40% to 60% and enhancing its attributable copper production base. Prior to acquisition, Glencore owned a 40% interest in Mutanda which, in accordance with IFRS 3, at the date of acquisition was revalued to its fair value of $ 837 million and as a result, a gain of $ 517 million was recognised in other expense – net (see note 4). The acquisition has been accounted for as a business combination with the non controlling interest being measured at its percentage of net assets acquired. If the acquisition had taken place effective 1 January 2012, the operation would have contributed additional revenue of $ 236 mil- lion and additional attributable income of $ 9 million. From the date of acquisition the operation contributed $ 23 million and $ 533 million to Glencore’s attributable income and revenue, respectively. In addition to the acquisition of the 20% interest in Mutanda noted above, Glencore concurrently entered into a put and call option arrangement, whereby Glencore has the right to acquire and the seller has the ability to force Glencore to acquire an additional 20% interest in Mutanda for a total cash consideration of $  430  million. The put and call options are exercisable in the period between 15 December 2013 and 31 December 2013. The present value of the put option ($ 419 million) has been accounted for as an other financial liability with the corresponding amount recognised against non controlling interest. 148 | Annual Report 2012 | 148 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Rosh Pinah In June 2012, Glencore completed the acquisition of an 80.1% interest in Rosh Pinah, a Namibian zinc and lead mining operation, for a cash consideration of $ 150 million increasing our zinc and lead production footprint. The acquisition has been accounted for as a business combination with the non controlling interest being measured at its percentage of net assets acquired. If the acquisition had taken place effective 1 January 2012, the operation would have contributed additional revenue of $ 78 million and a decrease in attributable income of $ 2 million. From the date of acquisition the operation contributed $ 1 million and $ 51 mil- lion to Glencore’s attributable income and revenue, respectively. european manganese In November 2012, Glencore completed the acquisition of a 100% interest in Vale’s European manganese ferro alloys operations, located in Dunkirk, France and Mo I Rana, Norway, for a cash consideration of $ 190 million. This is the first time that Glencore has expanded into manganese production, strengthening its marketing offer and complementing existing production of steel-making products. The acquisition has been accounted for as a business combination. If the acquisition had taken place effective 1 January 2012, the operation would have contributed additional revenue of $ 303 mil- lion and a decrease in attributable income of $ 18 million. From the date of acquisition the operation contributed $ 49 million to revenue and a reduction in attributable income of $ 7 million. Other Other comprises primarily an acquisition of a 100% interest in a sunseed crushing operation in Ukraine for a cash consideration of $ 80 million. If the acquisitions had taken place effective 1 January 2012, the operations would have contributed additional revenue of $ 2 million and a decrease in attributable income of $ 1 million. From the date of acquisition the operation contributed $ 1 million and $ 16 million to Glencore’s attributable income and revenue, respectively. 2012 Disposals In December 2012, Glencore disposed of its 100% interest in Chemoil Storage Limited (part of Chemoil Group), which owned and operated the Helios Terminal, for a cash consideration of $ 287 million. US $ million Property, plant and equipment Accounts receivable Cash and cash equivalents Non current borrowings Deferred tax liabilities Current borrowings total net assets disposed Net gain on disposal net cash proceeds Less: cash and cash equivalents disposed of net cash received on disposal of subsidiary Total 279 1 2 – 7 – 7 – 1 267 20 287 – 2 285 | Annual Report 2012 | 149 | Annual Report 2010 | 149 Financial StatementS 2011 Acquisitions During 2011, Glencore acquired interests in various businesses, the most significant being Umcebo Mining (Pty) Ltd (“Umcebo”). The net cash used in the acquisition of subsidiaries and the fair value of the assets acquired and liabilities assumed at the date of acquisition are detailed below: US $ million Umcebo Other Total Provisional as previously reported Fair value adjustments¹ Final fair value at acquisition Fair value at acquisition Property, plant and equipment Intangible assets Investments in Associates Loans and advances ² Inventories Accounts receivable ² Cash and cash equivalents Non controlling interest Non current borrowings Deferred tax liabilities Provisions Accounts payable Current borrowings total fair value of net assets acquired Goodwill arising on acquisition ³ Less: cash and cash equivalents acquired Less: contingent consideration 4 net cash used in acquisition of subsidiaries 555 0 10 30 10 34 4 – 208 – 57 – 118 – 53 – 84 0 123 0 4 0 119 – 160 88 0 0 0 0 0 63 0 9 0 0 0 0 0 0 0 0 395 88 10 30 10 34 4 – 145 – 57 – 109 – 53 – 84 0 123 0 4 0 119 220 13 0 6 13 19 14 – 7 – 12 – 3 – 4 – 28 – 7 224 36 14 15 231 615 101 10 36 23 53 18 – 152 – 69 – 112 – 57 – 112 – 7 347 36 18 15 350 1 The accounting was provisional at 31 December 2011 due to the timing and complexity of the transaction. These adjustments arose due to the revisions to the valuations of property, plant and equipment, the recognition of port allocation rights, the recognition of tax liabilities and the resulting impact on minority interests. In 2012, the acquisition accounting was finalised. 2 Represents the gross contractual amount for loans and advances and accounts receivable. 3 None of the goodwill arising on acquisition is deductible for tax purposes. 4 The contingent consideration of $ 15 million related to the purchase of assets of OceanConnect has been settled in 2012 for $ 10 million and a gain of $ 5 million has been realised. Umcebo In December 2011, in order to increase its South African coal market presence, Glencore completed the acquisition of a 43.7% stake in Umcebo, an unlisted South African coal mining company, for $ 123 million cash consideration. Although Glencore holds less than 50% of the voting rights, it has the ability to exercise control over Umcebo as the shareholder agreements allow Glencore to control the Board of Directors through the ability to appoint half of the Directors and the CEO, who has the casting vote in respect of the financial and operating policies of Umcebo. The acquisition was accounted for as a business combination with the non controlling interest being measured at its percentage of net assets acquired. If the acquisition had taken place effective 1 January 2011, the operation would have contributed additional revenue of $ 309 mil- lion and a decrease in attributable income of $ 3 million. From the date of acquisition the operation contributed $ nil million and $ nil million to Glencore’s income and revenue, respectively, due to the fact that the acquisition was completed in late Decem- ber 2011. 150 | Annual Report 2012 | 150 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Other Other comprises primarily acquisitions of crushing operations in the Czech Republic and a 90.7% interest of crushing operations in Poland for cash consideration of $ 82 million and $ 71 million, respectively, a 100% interest in Sable Zinc Kabwe Limited, a Zambian metal-processing operation for cash consideration of $ 29 million and certain assets related to the business of OceanConnect for total consideration of $ 30 million. The goodwill recognised in connection with these acquisitions principally related to Ocean- Connect. If these acquisitions had taken place effective 1  January 2011, the operations would have contributed revenue of $ 104  million and a decrease in attributable income of $ 19  million. From the date of acquisition the operations contributed $  1,321  million and – $ 9 million to Glencore’s revenue and income, respectively. Disposals In 2011, there were no material disposals of subsidiaries. 25. finAnCiAl And CApitAl Risk mAnAGement Financial risks arising in the normal course of business from Glencore’s operations comprise market risk (including commodity price risk, interest rate risk and currency risk), credit risk (including performance risk) and liquidity risk. It is Glencore’s policy and practice to identify and, where appropriate and practical, actively manage such risks to support its objectives in managing its capital and future financial security and flexibility. Glencore’s overall risk management program focuses on the unpredictability of financial markets and seeks to protect its financial security and flexibility by using derivative financial instruments where possible to substantially hedge these financial risks. Glencore’s finance and risk professionals, working in coordination with the commodity departments, monitor, manage and report regularly to senior management, the Audit Committee and ultimately the Board of Directors on the approach and effectiveness in managing financial risks along with the financial exposures facing the Group. Glencore’s objectives in managing capital attributable to equity holders include preserving its overall financial health and strength for the benefit of all stakeholders, maintaining an optimal capital structure in order to provide a high degree of financial flexibility at an attractive cost of capital and safeguarding its ability to continue as a going concern, while generating sustainable long term profitability. Paramount in meeting these objectives is Glencore’s policy to maintain an investment grade rating status. Following the Xstrata merger and Viterra acquisition announcements, Glencore’s current credit ratings are Baa2 (stable) from Moody’s and BBB (stable) from S&P. Dividend policy The Company intends to pursue a progressive dividend policy with the intention of maintaining or increasing its total ordinary divi- dend each year. Dividends are expected to be declared by the Board semi-annually (with the half-year results and the preliminary full year results). Interim dividends are expected to represent approximately one-third of the total dividend for any year. Dividends will be declared and paid in U.S. dollars, although Shareholders will be able to elect to receive their dividend payments in pounds sterling, Euros or Swiss Francs based on the exchange rates in effect around the date of payment. Shareholders on the Hong Kong branch register will receive their dividends in Hong Kong dollars. commodity price risk Glencore is exposed to price movements for the inventory it holds and the products it produces which are not held to meet priced forward contract obligations and forward priced purchase or sale contracts. Glencore manages a significant portion of this expo- sure through futures and options transactions on worldwide commodity exchanges or in over the counter (OTC) markets, to the extent available. Commodity price risk management activities are considered an integral part of Glencore’s physical commodity marketing activities and the related assets and liabilities are included in other financial assets from and other financial liabilities to derivative counterparties, including clearing brokers and exchanges. Whilst it is Glencore’s policy to substantially hedge its com- modity price risks, there remains the possibility that the hedging instruments chosen may not always provide effective mitigation of the underlying price risk. The hedging instruments available to the marketing businesses may differ in specific characteristics to the risk exposure to be hedged, resulting in an ongoing and unavoidable basis risk exposure. Residual basis risk exposures repre- sent a key focus point for Glencore’s commodity department teams who actively engage in the management of such. In previous years Glencore entered into futures transactions (designated as cash flow hedges) to hedge the price risk of specific future operating expenditure with a notional sell amount of $ 181 million and a recognised fair value liability of $ 101 million as at 31 December 2011. These cash flow hedges matured and were closed in 2012. As at 31 December 2012, there were no open cash flow hedge positions related to future operating expenditure. | Annual Report 2012 | 151 | Annual Report 2010 | 151 Financial StatementS Value at risk One of the tools used by Glencore to monitor and limit its primary market risk exposure, namely commodity price risk related to its physical marketing activities, is the use of a value at risk (VaR) computation. VaR is a risk measurement technique which estimates the potential loss that could occur on risk positions as a result of movements in risk factors over a specified time horizon, given a specific level of confidence. The VaR methodology is a statistically defined, probability based approach that takes into account market volatil ities, as well as risk diversification by recognising offsetting positions and correlations between commodities and markets. In this way, risks can be measured consistently across all markets and commodities and risk measures can be aggregated to derive a single risk value. Glencore’s Board has set a consolidated VaR limit (1 day 95%) of $ 100 million representing less than 0.5% of total equity. Glencore uses a VaR approach based on Monte Carlo simulations and is computed at a 95% confidence level with a weighted data history using a combination of a one day and one week time horizon. Position sheets are regularly distributed and monitored and weekly Monte Carlo simulations are applied to the various business groups’ net marketing positions to determine potential future exposures. As at 31 December 2012, Glencore’s 95%, one day market risk VaR was $ 49 million (2011: $ 28 million). Average market risk VaR (1 day 95%) during 2012 was $ 40 million compared to $ 39 million during 2011. VaR does not purport to represent actual gains or losses in fair value on earnings to be incurred by Glencore, nor does Glencore claim that these VaR results are indicative of future market movements or representative of any actual impact on its future results. VaR should always be viewed in the context of its limitations; notably, the use of historical data as a proxy for estimating future events, market illiquidity risks and tail risks. Glencore recognises these limitations, and thus complements and continuously refines its VaR analysis by ana lysing forward looking stress scenarios and back testing calculated VaR against actual movements arising in the next business day and week. Glencore’s VaR computation currently covers its business in the key base metals (aluminium, nickel, zinc, copper, lead, etc), coal, iron ore, oil/natural gas and the main risks in the Agricultural products business segment (grain, oil seeds, sugar and cotton) and assesses the open-priced positions which are those subject to price risk, including inventories of these commodities. Due to the lack of a liquid terminal market, Glencore does not include a VaR calculation for products such as alumina or certain ferro alloy com- modities as it does not consider the nature of these markets, nor the Group’s underlying exposures to these products to be suited to this type of analysis. Alternative tools have been implemented and are used to monitor exposures related to these products. net present value at risk Glencore’s future cash flows related to its forecast energy, metals and minerals and agricultural production activities are also exposed to commodity price movements. Glencore manages this exposure through a combination of portfolio diversification, occasional shorter term hedging via futures and options transactions, insurance products and continuous internal monitoring, reporting and quantification of the underlying operations’ estimated cashflows and valuations. interest rate risk Glencore is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its assets and liabilities and cash flows. Matching of assets and liabilities is utilised as the dominant method to hedge interest rate risks. Floating rate debt which is predominantly used to fund fast turning working capital (interest is internally charged on the fund- ing of this working capital) is primarily based on U.S. $ LIBOR plus an appropriate premium. Accordingly, prevailing market interest rates are continuously factored into transactional pricing and terms. Assuming the amount of floating rate liabilities at the reporting period end were outstanding for the whole year, interest rates were 50 basis points higher/lower and all other variables held constant, Glencore’s income and equity for the year ended 31 Decem- ber 2012 would decrease/increase by $ 109 million (2011: $ 98 million). currency risk The U.S. Dollar is the predominant functional currency of the Group. Currency risk is the risk of loss from movements in exchange rates related to transactions and balances in currencies other than the U.S. Dollar. Such transactions include operating expendi- ture, capital expenditure and to a lesser extent purchases and sales in currencies other than the functional currency. Purchases or sales of commodities concluded in currencies other than the functional currency, apart from certain limited domestic sales at industrial operations which act as a hedge against local operating costs, are hedged through forward exchange contracts. Con- sequently, foreign exchange movements against the U.S. Dollar on recognised transactions would have an immaterial financial impact. Glencore enters into currency hedging transactions with leading financial institutions. Glencore’s debt related payments (both principal and interest) are denominated in or swapped using hedging instruments into U.S. Dollars. Glencore’s operating expenses, being a small portion of its revenue base, are incurred in a mix of currencies of which the U.S. Dollar, Swiss Franc, Pound Sterling, Canadian Dollar, Australian Dollar, Euro, Kazakhstan Tenge, Colombian Peso and South African Rand are the predominant currencies. 152 | Annual Report 2012 | 152 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Glencore has issued Euro, Swiss Franc and Sterling denominated bonds (see note 19). Cross currency swaps were concluded to hedge the currency risk on the principal and related interest payments of these bonds. These contracts were designated as cash flow hedges of the foreign currency risks associated with the bonds. The fair value of these derivatives is as follows: US $ million Notional amounts Recognised fair values Buy Sell Assets Liabilities Average maturity ¹ Cross currency swap agreements – 2012 Cross currency swap agreements – 2011 0 0 9 039 6 080 0 0 82 174 2017 2015 ¹ Refer to note 19 for details. credit risk Credit risk arises from the possibility that counterparties may not be able to settle obligations due to Glencore within their agreed payment terms. Financial assets which potentially expose Glencore to credit risk consist principally of cash and cash equivalents, receivables and advances, derivative instruments and non current advances and loans. Glencore’s credit management process includes the assessment, monitoring and reporting of counterparty exposure on a regular basis. Glencore’s cash and cash equiva- lents are placed overnight with a diverse group of highly credit rated financial institutions. Credit risk with respect to receivables and advances is mitigated by the large number of customers comprising Glencore’s customer base, their diversity across various industries and geographical areas, as well as Glencore’s policy to mitigate these risks through letters of credit, netting, collateral and insurance arrangements where appropriate. Additionally, it is Glencore’s policy that transactions and activities in trade related financial instruments be concluded under master netting agreements or long form confirmations to enable offsetting of balances due to/from a common counterparty in the event of default by the counterparty. Glencore actively and continuously monitors the credit quality of its counterparties through internal reviews and a credit scoring process, which includes, where available, public credit ratings. Balances with counterparties not having a public investment grade or equivalent internal rating are typically enhanced to investment grade through the extensive use of credit enhancement products, such as letters of credit or insurance products. Glencore has a diverse customer base, with no customer representing more than 3% (2011: 3%) of its trade receivables (on a gross basis taking into account credit enhancements) or accounting for more than 2% of its revenues over the year ended 2012 (2011: 2%). The maximum exposure to credit risk, without considering netting agreements or without taking account of any collateral held or other credit enhancements, is equal to the carrying amount of Glencore’s financial assets plus the guarantees to third parties and Associates (see note 29). Performance risk Performance risk arises from the possibility that counterparties may not be willing or able to meet their future contractual physical sale or purchase obligations to/from Glencore. Glencore undertakes the assessment, monitoring and reporting of performance risk within its overall credit management process. Glencore’s market breadth, diversified supplier and customer base as well as the standard pricing mechanism in the majority of Glencore’s commodity portfolio which does not fix prices beyond three months, with the main exceptions being coal and cotton where longer term fixed price contracts are common, ensure that performance risk is adequately mitigated. The commodity industry has trended towards shorter fixed price contract periods, in part to mitigate against such potential performance risk, but also due to the development of more transparent and liquid spot markets, e.g. coal and iron ore and associated derivative products and indexes. liquidity risk Liquidity risk is the risk that Glencore is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis, to borrow funds in the market on an unsecured or secured basis at an acceptable price to fund actual or proposed commitments. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents through the availability of adequate committed funding facilities. Glencore has set itself an internal minimum liquidity target to maintain at all times, available commit- ted undrawn credit facilities of $ 3 billion (2011: $ 3 billion). Glencore’s credit profile, diversified funding sources and committed credit facilities, ensure that sufficient liquid funds are maintained to meet its liquidity requirements. As part of its liquidity manage- ment, Glencore closely monitors and plans for its future capital expenditure and proposed investments, as well as credit facility refinancing/extension requirements, well ahead of time. Certain borrowing arrangements require compliance with specific financial covenants related to working capital, minimum cur- rent ratio and a maximum long term debt to tangible net worth ratio. During the period, the Company has complied with these requirements. | Annual Report 2012 | 153 | Annual Report 2010 | 153 Financial StatementS As at 31 December 2012, Glencore had available committed undrawn credit facilities, cash and marketable securities amounting to $ 9,018 million (2011: $ 6,831 million). The maturity profile of Glencore’s financial liabilities based on the contractual terms is as follows: 2012 US $ million Borrowings Expected future interest payments Viterra assets acquirer loans Accounts payable Other financial liabilities total Current assets 2011 US $ million Borrowings Expected future interest payments Accounts payable Other financial liabilities total Current assets After 5 years Due 3 – 5 years Due 2 – 3 years Due 1 – 2 years Due 0 –1 year 4 680 417 0 0 0 2 757 684 0 0 0 2 312 662 0 0 0 9 279 927 0 0 0 5 097 3 441 2 974 10 206 16 498 1 067 2 580 23 501 3 388 47 034 Total 35 526 3 757 2 580 23 501 3 388 68 752 54 059 54 059 After 5 years Due 3 – 5 years Due 2 – 3 years Due 1 – 2 years Due 0 –1 year 3 285 270 0 0 2 178 547 0 820 9 985 768 0 39 4 396 849 0 394 3 555 3 545 10 792 5 639 8 224 942 18 136 3 551 30 853 Total 28 068 3 376 18 136 4 804 54 384 45 731 45 731 154 | Annual Report 2012 | 154 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 26. finAnCiAl instRUments Fair value of financial instruments The following table presents the carrying values and fair values of Glencore’s financial instruments. Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing parties, other than in a forced or liquidated sale. Where available, market values have been used to determine fair values. When market values are not available, fair values have been calculated by discounting expected cash flows at prevailing interest and exchange rates. The estimated fair values have been determined using market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that Glencore could realise in the normal course of business. The financial assets and liabilities are presented by class in the tables below at their carrying values, which generally approxi- mate to the fair values. In the case of $ 35,526 million (2011: $ 28,029 million) of borrowings, the fair value at 31 December 2012 is $ 36,371 million (2011: $ 28,247 million). 2012 US $ million assets Other investments 3 Advances and loans Accounts receivable Other financial assets Cash and cash equivalents and marketable securities total financial assets liabilities Borrowings Viterra asset acquirer loans Accounts payable Other financial liabilities total financial liabilities Carrying value 1 Available for sale FVtPL 2 Total 0 3 758 24 882 0 0 840 0 0 0 0 28 640 840 35 526 2 580 23 501 0 61 607 0 0 0 0 0 749 0 0 2 650 2 820 6 219 0 0 0 3 388 3 388 1 589 3 758 24 882 2 650 2 820 35 699 35 526 2 580 23 501 3 388 64 995 1 Carrying value comprises investments, loans, accounts receivable, accounts payable and other liabilities measured at amortised cost. 2 FVtPL – Fair value through profit and loss – held for trading. 3 Other investments of $ 1,414 million are classified as Level 1 with the remaining balance of $ 175 million classified as Level 3. The change in the Level 3 other investments is a result of purchases made during the year. 2011 US $ million assets Other investments 3 Advances and loans Accounts receivable Other financial assets Cash and cash equivalents and marketable securities total financial assets liabilities Borrowings Accounts payable Other financial liabilities total financial liabilities Carrying value 1 Available for sale FVtPL 2 Total 0 4 141 21 895 0 0 842 0 0 0 0 26 036 842 28 068 18 160 0 46 228 0 0 0 0 705 0 0 5 065 1 345 7 115 0 0 4 804 4 804 1 547 4 141 21 895 5 065 1 345 33 993 28 068 18 160 4 804 51 032 1 Carrying value comprises investments, loans, accounts receivable, accounts payable and other liabilities measured at amortised cost. 2 FVtPL – Fair value through profit and loss – held for trading. 3 Other investments of $ 1,429 million are classified as Level 1 with the remaining balance of $ 118 million classified as Level 3. | Annual Report 2012 | 155 | Annual Report 2010 | 155 Financial StatementS The following tables show the fair values of the derivative financial instruments including trade related financial and physical for- ward purchase and sale commitments by type of contract as at 31 December 2012 and 2011. Fair values are primarily determined using quoted market prices or standard pricing models using observable market inputs where available and are presented to reflect the expected gross future cash in/outflows. Glencore classifies the fair values of its financial instruments into a three level hierarchy based on the degree of the source and observability of the inputs that are used to derive the fair value of the financial asset or liability as follows: Level 1 unadjusted quoted inputs in active markets for identical assets or liabilities; or Level 2 inputs other than quoted inputs included in Level 1 that are directly or indirectly observable in the market; or Level 3 unobservable market inputs or observable but can not be market corroborated, requiring Glencore to make market based assumptions. Level 1 classifications primarily include futures with a tenor of less than one year and options that are exchange traded. Level 2 classi fications primarily include futures with a tenor greater than one year, over the counter options, swaps and physical forward transactions which derive their fair value primarily from exchange quotes and readily observable broker quotes. Level 3 classifica- tions primarily include physical forward transactions which derive their fair value predominately from models that use broker quotes and applicable market based estimates surrounding location, quality and credit differentials. In circumstances where Glencore cannot verify fair value with observable market inputs (Level 3 fair values), it is possible that a different valuation model could produce a materially different estimate of fair value. It is Glencore’s policy that transactions and activities in trade related financial instruments be concluded under master netting agreements or long form confirmations to enable balances due to/from a common counterparty to be offset in the event of default by the counterparty. Other financial assets 2012 US $ million commodity related contracts Futures Options Swaps Physical forwards Financial contracts Cross currency swaps Foreign currency and interest rate contracts total 2011 US $ million commodity related contracts Futures Options Swaps Physical forwards Financial contracts Cross currency swaps Foreign currency and interest rate contracts total 156 | Annual Report 2012 | 156 | Annual Report 2010 | Level 1 Level 2 Level 3 Total 564 27 75 12 5 63 141 0 304 778 147 45 746 1 415 0 4 0 485 0 0 489 705 31 379 1 275 152 108 2 650 Level 1 Level 2 Level 3 Total 2 521 50 67 0 0 61 528 0 239 1 015 76 50 2 699 1 908 0 0 0 458 0 0 458 3 049 50 306 1 473 76 111 5 065 overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Notes Level 1 Level 2 Level 3 Total Other financial liabilities 2012 US $ million commodity related contracts Futures Options Swaps Physical forwards Financial contracts Cross currency swaps Foreign currency and interest rate contracts Put option over non controlling interest total 24 2011 US $ million commodity related contracts Futures Options Swaps Physical forwards Financial contracts Cross currency swaps Foreign currency and interest rate contracts total The following table shows the net changes in fair value of Level 3 other financial assets and other financial liabilities: US $ million 1 January 2011 Total gain /(loss) recognised in cost of goods sold Realised 31 December 2011 1 January 2012 Total gain /(loss) recognised in cost of goods sold Put option over non controlling interest 24 Realised 31 December 2012 712 96 25 14 0 48 0 283 1 267 439 633 21 0 895 1 644 0 37 0 393 0 0 419 849 995 134 292 846 633 69 419 3 388 Level 1 Level 2 Level 3 Total 1 643 61 31 0 0 76 758 51 372 590 766 15 1 811 2 552 0 25 0 416 0 0 441 2 401 137 403 1 006 766 91 4 804 Notes Physical forwards Options Total Level 3 355 – 269 – 44 42 42 10 0 44 96 – 99 1 73 – 25 – 25 – 33 – 419 21 – 456 256 – 268 29 17 17 – 23 – 419 65 – 360 | Annual Report 2012 | 157 Financial StatementS 27. AUditoRs’ RemUneRAtion US $ million 2012 2011 Remuneration in respect of the audit of Glencore’s consolidated financial statements Other audit fees, primarily in respect of audits of accounts of subsidiaries total audit fees Audit-related assurance services Corporate finance services ¹ Taxation compliance services Other taxation advisory services Other services total non-audit fees total professional fees 4 13 17 2 6 3 2 2 15 32 3 13 16 2 12 2 1 1 18 34 1 Included within corporate finance services for the year ended 31 December 2012 is $ 4 million (2011 – $ nil million) of professional fees related directly to the auditors role as Reporting Accountant in connection with the merger with Xstrata plc (see note 28). Within corporate finance services for the year ended 31 December 2011 is $ 9 million of professional fees related directly to the auditors role as Reporting Accountant in connection with the Listing. 28. fUtURe Commitments Capital expenditure for the acquisition of property, plant and equipment is generally funded through the cash flow generated by the respective industrial entities. As at 31 December 2012, $ 756 million (2011: $ 884 million), of which 63% (2011: 92%) relates to expenditure to be incurred over the next year, was contractually committed for the acquisition of property, plant and equipment. Certain of Glencore’s exploration tenements and licenses require it to spend a minimum amount per year on development activities, a significant portion of which would have been incurred in the ordinary course of operations. As at 31 December 2012, $ 343 million (2011: $ 549 million) of such development expenditures are to be incurred, of which 41% (2011: 57%) are for commit- ments to be settled over the next year. Glencore procures seagoing vessels/chartering services to meet its overall marketing objectives and commitments. At year end, Glencore has committed to future hire costs to meet future physical delivery and sale obligations and expectations of $ 1,419 mil- lion (2011: $ 2,171 million) of which $ 596 million (2011: $ 570 million) are with associated companies. 55% (2011: 50%) of the total charters are for services to be received over the next 2 years. As part of Glencore’s ordinary sourcing and procurement of physical commodities and other ordinary marketing obligations, the selling party may request that a financial institution act as either a) the paying party upon the delivery of product and qualifying documents through the issuance of a letter of credit or b) the guarantor by way of issuing a bank guarantee accepting responsibility for Glencore’s contractual obligations. As at 31 December 2012, $ 10,509 million (2011: $ 8,642 million) of such commitments have been issued on behalf of Glencore, which will generally be settled simultaneously with the payment for such commodity. Glencore has entered into various operating leases mainly as lessee for office and warehouse/storage facilities. Rental expenses for these leases totalled respectively $ 99 million and $ 77 million for the years ended 31 December 2012 and 2011. Future net minimum lease payments under non cancellable operating leases are as follows: US $ million Within 1 year Between 2 and 5 years After 5 years total 158 | Annual Report 2012 | 158 | Annual Report 2010 | 2012 2011 110 213 160 483 76 147 120 343 Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Glencore has entered into finance leases for various plant and equipment items, primarily vessels and machinery. Future net mini- mum lease payments under finance leases together with the future finance charges are as follows: US $ million Within 1 year Between 2 and 5 years After 5 years total minimum lease payments Less: amounts representing finance lease charges Present value of minimum lease payments Future development and related commitments Undiscounted minimum lease payments Present value of minimum lease payments 2012 2011 2012 2011 62 188 109 359 78 281 50 197 136 383  66 317 48 146 87 281 281 39 164 114 317 317 Xstrata On 7 February 2012, the Glencore Directors and the Independent Xstrata Directors announced that they had reached an agree- ment on the terms of a recommended all-share merger (the “Merger”) between Glencore and Xstrata to create a unique $ 90 bil- lion natural resources group. The final terms of the Merger provide Xstrata shareholders with 3.05 newly issued shares in Glencore for each Xstrata share held. The Merger, which received shareholder approval in November 2012, is to 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. Completion of the Merger remains conditional upon the receipt of the outstanding regulatory approval in China and completion of the Xstrata court process as further set out in the New Scheme Document in connection with the Merger published by Xstrata on 25 October 2012 and Glencore giving effect to the commitments required by the European Commission. Glencore will be required to repay the Xstrata secured bank loans (see note 19) prior to completion of the Merger. Costs of $ 58 million (included within other expense – net, see note 4 ) have been expensed to date. Kansuki In August 2010, Glencore acquired an ultimate 37.5% interest in the Kansuki concession (Kansuki), a 185 square kilometre cop- per and cobalt pre-development project which borders Glencore’s partly owned Mutanda concession in the DRC. In exchange, Glencore has a) an obligation to finance the first $ 400 million of development related expenditures, b) the right to operate the operations and c) a life of mine off-take agreement for all copper and cobalt produced by Kansuki. In addition, one of the part- ners in Kansuki has the right to sell an additional 18.75% ultimate interest to Glencore at the then calculated equity value of the operation, at the earlier of the date the operation produces a minimum annual 70,000 tonnes of copper and August 2013. A total of $ 507 million of capital expenditure for mine and plant development has been committed of which $ 413 million has been spent. Exploration of the Kansuki concession is ongoing. Discussions with respect to a potential combination of the Mutanda and Kansuki operations are ongoing, with a view to ultimately obtaining a majority stake in the merged entity. Prodeco Prodeco currently exports the majority of its coal through Puerto Prodeco which operates under a private concession awarded by the Colombian government. This concession expired in March 2009, however the Colombian government has continued to grant Prodeco the right to use the port under annual lease agreements, currently expiring around the time of the expected commission- ing of Puerto Nuevo in the first half of 2013 as discussed below. To comply with new government regulations on loading methods, which became effective from July 2010, Prodeco commenced construction of a new, wholly owned, port facility (Puerto Nuevo) which is estimated to cost $ 553 million and be commissioned over the first half of 2013. As at 31 December 2012, $ 449 million of the estimated initial investment has been incurred and $ 38 million has been contractually committed and is included in the capital expenditure commitments disclosure above. Snel power project In early 2012, a joint programme with Société Nationale d’Electricité (SNEL), the DRC’s national electricity utility, was signed. Glencore’s operations will contribute $ 284 million to a major electricity infrastructure refurbishment programme of transmission and distribution systems. This will facilitate a progressive increase in power availability to 450 megawatts by the end of 2015. Fund- ing started in the second quarter of 2012 and will continue until the end of 2015. As at 31 December 2012, $ 13 million has been advanced under this joint agreement. | Annual Report 2012 | 159 | Annual Report 2010 | 159 Financial StatementS chad oil investments In December 2012, Glencore signed a farm-in agreement (the “FIA”) with Griffiths Energy International Inc. and its subsidiaries (“Griffiths”) to acquire a 33.3% participating interest stake in each of Griffiths’ three production sharing contracts in the Republic of Chad (the “PSCs”). In addition, under the terms of the FIA, Glencore will acquire a 25% participating interest in the Mangara and Badila Exclusive Exploitation Authorizations (the “EXA’s”) from Griffiths. In consideration for the 33.3% participating interests in Mangara and Badila, in addition to its own share of expenditure, Glencore will fund $ 300 million of Griffiths’ share of joint venture expenditures in the Mangara and Badila oil fields up to a maximum of $ 100 million per year, starting from 1 July 2012 (“Effective Date”). In consideration for the assignment of the participating interests in the PSC’s, Glencore will pay Griffiths approximately $ 31 mil- lion on closing of the FIA, representing 33.3% of Griffiths’ unrecoverable costs related to the three PSCs as of the Effective Date. The above transaction is subject to approval by the Government of Chad and waiver of certain pre-emption rights. Rosneft On 21 December 2012, Glencore and Vitol agreed heads of terms for long term crude and oil products offtake contracts with Rosneft under which Rosneft will deliver up to 67 million metric tonnes of crude oil and oil products (by mutual agreement) over a period of 5 years split 70/30 between Glencore and Vitol. This long term supply contract was finalised and signed on 4 March 2013. Additionally, Glencore and Vitol will jointly arrange up to a $ 10 billion prepayment facility in favor of Rosneft, in which Glencore expects to hold a participation of up to $ 500 million alongside a broad syndicate of banks. The closing of such facility is expected by the end of Q1 2013. 29. ContinGent liAbilities The amount of corporate guarantees in favour of associated and third parties as at 31  December 2012, was $ 46  million (2011: $ 53 million). Also see note 9. litigation Certain legal actions, other claims and unresolved disputes are pending against Glencore. Whilst Glencore cannot predict the results of any litigation, it believes that it has meritorious defenses against those actions or claims. Glencore believes the likelihood of any material liability arising from these claims to be remote and that the liability, if any, resulting from any litigation will not have a material adverse effect on its consolidated income, financial position or cashflows. environmental contingencies Glencore’s operations, mainly those arising from the ownership in industrial investments, are subject to various environmental laws and regulations. Glencore is in material compliance with those laws and regulations. Glencore accrues for environmental contingencies when such contingencies are probable and reasonably estimable. Such accruals are adjusted as new information develops or circumstances change. Recoveries of environmental remediation costs from insurance companies and other parties are recorded as assets when the recoveries are virtually certain. At this time, Glencore is unaware of any material environmental incidents at its locations. Bolivian constitution In 2009 the Government of Bolivia enacted a new constitution. One of the principles of the constitution requires mining entities to form joint ventures with the government. Glencore, through its subsidiary Sinchi Wayra, has, in good faith, entered into negoti- ations with the Bolivian government regarding this requirement. Whilst progress was being made, in June 2012 the Government of Bolivia nationalised Sinchi Wayra’s Colquiri mine. Sinchi Wayra continues to negotiate joint venture arrangements for its other mines along with restitution in respect of its nationalised mine, the final outcome and the timing thereof cannot be determined at this stage. tax audits Glencore assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Group records its best estimate of these tax liabilities, including related interest charges. Inherent uncertainties exist in estimates of tax contingencies due to complexities of interpreta- tion and changes in tax laws. Whilst Glencore believes it has adequately provided for the outcome of these matters, future results may include favourable or unfavourable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved. The final outcome of tax examinations may result in a materially different outcome than assumed in the tax liabilities. 160 | Annual Report 2012 | 160 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 30. RelAted pARty tRAnsACtions In the normal course of business, Glencore enters into various arm’s length transactions with related parties (including Xstrata and Century), including fixed price commitments to sell and to purchase commodities, forward sale and purchase contracts, agency agreements and management service agreements. Outstanding balances at period end are unsecured and settlement occurs in cash (see notes 10, 12, 15 and 23). There have been no guarantees provided or received for any related party receivables or payables. All transactions between Glencore and its subsidiaries are eliminated on consolidation along with any unrealised profits and losses between its subsidiaries and Associates. Glencore entered into the following transactions with its Associates: US $ million Sales Purchases Interest income Interest expense Agency income 2012 2011 1 661 – 10 244 1 666 – 10 414 24 – 1 95 42 – 1 69 Information on post employment benefits that are classified as funded defined benefit plans in accordance with IAS 19 is included in note 22. There were no further material transactions with the defined benefit plans. Note 15 provides details of the acquisition of an 18.91% further stake in Kazzinc. The seller of that interest, JSC Verny Capital (“Verny”), is a substantial shareholder in Kazzinc, which is a subsidiary undertaking of Glencore. Accordingly, the acquisition from Verny constitutes a “related party transaction” for the purposes of the UK FSA Listing Rules. Due to the amount of the considera- tion payable by Glencore pursuant to the transaction (being the issue of 176,742,520 new ordinary shares in Glencore and the payment of $ 400 million in cash), the UK Listing Authority confirmed on 24 September 2012 that the transaction falls within the modified requirements for a “smaller related party transaction” set out in Listing Rule 11.1.10. Remuneration of key management personnel The remuneration of Directors and other members of key management personnel recognised in the statement of income includ- ing salaries and other current employee benefits amounted to $ 7 million (2011: $ 175 million). Immediately prior to the Listing, Glencore implemented a Restructuring whereby $ 6,130 million of PPS and HPPS amounts owing to the Directors and other mem- bers of key management personnel were settled in exchange for new ordinary shares (see note 15). Further details on remuneration of Directors is set out in the Directors’ Remuneration report in section 3.4. 31. sUbseqUent events On 26 February 2013, Glencore-controlled Kazzinc purchased an 89.5% interest in two gold deposits in northern Kazakhstan with combined resources of 75,727 tonnes of gold for $ 179 million. The transaction was accomplished via the purchase of Kazakh com- pany Orion Minerals which owns subsoil rights at the Raigorodok field in the Akmola Region and the Komarovskoye field in the Kostanai region. Due to the timing of the transaction, management is in the preliminary stages of determining the nature of the op- erations, the associated values of the assets and liabilities acquired and the accounting for the acquisition. Accordingly, certain dis- closures relating to the business combination such as the provisional fair value of the net assets acquired have not been presented. | Annual Report 2012 | 161 | Annual Report 2010 | 161 Financial StatementS 32. list of pRinCipAl opeRAtinG, finAnCe And indUstRiAl sUbsidiARies And investments Method of consolidation in 2012 1 Country of incorporation % interest 2012 % interest 2011 Main activity Glencore International plc Glencore International AG Glencore AG Allied Alumina Inc. (Sherwin) Century Aluminum Company 2 Glencore Funding LLC Glencore UK Ltd Glencore Commodities Ltd Glencore Energy UK Ltd Glencore Group Funding Limited Glencore Finance (Bermuda) Ltd AR Zinc Group Perkoa Group Empresa Minera Los Quenuales S.A. Glencore Exploration (EG) Ltd. Glencore Finance (Europe) S.A. Kansuki Group Minera Altos de Punitaqui Mopani Copper Mines plc Mutanda Group Prodeco Group Recylex S.A. Rosh Pinah Zinc Corporation Sinchi Wayra Group United Company Rusal Limited Finges Investment B.V. Biopetrol Industries AG 3 Glencore Grain B.V. Nyrstar N.V. Optimum Coal Holdings Limited Pannon Vegetable Oil Manufacturing Rio Vermelho Sable Zinc Kabwe Limited Umcebo Mining (Pty) Ltd 4 Usti Oilseed Group Xstrata plc Zaklady Tluszczowe w Bodaczowie Chemoil Energy Limited 5 Cobar Group Glencore Manganese Group Glencore Singapore Pte Ltd Kazzinc Ltd. Vasilkovskoye Gold P F F F E F F F F F F F F F F F E F F F F E F F O F F F O F F F F F F E F F F F F F F Jersey Switzerland Switzerland 100.0 100.0 United States 100.0 United States 46.6 United States 100.0 U.K. U.K. U.K. UAE Bermuda Argentina Burkina Faso Peru Bermuda Luxembourg DRC Chile Zambia DRC Colombia France Namibia Bolivia Jersey 100.0 100.0 100.0 100.0 100.0 100.0 55.7 97.6 100.0 100.0 37.5 100.0 73.1 60.0 100.0 32.2 80.1 100.0 8.8 Netherlands 100.0 Switzerland 67.5 Netherlands 100.0 Belgium South Africa Hungary Brazil Zambia 7.8 67.0 100.0 100.0 100.0 South Africa 43.7 Czech Republic 100.0 U.K. Poland Hong Kong 34.2 99.9 89.2 Australia 100.0 France/Norway 100.0 Singapore Kazakhstan Kazakhstan 100.0 69.6 100.0 100.0 100.0 100.0 46.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 55.7 97.5 100.0 100.0 37.5 100.0 73.1 40.0 100.0 32.2 0.0 100.0 8.8 100.0 60.3 100.0 7.8 31.2 100.0 100.0 100.0 43.7 100.0 34.5 90.7 51.5 100.0 0.0 100.0 50.7 100.0 Operating Operating Alumina production Aluminium production Finance Operating Operating Operating Finance Finance Zinc/Lead production Zinc development Zinc/Lead production Oil production Finance Copper production Copper production Copper production Copper production Coal production Zinc/Lead production Zinc/Lead production Zinc/Tin production Aluminium production Finance Biodiesel production Operating Zinc/Lead production Coal production Vegetable oil production Sugar cane/ethanol production Copper production Coal production Edible oil production Diversified production Edible oil production Oil storage and bunkering Copper production Manganese furnace Operating Zinc/Lead/Copper production Gold production 1 P = Parent; F = Full consolidation; E = Equity method; O = Other investment 2 Represents Glencore’s economic interest in Century, comprising 41.8% (2011: 41.6%) voting interest and 4.8% (2011: 4.8%) non voting interest. 3 Publicly traded on the Frankfurt Stock Exchange under the symbol A0HNQ5. Glencore owns 52,329,946 shares. 4 Although Glencore holds less than 50% of the voting rights, it has the ability to exercise control over Umcebo as a result of shareholder agree- ments which provide Glencore the ability to control the Board of Directors. 5 Publicly traded on the Singapore Exchange under the symbol CHEL.SI. Glencore owns 1,150,933,594 shares. 162 | Annual Report 2012 | 162 | Annual Report 2010 | Financial StatementS overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN Method of consolidation in 2012 Country of incorporation % interest 2012 % interest 2011 Main activity Katanga Mining Limited 6 Murrin Murrin Group Correcta Industria e Comercio Ltdo. Moreno Group Pacorini Group Pasar Group Polymet Mining Corp. Portovesme S.r.L. Renova S.A. Russneft Group (various companies) 7 Shanduka Coal (Pty) Ltd 8 ST Shipping & Transport Pte Ltd Topley Corporation Viterra Group Volcan Compania Minera S.A.A. F F F F F F E F E O F F F F O Canada Australia Brazil Argentina Switzerland Philippines Canada Italy Argentina Russia 75.2 100.0 100.0 100.0 100.0 78.2 25.7 100.0 33.3 75.2 100.0 100.0 100.0 100.0 78.2 24.1 100.0 33.5 Copper production Nickel production Wheat flour milling Edible oils production Metals warehousing Copper production Copper production Zinc/Lead production Vegetable oil production 40.0 – 49.0 40.0 – 49.0 Oil production South Africa 49.9 Singapore B.V.I. Canada Peru 100.0 100.0 100.0 7.3 70.0 100.0 100.0 0.0 6.9 Coal production Operating Ship owner Grain handling Zinc production 6 Publicly traded on the Toronto Stock Exchange under the symbol KAT.TO. Glencore owns 1,433,702,634 shares. 7 Although Glencore holds more than 20% of the voting rights, it has limited management influence and thus does not exercise significant influ- ence. 8 Although Glencore holds less than 50% of the voting rights, it has the ability to exercise control over Shanduka as a result of shareholder agree- ments. | Annual Report 2012 | 163 | Annual Report 2010 | 163 Murrin Murrin, Australia AdditionAl informAtion 5 | Additional information 5.1 | Glossary 5.2 | Shareholder information 166 167 5.1 | Glossary AvAilAble committed liquidity US $ million Cash and cash equivalents and marketable securities Headline committed syndicated revolving credit facilities Amount drawn under syndicated revolving credit facilities Amount drawn under U.S. commercial paper program Total 2012 2011 2 820 12 805 – 5 881 – 726 9 018 1 345 11 905 – 5 907 – 512 6 831 AdJuSted cuRReNt RAtio Current assets over current liabilities, both adjusted to exclude other financial liabilities. AdJuSted ebit/ebitdA US $ million Revenue Cost of goods sold Selling and administrative expenses Share of income from associates and jointly controlled entities Share of Associates’ exceptional items Dividend income Mark to market valuation of certain natural gas forward contracts Unrealised intergroup profit elimination adjustments Adjusted EBIT Depreciation and amortisation Adjusted EBITDA 2012 2011 214 436 – 210 435 – 997 367 875 17 123 84 4 470 1 473 5 943 186 152 – 181 938 – 857 1 972 45 24 0 0 5 398 1 066 6 464 cuRReNt cAPitAl emPloyed Current capital employed is current assets, presented before assets held for sale, less accounts payable, deferred income, provisions, other financial liabilities and income tax payable. coPPeR equivAleNt Glencore has adopted a copper equivalent measure to assist in analysing and evaluating across its varied commodity portfolio. The copper equivalent measure is determined by multiplying the volumes of the re- spective commodity produced or marketed by the ratio of the respective commodity’s average price over the average copper price in the prevailing period. ReAdily mARketAble iNveNtoRieS Readily marketable inventories are readily convertible into cash due to their very liquid nature, widely available markets and the fact that the price risk is or could be covered either by a physical sale transaction or hedge transaction on a commodity exchange or with a highly rated counterparty. 166 | Annual Report 2012 | overview | BUSiNeSS review | CorPorATe GoverNANCe | FiNANCiAL STATeMeNTS | AddiTioNAL iNForMATioN 5.2 | Shareholder information Glencore International plc is registered in Jersey, with headquarters in Switzerland and operations around the world. Headquarters Registered Office Baarermattstrasse 3 P.O. Box 777 CH-6341 Baar Switzerland Queensway House Hilgrove Street St Helier Jersey JE1 1ES The Company has a primary quote on the London Stock Exchange (LSE) and a secondary quote on the Hong Kong Stock Exchange (HKEx). London Stock Exchange (LSE) Reuters Code: GLEN.L Bloomberg Code: GLEN LN ISIN: JE00B4T3BW64 Sedol Number: LON B4T3BW6 Hong Kong Stock Exchange (HKEx) Reuters Code: 0805.HK Bloomberg Code: 805 ISIN: JE00B4T3BW64 Sedol Number: XHKG B3NFYS8 Share registrar Enquiries Computershare Investor Services (Jersey) Limited Queensway House Hilgrove Street St Helier, Jersey JE1 1ES Channel Islands Tel.: +44 (0) 870 707 4040 Computershare Hong Kong Investor Services Limited Hopewell Centre 46th Floor 183 Queen’s Road East Wan Chai Hong Kong Tel.: +852 2862 8628 Company Secretary John Burton john.burton@glencore.com Assistant Company Secretary Ivy Chan ivy.chan@glencore.com Glencore International plc Baarermattstrasse 3 CH-6340 Baar Switzerland Tel.: +41 41 709 2000 Fax: +41 41 709 3000 E-mail: info@glencore.com | Annual Report 2012 | 167 Forward looking statements This document contains statements that are, or may be deemed to be, “forward looking statements”. These forward looking statements may be identified by the use of forward looking terminology, including the terms “believes”, “estimates“, “plans“, “projects”, “anticipates“, “will“, “could“, or “should“ or in each case, their negative or other variations thereon or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward looking statements include all matters that are not historical facts and include, but are not limited to, statements regarding Glencore’s beliefs, opinions or current expectations concerning, among other things, the business, financial condition, results of operations, prospects, strategies and plans of Glencore. By their nature, forward looking statements involve known and unknown risks and uncertainties, many of which are beyond Glencore’s control. Forward looking statements are not guarantees of future performance and may and often do differ materially from actual results. Important factors that could cause these uncertainties include, but are not limited to, those discussed under “Principal risks and uncertainties” in section 1.7 of this document. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncer- tainties facing Glencore. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward looking statements. Forward looking statements speak only as of the date of this document. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Services Authority and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited), Glencore is not under any obligation and Glencore and its affiliates 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 statement in this document is intended as a profit forecast or a profit estimate and no statement in this document should be interpreted to mean that earnings per Glencore share for the current or future financial years would necessarily match or exceed the historical published earnings per Glencore share. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities. The making of this document does not constitute a recommendation regarding any securities. 168 | Annual Report 2012 | 

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