DBRS Upgrades Xstrata plc to A (low) and R-1 (low)

DBRS has today upgraded the ratings of Xstrata plc, Xstrata (Schweiz) AG, Xstrata Capital Corporation A.V.V., Falconbridge Limited, and Xstrata Finance (Canada) Limited (collectively Xstrata or the Company) to A (low). The rating action results from the Company’s strengthening financial profile over the last twelve months, with Xstrata’s financial profile now brought in line with its business profile (which was strengthened substantially last year with the Falconbridge, Cerrejón and Tintaya acquisitions).

Last year, the Company’s financial profile was weakened substantially as Xstrata took on $17 billion of new debt to fund the acquisition of Falconbridge Limited (Falconbridge). Over the last twelve months (ending June 30, 2007), Xstrata has strengthened its financial profile by: (1) increasing its equity base with a $5.5 billion equity issuance in October 2006, and (2) using cash flow from operations and the proceeds from the sale of its aluminium division (for $1.1 billion) to reduce its debt levels by approximately $5.3 billion. The financial profile for Xstrata at June 30, 2007, was: (1) percent gross debt-to-capital of 33% (versus 44% at year-end 2006), (2) total net debt of $10.0 billion (versus $13.6 billion at year-end 2006), (3) total debt-to-EBITDA at 1.1 times (versus 2.2 times at year-end 2006), and (4) cash flow-to-total debt of 0.70 times (versus 0.36 at year-end 2006).

With the Falconbridge, Cerrejón and Tintaya acquisitions in 2006, Xstrata’s business profile strengthened substantially as the Company consolidated its position as a world-class diversified mining group with top-ranking positions in copper, nickel, thermal and metallurgical coal, zinc and alloys. Additionally, Xstrata has one of the strongest and largest pipelines of potential projects in the mining sector (expansionary capital of $4.5 billion has already been approved, with a further $7 billion in the approval process). Along with BHP Billiton Plc, Rio Tinto plc, Companhia Vale do Rio Doce (CVRD) and Anglo American plc, Xstrata is now one of the five largest diversified mining companies in the world (enterprise value over $75 billion).

DBRS expects high commodity prices (driven by strong market demand/supply fundamentals) to allow the Company to continue generating strong cash flows from operations. Going forward, DBRS expects the Company to use its strong cash flows to finance its expansionary capex program, its acquisition program and possibly to continue to reduce its debt levels. The Company’s credit metrics are expected to remain at current levels for the mid term.

Notes:
All figures are in U.S. dollars unless otherwise noted.