Resources Experience - PwC12 | Resources Experience Anglo Coal Marketing Limited Back office process review Our PwC Consulting team was engaged to undertake a back office review of

Consulting November 2010

pwc.com.au

Resources Experience

2 | Resources Experience

Our focus on the resources sector

At PwC we have worked alongside the largest resources organisations in the world. Our goal is to work collaboratively with our clients and to exceed expectations. In this document we outline our Consulting experience with such organisations as BHP Billiton, Rio Tinto, Xstrata, Vale, Santos, Anglo American and BG. We have also worked closely with small and mid-tier operators to provide business solutions and to help to deliver on growth aspirations.

Our clients

| 3


Anglo American Metallurgical Coal

Asset Replacement Optimisation — Application review

The cost of replacing large capital items such as trucks and shovels is significant and various methods are used throughout the mining industry to predict the optimal time to replace these items. A number of factors must be considered when determining the optimal replacement window. These include the total cost of ownership, maintenance profile and scheduling, depreciation, salvage value, cost of capital and tax implications.

Anglo engaged PwC to perform a review of a newly developed application which aims to reliably track the total cost of ownership and maintenance profile, and establishes the optimal replacement window.

PwC utilised subject matter experts in mining asset valuation and operations to assess the calculations within the application against the agreed methodology, and review the assumptions and methodology against industry standards.

Reference: Paul Arnell | Business Performance Superintendent

OptimisationTool

InternalAnalysis

ExternalAnalysis

| 5

Anglo American Metallurgical Coal

Workforce planning and accommodation strategy

The PwC Consulting team assisted the Human Resources team at Anglo with two strategic projects.

Workforce planning: Anglo recognised the importance of workforce profiling and detailed planning for its future workforce requirements. The PwC team worked with Anglo to establish a five year workforce strategy and operational plan. PwC also profiled the current and future workforce at each mine site and across the company with future requirements and industry benchmarks.

Workforce accommodation: This is a critical issue for all mining companies operating in remote and rural regions of Australia. The PwC team worked with Anglo to determine the most cost effective option to provide future accommodation requirements for over 5000 employees and their families. This involved analysis of the current housing asset base and evaluation of many different options available to Anglo to provide appropriate accommodation standards in a cost efficient manner.

Reference: David Diamond | Head of Human Resources


Anglo American plc

Global credit risk management for Anglo Coal

In 2009, Anglo American decided that the new economic climate required a greater focus on credit risk for their global coal customer base. Our Consulting team was engaged to develop best practice policy, procedures and tools to be implemented worldwide for all of Anglo’s sea-borne coal sales.

This involved the development of new policy, procedures and software tools across Anglo’s worldwide offices. Sophisticated assessment criteria were developed to ensure that appropriate credit risk tools covered all possible customer types and country of incorporation, particularly for customer entities such as trading houses that are not covered by global rating agencies.

The PwC team worked with the Anglo marketing, treasury and legal teams based in Australia, South Africa and the United Kingdom to develop and implement the new policies, procedures and software risk assessment tools.

Reference: François Jacques | Former Global Head of Marketing & Sales

Company risk Market risk Sovereign risk

1

1. Size

2. Net assets

3. Liquidity (current ratio)

4. Liquidity (acid test)

5. Profitability

6. Gearing

7. External credit rating

Weighted average

Risk ratingKey assessment area 32 4 5

1

1

3

4

3

3

1

1

Brazil Moody’s l S&P Ba1, BBB+

| 7

Anglo American plc

Financial risk policy

PwC Consulting assisted Anglo in formulating an appropriate hedging strategy and financial risk policy for global coal sales which in FY2009 exceeded US$9bn from their mines in Australia and South Africa.

The PwC team from Brisbane worked with the Anglo American global Sales, Marketing, Treasury and Finance Teams in London and Brisbane to understand the potential impact of different risk strategies under currency movement and price movement scenarios. The production and cost profiles for all coal mine assets were determined to provide a robust basis for cost and EBIT forecasts. This analysis also considered the market liquidity for derivatives, the portfolio of fixed and floating priced sales contracts and the natural hedges in the global Anglo portfolio. PwC also determined the potential impact of accounting and tax issues for various risk policy scenarios.

Reference: Francois Jacques | Global Head of Marketing & Sales

Commodity Price

OperatingExpenses

FX Revenue Exposure

FX Capital Expenditure

Exposure

Financial Risk Policy Framework


Operational review of the marketing and logistics function

Our Consulting team was engaged to undertake an operational review of all pit to port activities for the Marketing and Logistics function. This involved an assessment of all processes, policies and procedures.

We worked collaboratively with the Anglo team to redesign the core processes necessary to address what had been identified as the priority operational inefficiencies. This led to the development and implementation of a new organisational structure for the Marketing and Logistics team.

Since implementing our recommendations, Anglo has realised significant and tangible improvements in operational performance and productivity.

Reference: Mike Allen | Sales Leader

Anglo Coal Australia

Reblend and compile to

product specifications

Initial blend toquality &

specificationsrail to port

Salesforecast

Activity not happening Activity happening

Production scheduling (mine site) Sales

Logisticscoordinators Wash plant At the port

1 2 3 6 7 9

.

Production Vessel sails

Rolling 13

weekproduction

forecast

Quality 13week

forecast

4Shipping schedulebased on rolling 13week production

forecast

5Mine to

productionand quality

forecast

Pit to Port

Quality certification

8

Stockpile adjustments at the port are not

integrated into AMS

Cruise ship25 knots

| 9

Rail contract KPIs

Anglo required drafting of a new set of contracts for the provision of rail haulage services between mine and port. Continuing congestion in the rail and port supply chain required a fresh look at the operational parameters most important to the cost effective haulage of coal. Anglo selected the PwC team in Brisbane for our experience working across coal, rail and port sectors throughout Queensland.

The Consulting team worked with Anglo to develop a comprehensive set of rail contract KPIs that would help drive improved performance from rail suppliers. Most important was selecting the correct combination of incentives and penalty provisions to drive operational decisions which would result in solid commercial outcomes for both Anglo and their rail providers.

Reference: Dan Reynolds | Head of Infrastructure and Logistics

Development of a stage gating process for major capital projects

Following a PwC assignment in early 2007 to develop a project evaluation stage gate process across the company, Anglo asked PwC to review and revise the full set of Anglo Australia Phase Guideline documents that support the process. A detailed set of new guidelines was developed for every phase of project development, from concept through to feasibility and post green light evaluation.

This required synchronising all project review stages with the global Anglo American investment review board stages.

Reference: Rob Reeson | Head of Studies


Concept Feasibility Implement-ation

Operation

Pre-feasibility gate

Influence

Cost to change

Expenditure

Major influence/limited cost

Diminishing influence/escalating cost

Low influencehigh cost

Pre-feasibility

Feasibility gate Implementation gate Operation gate

“I have to congratulate PwC on the high quality of their team who motivated and involved our people throughout the development and transition process. Critically, Anglo was able to benefit from the experience that the PwC team had gained in other industry sectors. In less than four months they helped us transition to a new sustainable structure and set of key business processes by ensuring our operational design was driven by our strategic objectives.” Mike Allen, Sales Leader


Major capital projects — Continuous improvement

Our Strategy and Operations team recently reviewed the lifespan of a major capital project and then developed and implemented new processes for the capture, analysis and dissemination of ‘lessons learnt’ across future major capital projects.

The first stage of the project involved collating and reviewing experience from a recently commissioned mine with the aim of incorporating that knowledge into future projects.

The second stage of the project involved embedding the ‘lessons learnt’ process across all of Anglo’s major capital projects. The processes and associated procedures were embedded into various parts of the organisation. Anglo now has an ongoing set of tools and procedures to support continuous improvement for 17 major capital projects.

Reference: Cameron Young | Project Services Manager

“I applaud PwC on the high quality of their team. They all engaged effectively with our people and added their own insight throughout the project. In less than three months PwC helped us put in place a high quality set of guidelines for this critical part of our business.” Rob Reeson, Head of Studies


| 11

Dawson and Lake Lindsay mine redevelopments — Commercial alignment and review

Anglo undertook major mine redevelopment and associated infrastructure projects at its Dawson and Lake Lindsay coal mining operations. This involved the establishment of separate alliance contracts and engineering, procurement and construction management (EPCM) contracts for the delivery of these major works.

PwC was engaged by Anglo during the establishment of these major contracts in order to model risk reward scenarios and develop the commercial framework including compensation terms and conditions for contracting parties that aligned to project objectives and key performance indicators. PwC undertook due diligence procedures at each contracting organisation in order to review business structure, costing systems and processes and analyse margin trends at business unit and benchmark project level.


Once commercial alignment was reached, PwC provided ongoing project assurance services during project development and delivery including:

• periodicreviewofalliance/EPCMcosts

• reviewoftargetcostestimate

• reviewofprocurementactivities

• projectgovernance,systemsandcontrolsreviews

• investigationofspecificcostoverruns.

During this engagement, PwC worked directly with Anglo project management and controls representatives as well as interfaced with other advisors (including external legal advisors, facilitators, independent estimators and owner representatives) and contractor representatives at each alliance and EPCM contract.

Reference: Michelle Welsh | Project Manager — Commercial


Anglo Coal Marketing Limited

Back office process review

Our PwC Consulting team was engaged to undertake a back office review of Anglo Coal Marketing Limited, Anglo American’s London operations. This involved a review of all sales, logistics and finance functions managed by this team.

A new organisation structure was developed which better aligned roles and reporting lines to the key operational processes undertaken by the group. The new organisation structure also focused on reducing the business continuity risk that had existed. Detailed process and role descriptions and performance KPIs were then developed to improve performance management.

Reference: François Jacques | Global Head of Marketing & Sales

Sales AccountManager

(Thermal coal)

Sales AccountManager(Met coal)

Shipping &Logistics Manager

Finance Director

QualifiedGraduate

Accountant

Sales AccountManager 2

(Thermal coal)

Shipping &Logistics Manager

Risk & ContractsManager

Mine MarketSystems Support

Officer

ManagementAccountant

FinanceAssistant

Managing Director

Process driven organisational structure

| 13

The Argyle open pit mine was the largest diamond producing mine in the world and the only significant pink diamond supplier. The management team identified the need to improve understanding of the business from a shareholder value and wealth creation perspective. Specifically, the business needed to establish the economic cut-off point for the mining operation and to evaluate options to extend resource exploitation.

The specific challenges included:

• lowerpricesforsmaller,naturaldiamonds

• weakerdemandforindustrialdiamonds (due to substitution)

• naturalvariationsingradeoftheore

• uncertaintyovermarketcoststructures&dynamics

Our consultants were engaged to define the business processes and activities across all sectors of the business from mining operations to marketing via central selling organisation (“CSO”). Using this rigorous, structured approach, the joint team was able to assess the overall economic health of the business by identifying, ranking and evaluating process redesign opportunities. A number of cross-disciplined teams were formed to design and implement a strategy using a series of tools and intervention techniques.

Argyle Diamonds – End to End Operational Review

The opportunities to increase value and extend mine life included:

• processplantde-bottlenecking

• varyingtheproduct/wastesplit

• improvingmobilefleetutilisation

• improvingfixedplantutilisation

• reducingprocessrecyclestreams(eliminatingrework)

• relocationofservicesemployeessuchasHumanResources, Accounting and IT and employing contemporary ‘remote working’ approaches.

These opportunities provided a significant, quantifiable improvement in net present value of the Argyle project, an additional 15 years of open pit mine life and the opportunity to further exploit the resource through development of underground mining operations. The business restructured its marketing by adopting a direct go-to-market approach by abandoning the CSO.


Analysis of industry-wide Health Safety Environment (HSE) performance

APPEA represents the interests of companies involved in oil and gas exploration and production operations in Australia, and companies which provide goods and services to the upstream petroleum industry. Part of APPEA’s role is to provide periodic reporting of member HSE performance, to facilitate openness and transparency, and to assist with development of strategic programs to enable the continuous improvement of HSE performance across the sector.

To assist APPEA perform this function, our Sustainability and Climate Change practice developed and continue to manage a standardised HSE data collection and reporting system. The system provides structured analysis and identification of systemic and emerging HSE issues on a risk, company and sector basis, including benchmarking of performance.

In developing this system, we provided APPEA with independent reporting services, improving the quality and integrity over the collection, collation and reporting of HSE data. APPEA members benefit from a consistent approach, which enables benchmarking of performance between member organisations and promotion of transparent disclosure.

Australian Petroleum Production & Exploration Association (APPEA)

Lost time injury frequency rate 1996-2010 Figure 2a Mechanism of HIPO Q1

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

LTI Frequency (per million hours worked

Explosions or burns 2.8%Vehicle accident 1.4%

Contactheat/cold,1.4%

Mult Mech injury1.4%

Cont. Chem.Substance

4.16%

Falls/height 1.4%

Contactelect 5.20%

Other2.8%

Struck by8.32%

| 15

Australian Petroleum Production & Exploration Association (APPEA)

Nature of incidents 2009-2010 Incidents by occupation 2009-2010

2009 2010

Other Diseases

Infectious Diseases

Deafness

Circulatory

Effects/Weather

Concussion

Internal Injury

Fractures

Hernia

Nerves/Spinal

Poison/Toxic

Other Unspecified

Multiple

Eye Disorders

Dislocations

Muscle Disorders

Amputation

Burns

Superficial

Confusion

Foreign Body

Fractures

Sprains/Strains

Open Wound

2009 2010

Heavy EquipmentOperator

Foreman, Supervisor,Site Representatives

Engineer, Scientist,Technician

Transportation Operator

Process /Production Operator

Administration,Management, Support Staff

Drilling /Well Servicing Operator

Maintence Tradesperson

Manual Labour


Greenhouse gas and water reduction cost-curve modelling

To help respond to the social and environmental impacts of their business, BHP Billiton recently issued a group requirement whereby facilities that exceed specified water consumption and greenhouse gas (GHG) emission thresholds develop cost curves for GHG and water reduction opportunities.

As a part of this global initiative, we were engaged by BHP Billiton Base Metals in Chile to investigate and develop greenhouse gas and water abatement cost curves at three mine-site locations.

Our approach involved:

• conductingandfacilitatingworkshopswithlocaloperations to identify abatement opportunities

• screeningandcostingtheidentifiedprojects

• modellingtheabatementoptionstoderiveacostperunit of greenhouse gas and water abated

This assignment will be used by BHP Billiton to identify and prioritise cost effective greenhouse gas and water abatement opportunities for implementation and provide input into a Group level greenhouse gas and water reduction target.

BHP Billiton

Low Medium High

Low

Accuracy of evaluation

Mat

urit

y o

f te

chno

log

y

Med

ium

Hig

h

31

29

6

36

2

58

33

1160

3840

2824

30

5132

3

18

16

5952

14

13

15

37

| 17

We were engaged by the BHP Billiton Energy Coal Customer Sector Group (“CSG”) to develop a series of best-in-class management reports across the business. The new reports comprise two components; “front of house” consisting of tables and graphs through which information is viewed by the readership and “back of house” where the data driving the “front of house” is captured and stored.

The project aimed to more closely align the management reports used across the CSG whilst also ensuring:

• alloperatingassetreportscascadetotheCSGreportand reflect all key costs, physicals, health,safety and environment KPIs and other value drivers necessary for asset and facilitate planning and business performance reviews by the CSG

• thekeyCSGvaluedriverswereidentifiedandthatthe operating assets reported on these, whilst still allowing sufficient flexibility to recognise the unique characteristics of each operating unit

• greaterstandardisationofcostsegmentationandreporting standardisation of KPI definitions across the operating assets.

BHP Billiton Energy Coal – Performance Reporting

Achieving a ‘single source of truth’ and standardising costs and KPIs across all assets enabled more meaningful conversations at all levels of the organisation regarding performance. The detail in the reports provided management the insight needed to understand underlying causes of variations in performance.

The reports contain historical, current and long-term forecast information, which is valuable in planning and review processes. The information also identified several strategic improvement opportunities.

The reports continue to be referred to by management, not only in monthly performance review meetings but also in their day-to-day roles when they want to verify specific issues or KPIs.


Operational feasibility of employee transportation

BHP Billiton Mitsubishi Alliance (BMA) is the largest coal mining company in Queensland with over 4,000 people directly employed and working across nine coal mines located in remote locations across central Queensland.

PwC was engaged to investigate the operational feasibility of offering both local and regional bus services to mine employees for a coronial inquest. The investigation required an assessment into the viability of providing both bus services. Detailed analysis of variables such as shift rosters, home residence of employees and travel patterns was undertaken to determine patronage and operational requirements.

BHP Billiton Mitsubishi Alliance

| 19

Independent assessment of Australia’s largest coal producer’s safety performance

As the largest mining company in Queensland, BMA is committed to setting a high standard for safety performance. As part of this commitment, BMA engaged PwC to undertake an independent review of its recent safety performance. This engagement followed on from a similar successful review performed by PwC 12 months earlier with the main objectives being to outline key risk areas and to suggest focus areas for improvement.

Identifying high risk areas

By re-defining and consistently categorising past injury reports, PwC was able to clearly identify high risk areas responsible for the majority of safety incidents and injuries.

As a result of this analysis, BMA had a complete picture of high risk areas where it could conduct focused and relevant training and risk mitigation initiatives to continue to ensure its safety management system is world class.

Reference: Jason Economidis | Vice President Safety

“PwC was able to highlight and quantify several unknown relationships between operational factors and different categories of safety incidents.” Jason Economidis, Vice President Safety

BHP Billiton Mitsubishi Alliance

Near miss

First aid

Medical treatment

Lost time

Fatality

Restricted work

Total recordable injuryfrequency rate

Lost time injuryfrequency rate

Restricted work

Coverage of popular safety reporting indicators


Following the merger of BHP with Billiton, management had the responsibility to shareholders of finding post-merger synergies and delivering US$500m in opex savings over five years. An integral component of this strategy was to renegotiate the commercial arrangements around the purchasing and maintenance of its fleet of heavy earth moving equipment.

Our Strategy team was engaged to conduct a detailed review of the group’s heavy mobile fleet and related spend in order to measure the interregional capex and spares price differentiation and to quantify historical price movements. Our analysis also included an assessment of maintenance and repair contracts, warranty offers and supply chain re-engineering opportunities.

BHPB Global – Strategic Sourcing Heavy Mobile Fleet

With a global supply contract in place with three original equipment manufacturers (OEM), BHP Billiton has been able to take greater control over the monitoring of its commercial arrangements with the heavy mobile supply market. This has led to significant reductions in the total cost of ownership across their entire heavy mobile fleet. The changes also provide the OEMs with greater certainty of market share, which enables them to respond with greater transparency in pricing and more effective service levels through improved infrastructure.

| 21

Dalrymple Bay Coal Terminal

Review and renewal of Dalrymple Bay Coal Terminal Access Undertaking

The Dalrymple Bay Coal Terminal User Group consists of the eight major mining companies which use the terminal, near Mackay in central Queensland. These companies are AngloCoalAustralia,BHPBilliton/BMA,BowenCentralCoal, Macarthur Coal, Peabody, Rio Tinto Coal Australia, Vale and Xstrata Coal.

PwC was engaged by the DBCT User Group to provide advice and background analysis to assist in negotiations with Babcock and Brown Infrastructure, owners of DBCT, for the new regulated Access Undertaking.

We assisted the DBCT User Group to identify and prioritise key issues for amendment in the revised Access Undertaking, structuring proposals for consideration by BBI and the regulator, the Queensland Competition Authority.

References: Bob Skuza | Infrastructure Manager, Vale | Chair,

DBCT User Group

Dan Reynolds | Infrastructure & Logistics Leader, Anglo |

Chair, DBCT User Group


Downer EDI Mining

Plant rate and accounting for fixed assets review

As part of a new business strategy and operations, Downer EDI Mining asked PwC to conduct a review and provide recommendations around Downer’s plant and equipment strategy.

As part of this review, PwC modelled the impact of plant and equipment utilisation rates, and the subsequent impact of running costs and plant rates. PwC provided recommendations covering the economics and accounting strategies for Downer EDI Mining with the view to maximise value for the Downer EDI Group.

Reference: Gerhard Ziems | Chief Financial Officer

| 23

Hamersley Iron had installed Oracle as its firm wide ERP and selected “Financial Analyser” as its performance management environment. The senior management team needed to engage with their workforce to design a suite of key performance metrics that linked team performance to overall project net present value.

In collaboration with business improvement teams from each mine site, rail and port operation, our team assisted in identifying KPIs that were transparently linked to both process performance and overall corporate performance and targets. Information was extracted from physicals and financial data bases and mapped to appropriate environment to create a cascading grid of KPIs.

The outcome of the project was to provide meaningful business understanding at all levels, improved understanding of value creation and enhanced planning, forecasting and budgeting.

Hamersley Iron – Implementation of Oracle Performance Management and Cascading KPI’s


Kanowna Belle Gold Mine – Review of Underground Mining Options

Following the cessation of open pit mining, Kanaowna established an underground decline to further exploit the ore body. The management team faced the additional challenge of extracting and transporting its ore in the most cost effective way possible

At the time, the mine was producing 600,000 ozs of gold per annum. Continuing to use existing ore haulage to surface methods would most likely lead to an earlier than planned mine closure if current prices prevailed.

PwC was engaged to evaluate the economic impact of alternative methods of resource exploitation including:

• theinstallationofanundergroundcrusherandtheuseof a conveyor to transport crushed ore

• theinstallationofanundergroundcrusherandtheuseof trucks to transport crushed ore

• theinstallationofmobileundergroundconveyorstoconvey ore to a shaft hoist to convey uncrushed ore to a surface primary crusher

• continuewithconveyinguncrushedorebytrucktosurface crusher

The project also included a review of capex components and availability major components and spares for each option. PwC used detailed value driver trees to assess each option.

By choosing the option that provided the least complexity and greatest economic benefit the business was able to add 5 years of economic mine life. This served to maximise shareholder value for the eventual sale of its other 50% shareholder.

| 25

Review and approvals

MCC Consolidated Budget (CFO)

Collation and Accounting Adjustments(Financial Controller)In

put

s to

cor

por

ate

stra

tegy

Bud

get

Fram

e

Exploration(Chief Geologist)

Development(EGM – Projects)

Middlemount Coal

NewDevelopmentsComing online

Overheads(Financial Controller)

CMJV(Finance

Improvement Manager)

Board CEO

Marketing

ICT

Sust +Enviro

CFO

CompanySecretarial

CorporateDev

Finance

HR

Projects

OfficeServices

OCD &Tech

BowenBasin

CapricornCoal

MoorvaleWest Monto 2

WestBurton

WestRolleston

WestWalker

OliveDowns

GreenfieldsGreenfields

C D E

F

Level1

G

A B

AccountingAdjustments

Comm-ercial

Macarthur Coal Limited

Annual budget process optimisation

Macarthur Coal is a key international supplier of low volatile PCI coal accounting for approximately one third of the total volume of low volatile PCI coal exported from Australia through the Coppabella and Moorvale joint ventures.

PwC worked with the Macarthur Coal Corporate Finance team to optimise their annual budgeting process including developing new guidelines, procedures and templates. This involved documenting all tasks, roles, deadlines and budget owners in a manual and ensuring the entire process was scalable for new mine projects.

Reference: Michael Barry | Executive General Manager, Finance


Abatement project cost modelling and carbon management strategy development

To assist with the development of a carbon management program, we worked alongside Newcrest to to provide a better understanding of the value at risk (VaR) on account of a potential future price of carbonand how this could impact their strategic business response options.


• agapanalysisofNewcrest’sdomesticandinternational emissions data against mandatory reporting requirements

• anassessmentofNewcrest’spotentialVaR,presentedby the emergence of a carbon price in Australia, based onknown/forecastpricingregimes

• areviewofNewcrest’sabilitytogeneratecarbonandenergy abatement within its own operations through the identification, costing and modelling of abatement projects, and the development of a marginal abatement cost curve for selected sites.

Utilising this information, we developed an investment summary and position paper for Newcrest which outlined:

• no-regretsactionstobetakentomeetcomplianceobligations and capitalise on any immediate andjustifiablecarbonreduction/carbonpositioning strategies;

• theactions/optionsthatcouldbetaken,butwhoseeconomic and operating benefits are more difficult to defineand/orrequirefurtheranalysis;and

• theoptionsthatmaybeconsideredlaterorthat,basedon the current state of knowledge, would be too risky or capital intensive to execute (i.e. do later or not at all).

Newcrest Mining

| 27

Newcrest Mining Limited streamlined reporting project

Newcrest Mining Limited is Australia’s largest gold producer and one of the world’s top 10 gold mining companies by production, reserves and market capitalisation. PwC was asked to review Newcrest’s performance reporting framework and to recommend key improvement opportunities. Subsequently, PwC was engaged to work collaboratively with the Newcrest team to design and implement the future reporting framework and detailed performance reports.

This project delivered:

• 50%reductioninthemonthendcloseperiod

• anewsuiteofmonthlyExecutiveCommitteereports

• improvedfocusonprioritymetrics

• consistencyinperformancereportingacrosssites

• improvedreliabilityandintegrityofdata.

Newcrest Mining Limited


Following the acquisition of Lion Ore by Norilsk, a new senior management team was appointed and charged with delivering against the parent company’s aggressive growth targets. The new parent company required detailed business plans and budgets as part of the integration process. In addition to the portfolio review, our consultants were asked to lead a performance improvement program for the business amidst extended upward pressure on the operating costs for all companies in the key mining regions of Western Australia and Queensland. The challenge was how to sufficiently increase productivity to both offset rising costs and deliver an additional level of defined savings.

At the time, NNAu’s operations consisted of three mature producing assets with a maximum of 3 years production life remaining without significant investment. NNAu also had an exciting portfolio of immature assets that were at least five years away from production. We were initially engaged to develop a robust NNAu strategy that focused on maintaining and extending production from the existing assets long enough to allow production from the new assets to come on line. In addition to assisting the management team implement the strategy, we also worked with NNAu to identify the key areas for productivity improvement and cost reduction, improved maintenance strategies and practices and improvement in grade recovery by better understanding process constraints and finally by renegotiating major contracts.

The business was better placed to understand current status, key risks and challenges and the options available for maximising returns going forward. Approval for a longer term development plan was granted - this included a significant uplift in investment in exploration, projects and sustaining capital. Substantial cost savings were also identified primarily due to increased nickel recovery and metal production, increased contractor productivity and improvement in maintenance practices.

Norilsk Nickel (“NNAu”) – Portfolio Strategy and Operational Performance Review

| 29

We assessed key controls related to:

• completeness of reporting boundaries

• completeness of emission sources

• corporate data collection and aggregation from the businesses

• management review and sign-off

We provided practical recommendations to improve the effectiveness of the governance process, and recommendations to improve the design of key controls and integration with existing business processes.

Gap analysis of governance arrangements for statutory greenhouse and energy reporting

The Australian and New Zealand Governments recently introduced statutory greenhouse gas and energy reporting, as defined by the Australian National Greenhouse and Energy Reporting Act (2007) (NGER) and the New Zealand Climate Change Response Act 2002 (CCRA).

Origin Energy has statutory reporting obligations under both Acts.

Our Sustainability and Climate Change practice performed a gap analysis of key governance processes and controls implemented by Origin Energy in order to improve reporting under the requirements of NGER and CCRA.

Origin Energy


CSG business improvement and program management

PwC consultants worked with Origin’s Upstream CSG Program & Business Improvement Manager on several major initiatives, including:

• capabilityanalysisoftheCSGbusiness

• alignmentoftheperformancemanagementframeworkwith the CSG Strategy

• KPIreportingforOriginCSG,forperformancemeasurement and decision support analysis

• rolloutandimplementationofariskmanagementprocess and associated reporting system

PwC drew on experience in oil and gas capital projects across the world from global best practice to provide this assistance.

Reference: Will Nicoll | CSG Program & Business Improvement Manager

Origin Energy | APLNG

| 31

Review of CSG upstream information processes and systems

PwC Consulting assisted Origin to benchmark current operational efficiency in the key areas of business processes, data management, software applications, software training, technology and hardware.

PwC performed qualitative and quantitative analysis in the form of stakeholder interviews, a whole-of-CSG survey, and data-flow mapping to identify the key challenges

limiting the optimal use of information and data resources within Operations. This project help quantify the impact that such sub-optimal processes were having on the upstream business and built a solid case for change in key areas of the information, applications and technology landscape at Origin CSG.

Reference: James Blair | Infrastructure Manager

Origin Energy | CSG


Cost allocation model

PwC Consulting assisted Origin to establish a cost allocation model for capital expenditure on behalf of the APLNG upstream project. The engagement provided the Financial Controller with a definition of the cost flows between the project, its shareholders and joint venture partners and their collective contractors, as defined in various upstream operating agreements.

The CSG cost allocation model attributes direct costs to the relevant programs and establishes a clear methodology for allocating indirect costs. For both direct and indirect costs, this represents the reconciliation of project costs to both the upstream operating agreement accounting guidelines and the joint venture recharge account.

The upstream operator and joint venturers both benefit from an improved level of cost transparency and consistency. This allows the operator to correctly recover costs from its joint ventures, to improve accountability and be auditable to those partners.

Origin Energy | CSG

| 33

Land Access end-to-end process management

PwC was responsible for the management and coordination of QGC’s end-to-end land access process during the ramp up phase for the Upstream Program. This involved obtaining permissions and clearances for land required by QGC’s upstream infrastructure.

PwC’s consultants identified a number of opportunities for improvement, designed to lead to more streamlined processes and more predictable outcomes.

Land Access business and operational planning

PwC performed a business analysis role to assist the General Manager of Land Access prepare the group’s business and operational plan. This involved liaising with various parts of the business to forecast land access requirements, locations of wells, ponds and gathering systems.

Queensland Gas Company | BG Group

Land accessrequest received

Initial contact with landowner

Negotiate initial access

Evaluatesite

Negotiateoperational

access

Finalise &communicate

access agreement

Interval 1

Satisfactory forms &maps received

Initial landownercontact

Executed C to E/Entrynotice delivered to

landowner

Pegging party &sign off maps

completed

Negotiation of compensation,finalisation of legal documents

& release to field

Interval 2 Interval 3 Interval 4

Land Access Process


Landholder segmentation tool

PwC designed a landholder segmentation tool to assist in planning and enable greater efficiencies in the land access process.

The tool allowed the team to segment landholders based on expected ease of access and the business value of the access to that land holding.

Land access risk assessment

PwC undertook a risk assessment for the Land Access program and developed appropriate mitigation strategies for key project risks.


QGC Landholder Segmentation Tool

http://X

X

Landholder Segmentation ToolMatrix

Timeframe Type of well

Land use

Collective action status

Key Gateway

Number of wells

Existing landholders only

Area Tara

3 month outlook

0 - 5

3 montns

... more filters

Saved Searches Search Save

Consent To Enter

Irrigation

Core

Member

Excel PDF

High

High

Low

Low

132

349

866

452

ID: 866Tenement: ATP567Lot: A228Quadrant: North – WestRegister Owner: Mr Joe PublicKey Gateway: Consent to EnterStatus: Amber...

Consequence

Like

liho

od

Project Risk Profile

12 4

3

6

8

7

5

| 35

Queensland Gas Comapany | BG Group

Landholder education material

PwC developed a series of educational flyers explaining how QGC’s operations may impact on landowners. Each flyer covered a relevant Land Access topic area and was written in ‘plain English’ and using engaging illustrations to assist effective communication. Educational leaflets covered the areas of Seismic Testing, Site Selection, Safety, Pipelines, Drilling, Noise, Access, Water and Irrigated Forest Plantation.

Contractor induction material

PwC developed contractor induction material which is being delivered to all contractors working in the field.

The contractor induction material was written assuming a limited knowledge base and covered topics such as:

• anoverviewoftheend-to-endLandAccessfunction

• behaviourscontractorsaretopracticewhenonsite

• landAccesspolicies,proceduresandcode of conduct

• landAccessentrychecklist

• effectivelylisteningandcommunicatingwith landowners

• howtobestdealwithdisgruntledlandowners.

Secure LandAccess

Gas Exploration &Development Gas Production

PipelineTransportation

LiqueficationSeaborne

TransportationRegasification

CustomerDistribution

Reliable & Accessible Gas ReservesProject Funding & Access

TechnologySecure End Customer Off Take

Contracts

Upstream Midstream Downstream

Upstream

Land Access

Plan Land AccessRequirements

Request LandAccess

NegotiateInitial Access Evaluate Site

NegotiateOperational

Access

Finalise & Comm. Access

Agreement

UndertakeOperations

RelinquishLand

End-to-end CSG — LNG Land Access function


Performance management frameworks

PwC was engaged to design a performance management framework to guide performance management and reporting within the Land Access division. PwC followed a structured and logical approach in developing this framework. After building an understanding of the activities driving the corporate and business strategy, the PwC team then developed sets of SMART KPIs designed to measure achievement of key results in these areas. All KPIs were defined in detail and included in a data dictionary to ensure ongoing clarity and utility.


Corporatestrategy

LandAccessstrategy

Activitiesthat

impactstrategy

DeliveringLand Access

OperationalPerformance &Respect for LH

Stakeholder &Grievance

Management

Planning &Requesting

Land Access

Provide land access to meet business objectives & achieve long-term coexistence & enduring

positive relationship with landholders

Business Principles across:

Conduct Our People Society Environment

Framework

| 37

Comprehensive business review

The Board and CEO of QR engaged PwC to review the coal business to identify major improvement opportunities. Areas such as coal contracts, operational reporting, customer negotiation, freight pricing, price escalation, access charging, fuel and risk management were addressed. This project also involved working with six major coal customers at the CEO and CFO level to assess performance and commercial issues with QR from the coal customer perspective.

Following this report, the Board engaged PwC to undertake a detailed review and performance improvement project in the areas of coal contracts and operational reporting to coal customers.

Reference: Susan Rix | QR Director

Coal contracting improvement

Review of coal contracts

QR engaged PwC to review the full set of commercial contracts held between QR and the 19 mining companies operating 50 major coal mines in Queensland and northern New South Wales. These contracts collectively represent in excess of $1.5bn revenue per annum. All contracts were assessed from the perspective of true lifetime economic value and commercial risk to both parties.

Development of new coal contract structure

PwC developed a new coal contract template for QR to use for both new contracts and potential migration of existing and rolling contracts. This involved developing detailed policies in areas such as the movement of external costs, dual party benefit from improved performance, tonnage variations and the impact of customer operation performance. Guidelines for acceptable parameters and financial metrics in all areas were also determined. These improvements have now been fully implemented.

Reference: Brendan Gibson | Acting CFO

Queensland Rail Coal Division


Detailed accident analysis

Strategic review to improve safety performance in the mining industry

Detailed quantitative and qualitative analysis of high potential incident reports led the PwC Consulting team to identify high risk areas and process improvement opportunities.

A sample of 842 high potential incident reports was collected from government records to form the basis of the review. Through detailed analysis of these reports, our team identified five high risk areas and five process improvement opportunities. These findings were presented to the Council in a detailed final report accompanied by a summary presentation.

Reference: Grant Cook | Director of Health & Safety

Queensland Resources Council

Rear dump truckfires involving hoseleaking onto turbo

433

87 346

32 55

12 20

Mobile equipment incidents

Rear dump truck incidents

Rear dump truck fires

| 39

Rio Tinto

Review of reports generated by the Programme Management Office

Programme management office reporting review

In response to the introduction of a new management team with a renewed focus on cost management of the Programme Management Office (PMO), PwC was engaged to review Rio Tinto’s internal reporting function. The project required engagement with key stakeholders and customers of the reports with recommendations on improving reporting processes and the usefulness of the content to drive effective PMO decision making.

Review of Sarbanes-Oxley compliance

The Consulting team was engaged to conduct an external review of one of Rio Tinto’s subsidiaries to check its compliance with Sarbanes-Oxley legislative requirements. Our report identified a number of areas which required immediate attention to ensure future compliance.

Reference: John Searls | General Manager ABS Programme

Clearcommun-

icationflows

Projectcharter

RACIaccountability

matrix

Monitoringagainst metrics

KPIs

Regularupdates &

review

Clear vision& goals


Sustainable Development independent reviews

Rio Tinto believes that its focus on Sustainable Development (SD) ensures ongoing access to people, capital and mineral resources. In turn, this helps deliver a better return for shareholders.

Our Sustainability & Climate Change team led the global engagement that provided the Rio Tinto board with insight and independent reviews over the management of key Sustainable Development risks.

This included

• reportingtotheRioTintoBoardCommitteeonSocialand Environmental Accountability across a range of Sustainable Development areas including the management of Occupational Health risks and major projects

• reviewingtheinternalcontrolsandreadinessofRioTinto’s Australian operations to meet government reporting obligations for Greenhouse Gas emissions and Energy used and produced

• providinglimitedassuranceoversocialandenvironmental risk disclosures aligned to the International Council on Mining & Metals (ICMM) SD framework including the areas of safety, water and Greenhouse Gas emissions.

The combination of our international reach and sustainability specialists ensures that we deliver value and insight at the site, business unit and global level.

Rio Tinto

“For the resources sector, assuring sustainable development performance is becoming just as important as traditional financial assurance.” Phil Turner, Rio Tinto | Global Practice Leader Sustainable Development Assurance

| 41

“PwC’s role as a strategic advisor to Sandvik was key to the successful introduction of a Finance Shared Services Centre in Brisbane.” Financial Controller, Sandvik

Sandvik Mining and Construction

Finance shared services transformation

Sandvik Mining and Construction is a significant provider of equipment to the mining and resources industry, including exploration tools, continuous miners and vehicles for underground use. The Australian arm of the business employs more than 2,000 professionals nationally and is headquartered in Brisbane.

Following a period of significant organic growth and a number of acquisitions, Sandvik decided to consolidate its legacy finance systems and processes to realise efficiency and performance gains.

In March 2007, PwC was engaged to undertake a series of workshops, interviews and benchmarking exercises to redesign the organisational structure and to introduce a finance shared services arrangement.

Reference: Victor Kuss | Chief Financial Officer

Strategic Bus Units

Centers of expertise

Segment 3 Customer Interface

Segment 1 Customer Interface

Customer InterfaceSegment 2

A B C D E

CEO


Santos

Development and delivery of project plan to support compliance with statutory greenhouse and energy reporting obligations

An Australian energy pioneer since 1954, Santos is one of the country’s leading gas producers, supplying Australian and Asian customers. Santos has operations in all mainland Australian states and the Northern Territory, and in Indonesia, Papua New Guinea, Vietnam, India, Bangladesh and the Kyrgyz Republic.

Our Sustainability and Climate Change team worked with Santos to co-develop and implement a project plan to support its Australian operations to prepare for greenhouse gas emissions and energy statutory reporting obligations under the National Greenhouse and Energy Reporting (NGER) Act 2007.


• providinghighlevelfeedbackonthekeyareasformanagement focus in preparing for reasonable assurance over the company’s greenhouse gas and energy accounts under the statutory reporting regime of NGER, from previous voluntary reporting under Australian Petroleum Production & Exploration Association (APPEA).

• assistingtodevelopaprojectplanfortransitiontoNGER compliance

• developinganinformationmanagementstrategy

• performingaProjectManagerroletoassistwiththeimplementation of the project plan

We also supported Santos throughout the project by providing technical input in relation to NGER compliance obligations, and worked with Santos’ multi disciplinary team to achieve the project objectives.

| 43

Corporate and project cost alignment

The increasing significance of major capital projects at Santos has raised the importance of establishing processes and systems that provide robust levels of cost control and information exchange between the groups responsible for controlling the mega projects and the finance and accounting function. PwC worked with Santos to assess the viability of the existing environment to provide the appropriate level of control, and to identify necessary changes to satisfy project control, government and commercially-driven needs.

Performance reporting on mega projects

With the establishment of Gladstone LNG to develop coal seam gas resources in Queensland, PwC’s Consulting team was engaged to establish the internal performance reporting function for GLNG. The remit included designing and producing a report that provided a single, reusable source of truth for the Senior Management team, and for upwards reporting to the CEO, joint venture committees, boards, and other governance bodies.

Delivering the project leveraged PwC’s oil and gas industry and capital projects knowledge. It also built engagement with key stakeholders and internal customers of the reports. This combination led to the establishment of broadly-supported, ground-up project metrics and reporting to drive effective decision making at multiple levels.

Santos | GLNG

Overall project status: Project on track to deliver outcomes required by the tollgates and the JV agreement

Environment, health and safety No EHS incidents for September 2008

Gas reserves xxxx

Gas deliverability Finalising geotech requirements for FEED entry Pre-feed studies complete

Schedule Recruitment and planning for tollgate FEED gate entry remains the focus

Cost GLNG budget to be approved by the leadership team/board in January 2009 Continued preparation of operating cost estimates for the LNG facility

Procurement & contracting

Both EPC contractors’ Pre-FEED studies were completed on budget and on schedule Pre-FEED closeout reviews at both EPC contractors’ offices were completed Pre-FEED report for common use infrastructure report to be reviewed and finalised in Jan 2009

Team New project scheduler commenced for plant and pipeline specifics

Risks & opportunities

Reviewed alternative pipeline route proposals through the State Development Area from government for review and comment

Need to progress the pipeline contracting strategy through the SLT

Issues

Recruitment and planning for tollgate FEED gate entry remains the focus Managing resources for tollgate review in parallel with meeting year end and corporate reporting requirements

(e.g ye reserves) Technical resources at full capacity. Recruitment of a pipeline project manager a priority Marketing uncertainty increasing due to financial global crisis

Stakeholders Pre-FEED report for common use infrastructure report to be reviewed and finalised Jan 09

Page24-29

Page30-31

Page32-39

Page40-49

Page50-53

Page54

Page55-56

Page57-62

Page63-65

Page66-67

Page

Project status indicators


Development of Project Briefing Memorandum for GLNG shareholders

PwC was engaged by GLNG to assist in the development of a comprehensive commercial assessment of the project to be delivered to shareholders as a core section of the Decision Support Package for their Final Investment Decision (FID). The shareholders required a document which summarised the technical, commercial and operational aspects of this multi-billion dollar project.

The delivery of a quality commercial document for shareholders was a key strategic objective of the project given the multi-billion dollar investment decision which will be made this year.

The PwC team worked within the GLNG project to obtain all of the required information and strike a balance of technical and commercial content to tailor to all of the needs of the different shareholder groups and the unique nature of this Coal Seam Gas to LNG project.

Coordination of deliverables for Final Investment Decision

TheSantos/PETRONASLNGProjectengagedPwCtojoin their Integration, Assurance and Controls team to help manage a suite of deliverables required for shareholders to make their Final Investment Decision. With tight timeframes for large decisions, it was imperative to implement a structured process and systems to ensure operational efficiency allowing GLNG to meet required deadlines.

PwC engaged team members across GLNG and aligned shareholder needs with project team deliverables. We established processes for monitoring and reporting and developed a platform internally and externally to capture and communicate all activities leading up to FID.

Reference: Keith Walker | Head of Integration, Assurance and Control

Santos | GLNG

1 2

3

DataRoom

DocumentControl

7 6

DataRoom

DocumentControl

Shareholder

Data Room Usersubmits query

Data Room Usernotified of response

Responses are uploaded to Data Room

Responses fromteams are

collated

Commercial Team conduct quickcheck on response information

Each team provides a responseto their query

Queries are extractedfrom Data Room

Queries are circulated to team owners

People & Safety ...........

Commercial & Economics ...........

Public Affairs & Sustainability ...........

Midstream ...........

Plant ...........

Port ...........

Integration, Assurance & Control ...........

Upstream Operations ...........

Commercial Check

5

4

DocumentControl

Project Team Responsibility Matrix

Shareholder

| 45

Performance transition project

An Australian energy pioneer since 1954, Santos is one of the country’s leading gas producers, supplying Australian and Asian customers. Santos has been providing Australia with natural gas from the remote outback for more than 40 years. The company today is the largest producer of natural gas to the Australian domestic market, supplying 18% of the nation’s gas needs. PwC was engaged to assist the Energy Projects division with the following projects:

• Planning process

Mapping, improving and documenting the current Energy Projects annual planning cycle including tasks, roles, deadlines and interfaces with other business areas within Santos.

• Data integrity

Investigating data integrity issues relating to a sample of internal projects, then identifying problems areas and providing advice on solution action responses.

• Weekly reporting

Redesigning the weekly reporting template to meet the requirements of key stakeholders.

Santos Energy Projects


Iron Ore Export Facility - Feasibility Study

A consortium, led by Flinders Ports, had been formed to assess the economic feasibility of developing a bulk export port for the burgeoning South Australian iron ore mining industry. It was considered that a port was required to accelerate the iron ore mining industry in South Australia however the development would have to provide an economic return to the consortium. Several deposits had been identified but all were at varying stages of exploration maturity.

In addition to several (non-mining related) aspects concerning the feasibility of a new port development our consultants:

• evaluatedthelongtermdynamicsandeconomicsoftheseaborne iron ore market by identifying and assessing the likely trends in underlying drivers of global demand (predominantly in China) , supply (global suppliers and known deposits) and shipping

• developedaframework,withtheaidofageologist,toevaluate each of the known deposits in South Austria to estimate the likely size and quality of the deposits

• assessedcapexandopexrequirements(includingthedevelopment of new rail and utility infrastructure) for each portfolio of deposits and developed scenarios detailing likely profiles of extraction (and therefore demand for the port) over a 40 year period by:

• modelling the global cost curve for seaborne iron ore delivered to China, and

• considering the long term cyclical economics of seaborne iron ore and

• Weprogressedtheconsortium’sdecisioninstagesthrough analysis supporting the key questions regarding the structural and economic feasibility of a new iron ore export port – a final decision has not been reached (work in progress) Reference: Mark Travers

Spencer Gulf Port Link Consortium

“The team demonstrated to us a very sound and in-depth knowledge of not only the key components of the industry sector from a technical perspective but also critical “whole of solution” factors that needed to be addressed. The ability of the team to consolidate all the various factors, assess against the wider economic and project related financial components and assist in determining the key drivers and milestones for the project were essential in the Consortium developing its initial feasibility report and its decision to advance to the next phase of the project” Mark Travers, Chief Financial Officer, Flinders Ports

| 47

Spencer Gulf Port Link Consortium

Trend of Crude Steel Consumption relative to Gross National IncomeBubble Represents Population Size of Country

1 200

2007

600

800

1,000

1,200

Italy

Rep of Korea

Germany

Japan

Canada

Malaysia

Czech Rep

Taiwan

Spain

Hong Kong

UAE: 23,723; 1,527

Average / implied trajectory of a country’s steel consumption per capita

over its economic development

-200

0

200

400

South AfricaIndia

China

Brazil

Thailand

Mexico

Russian Fed

France

Australia

UK

USA

Indonesia

Egypt

BangladeshPakistan

Norway

Switzerland

Ireland

Slovakia

NZSaudi Arabia

Nigeria

Note: Steel production accounts for 98% of iron ore demandSources: ISII, World Bank, Mainsheet

Ap

par

ent

Cru

de

Ste

el C

onsu

mp

tion

per

Cap

ita (k

g/p

erso

n)

Gross National Income per Capita (PPP$)

Evaluation of End to End Rail, Port Load Out & Sea Freight Options by Mine Site (AU$/tonne)

From mine gate, delivered (CIF) to Shanghai

Mine Site A


Brazil-based Vale (formally CVRD) is one of the world’s largest diversified mining companies. In recent years the company has rapidly diversified its business and geographical coverage through acquisitions and organic growth.

An aggressive future pipeline for international growth meant Vale faced greater risk (operational, financial, strategic etc) and the company recognised it needed to improve its understanding of its capacity for financial risks, its risk management policies and procedures and to also align these with stakeholder expectations. The CFO was committed to achieving the corporate strategic objectives while also maintaining strong free cash flow and an investment grade credit rating (at that time this was a higher credit rating than Brazil’s country rating).

Our Treasury & Capital Markets Group, supported by a team from PwC Brazil, developed a risk management framework, methodologies and supporting governance structures. The key first step was to define the project objectives. The scope of the issues under consideration was not restricted to a question of whether or not to hedge, but to a wider examination of risk capacity, including all the possible operational mechanisms for mitigating and managing the impact of risk on future cash flows. The project included interviews with major institutional shareholders and benchmarking against global best practice.

Gaining a better quantitative measure of potential risk, involved working with Vale risk management team to develop a sophisticated CfaR (cash flow at risk) methodology that modelled risk factor distributions

(currency , interest rates, freight rates and commodity prices) and time series interdependencies. The results of this modelling were used to consider the potential impact of market risk on free cash flow and key financial ratios and conclusions were drawn around Vale’s capacity for risk. The objectives and risk appetite of key stakeholders including equity holders, debt holders and internal Business Unit and JV Management was explicitly considered.

This analysis led to the formulation of an appropriate Market Risk Policy. An appropriate governance and risk management framework was also mapped out including:

• chartersandmandatesofanewCorporateRisk Committee

• rolesandresponsibilitiesforanewCorporateRisk Group

• aplanforsupportingsystemschangesand implementation

• processesforinterfacesofthenewriskfunctionwithexisting corporate functions such as Strategic planning, Corporate Budgeting, new project approvals etc

• designofnewcorporatefinancialriskreportingtemplates and content

By the completion of the project, Vale had a clear view of the gaps in its market risk management approach, enabling it to draft a new market risk policy for approval by its Board of Directors and formalise its risk management framework, governance and oversight structures.

Reference: Ms Andrea Marques de Almeida | Chief Risk Officer

Vale, Rio de Janeiro, Brazil

Vale – Establishing a financial risk management philosophy and policy

| 49

Vale – Establishing a financial risk management philosophy and policy

CVRD has an holistic view of its risks, consideringthe natural hedges on its portfolio

Heat-Map: Correlation Analysis Diversification Effect

DiversificationEffect

EBITDA@Risk Reduction

EBITDA@Risk CVRD

EBITDA@Risk BUs

2006 2007 2008 2009 2010

CompanhiaVale do Rio Doce

RiskReduction


Based on market risk factors future behavior, theprobability distribution associated with free cash flowis obtained (Corporate Risk calculation)

Maximum Correlation

Minimum Diversification Effect

Minimum Correlation

Maximum Diversification Effect

Business UnitUS GAAP

Revenues

Upper bound

Lower bound

End of Year C

ashExpected Value

Costs

Others

Investment

Cash Flow

Analysis

Results (cash flow)Database

FinancialCovenants

Stress Test

Minimum Cash Amount

Risk MitigationStrategy

CF@R

Pro

bab

ility

2006 2007 2008 2010

CVRD has an holistic view of its risks, consideringthe natural hedges on its portfolio

Heat-Map: Correlation Analysis Diversification Effect

DiversificationEffect

EBITDA@Risk Reduction

EBITDA@Risk CVRD

EBITDA@Risk BUs

2006 2007 2008 2009 2010


RiskReduction


Based on market risk factors future behavior, theprobability distribution associated with free cash flowis obtained (Corporate Risk calculation)

Maximum Correlation

Minimum Diversification Effect

Minimum Correlation

Maximum Diversification Effect

Business UnitUS GAAP

Revenues

Upper bound

Lower bound

End of Year C

ashExpected Value

Costs

Others

Investment

Cash Flow

Analysis

Results (cash flow)Database

FinancialCovenants

Stress Test

Minimum Cash Amount

Risk MitigationStrategy

CF@R

Pro

bab

ility

2006 2007 2008 2010


Growth by Acquisition

Following a management buy-out backed by private equity in April 2005, Walter Mining sought to profitably increase its market share in underground coal contracting, expand into new areas of contract mining and become a public company within 3 years.

Our consultants became integral in the development and implementation of Walter Mining’s accelerated growth strategy by:

• conductingareviewatthebusinessunit&corporatelevel and establishing strategic growth options to maximise value

• developinganacquisition-ledgrowthstrategy,whilemaximising organic growth

• assistinginimplementingtheacquisitionstrategyincluding screening and assessing of target companies

• assistinginpost-mergerintegrationandsystemsoptimisation to capture synergies

Reference: Ian Johnson | Managing Director, Helmsman

Funds Management

Walter Diversified Services (Mining Division)

Enterprise

Buys Waratah (equipment hire) and converts the b i t it

Buys FAL (Ducting) to

Buys DCC taking its businessmodel into the Oil and Gas sector

Buys Roche’s undergroundmining assets

Enterprise Value

$261M**x 23

Enterprise Value

$11M*

Value

$115M*

business to itsown operating model

increase its ability to cross-sell to mine operators

Business strategy is changed from labour secondment and equipment dry hire to full service contract mining

Apr 2005 Dec 2006Jul 2005 May 2008Jul 2006Nov 2005 Nov 2006

*Source: AFR Estimates**Source: Australian Stock Exchange (WDS)

Helmsman buysinto Walter Mining

| 51

Business production system

PwC worked with Xstrata Coal to develop comprehensive procedures for Xstrata Coal’s business production system. The primary objective of this project was to adopt a standardised approach to reporting and adjusting data structure at every Xstrata Coal site. A key outcome of this project was the creation of a streamlined and auditable set of production procedures to prepare Xstrata Coal for compliance with the new National Greenhouse Gas Emissions Reporting Guidelines.

Xstrata Coal believes that streamlined production reporting procedures are the backbone of core business controls and compliance. Ultimately this will allow Xstrata Coal to improve the management of production results and forecasts, as well as being able to engineer processes for the entire Xstrata Coal business.

Reference: David McGowan | Business Analyst

Construction of Value Driver Models

Value Driver Models provide a structured view of the different elements that drive the operational and financial performance of a business. Our VDM tools disaggregate major cost types allowing management to identify and then focus on the areas of their business that drive value creation.

Xstrata Coal needed to quantify the impact that proposed operational improvements and changes to capacity constraints had on mine performance.

Xstrata Coal believes that the VDM approach will encourage a sharper focus on those business drivers identified as being critical to the successful performance of the mine. Ultimately, this focus on key performance drivers is expected to translate into an increase in profitability and shareholder value.

PwC has assisted Xstrata Coal implement VDMs for underground, open cut mines and coal prep plants in Queensland and New South Wales.

Reference: Mark McManus | General Manager — Finance

Xstrata Coal

KPIImprov

scenario 1

Var

Baseline

% Var

EBITDA $

198,494,725 171,565,527EBITDA $

26,929,198 13.6%Variance

Revenue $

371,352,000 345,000,000Revenue $

26,352,000 7.1%Variance

Production tonnes (t)

2,400,000 2,300,00Volume $

$100,000 4.2%Variance

Average price (A$/t)

155 150Price ($/t)

5 3.1%Variance

Total mine costs $

172,857,275 173,434,473Cost $

(577,198) -0.3%Variance

Development $

46,111,032 46,000,129Cost $

2,110,903 4.4%Variance

Longwall

89,214,096 97,716,323Cost $

(3,502,227) -3.9%Variance

Services

27,596,912 27,596,912Cost $

- 0.0%Variance

Conveyors

7,935,235 7,121,109Cost $

814,126 10.3%Variance

-

X

+

Value Driver Model outline


Xstrata Coal

The development of uniform daily and monthly production reporting procedures served not only as a compliance and learning tool but also advanced the necessary process to formalise and embed procedures and gain the confidence of stakeholders in a new system.

Reference: Titto Jose | Business Systems Analyst

Development of pit to port procedures manual

PwC worked with Xstrata Coal to develop comprehensive daily and monthly reporting procedures for their new pit to port production system. The CoalMan Logistics system is now the main tool for logistics, planning, management reporting and information storage within Xstrata Coal Queensland.

Instilling CoalMan Logistics system into all business processes aimed to improve confidence in reporting, support information sharing between site and Xstrata Coal business units and, in time, will eliminate manual spreadsheet reports.

Out

put

Sys

tem

Pro

cess

Inp

ut

ReconciledShipping Sheet

Reconciled Mineto Port Sheet

UpdatedForecastFigures

StockpileSurveyors Report

OperatingData File (ODF)

Eforecast

Stockpile survey& Adjustments

Generate andDistribute Mine to

Port Sheet

Generate andDistribute

Shipping Sheet

Reconciliation offigures amongst

commercial,technical servicesand logistics data

Agreement andsign off on end of

month figures

Focus on monthahead, agreement

on forecastproduction

CoalMan ProdStats

Rolleston Coal - CoalMan Logistics system monthly process

| 53

Business reporting initiative

In 2008 Xstrata Copper commenced a business reporting initiative to develop a range of Business Unit Key Performance Indicators. Our Consulting team was engaged to:

• assesstheeffectivenessoftheKPIsinmeasuringthesuccess of Xstata Copper’s strategic objectives

• reviewthealignmentoftheseKPIswiththebusinessplans of each of Xstrata Copper’s five global divisions

• redesigntheformatandcontentoftheExecutiveCommittee monthly reporting pack.

The PwC team worked with Xstrata Copper’s Executive Committee members, Head Office Finance and Divisional Management teams based in Australia, Canada and South America. This included a sophisticated analysis of the Business Unit KPIs, recommendation of alternative KPIs, facilitation of workshops with each Division and redesign of the Business Unit monthly reporting pack.

This project has provided improved focus on the right measures and drivers of performance and reduced management effort in collating management reports.

Reference: Karen Read | General Manager — Business, Planning & Reporting

Xstrata Copper

2009-2010Planning document

2008Budget

2008Business

plan

Business unit levelstrategic objectives KPIs Xstrata Copper performance report

ALIGNMENT


Total Tax Contribution —Global study for the mining industry | May 2010

The taxes and other contributions that mining companies pay to government are an important element in the creation of prosperity and stability in the countries in which they operate. However, the full extent of this contribution is not always recognised. Using the PwC Total Tax Contribution framework, this second study for the mining sector aims to bring greater transparency to the wider economic contribution that mining companies make to public finances.

Contact Susan Symons, London Total Tax Contribution Leader Tel: +44 (0)20 7804 6744 Email: [email protected]

Steve Ralbovsky, Phoenix Global Mining Tax Leader Tel: +1 602 364 8193 Email: [email protected]

AustraliaMine: Back to the Boom... | 2010

Our seventh annual survey of the Top 40 mining companies by market capitalisation, provides a comprehensive analysis of the financial performance and position of the global mining industry and also discusses current trends in the global mining industry.

Contact Tim Goldsmith, Melbourne Telephone: +61 3 8603 2016 Email: [email protected]

Thought leadership

Other PwC mining publicationsOur commitment to the industry goes beyond our services. As industry leaders, we are globally recognised for our broad knowledge of the mining industry and the laws that govern it.

Set out on this page below are examples of recent mining thought leadership publications.

| 55

Global Mine Bulletin

This quarterly bulletin highlights a number of reports and surveys recently issued by the PwC global mining team, as well as other mining industry topics.

Contact Ben Gargett, Melbourne Telephone: +61 3 8603 2539 Email: [email protected]

Thought leadership


Responding to climate change

Challenges and solutions on the road ahead This publication shows how PwC can assist EU&M companies in the areas of Strategy, Risk, Regulation and Reporting to optimise operations and deliver leading practice. Our goal is to help companies deliver on their climate change ambitions in a way that brings maximum value and competitive advantage.

Optimising extended mining operations through value driver modelling

This paper seeks to demonstrate that robust modelling of operational cost and value drivers across the extended life of mining operation is a key requirement for maximising value, regardless of the economic cycle

Financial reporting in the mining industry

This provides a comprehensive analysis of financial reporting in the global mining industry. It sets out the major accounting practices adopted by the mining industry under IFRS in respect of issues of particular relevance to the mining sector. We are currently updating this publication to address all recent changes and developments in IFRS and industry practice.

Contact Debbie Smith, Melbourne Telephone: +61 3 8603 2249 Email : [email protected]

Jason Burkitt, London Telephone: +44 (20) 7213 2515 E-mail: [email protected]

IndustriesEnergy, Utilities & MiningCapability statement

Responding toclimate changeChallenges and solutions on the road ahead

Thought leadership

| 57

Mining Deals: No Stone Unturned

The global mining sector is awash in M&A announcements, with 1,324 deals worth an aggregate $104 billion announced globally year to date. At this pace, the year is set to close at, or near 2007 peak levels. PwC experts comment on the key trends that are set to dominate the global mining sector for the remainder of this year.

5 October 2010

Acc

ount

ing

issu

esaf

fect

ing

the

ener

gyan

dre

sour

ces

sect

or

Digging into IFRSLeases proposals set to rock the mining industryWhat’s the issue?Last month the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB)released an Exposure Draft (ED) on Leases as part of their commitment to converging US IFRS and US GAAP. Theproposals would overhaul the current requirements in AASB 117 Leases and dramatically change the way entities accountfor leases.

Who is affected?If adopted, almost all entities will be affected because leases are abundant in the resources sector. It will affect entities that:

• have acquired significant operating leases (such as mining or extraction equipment);

• have finance lease arrangements that are within the scope of the existing leasing standard (such as fleets of trucks);

• are planning on entering into new leasing arrangements; and

• have operating leases which are likely to extend beyond 2012, which is when we expect the new standard to be issued.

Note: Leases relating to the exploration or extraction of natural resources, including minerals, oil and gas have beenexcluded from the proposals. Entities that use long-term contract mining services (including fleet equipment) will need toconsider the principles in AASB Interpretation 4 Determining whether an arrangement contains a lease. The interpretationrequires certain dedicated services to be classified as lease arrangements and the principles have been incorporated in theproposed new standard.

How would current practice change?The current standard requires entities to evaluate lease arrangements at the beginning of a lease and determine if they are afinance lease or an operating lease. However, the proposals adopt the ‘right of use’ concept to replace the existing ‘risks andrewards’ concept. Entities would be required to recognise an asset and liability at the start of the lease and the distinctionbetween operating leases and finance leases will be eliminated.

It’s important to note that lessees will be required to reassess the lease term, contingent rentals and residual valueobligations at each reporting date. This differs to current obligations, where entities must include and estimate contingentrentals and residual value guarantees at the start of the lease.

What are the broader impacts of the ED on lessees?If adopted, the proposals would have wide-ranging impacts on business. For example:

• Balance sheet: entities would be required to recognise a right of use (asset) and an obligation to pay (liability) at the start ofall leases.

• Profit and loss metrics: lease expenses would have an amortisation component and a financial cost component. Thiswould directly impact the EBITDA (earnings before interest, taxes, depreciation and amortisation) calculation and otherP&L metrics.

• Debt covenant measurements: measurements based on interest cover and gearing levels will incur the biggest impact.This is because the obligation to pay liability will be recognised at the start of the lease and the leasing expense moves frombeing an operating cost to being classified as additional amortisation and a finance cost.

• Contracts: related to finance facilities and other long-term arrangements that are based on measures relating to EBITDA.

• Credit ratings: these could be impacted by changing debt levels.

• Remuneration: short-term bonuses and other remuneration arrangements (such as employee shared options) that areimpacted by EBITDA, P&L or balance sheet KPIs will need to be revisited.

Future balance sheet could be hard for entities to manage. Insight from an industry expert.

“The leases proposals are significant for the many sectors (including resources) and I know that a number of businesses areconcerned about how the final standard might affect them. From my experience at PwC and in the world of business,knowledge is power and I encourage entities to consider the implications of the proposals now if they haven’t already doneso. Based on a recent PwC benchmarking survey, entities (across sectors) can expect:

What are the next steps?

Entities will have until 15 December 2010 to comment on the ED. The IASB and US FASB have indicated they expect toissue the final standard in 2011. An effective date could be as early as 2014, which means an entity with a 30 June 2014year-end would need to apply the standard to all leases in place from 1 July 2012. For more information, please talk toyour usual PwC representative or one of the industry experts listed overleaf.

With such a significant standard on the horizon, it’s important to prepare for the change as early as possible.” Debbie Smith,partner, PwC.

• an average increase in interest-bearing debt of around 30%;• an average increase in EBITDA of around 10%; and• an average increase in debt generally, which will vary from entity to entity.

Managing credit risk for global commodity producers Brian Gillespie, John Hackwood and Chris Mihos

March 2010

Finding cost effi ciencies in mining operations through effective value driver modellingAaron Carter, Brian Gillespie and Chris GilbertPerformance Improvement Group, Brisbane

February 2009

Mining Deals No Stone Unturned

pwc.com/mining

2010 Mid-year update

September 2010

Prepared in conjunction with the 14th annual PwC America’s School of Mines

Thought leadership

Digging into IFRS

A monthly Australian newsletter that focuses on topical accounting issues relevant to the energy and resources sector.

Managing credit risk for global commodity producers | March 2010

This paper describes the credit risk issues faced by global commodity producers and highlights examples of best practice in the areas of the assessment and management of credit risk.

Finding Cost Efficiencies in mining operations through value driver modeling | February 2009

This paper highlights Australian mining best practice in both operations cost management and production value maximisation through robust modeling of operational value drivers.


| 59

Brian Gillespie Partner, Brisbane T: +61 (0)7 3257 5656 E: [email protected]

Robert Radley Partner, Perth T: +61 (0)8 9238 3237 E: [email protected]

Shane McEwen Partner, Sydney T: +61 (0)6 8266 3611 E: [email protected]

Mark Coughlin Partner, Adelaide T: +61 (0)8 8218 7760 E: [email protected]

Australian Energy & Resources Industry Leader

Michael Happell Partner, Melbourne T: +61 (0)3 8603 6016 E: [email protected]

Global Mining Leader

Tim Goldsmith Partner, Melbourne T: +61 (0)3 8603 2016 E: [email protected]

© 2010 PwC Australia. All rights reserved. “PwC” refers to PwC Australia or, as the context requires, the PwC global network or other member firms of the network, each of which is a separate and independent legal entity. PwC provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

pwc.com.au/industry/energy-resources

Contacts

WL

1654

28

Documents

Resources Experience - PwC12 | Resources Experience Anglo Coal Marketing Limited Back office process review Our PwC Consulting team was engaged to undertake a back office review of