Glencore 2014 Annual Report

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ANNUAL REPORT 2014


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Inside this report:

4 Highlights5 Chief Executive Of cer’s review 6 Where we operate8 Our business model14 Sustainable development19 Our strategy 22 Key performance indicators26 Principal risks and uncertainties34 Financial review 42 Business review – Metals and minerals – Energy products – Agricultural products – Resources and reserves

80 Chairman’s introduction & Board of Directors84 Corporate governance report99 Directors’ remuneration report105 Directors’ report

112 Independent Auditor’s Report118 Consolidated statement of income/(loss)119 Consolidated statement of comprehensive

income/(loss)120 Consolidated statement of nancial position121 Consolidated statement of cash ows

123 Consolidated statement of changes of equity 124 Notes to the nancial statements

191 Glossary 197 Production by quarter – Q4 2013 to Q4 2014204 Shareholder informationIBC Forward looking statements

Further details on our sustainability approach and performance can be found inour annual sustainability report and on our website www.glencore.com

Strategic report

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Financial statements

Additional information


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We are a leading integrated producerand marketer of commodities operatingworldwide. Our commodities comprisemetals and minerals, energy products andagricultural products.

We market and distribute physical commodities

sourced from third party producers as wellas our own production. Our customer base ishighly diversied and includes consumers ofraw materials in the automotive, steel, powergeneration, oil and food processing industries.We also provide nancing, processing, storage,logistics and other services to both producers

and consumers of commodities.

Who we are


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2 Glencore Annual Report 2014

PAGE 4–77

STRATEGICREPORT

Mt Owen coal,Australia


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33Strategic report

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4 Highlights5 Chief Executive Of cer’s review 6 Where we operate8 Our business model14 Sustainable development19 Our strategy 22 Key performance indicators26 Principal risks and uncertainties34 Financial review 42 Business review – Metals and minerals – Energy products – Agricultural products

– Resources and reserves

In this section


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10,169Funds from operationsUS$ million

per million hours worked

6,706

Adjusted EBITUS$ million

13,071 2013 12,764 2014

10,375 2013 10,169 2014

7,434 2013 6,706 2014

2014

20142013

1.58

Lost time injuryfrequency rate

1.87 2013 1.58 2014

2013 2014

20142013

2013

Adjusted EBITDAUS$ million

12,764

30,532Net debt/FFO to net debtUS$ million

33

Earnings per share(pre-signicant items)US cents per share

16.5 2013 18.0 2014

35,798 2013 30,532 2014

35 2013 33 2014

2013 2014

2013 2014

2014

Full year distributionUS cents per share

18.0

60%

50%

40%

30%

20%

10%

0%

2013

FFO to net debt


Highlights


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Chief Executive Of cer’s review

Background2014 was a year of challenges and opportunities for Glencore.The gradual process of normalisation following the nancialcrisis has continued, but at a slower pace than many expected.In fact, some of the most important legacies of the crisiscontinue to drag on, including those relating to Europe.From a geopolitical perspective we have seen heightenedtension in the Middle East and the resurgence of conictin Ukraine.

Financial performanceAgainst this background we completed the integrationof Xstrata during 2014 and achieved the targeted pre-taxmargin and cost synergies of $2.4 billion. Further cash owimprovements are expected over the next two years as the balance of our legacy expansionary capital programmes arerealised. In marketing, the integration of Xstrata’s coal, copperand zinc production, combined with Viterra’s infrastructure,helped deliver Adjusted EBIT of $2.8 billion, up 18% on 2013.This performance, despite weaker commodity prices formany of our key commodities, was particularly pleasingand once again demonstrates the resilience of our businessmodel. The performance of our industrial activities inevitablyreected the weaker price environment, particularlyin energy products, where price falls were the greatest.Industrial Adjusted EBITDA was down 7% to $9.8 billion.However, despite the weaker market environment, overallGroup Adjusted EBITDA only declined by a modest 2% to$12.8 billion.

We also continued to selectively recycle capital. Notable dealsincluded the sale of the Las Bambas copper project in Peru for$6.5 billion (net of tax) and the consolidation of the Caracaloil assets in Chad. Despite the generally weaker commodityprice backdrop, we are pleased to announce a nal cashdistribution for 2014 of $12 cents per share. We were able togrow our base cash distribution in 2014. Additionally, wehave also recently announced an in specie distribution ofour non-core stake in Lonmin and we have now completed

the buy-back of $1 billion of our equity, delivering c. 1.2%EPS accretion. Glencore will have returned $9.3 billion to itsshareholders since the IPO in 2011 (inclusive of $639 millionof repurchased convertible bonds).

Corporate governanceWe have strengthened our Board of Directors with theappointment of Patrice Merrin and the elevation of TonyHayward to the role of permanent Chairman. Peter Grauerhas assumed the role of Senior Independent Director.

SustainabilityIt is with great sadness that we report 16 fatalities at ouroperations in 2014. This regrettably high level partly reectsthe nature, location and history of some of the operationswhich Glencore has acquired. 13 of the 16 fatalities occurredat a small number of assets employing 71,000 people, locatedin challenging geographies where a culture of safety did not

exist prior to our involvement. The remaining 3 incidentsoccurred at our more developed operations, employing110,000 people, representing a world class safety performance;our ongoing challenge and commitment is to embed thisperformance into the aforementioned ‘focus assets’. We areoverall encouraged that the number of fatalities is lowerthan in previous years, and remain determined to eliminatefatalities completely. During 2013 we initiated the SafeWorkprogramme to enhance safety in the workplace. SafeWork hasnow been rolled out worldwide and 118,000 employees weretrained during 2014. The long-term injury frequency ratedeclined from 1.87 to 1.58. These improvements reect thefocused implementation of safety best practice procedures at

our operations, championed and led by our Board and seniormanagement team. In May 2014 we joined the InternationalCouncil on Mining and Metals (ICMM): recognition that wehave been implementing best practices across the Group.

Looking forwardsWe remain committed to a strong BBB/Baa balance sheet andour clearly established disciplined approach to allocatingcapital. We will focus only on high-returning opportunisticM&A and browneld growth opportunities. Our ultimategoal remains to grow our free cash ow and return excesscapital in the most sustainable and ef cient manner. As themost diversied raw material producer and marketer,

Glencore is well positioned to react to and benet fromchanges in commodity fundamentals. Glencore will continueto focus on maximising the value of the potential withinour businesses.

In response to the challenging market environment we havedecided to curtail coal production at Optimum in SouthAfrica and a number of our coal operations in Australiato better align volumes and qualities with current marketdemand. Further to these coal production changes andassociated capex reductions/deferrals, following a recentreview of the Group’s overall asset portfolio in response toweaker prices (and aided by lower input costs), we are now

guiding 2015 industrial capex to the $6.5-6.8 billion range,compared to our earlier Investor Day guidance of $7.9 billion.

While there remains the potential for future economicsetbacks and no shortage of bearishness towards commoditiesin nancial markets, physical demand for our raw materialsremains healthy. We anticipate tightening supply conditionsto materialise in our key commodities in response to lowerprices, production/investment cutbacks and falling grades.

We would like to thank our employees, debt capital providersand shareholders for their support during 2014 and lookforward to the future with condence.

Ivan GlasenbergChief Executive Of cer


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Americas

Asia

Europe

Africa

Oceania

Revenue1 by geography 2014

$221bn

Americas

Asia

Europe

Africa

Oceania

Non-current assets2 by region 2014

$91bn

1 Revenue by geographic destination is based on the country of incorporationof the sales counterparty however this may not necessarily be the country of thecounterparty’s ultimate parent and/or nal destination of the product.

2 Non-current assets are non-current assets excluding other investments,advances and loans and deferred tax assets.


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O A

P

A I

N S

INSIGHTEXPLORE,

AC QU IR E

& DEVELOP

BLENDING

& OPTIMISING LOGISTICS & DELIVERY

PROCESS

& REFINE

EXTRACT

PRODUCE

TH D P A

N E

A

R

C

T A

S

M I

A

F

N A

C

P

O F

E

U

A

A

L E

A P

R


Our business model

Who we are

We are one of the world’s largest diversied and vertically-integratedproducers, processors and marketers of commodities. We market anddistribute physical commodities sourced from our own productionand from third party producers to a highly diversied customer basethat includes consumers from the industrial, automotive, steel, powergeneration, oil and food processing industries.

What we doOperating under a framework that balances social, environmental, ethicaland commercial interests we produceand market over 90 commodities, keyingredients that help feed, power,move and build our world.

Our business modelWe seek to extract a value addedmargin at each stage of the commoditychain – from extraction to delivery– to create value for all Glencorestakeholders. We have three businesssegments: metals and minerals, energyproducts and agricultural products.Each business segment is responsiblefor managing the marketing andindustrial investment activities of their

commodities. We are not only focusedon minimising costs and maximisingoperational ef ciencies; we focus onmaximising returns through the entiresupply chain.

Optimising our business modelWe have set up our business model togenerate superior returns by ensuringit focuses on complementary and highreturn investments, is of a scale and breadth to endure short-term volatilityand benet from economies of scaleand an entrepreneurial culture thatpermeates throughout it.


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DiversicationWe are one of the largest resourcescompanies by any measure, producingand marketing over 90 commodities.We are uniquely diversied inrespect of commodity, geographyand activity. We benet, togetherwith our consumers and suppliers,from our scale and diversity, enablingus to deliver value throughout thecommodity chain.

Our portfolio of industrial assets

comprises over 150 mining andmetallurgical facilities, oil productionfacilities and agricultural facilities.Our asset portfolio mainly containslong-life low-cost assets which haveample attractive growth options.As our industrial asset base grows itenhances the quality and scale of ourmarketing activities, thereby creatinggreater choice for our customers.

For over 40 years, we have establisheda formidable reputation as a reliablesupplier of high quality and

competitively priced commoditieson a timely basis, irrespectiveof the vagaries of market orgeopolitical conditions.

Our competitive position and business model enables us to providea compelling commodity offeringfor the thousands of counterpartieswho are our long-term suppliers andconsumers. Additionally, through buying commodities from thousandsof third party producers worldwide,

we are better able to identifyopportunities to grow our businessthrough acquisitions. Some of ourvaluable producing assets were formedthrough the diligent acquisition ofnumerous smaller operations whichwe then patiently integrated anddeveloped over a number of years.Although we monitor all industrialasset performance on a standalone basis, their purpose is also to improvethe competitive offering, nancialperformance and value of our

overall business.

Optimising our business model

D I S C

I P L I

N E D I

N V E S T M E N T

D I V E R S I F

I C A T

I O N

E N T R

E P R E NEURI A

L

C U LT U R E

Entrepreneurial cultureOur management team, led by IvanGlasenberg, has a strong track recordof developing and growing our business since the management buyoutin 1994. A strong entrepreneurialculture has been key to this success.This culture remains, underpinned by management and employeeownership of around one third of theCompany’s shares. This degree ofalignment with external shareholders’interests is unique amongst major

resource companies.

Disciplined investmentThe deployment of capital in a highlydisciplined manner has been andalways will remain key to our abilityto create superior value for ourshareholders. Glencore management’ssubstantial stake in the equity of thecompany ensures that the interests ofour executive team and shareholdersremain closely aligned – we act likeowners of the business because we are.

Commitment to strong BBB/Baareects our optimal investment ratingtarget. Once we have ensured that ourdesired capital structure is maintainedand our base cash distributionscovered, we evaluate two options:return excess capital to shareholders orreinvest it through M&A or browneldprojects. The decision is assessed by a robust analysis process whichconsiders the risks versus returns, cashpayback duration and the alternative

of buying back shares. In the caseof the redeployment of capital wealso consider commodity supplyand demand balance, our existingpresence in a country and the geo-political outlook.

Changing trade owsCommodity trade ows continue toshift as demand growth increasinglygravitates towards emerging marketeconomies. The supply of commoditiesis increasingly sought from moreremote, challenging and oftenlogistically constrained locations,many with a range of new industryparticipants who lack infrastructure,funding and established routesto market.

In the emerging markets, standardsof living remain substantially below those in developed countries.A long-term driver for our businessremains the continued urbanisationand industrialisation of highlypopulous emerging economies andthe associated growth in demand forkey commodities. Technology willcontinue to encourage and facilitatethis progress. It will also inuencepatterns of demand in the futurewhich are different from those which

currently apply.We are condent that Glencore’s scale,diversication and asset base ensureswe remain well positioned to facilitate both the growth and the changes thatwill be required.


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Extractand produceWe are the operators of theassets that we wholly ownor have majority ownership.We mine and beneciateminerals across a broad range

of commodities, miningtechniques and countries,for processing and/or reningat our own facilities or for saleto third parties.

Extraction (including oil), by its very nature, is a long-term commitment carryingconsiderable risks in the formof unknown future commodityprices, project development,sovereign and communityrisks. Development of majorassets can often take more than10 years from the date of rstdiscovery to rst production.An integral part of developingnew and maintainingexisting projects is earningour social licence to operatefrom the host governmentsand communities aroundour operations.

Processand reneSmelting is a form ofextractive metallurgy,which produces crudemetal from ore. Rening isa purication process and a

variety of techniques are useddepending on the commodity.Our expertise and technologyadvantage in this area enablesus to optimise the endproduct to meet the needs ofa wider range of customers.Our smelting and reningfacilities provide volumesthat are utilised by ourmarketing teams.

We see the ownership ofindustrial assets not solelyas sources of self-producedcommodities, but also astools for increasing exibility,optionality and securityof supply and for gainingvaluable market knowledge.We purchase additionalproduct, as required, fromsmaller operators that do notenjoy the same economiesof scale.

Blendingand optimisingOur integrated businessmodel means we can providea superior service to ourcustomers. We can providethem with a wide range of

product speci

cations, whichincreases our ability to meettheir exact requirements. It alsoprovides us with valuablemarket and local knowledge,which combined with theoversight of supply we getfrom working with thirdparty suppliers, enables us to better understand the balance between supply and demand.

Logisticsand deliveryOur ownership of globaldistribution capabilities and ourlong-term customer/supplierrelationships differentiatesus from our peers and allows

us to handle large volumes ofcommodities. It enables us tofull our marketing obligationsand to take advantageof demand and supplyimbalances. We own vesselsand complement our eet withtime-chartered vessels. We haveglobal storage and logisticsassets in key strategic locations,including metal warehousesaccredited by the LME andnumerous oil and grain storagefacilities worldwide.

The physical sourcing andmarketing of commoditiesrequires highly professionalhandling and transfer fromthe supplier to the customer.

The employees that handle thephysical movement of goods areknown as the “traf c teams”which account for a signicantproportion of the people inour marketing activities.Our dedicated charteringteams actively trade freight togain market knowledge andvolume benets. The freight

element of transactions is alsoused to maintain maximumphysical optionality so that fullvalue can be extracted fromthe underlying commoditypositions of each department.This complements our ability totake advantage of geographicand time spread arbitrageopportunities as they arise.The broad range of value addedservices we can offer fulls theneeds of customers that do nothave the equivalent internalcapability and cannot outsource

to other providers who can offerthese services as seamlesslyor ef ciently as we canprovide them.

See “Our marketing activities” on page 12 for more information.


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Have access to logistics and physicallytransport products across key regions

Provide competitively priced transportand storage

Blend concentrates and other bulkcommodities at/within storage facilities

Marketing – arbitrage strategies

Glencore operates in markets which are fragmented and periodicallyvolatile, which results in price differentials that Glencore is able to benet from due to its capabilities across the value chain.

1 2 3

Geographic arbitrage

Logistics & delivery

Product arbitrage Time arbitrage

Disparity

Pricing differencesfor the sameproduct in differentgeographic regions,taking into accounttransportation ortransaction costs

Disparity

Pricing differences between blends,grades or typesof commodity,taking into accountprocessing orsubstitution costs

Disparity

Pricing differenceson a commodity between deliveryimmediately,or at a futuredate, taking intoaccount storageand nancing costsuntil future date

Execution

Leverage globalrelationshipsand production,processingand logisticalcapabilities tosource product inone location anddeliver in another

Execution

Ensure optionalitywith commoditysupply contracts,and look to lock-inprice differentialsthrough blending,processing or end-product substitution

Supply productswhich attracta higher priceafter blendingor processingthan their baseconstituents

Execution

Book “carrytrades” benetingfrom competitivesources of storage,insurance andnancing

Size and economies of scale, freight and logistics operations support these strategies enabling us to:


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Sustainable development

We recognise that by conducting our operations in a responsiblemanner, our activities and behaviour bring about lasting benets toour stakeholders and to society. Our presence generates considerablelocal benets and we are proud of the role we play in creating andsupporting sustainable socio-economic value in our local communities.Our ability to deliver long-term value to all our stakeholders is basedon our responsible management of our assets, operational processesand business activities.

We are committed to operating in a transparent andresponsible manner. Our statement of values and Code ofConduct, which are available on our website, underpin ourapproach to sustainability and embody the expectationswe place on our employees, our contractors and our business partners. Our policies and procedures supportthe upholding of good business practices and we expectall our operations to meet or exceed the applicable lawsand to apply other external requirements as appropriate.

Glencore Corporate Practice (GCP), our corporateresponsibility management system, provides a frameworkfor the integration of our sustainability principles, guidance

and policies throughout our business. GCP underpins ourapproach towards societal, environmental and complianceindicators, providing clear guidance on the standards weexpect all our operations to achieve. GCP supports theimplementation of our health, environment, safety andcommunity (HSEC) policies by our assets and helps themto determine the procedures necessary to attain our targetsand expected behaviour.

Our robust risk management framework allows usto identify and mitigate sustainability-related risks.The framework identies material matters and supportsour ongoing assessment of what matters most to our business and to our stakeholders.

We strive to adopt a safe and sustainable approach toour business practices, and to contribute to the socio-economic growth of the communities in which we operate.Through the reporting function within GCP, our Boardreceives regular updates and has detailed oversightof how our business is performing across all of thesustainability indicators.

We publish an annual sustainability report, which meetsthe requirements of Global Reporting Initiative (GRI) LevelA+. This report covers in considerable detail our approachand our performance across all of the sustainability topics.Our sustainability reports are available on our website:www.glencore.com/sustainability.

Our human rights policy wasdeveloped in line with theUniversal Declaration of HumanRights, the ILO Labour Standardsand the UN Guiding Principles

Human rightspolicy launched

16%Lost time injury frequencyrate* 1.58 in 2014: a

decrease compared to1.87

in 2013

*Lost time injuries recordedper million hours worked

Joined the InternationalCouncil on

Mining and Metals


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Our human rights policy, developed in

2013, was rolled out to all our assets

16 fatalities

We did not achieve our target of zerofatalities. Tragically, 16 people lost theirlives while working for Glencore

We continued to support public health

programmes for major health issuessuch as HIV/AIDS, TB and malaria. We are committed to improving thehealth of the communities living nearour assets

0 major or catastrophicenvironmental incidents

We recorded no major or catastrophicenvironmental incidents

1.58 lost time injury frequency rate

Water strategyprogressed

We achieved a 16% reduction in our losttime injury frequency rate comparedto 2013

$114m in 2014

At least 1% of prots before tax

set aside to support communityinvestment initiatives

10 operational HSEC policies developedand implemented across the Groupduring 2014

We are developing a water strateg y tobetter manage our impact on waterresources; this will be rolled out in 2015

Human rights policyrolled out globally

On

track to meetingthe

REACH deadline

Registration of the substances weproduce and import is on track to meetthe REACH deadline of 2018

Key priorities for 2015• Elimination of fatalities, with particular attention on our

‘focus assets’ and underground operations where mostfatalities have historically occurred

• Continued focus on reducing our lost time injuryfrequency rate to achieve our 2016 target, and reducing by50% our total recordable injury frequency rate by 2020

• Complete our occupational disease prevention frameworkin the rst half of the year and roll it out across all ourassets by the end of 2015

• Continued development and strengthening of our

employees’ skills• Review the social strategies at our operations and, where

necessary, revise to maximise our contribution to localsocio-economic development

• Complete our water management framework by the end ofthe year. This framework includes consistent denitions,a water accounting tool, water quality management andreporting systems

• Review training on the Voluntary Principles on Security &Human Rights to ensure a consistent approach across allour assets

Performance during 20142014 2013 2012

Fatalities at managed operations 16 26 27

Lost time injury frequency rate(per million hours worked) 1.58 1.87 2.06

CO2 emissions (million tonnes)Scope 1 23.2 24.4 22.4

CO2 emissions (million tonnes)Scope 2 13.4 13.8 12.4

Total energy usage (petajoules) 250 244 212

Water withdrawn (million m3) 958 942 724

Community investment spend ($ million) 114 168 201

Number of employees and contractors 181,349 203,637 188,555

Progress against commitments in 2014

per million hours

10 HSEC policiesdeveloped and rolled out


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Community investment by region

%

Africa

Asia

Australia

Europe

N. America

S. America

Capacitybuilding

Environment

Health

Identiedlocal orregional need

Community investment by spend%

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Our peopleOur people are fundamental to our success, underpinningour ability to succeed and grow. Our success relies stronglyon our ability to attract, develop and retain the best talentat every level. We choose the best people for each position;people who think and act like entrepreneurs, are willing tolearn, are passionate about their work and strive to be leadersin their eld. We provide our people with the opportunity todevelop and grow their skills, expertise and experience andthe condence to grow their careers.

We are committed to upholding the International LabourOrganization’s (ILO) Declaration of Fundamental Principlesand Rights at Work and their Core Labour Standards.We prohibit any form of child, forced or bonded labour atany of our operations and do not tolerate discrimination orharassment. We endeavour to have a positive and constructiverelationship with the unions in the locations where we operate.

We treat our people fairly and with respect. We recognise anduphold the rights of our people to a safe workplace, freedomof association, collective representation, just compensation, job security and opportunities for development.

We believe that a diverse workforce is essential for asuccessful business and seek to ensure that our workforcereects the diversity of the communities in which we operate.We value diversity and treat employees and contractors fairly,

providing equal opportunities throughout the organisation.During 2014, our workforce was made up of 17,093 (16%)female employees, compared to 19,147 (17%) in 2013.

Supporting our commitment to local employment, ourassets have programmes that support the provision of highvalue jobs for local community members. These includeapprenticeships, scholarships, training and mentoringopportunities. Our assets are also considering how bestto replace ex-pats with local employees as part of ourcommitment to support local socio-economic development.

The number of employees and contractors decreased in 2014to 181,349 from 203,637 in 2013; this was primarily the result

of the divestment of Las Bambas during 2014.

CommunitiesThe communities surrounding our operations are ourneighbours, employees, business partners and futureworkforce. Through our commitment to two-way dialoguewith our local communities we aim to secure a broad base ofsupport for our activities.

We look to ensure that our presence adds value andcontributes to a sustainable future for local communities,delivering benets that extend beyond the life of ouroperations. We achieve this through local employment,our procurement spend, investment into infrastructuredevelopment and investment in community projects.

Our most signicant impact on the regions where we arepresent is through employment, both directly and viacontractors. Local employment is particularly signicant indeveloping countries, where our local employees can support

as many as nine people each. The improved prosperitycreated through the wages we pay creates ripple effects

throughout the region, resulting in further job creation.Wherever possible, we aim to work with local suppliers ofgoods and services and develop skills and local capacities.We see this as a cost-effective way to reduce their relianceon our operations and an important building block fordevelopment of the local economy.

We have invested in infrastructure and local services.Our operations are frequently located in remote andunderdeveloped areas, where we can share infrastructuresuch as roads, water and electricity with our hostcommunities. The projects that we have invested in areavailable during and after the life of our operations.

During the year, we contributed $114 million to initiativesthat benet the communities living close to our assets.Our community development projects are in three focusareas: capacity building, including education, enterprisedevelopment and economic diversication; healthand environment.

We are an EITI-supporting company and support EITI’sefforts to ensure greater transparency with respect to howa country’s natural resources are governed and the fulldisclosure of government revenues from the extractive sector.

Human rights

We have an integral role in the communities living closeto our operations and regard respect for human rightsas fundamental to our activities. We are committed toupholding the human rights of our people and our localcommunities, including vulnerable groups such as women,indigenous people and victims of conict.


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Our approach to respecting fundamental human rights isaligned with the UN Guiding Principles on Business andHuman Rights Protect, Respect and Remedy Framework,as well as the ILO Core Conventions.

Each of our operations is required to identify human rightsrisks as part of their risk assessment processes. These coverthe workplace, risk of conict, the rights of our localcommunities and the risk of infringement by our partners.

All our operations are required to have in place grievancemechanisms that are accessible, accountable and fair, andthat enable our stakeholders to raise concerns without fearof recrimination.

EnvironmentWe recognise that our operations have a direct and indirectimpact on the environment in the regions where we operate.We are committed to identifying, understanding andmitigating our environmental impact, with environmentalresponsibility integrated into our strategic planning,management systems and day-to-day operations.

Our approach to environmental management is dened by our environmental policy, which is aligned withinternational environmental standards.

We work to minimise and mitigate any negative impact from

our activities; we constantly review our approach and lookfor ways to improve our performance. We reduce our use ofresources wherever possible, including active investment inrenewable energy projects and technologies that help reduceour emissions.

Our acquisitions resulted in us inheriting operations withspecic environmental challenges. Our recent efforts havefocused on resolving these legacy issues. We are proudthat in all cases, we have made substantial upgradeswithout shutting down production or reducing the size ofthe workforce.

We are committed to eliminating material environmentalincidents and incurring zero nes, penalties or prosecutions.Any material environmental incidents are reported tothe Board HSEC committee and, in particularly severecases, presentations are made by operational managementteams. During 2014, our operations did not record anyenvironmental incidents that were classed as majoror catastrophic.

Water is an essential component of our business activities.More than half of our operations are located in water-challenged areas. We are committed to managing ourimpact on water resources responsibly. We work to minimiseany impact on local biodiversity and communities, byminimising our effect on the quality and quantity of nearby

bodies of water and preserving our neighbours’ accessto water.

Our mining and agricultural operations minimise theirwater use and discharge wherever possible. We reuseand recycle as much water as we can, and waste water is

Sustainable development

treated, for instance using tailing facilities or settlementponds, before discharge into public sewers or surface water.We are implementing new technologies to help minimise oreliminate water discharge.

During 2014, we withdrew 958 million m3 of water, a 2%increase on 2013. This slight increase reected improveddenitions of reporting indicators.

We are aware of the increasing regulatory pressure and societaldemand for a low-emission economy to address the globalclimate change situation. We play an active role in engagingwith governments and other interested stakeholders todevelop strategies for reducing the impact of climate change.

We are working to mitigate the physical impacts of climatechange where we can and take resource ef ciency intoaccount when making operational decisions. Wherever weoperate, we seek to optimise our energy and carbon footprint.We actively support the development of low emissiontechnologies and prioritise renewable energy sources.

We divide CO2 emissions reporting into three differentscopes, in line with the Greenhouse Gas Protocol.We measure both the direct and indirect emissions generated by the operational activities, entities and facilities in whichwe have a controlling stake.

During 2014, we emitted 23.2 million tonnes CO2 of Scope 1

(direct emissions) from the fuel we consumed. This gureincludes emissions from reductants used in our metallurgicalsmelters and from the incineration of biomass. It alsoincludes CO2e of methane emissions from our operations,which is equal to around 30% of our Scope 1 emissions.The total excludes emissions from time-chartered vessels,as these are now considered to be Scope 3 emissions.

We emitted 13.4 million tonnes CO2 of Scope 2 (indirectemissions), being emissions arising from our consumptionof purchased electricity, steam or heat. Our Scope 3emissions include emissions from a broad range of sources,including shipping and land transportation. More detailson our Scope 3 emissions will be available in our 2014

Sustainability Report.We do not provide normalised gures for our CO2 emissionsnor ratios of CO2 to production, nancial results or employeeheadcount, as we do not believe that reporting a normalisedgure meaningfully contributes to an understanding ofour performance. The scope and diversity of our productsmake a single production gure impossible to calculateand our nancial results are impacted by commodityprices and foreign exchange rates, which are outside of ourcontrol. In addition, due to the nature of the exploration,development and the production cycle, our CO2 emissionsdo not necessarily correlate to our employee headcount.

We report to the CDP Carbon Disclosure and WaterDisclosure programmes.

Further information on our approach to sustainability isavailable on our website: www.glencore.com/sustainability


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Our strategy

Our objective is to grow total shareholder returnswhile maintaining a strong BBB/Baa investment gradecredit rating.

In order to achieve this, we aim to increase returns oncapital and also cash ows. Incremental capital is onlydeployed where strict and clearly dened nancialcriteria, in respect of returns and payback, can be met.

We seek to maintain and, where possible, strengthenour overall competitive position within our existing,highly diversied suite of commodities. Thesecommodities are ones where long-term demandgrowth drivers remain robust.

Our major industrial assets are long life and low cost.This partly reects substantial investment in recent

years, often into commodities where our large-capcompetitors are exiting or have already done so.Our industrial activities are focused on generatingsustainable operating and capital ef ciencies.Safety is paramount and our number one priority.

Our industrial assets also provide an essentialsource of ows for our marketing operations,

where incremental value can be added via criticalmass, blending, storage and geographical arbitrage.Our priorities in the marketing activities are tomaximise the returns and cash ows from the poolof capital allocated to it. The structure of the businessremains highly conservative in respect of risk,whether that be market, credit or liquidity.

Our culture remains highly entrepreneurial with anability to be opportunistic within our clearly set-outnancial criteria. This is supported by the high levelof ownership by management and employees.


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Our strategy

Description Strategic objectives Key highlights in 2014Integration of sustainabilitythroughout the business

Continuously improve ourstandards of health, safety andenvironmental performance,and be viewed as a responsiblepartner within the communitiesin which we operate.Develop and strengthenrelationships with all ourstakeholders

• Roll-out of “SafeWork” initiative to key high risk operations in theDemocratic Republic of Congo, Zambia, Bolivia, Kazakhstanand the Ukraine; 118,000 employees received training

• Continued progress towards zero fatalities (16 in 2014, 26 in 2013)• Continued improvement in lost time injury frequency rate to

1.58 per million hours in 2014 (1.87 in 2013)• Zero major or catastrophic environmental incidents• $114 million spent on community investments

Maintain conservativenancial prole and strongBBB/Baa investment graderatings

Maintain a strong and exible

capital structure, capable ofsupporting growth andshareholder returns andproviding continued accessto bank and internationaldebt capital markets oncompetitive terms

• Issued USD, EUR, CHF and AUD bonds totalling $5.3bn

• Renewed the multi-tranche committed revolving credit bankfacilities totalling $15.3bn

• Credit rating reaf rmed at BBB/Baa2• Committed available liquidity of $9.4bn

Focus on cost control andoperating ef ciencies

Increase the net present valueof our business by improvingthe competitiveness of our assetsthrough an ongoing focus oncost management and logistical

capabilities, including operatingsafely and ef ciently

• Realisation of Xstrata integration synergies of $2.4bn p.a.• Continued progress with the completion and commissioning of

legacy growth programmes (e.g. Ernest Henry Mine)• First quartile cost positions being achieved through higher volumes

of lower cost production; further improvements expected

• Australian coal operations suspended for 3 weeks at the end ofDecember, given market oversupply; output reduced by 5mt

Capitalise on investmentsin industrial assets

Evaluate investments foracquisitions, development anddisposal, particularly whenassets no longer support core business and/or when attractiveselling opportunities arise

• Sale of Las Bambas copper project in Peru to meet MOFCOMrequirement for Xstrata acquisition

• Sale of the Frieda River copper project in Papua New Guinea• Ramp up of Mutanda copper asset in the Democratic Republic of

Congo achieved on time and within budget• Review/slow-down of Askaf iron ore project in Mauritania, in light

of declining iron ore prices• Acquisition of Zhairemsky in Kazakhstan, adding lead-zinc-silver

to Kazzinc’s mineral resource base

Capitalise on marketingopportunities/activities

Recognise opportunities throughour extensive industry insight andunrivalled market intelligence.Provide a superior service tocustomers and a reliable supplyof quality product

• Marketing contribution/synergies from Xstrata and Viterraacquisitions rebased the EBIT range from $2bn-$3bn to $2.7bn-$3.7bn p.a.

• Growing base of strategically located logistics infrastructureprovides global distribution capabilities

• Agreed JV with ADM in Brazilian Portos do Pará, strategicallylocated to serve the Brazilian agricultural sector

Leverage the geographicscope and diversicationof operations

Target opportunities ingeographies where wecurrently operate and furtherexpansion in traditional

and emerging markets

• Acquisition in partnership with Sumitomo of 50.1% stake inClermont coal mine in Australia

• Acquisition of Caracal Energy, an oil exploration and developmentcompany with operations in the Republic of Chad

Additional informationwww.glencore.com/investors Further details on our performance can be found in the Financial and

Business review sections.


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Priorities going forwardKey performanceindicators Risks

Business modelreference

• Completion of SafeWork roll-outfor all employees

• Zero fatalities• Continue reduction in our lost time

injury frequency rate• Continue to report zero major

or catastrophic environmentalincidents

• Continued engagement with, andinvestment in, the communities inthe regions where we operate

• Zero fatalities• LTIFR, TRIFR• Major/catastrophic

environmental incidents• Community investments

• Sustainable developmentrisks

• Ensure strong liquidity position is

maintained through continuedaccess to global bond and bankmarkets

• Extend and renew Group bankfacilities on competitive terms, asappropriate

• Maintain commitment to strongBBB/Baa investment grade creditrating

• Strong BBB/Baa target

• Adjusted EBIT/EBITDA• Funds from operations• FFO to net debt

• External risks

• Business activities risks• Sustainable development

risks

• Ongoing focus on improving thequality of assets through year-on-year cost reductions, mine lifeextensions and productivity andsafety improvements

• Focus on sourcing competitivelypriced physical commodities fromreliable third party suppliers

• Adjusted EBIT/EBITDA• Funds from operations• FFO to net debt• Net income

• External risks• Business activities risks• Sustainable development

risks

• Ongoing evaluation of existingoperations, processes and newopportunities in an effort to achieveindustry-leading returns on capital

• Ramp-up at Katanga, McArthurRiver and Mount Isa zinc expansions

• Ramp-up of the challengingKoniambo nickel project; naliseinvestigation into and recover fromthe metal leak which occurred inDecember 2014

• Sale of Sinclair nickel mine (subject

to approvals)• Exit/sale of non-core platinum

business


• External risks• Business activities risks

• Continue to leverage our capabilityto realise value at each stage of thecommodity supply chain

• Ongoing evaluation of commodities’ows and market changes tomaximise product and geographicalarbitrages


• External risks• Business activities risks

• Maintain a disciplined approachtowards acquisitions and disposals,including the exit/sale of ournon-core platinum business

• Ongoing review of project portfolio


• External risks• Business activities risks• Sustainable development

risks

• Further details on our KPIperformance can be found onpages 22 to 25

• Further details on risks can be found on pages 26 to 33

Key:1. Sustainable approach2. Financial pro le3. Insight4. Explore, acquire & develop5. Extract & produce6. Process & re ne7. Blending & optimising8. Logistics & delivery9. Global operations

32 4

56

7 8 9

1


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Key performance indicators

DenitionAdjusted EBIT/EBITDA, as denedin note 2 to the nancial statements,are measures that provide insightinto our overall business performance(a combination of cost management,seizing market opportunities andgrowth), and the correspondingow driver towards achievingan industry-leading return onequity. Adjusted EBIT is revenueless cost of goods sold and sellingand administrative expenses plusshare of income from associatesand joint ventures, and dividendincome as disclosed on the faceof the consolidated statement ofincome, excluding signicantitems. Adjusted EBITDA consistsof Adjusted EBIT plus depreciationand amortisation.

2014 performance2014 Adjusted EBITDA was$12.8 billion, broadly consistentwith 2013, while Adjusted EBIT was$6.7 billion, down 10% compared to2013. This reects generally lowercommodity prices on our industrialassets, offset by the benets of a netproduction increase, currency relatedcost benets and an 18% increase

in marketing Adjusted EBIT to$2.8 billion.

Key performance indicatorsOur nancial and sustainable development key performance indicators (KPIs) provide some measure of our performanceagainst the key drivers of our strategy. All 2013 nancial KPIs are presented on a pro forma basis.

Financial key performance indicators

DenitionFFO is a measure that reects ourability to generate cash for investment,debt servicing and distributions toshareholders. FFO comprises cashprovided by operating activities before working capital changes, lesstax and net interest payments plusdividends received.

2014 performance2014 FFO was $10.2 billion, broadlyin line with 2013, reective of theconsistent year over year AdjustedEBITDA result of $12.8 billionwhere increased marketing results,production and currency related cost benets mitigated the impact of theweaker commodity price environment.

DenitionNet debt is a measure of how we aremanaging our debt, one of the keydrivers in ensuring we maintain aninvestment grade rating status and anattractive cost of capital. In addition,the relationship of FFO to net debtis an indication of our nancialexibility and strength, a key driverof our strategy to take advantage ofcapital disciplined opportunism.

Net debt is dened as total current andnon-current borrowings less cash andcash equivalents, marketable securitiesand readily marketable inventories.

2014 performanceDuring 2014, net debt decreasedto $30.5 billion, reecting the net

proceeds of the Las Bambas/Caracaltransactions as well as still elevatedlevels of capital expenditure relatingto some of our key expansion projectswhich have been commissioned or arenearing completion during 2014 andwhich should start to accrue benetsin the near future. Capital expenditureis expected to continue on itsdeclining trajectory.

Funds rom operations (FFO)US$ million12,000

10,000

8,000

6,000

4,000

2,0000

2013 2014

Net debt/FFO to net debtUS$ million40,000

30,000

20,000

10,000

0

60

50

40

30

20

100

2013 2014

%

Net debt FFO to net debt

2013

Adjusted EBIT/EBITDAUS$ million14,00012,00010,0008,0006,0004,000

2,0000

2014

EBIT EBITDA


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Net incomeUS$ million5,000

4,000

3,000

2,000

1,000

02013 2014

DenitionNet income is that attributableto equity shareholderspre-signicant items.

2014 performance

2014 net income was $4.3 billion, down7% compared to 2013, reecting the10% reduction in EBIT, explained onpage 22.

Non-nancial key performance indicators

2013

Fatalitiesnumber

30

20

10

02014

DenitionWe believe that every work-relatedincident, illness and injury ispreventable and we are committedto providing a safe workplace.

We do not distinguish between

contractors and employees; the safetyof all our workforce is of paramountimportance. We insist that ourcontractors comply fully with oursafety standards and procedures,and monitor their compliance.

Our safety-related initiatives andperformance are discussed at everyBoard HSEC Committee meeting.

2014 performanceIt is with regret that we report that

16 people lost their lives at ourmanaged operations in 2014. 13 ofthe 16 fatalities occurred at a smallnumber of assets employing 71,000people, located in challenginggeographies where a culture of safetydid not exist prior to our involvement.The remaining 3 incidents occurredat our more developed operations,employing 110,000 people,representing a world class safetyperformance; our ongoing challengeand commitment is to embed this

performance into the aforementioned‘focus assets’.

DenitionThe lost time injury frequency rate(LTIFR) is a key measure of how weare delivering against our commitmentto the safety of our total workforce,including contractors.

Lost time incidents (LTIs) are recordedwhen an employee or contractor isunable to work following an incident.Prior to 2014, Glencore recorded lostdays from the calendar day followingthe incident while Xstrata recordedas lost days from the next rosteredday after the incident. As a result, thecombined LTI gure, prior to 2014, isnot based on a consistent denition.From 2014, LTIs are recorded for lostdays beginning on the rst rosteredday that the worker is absent after the

day of the injury. The day of the injuryis not included.

LTIFR is the total number of LTIsrecorded per million working hours.LTIs do not include Restricted WorkInjuries (RWI) and fatalities (fatalitieswere included until 2013). Historic datahas been restated to exclude fatalities.

2014 performanceIn 2014, our Group LTIFR was1.58 injuries recorded per million

working hours, down from 1.87 in2013. The decrease reects ongoinginitiatives that are working towards bringing about a long-term changeto safety culture at a handful offocus assets.

2013

Lost time injury requency rate (LTIFR) per million hours worked

2.0

1.8

1.6

1.4

1.2

1.02014


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Key performance indicators

DenitionWe undertake an extensive andcomplex range of activities, whichare not limited to the extraction ofnatural resources, but also includesignicant logistical operations suchas maritime transportation. One wayin which we measure the robustnessof our procedures and policiesis the frequency and severity ofenvironmental incidents in the Group.

We grade environmental incidentsaccording to severity. We classifyincidents against a ve-pointscale from catastrophic (Category5) to negligible (Category 1).We aim for zero major to catastrophicenvironmental incidents.

2014 performanceDuring 2014, there were zero major tocatastrophic environmental incidents,compared to one in 2013, which arose

from an arson incident.

DenitionOur CO2 emissions reporting isseparated into Scope 1 and Scope 2emissions. Scope 1 includes emissionsfrom combustion in owned orcontrolled boilers, furnaces andvehicles/vessels, coal seam emissionsand rice cultivation. Scope 2 consistsof those generated in creating theelectricity, steam and heat providedto the organisation by external

utility companies.

2014 performanceIn 2014, our business accounted for23.2 million tonnes of CO2 Scope 1(direct) emissions. This was a 5%decrease on 2013 Scope 1 emissions,which was mainly the resultof improved reporting of coalseam emissions.

A revised approach to reportingresulted in the exclusion of emissions

arising from time-chartered vessels(which are allocated to Scope 3 asGlencore does not operate thesevessels) and the inclusion of CO2 emissions from biomass. This resultedin the restatement of prior year gures.

We also emitted 13.4 million tonnesof CO2 Scope 2 (indirect) emissions,a 3% decrease on 2013.

DenitionEnergy is measured in petajoules (PJ),and includes both electricity usage andenergy from the combustion of fuel.

Many of our operations use energyintensively and energy use is asignicant component of our totaloperation costs. As such, we aim tocontinually improve energy ef ciencyacross our operations. Our commodity businesses have bespoke energyef ciency plans and regular energyaudits are carried out.

2014 performanceDiffering from previous years, our2014 calculations excluded emissionsarising from time-chartered vessels(which Glencore does not operate)and reductants. This also resulted ina restatement of prior years’ gures.The net 2014 total energy usage was250 PJ, an increase of 2% on 2013.

This slight increase was due tovarious projects ramping up towardsfull production.

Greenhouse gas emissions Million tonnes CO240

30

20

10

0

Scope 1 Scope 2

2013 2014

Energy usagePetajoules300

250

200

150

100

50

0

Direct energy Indirect energy

2013 2014

Electricity renewable

Electricity non-renewable

Oil products

Coal/coke

Natural gas

Renewables

Othersources

Energy source (% of Group total)

Environmental incidents Major/catastrophic incidents

2013: one2014: none


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DenitionWater withdrawal is a measure of ouroperational resource ef ciency.

We monitor total water used as ameasure of our operational resourceef ciency. Our operations have anongoing responsibility to increasethe use of processed and recycledwastewater in order to reduce ourimpact on local water supplies.Recycled water is predominantlyused in place of fresh water forprocesses such as dust suppression.

2014 performanceIn 2014, we used 958 million m3 ofwater, a small increase on 2013, dueto the larger scale of the Group’soperations. We have redened ourreporting indicators to ensure animproved and more consistentapproach to reporting. This gave riseto a restatement of 2013 numbers.

DenitionCommunity investments are ourcontributions to, and nancial supportof, the broader communities in theregions where we operate.

At least 1% of annual Group prot isset aside to fund initiatives that benetcommunities and local sustainabledevelopment. We also make in-kindcontributions, such as equipment andmanagement. We support programmesfor community development,enterprise and job creation, health,education and the environment.

2014 performanceIn 2014, the funds we made availablefor community investments were$114 million, a decrease on theamount invested in 2013, reecting thechallenging operating environmentfor most of our commodities.

Community investment by region%

Africa

Asia

Australia

Europe

N. America

S. America

Capacitybuilding

Environment

Health

Identiedlocal orregional need

Community investment by spend%

Water withdrawn Million m3

1,000

800

600

400

200

02013 2014 2013 2014

Community investment spendUS$ million200

150

100

50

0


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Principal risks and uncertainties

Risk Management is one of the key responsibilities ofthe Board and the Audit Committee. Our risks anduncertainties – whether under our control or not – arehighly dynamic and our assessment and our responses tothem are critical to our future business and prospects.Our risk management framework identies andmanages risk in a way that is supportive of ourstrategic objectives of opportunistically deployingcapital, while protecting our future nancialsecurity and exibility. Our approach towardsrisk management is framed by the ongoingchallenge of our understanding of the risks thatwe are exposed to, our risk appetite and howthese risks change over time.

The Board assesses and approves our overall riskappetite, monitors our risk exposure and sets theGroup-wide limits, which are annually reviewed.This process is supported by the Audit and HSECcommittees whose roles include evaluating andmonitoring the risks inherent in their respectiveareas as described on pages 94–96 and page 98.

Our current assessment of our risks, accordingto materiality, is detailed on the followingpages. In compiling this assessment we have,in comparison with last year’s analysis:

• simplied or shortened our explanations;

• combined risks where they areconceptually similar;

• removed as separate categories the risksrelating to hedging, non-controlling stakes,resources and reserves, arbitrage opportunities,supply of commodities from third parties andrisk management policies and procedures.These all remain risks to which we areexposed but we no longer consider them to bestandalone principal risks and uncertainties;and

• indicated changes in our assessment of theimpact of these risks in comparison with a yearago in the table below.

The commentary on the risks below should beread in conjunction with the description of ourmethodologies in the compilation of this riskinformation which is set out on the next page.

To the extent that any of these risks are realised,they may affect, among other matters: our currentand future business and prospects, nancialposition, liquidity, asset values, growth potential,sustainable development (whether as to adversehealth, safety, environmental, community effectsor otherwise) and reputation.

Overview of principal risks and uncertainties

External/sustainable developmentPages 28, 29, 32 and 33

Business activitiesPages 30–31

Increased risk • Fluctuations in supply of or demandfor commodities

• Reductions of commodity prices• Laws, enforcement• Emissions and climate change

• Counterparty credit and performance

No change in risk • Fluctuations in currency exchange rates• Geopolitical risk• Liquidity risk• Community relations• Employees• Health, Safety, Environment, including

potential catastrophes

• Sourcing, freight, storage infrastructureand logistics

• Development and operating risks and hazards

Decreased risk • Cost control


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Understanding the information on risksThere are many risks and uncertainties whichhave the potential to signicantly impact our business including competitive, economic,political, legal, regulatory, social, business andnancial. The order in which these risks anduncertainties appear does not necessarily reectthe likelihood of their occurrence or the relativemagnitude of their potential material adverseeffect on our business.

We have sought to provide examples of particularrisks. However, in every case these do not attemptto be an exhaustive list. These principal risks anduncertainties should be considered in connectionwith any forward looking statements in thisdocument as explained on page 205.

Identifying, quantifying and managing riskis complex and challenging. Although it isour policy and practice to identify and, whereappropriate and practical, actively manage suchrisks to support objectives in managing capitaland future nancial security and exibility, ourpolicies and procedures may not adequatelyidentify, monitor and quantify all risks.

The comments below describe our attemptsto manage, balance or offset risk. Inevitably,however, risk by its very nature is uncertain andevents may lead to our policies and proceduresnot having a material mitigating effect on thenegative impacts of the occurrence of a particularevent. Since many risks are connected, ouranalysis should be read against all risks to whichit may be relevant.

In this section, we have sought to update ourexplanations, reecting our current outlook.Mostly this entails emphasising certain risksmore strongly than other risks rather than theelimination of, or creation of, risks. We have alsosought to provide a more concise explanationof our risks. In order to provide both historicand updated information on our risks, there isavailable on our website at www.glencore.com/who-we-are/corporate-governance/governance-

downloads the text of this section from last year’sannual report which we may supplement fromtime to time.

To provide for concise text:

• where we hold minority interests in certain businesses, although these entities are notgenerally subsidiaries, the interests are mostlytaken as being referred to in analysing theserisks, and ‘business’ refers to these and any business of the Group;

• where we refer to natural hazards, events of

nature or similar phraseology we are referringto matters such as earthquake, ood, severeweather and other natural phenomena;

• in each case our mitigation of risks willinclude the taking out of insurance whereit is customary and economic to do so;

• ‘risks’ include uncertainties;

• ‘laws’ include regulations of any type;

• a reference to a note is a note to the 2014nancial statements; and

• we have referred to our 2014 Sustainability

Report which will be published in April 2015.

The natural diversi

cation of our portfolio ofcommodities, geographies, currencies, assets andliabilities is a key source of mitigation for manyof the risks we face. In addition, through ourgovernance processes as noted previously andour proactive management approach we seek tomitigate, where possible, the impacts of certainrisks should they materialise. In particular:

• our liquidity risk management policy requiresus to maintain (via a minimum prescribedlevel) suf cient cash and cash equivalentsand other sources of committed fundingavailable to meet anticipated and unanticipatedfunding needs;

• making use of credit enhancement products,such as letters of credit, insurance policies and bank guarantees and imposing limits on openaccounts extended;

• our management of marketing risk, includingdaily analysis of Group value at risk (VaR); and

• adhering to the principles encapsulated in theGlencore Corporate Practice (GCP) programme.


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Risk CommentsExternal

Fluctuations in the supply of, or demand for,the commodities in which we operate

We are dependent on the expected volumes of supply or demandfor commodities in which we are active, which can vary formany reasons, such as competitor supply policies, changes inresource availability, government policies and regulation, costsof production, global and regional economic conditions and eventsof nature.

This risk is currently prevalent in our industry wheredemand growth uncertainty exists in various commoditieswe produce and market, notably within some copper, coaland oil markets, while supply seeks to balance such demand.

See the Chief Executive’s review on page 6.

Reductions of commodity prices

The revenue and earnings of substantial parts of our industrial

asset activities and, to a lesser extent, our marketing activities, aredependent upon prevailing commodity prices. Commodity pricesare inuenced by a number of external factors, including thesupply of and demand for commodities, speculative activities by market participants, global political and economic conditionsand related industry cycles and production costs in majorproducing countries.

A signicant downturn in the price of commodities generallyresults in a decline in our protability and could potentiallyresult in impairments. It is especially harmful to protability inthe industrial activities which are more directly exposed to pricerisk due to the higher level of xed costs, while our marketingactivities are ordinarily substantially hedged in respect of pricerisk and principally operate a service-like margin-based model.

The price declines over 2014 in some of our commodities

especially copper, coal, oil, precious metals and iron ore,have been a drag on the 2014 return on capital measure.

Against the backdrop of these uctuations, as we wouldexpect, there were no breaches during 2014 of our$100 million Group VaR limit pertaining to our marketingactivities – see page 92.

See the Chief Executive’s review on page 6.

Details of impairments recorded during the year arecontained in note 5.

Fluctuation in currency exchange ratesThe vast majority of our transactions are denominated in USdollars, while operating costs are spread across many differentcountries, the currencies of which uctuate against the US dollar.A depreciation in the value of the US dollar against one or moreof these currencies will result in an increase in the cost base of therelevant operations in US dollar terms.

The main currency exchange rate exposure is through ourindustrial assets, as a large proportion of the costs incurred bythese operations is denominated in the currency of the countryin which each asset is located. The largest of these exposures isto the currencies listed on page 44.

This risk is currently prevalent in our industry. However,these uctuations tend to move in symmetry with those incommodity prices and supply and demand fundamentalsas noted above, such that decreases in commodity prices aregenerally associated with increases in the US dollar relativeto local currencies and vice versa. Consequently, the currentrelative strength of the US dollar has been benecial to usthrough lower equivalent US dollar operating costs at manyof our operations. This positive, however, has been morethan offset by the substantial falls in commodity pricesdescribed above.

Geopolitical risk

We operate and own assets in a large number of geographicregions and countries, some of which are categorised asdeveloping, complex or having unstable political or socialclimates. As a result, we are exposed to a wide range of political,economic, regulatory and tax environments. Policies or laws inthese countries may change in a manner that may be adverse forus. Also, some countries with more stable political environmentsmay nevertheless change policies and laws in a manner adverseto us. We have no control over changes to policies, laws and taxes.

The geopolitical risks associated with operating in a large numberof regions and countries, if realised, could affect our ability tomanage or retain interests in our industrial activities.

During 2014, we were subject to signicant changes in scalpolicy from countries in South America, Africa and AsiaPacic and we expect this trend to continue in 2015 as theglobal geopolitical climate continues to evolve.

See map on page 6 that sets out our globaloperational footprint.


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Risk CommentsLaws, enforcement, permits and licences to operate

We are exposed to and subject to extensive laws including thoserelating to bribery and corruption, taxation, anti-trust, nancialmarkets regulation, management of natural resources, licencesover resources owned by various governments, exploration,production and post-closure reclamation, the employment ofexpatriates and cultural preservation. The terms attaching to anypermit or licence to operate may also be onerous. Furthermore, incertain countries title to land and rights and permits in respect ofresources (including indigenous title) is not always clear. Title toour rights may be challenged and insurance may not be available.

The legal system and dispute resolution mechanisms in somecountries may be uncertain or underfunded so that we may be unable to enforce our understanding of our title, permits orother rights. Laws may allow lawsuits to be brought, based upondamage resulting from past and current operations, and couldlead to the imposition of substantial sanctions, the cessation ofoperations, compensation and remedial and/or preventativeorders. Moreover, the costs associated with legal complianceincluding regulatory permits are substantial. Any changes tothese laws or their more stringent enforcement or restrictiveinterpretation could cause additional material expenditure to be incurred (including in our marketing business) or imposesuspensions of operations and delays in the development ofindustrial assets. Failure to obtain or renew a necessary permitcould mean that we would be unable to proceed with thedevelopment or continued operation of an asset.

A dispute relating to an industrial asset could disrupt or delayrelevant extraction, processing or other projects and/or impedeour ability to develop new industrial properties.

We are committed to complying with or exceeding the lawsand external requirements applicable to our operationsand products. Through this and monitoring of legislativerequirements, engagement with government and regulators,and compliance with applicable permits and licences, westrive to ensure full compliance. We also seek to managethese risks through the Glencore Corporate Practice (GCP)programme. Its practical application across our business isdetailed in our code of conduct (www.glencore.com/who-we-are/corporate-governance/policies/code-of-conduct/)and this framework is reected in our Sustainability Reports.The Group’s anti-corruption policy may also be found at:

www.glencore.com/who-we-are/corporate-governance/policies/global-anti-corruption-policy/.

Liquidity risk

Our failure to access funds (liquidity) would severely limit ourability to engage in desired activities and grow our business.

Liquidity risk is the risk that we are unable to meet our paymentobligations when due, or are unable, on an ongoing basis, to borrow funds in the market on an unsecured or secured basisat an acceptable price to fund actual or proposed commitments.While we adjust our minimum internal liquidity thresholdfrom time to time in response to changes in market conditions,this minimum internal liquidity target may be breached due tocircumstances we are unable to control, such as general marketdisruptions, sharp movements in the prices of commodities oran operational problem that affects our suppliers or customersor ourselves.

A lack of liquidity may mean that we will not have funds availableto maintain or increase marketing and industrial activities, bothof which employ substantial amounts of capital. If we do not havefunds available to sustain or develop our marketing and industrialactivities then these activities will decrease.

As at 31 December 2014, the Group had available undrawncommitted credit facilities and cash amounting to$9.4 billion, comfortably ahead of our $3 billion minimumprescribed level. In addition, note 26 details our nancialand capital risk management approach.


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Risk CommentsBusiness activities

Counterparty credit and performance risk

Financial assets consisting principally of marketable securities,receivables and advances, derivative instruments and long-termadvances and loans can expose us to concentrations of credit risk.

Furthermore, we are subject to non-performance risk by oursuppliers, customers and hedging counterparties, in particular viaour marketing activities.

Non-performance by suppliers, customers and hedgingcounterparties may occur and cause losses in a range of situations,such as:

• a signi

cant increase in commodity prices resulting insuppliers being unwill ing to honour their contractualcommitments to sell commodities at pre-agreed prices;

• a signicant reduction in commodity prices resulting incustomers being unwilling or unable to honour their contractualcommitments to purchase commodities at pre-agreed prices;and

• customers taking delivery of commodities or hedgingcounterparties may nd themselves unable to honourtheir contractual obligations due to nancial distress orother reasons.

We monitor the credit quality of our counterparties and seekto reduce the risk of customer non-performance by requiringcredit support from creditworthy nancial institutionsincluding making extensive use of credit enhancementproducts, such as letters of credit, insurance policies and bank guarantees, where appropriate, and by imposing limitson open accounts extended.

In addition, note 26 details our nancial and capital riskmanagement approach.

Sourcing, freight, storage, infrastructure and logistics

Our marketing activities require access to signicant amountsof third party supplies of commodities, freight, storage,infrastructure and logistics support and we are exposed toreduced accessibility and/or increased pressure in the costsof these. In addition, we often compete with other producers,purchasers or marketers of commodities or other productsfor limited storage and berthing facilities at ports and freightterminals, which can result in delays in loading or unloadingproducts and expose us to signicant delivery interruptions.

Increases in the costs of freight, storage, infrastructure andlogistics support or limitations or interruptions in the supplychain (including any disruptions, refusals or inabilities to supply)could adversely affect our business.

Our global network of infrastructure and logistics operationssuch as vessels, oil terminals and tank farms, metals andother warehouses and grain silos assists in mitigating risksrelated to disruptions to or limitations of sourcing, freight,storage, infrastructure and logistics.

See map on page 6 that sets out our globaloperational footprint.

Development and operating risks and hazards

Our industrial activities are subject to numerous risks and

hazards normally associated with the initiation, development,operation and/or expansion of natural resource projects, manyof which are beyond our control. These include unanticipatedvariations in grade and other geological problems (so thatanticipated or stated reserves, resources or mineralised potentialmay not conform to expectations and in particular may notreect the reserves and resources which the Group reportsand as a result the anticipated volumes or grades may not beachieved). Other examples include seismic activity, naturalhazards, processing problems, technical and IT malfunctions,unavailability of materials and equipment, reliability and/orconstraints of infrastructure, industrial accidents, labour forceinsuf ciencies, disruptions and disputes, disasters, protests,force majeure factors, cost overruns, delays in permitting orother regulatory matters, vandalism and crime.

Development and operating risks and hazards are managed

through our continuous development status evaluation andreporting processes and ongoing assessment, reportingand communication of the risks that affect our operationsthrough the annual risk review processes and updates to therisk register.

We publish quarterly our production results and annuallyour assessment of reserves and resources based on availabledrilling and other data sources.

During 2014, continued power shortages and reliability atour copper operations in the Democratic Republic of Congoaffected production. In response, we continued to invest inlong-term power solutions via the Inga dam refurbishmenttogether with short-term solutions through the installationsof mobile generating capacity.

Production at Koniambo (nickel) was partially suspendedin December 2014 following detection of a metal leak at themetallurgical plant.


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Strategic report

Governance



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Risk CommentsDevelopment and operating risks and hazards(continued)

The development and operating of assets may lead to futureupward revisions in estimated costs, completion delays, costoverruns, suspension of current projects or other operationaldif culties. Risks and hazards could result in damage to, ordestruction of, properties or production facilities, may causeproduction to be reduced or to cease at those properties orproduction facilities, may result in a decrease in the quality of theproducts, personal injury or death, third party damage or loss,and may result in actual production differing from estimatesof production.

Natural hazards, sabotage or other interference in operations,could increase costs or delay supplies. In some locations poorquality infrastructure is endemic. The realisation of thesedevelopment and operating risks and hazards could requiresignicant and additional capital and operating expendituresto fund abatement, restoration or compensation to third partiesfor any loss and/or payment of nes or damages.

Cost control

As commodity prices are outside of our control, thecompetitiveness and sustainable long-term protability of ourindustrial asset portfolio depends signicantly on our ability toclosely manage costs and maintain a broad spectrum of low-cost,ef cient operations. Costs associated with the operation of ourindustrial assets can be broadly categorised into labour costs and

other operating and infrastructure costs. Overall production andoperating costs are heavily inuenced by the extent of ongoingdevelopment required, ore grades, mine planning, processingtechnology, logistics, energy and supply costs and the impactof exchange rate uctuations. All of our industrial assets are, tovarying degrees, affected by changes in costs for labour and fuel.Unit production costs are also signicantly affected by productionvolumes and therefore production levels are frequently a keyfactor in determining the overall cost competitiveness of anindustrial asset.

Maintaining costs and, where possible, lowering them issupported by our reporting on these measures, coupled withthe inclusion of certain cost control evaluation measures inassessing management performance.


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Risk CommentsSustainable development

Emissions and climate change

Our global presence exposes us to a number of jurisdictions inwhich regulations or laws have been or are being considered tolimit or reduce emissions. The likely effect of these changes will be to increase the cost for fossil fuels, impose levies for emissionsin excess of certain permitted levels and increase administrativecosts for monitoring and reporting. Third parties includingpotential or actual investors may also introduce policies adverseto a company which has signicant activities in or concerningfossil fuels (a fossil fuel company).

Increasing regulation of greenhouse gas emissions, including

the progressive introduction of carbon emissions tradingmechanisms and tighter emission reduction targets is likely toraise costs. In addition, regulation of greenhouse gas emissionscould increase costs and reduce demand. Furthermore, the desireor ability to invest in us by some investors may potentially bereduced or eliminated due to changes in investment policiesconcerning fossil fuels companies.

Through our sustainability programme (operated under ourGCP framework), we strive to ensure emissions and climatechange issues are identied, understood and effectivelymanaged and monitored in order to meet international best practice standards and ensure regulatory compliance.We seek to ensure that there is a balanced debate with regardto the ongoing use of fossil fuels.

Our 2014 Sustainability Report will provide further detailsof the operation of our community engagement programme,including the international standards to which we

voluntarily submit.In recent months, there have been announcements bysome investment groups regarding the introduction of,or tightening of policies, concerning reduced investmentin fossil fuel companies.

Community relations

The continued success of our existing operations and our futureprojects are in part dependent upon broad support and a healthyrelationship with the respective local communities. A perceptionthat we are not respecting or advancing the interests of thecommunities in which we operate, could have a negative impacton our ‘‘social licence to operate’’, our ability to secure access tonew resources and our nancial performance. The consequencesof negative community reaction could also have a materialadverse impact on the cost, protability, ability to nance or eventhe viability of an operation and the safety and security of ourworkforce and assets. Such events could lead to disputes withgovernments or with local communities or any other stakeholdersand give rise to reputational damage. Even in cases where noadverse action is actually taken, the uncertainty associated withsuch instability could negatively impact the perceived value ofour assets.

We believe that the best way to manage these vitalrelationships is to adhere to the principles of open dialogueand cooperation. In doing so, we engage with localcommunities to demonstrate our operations’ contributionto socio-economic development and seek to ensure thatappropriate measures are taken to prevent or mitigatepossible adverse impacts on the community, along withthe regular reporting as outlined on our website at:www.glencore.com/sustainability/our-approach-to-sustainability/communities/engagement/

Employees

The maintenance of positive employee and union relations andthe ability to attract and retain skilled workers, including senior

management are key to our success. This can be challenging,especially in locations experiencing political or civil unrest, orin which they may be exposed to other hazardous conditions.Many employees are represented by labour unions under variouscollective labour agreements. Their employing company may not be able to satisfactorily renegotiate its collective labour agreementswhen they expire and may face tougher negotiations or higherwage demands than would be the case for non-unionised labour.In addition, existing labour agreements may not prevent a strikeor work stoppage.

We understand that one of the key factors in oursuccess is a good and trustworthy relationship with our

people. This priority is re

ected in the principles of oursustainability programme and related guidance, whichrequir

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Glencore 2014 Annual Report

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