Sustainable Development

Our commitment to the principles of sustainable development is integral to our strategy and business philosophy. Our Mission, Business Principles and policies recognise that responsible management of our business is necessary for the long-term success of our strategy and will:

• enhance Xstrata’s corporate reputation
• minimise risk
• help us secure access to the most talented people, the best resources and diverse and cost effective sources of capital.

Xstrata publishes a separate, detailed Sustainability Report and reports in accordance with Global Reporting Initiative guidelines. The report includes further details about the issues and initiatives outlined below and is available from www.xstrata.com or as a hard copy on request. URS Verification Limited has independently assessed Xstrata’s sustainability data, performance and reporting against the AA1000 standard for materiality, completeness and responsiveness. An assurance statement is provided in the 2006 Sustainability Report, including a description of the scope of the assurance work and recommendations.

HSEC Governance, Leadership and Accountability

Xstrata’s Board HSEC Committee is chaired by Ian Strachan and is responsible for monitoring and assessing the effectiveness of Xstrata’s Group HSEC strategy, policies and performance. The corporate governance report on pages 115 to 125 of this report, provides further details about the responsibilities and activities of the Board and its committees.

The Group General Manager, Sustainable Development reports directly to the Group CEO. In line with our devolved management structure, each commodity business is responsible for its operational performance, within Xstrata’s sustainable development framework. Xstrata’s HSEC Assurance Programme independently audits every managed operation at least once every three years, or more frequently, dependent on the site’s previous audit performance and risk profile.

Ethics

Xstrata’s Statement of Business Principles is available from our website and is published separately and distributed to every employee and contractor in the 15 native languages spoken by our workforce. This core document sets out the ethical framework for our activities worldwide. Following the acquisitions made in 2006, the Statement of Business Principles has been reprinted in early 2007 and distributed to every managed operation. It is the responsibility of every employee and contractor to adhere to our Business Principles.

A confidential, toll-free “whistleblowing” telephone line and e-mail address is provided for every country in which Xstrata operates, and is run by KPMG. All calls and e-mails received are investigated as appropriate and reported to the Head of Internal Audit and Risk, who reports directly to the Board Audit Committee.

Construction materials provided by Minera Alumbrera, Argentina are used to develop irrigation channels in Santa Maria and San José to enhance local agribusiness

Estimated Union Membership

Our People

It is Xstrata’s policy to communicate honestly with employees and encourage consultation between employees and management. No form of workplace discrimination or harassment is tolerated.

We give full consideration to applications for employment from disabled persons, where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. Where existing employees become disabled, it is Xstrata’s policy to provide continuing employment under normal terms and conditions and to provide training and career development and promotion to disabled employees as appropriate.

We link a significant element of employees’ variable reward to the performance of the Group. Executive directors and senior employees of the Company and its subsidiaries are eligible to participate at the discretion of the Remuneration Committee in the Xstrata Long Term Incentive Plan (LTIP). The vesting of awards and options depends upon the satisfaction of stipulated performance conditions. Further details of the LTIP and other Xstrata share schemes are set out in Note 35 to the Financial Statements and in the Remuneration Report on pages 126 to 139.

Xstrata employs approximately 43,000 employees and long-term contractors globally. The management of labour relations is a fundamental responsibility of operational management. We always seek to have a direct relationship between our employees and line management, founded on quality leadership, effective communication and trust. All employees are free to join a union of their choice and to be represented collectively and Xstrata’s workforce is predominantly unionised. Estimations of union membership by commodity business unit are shown in the table on this page.

Within Xstrata there are examples of various workplace relations models, including individual agreements and collective bargaining agreements, reflecting the circumstances of any given site and Xstrata’s devolved management structure. Xstrata values diversity in its workforce and we seek to employ people with a varied range of skills, backgrounds and perspectives. No formal diversity targets are in place, with the exception of South Africa, where our businesses are actively recruiting, training and fast-tracking black and female candidates to achieve targets set by the South African Mining Charter. Xstrata strives to ensure and believes that all of the Group’s operations have, in general, good relations with their employees and unions.

In 2006, Xstrata appointed a Group General Manager, Human Resources who reports to the Group CEO. The GM Human Resources is responsible for the administration of group policy on remuneration, performance appraisal, career development and succession planning, recruitment and expatriate management and for the alignment of human resources management and policy with international best practice. Each commodity business is fully resourced to manage its human resources requirements, within the Group’s policies and procedures.

In 2006, Xstrata made 204 compulsory redundancies as a result of the acquisitions made. Xstrata seeks to avoid compulsory redundancies where possible and provides all employees with assistance programmes, retraining and support as appropriate.

Employee turnover is reported within the key performance indicators section of this report, and is an indication of our success in retaining our permanent employees. In 2006, turnover reduced to 5.2%, including Falconbridge from the date of acquisition.

Safety

Our aim is to operate with zero injuries and we believe that every incident is preventable. Our operations strive to achieve continuous improvements in reducing the number of injuries sustained in the workplace. The total recordable injury frequency rate comprises lost time injuries, restricted work and medical treatment injuries and provides a more comprehensive measure than focusing on lost time injuries alone. In 2006, Xstrata’s operations reduced the frequency of total recordable injuries by 13% (excluding Falconbridge), the fifth consecutive year of improved safety performance. Tragically, one employee lost his life at a South African operation in 2006 and a further four fatalities have occurred in early 2007. We investigate all fatal incidents and high potential risk incidents, to implement preventative measures across the Group, and are implementing intensive fatality prevention programmes in our South African operations, where the majority of fatal incidents have occurred.

Kate Brimblecombe, Environmental Officer, monitoring water at Oaky Creek coal mine, Australia

Health

In 2006, the former Xstrata operations recorded 31 new occupational health cases, or 58 including the Falconbridge operations from the date of acquisition. These incidents consisted predominantly of noise-induced hearing loss, respiratory conditions and musculo-skeletal injuries some of which result from challenges associated with the increased average age of our Australian and Canadian workforces. Hearing conservation programmes and “buy quiet” programmes are in place at every operation and ongoing programmes are under way to reduce dust in the workplace.

Prevalence rates for HIV and AIDs of approximately 20% of our South African workforce make this disease our most significant health issue.

Xstrata is implementing innovative HIV and AIDS testing, counselling and treatment programmes across its South African operations and in local communities. Approximately 95% of South African coal employees and contractors now know their HIV status, with new infections falling to a very low rate (0.3%). We are also implementing programmes in other high-risk areas, such as the Dominican Republic, to limit the impact of the disease and prevent new infections.

Environment

Xstrata’s operations strive to achieve continuous improvements in environmental performance and seek to prevent, mitigate, reduce or offset the environmental impact of our activities. Every operation is required to maintain an environmental management system consistent with ISO14001. Key environmental performance indicators are reported in the Business Overview and Strategy section of the report.

There were no significant or major environmental incidents in 2006. The number of moderate (level 3) incidents increased slightly to 26 from 20 in 2005, with the majority of incidents due to stormwater discharges during tropical storms.

Climate change:

One of our most significant challenges is to address climate change. We have implemented energy efficiency programmes at every operation, with a particular focus on metallurgical operations. Xstrata Coal actively seeks to play a leadership role in the research and development of clean coal technologies, through advocacy for international support for technological innovation and financial support for a number of clean coal initiatives.

In 2006, greenhouse gas emissions (CO2 equivalents) increased by 10% from 2005 levels, due to increased production from the commissioning of new projects, including Rolleston thermal coal, Lion ferrochrome and the Mototolo platinum JV, together with the acquisition of Tintaya copper. Reporting of factors contributing to greenhouse gas emissions also improved due to the implementation of our bespoke sustainability database in 2006.

Air emissions:

Xstrata’s operations seek to minimise air emissions, in particular sulphur dioxide (SO2) from our metallurgical operations. In 2006, SO2 emissions decreased by 1% in absolute terms compared to the previous year due to a combination of successful emissions reduction initiatives and lower production of lead, partly offset by an increase in SO2 emissions reported by Xstrata Alloys due to improved reporting at a number of sites.

Waste:

Every managed site is required to maintain an active waste management plan. We seek to recycle non-hazardous waste wherever possible, reducing the waste sent to landfill.

Xstrata Copper’s social involvement programme at the Las Bambas project in Peru is helping to improve health and nutritional levels in rural communities

Water:

Xstrata operates in a number of water scarce areas, including Australia, Chile and other Andean countries. Comprehensive water management studies are being completed to identify further water conservation opportunities. We seek to increase the proportion of water that is recycled and reused on site and make continuous reductions in raw water extraction. A number of initiatives have been implemented in water scarce areas to share water with operations with excess water, and to integrate mine and local community water usage more closely.

Responsible closure:

Following the acquisition of Falconbridge, Xstrata has gained a significant number of closed operations. Appropriate financial provisions are included in all closure plans to cover social, economic and environmental issues.

Community

Every managed operation develops a corporate social involvement plan in consultation with stakeholders, identifying programmes with a tangible and sustainable community benefit, in line with our corporate social involvement policy. Xstrata sets aside a minimum of 1% of Group profit before tax to support community initiatives. In 2006, Xstrata set aside over $49 million