Sustainability website / Strategy & Approach / Chief Executive's Report

Xstrata’s strategy to grow and create value over the long term relies on our ability to identify opportunity, manage risk, access capital, employ the best people, maintain our licence to operate and – perhaps most critically of all for a growth-oriented company – continue to gain access to new resources. To do so, we must earn and maintain a reputation for integrity and responsibility from our stakeholders by operating to leading sustainability standards. As a member of ICMM, we are committed to superior business practices in sustainable development.

The mining and metals industry is currently enjoying an extended period of strong commodity prices, which offers us many opportunities to create value for our owners, the communities associated with our operations, host governments and employees. However, this environment also brings with it a number of challenges, from increased competition for skilled labour and key mining inputs to the industry’s entry into more complex geographies to access new resources.

Securing a cost-effective and stable supply of energy is increasingly challenging in a number of regions, including in South Africa, where supply issues, high demand and a lack of generation capacity led to power outages in early 2008 and restrictions in electricity supply to the mining industry. Access to water is equally emerging as an important issue for our industry as we strive to increase production to meet sustained higher demand for metals and energy from the developing world.

There is much that we can do to improve the energy and water efficiency of our own operations and this is a key priority for Xstrata’s operations over the medium term. Issues such as these also require effective partnerships between governments, communities and industry to ensure that scarce natural resources are used responsibly and that governments are able to plan for and respond to regional requirements without sacrificing the ability of future generations to sustain themselves.

Technology is playing an increasingly vital role in solving global environmental challenges. Xstrata Technology is well placed to benefit from these trends and has seen increasing demand for its wide range of products to improve efficiency, reduce costs and harmful emissions, and minimise energy consumption. Our businesses are also focusing on developing new proprietary technological solutions to achieve efficiencies. Xstrata Alloys’ operations now represent some of the most energy efficient ferrochrome smelters in the world, thanks to our proprietary Premus technology and the introduction of the Bokamoso pelletising plant in 2007. Other solutions include the use of waste or fugitive gases to generate electricity, and we are expanding our methane-fired power stations at underground coal mines in Australia and investigating co-generation options in South Africa.

Climate change presents us with a longer-term challenge. Here too, technology offers a potential solution to the dilemma of how to satisfy growing global energy demand while abating greenhouse gases, in the form of clean coal technology to eliminate or very substantially reduce carbon emissions from the combustion of coal. As the world’s largest exporter of thermal coal, Xstrata Coal has continued to play a leadership role in investing in these technologies in partnership with government and power generators. Two major projects supported by Xstrata for a number of years have reached implemention in 2008 and seek to demonstrate the commercial viability of oxy-firing and carbon capture and underground storage respectively.

For Xstrata, other sustainability challenges arise from our focus on acquisitive and organic growth. These include the social and environmental considerations inherent in developing our extensive pipeline of greenfield growth projects in a number of less stable, remote or complex geographies and the challenges we face to bring the sustainability systems and performance of acquired operations up to the industry-leading standards we require and which are reflected in Xstrata’s policies and sustainable development standards.

In 2007 excellent progress was achieved in addressing some areas of historic underinvestment at the former Falconbridge operations, with a particular focus on major hazard management, operational integrity, addressing key environmental risks and the introduction of corporate social involvement plans at each operation.

Following the sustainable development audits completed as part of integration in 2006, six acquired operations and four major projects were independently audited through Xstrata’s Assurance Programme in 2007. Detailed action plans from the audits will drive further improvements and the remainder of the former Falconbridge sites will be audited in 2008 in line with our commitment to independently audit all acquired operations within two years. Total recordable injury frequency rates improved by 33% at the former Falconbridge operations compared to the previous year, contributing to an overall improvement of 26% across the Group.

I am also pleased to report that in 2007 Xstrata’s HIV/AI DS programmes continued to set new benchmarks in the workplace and for our community initiatives. Over 95% of Xstrata Coal South Africa employees voluntarily tested for HIV in 2007 and an innovative public-private partnership with the provincial health authorities is equipping government-run health clinics to offer HIV testing, counselling and anti-retroviral treatment to the broader community. Almost 70% of Xstrata Alloys employees took up voluntary testing in 2007, a very significant improvement over the prior year. While increasing numbers of HIV-positive employees are accessing free treatment through our programmes, our priority is to encourage 100% of HIV-positive employees to enrol and remain in treatment programmes.

Intensity measures have been developed for our primary environmental indicators, enabling us to normalise our environmental performance to production. Our businesses have set progressive annual and multi-year targets to drive further improvements in greenhouse gas and sulphur dioxide emissions, fresh water use, energy efficiency and a number of other areas. A scorecard showing performance against 2007 targets and our future targets are outlined in the performance section.

The substantial improvements achieved in our sustainability performance, policies and management systems in recent years have also been externally recognised. In September Xstrata was named as mining sector leader in the Dow Jones Sustainability Index and in early 2008 Xstrata was assessed as sector leader and a platinum level company in the Business in the Community Corporate Responsibility Index.

However, in some areas we did not achieve our targets. The most critical of these is the elimination of fatalities from our business. It deeply saddens me to report that nine people lost their lives at Xstrata’s managed operations in 2007. Fatality prevention remains our key priority. We will continue to work to strengthen safety leadership, major hazard management, operational integrity and contractor monitoring in 2008, including the continued roll-out of innovative behaviour-based safety and virtual reality training programmes.

Xstrata’s Sustainable Development Framework and the independent Assurance Programme introduced in 2004 have been the key drivers of the rapid improvements achieved at our operations in the last three years. Following a comprehensive external and internal review, a revised Sustainable Development Framework of business principles, policies and standards was approved by Xstrata’s Board in December 2007. The revised set of documents includes stronger commitments to environmental management and social performance and encompasses a broader range of sustainability issues and performance expectations for Xstrata’s projects, sites and commodity businesses.

I am confident that our governance framework represents leading practice in the extractives sector and that its implementation in 2008 will continue to drive further improvements in our ethical, social and environmental performance.

M L Davis