Sustainability website / Strategy & Approach / Key challenges

Through internal review and from feedback from our stakeholders we have identified and prioritised the following key challenges that may impact on our ability to successfully execute our strategy now or in the future and that reflect the environments that we work in and the nature of our operations. For each prioritised challenge, targets are set to reduce its impact on our business. Our performance against these targets in 2007 is shown in the Scorecard section. Future targets are set to drive further improvements and address areas of underperformance in 2008 and over longer timeframes and are set out in the Targets section.

Fatality prevention

Eliminating fatalities and demonstrating significant reductions in injuries sustained at our operations is imperative to maintaining our licence to operate and recruiting and retaining our employees. We believe all injuries and occupational illnesses are preventable and aim to operate a fatality- and injury-free workplace.

We do this by providing visible safety leadership, identifying and managing major hazards, reporting and learning from incidents and near-misses, investing in behaviour-based safety programmes and innovative training methods, monitoring contractors, engaging with suppliers to improve safety and maintaining operational integrity.

Tragically, while total recordable injury frequency rates improved by 26% compared to the previous year, we did not attain our primary target of no fatalities and five employees and four contractors were fatally injured at Xstrata’s managed operations in 2007.

In 2008, our main areas of focus are on enhancing major hazard management plans, tightening contractor management and monitoring, behaviour-based safety and investing in operational integrity.

Read about our fatality prevention programmes and safety initiatives : www.xstrata.com/sustainability/safety.

Climate change

As a significant producer and significant consumer of energy, Xstrata seeks to contribute to the global challenge of satisfying the world’s growing energy needs while reducing carbon emissions. The development of ‘clean coal’ technology also represents an opportunity for our business to expand coal’s share of the energy mix in a carbon-constrained world.

We do this by proactively improving the energy efficiency of our operations, reducing direct emissions and investing in research and demonstration of clean coal technologies, including carbon capture and storage, to achieve deep cuts in the emissions generated from the combustion of coal as an energy source.

In 2007, the carbon intensity of our operations improved by over 20%, due in part to enhanced methane abatement at underground coal mines but also due to the inclusion of the acquired Falconbridge operations which changed the Group’s intensity profile. We are on track to invest $75 million in clean coal technology by 2010 and two major demonstration plants are under way in 2008.

In 2008 we will review our intensity targets, continue to contribute towards the demonstration of clean coal technologies, improve energy efficiency and implement the findings of an independent study into the potential physical impacts of climate change on our operations. Our current target is to reduce carbon intensity by 5% over 2005 levels by 2010.

Read more about our approach and response to climate change : www.xstrata.com/sustainability/environment/climate.

Biodiversity and landscape function

We aim to preserve the long-term health, function and viability of the natural environments affected by our operations.

We do this by identifying, analysing, evaluating and eliminating all significant potential and actual impacts of our activities and operations on the environment, biodiversity and landscape functions.

During 2007, biodiversity conservation plans were implemented at all of our operations and we are on track to implement plans at all acquired operations within 24 months of acquisition. The plans establish the existing conditions of biodiversity and landscape function, identify the potential impacts of our proposed activities and identify opportunities for prevention, mitigation, improvement or compensation (e.g. offset areas). Biodiversity conservation offset areas have been established at a number of Australian sites and will be implemented at McArthur River Mine in 2008.

In 2008 we have set a target of preventing the loss of IUCN red list or endangered species from the sites of any of our managed operations and all other sites in biodiversity-rich areas will investigate implementing biodiversity offsets.

Read more about biodiversity conservation : www.xstrata.com/sustainability/environment/biodiversity.

Energy

Access to a secure supply of electrical energy at a reasonable cost is a critical consideration for the continued operation and future growth plans of Xstrata’s operations. Energy supply is subject to constraints in some regions and the cost of energy is, in general, rising.

To address this challenge, Xstrata is improving energy efficiency through a range of initiatives, identifying alternative energy supplies and developing energy efficiency technologies, such as Xstrata Alloys’ proprietary Premus technology which reduces the energy consumption of ferrochrome smelting by over 20% compared to conventional processes.

In 2007 the energy intensity of our operations increased by 2% over 2006, primarily due to the inclusion of the energy-intensive Falcondo and Nikkelverk operations and the restart of a number of ferrochrome furnaces, offset by energy efficiencies at our coal and copper operations. Our target is to reduce energy intensity by 3% over 2007 levels by 2012.

Read more about our approach to energy efficiency : www.xstrata.com/environment/sustainability/energy.

HIV and AIDS

HIV and AIDS continue to present the most significant workplace and community health challenge for the Group’s workforce and communities, particularly in South Africa.

To address this, Xstrata has introduced comprehensive workplace programmes, supported by a number of innovative community partnerships. In 2007, Xstrata Coal South Africa set new benchmarks in continuous testing, counselling and treatment programmes with over 95% of its employees voluntarily testing for HIV and AIDS and 54% of HIV-positive employees enrolled in treatment programmes. Xstrata Alloys has implemented a similar workplace programme with strong participation rates of around 68%. A first of its kind public-private partnership between Xstrata and the Mpumulanga provincial health authorities was signed in March 2007 and is assisting regional government to substantially extend access to voluntary HIV and AIDS testing, counselling and treatment.

In 2008 our focus will be on encouraging HIV-positive employees to enter free treatment and care programmes and to continue the progress made at Xstrata Alloys operations in its workplace wellness programme. We will also examine the possibility of extending our successful public-private partnership to other provinces in South Africa.

Read more about our approach to HIV and AIDS in the workplace and in the community : www.xstrata.com/sustainability/hiv-aids.

Skills shortage

The mining industry is currently facing a global shortage of skilled employees across a range of disciplines. The ability to attract, retain or train people with the appropriate skills is critical to Xstrata’s continued success and ability to grow and operate effectively. In addition, Xstrata’s lean management structure places reliance on a number of key people both at the executive and operational level, requiring appropriate retention measures and succession planning.

To address this challenge, we offer industry-leading career development opportunities, well structured employment contracts, competitive remuneration and fair and non-discriminatory workplaces. We believe our devolved management structure and supportive environment for rational risk-taking are important retention measures.

In 2007 we extended our extensive education, training, apprenticeship and bursary schemes, launched a new online careers website and increased the proportion of local people and women in management positions. Employee turnover rose to 7.4% from 5.2% in 2006, driven by higher turnover in regions with strong competition for skills. In 2008 we are targeting further improvements in recruitment and retention through expanding employee engagement surveys and improving the diversity of our workforce.

Read more about our approach to employee training, recruitment and retention : www.xstrata.com/sustainability/employees/.

Sustainable communities

We aim to contribute to the social and economic development of sustainable communities associated with our operations to avoid dependency and maintain broad-based, ongoing community support throughout the life cycle of our operations. Community support for our operations enhances the security of our assets and is essential for our licence to operate.

Every managed operation develops an annual social involvement plan in close co-operation with communities and other relevant stakeholders, including government, NGOs and unions. We set aside a minimum of 1% of Group profit before tax to invest in community initiatives that deliver long-term benefits, with the ultimate aim of leaving behind stronger, sustainable communities once operations cease. We maintain and annually review closure plans at all operations including social considerations and planning.

In 2007, Xstrata’s businesses contributed $102 million for corporate social involvement, equating to 1.2% of Group profit before tax, ahead of our target. Xstrata’s financial support for community initiatives is augmented through in-kind donations and employee volunteering. In 2008 our businesses are targeting a number of initiatives to refine and enhance corporate social involvement plans in consultation with communities, including focusing on improving the key performance indicators we use to measure progress towards mutually agreed objectives.

Read more about our approach to sustainable communities : www.xstrata.com/sustainability/community.

Water

We operate in a number of water scarce areas including Australia, some areas of South Africa and the Andean region in South America. Access to water is essential for the continuation and expansionary plans of our operations. Fresh water supply may be restricted and limits imposed, particularly in arid regions with a significant number of domestic and industrial users.

Every operation is required to implement a water management plan to minimise fresh water use and maximise recycling. Initiatives to share water between water scarce operations and those in neighbouring regions with excess water have helped to reduce fresh water consumption at a number of sites in Australia. Water is recycled and used within our operations, for example as process water and for dust suppression.

In 2007, fresh water intensity per tonne of product increased by 8% due to higher water use at the acquired nickel operations. Use of recycled water increased almost fourfold, primarily due to reuse of process water at Falcondo’s power plant. Water management studies have identified a number of further initiatives that will be assessed and implemented in 2008.

Read more about our approach to water conservation : www.xstrata.com/sustainability/environment/water.

Air emissions

Xstrata’s principal air emission is sulphur dioxide (SO₂) from our metallurgical smelting operations. Sulphur dioxide emissions contribute to acid rain and poor air quality in neighbouring communities. We aim to reduce harmful emissions to air, water and land and to operate to leading standards of environmental management.

The Smelter Emissions Project was launched at Mount Isa in 2007 and has identified a number of smaller and major investments required to reduce emissions and improve capture at both the copper and lead smelters. Other initiatives are under way at the Sudbury Smelter, Altonorte and the Horne Smelter to reduce SO₂ emissions progressively.

All smelters with significant sulphur dioxide emissions have committed to progressive targets to increase capture of SO₂ and reduce emissions over the medium term. The successful realisation of these targets will ensure our smelting facilities attain industry-leading levels of SO₂ capture and abatement.

Read more about our approach to air emissions : www.xstrata.com/sustainability/environment/air.