how we work

Governance

S M Hlumbane, Omega Security patrolman at ATCOM coal mine, South Africa

Xstrata is committed to the principles of best practice in corporate governance. A separate corporate governance report is published within the Group Annual Report each year. The Board establishes the strategic direction of Xstrata and is responsible to shareholders for the proper management of the Group. Xstrata's Executive Committee, chaired by the Chief Executive, is responsible for implementing strategy and overseeing the various commodity businesses which comprise the Group.

A clear separation is maintained between the responsibilities of the non-executive Chairman and the Chief Executive Officer, as required by the revised UK Combined Code on corporate governance. Xstrata has a robust Board comprising three executive directors and nine non-executive directors, six of whom are independent. Xstrata fully discloses the remuneration of all company directors including any benefits, together with an explanation of each component of directors' pay, including service contracts and performance criteria for long-term incentives. This information is published in the group remuneration report, as part of the Annual Report.

The Board meets at least five times a year and receives comprehensive reports from management including information on the Group's health and safety, environmental and community (HSEC) performance. Health, safety and environmental performance is a criteria for determining annual bonus payments for all senior managers, including executive committee members. Xstrata's Board undertakes a regular review of social, environmental and ethical issues and a Board HSEC committee was established in early 2005 (see page 17). The Group Executive Committee receives comprehensive monthly reports on the Group's HSEC performance.

The General Manager Health, Safety and Environment (GM HSE) oversees the global implementation, review and assurance of the HSEC Policy and Standards, and manages the Group's interface with stakeholders on health, safety and environmental issues. The GM HSE reports directly to the Chief Executive.

Ethics and Business Principles

Xstrata's Statement of Business Principles sets out an ethical framework for the Group's operations around the world. The Business Principles are distributed to every employee in their first language and form an integral part of our induction, training and management programmes. They set out our commitment to work in genuine partnerships with our stakeholders and require that:

• we work ethically;
• we work responsibly;
• we work openly; and
• we work together and with others.

The Statement of Business Principles is available from riate action. This telephone service supplements the existing ethics email address - www.xstrata.com or as a hard copy on request.

In 2004, we also established an 'ethics line', which provides employees and contractors with a toll-free, confidential telephone line to report any suspected breach of our Business Principles which cannot be communicated in the normal way to line managers or supervisors for whatever reason.

The call line is independently run by KPMG and provides a freephone number for every country in which the Group has operations. Any concerns are relayed in confidence and on an anonymous basis to the Head of Internal Audit and Risk, who reports directly to the Board Audit Committee, for appropriate action. This telephone service supplements the existing ethics email address – ethics@xstrata.com – emails to this address are read only by the Head of Internal Audit and Risk and are confidential.

As set out in Xstrata's Business Principles, Xstrata endorses the Universal Declaration of Human Rights and the Fundamental International Labour Organisation Conventions. We have developed a suite of policies to address human rights considerations, such as our Equal Employment Opportunity and Anti-Discrimination Policy and these are stored on our intranet site to provide employees and contractors with easy access. Our Equal Employment Opportunity and Anti-Discrimination Policy discusses anti-discrimination and harassment laws; freedom of collective bargaining; equal opportunity principles and how they relate to recruitment, promotion, transfer, training and conditions of service; it specifies that recruitment must be based on merit; and describes how to maintain a workplace free from harassment.

Board HSEC Committee

Children at Middleburg day care center (top)
Environmental Adviser Alex Reid conducts a flora survey at Mount Isa Mines, Queensland (middle)
Dragline at ATCOM coal mine at sunrise, South Africa (bottom)

In early 2005, the Board established a health, safety, environment and community committee (Board HSEC Committee) for the purpose of reviewing and monitoring HSEC matters to ensure the Group achieves its desired HSEC outcomes. The Board HSEC Committee will keep the Board informed of new developments, trends and/or forthcoming significant legislation on HSEC matters which may be relevant to the Group's operations, its assets or employees.

The Board HSEC Committee is chaired by Ian Strachan, an independent non-executive director. The other members are independent non-executive directors David Rough and Fred Roux, in addition to Mick Davis, the Group CEO. The committee will engage two external, independent consultants to provide advice to the Board on best practice occupational health and safety, and environmental and community management. The GM HSE is secretary to the committee.

HSEC Policy, Standards and Assurance Programme

During 2004 Xstrata introduced an HSEC Policy and a set of 17 HSEC Standards. The HSEC Assurance Programme examines whether an operation has the necessary systems and performance to ensure compliance with relevant regulatory requirements and conformance with Xstrata's HSEC Policy and Standards. Under our assurance programme, four-person audit teams, including occupational health and safety (OH&S), environmental, community and operational specialists, assess each site's performance against the HSEC Standards. Areas where more work is required to meet Group expectations will be highlighted and remedial actions recommended. A site-based report will be generated and the results consolidated for corporate reporting. A typical audit takes four auditors around five days and up to three weeks at our larger sites.

In 2005, every site will be independently audited to establish a baseline. In 2006, half our sites will be independently audited again, based on their 2005 audit results and performance against other performance indicators. The remaining sites will have their audit action plans independently reviewed. From 2002 to 2004 the HSEC Assurance Programme was provided by the Group's Internal Audit Programme, which is supported by KPMG.

The HSEC Standards and the Assurance Programme are outlined on pages 20-21 to illustrate how these elements are integrated into the way we do business at Xstrata.

Xstrata's HSEC Policy and Standards were developed using the ICMM principles of sustainable development and global best practice management systems. This approach was supplemented with extensive engagement with our operational managers, HSEC managers, executive management teams, the group executive and the Board, as well as benchmarking against our industry peers and companies outside the industry. Engagement with investors, consultants and other external parties was also undertaken.

Risk Management Policy

There is a well-established, ongoing process for identifying, evaluating and managing the significant risks faced by the Group. As part of this process, each Commodity Business unit and Group central functions carry out a comprehensive annual risk review, updating a risk register. The risk management system covers all risks to the business, including financial, operational, compliance, environmental, social and reputation risks. Risks are aligned with objectives in the business plan and a summary of the key risks, related internal controls, accountabilities and actions required to ensure these risks are properly managed is included in the annual business plan that is reviewed and approved by the Board. Progress against plans, significant changes in the business risk profile and actions taken to address controls and mitigate risks are reported to the Executive Committee and the Board in monthly management reports. The Group-wide risk management process is managed by the Global Head of Internal Audit and Risk, who reports directly to the Board Audit Committee. In 2004, KPMG was engaged to carry out a review of our risk management procedures across the Group to compare current practices against best practice.

Sustainability reporting

Xstrata has a consistent, documented process in place for reporting sustainability performance to the Group Executive and the Board. HSEC performance is assessed through regular internal audits conducted by commodity business site personnel and the independent HSEC Assurance Programme.

HSEC performance is reported monthly and is reviewed by the Group Executive Committee. All significant HSEC incidents are reviewed quarterly by the Board. The Xstrata HSEC Standard on Assessment and Reporting ensures that HSEC performance is reported appropriately and consistently and sets out the Group's requirements for internal and external audits and assessments.

Health Safety Environment and Community Policy

We will grow and manage a diversified portfolio of metals and mining businesses with the single aim of delivering industry-leading returns for our shareholders. We can achieve this only through genuine partnerships with employees,customers, shareholders, local communities and other stakeholders, which are based on integrity, co-operation, transparency and mutual value-creation.

Our Business Principles

• We work ethically: We are committed to the highest standards of personal and professional ethical behaviour.
• We work responsibly: We are committed to the highest standards of health, safety and environmental performance.
• We work openly: We are committed to the maximum transparency that is commercially possible in our business.
• We work together and with others: We are committed to co-operating with employees, local communities and other stakeholders.

Our Values and Beliefs

• Work-related incidents, illnesses and injuries are preventable.
• Foreseeable hazards and environmental impacts must be identified, the associated risk assessed, and where reasonably practical eliminated, or otherwise controlled.
• There is a safe and correct way of doing every task, however urgent or important.
• We are responsible for our own actions and the occupational health and safety of our fellow workers.
• Health, safety and environmental performance can be continually improved.

At Xstrata we are committed to the highest standards of health, safety and environmental performance, community co-operation and to the principles of sustainable development.

This commitment will be achieved through: Demonstrated understanding of HSEC accountabilities, HSEC leadership in all levels of management, and a HSEC Management System aligned to Xstrata's Business Principles and HSEC Standards.

Our HSEC Management System enables us to: Meet, and where practicable exceed, applicable laws, regulations, standards, and codes.

Work constructively with local authorities, community representatives, non-governmental organisations and other stakeholders.

Identify, assess and manage risks to employees, non-employees, the environment and the communities in which we operate.

Set HSEC targets, allocate appropriate resources to achieve those targets, and undertake periodical reporting of our HSEC performance.

Communicate and consult with employees and contractors in developing our HSEC systems and improvements.

Develop employees to competently manage, and be accountable for, HSEC performance in their area of responsibility.

Limit the environmental impacts of our operations through efficient use of natural resources, and the reduction of input materials and waste.

Contribute to the conservation of biodiversity.

Plan, design, operate, and close operations in a manner that enhances sustainable development.

Uphold fundamental human rights and respect the traditional rights of indigenous peoples.

Engage and communicate with communities, with due regard and respect for local interests, cultures and customs, and contribute meaningfully to the economic, social and educational well being of the communities in which we operate.

Determine the direct and underlying causes of HSEC incidents and implement actions to prevent recurrence.

Continually improve our HSEC performance by measuring and reviewing the effectiveness of, and compliance to, our HSEC management systems.

Mick Davis, Chief Executive
6 May 2004