chief executive's statement
Our strategy since Xstrata's formation in 2002 has been to create value for our shareholders by achieving growth in a manner that is economically, environmentally and socially responsible and sustainable over the long term. Our approach recognises that, in order to operate effectively in harmony with all our stakeholders, we must strive to achieve the highest standards of environmental management, health and safety performance and social partnerships in our businesses.
The way we work at Xstrata is rooted in the ethical framework set out in our statement of business principles - a document fundamental to the way we manage our business. These principles recognise that genuine, transparent and mutually beneficial partnerships with our stakeholders are central to our long-term success.
Our 2004 report, renamed this year as the Sustainability Report, outlines the Group's key sustainability challenges as well as our social, economic and environmental performance during 2004. The new structure and broader content contained within the report compared to previous health, safety, environment and community (HSEC) reports reflects the engagement undertaken throughout 2004 with a range of stakeholders. This engagement identified key areas for improvement and provided us with greater insight into the most useful format for the presentation of information on Xstrata's approach to and performance in sustainability topics for our stakeholders. An increasing number of our operations and businesses also produce separate reports for different groups of stakeholders. We welcome feedback on any aspect of this report to help us continue to improve our reporting of sustainability topics and our performance in these areas. A feedback form is available from our website at http://www.xstrata.com/sustainability/feedback or by email at .
HSEC framework
In 2004 we implemented a framework for governance of our HSEC performance to ensure continuous improvement and to provide assurance that Group performance requirements are being met across all of our operations.
Our Group HSEC policy was launched in the first half of 2004 and sets out our commitment to the highest standards of environmental and health and safety performance, community co-operation and to the principles of sustainable development. This policy is supported by 17 HSEC management standards which are being implemented across all of our operations. The standards, set out in this report, address key areas and articulate our Group performance expectations against each of these topics. Each site and commodity business head office will be independently audited against the 17 standards by the end of 2005, followed by independent audits every two years. This robust assurance programme underscores our commitment to continuous improvement and is a significant step forward in ensuring that each operation achieves its full potential.
In early 2005, Xstrata's Board formed a health, safety, environment and community (HSEC) committee, underscoring our commitment to sustainable development and continuous improvement across the Group. The committee is chaired by Ian Strachan, a non-executive independent director and I am also a member, together with two other independent non-executive directors, David Rough and Fred Roux. The HSEC committee will review and monitor the Group's sustainability performance and will also engage external expertise to advise on international best practice.
Progress in sustainable development
I am pleased with the significant progress achieved across the Group in 2004 in a number of areas. Our strong financial and operational performance in 2004 went hand in hand with improvements in safety and environmental performance. Overall the Group's lost time injury frequency rate was reduced by some 33% while the total recordable injury frequency rate improved by 30%.
In particular the comprehensive transformation programme implemented at the Mount Isa operations during 2004 achieved considerable success and demonstrates very clearly the link between improvements in safety and environmental performance and financial and operational performance.
The transformation programme specifically addressed operational efficiency and overdue development work, contractor management and safety and environmental performance. The programme's success resulted in a significant improvement in efficiency and productivity, with over $52 million of real cost savings achieved at the copper operations. This was accompanied by a 49% reduction in the lost time injury rate at Mount Isa Mines, continued progress in reducing water consumption and recycling more water in common with other Xstrata operations in arid areas - the mining operations at Mount Isa have now achieved a reduction of 80% in the use of freshwater over the last three years - and a reduction in sulphur dioxide emissions for the fifth consecutive year, despite increased production. The majority of Xstrata's air emissions are generated by the Mount Isa complex and so continuous improvement of this type is particularly pleasing.
We have prioritised a number of key sustainability challenges facing the Group, set out as a summary on page 5, and during 2004, we directed greater resources and management attention to addressing these issues. The most pressing of these is the need to eliminate fatalities from our business.
"Our strong financial and operational performance in 2004 went hand in hand with improvements in safety and environmental performance."
In 2004 six colleagues lost their lives working at our operations in separate incidents in South Africa. This is unacceptable. I firmly believe that it is possible to run our operations without causing harm to our employees and the prevention of injuries and fatalities is a major priority for senior management and for everyone within the Group in 2005.
Following these tragic events in South Africa, we initiated an in-depth review of the causes of these incidents and responded with adjustments to our safety plans, in particular we have accelerated our comprehensive behavioural safety management programme across the South African business. We also made a number of senior safety appointments to transfer best practice knowledge and experience from our other high-performing operations, particularly in Australia.
Truck in Mount Owen open cut coal mine, NSW
Employee at Xstrata Copper's Ernest Henry mine,
North Queensland
Key environmental challenges include the conservation of biodiversity, our response to climate change and water conservation, particularly at operations located in arid areas.
Xstrata's Biodiversity and Land Management standard is providing rigour and consistency to our biodiversity studies and to the conservation of biodiversity in and around our operations. Biodiversity action plans and offset strategies are being developed, and at the Mount Owen coal operation in New South Wales, a wide-ranging biodiversity offset programme and action plan is already well underway. Where it is appropriate to do so, we have brought in external expertise to assist our operations in developing biodiversity action plans and offset programmes, helping sites to move from a focus on land rehabilitation alone to the broader approach of biodiversity conservation.
Initiatives to address climate change and greenhouse gas emissions are underway across the Group. In 2004 Xstrata Coal developed a comprehensive climate change strategy aimed at reducing greenhouse gas emissions per unit of production by 10% on 2003 data over five years. An 8MW Envirogen power station was commissioned during 2004 to utilise fugitive coal bed methane emissions from old workings at an underground mine in New South Wales - the initiative will prevent over 250,000 tonnes of CO2 equivalents being emitted each year and will provide sufficient energy to power 16,000 homes. Further energy generation opportunities to utilise the methane produced from coal seams are currently being evaluated and our Townsville copper refinery has signed an agreement with Enertrade to use power from coal seam methane gas for the next 10 years. In addition Xstrata has entered into a number of partnerships with government, researchers and industry to develop clean coal technology and greenhouse gas mitigation initiatives. Xstrata is investing a total of over $9 million in clean coal technology, methane utilisation and carbon sequestration over five years.
The spread of HIV/AIDS remains the primary health issue facing Xstrata's employees and local communities, particularly in South Africa, where around 20% of our workforce is estimated to be HIV positive. We have adopted a strategic approach to tackling HIV/AIDS, addressing social factors that contribute to the spread of the disease, in addition to providing education, care centres, employment opportunities and training, voluntary counselling and testing and anti-retroviral treatment. The voluntary counselling and testing programme being rolled out to all Xstrata Coal operations has enjoyed exceptional success, with around 75% of employees participating. The programme seeks to maximise the uptake of anti-retroviral treatment by affected employees and encourages employees to know and manage their HIV status. Xstrata has recently joined the Global Business Coalition on HIV/AIDS and we are looking forward to playing an active role in the organisation's work in this area.
"We have adopted a strategic approach to tackling HIV/AIDS, addressing social factors that contribute to the spread of the disease as well as providing education, care centres, voluntary counselling and testing and anti-retroviral treatment."
Transformation of our business in South Africa, to create a sustainable and equitable business, is another key business imperative for Xstrata. Transformation initiatives across the Group are driven by a steering committee which I chair and our businesses have made steady progress against each of the charter's categories during the year, led by Eric Ratshikhopha, executive director corporate development in South Africa. Our intention is not only to ensure the long-term future of our business in South Africa by fulfilling the requirements set out by the Mining Charter, but also to embrace the spirit of the legislation, exceeding these targets wherever possible to drive transformation across our industry by advocacy and example.
In July 2004 we took a significant step forward in fulfilling our obligations under the Mining Charter through the formation of the pooling and sharing venture with Merafe Resources (previously SA Chrome), a black empowerment partner. The transaction provides meaningful participation in our ferrochrome business without any loss of value for Xstrata's shareholders and both businesses are benefiting from this partnership. Merafe's share of the venture increases each year to a minimum 17.5% share of the venture's earnings after three years.
Xstrata is well positioned to continue the improvements made across our operations in 2004. We have set demanding targets for the year ahead together with the performance expectations set out by our 17 HSEC standards. I am confident that the momentum and energy within the Group, together with our unwavering commitment to sustainable development, will ensure further progress across our operations in partnership with our stakeholders in 2005.
M L Davis