scope of report

This is Xstrata's third stand-alone Group report on our health, safety, environment and community (HSEC) initiatives. This report has been prepared to report more widely on the sustainability challenges facing Xstrata and, for the first time, we have moved away from reporting our HSEC performance on an individual commodity business basis to producing an integrated Xstrata report that outlines our environmental, social and economic performance for 2004.

The changed format of the report reflects our broader approach to sustainability and has been guided by consultation with the communities in which we operate, our employees, the socially responsible investment community and other stakeholders during 2004.

The report outlines Xstrata's key sustainability challenges and provides a series of case studies which illustrate initiatives in sustainable development across the Group. It covers the operations owned and operated by the Xstrata Group for the period 1 January 2004 to 31 December 2004.

The report also discusses some of Xstrata's transformation initiatives in South Africa, in line with the Mining Charter. Transformation in this context is described as the ongoing process to develop a sustainable, equitable society and economy in South Africa (see our Mining Charter in South Africa section). Further detailed information is available from Xstrata's Transformation Report, published in 2004 and available from www.xstrata.com or as a hard copy on request.

Previous reports have detailed HSEC performance and are available from our website at www.xstrata.com, together with additional data and case studies on a range of sustainability issues.

All operational information is presented on a 100% basis of the operation and all financial data is presented in US dollars, unless otherwise stated. The performance of operations in which Xstrata has an interest but does not have operational control is excluded from this report. Specific data from Xstrata Technology is not reported separately. Xstrata plc was incorporated in 2002, therefore no data for 2001 is available. The reporting currency of Xstrata is US dollars and throughout the report, the dollar symbol ($) refers to US dollars. Other currencies are indicated where used. The table below sets out the average US dollar exchange rates for 2004, which are used throughout the report.

The 2004 Xstrata Sustainability Report has been prepared in accordance with Global Reporting Initiative (GRI) 2002 Sustainability Reporting Guidelines. A GRI navigator detailing how Xstrata has addressed GRI requirements has been prepared and is available from our website. Reporting systems adopted in 2003 and 2004 are delivering more comprehensive and consistent data, which will allow further improvements in reporting in accordance with the GRI. In late 2003 improved reporting methods were introduced for safety and environmental data, including a comprehensive set of sustainability definitions. We welcome your comments on this Sustainability Report; simply complete the electronic feedback form at www.xstrata.com/sustainability_feedback or email us at sustainability@xstrata.com.

This report has been externally verified by URS. A verification statement is included on page 83 of this report.

Acquisitions, disposals, closures and major new projects

Xstrata Alloys

On 1 July 2004, Xstrata Alloys established a Pooling and Sharing Venture with Merafe Resources Ltd (formerly SA Chrome & Alloys Limited), a black empowerment partner. Under the agreement, Xstrata Alloys and Merafe Resources Ltd (Merafe) retain legal ownership of their respective assets, mining rights and land, and share in the pooled earnings before interest, tax, depreciation and amortisation of the venture in the following ratios:

Merafe has an option, exercisable for one year, to acquire an additional 2.5% in the venture at a value of $11 million per percentage point. The pooling and sharing arrangement enables operational efficiencies to be realised and allows meaningful participation in Xstrata's South African alloys business by a black empowerment company, fulfilling a key requirement of the new Mineral and Petroleum Resources Development Act in South Africa.

Construction began on a major new ferrochrome project, Project Lion, in 2004. Initial production is expected in the second half of 2006 with full production of around 360,000 tonnes in the first half of 2007. Depending on the level of participation of our chrome venture partner, Merafe Resources, Xstrata will hold between 75% and 85% of the project, which will consolidate Xstrata Alloys' position as the world's largest and most efficient producer of ferrochrome. Phases two and three of Project Lion, which have the potential to provide a further 650,000 tonnes of annual capacity, will be sequenced over the next eight to 10 years as market conditions require.

During 2004, the Windimurra, Western Australia, and Vantech, South Africa, vanadium plants were permanently closed. Full rehabilitation of these sites is now underway. Xstrata's third vanadium plant, Rhovan, South Africa, remains operational. Project Lion will be developed on land adjacent to the Vantech site and will utilise a large proportion of the existing infrastructure and equipment from the Vantech operation. A number of employees from Vantech have also transferred to the new ferrochrome project and additional plant and equipment from Vantech will be transferred to Xstrata's low-cost Rhovan vanadium operation where appropriate.

In January 2005, Xstrata Alloys acquired a controlling stake in the African Carbon Group (ACG), a char producer situated in the Mpumalanga province of South Africa. The acquisition of ACG extends Xstrata Alloys' strategy to secure its own supply of reductants, a key input cost into the ferrochrome manufacturing process.

Xstrata Coal

In April 2004, Xstrata Coal purchased a further 45% of Cook Colliery, Australia, from Centennial Coal Company Limited for $6 million to take its shareholding to 95%. Xstrata has assumed operating management of the mine.

The Rolleston project was approved in early 2004 and construction of the new thermal coal open-cut mine in Queensland, Australia, has begun. Initial production of one million tonnes is on schedule for this year, and full production of six million export tonnes and two million domestic tonnes is expected in 2008. The project has identified coal resources of approximately 600 million tonnes, including 173 million tonnes of recoverable coal reserves - providing Xstrata Coal with a long-life, low-cost asset with a rapid development profile.

Xstrata Copper

On 31 August 2004, the Group acquired the Las Bambas copper project in the Cotabambas and Grau provinces, Peru, for $91 million including $45.5 million payable to a community trust for the benefit of neighbouring communities. This will fund health, education, infrastructure and development programmes in the local area. The Las Bambas copper project is within the Southern Peru copper belt, which hosts a series of major copper operations including Toquepala and Cuajone (Southern Peru Copper Corporation), Tintaya (BHP Billiton) and Cerro Verde (Phelps Dodge). A comprehensive drilling programme, at a cost of over $10 million in 2005, has recently commenced. A case study on the community relations programme underway at Las Bambas is included on pages 72-73.

Xstrata Copper holds an option to acquire up to 62.5% of the Tampakan copper-gold deposit in the Philippines. In April 2005 Xstrata Copper and the project owner, Indophil Resources NL, agreed to accelerate the project's development. Under this agreement Indophil will begin a pre-feasibility study including a comprehensive assessment of the potential social and environmental impacts of the project, to be completed by the end of September 2006. At this time, Xstrata Copper is required to make a decision in relation to its option.

Xstrata Zinc

The development of the new Black Star zinc-lead open-pit mine was approved in mid-2004, as one of a number of initiatives to improve returns and secure the long-term viability of the operations at Mount Isa. Planning and pre-stripping have remained on time and within budget, and production has commenced. Original expectations of annual production from the mine have been increased by more than 50% to 2.3 million tonnes per annum over an 11-year mine life.

Xstrata Zinc continues to assess options in respect of the McArthur River Mine (MRM) in the Northern Territory, Australia. An environmental and social assessment of potential impacts is an integral part of these feasibility studies.

Other businesses

Xstrata assumed ownership of the Ravenswood gold mine, located in Queensland Australia, with the acquisition of MIM in June 2003. The mine was identified as non-core at the time of acquisition and, in February 2004, the Ravenswood mine was sold for $44 million to Resolute Mining Limited.

In January 2005, Xstrata sold its wholly owned forestry operation in Chile, Forestal Los Lagos SA (FLL). The majority (89%) of the operation has been purchased by Forestal Valdivia SA, a subsidiary of Forestal Arauco, an integrated private Chilean forestry company. The remaining 11% was purchased by Forestal del Sur SA, a privately-held forestry trading company. The disposal proceeds amount to $24 million.