corporate social involvement

Xstrata supports a wide range of projects and initiatives to benefit the local communities which host our operations, our employees and their families through our corporate social involvement plans, developed at a local level by each Commodity Business.

Xstrata's corporate social involvement (CSI) is based around five principles:

Local focus: Xstrata's CSI is focused on local communities with which we are associated and where our operations are situated.

Maximum devolution: Primary responsibility remains with the Commodity Businesses which are best placed to assess suitable projects through consultation with local communities.

Best practice: Our CSI policy will be consistent with the highest standards of our industry and will reflect international best practice.

Flexibility: Our approach to CSI allows a wide range of responses, recognising that the extent and nature of CSI will vary across commodity businesses and across geographies within a particular business. This means that CSI expenditure is not necessarily evenly spread across geographies or businesses but is directed to where it is most needed.

Financial and organisational efficiency: CSI expenditure should take advantage of our financial structure and should avoid 'boom and bust' support on the back of cyclical earnings performance.

In 2004 we spent $10.5 million on supporting community initiatives

We provide support for a wide range of initiatives in the following categories:

• enterprise and job creation;
• environment;
• education;
• social and community development;
• health; and
• culture and art.
• We do not support:
• political parties;
• individuals; or
• church/religious activities which are exclusive to one faith community.

CSI excludes expenditure to benefit employees exclusively, except where there is a significant benefit for the wider community (for example a shared resource such as a training centre).

In accordance with this policy, no political donations were made in 2004.

In 2004, our CSI expenditure totalled $10.5 million, a 57% increase over total 2003 expenditure of $6.7 million. Taken together, Xstrata's 2003 and 2004 contributions of $17.2 million amount to 1% of the Group's combined pre-tax profits in 2003 and 2004 of $1,723 million.

The breakdown of our community expenditure in 2004 by category and by geography is illustrated in the charts above.

In 2004, Xstrata spent a further AUD13.6 million to support the Tieri and Glenden townships, in Queensland. In accordance with our CSI policy, this amount is not included in the reported CSI contribution, as both communities are so closely associated with our operations.

During 2004, Xstrata established appropriate funding structures in the key countries or regions where we operate, in order to distribute the allocated CSI funds to projects which meet Xstrata's CSI policy requirements in a tax-efficient and accountable manner. Funding decisions are made by a committee comprising the chief executives of the relevant commodity businesses with the GM Corporate Affairs, who has overall responsibility for coordinating the Group's CSI expenditure. This structure allows a high degree of local autonomy in selecting appropriate projects and initiatives for support and enables funds to be disbursed as and when required by the projects themselves.

Xstrata has committed to continue setting aside a minimum of 1% of the Group's annual pre-tax profit to fund its social involvement going forward. The required trusts/structures have been established for the different countries in which the Group operates and planning for CSI expenditure has been embedded into the annual business planning and budgeting process, to ensure this target is met.

Social involvement plans

The development of formal social involvement plans was a key target for Xstrata's businesses in 2004. Each commodity business is required to prepare a Social Involvement Plan (SIP) that forms part of the business plan for the following year presented by the business to the Group executive committee as part of the annual budget process. This plan reports on the engagement of each commodity business with local communities, detailing the range of initiatives and projects funded or undertaken directly by the business, together with the resources that were deployed in this area. The SIP also sets out the anticipated projects and budgeted expenditure for the following year. These budgets are then used by the executive committee as the basis for allocating the 1% of pre-tax profit set aside by the Group across the different regions.

Stakeholder engagement

Xstrata's operations use a range of interaction techniques appropriate to their community's culture, demographics and interests to determine the focus for the following year's social involvement plan and to gain community consent and support for Xstrata's activities. We engage with our stakeholders in order to manage expectations from local communities, report on our progress on community and other initiatives, ensure open and transparent dialogue to respond to concerns and ensure full information is provided about our current activities and planned new projects. Community consultation is also key to our social impact assessments for new projects.

A review of Xstrata's extensive community engagement programmes indicates that 30 operations produce site reports, a further 18 produce regular community newsletters and 46 sites host public information meetings and open days. Other events such as community tree planting days, family and community tours of our sites, information and consultation briefings for any new developments or projects take place on a regular basis. Some sites also maintain dedicated telephone lines for local residents to ensure an open channel for complaints, comments, questions or feedback 24 hours a day.

Community and stakeholder consultation is central to developing our corporate social involvement initiatives as part of the annual social involvement plans developed by each business. Before we can effectively support and contribute to the development of the communities in which we operate, we need to understand their concerns, perceptions, attitudes, issues and community development priorities, and we achieve this through a range of survey tools. A range of community perception surveys were undertaken by our operations in 2004.

In Queensland, surveys were conducted in the communities of Collinsville, Glenden and Scottville close to our coal operations in that state. Although the results varied, the main issues raised were job security, training, and the extent to which community infrastructure and services will remain after mine closure. The results of the surveys will be used to develop community involvement programmes in 2005.

In 2004, Xstrata Alloys conducted surveys in the Steelpoort area, at the Kroondal informal settlement and at Thlabane. The key issues raised were unemployment, poverty, care of orphans and terminally ill persons, and water, sanitation and electricity shortage at the Kroondal informal settlement. Xstrata Alloys has planned a detailed socioeconomic survey for 2005 and is developing initiatives to respond to these issues in the social involvement plan.

An extensive community consultation exercise was carried out by Xstrata Copper at communities close to its north Queensland operations to determine the focus for the Xstrata Community Partnership Programme in north Queensland (see case study on pages 80-81). In addition, Xstrata Copper conducts a comprehensive community attitude survey at Mount Isa every second year. The last survey was conducted in 2003. This survey will be expanded in 2005 to include the other north Queensland communities in which Xstrata Copper operates - Cloncurry, Townsville and Bowen.

Community surveys have also been undertaken through the Joint Development Forum in Tubatse in South Africa, a forum comprising chrome producers on the Eastern Limb over the Greater Sekhukhuneland and Mpumalanga areas.

Two perception surveys were carried out with communities local to Xstrata Copper's Las Bambas site in southern Peru, the principal findings and response to these surveys are described in the case study on pages 72-73.

In addition to consultation and communication with local communities, Xstrata engages with a range of other stakeholders through consultation or partnerships. These include:

• partnerships and regular dialogue with local education authorities and NGOs concerned with youth development and education;
• membership of a number of regional schools and tertiary education steering committees in Argentina, South Africa and Australia;
• partnerships with NGOs, regional and national health authorities and local hospitals, hospices and care centres;
• regular contact with social welfare and regional development authorities and NGOs;
• partnerships with NGOs and local government authorities on a range of sustainable development and community and social welfare programmes. Xstrata's businesses are represented on regional development authorities and organisations to tackle a range of social problems including crime and unemployment, and to encourage local enterprise and capacity building; and
• regular consultation with indigenous peoples including the Royal Bafokeng tribe in South Africa, the Murwurli and Wirriwangkuma Aboriginal Corporation in the Northern Territory, membership of the Indigenous Sea Ranger Steering Committee, the Gulf Region National Trust and the Indigenous Mining and Enterprise Task Force, indigenous people community groups in north Queensland and local communities in Peru.

Community initiatives

Xstrata supports a wide range of community projects and initiatives, some of which are highlighted below.

In 2004, Xstrata Copper announced the three-year, AUD4 million Xstrata Community Partnership Programme in north Queensland which supports projects in the areas of enterprise and job creation, environment, education, social and community, health, and arts and culture (see case study). During the year, Xstrata Copper spent AUD400,000 on other community support activities in Australia and plans to spend a further AUD460,000 in 2005. Alumbrera copper mine in Argentina invested $510,000 in community projects in 2004, plans to invest $1 million in 2005 and will maintain this level of funding in 2006 and 2007.

At the new Rolleston thermal coal mine in Queensland, Xstrata Coal established a social monitoring group comprising representatives of the community and government organisations. The mine also established a community benefit fund of AUD100,000 to support local community initiatives.

Education and training

Education projects were a key priority for Xstrata Coal in South Africa. Ten high-potential students from the Emalahleni Municipality, Witbank, were nominated to attend a one-year academic enrichment course at a local college. After intensive tuition in mathematics, science, engineering, computers and life skills, the students will re-sit their matriculation exams. Candidates who receive a university pass are encouraged to proceed to university and apply for an Xstrata bursary. While working with two local municipalities in South Africa, Xstrata Coal identified a number of weaknesses in local economic development strategies and helped to restructure the Local Economic Development Forum and develop a strategic framework for the future.

Educational visits for students are hosted by the majority of sites in co-operation with local educational authorities. Xstrata also sponsors a range of training or educational programmes, bursaries and work placements to encourage students to gain experience in the mining industry and to assist with the costs of their studies. McArthur River zinc operation in the Northern

Territory provides training for unemployed youths, presents annual science awards and is a founding member of the Borroloola Regional Youth Development Unit. In Europe, Xstrata Zinc supports the Gravesham Business Education Partnership through its Northfleet operation. Alumbrera copper mine in Argentina sponsored a programme of environmental education for teachers in Catamarca in partnership with a local NGO in 2004 and the mine is represented as a member of a local NGO focused on providing research and post-graduate grants. Work experience at Alumbrera is offered to students and the mine sponsored the Reading is Fundamental programme (Fundaci¤n Leer - Minera Alumbrera) and provided emergency response training in all Andalgal… schools.

Xstrata Coal provides a number of bursaries and placement opportunities to students of mining related disciplines in Australia in addition to support provided in South Africa. Adult basic education and training programmes are offered at our South African operations and 20 historically disadvantaged schools are being assisted jointly by Xstrata's coal and alloys operations in South Africa (see case study on page 79).

Xstrata Copper provides a vacation employment programme for students to gain practical experience and provides education about mining activities in primary schools. Xstrata Alloys regularly meets with national and regional officials from the Department of Education and funds significant education and training projects.

Health

Our health initiatives include contributing to the upgrade of a hospital helicopter pad and football field in Queensland, while Alumbrera copper mine in Argentina provides support for local health centres, regional and local hospitals. Alumbrera also supports an ophthalmology assistance programme for children. Extensive initiatives are underway to support HIV / AIDS initiatives and care centres, described in more detail in the Health chapter. Xstrata Alloys is working in partnership with the Rustenburg Municipality on a project to detect possible Bilharzia contamination in the Kroondal.

Indigenous people, culture and community development

Xstrata engages in a number of initiatives to engage with and support capacity building for indigenous people. Cultural awareness programmes are run as part of our induction programme at operations in Australia, South Africa and Argentina with ongoing training modules provided for employees and contractors. At Mount Isa, Xstrata Copper is running an innovative indigenous training programme in partnership with a local training organisation to build capacity and improve employment opportunities. Ernest Henry copper mine in north Queensland operates a successful long-term business partnership with local indigenous people to provide trucking services from the mine to Mount Isa and McArthur River zinc-lead mine has contractual agreements with the Murwurli and Wirriwangkuma Aboriginal Corporation to ship concentrate from the port of Bing Bong.

During the year, Xstrata Alloys focused on implementing education and training projects to upgrade the skills of HDSAs in mining-related disciplines, address unemployment and improve the effectiveness of small, medium and micro enterprises. The Commodity Business sponsored eight unemployed young women from Witbank on a one-year secretarial skills development programme in Johannesburg to enhance their employment prospects.

Environment and ecology

Xstrata Copper supports the Irrigation Water Storage Infrastructure Improvement project, a partnership between the Alumbrera copper mine in Argentina and the Catamarca Water Agency. The project aims to improve irrigation water storage and distribution for local farms, increasing farm production, working with provincial and municipal authorities including irrigation associations to build the infrastructure required. Xstrata Coal contributed to the Diega Creek Landcare Group to enable the development of a River Care Plan for Diega Creek and to the Muswellbrook Council cycle way, New South Wales.

Enterprise and job creation

Alumbrera has a social agricultural programme which assists a number of small farmers and producers to encourage sustainable development of these industries. These include the pepper, cumin and aniseed optimisation projects and the grapevine and walnut re-engineering project, where Xstrata works in partnership with local government and small farmers to reinvigorate local agriculture. Xstrata Zinc is working in partnership with the Gulf Extension Group to enhance regional development and enterprise in the Northern Territory. Xstrata Alloys also helped the Mamarotsi community near Rustenburg to establish a hydroponics business selling vegetable seedlings and provided 10 non-profit organisations with the skills they needed to provide training services to other groups.

Under the Alumbrera social involvement programme, Tucum…n's first urban waste treatment plant was constructed, with the remaining two plants expected to be developed once the land is provided by the government. To help improve small business productivity and efficiency, Alumbrera provided training and technical assistance to university and technical school students, and practical work experience through the Pr…cticas Rentadas programme.