Chief Executive's Report
Xstrata's corporate development, including our progress against sustainable development objectives, has evolved rapidly over the past four years. Strong financial and operational performance, culminating in record profits and continued sustainable reductions to our operating cost base, was accompanied by improvements against the majority of non-financial indicators in 2005.
Mick Davis
Sustainable development describes Xstrata's approach to ensuring the long-term viability and continued success of our business. As a mining and metals company, we invest for the long-term in operations and projects that provide the basic materials for social and economic development. Because the lifespan of our mining operations is finite, we aim to invest in skills, social development and economic benefits that outlive our activities in any particular region. We aspire to the highest standards of business conduct, set out in our Statement of Business Principles, to protect and enhance our corporate reputation and ensure ongoing access to resources. We create value for our stakeholders and contribute to a sustainable environment by investing in the businesses we acquire and develop to improve their performance efficiency, to ensure the efficient use of resources such as water and energy and to operate a safe and healthy workplace. To ensure harmonious relationships with our stakeholders, minimise risk and secure an ongoing licence to operate we aim to create mutual benefits for stakeholders, working in partnership with the various parties who have an interest in or are affected by our business.
This report has been prepared in accordance with the 2002 GRI Guidelines. It represents a balanced and reasonable presentation of our economic, environmental and social performance in 2005, highlighting our key challenges and how we are addressing them. We have used case studies to illustrate how we translate our sustainability goals and targets into actions in practice. This year, for the first time, we have broadened the scope of the independent verification of our report to align with the AA1000 assurance and stakeholder engagement standards, the benchmark for non-financial reporting. As ever, we welcome feedback on any aspect of our performance and reporting, via our website or using the contact details.
We strengthened the governance of health, safety, environment and community activities (HSEC) in 2005, through the establishment of the Board HSEC Committee. The committee has played a valuable oversight role in monitoring and benchmarking our progress, assisted by Professor Jim Joy, appointed as health and safety advisor to the committee during the year.
In early 2006, Xstrata became a signatory to the United Nations Global Compact. We have provided a brief summary of our progress against each of the 10 principles set out by this important voluntary initiative, available from our website. Our organisation will also join the International Council on Mining and Metals (ICMM) this year and we look forward to playing an active role in shaping the industry's contribution to sustainable development through this body.
During the year, we completed baseline audits of every managed operation against the HSEC Policy and Management Standards through the Xstrata HSEC Assurance Programme. This programme is an important management tool and provides assurance to the Board that our sites are fulfilling corporate expectations systematically and consistently within their local context. The independent audits have highlighted several areas of high performance, which are being replicated by other operations within our Group, as well as a number of areas where we can do better and to which we are dedicating additional resources in 2006. Importantly, the HSEC Assurance Programme, Risk Management Programmes and HSEC targets set annually by each commodity business have identified achievable objectives for each operation, leveraging the strong culture of financial and operational targets within our business to motivate each level of the workforce to drive progress in sustainable development.
The key challenge for the Group, and the principal area of focus in 2006, is the elimination of fatalities, particularly in our southern African operations. In 2005, three employees and six contractors lost their lives at work and seven of these fatalities occurred in southern Africa. Any fatality at our operations is simply unacceptable. I extend my deepest sympathies to the families affected by these tragedies. For the past 18 months, we have been implementing a number of initiatives which aim to change employees' behaviour and attitude towards risk, together with programmes to address the principal contributing factors which lead to critical incidents. While changing behaviours and attitudes requires a longer-term approach, the initiatives underway are already beginning to show clear signs of sustainable improvements and changes in behaviour among our workforce, supervisors and management. I expect the significant amount of change and effort being directed towards fatality prevention programmes to play a key role in helping our employees to remain safe at work in 2006.
Our business continues to benefit from the entrepreneurial culture we have created through our devolved structure, which empowers employees to manage our operations in their local context, within the framework of our corporate policies and standards. In 2005 we made further progress in improving development opportunities for employees across the Group, enhancing our ability to attract and retain the best people. Despite increased competition for skilled labour in the mining industry, particularly in Australia and for historically disadvantaged managers in South Africa, employee turnover remained stable at around 10% in 2005.
I am delighted that our HIV/AIDS voluntary testing, counselling and treatment (VCT) programmes in South Africa were commended by the Global Business Coalition for HIV/AIDS at the 2005 business excellence awards. Our work in this field continues to lead best practice in ensuring communities, employees and contractors have access to appropriate testing, medical treatment and education, to manage and limit the social impact of this disease. The public-private initiatives we are implementing to provide healthcare services in remote areas signals the potential of partnerships between companies, government and other agencies to realise more coherent and sustainable services and facilities for local communities. HIV/AIDS remains the most pressing health issue for the Group and, with the introduction of the Xstrata Alloys VCT programme this year and the innovative stage two of the Xstrata Coal VCT programme, we aim to encourage every employee and contractor to know and manage their HIV status and to access appropriate counselling, healthcare and treatment programmes.
Climate change presents a real and current challenge, which we are addressing through improving the energy efficiency of our operations and through our partnership with power generators, industry partners, government, academic institutions and others to bring to fruition technological solutions to reduce the emissions profile of thermal coal. Coal is the most reliable and cost effective fuel available to satisfy the world's growing energy needs. The success of clean coal technology is therefore vital to enable continued socio-economic development, particularly in developing countries, within a carbon-constrained world.
Our approach to biodiversity conservation has evolved rapidly from a focus on land management to an understanding of the ecosystems which may be impacted by our operations. While only one site – the Rolleston coal mine – is adjacent to a biodiversity-rich habitat, as defined by IUCN, all operations are making good progress in ensuring our activities minimise potential impacts, and in securing areas for biodiversity conservation. We have further progress to make in this area and we have set our operations targets to ensure the particular challenges presented by individual sites are appropriately managed and opportunities for positive impacts are seized.
Our investments in sustainable community and enterprise development are a source of real and deserved pride for our businesses. We are improving our co-ordination of community programmes and initiatives, particularly among businesses operating in the same region, to ensure that the full benefit of our engagement is shared directly and indirectly with the communities in which our businesses operate. In South Africa, we have continued to transform our business to reflect the spirit of the Mining Charter, which aims to bring about sustainable empowerment and participation in our industry by historically disadvantaged people. We are on track to meet and in some cases exceed the targets set out by the charter and we are concentrating our efforts to ensure that the steps we take create true, sustainable empowerment in our business.
Ongoing stakeholder engagement with employees, local communities, government, NGOs and the investment community has played an important role in guiding our progress to date and will continue to inform our future development.
While we still have much to achieve, our businesses have taken another major step forward in 2005 in embedding the principles of sustainable development into our day-to-day activities. The extent to which Xstrata personnel continue to incorporate these principles in their everyday work environment, the programmes in place and the baseline data delivered by the Assurance Programme provide a solid platform from which we expect to achieve further progress in 2006.
Mick Davis