Climate change and greenhouse gas abatement

Xstrata believes access to an affordable, reliable and secure energy supply is fundamental to economic and social development. Coal currently plays a leading role in helping the global community meet its energy needs. Given the increasing global demand for energy, and the current limited potential for fuel switching and renewables, coal will continue to be an important energy asset in the future. Xstrata recognises that coal is also a carbon liability and that climate change is a real international and community issue. Furthermore, we believe that emission reductions from the use of coal and fossil fuels in electricity generation are required and achievable within a sustainable development framework.

Around half of Xstrata's greenhouse gas emissions are derived from the use of electricity, generated predominantly from coal and fossil fuels. In Australia, methane is also emitted during the coal mining process and our Australian coal operations strive to reduce their emissions wherever possible, including the use of methane-powered electricity generation. Other operations are addressing greenhouse gas abatement through energy efficiency initiatives.

Greenhouse gases

Greenhouse gas emissions decreased by 10% to 14.6 million tonnes (Mt) of CO2-e in 2005 compared with 16.2 Mt CO2-e in 2004. The major contributors to lower overall greenhouse gas emissions were from lower methane emissions from our underground coal mines in Australia and from lower electricity usage in our ferroalloys smelters in South Africa, due to the temporary suspension of a number of furnaces during 2005 (see energy efficiency section).

The 8MW Envirogen power plant uses methane from the closed Teralba coal mine, Australia

Electricity purchased from power utilities accounted for 48% of the Group's greenhouse gas emissions, 12% of emissions were from the combustion of fossil fuels on site, predominantly diesel fuel in mobile equipment. Methane emitted from coal mines accounts for 27% of total greenhouse gas emissions. The remainder (13%) was generated from the use of reductants, predominantly used in the ferrochrome production process.

Greenhouse gas emissions for 2004 have been restated from 18.6 Mt to 16.2 Mt CO2-e, due to three underground coal mines over-estimating methane emissions from stockpiled coal. Currently, all but two underground coal mines measure methane emissions. The remaining two mines use the Australian Greenhouse Office emission factors to determine methane emitted from production levels. By the end of 2006 all underground coal mines will measure methane emissions.

The greenhouse gas emissions factors used for reporting were compiled by a third party during 2005. As occurs annually, these factors were also reviewed by URSVL during their verification of our Sustainability Report. The full table of our energy and greenhouse gas parameters is available at www.xstrata.com/sustainability.

Methane power generation and capture

In 2004, we commissioned an 8MW Envirogen power plant at Xstrata's non-operational Teralba mine in New South Wales, Australia. The power station uses fugitive methane emissions from the mine to provide enough power for over 16,000 homes in surrounding communities and reduce methane emissions from the mine. As a result, in 2005, methane emitted from Teralba reduced significantly by 82% from 503,000 tonnes to 92,000 tonnes CO2-e in 2005, from increased electricity generation. The Teralba power station became operational in 2004 and is now operating at full capacity.

Construction has begun on a further methane power station at Xstrata's Oaky Creek coal mines in Queensland. The Oaky Creek Power Station will be similar in design and configuration to the Teralba plant with 10 rather than eight 1MW engine generators and around five kilometres of pipework to feed the waste mine gas to the power station. The plant is expected to commission in mid-2006 and will prevent the emission of around 341,000 tonnes CO2-e per annum. Xstrata Copper's Townsville copper refinery in Queensland is a consumer of waste coal seam methane from coal mines located in the Bowen Basin, having been converted from diesel fuel to use this energy source in 2004.

Xstrata is investing AUD14 million over three years to conduct methane drainage trials within two seams at Beltana underground coal mine, New South Wales. The Beltana Coal Seam Gas Drainage Project will involve the development of a full-field, multi-seam reservoir model, characterisation of the dynamic geotechnical environment, and involvement in research and development for improved in-seam drilling from underground. Through these trials, we aim to develop a more environmentally-conscious and resource-efficient method of capturing and utilising methane from coal mines. Xstrata Coal is also investigating technologies to oxidise methane in underground mine ventilation air.

Clean coal technology

In addition to our own greenhouse gas abatement projects, we have joined the international collaborative effort to develop and commercialise clean coal technologies through our participation in such organisations as the Coal Industry Advisory Board to the International Energy Agency, the World Coal Institute and Australia's COAL21 programme.

The importance of continuing and expanding such collaborative efforts in advancing near zero emissions technologies was a key focus of the Asia-Pacific Partnership for Clean Development and Climate Ministerial meetings held in January 2006. Xstrata Coal was a participant in the industry dialogue as part of this inaugural meeting of Ministers from Australia, China, India, Japan, the Republic of Korea and the United States on addressing the challenges of climate change.

Xstrata Coal has lodged its cooperative agreement for the Australian Government's Greenhouse Challenge Plus programme, which outlines plans for reduction of greenhouse gas emissions from Xstrata Coal's Australian operations through an agreement with Government. All Australian operations will join the Australian Government's Greenhouse Challenge Plus programme in 2006.

COAL21

Xstrata Coal is part of the COAL21 programme initiated by the Australian Coal Association, made up of the coal industry, the key coal mining and power sector union, Australian government, power generators, and the scientific community. This programme is focused on technologies to reduce the emissions from coal fired power generation.

In March 2006, the Australian Coal Association announced the COAL21 fund which will invest over AUD300 million over the next five years to work with the electricity generation industry to demonstrate promising technologies for reducing greenhouse gas emissions from coal-fired power stations. The funds will be raised through a voluntary levy on Australian coal producers, in which Xstrata will participate, based on production levels. This extends the coal industry's existing commitment to greenhouse gas abatement through the COAL21 programme.

Cooperative Research
Centres (CRC)

Xstrata Coal supports the Cooperative Research Center for Coal in Sustainable Development (CCSD) established and supported through the Australian Government with links between industry, research organisations and government agencies. CCSD has been established for a seven-year period (from 2001) and is pursuing research for the development of near zero technologies such as Integrated coal Gasification Combined Cycle (IGCC) power plant and oxy-firing (see below).

Oxy-firing

Xstrata is supporting and is directly involved in a two year, AUD2 million feasibility study into oxy-firing, one of the near zero emission technologies identified in the roadmap developed through the COAL21 programme. This is the first outcome from COAL21. The study was undertaken in Queensland, investigating the potential to retrofit one CS Energy unit at its Callide plant. Our partners in this study are the Japanese Government via NEDO and J Power, one of the world's leading boiler manufacturers IHI, Queensland's power generator CS Energy, the University of Newcastle, Australian Coal Association Research Programme (ACARP), the Co-operative Research Center for Coal in Sustainable Development and the CO2CRC. This study has very significant benefits and because of its global applicability, is being closely monitored in other parts of the world.

Geosequestration

Xstrata Coal supports the CRC for Greenhouse Gas Technologies (CO2CRC) to research carbon capture and storage and is contributing financially to a CO2CRC project to conduct the first carbon dioxide (CO2) geosequestration project in Australia. Geosequestration is an important option for making deep cuts in greenhouse gas emissions, along with energy efficiency; switching to less carbon-intensive fuels; and using renewable energy.

The pilot research project, situated in western Victoria, South Australia, will be one of the most comprehensive geosequestration research projects to take place anywhere in the world. Preliminary project assessments have been completed and the project is commencing in 2006. The project will simulate the capture of CO2 from a power station, transport the CO2 several kilometres by pipeline and store it two kilometres below the Earth's surface. The total cost of the project is around AUD30 million and will involve approximately 40 Australian and overseas researchers who will monitor the project for a period of one to two years.

Xstrata Coal South Africa: Spitzkop Colliery coal stockpiles

Clean Development Mechanisms

In South Africa, we are completing a baseline study into our coal operations in 2006 to determine our greenhouse gas footprint and to identify possible Clean Development Mechanism (CDM) projects. These are projects which, under the Kyoto Protocol, are designed to enable producers in developed countries to achieve part of their emissions reduction obligations through investment in developing countries in projects to reduce emissions or sequester CO2 from the atmosphere.