Scope of Report

This report covers the economic, environmental and social performance of Xstrata’s managed operations for the 12 month period from 1 January to 31 December 2006.

Target audience

Existing and prospective shareholders and other members of the wider investment community are the key target audiences for Xstrata’s corporate reports. For the Sustainability Report, this specifically includes socially responsible investment (SRI) analysts and investors. In addition to this primary target audience, Xstrata’s Group Sustainability Report is written to provide a broad range of stakeholders with information about the Group’s economic, environmental and social policies, performance and standards in context. It complements the Group Annual Report in this regard. This broader range of stakeholders includes governments, existing and prospective employees and their families, development organisations and non-governmental organisations (NGOs), business partners (e.g. suppliers and customers), media, unions, local communities and others.

Evolution in reporting

This is Xstrata’s third full annual Sustainability Report and the fifth annual report on the group’s performance and approach to sustainable development. The previous Sustainability Report was published in April 2006 and covered the period 1 January to 31 December 2005. Each year, the structure, content and style of Xstrata’s corporate reporting has evolved, using feedback received from external and internal stakeholders.

In 2006, feedback on Xstrata’s activities and on the 2005 Sustainability Report itself was actively sought and received from a wide range of stakeholders, including:

• the investment community (including SRI analysts);
• government representatives (local, regional and national);
• local and international NGOs;
• Xstrata employees;
• business partners;
• expert judging panels (e.g. ACCA Sustainability Awards judging panel, which shortlisted Xstrata’s 2005 report)
• private individuals and local community representatives;
• peer companies and industry associations; and
• independent consultancies, including the recommendations made by URS Verification Limited in its assurance work on Xstrata’s 2005 Sustainability Report.

The structure and content of this report reflects and incorporates the feedback received. Specific changes applied from the previous year’s report include further amendments to the report structure retaining a topic-led approach, the strengthening of commodity business targets, better alignment of targets, material issues and case studies and an overview of site audit results from the Xstrata Assurance Programme.

Defining materiality

The report has been prepared in accordance with the principles of materiality, completeness, stakeholder inclusiveness and sustainability context. In defining materiality, traditional financial parameters are often too narrow or inappropriate for non-financial performance. In determining which issues or topics are material to Xstrata for inclusion in this report, we have considered the following:

• Xstrata’s core principles and values, set out in the Statement of Business Principles and Mission Statement, and sustainable development framework, policies and procedures;
• management’s assessment of the critical factors for the successful fulfilment of Xstrata’s Group strategy and the strategic objectives of each of its commodity businesses;
• an assessment of the key risks that may impact the successful fulfilment of Xstrata’s strategy, together with an assessment of the key opportunities Xstrata has to contribute to sustainable development;
• Xstrata management’s view of key material issues for each commodity business and the Group as a whole;
• feedback from employees, contractors, business partners;
• industry or company-specific issues raised by external stakeholders such as NGOs, investors etc. either directly with the company or indirectly, e.g. through the media or other channels;
• GRI G3 guidelines (including the Guidance on defining report content) and a review of the indicators and topics included in a range of internationally recognised voluntary initiatives and best practice guidelines, including the Extractive Industries Transparency Initiative, Equator Principles and World Bank guidelines for the mining sector, Millennium Development Goals and UN Global Compact;
• a review of the key topics and future industry challenges reported by peer companies and raised by industry groups, such as ICMM.

URS Verification Limited has provided assurance on this report including the coverage of material topics and their opinion is provided in the Assurance Statement on page 91.

Site and divisional reports

The Group Sustainability Report is supplemented by a number of divisional and site reports, aimed at local stakeholders. Xstrata Nickel has published a 2006 commodity business sustainability report and all Xstrata Copper divisions have produced 2006 sustainability reports, together with a number of site sustainability reports. All Xstrata Coal operations and Australian zinc and copper operations will produce a 2007 site sustainability report in early 2008.

† On a pro forma basis, including Tintaya, Cerrejón and Falconbridge from 01.01.06.

This report and all published site and divisional sustainability reports, financial reports and associated publications are available to download from the Xstrata plc website www.xstrata.com or as hard copies on request.

GRI compliance

This year we are transitioning from compliance with the GRI 2002 guidelines to compliance with the revised GRI G3 guidelines, published in October 2006. The application level for this report is A+ and has been independently reviewed and agreed by URS Verification Limited

The performance indicators and sector supplement performance indicators selected in this report reflect the Group’s significant or material impacts, to enable stakeholders to assess Xstrata’s performance and approach to managing sustainability issues. They are intended to provide a balanced and complete overview of performance for a wide range of stakeholders.

A GRI navigator detailing how Xstrata has addressed the GRI requirements is published separately on our website. A summary GRI index is also provided.

Presentation of data and content

The narrative and quantitative information in the Sustainability Report covers every managed (controlled) operation within the Xstrata Group, save where comparable data is not available for the former Falconbridge operations, acquired in August 2006.

Wherever possible, two sets of data are reported as follows:

• Data relating to the former Xstrata Group, excluding the former Falconbridge business, to provide a basis for comparison with 2005 data; and
• Data relating to the enlarged Xstrata Group, including Falconbridge from the time of acquisition, to provide an overview of the Group’s actual performance in 2006, where this data is available and comparable.

For a number of indicators, the former Falconbridge operations did not report data in line with Xstrata protocols. Since Xstrata’s acquisition, the former Falconbridge operations have aligned sustainability reporting with Xstrata’s protocols. From 1 January 2007, every Xstrata managed operation reports a full set of comparable data in line with GRI G3 on a monthly basis, using Xstrata’s custom-built, web-based database.

Operations in which Xstrata has an interest but is not the operator, (i.e. assets over which Xstrata exerts ‘significant influence’ under GRI definitions), are not included in the sustainability data reported, but are referred to from time to time in the narrative text of the report.

A full list of Xstrata’s operations, including ownership information and production capacity, is provided on pages 101 to 105 of the 2006 Annual Report.

A summary of key sustainability data, including production data, is provided. This is supplemented by a comprehensive performance datasheet provided on our website.

Energy use for 2005 has been restated from 57.6 petajoules to 55.4 petajoules, as a result of improved electricity consumption calculations.

Independent assurance

URS Verification Limited has conducted a thorough and independent assurance programme based on the AA1000 Assurance Standard (AA1000AS). For the third consecutive year, Xstrata’s Sustainability Report has been independently assessed against this standard. The Board HSEC committee considers the AA1000AS to provide the most comprehensive benchmark against which to measure Xstrata’s sustainable development reporting. The AA1000AS assesses reporting against three assurance principles: materiality, completeness and responsiveness. The independent assurance undertaken by URS included site visits, data verification and external assurance of Xstrata’s compliance and application level of the GRI G3 guidelines. A brief description of the process together with the signed assurance statement and recommendations are set out on page 91.

Feedback

We welcome all feedback on this report, the information provided in it, or on Xstrata’s activities generally. Please fill in the website feedback form, or email us. Contact details for the relevant Xstrata personnel are also included on the inside back cover of this report and on Xstrata’s website.

Local farmer in vineyard at Quebroda de Hualfín, supported by Minera Alumbrera, Argentina