Governance and Ethics

Xstrata’s Statement of Business Principles sets out the ethical framework for our activities and details our commitment to work ethically, responsibly, openly, together and with others.

Corporate governance

Board

Xstrata is governed by a robust Board comprising eight non-executive directors and three executive directors. Of the eight non-executive directors, six are considered by the Board to be independent. This is defined as independence from management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. The remaining two non-executive directors, Willy Strothotte, Xstrata plc Chairman, and Ivan Glasenberg, non-executive director, are directors of Glencore International, Xstrata’s major shareholder, and as such, are not considered to be independent. The roles of Chief Executive and non-executive Chairman are separated, in line with best practice. David Issroff, a non-executive director, resigned during 2006.

Xstrata’s adherence to the principles and provisions of the UK Combined Code on Corporate Governance is set out in the corporate governance report on pages 115 to 125 of the 2006 Annual Report, together with an explanation of key governance policies and procedures. Xstrata holds an annual general meeting (AGM) in Switzerland each year, at which shareholders are able to put questions, make recommendations or express opinions to the Board. For the first time this year, the AGM in May 2007 will be available to view via a live and archived webcast from the company website.

Committees of the Board

There are four formally constituted committees of the Board: Audit, Nominations, Remuneration and Health, Safety, Environment and Community (HSEC). The terms of reference for each committee are available from Xstrata’s website. Further information on the Audit, Nominations and Remuneration Board committees, including membership, areas of responsibility and key activities in 2006 are provided on pages 122 to 125 of the 2006 Annual Report.

HSEC Committee

The Board sets and reviews HSEC policy globally. To assist the Board to fulfil its HSEC roles and obligations, the Board HSEC Committee was established in February 2005. This committee provides the Board with additional focus and guidance on key global HSEC issues, monitors and evaluates reports on the effectiveness of Xstrata’s sustainable development framework and benchmarks Xstrata’s plans, strategies and progress against other ICMM member companies.

The Board HSEC Committee is chaired by Ian Strachan and comprises three independent non-executive directors and the Group Chief Executive. Paul Jones, General Manager Sustainable Development, acts as secretary to the committee. Professor Jim Joy, Professor of Risk Management at the Sustainable Minerals Institute, University of Queensland, Australia acts as independent HSEC Risk Adviser to the Committee.

Xstrata plc Board members visit the ATCOM coal mine, South Africa

All Board members are provided with regular independent briefings on social, ethical and environmental issues and are able to consult external experts at Xstrata’s expense. The HSEC Committee reviews its performance, constitution and terms of reference each year and reports any recommended changes to the Xstrata Board.

The Committee meets quarterly and in 2006 again conducted site visits to Xstrata’s South African operations. At each formal meeting, the Chief Executive of Xstrata’s commodity businesses presents the business HSEC strategy, risks and performance to the HSEC Committee in rotation.

A summary of the HSEC Committee’s activities in 2006 is provided on page 125 of the 2006 Annual Report.

HSEC governance

Xstrata sets global HSEC policy and HSEC management standards for application across its operations. The Group Executive Committee is directly accountable to the Xstrata plc Board and is responsible for implementing Group strategy within its delegated levels of authority and for overseeing the Group’s operational business units.

The Group Executive Committee monitors and evaluates reports from each of Xstrata’s commodity businesses on a monthly basis to determine the effectiveness of HSEC policy, governance, strategy, management standards and performance globally. The Group Executive Committee promotes the sharing of relevant HSEC information, incident investigation findings, good practices and relevant technologies to facilitate improvements in HSEC performance across its global business. The Group Executive Committee reports to the Board on key global HSEC issues.

Our management philosophy is to allow each commodity business to operate with a high degree of autonomy within the structure of Xstrata’s global policies and HSEC management standards. We believe this directly benefits our operations by creating a strong sense of local HSEC ownership. Within these standards, it is the responsibility of each commodity business to implement specific HSEC management initiatives and controls.

Each commodity business is governed by a commodity business Board. Each commodity business Board includes a Group executive representative and reports to the Group Executive Committee. Each commodity business has an Executive HSEC Committee which provides the commodity business Board with additional focus and guidance on HSEC strategy and key HSEC issues.

The results from comprehensive HSEC governance reviews conducted during 2005 at Xstrata Coal and at the Group level were used as a basis for self-assessments conducted by Xstrata Alloys, Xstrata Copper and Xstrata Zinc in 2006. These assessments identified enhancements to the HSEC framework in line with international best practice.

HSEC management

The Group General Manager (GM), Sustainable Development reports directly to the Chief Executive and oversees the strategic management and global implementation, review and assurance of Xstrata’s sustainability policies and standards. Together with Group Corporate Affairs, the Group GM Sustainable Development is responsible for the Group’s interface with stakeholders on sustainability issues.

HSEC resources are focused at the site level. Senior divisional and commodity business HSEC managers assist sites to develop HSEC frameworks and management systems that are aligned to Group policies and standards, in order to manage the HSEC risks in their business or operation.

Sustainable Development Framework

Xstrata’s Mission, Business Principles, HSEC Policy, Corporate Social Involvement (CSI) Policy, Risk Management Policy and HSEC Management Standards set out the guiding principles and strategic framework for the management of sustainability issues across the business. Each commodity business maintains a HSEC management framework which guides the development of operational HSEC management systems. These systems and performance are independently audited against Group standards through the HSEC Assurance Programme at least once every three years, or more frequently dependent on performance and risk profile.

A review of our Sustainable Development framework was initiated in 2006 and is ongoing in light of Xstrata’s transformation since 2002 to benchmark against best practice.

Within these Group requirements, it is the responsibility of each commodity business to implement specific HSEC,CSI and sustainability initiatives and controls. Xstrata’s policies, business principles and HSEC Management Standards are available from the Sustainability section of the Xstrata website (www.xstrata.com/sustainability).

Remuneration

Xstrata’s remuneration structure is designed to attract, retain and motivate highly talented individuals to attain exceptional performance towards our strategic aims.

The remuneration of all company directors is fully disclosed in the Remuneration Report, published in the Annual Report 2006 (pages 126-139). This disclosure includes directors’ benefits, together with an explanation of each component of directors’ pay, including service contracts and performance criteria for long-term incentives. Remuneration for executive and senior management across our businesses is closely aligned with Xstrata’s strategy to grow and create long-term shareholder value in a sustainable manner. A high proportion of total remuneration is ‘at risk’ and performance-related, incorporating demanding short-term and long-term financial and non-financial performance measures.

These performance measures are determined on an individual basis and include absolute performance (e.g. return on capital employed), relative performance (e.g. performance in comparison to peers) and non-financial performance measures (e.g. safety performance), in line with international best practice.

HSEC performance determines a proportion of all operational and senior management bonus awards. The proportion varies between commodity businesses and regions and is determined by commodity business executive teams and reviewed by the commodity business Board. In South Africa, where the vast majority of fatal incidents have occurred, HSEC performance typically accounts for 40-60% of total performance bonuses. For mine supervisors and operational employees, this proportion is usually greater (up to 80%).