Social Responsibility | Economic contribution

Xstrata’s operations generate economic benefits and contribute towards the economic development and prosperity of the communities and countries in which we work directly and indirectly in a number of ways, including:

• Wages and benefits paid to employees and contractors;
• Job creation through the expansion of existing operations and the development of new projects;
• Indirect job creation in surrounding communities and towns;
• Royalties and taxes paid to local, regional and national government;
• Payments to suppliers for goods and services;
• Distributions to providers of capital, including returns to shareholders and debt providers;
• Corporate social involvement contributions to support communities associated with our operations.

A comprehensive Group financial review and operating reviews for each commodity business are provided in the 2006 Annual Report.

Xstrata’s businesses report their contribution to the regional economy through site or divisional sustainability reports, community newsletters and regular community meetings.

Xstrata’s Community HSEC Management Standard sets out the Group requirement for all projects and operations to improve the social and economic position of local communities through:

• Development and use of appropriate skills and technologies;
• Support for community educational and health programmes;
• Providing employment opportunities for local people;
• Sourcing and purchasing from local companies;
• Support for community projects;
• Handling matters in a spirit of trust;
• Promoting local business development.

Operations in remote areas, developing countries or regions with high unemployment and poverty play a particularly important role in their contribution to the local economy and development impact. In these areas, developing sustainable communities and livelihoods, avoiding dependency on finite mining operations, is especially important. This includes Xstrata’s operations in developing countries such as Argentina, Chile, Papua New Guinea, Peru, South Africa and Tanzania, together with remote locations in Australia and northern Canada.

Procurement and suppliers

Xstrata does not have a central procurement function, preferring to allow operations to source products and services locally, or at a regional or commodity business level. This approach emphasises local procurement and enables greater flexibility in purchasing materials and services for each operation. We give preference to locally based suppliers without compromising quality or HSEC requirements. In some areas, for example in Queensland, Australia, where the market for commonly-used mining inputs is very tight, our businesses work together to achieve efficiencies and maximise purchasing power.

We support the creation and development of smaller local businesses through providing training, management expertise, business planning, logistics and quality control to help suppliers meet our standards and develop their businesses further. Xstrata’s HSEC management standard 11: Suppliers, Contractors and Business Partners sets out our requirements for the assessment of and engagement with suppliers on health, safety, environmental and social issues to ensure these align with Xstrata’s Business Principles. A copy of Xstrata’s Business Principles is provided to every business partner and we actively engage with suppliers to ensure compliance with these.

We pay suppliers promptly within contract arrangements and ensure that all transactions are properly authorised and accurately recorded.

Economic value added

Xstrata Nickel’s Raglan mine is located in the Canadian Arctic and relies heavily on products imported directly to the operation and to the region. In 2007, Raglan will benchmark industry best practice in order to implement a ‘green buying’ procurement strategy, to minimise the environmental impacts associated with its supply chain. Once developed, this benchmark will be shared with other operations.

In New Caledonia, the Xstrata Nickel Koniambo project will establish a local company in 2007 to broker local services and human resources, in partnership with community representatives. Eventually, the company is intended to become an independent entity and will help the project achieve its commitment to maximise local procurement and employment.

In South Africa, Xstrata’s businesses have implemented black economic empowerment (BEE) procurement policies, which give preference to black owned or controlled suppliers. These policies include providing support for the establishment of small- and medium-sized enterprises, including management support, transfer of technology and other forms of expertise, ‘soft’ loans and financial assistance. In 2006, BEE compliant suppliers accounted for 44% of Xstrata Alloys and 41% of Xstrata Coal South Africa procurement or a total of ZAR3 billion. Our target in 2007 is to increase the proportion of procurement from BEE compliant companies to 50% of all payments to suppliers in South Africa.

There is clear evidence that aggressively pursuing BEE procurement has resulted in some real cost savings for our business, while advancing HDSA participation in the economy. BEE suppliers tend to be small- and medium-sized enterprises which hold fewer contracts at a time and are based locally to our operations, ensuring quicker delivery time or better service. In some instances, BEE suppliers are unable to access economies of scale available to larger companies with a larger number of contracts to fulfil. In these cases, we encourage BEE and non-BEE companies to enter into joint ventures with one another, to ensure skills transfer and revenue sharing for BEE suppliers and to enable non-BEE companies to participate in our supply chain.

Job creation

In 2006, Xstrata’s operations and businesses created a total of 2,541 new positions, with 72% of these positions filled by local residents. This is defined as people who, prior to employment by Xstrata, were already resident in the same geographic region as the principal location for employment (usually defined as neighbouring communities or towns). New positions are defined as new jobs created from the expansion of operations or new projects or activities. Operations or offices integrated into the Xstrata Group in 2006 from the acquisition of businesses are not counted as new positions. The majority of new positions were created at Xstrata Alloys, through the construction and commissioning of the Lion ferrochrome smelter in 2006.

The proportion of senior management positions filled by local residents is estimated at approximately 70% across the Group. Commodity businesses with operations in more than one region often provide opportunities for senior managers to transfer between regions, to provide career development opportunities and global experience and to enable skills transfer between divisions.

Our operations give preference initially to local residents when hiring. At a number of operations, formal agreements are in place with local communities, unions and/or regional authorities to ensure local residents have first choice of employment opportunities.

For example:

• In South Africa, Rhovan vanadium operation established a recruitment agency in the local area during 2000 in collaboration with the Bakwena Ba Mogopa Tribal Authority. The recruitment agency serves all five villages in the local area. Xstrata Alloys has a formal agreement with the agency to offer recruitment opportunities to candidates from the community as the first option.
• In Canada, Xstrata Nickel’s agreement with the Inuit communities associated with the Raglan nickel operation ensures that community members are prioritised for job openings and training positions. The mine has a target of 20% Inuit employment (currently 18%).
• In Peru, the Las Bambas exploration project has an agreement with local communities to maximise the number of community members benefiting from employment at the project, by rotating jobs between members of the various communities within the project’s area of influence.