Environment | Climate Change

Climate change is a reality and requires a global response. Xstrata’s operations impact on climate change through energy consumption, greenhouse gas emissions from operations, including methane released from coal seams during mining activities, and as a major producer of thermal coal, which is used to generate power.

To address the global challenge of climate change, we recognise that we must reduce both our greenhouse footprint and intensity within our operations, through improved energy efficiency and the capture and use of coal seam methane. Coal is a carbon liability and as such, we must also work with customers to find solutions to reduce greenhouse gas emissions from burning coal.

Nonetheless, we believe that coal will continue to play an important role in providing a reliable, cost effective and secure source of energy to fuel social and economic development, particularly in developing countries. The International Energy Outlook for 2006 estimates global energy demand to increase by 60% by 2030 and fossil fuels will account for 88% of this. To meet this increasing demand, all forms of power generation will be required – fossil fuels, such as coal, oil and gas; renewable sources, such as wind and solar; and nuclear.

As the largest export thermal coal producer, we have committed to taking a leadership role in working together with government, other industries, the scientific community, environmental groups and other stakeholders to develop technological solutions to reduce or eliminate the greenhouse gas emissions from burning coal.

We are responding to the global challenges presented by climate change through:

• Energy efficiency programmes at our operations (see case study: Xstrata Coal identifies energy efficiencies and Energy efficiency section below);
• Capture of coal-seam methane and implementation of methane-powered electricity generation;
• Funding and collaboration in research to develop ‘clean coal’ technologies, to reduce the emissions from burning coal to generate electricity;
• Advocacy and engagement to encourage wider support and development of clean coal and near zero emission technologies;
• Examining the potential risks and challenges for our operations presented by climate change, including prolonged drought, extreme weather events and higher average temperatures in some areas.

Our challenge is to improve energy efficiency while recognising that other sustainability objectives, such as increasing recycling, maximising metal recovery from declining ore grades and deeper pits and reducing SO2 emissions, require increased energy input.

We continue to participate in the carbon disclosure project, publicly reporting on our actions to reduce our greenhouse footprint, our performance and the potential impacts of climate change on our business.

Greenhouse gas emissions

Greenhouse gas emissions (GHGs) increased by 10% to 15.9 million tonnes of CO2 equivalents (CO2-e) in 2006, excluding the former Falconbridge operations, compared with 14.5 million tonnes CO2-e in 2005. The increase was attributable to a 10% production increase at open cut coal mines following the commissioning of the new Rolleston thermal coal operation and the addition of the Tintaya copper operation from June.

Indirect GHGs from energy purchased from power utilities accounted for 45% of the Group’s total. The majority of electricity purchased came from fossil fuel generation. In some countries, including Spain, hydro power also contributed a portion of the total purchased.

Methane from coal seams released during mining was the second largest contributor to greenhouse gas emissions, a similar proportion to the previous year.

The former Falconbridge operations emitted a total of 7.2 million tonnes of CO2 equivalents in 2006 (including direct and indirect emissions), a similar level to the previous year. The lower level of emissions compared to Xstrata (despite higher overall energy consumption) reflects the fact that the former Falconbridge group did not mine coal and purchased a significant proportion of electricity from utilities using hydro or nuclear generation. Coal mining releases methane, a greenhouse gas with 21 times more global warming potential than carbon dioxide, from decayed organic matter in rock strata.

Methane capture and power generation

In 2006, Xstrata commissioned a second methane gas-fired power station with Envirogen, using methane extracted from the Oaky Creek coking coal mine in Queensland, Australia. Power generated by the 12MW station is supplied to the national grid and is expected to save around 341,000 tonnes of CO2-e per annum, or the equivalent of removing 78,000 medium sized petrol driven motor cars from the road each year.

Capacity at the Teralba power station, which was installed at a disused, former mine in 2004, was reduced from 8MW to 6MW during 2006, as the rate of methane emitted from the operation declined. Together, these power stations prevent the emission of around 490,000 tonnes of CO2-e each year.

In addition, Xstrata Coal is investing A$15 million to conduct methane drainage trials at its underground operations at the Bulga Complex in New South Wales, Australia. These trials are designed to provide a safe working environment and identify technologies and processes required to help maximise the recovery and beneficial use of coal seam methane from that site.

We are also investigating technologies to oxidise methane in underground mine ventilation air, together with the viability of native forestation projects.

All Australian operations have signed agreements and implemented plans in accordance with the Australian Government’s Greenhouse Challenge Plus programme. Through this programme, operations are required to:

• Reduce greenhouse gas emissions (including promotion of awareness of greenhouse gas abatement opportunities);
• Accelerate the uptake of energy efficiency;
• Integrate greenhouse issues into business decision-making;
• Provide more consistent reporting of greenhouse gas emissions levels.

Reporting will commence in 2007. A significant component of Xstrata Coal’s greenhouse gas abatement strategy and Greenhouse Challenge Plus cooperative agreement is the capture and utilisation of methane in mine ventilation air.

Energy efficiency

A range of energy efficiency programmes are in place across our operations. Energy is one of the largest single costs within our business and, as such, efficiency and energy consumption reductions drive both cost savings and emissions reductions.

Energy audits are regularly conducted at operations. Energy efficiency programmes are put in place for all major new projects and developments and procurement strategies include specific energy efficiency criteria.

Xstrata Coal and Xstrata Copper are actively involved in the Australian Government’s Energy Efficiency Opportunities programme, implementing plans and measures to reduce the use of all forms of energy (see case study).

Xstrata Nickel has invested heavily to develop Nickel Smelting Technology (NST), for use at the Koniambo project, New Caledonia. Nickel laterite processing is energy intensive. Using the NST process, which includes advanced technologies such as air and dust recycling and counter-current heat exchage, reduces GHGs and improves energy efficiency by over 80% compared to standard technology.

Xstrata Alloys is the most energy intensive business within Xstrata, due to the ferrochrome production process. In 2006, Xstrata Alloys commissioned the new Lion smelting complex in South Africa, using Xstrata’s proprietary Premus technology. This technology was designed by Xstrata Alloys to reduce the energy intensity of ferrochrome production by up to 20% over existing technology. First production commenced at the operation in the third quarter of 2006. Once the operation has ramped up to full production, we expect the Lion project to have a beneficial impact on the operating costs and energy consumption associated with our ferrochrome production.

Xstrata Technology’s products are designed to improve energy efficiency, improve recoveries and reduce operating costs at mining and metals operations globally, including at a number of Xstrata’s own operations. A number of sites are assessing the potential for implementing Xstrata Technology products to improve energy efficiency, reduce emissions and improve recoveries. For example, McArthur River Mine’s output is currently limited by electricity produced at the onsite power plant. Through installing two Xstrata Technology IsaMills, together with two capacitors, Xstrata Zinc has announced it will increase the capacity of the concentrator by almost 40% from the same generation facility and environmental footprint.

In 2006, Xstrata’s operations (excluding Falconbridge) used 63.2 petajoules of energy, 14% higher than in 2005 (55.4 restated from 57.6). Of the total energy consumed, 60% (37.7 petajoules) is indirect, derived from purchased electricity. The amount of energy from purchased electricity increased by 11% in 2006, from 34.1 petajoules to 37.7 petajoules as a result of the commissioning of the new Lion ferrochrome smelting complex and the acquisition of Tintaya, which outweighed the impact of energy efficiency programmes at a number of operations.

Total direct energy consumed at managed operations rose to 25.5 petajoules, compared to 21.3 petajoules in 2005. Diesel is the largest source of direct energy consumed, accounting for 27% of total energy consumed in 2006, and 67% of all direct energy consumed. The new Rolleston coal operation, the acquisition of Tintaya and a 10% increase in production from open cut coal mines contributed to the increase in energy consumption, together with increased diesel consumption at MRM in Australia, where mining is being converted from underground to open cut and construction of the open pit is under way.

The former Falconbridge operations consumed 85.5 petajoules of energy in 2006, 2% higher than in the previous year. Noranda Aluminum, which was sold by Xstrata in April 2007 and is no longer part of the enlarged Xstrata Group, accounted for around 30% of total energy use.

Securing power supply

Xstrata is developing a 30MW natural gas-fired power station at Mount Isa within the mine lease, to provide a reliable short- to medium-term source of energy for planned expansions to Xstrata’s copper, zinc and lead operations at the multi-use complex. The station is expected to be operational from October 2007 and will complement the existing gas-fired Mica Mine Power Station owned by CS Engergy, which also uses waste heat from the copper smelter. Xstrata Copper’s Townsville refinery uses electricity generated from coal-seam methane.

In December 2006, Xstrata subsidiary Energía Austral, acquired as part of Falconbridge, submitted an environmental impact assessment to construct a 600MW hydro-electric power plant at Rio Cuervo, Chile. In early 2007, the regional environmental authorities advised that the EIS did not meet its criteria and we are currently working with the relevant authorities to resubmit a revised EIS for the project.

Clean coal technologies

In total, Xstrata Coal will contribute over $75 million to support the development and demonstration of clean coal technologies over the next five years.

In 2006, Xstrata Coal became a member of the FutureGen Alliance in the United States, committing US$25 million over 10 years. The US$1 billion project aims to build a first-of-a-kind integrated near zero emission coal-fuelled power plant. FutureGen will use advances in integrated coal gasification combined cycle, carbon capture and sequestration and hydrogen production technologies to eliminate greenhouse gas emissions associated with coal utilisation. It is currently expected to be operational in 2012.

Within Australia, Xstrata Coal has been a key player in orchestrating an industry agreement with other coal producers to voluntarily levy their coal production, to raise up to A$300 million over the next five years to help fund the development and demonstration of technologies for reducing greenhouse gas emissions from coal-fired power stations. The establishment of the COAL 21 Fund is a world first whole-of-industry approach to greenhouse gas abatement. The Australian Prime Minister has described the COAL 21 Fund as “a significant investment and a world leading initiative demonstrating the Australian coal industry’s leadership and commitment to reducing greenhouse emissions while maintaining a secure, reliable and affordable energy supply.”

One of the technologies already allocated funding support is oxy-fuel combustion, a near zero emission technology enabling the capture of carbon dioxide from conventional power stations. Xstrata Coal was a partner in a two-year $2 million feasibility study into this technology at CS Energy’s Callide plant in Queensland. We remain closely involved in this project which has now progressed to the demonstration phase and is already attracting international attention given its potential to reduce greenhouse gas emissions associated with the use of coal in power generation globally. One of the key benefits of this technology is its potential to be retrofitted to existing coal fired power stations enabling the capture and ultimate storage of CO2.

Xstrata Coal is also financially supporting the work of both the Cooperative Research Centre (CRC) for Coal in Sustainable Development (CCSD) and the CRC for Greenhouse Gas Technologies (CO2CRC). This is one of the world’s leading collaborative research organisations focused on carbon dioxide capture and geological storage (geosequestration). Xstrata is directly involved in and supporting Australia’s first carbon storage demonstration project, the largest such project in the world, now underway in the Otway Basin of Victoria, Australia.

Advocacy and engagement

An important element of our greenhouse gas strategy is to play an active role in advocating greater support of and advancement of clean coal technologies and research and development into other potential technological solutions. Xstrata Coal was a participant in the industry dialogue at the Asia-Pacific Partnership for Clean Development and Climate Ministerial meetings held in Australia in January 2006. This inaugural meeting brought together Ministers from significant producers and consumers of fossil fuels such as Japan, China, India, the Republic of South Korea, the United States and Australia to address the challenges of climate change.

An arctic fox at the Raglan site in Northern Quebec.

Also in 2006, Peter Coates, Chief Executive Xstrata Coal, was invited to join the Australian Prime Minister’s Emissions Trading Task Group, which unites Government and industry to advise on the nature and design of a workable global carbon trading scheme.

Xstrata representatives attended a number of meetings and presented at conferences to discuss the potential for clean coal technologies and the imperative to advance research, development and testing of these technologies to achieve deep cuts in greenhouse gas emissions while sustaining economic and social development globally. Xstrata Coal has also produced a climate change brochure, together with communication material for Xstrata Coal employees, government and other stakeholders, to explain our approach and initiatives in playing our part in reducing global greenhouse gas emissions.

Impact of climate change on operations

A number of the enlarged Xstrata Group’s operations are located in arid areas, where further prolonged drought conditions could limit production growth, or existing operations in extreme cases. These include operations in some areas of Queensland, Australia and north Chile. We also have operations in southern hemisphere regions that are at risk of cyclones or severe storm events. There is some evidence that climate change will increase the severity and frequency of these extreme weather events, potentially disrupting operations and damaging infrastructure and equipment. Xstrata’s products are dependent on shipping for transport to customers and markets. Any increased disruption of shipping could lead to increased insurance costs and delays to shipments.

The financial impact of climate change on our business today is impossible to calculate, given that many of these risks involve long-term changes to weather and climate patterns. Nonetheless, we are examining the potential risks to our business and, where appropriate, implementing mitigation strategies. Examples of this are initiatives to improve the management of tailings storage facilities to prevent failures in extreme weather events, appropriate flood defences and insurance cover.

One operation that is particularly exposed to warmer average temperatures is Xstrata Nickel’s Raglan mine, in the Canadian Arctic. Permafrost is a critical element to Raglan’s tailings design, storage and management. Predictions of climatic warming mean that the current storage arrangements, which rely on year-round permafrost, may not be sustainable in the long-term. To assess the most appropriate response to this risk and to identify any further risks from predicted changes in average temperatures, Raglan has established the Raglan Climate Change Committee. This is a multi-stakeholder committee consisting of representatives from Raglan, representatives of academic institutions and engineering and science consultants. The ultimate objectives of the Committee are to review and benchmark the sustainability of the Raglan tailings disposal methodology annually, based on available scientific and global warming information and research and advise the operation on best practices in the short and long term to ensure sustainability.

Illustration of the coal-fuelled near-zero emissions FutureGen power plant