Xstrata Chief Executive Officer Mick Davis on Sustainability in 2010

The following excerpt by Xstrata Chief Executive Officer Mick Davis is from the
2009 Xstrata Sustainability Report. The full report is available at:
Xstrata Sustainability Report 2009

Chief Executive’s Report

“Xstrata’s objective is to create value for its shareholders in a sustainable
manner, minimising our environmental impact, working in collaboration
with communities and other groups and prioritising the health and safety
of our workforce over production or profits.” – Xstrata CEO Mick Davis

At Xstrata, we have always recognised that our long-term success
depends on our ability to demonstrate that we are responsible stewards
of the natural resources we mine and use in our operations and of the
broader environment in which we operate. We must equally demonstrate
to communities and host nations that our presence delivers sustainable
benefits that extend beyond simply providing jobs or paying taxes. If we
can achieve this, we will continue to secure access to new resources and
sources of capital, employ and retain the best people, manage risk,
reduce costs and create and seize business opportunities.

Our strategy of growth to create sustainable value for our owners has
been primarily delivered through a series of major and bolt-on acquisitions
in recent years, followed in each case by the rapid integration of acquired
operations and a focus on improving their performance. Our Statement
of Business Principles and Sustainable Development policy and assurance
programme ensure that, within a decentralised business, every operation
and project is managed to consistent international standards.

Our strategy has now moved into its next phase, dominated by a major
programme of constructing new operations and extending existing mines.
While we have built or extended a number of major operations over the
past eight years, this more intensive phase of organic growth brings with
it a different set of risks and challenges for our business. From managing
the environmental and social impacts associated with new ‘greenfield’
developments to realising the benefits of our presence for communities
as effectively as possible, many of these issues will require us to balance
environmental, social and economic considerations and to consult
extensively with a range of stakeholders about our activities.

As our business has grown and entered into new geographies and
commodities, and as society’s expectations of business have continued
to evolve, we have aimed to align our practices with international
leading standards and to continually improve our understanding and
management of our social, environmental and economic impacts, both
positive and negative. The revisions we introduced to our Sustainable
Development framework in 2008 are now well embedded into our
operations and commodity businesses. In 2009, we made further
improvements to our sustainable development assurance programme
and we have integrated our financial, operational and sustainable
development risk management processes and audits to align with the
new ISO international standard for risk management. A better integrated
risk management system removes duplication, improves efficiency and
allows us to continue to embed the principles of sustainable development
into the way we manage our business on a day-to-day basis and across all
functions and business areas.

We faced a very challenging operating environment during the year,
following the financial crisis of late 2008 which left many major economies
in recession. In response, our commodity businesses implemented a range
of initiatives. We substantially restructured our Canadian nickel operations
and optimised our Australian zinc assets, reducing operating costs and
improving the competitive position of these businesses for the future.
At other operations and projects, production and capital spending was
temporarily scaled back and we redoubled our efforts to reduce operational
costs. At some operations, this unfortunately included redundancies of
contractors or permanent employees. In each case, we avoided permanent
redundancies where possible including through offering early retirement or
voluntary redundancy, and we provided employee assistance programmes,
retraining or placement services to affected personnel.

Our commitment to our Business Principles is all the more important
in a challenging economic environment. I am pleased to report that our
businesses took a considered approach to capital spending reductions,
redundancies and suspensions to operations, carefully assessing the risks
of our actions and ensuring that our actions did not impact on our safety,
environmental or ethical performance.

Our key achievements in 2009 include a further 14% reduction in the
frequency of recordable injuries sustained across the Group, marking an
unbroken record of year-on-year improvements in injury performance. We
continued to dedicate significant time and resources to monitoring and
reviewing the control of major or potentially catastrophic risks in our
business, including challenging existing risk management practices. We
reduced the number of category 3 (moderate) environmental incidents
occurring at our operations and maintained our record of no serious or
major environmental incidents. Our wellbeing and occupational health
initiatives continue to improve the protection of our employees and
contractors in the workplace and provide them with the tools to lead
healthier lifestyles and tackle major health problems. Our approach to
biodiversity conservation continues to see some encouraging results in land
rehabilitation, and we are increasingly investing in compensatory offset
areas where impacts on biodiversity-rich regions cannot be entirely avoided.

Climate change remains an important, longer-term risk for our business
and our understanding of our carbon footprint and opportunities for
greater energy efficiency continues to improve. The implementation
of site- and process-level carbon and energy intensity targets are an
important building block in enabling us to measure and improve our
performance more accurately. Following the Copenhagen discussions
in December 2009, which did not lead to a global agreement on climate
change, we are also continuing to actively contribute to the debate to
develop effective policies to reduce carbon emissions in the most equitable
and efficient manner, working with our peers through ICMM. We remain
supportive of an eventual global regulatory framework for cutting carbon
emissions that is equitable, effective and that incentivises government and
industry investment in new technologies.

And despite the economic climate, we continued to invest in the
communities in which we operate, contributing a total of US$65 million,
using reserves built up in years of higher profitability and in-kind donations
to supplement our contributions from 2009 profits. This investment has
supported a range of important initiatives, from improving access to
vital healthcare facilities, providing community skills and literacy training,
supporting the establishment of small and medium sized businesses or
support to improve education opportunities and teacher training.
Our commitment to sustainability extends beyond our direct operations
and we participate in a number of industry and stakeholder initiatives to
promote sustainable development. We also recognise the life-cycle impacts
of our products. One prominent example is the climate impact from the
burning of the coal we mine. We continue to invest in a range of low
emissions technologies in partnership with the scientific community,
government and other industries.

Unfortunately, like any business, we also suffer setbacks and do not always
reach our own high standards. It is both tragic and wholly unacceptable
that nine people lost their lives working for Xstrata in 2009. We investigate
each incident thoroughly and in each case the Executive Committee and
the Board HSEC Committee receives a personal report from the Chief
Executive of the commodity business concerned. We must learn from
these tragic incidents and do better in future.

Other challenges include managing the security risks associated with
operating in higher risk regions, and we are implementing the Voluntary
Principles on Security and Human Rights to guide our use of private security
forces and our interaction with public security personnel and communities
across the Group. Water management, in terms of quality and availability,
continues to be an important area of focus, particularly in arid regions. We
have recently committed to the UN CEO Water Mandate and we continue
to benchmark our performance and practices to encourage maximum
efficiency and avoid conflicts with other water users where resources are
scarce. We continue to seek constructive relationships with governments
and to facilitate revenue transparency and encourage equitable and stable
taxation and mineral royalty regimes to enable us to make the large, longterm
and risky investments required to develop mineral resources. We are
also mindful of the many potential environmental and social impacts of our
programme of developing new operations or expanding existing mines and
wherever we operate, our relationship with the communities surrounding
our operations remains o f the utmost importance.

Xstrata’s objective is to create value for its shareholders in a sustainable
manner, minimising our environmental impact, working in collaboration
with communities and other groups and prioritising the health and
safety of our workforce over production or profits. This report aims to
set out a balanced overview of our performance in 2009, together with
our approach to managing the most material sustainability risks and
opportunities we face. As ever, we welcome feedback on any aspect of
our performance or reporting, using the contact details provided at the
back of this report or available from our website.

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