Corporate Sustainability

Workforce at Esperanza

As explained in the Chairman’s Statement, the Board continues to place importance on a range of considerations including health and safety, management of human resources, environment and community relations. Sustainable development forms an integral part of the Group’s decision-making process.

Strategy

As set out in more detail in the strategy section, the Group adopted a strategic plan for its mining operations in 2008 to cover the period 2009–2015. The plan is based on three pillars:

securing and strengthening the core business of the Group in Chile, comprising its existing operations and new projects underdevelopment(Los Pelambres expansion and Esperanza);
continuing to grow this core business in the longer term with particular focus on the significant Sierra Gorda, Los Pelambres and Michilla districts; and
continuing to develop and search for additional opportunities beyond the core business for early-stage growth in copper both in Chile and abroad, such as the Group’s interests in Reko Diq in Pakistan, Nokomis in the United States and the international exploration programme.

The Group recognises that achieving its strategic plan depends on effective management of social and environmental issues and maximising the benefits the Group provides. Achieving good sustainability performance is a key part of meeting the expectations of the Group’s stakeholders and complying with current and future regulation.

Sustainable Development Principles

The Board has approved ten Sustainable Development Principles to guide the decision making and actions of its employees and contractors. The principles underpin the Group’s approach to gaining the approval of its stakeholders and maintaining its social licence to operate and grow.

The Principles were adopted during 2008 together with Social and Environmental Policies for the mining division and have been framed within the context of the Group’s strategic plan. Employees and contractors can review these in a single document, The Way We Think, The Way We Act which is available on the Group’s website.

Since the adoption of the Principles, the Group has continued to enhance its governance structure from corporate level to operations to ensure their implementation.

Group social and environmental strategy
The Choapa Valley near Los Pelambres
During 2009, the Group achieved another important milestone in its sustainability efforts when the Board of Antofagasta Minerals S.A. (“AMSA”), approved a social and environmental strategy for the mining division which is integral to the Group’s business plan.

The social and environmental strategy sets out the Group’s objective to create economic, social and environmental value as a participant of the mining sector. It is founded on the principle that managing sustainability performance is key to maintaining the Group’s social licence to operate and grow.

This strategy defines how the Group intends to generate social and environmental value. The strategy has two core elements:

Social Responsibility – defined as building relationships of trust and mutual benefit with stakeholders. This will be achieved by taking action in three areas:
- Behaving responsibly – by prioritising the health and safety of employees and contractors, maintaining a beneficial work environment, preventing adverse impacts on society, engaging with key stakeholders, creating local employment opportunities for local suppliers.
- Managing risk – by identifying and managing socio-political risk and managing crises.
- Developing human capital – by providing development opportunities to workers, contractors and suppliers, contributing to local development in the communities within an operation’s area of influence, supporting education and training, implementing initiatives to improve local life quality and supporting other economic activities (see the description of Fundación Minera Los Pelambres).
Environmental Responsibility – defined as using natural resources efficiently and where possible more economically and adding environmental benefit. This will be achieved by taking action in three areas:
- Achieving operational efficiencies – including managing waste, water, electricity, fuel consumption and land use.
- Controlling environmental impacts – including air and water quality, water availability, biodiversity, greenhouse gas emissions and environmental incidents.
- Providing environmental benefits – by providing environmental education, using renewable energy, enhancing biodiversity and protecting cultural heritage and developing beneficial new technologies.
The Group is working further to embed sustainability issues into management systems and decision making to ensure delivery of its strategy. It is developing key performance indicators through social and environmental performance assessments and defining social and environmental criteria for project due diligence and design.
Corporate sustainability governance

The corporate sustainability governance arrangements are part of the overall Group governance arrangements described in the Corporate Governance Report in the Governance section. The Board has put in place corporate procedures, management structures and risk management procedures at both Group and business unit level to ensure the implementation of its sustainable development principles and social and environmental strategy.

The Directors’ responsibilities, including those relating to risk management and control, are described in the Statement of Directors' Responsibilities.

The Board established a Corporate Sustainability Committee in 2008, comprising two Non-Executive Directors, RF Jara and GS Menéndez, and J-P Luksic, the Group Chairman (see Directors’ biographies in the Board of Directors section). The committee met once in 2009 to review performance and establish future strategic direction. As part of this process, it reviewed and approved the 2008 Sustainability Report.

A second executive committee, the Corporate Sustainability Reporting Committee, comprises the Chief Executive Officer of AMSA, the General Managers of Antofagasta Railway Company plc and Aguas de Antofagasta S.A., the Vice-President of Corporate Affairs and the Corporate Managers responsible for environmental and external affairs. The committee oversaw publication of the Group’s 2008 sustainability reports and continues to steer the businesses towards best practice in performance measurement and reporting.

The Group reports sustainability performance to different stakeholders through a range of reports: Group Annual Report, Group Summary Sustainability Report and the Group Full Sustainability Report. The Group’s two largest mines, Los Pelambres and El Tesoro, also produce annual site reports. AMSA provides information for the Social and Environmental Report published by the Chilean Mining Council, a national industry organisation.
Ethics

Workforce at El Tesoro
The Group seeks to maintain high ethical standards in all its activities. Ithas an Ethics Committee comprising the Vice-Presidents of Risk, Human Resources and Corporate Affairs and it monitors compliance with the Group’s Ethics Code, which is described below.

The Committee reports to the Chief Executive Officer of AMSA, with oversight by the Audit Committee, and its responsibilities include investigating allegations of breaches of the Ethics Code. The Ethics Committee met four times during 2009. It focused on approving a revised Ethics Code and its dissemination and communication to the Group.

The Group’s Ethics Code emphasises the Board’s commitment to carry out business in a responsible and transparent manner. The Code demands honesty, integrity and responsibility from all employees and contractors. It also establishes the requirement to respect human rights, local customs and values and the rights of neighbouring communities. In addition, it establishes a procedure to identify and manage potential conflicts of interest. Employees may report any unethical behaviour, anonymously if necessary, via the intranet.

During 2009 four reports were made. The reports referred to the Ethics Committee, were fully investigated and dealt with in an appropriate manner. In 2010 the Group will conduct training for all employees and contractors to raise awareness of the revised Ethics Code.

Risk assessment and management systems

Risk assessment

The Group has a risk management system to monitor centrally the risks relevant to each operating company, including social and environmental risks, and to enable its management to prevent or mitigate possible situations and incidents that might have a negative effect on business objectives. The findings of the stakeholder engagement activity (see below) are fed into the risk identification process. Risk maps are prepared to identify the main areas of risk in each division and risk management processes are incorporated at each level of the Group's operations and projects.

Safety and environmental management systems

Each operating division has implemented management systems for safety and the environment. The major copper mining operations have independent certification to both the environmental management standard ISO 14001 and the safety management standard OHSAS 18001. Antofagasta Railway Company is also certified to OHSAS 18001.

All the mining operations and Antofagasta Railway Company are certified to the ISO 9001 quality standard.

Certification	ISO 14001	ISO 9001	OHSAS 18001
Los Pelambres	certified	certified	certified
El Tesoro	certified	certified	certified
Michilla	–	certified	certified
Antofagasta Railway Company	–	certified	certified

At each operating company, an Environmental Manager and a Public Affairs Manager are responsible for management of sustainability issues. Both report directly to the Chief Executive Officer of their respective companies. Operating companies have established internal reporting systems to monitor performance.

Sites are frequently audited to review operational, environment, health and safety, labour and legal compliance performance against Group and certification standards every two to three months. Third-party auditors conduct certification audits every six months at El Tesoro, Michilla and the Antofagasta Railway Company and every 12 months at Los Pelambres.

Stakeholder engagement
Community engagement in the Sierra Gorda district
The Group recognises the importance of stakeholder engagement at the local, national and international levels. Together with continual monitoring of national and international trends, this dialogue enables the Group and its operating divisions to identify and address the most material sustainability issues and maximise its opportunities to contribute to local development. It enables the Group to understand the perspectives of others,explain its operations and plans, and build relationships of trust and mutual benefit.

The Group has identified its key stakeholders as: investors,employees and contractors, communities, local and national governments and regulators, and the media.

Examples of stakeholder engagement in 2009 included:
- client satisfaction surveys in ADASA and FCAB; and a buyers’ survey conducted at Los Pelambres for copper and molybdenum concentrates;
- community engagement programmes by all operating companies. For example Los Pelambres has developed a formal procedure to allow participation of the neighbouring communities in operational decisions such as the eventual closure plan for the Quillayes tailings dam (see case study);
- an annual reputation survey conducted by mining companies among their principal stakeholders including local communities and authorities, workers and contractors, and the media;
- investor meetings to gain feedback on the Group’s sustainability reporting and performance; and
- engagement with government and regulatory authorities through direct dialogue and through industry associations such as the Sociedad Nacional de Minería and the Consejo Minero, and other representative bodies.

Workforce

Safety

Safety is a major priority for the Group given the inherent risks in the different operations and development projects and hence requires constant vigilance. The Group’s goal is to create a safety culture through regular training and awareness campaigns for employees, contractors, families and local communities. Focus areas also include road safety training and awareness to prevent transport accidents.

The Group investigates serious incidents and implements action plans to prevent recurrence. Safety performance is reviewed at regular divisional board meetings. Safety and health management systems are established across the Group, and its major mining operations and railway are certified to OHSAS 18001.

The Group invests in preventative health programmes, including health examinations and risk awareness and accident prevention training. Occupational health issues among employees and contractors are relatively rare, but the Group provides support for affected people, even if the illness was contracted before working for the Group.

The Board deeply regrets the death of five of its workforce who lost their lives during the year at the Group’s operations as a result of three separate incidents. Three people lost their lives in a driving accident within the Los Pelambres open pit; one person lost his life at the Los Pelambres concentrator plant and another lost his life at El Tesoro.

The Board has a clear target of zero fatalities and considers any fatality to be unacceptable. Each incident was investigated by the authorities concerned, as well as by AMSA and mine management which took action to prevent a recurrence.

Health and safety is one of the Group’s key priorities and work to improve performance will continue over the year. The Group’s lost time injury frequency rate improved in 2009 to an average of 2.8 injuries per million hours worked, from 4.4 in the previous year (see below).

	Lost Time Injury Frequency Rate (LTIFR)				All Injury Frequency Rate (AIFR)				Number of Fatalities
	2009	2008	2007	2006	2009	2008	2007	2006	2009	2008	2007	2006
Chilean mining industry	*	5.8	5.9	5.8	n/a	n/a	n/a	n/a	*	43	40	31

Los Pelambres	1.3	1.3	1.7	2.3	3.6	6.6	5.3	7.5	4	–	–	–
El Tesoro	1.7	2.0	1.2	2.2	6.0	6.6	13.1	19.4	1	–	–	–
Michilla	3.2	4.4	2.6	1.3	9.9	12.1	12.8	12.7	–	–	1	1
Esperanza	1.5	1.6	n/a	n/a	15.0	8.2	n/a	n/a	–	–	n/a	n/a
AMSA including exploration	6.0	5.4	n/a	n/a	23.0	13.1	–	–	–	1	n/a	n/a

Mining	1.7	2.2	1.8	2.0	8.5	8.2	9.0	11.6	5	1	1	1

FCAB	12.0	13.9	19.2	15.3	33.9	35.7	44.3	37.5	–	–	–	3
ADASA	7.0	11.5	8.6	9.1	16.8	21.6	28.7	29.9	–	–	–	–

Group	2.8	4.4	5.6	4.9	11.0	12.9	17.1	17.5	5	1	1	4

Definitions:

LTIFR – Number of accidents with lost time during the year per million hours worked.

AIFR – Number of accidents with and without lost time during the year per million hours worked.

*Chilean mining industry source – Servicio Nacional de Geología y Minería. 2009 full year figures have not yet been released by Servicio Nacional de Geología y Minería and therefore are not shown above.

Employee development and labour relations

The Group applies an equal opportunities policy throughout its operations and believes that all employees and contractors should have opportunities for development and receive fair reward for their contribution and potential. In 2009 the Group reviewed and strengthened its employment policies.

Contractors form a significant element of the Group’s total workforce and under Chilean law are subject to the same obligations and responsibilities as employees.

At the end of 2009 the Group’s mining division workforce in Chile comprised approximately 2,500 employees and 19,000 contractors. Of the total number of contractors, 14,000 worked on specific projects including construction at Los Pelambres and Esperanza.

The Group continues to make a significant investment in employee training and development. Programmes include:

the AMSA talent management programme to develop leadership ability and promote high performance and site level training programmes;
the ADASA management and technical skills programme to develop specific competencies within teams; and
the FCAB leadership training programme and sponsorship of pre- and post-graduate training courses.

The Group respects freedom of association and union membership by its workforce. Labour relations are managed at operating company level with management working to maintain compliance with the requirements of the Chilean Labour Codes. There are 13 labour unions across the Group.

In 2009 Esperanza agreed a two-year contract with employees with its recently formed union, with the result that collective agreements are in place in all mining operations until 2011. These agreements cover remuneration levels as well as terms and conditions of employment.

The Group was not involved in any labour disputes in 2009.

The Group aims to keep employees informed about the business and uses a range of channels including a company intranet, newsletters, bulletin boards and social events. In 2009 it held training and awareness sessions to inform employees about Group strategy and its plan to face the economic crisis.

The downturn in the global economy and the sharp drop in commodity prices at the end of 2008 significantly affected the mining industry. Despite the economic crisis, AMSA continued with the Esperanza project and the Los Pelambres plant expansion project as scheduled and increased employee and contractor numbers at these sites during 2009. 120 employees were made redundant at El Tesoro and Michilla in early 2009 as a result of the decision to stop production at the high-cost open-pit at Michilla and to defer operational stripping at El Tesoro in response to low copper prices. These workers were provided with support and benefits beyond legal requirements.

The Group complies with legal requirements contained within employment laws in Chile, including those relating to child labour, discrimination and equal opportunity. Human rights considerations form part of human capital management programmes. As in previous years, no cases of human rights breaches have been identified in 2009.

Society
Community initiatives at Esperanza
The Group aims to manage the social impact of its activities and maximise benefits it can provide. The social and environmental strategy, launched in 2009, sets out how it will achieve this objective.

It sets out how the Group intends to maintain its social licence to operate and to establish its reputation as a socially responsible company capable of establishing relationships based on trust and mutual benefits with its stakeholders.

AMSA is developing criteria to monitor performance and to assist in implementation of the social and environmental strategy. In 2009 the business launched guidelines setting out best social and environmental practice in exploration projects.

Socio-economic development

The Group places importance on good community relations through respecting local people and cultures, building local capacity and hold constructive dialogue with local stakeholders. It gains feedback from local people through perception surveys and engages with communities through various means including meetings, radio programmes and newsletters (see case study on Los Pelambres).

Through its role as taxpayer, employer, and purchaser of local goods and services, the Group aims to have a positive socio-economic impact on the communities in which it operates. The Group's Social Relations Policy commits companies to help local people access job opportunities by training local people in the skills needed at sites (see case study on Esperanza).

Key initiatives in 2009 included:
- an ADASA programme to teach young people the skills they need to succeed in the workplace and to encourage them to start their own businesses. The entrepreneurship education programme will target third and fourth grade high school students in the region's major cities.
- support for the Fundación Minera Los Pelambres' (the Foundation) efforts to contribute to sustainable development in the Choapa Valley near Los Pelambres. The Foundation is working to create 1,500 metres of irrigation channels to reduce water losses, and is providing resources and expertise to help farmers boost productivity; and
- an Esperanza project to strengthen family values among residents of the nearby towns of Sierra Gorda and Michilla.
Other AMSA initiatives in 2009 included:
- support for music concerts near Michilla, El Tesoro and Esperanza, as well as the national ballet in the Choapa valley near Los Pelambres;
- the provision of free internet access for communities around Los Pelambres; and
- a project to improve the local fishermen's wharf in Michilla.
- Read the case study about consulting the Cuncumen Community
- Read the case study about creating local skills and employment at Esperanza
Environment

Fundacíon Minera Los Pelambres' Agricultural project
El Manque
The Group takes into account the environmental impact of its activities – including mine planning, construction, operation and closure – and endeavours to prevent negative impacts where possible. Where impacts cannot be avoided the Group implements mitigation and compensation programmes in accordance with legal and international standards.

The mining operations have the most significant environmental impact within the Group and AMSA management continued to implement its management plan in 2009 in support of the division’s environmental policy.

As explained above, the Board agreed the Group social and environmental strategy in 2009.

In order to implement the strategy, the Group has focused on strengthening AMSA’s team of environmental managers and empowering them to promote a culture of environmental protection in their respective companies and to embed environmental thinking into decision making.

The mining division developed a performance assessment tool called Assessment of Environmental Performance based on key performance indicators for the three environmental focus areas identified in the environmental and social strategy: operational efficiency, impact control and environmental benefit. Using this framework, each company set its own goals reflecting its main impacts and priorities.

In 2009, the AMSA team of environmental managers conducted gap analyses to review implementation of its environmental policy, implemented the Assessment of Environmental Performance and measured AMSA’s carbon footprint.

The team also completed the Group’s submission to the Carbon Disclosure Project for the first time in 2009.

Audits and assessments

The Group conducted an environmental performance assessment of its principal operations in 2009, evaluating their environmental management against performance indicators in three areas: operational efficiency, impact control and benefits to the environment.

The Group established a reporting system that companies can use to report against environmental performance indicators.

It conducted two internal environmental audits of mining operations in 2009, which were coordinated by AMSA’s environment team and conducted in partnership with site environment teams. The teams assessed whether sites are managing environmental issues in a proactive, prioritised and risk-preventive way and assessed the implementation of 2009 environmental programmes (including at the Esperanza mine due to start production at the end of 2010).

Environmental incidents

During 2009, the Group implemented new protocol for identifying and reporting environmental incidents at its mining operations. The protocol records all operational incidents including those with no environmental consequence. Two operational incidents were reported at Los Pelambres during the year. These incidents were of serious concern to both the Group and the local communities.

In February 2009 a crack in one of the valves of the energy generator station caused minor discharge to a local stream. The authorities were informed and subsequent monitoring did not identify any environmental damage.

The second operational incident occurred in August 2009 when a faulty monitoring valve at Los Pelambres caused a spill of copper concentrate into the River Choapa in the locality of Panguesillo. The incident was notified to the authorities who initiated an investigation. Los Pelambres performed a monitoring and a full technical analysis to ensure there was no environmental damage.

No other operational incidents were reported.

Energy security, management and carbon emissions

The Group recognises the need to conserve energy and develop a suitable response to climate change which recognises the needs of the business. Operations implement energy efficiency projects and look for ways to use renewable energy where possible.

Operations also invest in innovative technology to reduce energy use. For example at Los Pelambres, the concentrator plant is located 1,600 metres below the mine site and the loaded conveyor belt system between the two points uses the height difference to generate around 10% of the power used at the operation.

The Group continues to work towards securing alternative energy supplies and establishing longer term agreements and contracts with energy suppliers.

In 2009 AMSA signed an agreement with Carbon Energy of Australia to assess jointly and eventually develop a coal deposit in Mulpun, Chile, using Underground Coal Gasification (“UCG”) technology. If trial projects are successful, the project will generate energy from gasified coal.

The Group acquired a 40% stake in Inversiones Hornitos S.A., the owner of the Hornitos thermoelectric power plant which is being constructed in Mejillones in the Antofagasta Region. The power plant is expected to begin commercial operation in 2011 and will supply up to 150MW to the Esperanza project, under a long-term supply agreement. This will be a coal-powered plant also capable of burning biomass and other fuels.

Together with Empresa Nacional del Petróleo (“ENAP”), the Chilean state-owned oil company, AMSA created Energía Andina, a new company with aims to acquire concessions and explore for and eventually develop geothermal power stations.

Water management and supply
Desalination plant at ADASA
Using water efficiently is key to ensuring the availability of water for local communities and our operations. The Group closely monitors its water consumption and quality to ensure it complies with legislative requirements and community expectations.

All operating companies implement water management plans that seek to minimise demand on local water resources, in particular through water recycling. Los Pelambres recycles approximately 85% of the water it uses and El Tesoro recycles the majority of the water it uses. Michilla uses 100% seawater as will Esperanza when it commences operations.

ADASA is seeking to increase the supply of desalinated water for domestic consumption in the Antofagasta Region. As part of this strategy it acquired the desalination plant located in the city of Antofagasta in March 2009 for which it was previously the sole customer.

Waste management

The Group implements solutions to enable waste reduction and reuse where possible. The Group’s operations have arrangements in place to dispose of waste according to applicable legal requirements.

At Los Pelambres, the Mauro tailings dam is now operational, providing sufficient waste disposal capacity for the remaining life of the existing mine.

Due to Esperanza’s geographical and meteorological location, it will be able to use “thickened tailings” technology, which will reduce water consumption and improve evaporation, mitigating the risk of soil contamination. The technology will also ensure a high level of stability for the tailings during operations and after the mine has closed.

Biodiversity
Wildlife at Laguna Conchalí
The Group recognises the importance of maintaining existing ecosystems and biodiversity and minimising habitat disturbance. The Group takes into account the interests and concerns of different groups when dealing with biodiversity issues, including farmers and landowners, local communities and non-governmental organisations. All mining operations have formal closure plans for the restoration of land.

Sites implement biodiversity plans in compliance with legislative requirements and planning conditions. At Los Pelambres there are more than 25,000 hectares of protected areas, including the Laguna Conchalí, a Ramsar Convention area. The site implements mitigation and compensation plans, internal management procedures to reduce environmental impact and monitoring programmes.

Los Pelambres manages a nature sanctuary at the Laguna Conchalí wetlands which has significant biological diversity, variations in forest structure and provides a habitat for endangered species. Los Pelambres conducted basic research on the area and after consulting with local people established a conservation zone with an information centre with the objective of improving the use of this area in a more sustainable way.

Closure provisions

The group has prepared Closure Plans for all its operations according to local regulations, and provisions have been allocated for these plans accordingly. These plans and provisions will be routinely updated. All new projects contain outlines for closure plans within the Environmental Impact Assessment report submitted to authorities.

Developments in environmental regulation

REACH

The European Union (“EU”) has introduced the Regulation, Evaluation and Authorisation of Chemicals (“REACH”) to control risks to human health and the environment. REACH requires companies involved in manufacturing or importing chemicals into the EU to collect or generate toxicity data on the substances.

Antofagasta’s molybdenum and copper products are covered by REACH. Through the Consortia of Copper and Molybdenum Producers and Manufacturers, AMSA has been working to conduct research and to prepare classification dossiers. The Group has met its pre-registration and is on track to meet the November 2010 registration deadline.

Global Harmonising System

The Global Harmonising System (“GHS”) will be implemented jointly with REACH in the EU by the end of 2010. The GHS is intended to create an internationally consistent system of chemical hazard management and reporting through standard product labelling and Safety Data Sheets.

It will require industry to classify hazards and modify current labelling systems. The Group is on track to meet all GHS requirements.