Corporate Social Responsibility Review

The Ferrexpo Board’s commitment to corporate social responsibility (‘CSR’) derives from a shared belief that the Group’s licence to operate will be underpinned by the Group’s CSR performance. For many operations within former CIS countries, the traditional response has been to use legal requirements as the sole benchmark for CSR compliance. By contrast, we view legal standards for CSR as a minimum level and we are committed to striving to achieve the highest international standards of performance in CSR matters. We will ensure that during 2011 investment in health, safety and the environment is maintained.

The Board’s approach to CSR

The Board demonstrates its commitment to CSR through:

Group policies;
Board and management focus;
Asset level management systems; and
Performance management at all levels.

The Board believes that Ferrexpo has made good progress during the year. A Group-wide Code of Corporate Responsibility and Business Ethics (the ‘Code’), which has been translated into Ukrainian and Russian and communicated to employees, enshrines the Company’s values in three main areas. These are:

Business principles

Ferrexpo must maintain high standards of behaviour with all those it deals with, both inside and outside the Group. Its conduct and business dealings should be associated with honesty and integrity, making it an attractive and reliable business partner.

Community relations

Ferrexpo’s presence should benefit those around it, and its operations will benefit if local communities are thriving. Any member company of the Group should be considered an attractive local employer.

Stewardship

Ferrexpo must develop and manage its resources and facilities in a sensible manner, having regard for the natural and social environment in which it operates. Companies within the Group should be associated with a commitment to achieving the highest environmental and safety standards.

The Corporate Safety and Social Responsibility Committee

The Group has a Corporate Safety and Social Responsibility Committee (the ‘CSR Committee’) which monitors the implementation of CSR policies.

The CSR Committee is chaired by Viktor Lotous (Ferrexpo Poltava Mining (‘FPM’) Chief Operating Officer). The other members of the CSR Committee are Michael Abrahams (Chairman of the Board), Kostyantin Zhevago (Chief Executive Officer) and Brian Maynard (Group Chief Operating Officer). To assist them in the exercise of their duties, the CSR Committee will, from time to time, engage specialist technical advisers. The CSR Committee met once during 2010. In addition, the whole Board received a detailed presentation on safety when it visited the site during the year.

During the year the business reviewed by the CSR Committee included the following items:

Overall review of safety in mining and processing operations, including analysis of industrial injuries and sickness, workplace conditions, and labour safety audits.
Update on the work of DuPont Safety Resources (‘DuPont’) and their recommendations.
CSR Reporting.

The CSR framework

Management recognises that reaching the highest standards will entail a continuous process of evaluation and improvement founded on a sound CSR framework. Ferrexpo has adopted a seven point CSR framework covering values, strategy, policies, objectives, targets, monitoring and auditing, and communication.

CSR at FPM

As it is still much the largest asset within the Group, FPM provides the main focus for development and implementation of the Group’s CSR procedures, based on established Group policies. Within FPM a single department has responsibility for all aspects of health and safety, security and environmental protection. This department is responsible for air and water testing laboratories, the medical centre, fire prevention service, gas service, civil defence and emergency response headquarters and workshops. This department reports directly to the FPM Chief Operating Officer.

CSR at FYM

The number of staff at FYM grew steadily during the year, from under 70 to over 350, but is still only a small fraction of the total workforce. CSR matters form part of FYM’s regular reporting procedures.

All Group employees are expected to take personal responsibility for their conduct, and management recognises the need to create a cultural and behavioural environment among the Group’s workforce that will allow the policies agreed by the Board to be successfully implemented.

Health and safety

Ferrexpo's health and safety policy

The prevention of injuries to employees is the highest priority of the Board and management. Policies and practices at all levels need to reflect this.
Within Ferrexpo’s operating assets, accountability for health and safety performance lies with senior line management.
All operating assets are required to develop and implement health and safety management systems in line with Group policy, including performance management.
Performance metrics will reflect the Group’s commitment to strive to achieve the highest standards of health and safety performance.
Senior line management is responsible for ensuring that adequate resources are committed to health and safety. They have an obligation to secure their resources through the Group’s planning and budgeting processes.
Adequate health and safety training will be given to all employees and contractors.
Specific focus needs to be applied to behavioural safety at all levels, to fatal risk prevention and to the major industrial health hazards associated with our operations.
Employees are personally responsible for their own safety and that of their colleagues.

Health and safety objectives

The objective set in 2009 of achieving the best mining safety record in Ukraine is supported by targets including a reduction of 20% in the lost-time injury frequency rate. In this respect 2010 was a disappointing year (see under ‘Health and safety performance’ below), and comparisons with other mining companies in Ukraine on the basis of the limited information that they publish suggest that Ferrexpo still has some way to go to reach its objective. However, comparisons with past performance should take account of the likelihood that raising the profile of safety in the Company has made the under-reporting of accidents much more rare than in the past. The particularly severe winter weather of early 2010 was also a contributing factor, with least one injury caused by a fall on an icy road.

For 2011 management is determined to do everything possible to reinforce further the safety culture at Ferrexpo, through an increase in safety spending as a proportion of sales revenue, through the development of the safety training programme, and through a continuing link between safety performance and staff remuneration (safety KPIs now apply to all staff down to middle management level).

Monitoring the effectiveness of health and safety policies includes the review of health and safety performance, as measured by key KPIs as shown below:

Health and safety performance

	2010	2009	2008
Lost Time Injury Frequency Rate (LTIFR – see note)	1.43	1.11	0.95
Fatal accidents	1	0	3
Total accidents	20	15	17
Lost days	916	530	591

Note LTIFR – Number of work-related lost time injuries per million man hours.

Health and safety management systems

In accordance with Ukrainian law, FPM has developed a health and safety policy applicable to its operations and types of activity that is in line with the Group health and safety policy. Compliance with this policy is monitored via a three-tiered system. Daily control is conducted by operating personnel, engineers and technicians. Production managers carry out weekly inspections, and senior management conducts periodic inspections in conjunction with government personnel.

Following a restructuring of the Labour Safety Department in 2009, there is a centralised Directorate for Industrial Labour Safety and Environmental Protection taking the place of the previous more localised structure. Remuneration of safety engineers is no longer directly linked to operational output. The purpose of setting up the Directorate was to develop a uniform policy and achieve the maximum degree of co-ordination of progress towards achievement of the goals set in the field of labour safety. Procedural manuals on labour safety and environmental protection at the operational level continue to be developed.

As it updates the current procedures of the labour safety management system, the FPM management continues to take into account best practice both in Ukraine and abroad. In 2010 this took the form of co-operation with the labour safety consultants DuPont in the area of labour safety training and auditing (see under ‘Safety Initiatives’ below).

In 2006 FPM initiated the development of a health and safety management system consistent with the requirements of OHSAS 18001, the internationally recognised standard for health and safety management. This system was externally audited under the Ukrainian UkrSEPRO system in March 2007 and accreditation was obtained in April 2007. The system was audited again in March 2008, March 2009 and March 2010, and the accreditation was confirmed by external auditors on each occasion.

Fatalities and reportable accidents

The prevention of injuries to employees is the highest priority of the Board and management who follow the principle that all accidents are avoidable.

In line with policy at FPM, all accidents are investigated to determine the cause and identify appropriate remedial action. This analysis, which also covers minor accidents not involving time spent off work (‘microtraumas’) is carried out according to a methodology agreed with DuPont. Fatalities and other serious accidents are additionally investigated by the State authority. The Board, the CSR Committee and the Executive Committee require senior management to provide full reports on the causes of fatal and serious accidents, details of corrective actions to prevent these types of accident from recurring, and plans for enhancing overall safety management based on the lessons learnt. Senior managers are expected to present these reports, in person, at the first Executive Committee meeting after the accident concerned.

Tragically, there was one fatal accident at FPM in 2010, to the machinery repair man Ivan Kharchenko. A full investigation was carried out by both the Company and, as is usual in such cases, the State authorities, which attributed the accident to the failure of an item of electrical equipment. All similar items of equipment were then checked and replaced if appropriate. Also, measures have been taken for the total replacement of electrical equipment on cranes in the crushing plant during 2011-2012.

In accordance with Ukrainian compulsory social insurance laws, compensation equivalent to up to five times annual salary is payable to the victims of accidents (or their families). Individual workers contribute to a statutory insurance fund which is responsible for paying the compensation. FPM is aware that it has a moral as well as a legal responsibility towards the families of employees affected by accidents at work and will also make additional voluntary payments to the family of employees on a case-by-case basis to ensure that they do not suffer hardship.

Safety initiatives

In 2010 FPM continued to implement safety programmes to improve the health and safety of its workers. These included:

Work with DuPont (under the contract entered into at the end of 2009) on behavioural audits, with training sessions for 150 line managers, carried out in conjunction with a DuPont consultant, on how to carry out these audits, whose purpose is to improve company safety culture and eliminate dangerous work practices.
Now that most of middle management has been trained in safety matters, training is being provided for more junior staff (additional to what they receive by law at the state safety institutes).
Periodic revision of Company safety standards which are promulgated throughout the organisation, both orally and in writing (via procedure manuals).

Evidence that these and previous initiatives are bearing fruit, and that a safety culture is taking root, has been seen in the increasing readiness of staff to raise safety problems with management and suggest solutions to them.

FPM is required by Ukrainian labour protection laws to dedicate at least 0.5% of sales revenue to labour protection and safety. This statutory payment amounted in 2010 to approximately UAH41.5 million (US$5.2 million, or 0.7% of sales) (2009: US$3.3 million, or 0.6% of sales).

FYM is starting to implement a full-time safety programme at the pit, which includes ensuring that Health and Safety technicians have the constant use of a car in which to patrol all areas.

Occupational health initiatives

In accordance with the requirements of the Ministry of Health in Ukraine and to prevent or detect occupational diseases at an early stage, FPM employees, particularly those engaged in potentially hazardous work, are given medical examinations both upon recruitment and at regular intervals during their employment. The health of employees who have worked for 10 years or more under potentially hazardous working conditions is assessed more rigorously.

As an integral part of the Directorate of Industrial and Labour Safety and Environmental Protection, FPM owns an on-site health centre. The health centre carries out medical examinations of staff on joining the company, as well as annual medical examination of the employees aimed at preventing and treating occupational diseases, according to the requirements of the current labour legislation of Ukraine. Additionally, on a contract basis, the health centre provides services for subcontractors’ employees. The cost of providing medical services in 2010 was UAH7.3 million (US$0.9 million), the majority of which was spent on maintaining the health centre and ambulance, and on medical check-ups for staff.

In the past three years, there have been eight recorded cases of industrial disease (three in 2008, two in 2009 and three in 2010); most cases are associated with prolonged exposure to high dust concentrations. Other diseases included auditory impairment due to excessive noise and two cases of cancer (which whilst classified as industrial disease in accordance with Ukrainian legislation and therefore recorded, are not believed to have been directly attributable to the Group’s operations).

The industrial diseases that have been recorded include some – silicosis and bronchial complaints – which can be caused by exposure to particular forms of dust (although there are also other possible causes for some of these diseases). Improvements to dust control systems are part of a long-term package of measures designed to improve the working environment. To reduce the dust level in the production area in the mine and at the processing plants and workshops, the pit-face and roads in and around the mine are watered each shift (depending on the weather pattern).

Employees

Ferrexpo’s employment principles include policies and practices on company standards, security, recruitment, remuneration, equal opportunities and training and development. These are backed up by subsidiary company employment manuals to cover local legal and regulatory requirements.

As part of the restructuring process involving an outsourcing of non-core mining activities, during 2009 25 security staff previously employed directly were transferred to the local security company that provides services to FPM. Additionally, the Specialised Electric Equipment and Networks Repairs Department (212 staff) was moved outside the company structure. No further staff were transferred in 2010.

FPM continues to recruit specialist graduates from Dnepropetrovsky Mining Academy, Kyiv University, Krivoy-Rog Institute and Komsomolsk Polytechnical School among other places to fill available technical and financial positions.

Ferrexpo is aware of the increasing demand for staff with mining expertise in the CIS countries and elsewhere, and is constantly looking for ways to motivate and retain its key employees. (For an example of this, see case study on the social loyalty housing programme on page 39.)

Further information on employee numbers is set out in note 36 to the accounts.

Training and development

The Group is committed to developing its employees. The Group provides technical training for all employees consistent with their duties and responsibilities. In particular, investment has been made in facilities for health and safety training. In 2010, 103 employees were sponsored by Ferrexpo at institutes of higher education. Total educational spending for employees in higher educational establishments was UAH0.4 million (US$0.1 million).

Trade unions and industrial relations

The Group does not have individual contracts with its employees in Ukraine other than with its senior managers. Most of FPM’s workers are members of a trade union (the ‘Poltava Trade Union’). FPM entered into a new collective bargaining agreement with the Poltava Trade Union in 2008. A protocol of intent with the Poltava Trade Union for the period from 2008 to 2010 states that individual salaries will be increased at least in line with inflation and that an annual reduction in headcount will occur, subject (except for any jobs that are outsourced) to an agreed maximum. Management believes, having conducted market research, that wages paid by the Group are higher than average wages in Ukraine, although they tend to be less than the average wages paid by other Ukrainian mining companies.

There has been no major industrial action or labour dispute at Poltava since its privatisation in 1995. In the summer of 2010, following the introduction of more modern, safe and comfortable dump trucks and excavators on the site and a consequent significant improvement in the working conditions of the staff operating them, there was a re-certification of workplaces. This meant that the retirement age of the staff concerned (who had previously been allowed to retire early without loss of benefit because of their hard working conditions) was changed from 50 to 55. Some of the staff objected to this and took unofficial industrial action in the form of a limited ‘go-slow’ in the first week of August, after which normal working was resumed. Most of the staff did not support the go-slow, and there was no impact on production. FPM then participated in a working group including representatives of the government authorities, which found that FPM had acted correctly in the re-certification of workplaces.

Environment

Ferrexpo’s Environmental policy

Our operating practices and growth plans will be implemented in a manner consistent with the principles underlying long-term sustainable resource development; we will balance the long-term environmental consequences of our actions against short-term economic returns.
The mines are required to develop and implement environmental management systems in line with Group policy.
All new capital projects will include environmental risk assessments and mitigation plans.

Monitoring the effectiveness of environmental policy includes the review of key KPIs for emissions which are shown below.

Emissions in tonnes

	2008	2009	2010
Total gas emissions	6,177	6,167	6,294
Of which:
Nitrogen dioxide	2,879	2,876	2,922
Carbon monoxide	2,312	2,306	2,336
Sulphur dioxide	888	886	937
Total solid emissions	3,224	3,212	3,575
Total emissions	9,401	9,379	9,869

In 2010 FPM spent UAH46 million (US$5.8 million) on the implementation of environmental measures. Payments for emissions and waste placement amounted to UAH23 million (US$2.9 million).

Environmental management systems

The primary responsibility of FPM’s dedicated Environmental Department is to ensure that all necessary permits are in place, to undertake monitoring in accordance with the prevailing regulatory requirements and to supervise the implementation of an agreed programme of environmental improvements based on the Department’s own assessments.

Environmental laws in Ukraine set requirements for the protection of the natural environment, the use of natural resources, emissions into the atmosphere and water and waste disposal. FPM holds a number of environmental licences and permits, including permits for atmospheric emission control, solid waste disposal, tailings disposal, mine waste disposal and industrial use of fresh water. Until 2007, the environmental monitoring and management programme was designed solely to meet the current statutory requirements. However, in 2006, the Environmental Department started to develop a full Environmental Management System (‘EMS’) in accordance with ISO 14001. The EMS was externally audited by the Ukrainian UkrSEPRO authority and given a certificate of conformity with ISO 14001 in the second quarter of 2007.

The system was audited again in May 2010, and the accreditation was confirmed by external auditors.

Project evaluation

The Group has endorsed the Equator Principles as a benchmark when evaluating new projects. As part of any new project proposal, the Group will undertake an environmental impact assessment and this will be reviewed alongside other project evaluation documents presented to the Board for approval. During 2009 Ferrexpo completed an independent review of the Ukrainian EIA (OVOS), which covers our regulatory environmental requirements, for the Yeristovo mine pre-strip and the actual environmental performance of the current Yeristovo operations against the requirements of the International Finance Corporation’s (‘IFC’) Environmental and Social Performance Standards. Ferrexpo remains committed to applying the IFC requirements as it prepares plans for further development of the Yeristovo project. During 2010 FYM completed a study that sets out guidelines for monitoring the environmental and social impact of the project as it develops.

Environmental initiatives

Air quality

Dust and gas emissions are two major issues that FPM carefully monitors and controls to ensure that air quality is not adversely impacted by its operations. In recent years, there have been a substantial number of initiatives taken to meet this need. Progress during 2010 is set out below.

Water management

FPM uses some 491 million cubic metres of water each year, much of which is recycled through the tailings facility, although approximately 3.5 million cubic metres is extracted from a combination of the local river and the municipal drinking water supply.

The Tailings Storage Facility (‘TSF’) also receives the treated effluent from Komsomolsk’s sewage treatment plant. Excess water from the TSF is passed through an extensive bio-engineered treatment system commissioned in May 2002.

Storm water from the site is treated in a new cascade treatment plant with a filtering dam commissioned in late 2005. The plant is designed to remove suspended solids and organic pollutants. Other rain and melt water is pumped to the slurry pit for clarification; in the case of excess water it is directed to the bio-engineered treatment unit for additional treatment together with the remainder of TSF dam-filtered water.

During 2006 and 2007, the washing facilities of the mining transport department were rebuilt to prevent the pollution of ground water by oil products that had been carried by the surface water as it drained away. This had previously occurred due to damage of the washing area and dirt collector.

Progress in 2010

Protection of the local river system (including advanced water treatment of clarified water at the sludge depository in the biological purification plant so as to prevent excessive discharge of pollutants into the local river system) – spending of US$0.2 million in 2010. Modernisation of the bulldozer washing station in the Mining Transport department will prevent fuel and lubricants from escaping and polluting groundwater. The TSF was inspected In October 2010 by experts from the Ministry of Emergencies, who found that the tailing ponds and the refuse pumping system were in a safe condition.
Reduction of air pollution (stabilising banks of dry waste material by sowing grass on them, and intensively watering the work face in the pit after blasting and in dry weather) – spending of US$1.3 million in 2010.
Waste management (including management of the depositing sites and tailings dam to allow for use of slurry (tailings) and stripping material in production, as well as securing continuous operation of water recycling system of water supply to the company departments) – spending of US$4.2 million in 2010.

Waste rock management

The currently operating Gorischne-Plavninskoye Lavrikovskoye (‘GPL’) open pit has generated some 517 million cubic metres of waste rock that is deposited in two dumps. Annual monitoring of the western and eastern dumps indicates that run-off from the waste rock dumps has no negative effect on air quality or water basins, and vegetation has been successfully cultivated on the inaccessible and abandoned areas of the rock dumps. Waste rock from future operations, including the Yeristovskoye pit now being excavated, is being deposited on these two dumps or used to back-fill part of the GPL pit. The annual tree and bush planting project assists in the absorption of gases that would otherwise pollute the air, whilst also reducing noise.

Mine closure and rehabilitation

FPM recognises that its activities have an impact on the environment and communities in which it operates. We are aware that a commitment to sustainability requires FPM to prepare now for the cessation of mining operations even though that eventuality remains many years in the future. In 2005, we developed a closure and rehabilitation plan for the existing GPL pit and associated waste rock dumps. The site will be restored primarily to forestry, with an area of open water remaining in part of the open pit.

The Company will provide fully for the costs of mine closure and rehabilitation as they develop, and it is committed to complying fully with the terms of its operating licences and the requirements of Ukrainian law.

Communities

Ferrexpo’s Community policy

Our presence should benefit those communities around our operations; our operations will benefit if local communities are thriving.

We strive to be recognised as an attractive local employer and a concerned corporate citizen.

We will assist in the development of the microeconomic environment within the communities in which we operate to ensure that their dependence on us for their livelihood is reduced.
We aim to have a positive relationship with and enhance the communities around us. We wish to have an open dialogue with these communities and to ensure that our involvement with them is cost effective and relevant to their needs.

Community context

The Poltava region is located in an area of predominantly flat agricultural land close to the Dnieper River, one of the largest European river systems and an important transport artery for Ukraine, Belarus and Russia. Iron ore mining in the area dates from the 19th century, although the major expansion of mining activity occurred in the early 20th century. The town of Komsomolsk was established adjacent to the mine to support the mining operation and ancillary industries (transport, power etc.). FPM is still by far the largest employer in the town, which has a population of around 55,000 people, with approximately 24.3% of the working population of Komsomolsk being employed by the mine in one capacity or another.

Community initiatives

FPM

FPM has been a significant investor in local community initiatives from the outset, investing substantial funds in the social infrastructure of Komsomolsk and the surrounding area.

Links with the local community are strengthened by meetings of senior management with heads of schools and colleges, supporting local celebration days, giving vocational guidance and vacation work to the students of local schools (including providing financial sponsorship to Individual students whom FPM may subsequently employ) and organising student excursions to FPM and its museum.

Historically, FPM has employed a significant number of people in providing support services to the Group’s mining activities. In many cases, these services could be made available on a commercial basis to other enterprises within the local community which in turn improves the viability and sustainability of the local economy. To encourage this process, FPM has offered finance and other support to employees who provide these in-house services so as to encourage them to transform internal departments into stand-alone businesses. In 2010 the objects of such support included railcar repair operations, lift repair and some cleaning services.

FYM

FYM strives to contribute to all spheres of the life of the local community, believing that a healthy and flourishing community is of crucial importance for sustainable growth in our operations. As a young and expanding company, FYM has been able to provide significant employment opportunities for local people. FYM aims to have good relationships with the communities adjacent to its operations, and 2010 saw the start of its involvement in a programme to upgrade the medical equipment at the local hospital.

Annual Report and Accounts 2010