Strategic risks and materiality

Strategic risks and material sustainability issues

• The Board and senior managers will be able to make informed decisions regarding the trade-off between risk and reward
• Strategic growth opportunities can be pursued with greater speed, vigour and confidence for the benefit of Implats and its shareholders
• All stakeholders can have greater confidence that the organisation’s strategic objectives will be achieved
• Business decisions can be made within the context of the Company’s appetite for risk and risk tolerance levels
• The Company can manage the risks associated with non-tangible assets such as employees, customers, partners, other stakeholders, intellectual and knowledge capital, brand, processes and systems, as effectively as those affecting physical and financial assets.

Our vision for risk management is: To enhance our understanding of the uncertainties that we face by providing a structured and consistent approach that aligns strategy, processes, people, technology and knowledge, with the aim of improving our confidence in our ability to create stakeholder value. This vision will be achieved through an enterprise-wide risk management framework made up of two cycles.

• Business and strategic objectives
• Stakeholders’ needs
• Company structure
• Defined risk appetite and risk tolerance
• The need for control assurance
• The governance requirements of King III.

This approach encourages ownership by giving each business unit of Implats the ability to control the pace of implementation within a set of timeframes. The responsible individuals will then be held accountable for the achievement of their implementation plans. This also implies an approach that gives credit for and consolidates and builds upon what has been done before.

Arising from this process are a series of objective-based risk assessments (ORAs) which cover approximately 60 of the most important aspects of the Implats business. Each risk is identified, and its associated controls, has a clearly defined line management owner.

Ongoing review ensures that the information remains relevant. Factors that may affect consequences and the likelihood of an outcome and the factors that affect the suitability or cost of treatment options may change. Implats therefore reviews the risk management cycle regularly. All information is captured into the Group risk repository system, which feeds into the Group risk profile. Risk reports are presented to the appropriate bodies and escalated as required, culminating with the Executive Committee every month, and with the Board Audit and Risk Committee and the Board every quarter.

Issues which are regarded as material risks for Implats are identified as a natural consequence of this process.

CLASSIFICATION OF GROUP STRATEGIC RISKS – June 2011

High potential impact issues		Medium potential impact issues		Lower potential impact issues
Safety		Growth		Asset reliability
Effective people		Infrastructure		Cash preservation
Employee health		Mineral Resource management		Suppliers and logistics
Environment		Unit costs
Country/Political – South Africa and Zimbabwe
Project delivery
Production
Supply and demand (including metal prices)
Rand/Dollar exchange rate

Note: These risk issues are classified according to their potential impact on the achievement of Group strategic objectives over the five year planning period. Taken as individual risk categories, all are significant and require ongoing attention from management – the intention here is to indicate the relative ranking of each category.

Material sustainability issues

• A survey to EXCOM on the material risks outlined above
• An analysis of Board minutes
• An analysis of stakeholder issues raised through ongoing engagements
  (see pages 26 and 27)
• A scan of media reports during the year relating to industry issues and information relevant to our business (see page 26).

The findings of this process were documented and presented to EXCOM for endorsement. As a consequence of this process Implats identified the following material sustainability drivers:

	Risks		Opportunities		Our responses to these risks
	SAFETY
	Fatalities associated with mining Impact of incidences on production		Improve organisation culture where safety is the number one priority		Zero tolerance to breach of safety rules. Increase safety training and improve behaviour based observations system
	HEALTH
	HIV/Aids and its impact increases absenteeism Lost shifts due to sickness impact value creation Medical incapacitation impacts performance		Increased voluntary testing campaigns foster better management of employee health and the increase of employees on wellness assists to reduce absenteeism and decrease lost shifts due to sickness		Holistic testing has been implemented throughout the Group and has assisted to de-stigmatise attitudes towards HIV and increased the number of people on wellness
	EFFECTIVE PEOPLE
	High staff turnover among critical skills impact business performance Rightsizing of Marula operation has potential to impact employee relations Low literacy levels amongst lower level employees limit career progression		Through effective retention strategies quality skills can be retained, through training there is the potential to increase the critical skills pool Ensure cost containment and increase value creation		Introduction of effective retention mechanisms, and engineering programmes through local school support programmes Through bargaining unit retrenchment agreement was finalised which focused on agreed separation packages for employees, the criteria for selection, providing first opportunity of employment to those employees in the event of an upturn in production requirements, and facilitated employment with neighbouring companies
	ENVIRONMENT
	Electricity cost increases operational costs Water scarcity has the potential to impact growth Potential of climate change to impact health, safety, operations and cost Emissions and the potential introduction of associated carbon taxes may impact overall business		Reduction of emission through the introduction of alternative energy Potential to increase recycling of water and reduction of fresh water consumption Reduce our environmental impacts through capital investments for emission control Potential 14% reduction in total Scope 1 and 2 GHG and 87% direct GHG emissions through alternative energy sources		Investigating the use of biomass fuel as an alternative energy source Increase recycling of water by 49% in the year under review Capital investment being investigated to reduce SO2 emissions Development of water conservation strategy for both resource consumption and water quality
	POLITICS AND SOCIETY
	Introduction of revised mining charter and non-compliance may be a risk to business Uncertainty regarding the Indigenisation Act in Zimbabwe and the implications for business		Increased opportunity for business transformation, contributing to economic development improved stakeholder relations and stability in our areas of operation		Continued to drive transformation at all levels of the business (refer to SA transformational scorecard page 38) Have continued to engage with the Zimbabwean government to ensure indigenisation model proposed is acceptable
	PROJECT DELIVERY
	Delay in project delivery impacts our growth and revenue generation		Timely delivery has potential to ensure growth in ounce profile and revenue streams		Remedial action has been taken to ensure delivery on revised project timelines
	SUPPLY AND DEMAND
	Potential for PGM substitution		Economic growth in Asia, together with the use of PGMs in alternative sources of energy such as fuel cells, strengthen market fundamentals for PGMs		Supporting the Department of Science and Technology with development of technology and skills through the SAMMRI (an industry body), focusing on beneficiation of PGMs

SAFETY

Due to the nature of mining, safety remains one of our material strategic risks. A fatality in one of our operations is not only a tragic loss for the family and friends of the deceased but also for the team and colleagues; it also negatively affects our ability to operate.

• Leadership development with the aim of creating a culture of compliance and a belief that it is possible to mine without fatalities
• Changing the behaviour of employees by using the monitoring and measuring of lead indicators to enforce full compliance with rules and fostering a culture of zero tolerance for unsafe behaviour.

HEALTH

An important part of our People strategy involves addressing the general physical health of our employees. The prevalence and maturity of HIV with associated tuberculosis (TB) within the South African environment has had a negative effect on employee absenteeism, increased our employee turnover and raised our costs associated with recruitment, retraining and payment of salaries to employees who are medically unfit to work. An ageing workforce and a variety of chronic illnesses further compound the situation.

EFFECTIVE PEOPLE

An integral part of the Group strategy to ensure long-term business sustainability involves a productive workforce.

• Understand the business requirements and strategic challenges
• Have an effective attraction and skills retention mechanism, particularly of critical skills
• Manage employee health effectively
• Provide training and development at all levels particularly at leadership and critical skills level
• Ensure our reward and remuneration system is in line with market-related trends
• Provide career progression opportunities to our employees.

• Improving employee wellness
• Improving technical core skills
• Increasing expenditure on skills development
• Improving employee literacy and education
• Retaining and developing high performers.

ENVIROMENTAL

Our business depends on the extraction of minerals and the use of natural resources in various forms. We focus on striking a balance between mitigating our impacts on the environment and creating value. Implats recognises the importance of managing environmental issues which not only affect the ecosystems and communities in the vicinity of our operations, but may also become important longer-term risks for our business.

• Ensuring compliance with current and proposed environmental legislation, within a challenging regulatory framework
• Achieving and maintaining ISO 14001 compliant environmental management systems across all Group operations
• Climate change: Developing and implementing a Group carbon management strategy
• Optimising energy usage and ensuring security of supply
• Ensuring access to water and the efficient and responsible management of this resource in a water-scarce environment
• Preventing pollution by reducing and minimising emissions to land, air and water
• Ensuring our land management and rehabilitation programme is in line with our environmental management plans and international best practice to ensure sustainable closure
• Developing an effective waste management strategy and ensuring that effective and compliant waste management systems are in place.

POLITICAL RISK AND SOCIETY

Our sustainability strategy is aimed at ensuring we retain both our legal and social licence to operate. To achieve this we need to have a clear understanding of the legal requirements mandated by the countries in which we operate; and to manage the relationship with the communities in which we operate.

The material issues affecting the viability of our business are:

Government policy

In South Africa the review of the Mining Charter in 2010 has incorporated sustainability, environmental responsibility and empowerment of historically disadvantaged South Africans at its core. While there were no significant increases to the targets, the principles applied to compliance are more complex and will require significant work for organisations that have not integrated transformational targets and sustainability into their business practices. The new Indigenisation Act in Zimbabwe emphasises the need for empowerment of our Zimbabwean operations in the sphere of ownership and procurement. We remain positive that we will be able to meet these requirements based on the proposal we have put forth to government.

In South Africa we are well-positioned to meet the requirements of the revised Mining Charter by 2014, as we have already achieved most of the targets.

Our transformational scorecard is shown below:
Mining Charter Score Card

Parameter		Performance measure	Target   2014   %	Target   2011   %	Actual   as at   June   2011   %
Ownership		Equity#	26	15	>26
Housing and living condition		One person per room**	100	Baseline	21
Procurement and enterprise development		Capital goods	40	5	57
		Services	70	30	59
		Consumables	50	10	48
Employment equity		Board	40	20	62
		EXCOM	40	20	20
		Senior management	40	20	36
		Middle management	40	30	41
		Junior management	40	40	55
		Core skills	40	15	62
Human Resources Development (HRD)		HRD expenditure (% of wage bill)	5	3	6
Mine community development		Up-to-date implementation of approved projects***	100	100	90
Beneficiation		Estimated baseline*	10	Baseline	22

Debates concerning nationalisation continue unabated. While there are many different interpretations of what nationalisation means, it is clear that as long as the majority of South Africans live in abject poverty and service delivery to these communities is poor, the debate will continue to rage.

As a mining company we recognise that we have negative and positive impacts on communities. We continue to engage with them and take action to mitigate our risks that arise as a consequence of our operations and those that negatively impact on stakeholders, particularly the communities. Our socio-economic programmes are geared towards the development of communities both at our operations and areas from which labour is drawn and details are provided in our social capital section in this report.

Community relations

Our community relations are strategically significant to the long-term outlook of our organisation. We recognise that the sustainability of our operations is to some extent dependent on the health of the relationships between our operations and their host communities.

Community engagements at our various operations are conducted through formal structures, guided by documented procedures and charters. Membership of each structure includes elected community representatives, thus allowing for inputs from the community and the dissemination of information from the organisation.

Material issues common to most communities include employment and procurement opportunities, environmental issues, HIV and health issues and the development of local enterprises. At each operation specialists in each area engage with communities to address their concerns.

PROJECT DELIVERY

Implats’ core business is mining, and as such our long-term business success depends on our ability to acquire the necessary resources and access the reserves that we need to grow taking into account safety, environmental social and governance imperatives. Delayed project delivery has continued to constrain growth as a result limiting face available for mining.

Future plans are in place for the development and access of resources at the Impala lease area, Marula, Zimplats and Mimosa (refer to the Integrated Annual Report 2011 for more details.

CONCLUSION

The long-term sustainability of our business rests upon our ability to integrate these material elements, by mitigating any associated risks and taking advantage of opportunities to create value for our stakeholders. Further discussion on these strategic issues can be found in the Chairman’s letter in the Integrated Annual Report 2011 on page 8.

Implats Sustainable Development Report 2011|www.implats.co.za