Strategic risks and materiality

 

Strategic risks and material sustainability issues

Risk management at Implats sets out to achieve an appropriate balance between reward and minimising the risks associated with any activity. Our approach to risk management is consistent with the definition of risk, as provided in the global risk management standard, ISO 31000:2009: “effect of uncertainty on objectives”. This creates a clear link with strategic objectives and therefore requires an objective-based approach. Our aim is for risk management to be embedded throughout the Company’s activities. Success in this process will result in the following outcomes:
  • 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.

The first is the well known process at the core of risk management: day-to-day risk identification and evaluation. The second cycle deals with the strategic envelope within which Implats drives and focuses risk management according to:
  • 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.

The Group risk profile identifies the following key risks:

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

Based on the strategic risks identified from the original risk identification and enterprise strategy process employed at Implats, the key sustainability issues were identified. This took into account stakeholder material issues which have an impact on the business. The process involved:
  • 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.

Over the short to medium term our safety strategy continues to focus on:
  • 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.

This is done by ensuring that we:
  • 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.
Our People strategy focuses on:
  • 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.

The following environmental issues are critical to the sustainability of 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  
* Baseline not stipulated but has been calculated internally
# Push down of RBHs and the ESOP shareholdings in Implats to Impala as agreed by the DMR in granting Impala its converted mining right: Impala 26.4%, Marula 27%, Afplats 26% and Two Rivers 55%
** Current occupation is two persons per room
*** Internally assessed

 

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.