Materiality, managing risks and mineral policy

MATERIAL ISSUES

Determining materiality is a critical part of reporting in accordance with the guidelines of the Global Reporting Initiatives (GRI). Each year the Company undertakes a formal materiality assessment that is tabled at the board’s Audit Committee for discussion and input prior to being finalised.

Materiality analysis

The 2012 materiality analysis was conducted using the GRI’s G3 “self-test” methodology for materiality. In determining materiality a number of internal and external factors were evaluated as follows:

Internal factors

  • Policies – Key Company principles and policies encompassing Company integrity and values, Company strategy, safety, health, the environment and labour.
  • Risk – Significant risks to the Company as defined by the internal risk methodologies described on page 16.
  • Opportunities – The Company’s core products and the manner in which these can, or could, contribute to sustainable development.
  • Stakeholders – An internal review of the interests and expectations of stakeholders specifically invested in the success of the Company, e.g. employees, unions, shareholders and suppliers.

External factors

  • Industry-wide issues – A review of the material issues reported by other businesses in the sector, including Anglo American plc, Impala Platinum, Lonmin Platinum, AngloGold Ashanti, Rio Tinto, BHP, Xstrata and Teck.
  • Mineral policy, legislation and norms – A review of the requirements of key legislation and mineral policy including, inter alia, the Minerals Petroleum Resources Development Act; the National Environmental Management Act; and the National Water Act. Other key codes and norms are the requirements of the principles of the United Nations Global Compact, the Performance Standards of the International Finance Corporation and core issues relating to ISO 26000.
  • Memberships, associations and panels – An analysis of issues raised through organisations such as the International Platinum Group Metals Association, the Chamber of Mines and the International Council on Mining and Metals.

Our most material issues

Following the completion of the materiality analysis and deliberation with the Company’s Audit Committee, it is the Company’s view that the six most material issues affecting the Company’s short-, medium- and long-term sustainability are as follows:

  • Financial sustainability
  • Safety and health performance
  • Mineral policy and legislative compliance
  • Labour expectations and aspects
  • Community impacts and benefits
  • Access to, and allocation of, resources such as energy, water and land

The tables that follow is a summary of what each material issue covers, why it is important, and what the Company is doing to address it.

Material sustainability issues
Material issuesFinancial sustainabilitySafety and healthRegulation and minerals legislation
What does this cover?
  • Headline earnings
  • Net debt
  • Gross profit margin
  • Operating free cash flows
  • Worker safety (employee and contractor).
  • Worker health and wellness.
  • Our mining rights as granted by the Department of Mineral Resources.
  • Adherence to the Mining Charter and implementation of its social and labour plans.
  • Other material licences and authorisations such as approvals of environmental impact assessments (EIAs) and water-use licences.
Why is it important?
  • Without positive free cash flows and profits our Company would not exist and its benefits to society would be lost.
  • The mining business carries inherent risks that may affect the safety and health of our workers.
  • We want all people who work at Amplats to return home safely and healthy at the end of their shift.
  • Without a valid mining right we would not be permitted to mine.
  • Non-adherence to the Mining Charter and/or failure to implement the social and labour plans can lead to rights being revoked.
  • Approved EIAs and water-use licences are key to ensuring that our environmental impacts are minimised.
What do our stakeholders expect from us?
  • Shareholders want a sound return on their investment.
  • The Government needs taxes.
  • The communities close to our operations want benefits from our business. These include procurement benefits, employment and the provision of infrastructure.
  • To make safety and health the top priority in any situation and have no injuries as a result.
  • To build, maintain and continually improve safety and health systems.
  • To fix problems promptly and notify anyone who may be affected by them.
  • Legal compliance and the validity of all rights, authorisations and permits.
  • Implementation of the Mining Charter and the social and labour plans.
What are we doing?
  • Through our Company strategy we will create maximum value by understanding and developing the market for platinum group metals (PGMs).
  • Conduct our business safely, cost-effectively and competitively, thus contributing positively to our host communities.
  • Safety is one of our values.
  • We have a safety strategy intent on delivering “zero harm” to our employees.
  • We have programmes in place to reduce exposure to noise, TB and HIV.
  • Letters of conversion of mining rights were received in 2010. Fourteen rights have been converted and one is going through the administrative process.
  • Tracking social and labour plan implementation.
  • Engaging with the Department of Water and Environmental Affairs to get the four outstanding water-use licences approved.
Material issuesLabour expectationsCommunity engagement and developmentAccess to, and allocation of, resources
What does this cover?
  • Working conditions
  • Worker rights
  • Wages
  • Stakeholder engagement.
  • Programmes to ensure that society and communities benefit from our activities.
  • Energy security, energy efficiency and climate change.
  • Access to water resources and improvements in water-use efficiency.
  • Access to land and surface rights.
Why is it important?
  • The Company employs a large workforce and it is imperative that they are paid a living wage in line with national norms.
  • A disgruntled workforce has the potential to disrupt operations, as was seen in 2012 across the mining industry in South Africa.
  • Company actions have an impact on the socio-political structures and relationships in host communities. The more unstable the society, the more likely it is that external factors will have negative or positive effects on it (by either exacerbating instability and conflict or providing support and promoting stability).
  • Our ability to mine was recently curtailed – during the energy crisis of 2008, when South Africa ran short of electricity. This had an impact on our output of PGMs. South Africa’s electricity-supply position remains tenuous.
  • Climate-change policy and its effect on taxes has the potential to have a major impact on the Company’s cost structure.
  • Water is a key resource for the mining and processing of PGMs. Without it, we would be unable to produce any metals.
  • Land is needed to access the PGM ore and develop infrastructure.
What do our stakeholders expect from us?
  • Freedom of association
  • No unfair discrimination
  • No forced or child labour
  • Living wages
  • Open and transparent communication with employees
  • Care and respect
  • Engage with stakeholders in the early stages of mining and throughout the mining life cycle in order to gain a societal licence.
  • Design and implement strong and effective social management systems wherever we operate.
  • Comply with regulations and demonstrate broad community support.
  • Leave communities better off as a result of our mining activities.
  • Consider climate impacts in our business decisions. Operate energy efficiently, reducing our carbon footprint per unit of production. Plan to reduce net emissions, even as our output grows.
  • Respect the needs of other water users. Plan and operate so as to minimise the mines’ water demands. Operate to the highest standard of care in relation to tailings and effluents.
  • Mining makes land sterile until such time as it is rehabilitated and reclaimed. This impact should be minimised and our mining footprint kept as small as possible.
What are we doing?
  • We recognise the right of our employees to freedom of association and to collective bargaining. Our remuneration practices will be determined according to local market conditions and we will strive to ensure that we pay wages that are, as a minimum, adequate to satisfy the basic needs of our employees and their families.
  • We promote diversity and do not tolerate unfair discrimination or the inhumane treatment of employees including through any form of forced labour, physical punishment or other abuse. Our workforce has the right to work in an environment free from harassment or intimidation.
  • We prohibit child labour in our operations. Should we encounter cases in our supply chain we will develop a responsible approach to ending it so that it ensures the welfare of the children.
  • Ensuring that we are identifying, managing and mitigating social risks and maximising on opportunities through the implementation of the Anglo American Social Way.
  • Ensuring positive benefits by developing the correct policies and processes, and by employing people with the right skills and abilities in social management.
  • We have set energy-efficiency targets and have plans in place to meet these targets. We are working with the Government to assist in ensuring energy security, so as to guarantee that production is not disrupted.
  • We have set water-efficiency targets and have plans in place to meet these. Our water strategy has addressed long-term access to water sources and mandates us to minimise impacts from water discharges.
  • We have a climate-change strategy and are engaging with the Government on proposed carbon taxes.

MANAGING RISKS
TO THE BUSINESS

Amplats operates a robust and dynamic risk-management process by deploying appropriate risk strategies to exploit opportunities and, conversely, manage downside risk to an acceptable level.

Risk management is part of the Group’s strategic and business processes, and is a key element in achieving our vision and strategic objectives, and protecting our core values.

It forms an integral part of the Company’s governance framework. The board recognises that an effective risk-management process and systems of internal control are fundamental in ensuring effective governance and sustainability of our business.

The Company has implemented an integrated risk management (IRM) methodology, which means that each key risk in every part of the business is included in a structured framework and systematic process of risk management. The methodology design takes cognisance of best-practice requirements and is aligned to the principles of the King III Code of Governance, which ensures that strategy, risk and performance are integrated. The Group’s risk-management process is detailed on page 167.

Risk management during 2012

The key aspects of Amplats’ risk performance during 2012 are:

  • The inability to sustain improvements in safety performance. Although safety indicators continued to show improvement, Amplats operations experienced seven fatalities during 2012.
  • The global economy. 2012 saw continued economic instability in Europe and fiscal uncertainty in the United States, both of which impacted the demand for platinum and hence the price of the metal.
  • The inability to meet production targets and sustain cost control. From an operational perspective, both aims received focused management attention during the year. However, performance was negatively impacted by the industrial action during the third and fourth quarters. The Group’s cost structure and operating model were subject to review during 2012, and the results of this process were announced in January 2013.
  • Social unrest. The disruptions caused by the unprotected industrial action during the second half of 2012 were not anticipated, occurring outside the two-year wage-agreement cycle and originating within the wider Rustenburg community after the Impala and Lonmin strikes, before spreading to the Amplats workforce.

The table below illustrates the alignment of risk and strategy within Amplats, and provides an indication of assessed performance during 2012:

StrategyStrategic objectiveKey risksKey risk indicators trackedPerformance
To maximise value by understanding and developing the market for platinum group metals (PGMs),
expanding our production into that opportunity when right to do so and conducting our business safely,
responsibly, cost-effectively and competitively
Understanding and developing marketsMarket leadership through research and development of the market
  • Unfavourable global economic conditions
  • Security of PGM supply
  • Engagement with customer base
  • Ten-year demand forecast (internal and external)
  • Analysts’ ratings of Amplats
  • REACH registration of products – from 2013 onwards
  • Warnings and fines from authorities
  • Customer complaints
  • Amplats’ share-price movement
  • Market projection: supply versus demand
  • Cost position of peers
Sustaining and growing the businessLeveraging the resource footprint
  • Inability to deliver capital replacement and expansion
    projects
  • Bulk infrastructural constraints
  • Unfavourable potential policy changes in South Africa
  • Loss of economic value in Zimbabwe
  • Availability of capital
  • Projects’ impact on future ounce profile
  • Capital expenditure versus investment proposals
  • Individual status of key projects
  • Key infrastructural constraints
  • Bills before Parliament
  • Future ounces at risk
  • Capital at risk
Strong stakeholder relationships
  • Social unrest: poor relations with host communities and workforce
  • Compliance with/response to regional regulatory requirements
  • Community demonstrations
  • Labour unrest
  • Relationship surveys
  • Joint-venture partner performance indicators
  • Compliance with legal and social requirements
x
Conduct business safely, cost-effectively and competitivelySafety – zero harm
  • Inability to sustain safety performance improvements
  • Employee health impairment
  • Fatalities and injury frequencies
  • Employee-health indicators
Low-cost producer
  • Inability to meet production targets
  • Inability to sustain cost efficiencies
  • Skills shortages
  • Production-performance indicators
  • Cost-performance indicators
  • Turnover – constraint roles

√ 2012 risk indicators positive.
• 2012 risk indicators flat or trending towards positive, but further mitigation required.
x Negative 2012 risk indicators, further mitigation required.
* Note dsetailed risk-mitigation strategies for key risks are included in the table on pages 169 to 171.

Low-profile underground mine utility vehicles, Bathopele Mine

Low-profile underground mine utility vehicles, Bathopele Mine

 

MINING LICENCES AND BLACK ECONOMIC EMPOWERMENT

Amplats, having achieved execution on 14 out of 15 mining licences, remains committed to meeting the requirements of South Africa’s Mineral and Petroleum Resources Development Act and the Mining Charter.

The Group is proud of the contribution it has made to empowerment in South Africa through the numerous transactions it has facilitated since 2000. These have resulted in the significant and meaningful empowerment of historically disadvantaged South Africans (HDSAs) in various operations and projects. The table below contains a brief summary of these transactions completed over the years:

DateSummary of transactions
August 2000Sale of a 17.5% (and facilitation of an additional 5%) in Northam to Mvelaphanda Resources.
August 2001Formation of 50:50 Modikwa JV with ARM Mining Consortium, an empowerment company that includes the Mampudima and the Matimatjatji communities of approximately 60,000 rural residents as broad-based participants.
August 2002The establishment in July 2002 of a 50:50 unincorporated joint venture with Royal Bafokeng Nation over the Bafokeng-Rasimone Platinum Mine (BRPM) and the Styldrift project area. Following the restructuring of the BRPM Joint Venture in December 2009, Royal Bafokeng Platinum Limited (RB Plat) acquired a 67% interest as well as operational control of the BRPM Joint Venture on 4 January 2010. RB Plat listed on the JSE Limited on 8 November 2010 and the Group currently holds a 12.6% equity interest in RB Plat, in addition to the 33% direct interest in BRPM.
February 2003The formation, in August 2002, with Lonmin plc, of the Pandora Joint Venture, which includes the participation of the Bapo-Ba-Mogale Mining company and Mvelaphanda Resources (on behalf of Northam) as empowerment partners, each having a 7.5% interest in the joint venture.
December 2005The disposal in October 2005 of the rights on the property Elandsfontein 440 JQ to Eland Platinum Mines (EPM), with the Ngazana Consortium holding a 26% interest in EPM.
July 2006The development of a chromite recovery plant at the Group’s Union Mine with Siyanda Chrome Investments, an HDSA company.
November 2006The transaction, in December 2006, with the Bakgatla-Ba-Kgafela (Bakgatla), who are the traditional community at Union Mine, giving the Bakgatla a 15% stake in Union Mine as well as a 26% stake in the Magazynskraal project and a 55% stake in the Rooderand project.
September 2007The announcement of the Group’s sale to Anooraq Resources Corporation (Anooraq) of an effective 51% of Bokoni Platinum Mine (Bokoni) and an additional 1% of the Ga-Phasha, Boikgantsho and Kwanda Joint Venture projects. Anooraq now owns and controls an effective 51% of Bokoni, Ga-Phasha, Boikgantsho and Kwanda. This transaction gave Anooraq control over the third-largest PGM resource base in South Africa.
September 2007The disposal of the Group’s 50% interest in the Booysendal project and of its 22.4% interest in Northam to Mvelaphanda Resources, for a total consideration of R3.7 billion. Mvelaphanda Resources injected the Booysendal project into Northam in return for Northam shares, resulting in Mvelaphanda Resources acquiring majority control of Northam. This transaction gave Mvelaphanda Resources control over the fifth-largest PGM resource base in South Africa.
September 2007Announcement of the establishment of an employee share ownership plan (ESOP) that effectively owns 1.5% of Amplats to benefit all permanent employees not participating in any other company share scheme. More than 90% of the scheme’s beneficiaries are HDSAs.
December 2008The Group swapped its 37% interest in the Western Bushveld Joint Venture for a 26.6% equity interest in Wesizwe Platinum Limited (Wesizwe), an HDSA company.
February 2011Announcement of the Group’s R3.5 billion (circa 2.33% of market capitalisation) community economic empowerment transaction, Project Alchemy. See details on page 19.

MINERAL RIGHTS UNDER CONTENTION

Amplats is geared for growth, with a total declared inclusive Mineral Resource estimate of 878,8 Moz 4E for the Company in South Africa and Zimbabwe. This number excludes any disputed rights such as Middellaagte 382 KQ, a portion of Tigerpoort 426 KS, Rooderand 46 JQ and the Modikwa deeps. Amplats is at the advanced stage of engagement with the regulator, the DMR, to amicably resolve the disputes.

MINING CHARTER

Amplats remains committed to the transformation of the South African mining industry and welcomed the release of the revised Mining Charter in September 2010. The charter retained the requirement, set in 2002, of a historically disadvantaged South African (HDSA) ownership of 26% by 2014. The revised charter provided clarity in a number of areas, for instance in its definition of the term “beneficiation”. This is the second year in which we are reporting against the new Mining Charter scorecard.

In advancement of black economic empowerment, the Company has entered into a number of disposal transactions and joint ventures and it has established an employee share ownership scheme as well as various community trusts as part of the community economic empowerment transaction. The result of these transactions was a transfer of more than 26% of the Company’s forecast attributable production, as it would have been in 2014 had it not entered into these transactions, to historically disadvantaged South Africans.

The Company continues to meet all its Mining Charter obligations. The table on page 21 provides a summary of performance against the charter.
It also shows where to obtain more information regarding particular sections of the new scorecard.

ALCHEMY

Alchemy is a R3.5 billion transaction, concluded in 2011, and is aimed at ensuring the long-term sustainable development of four of our host communities and major labour-sending areas. The transaction is notionally vendor-financed over 10 years at a fixed 9.5% notional interest rate and includes an upfront discount of 5%. Amplats has issued a total of 6,290,365 ordinary shares of 10 cents each to the Lefa La Rona (“Our Inheritance”) Trust. The Alchemy shares issued represented 2.33% of Amplats ordinary shares in issue at the time.

The Lefa La Rona Trust has been established and received public benefit status from the South African Revenue Service in 2012. The four development trusts (Development Trusts) are in the process of being set up to benefit the host communities within an approximate radius of 15 kilometres from the Amandelbult, Rustenburg, Twickenham and Mogalakwena mines and a non-profit company incorporated for the benefit of the labour-sending areas. The Development Trusts and the non-profit company will benefit from the following cash flows: annual dividend receipts; a guaranteed minimum dividend flow of R20 million per annum to provide an annual cash amount to the Development Trusts and the non-profit company, after taking into consideration the annual dividends received; rechannelled CSI spend of R30 million to the extent that the development trusts secure approval for development projects within the host communities; health and safety cash-flow benefits for the Development Trusts if key performance indicators relating to on-and-off-mine health and safety targets are achieved; proceeds from the potential increase in the Amplats share price after settling of the notional vendor funding, to the extent that the shares are disposed of by the Development Trusts and the non-profit company at the expiry of the term of the transaction.

The Company’s ultimate ambition in this transaction is to make a meaningful and sustainable contribution to the ability of those communities to thrive well beyond the life of our mining operations.

MINERAL POLICY – SOUTH AFRICA

It is imperative for business in South Africa to be able to operate in the context of a stable regulatory framework and a clear and fair fiscal regime. The South African Government’s plans to attract and promote the significant private-sector investment required to ensure a thriving mining sector that contributes meaningfully to society at large rests on three critical components: ensuring policy predictability and certainty; enforcing the rule of law; and investing in the enabling infrastructure required.

The resolution taken by the African National Congress (ANC), South Africa’s ruling political party, at its recent policy conference, that wholesale mine nationalisation is not a reasonable or sustainable option for South Africa is welcomed. Nationalisation has now been firmly ruled out by the current ruling party as an option for the mining industry. Nationalisation would not have solved the economic or transformational challenges South Africa faces, but would instead have had a negative impact on the country’s economy and ability to create jobs. The ANC’s decision will create greater certainty among investors and will once again encourage investment in the country’s mining sector.

The ANC did, however, endorse the proposals in the Sims Report for a new resource rent tax. It has argued that the proposed new tax is necessary to ensure that the state benefits appropriately from the profits the mining industry earns. It is Amplat’s view that the existing royalty regime was introduced for exactly this purpose and that, combined with the existing system of taxation, it already ensures a fair distribution of the benefits of mining. Further changes to the tax and royalty regime may well make South Africa uncompetitive internationally. The Company will continue to engage the ruling party and the Government on the proposals for a resource rent tax.

INDIGENISATION ACT – ZIMBABWE

On 1 November 2012, a Heads of Agreement relating to the proposed Unki Mine indigenisation implementation plan was signed with the Government of Zimbabwe. The Heads of Agreement is subject to the fulfilment of certain conditions precedent and sets out the key terms for transfer of 51% equity ownership of Unki Mines (Private) Limited to selected indigenous Zimbabwean entities as required by the Indigenisation and Economic Empowerment Act. The proposed transaction will be facilitated through a notional vendor financing structure provided to the following indigenous entities:

  • 10% equity ownership transaction to a trust established for the benefit of the community surrounding Unki Mine’s operations.
  • 10% equity ownership transaction to a trust to be established for the benefit of all full-time employees of Unki Mine.
  • 10% equity ownership transaction to a consortium of strategic equity partners.
  • 21% equity ownership transaction to the National Indigenisation and Economic Empowerment Fund.

The notional vendor financing will be repaid by the indigenous entities from a share of their future dividends. Subject to fulfilment of all the conditions precedent, Amplats intends to implement the indigenisation plan by 30 June 2013.

WATER USE LICENCE

Our operations with approved water use licences (WUL) are Twickenham Platinum Mine, Polokwane Metallurgical Complex, Mogalakwena Mining area, Rustenburg mines, Union Mines and the Mototolo Concentrator and Der Brochen Project (whose integrated WUL was approved in April 2011). Engagement around the issuing of Amandelbult’s water-use licence with Government continues. Amandelbult has a valid water permit under the old Act.

Mining Charter scorecard summary
  2012 progressCompliance
DescriptionMeasureagainst targettarget by 2014
Reporting   
Has the Company reported the level of compliance with the charter for the calendar year?Documentary proof of receipt from the departmentReports submitted on a quarterly basisAnnually
Ownership   
Minimum target for effective HDSA ownershipMeaningful economic participationIn advancement of black economic empowerment, the Company has entered into a number of disposal transactions and joint ventures and it has established an employee share ownership scheme as well as various community trusts as part of the community economic empowerment transaction. The result of these transactions was a transfer of more than 26% of the Company’s forecast attributable production, as it would have been in 2014 had it not entered into these transactions, to historically disadvantaged South Africans.26%
 Full shareholder rightsGood progress to achieving 2014 target26%
Housing and living conditions   
Conversion and upgrading of hostels to attain the occupancy rate of one person per roomPercentage reduction of occupancy rate towards 2014 target50% of employees in single room accommodationOccupancy rate of one person per room
Conversion and upgrading of hostels into family unitsPercentage conversion of hostels into family unitsAll hostels converted into family unitsFamily units established
Procurement and enterprise development   
Procurement spent from BEE entityCapital goods51.7%40%
Services53.4%70%
Consumable goods55.5%50%
Multinational suppliers’ contribution to the social fundAnnual spend on procurement from multinational suppliersThis programme is currently being addressed and work is under way. The identification of suppliers is complete. The strategy for the management of the funds is being developed.0.5% of procurement value
Employment equity   
Diversification of the workplace to reflect the country’s demographics to attain competitivenessTop management (board) level38%40%
Senior management (Exco)39.8%40%
Middle management57.2%40%
Junior management65%40%
Core skills83.4%40%
Sustainable development and growth   
Improvement of the industry’s environmental managementImplementation of approved EMPsRegulation 55 performance reviews are done by the environmental managers and are submitted to the DMR by the operations. The schedules are aligned with the EMPR commitments.100%
Improvement of the industry’s mine health and safety performanceImplementation of the tripartite action plan on health and safetyImplementation of action plans aligned100%
Utilisation of South African-based research facilities for analysis of samples across the mining value chainPercentage of samples in South African facilities100%100%
Beneficiation   
Contribution of a mining company towards beneficiation (this measure is effective from 2012)Additional production volume contributory to local value addition beyond the baselineThe Company continues with implementation of its beneficiation strategy. The offset guidelines have not been finalised by the DMR and therefore the Group cannot calculate what offsets it qualifies for. Furthermore, the DMR released its beneficiation strategy. There is no reference to baseline levels and targets.Section 26 of the MPRDA (percentage above baseline)
Human resource development   
Development of requisite skills, including support for South African-based research and development initiatives intended to develop solutions in exploration, mining, processing, technology efficiency (energy and water use in mining), beneficiation as well as environmental conservation and rehabilitationHRD expenditure as percentage of total annual payroll (excluding mandatory skills development levy)5.4% achieved5%
Mine community development   
Conduct ethnographic community consultative and collaborative processes to delineate community needs analysisImplement approved community projectsProjects in communities surrounding our operations implemented to the value of R276 millionUp-to-date project implementation
Norman Mehlo and Mkhuseli Mbaule performing maintenance on the water reticulation system, Rustenburg

Norman Mehlo and Mkhuseli Mbaule performing maintenance on the water reticulation system, Rustenburg