Strategy and sustainability context

Strategy and sustainability context

Owing to, among other things, growing world populations and the ever-increasing use of renewable and non-renewable resources, societies in general are seeking development that is sustainable. This presents opportunities, challenges and risks for Anglo American Platinum Limited's (Amplats) business and these are discussed in more detail here.

Our strategy is to develop the market for platinum group metals (PGMs); to expand our production into that opportunity; and to conduct our business safely, cost-effectively and competitively. Our objective is to be the number one company in finding, mining, processing and marketing PGMs for the maximum benefit of all our stakeholders.

The Company’s strategy is not set in isolation from the issue of sustainability. A SWOT (strengths, weaknesses, opportunities and threats) methodology is used, on an annual basis, to review and redefine the Company strategy. The functional managers feed topics into this process, based on research, stakeholder engagement and the previous identification of issues. The relevant documentation is then reviewed and debated by executive management before the strategy is finalised and approved by the Board.

In light of the principle, in the King III code on corporate governance, that strategy, risk, performance and sustainability are inseparable, the Company strategy will be reviewed through a ‘sustainability lens’ in 2010.

OPPORTUNITIES

Every year Amplats evaluates the opportunities that global sustainability-related issues present to the Company via its strategy formulation and review processes. The process culminates in a Group strategy, with executive management being assigned specific tasks to implement and clearly defined actions against which to monitor progress.

The table below lists the key sustainability opportunities present to the Group. Plans are in place to ensure that the Group benefits from these opportunities while at the same time meeting society’s needs.

RISKS AND OUR MATERIAL ISSUES

Our approach to assessing risk

Amplats is exposed to a variety of risks and uncertainties that may have an impact on the Company’s finances and/ or reputation, and that may also affect the achievement of its economic, social and environmental objectives and obligations. Understanding these risks and developing appropriate responses to them is crucial to Amplats’s sustainability

Risk management is achieved through an integrated risk-management process that identifies all the main business risks, including operational and sustainable development risks that could adversely affect and impede the achievement of the Group’s business objectives

Each risk is assessed and rated based on a standardised five-by-five risk matrix that is used across the Group for assigning a risk level and ranking in order of significance to ensure consistency. Based on the risk level, mitigating controls and action plans are defined and continually monitored. The Board determines the level of acceptable risk and requires the operations to manage and report accordingly

The Board is satisfied that there is an adequate ongoing risk-management process in place that identifies, evaluates and manages the key risks faced by the Group.

Integrated risk management

Amplats’s integrated risk management (IRM) policy defines the following objectives:

  • Identify, evaluate and manage risks in order to create shareholder value
  • Leverage opportunities as much as possible.
  • Improve decision-making in key business processes based on risk principles.
  • Create an operating environment of ‘no surprises’ and ‘no repeats’.
  • Promote and achieve a common risk language.
  • Ensure that Amplats implements risk management at all levels of the organisation, from the stope face to the boardroom.
  • Enable the sharing of risk knowledge throughout the organisation.
  • Create the ability to be flexible and adapt to changes in our business environment.
  • Align our risk-management process to global best practice and accepted corporate governance principles.
Opportunity Description Cross-reference
Autocatalyst market growth Demand for platinum and palladium use in autocatalysis declined by 27% and 13% to 2.7 million and 3.9 million ounces respectively in 2009. Forecasts for 2010 predict an increase in growth in the use of platinum and palladium in autocatalysts. Integrated Annual Report page 24
Rising demand to improve people’s health In 2009 demand for platinum in the medical sector, where the metal is used to produce anti-cancer drugs and as an alloy with gold in the dental field, declined by 6%. Integrated Annual Report page 31
Potential growth in the fuel-cell market The demand for platinum for fuel cells is very small at present. However, this is expected to increase in the short to medium term for portable applications such as flashlights and laptop computers. In the longer term, the commercialisation of fuel-cell vehicles will provide sustainable growth in this sector as environmental concerns become more pronounced. Growth in stationary fuel-cell applications is a major opportunity for growth. Integrated Annual Report page 31
Possible PGM use in clean-coal technology Based on the success of this project, the Company will continue to pursue opportunities in clean-coal technology, to create a new market for PGMs and to contribute positively to society’s response to climate change Integrated Annual Report page 29
Growth in the South African market The South African Government is encouraging local beneficiation of PGMs. Through Amplats’s own initiatives, such as its local jewellery fabrication programme, and through other industry and government programmes, local demand for platinum may increase, although off a very low base. Page 109
Strong resource base to create economic and human capital opportunities The Group’s mineral-resource base could offer an opportunity to grow the business. With this growth would come the following opportunities: to create new jobs in South Africa, where unemployment rates are currently at 39%; to improve employees’ skills through development programmes; and to uplift host communities through socio-economic development and infrastructural-delivery programmes. Integrated Annual Report page 94 – 125
Preservation New technology, developed jointly with Johnson Matthey, has revealed the ability of palladium to prolong the life of fresh produce —

The Group has identified 18 headline risk areas, which form the basis for regular and exception reporting to the Executive Committee and the Board. Strategies are in place to address performance in each area and are reported on quarterly. Internal ‘headline risk owners’ have been appointed for each risk area and practical guidance is given through the integrated risk-management framework. The table below shows the 18 headline risk areas with typical risks identified under each.

In order to report to management, the Audit Committee and the Board, key risks identified during top-down strategic risk assessments and bottom-up operational risk assessments are consolidated into an executive risk summary (ERS):

  • Top down – Facilitated workshops are held with the executive team. The primary objectives of these sessions are to identify and assess risks to the strategy of the Company and risks within the strategy of the Company.
  • Bottom up – Risk assessments are facilitated for each operation and capital project, followed by review sessions in which the key risks for managed mines, processing operations, capital projects and joint ventures are discussed with the respective executive heads.
  • Consolidation – An ERS is prepared, which consolidates the top-down and bottom-up views into a single report.

The ERS is reviewed and ratified by the Operations Committee, the Audit Committee and the Board. A full ERS is prepared at half-year and year-ends. Significant changes are reported on in the first and third quarters.

In conducting its review of the effectiveness of risk management, the Board considers key findings from the ongoing monitoring and reporting processes, and also from management and independent assurance reports. The Board also takes account of material changes and trends in the Group’s risk profile, and considers whether the control system, including the reporting aspect, adequately supports the Board’s risk-management objectives.

The following risk management process improvements were implemented during 2009:

  • A strategic risk assessment workshop was conducted with executive management to identify and assess risks to and in the Group’s value-based management strategy.
  • Business continuity management plans, comprising emergency response, crisis management and business recovery, were developed and implemented at all managed operations.
  • A new risk management system was implemented to facilitate the monitoring of significant actions and status reporting.
  • Risk management activities were aligned and integrated with the annual business planning cycle.
  • Structural changes now facilitate alignment and information sharing between Amplats’s risk functions and those of the other AAplc business units.
  • The Group’s risk management methodology has been aligned with the requirements and principles of ISO 31000 (‘Risk Management – Guidelines on Principles and Implementation of Risk Management’).
  • The facilitation of the risk-management process has been consolidated in the Anglo Business Assurance Services (ABAS), which is responsible for integrated risk management, internal audit and insurance services. ABAS conducts routine audits to ensure that all headline risk actions and control measures are being implemented and attended to. A summary of internal audit findings and corrective action is reviewed by Amplats’s Operations Committee and Audit Committee.

Materiality self-test

For purposes of compiling this report, the G3 ‘self-test’ methodology has been used to determine what material issues need to be reported on. Both external and internal factors are covered, as detailed below

External factors

External factors include:

  • the main topics and future challenges for the sector reported by Amplats’s peers, namely Impala Platinum, Lonmin Platinum, AngloGold Ashanti, Rio Tinto, BHP, Xstrata and Anglo American plc;
  • relevant laws, regulations, agreements and voluntary agreements with strategic significance for Amplats and its stakeholders;
  • well-documented and publicised sustainability issues, impacts, risks or opportunities (eg climate change, HIV/AIDS, poverty) identified through sound investigation by people with recognised expertise; and
  • influence from the membership of organisations such as the International Platinum Group Metals Association and the International Council on Mining and Metals; and advice received from the new external review panel.

Internal factors

Internal review factors are as follows:

  • Key values, policies, strategies, operational management systems, goals and targets at Amplats
  • The interests/expectations of stakeholders specifically invested in the success of the Company (eg employees, shareholders and suppliers).
  • Significant risks to Amplats as defined by internal risk methodologies and documented in risk reports
  • Factors critical to enabling the Company success.
  • The Company’s core products and the manner in which these can, or could, contribute to sustainable development.

The application of the materiality self-test methodology resulted in the company being able to report against “A” application level. The Global Reporting Initiative content index on page 136 highlights those indicators considered material, and provides cross-references to the relevant detailed information in this report.

  Headline risk area* Examples of risks and issues
1 Foreign exchange Sensitivity of revenues to fluctuations in exchange rate (primarily the rand versus the US dollar)
2 Commodity price Fluctuations in commodity prices impacting revenues
3 Treasury Fluctuations in interest rates affecting financing costs and liquidity
4 Counterparty Default of counterparties including banks, customers and joint-venture partners
5 Employees Skills shortages, adherence to Mining Charter requirements, employee relations and other human resources-related risks
6 Employee safety Fall of ground, fire/explosion, moving machinery and other safety-related risks
7 Employee health Noise-induced hearing loss, HIV/AIDS, nickel exposure, hand-arm vibration, tuberculosis and other health-related risks such as cholera
8 Environment Air emissions, biodiversity, energy, hydrocarbons, land, waste, water, tailings and other envionment-related risks
9 Social Relationships with stakeholders, including local communities, local government, media
10 Political Impact of legislative changes, for instance those affecting royalties and the conversion of mineral rights
11 Legal and regulatory Failure to comply with legal and regulatory requirements
12 Reserves and resources Ensuring that mines generate sufficient reserves and resources to sustain metal-production plans
13 Operational performance Higher-than-inflation unit-cost increases
14 Capital projects Not meeting significant expansion targets, skills shortages
15 Mergers and acquisitions Inappropriate transactional structuring of joint ventures, funding of transactions
16 Technology Reliability of furnaces and plants, mining mechanisation, introducing new technology
17 Infrastructure Lack of infrastructure to meet expansion programme targets, such as water supply, electricity, housing and transport
18 Event risk Catastrophic events such as mine flooding, ground failure, tailings dam failures, fires, explosions

Our most material sustainable development issues

Based on the integrated risk-management process, the materiality ‘self-test’ methodology and the external review panel’s comments, the Company’s most material sustainability issues are currently the following:

  • The global financial crisis and its impact on business, employment and skills development.
  • Safety and health.
  • The Mining Charter.
  • Community issues.
  • Energy, climate change and water.

The next section of this report discusses these material issues in detail, and provides information about what Amplats is doing to manage the risks. Operational performance issues are excluded from this report. They are dealt with in detail in the annual report.

Levels of control and our approach to managing risk

Many of the risks the business faces may be outside its control and one may well question the extent to which management can influence the respective risks. Below is a ‘risk radar’ that provides a classification in terms of strategic, operational and corporate-specific risks, with our material risks plotted onto it. Note that higher risks are depicted closer to the centre of the radar.

Only operational risks are considered to be fully within the control of the Company. Some strategic and corporate risks are controlable through partnerships with other industry players, eg suppliers, other mining companies and industry bodies such as Business Unity South Africa, the Chamber of Mines and the National Business Initiative. Others, such as the risks posed by the global economy, cannot be controlled, and our reactions to them are mainly reactive in nature.