|
|
PRINCIPAL RISKS AND UNCERTAINTIES |
|
|
| |
| MANAGING
RISKS |
| |
 |
Successful business is not about taking no risk, but rather
understanding which are necessary to achieve our
objectives and mitigate those while capitalising on
opportunities.
Anglo Platinum is exposed to a variety of risks and
uncertainties that may have a financial or reputational
impact on the Group and which may also impact
the achievement of social, economic and
environmental objectives. These risks include
strategic, commercial, operational, compliance
and financial risks. |
|
| Marcus Maepa is a safety offcer at
Union Mine. He has been at the mine
for 23 years and has worked his way
through the ranks into his current
position as safety offcer. |
| |
Anglo Platinum is exposed to a variety of risks
and uncertainties that may have a financial or
reputational impact on the Group and which
may also impact the achievement of social,
economic and environmental objectives. These
risks include strategic, commercial, operational,
compliance and financial risks. Understanding
risk and developing appropriate responses to
them is crucial to Anglo Platinum’s success. The
principal risks and uncertainties facing the
Group have been categorised into headline risk
areas. The Group’s approach to risk management
is set out in the Sustainable Development
Report on pages 23 to 27.
The key risks that have been identified as facing
Anglo Platinum are presented below, including
the associated risk mitigation strategies. |
| |
COMMODITY PRICES |
The global financial crisis, with indications of a
recession in the global economy, has resulted in
a significant reduction in the price of platinum
group metals (PGMs) and other commodity
prices, resulting in adverse movements in
operating results, asset values, revenues and
cash flows. The recovery of prices is largely
linked to the recovery of the global economy,
but at present there is little understanding of
how long current, weak conditions will last. An
extended recession in key markets and reduced
growth in China may not support a recovery of
PGM prices. If the global economic environment
remains weak for the medium to long term, the
Group’s ability to deliver growth in future years
may be adversely affected.
Response strategies include a review of the
Group’s 2009 operational and capital
expenditure plans given the current market
conditions, and active management of liquidity.
Marginal mines will be subject to continual
reviews, and appropriate action will be taken to
mitigate costs and increase cash generation. |
| |
LIQUIDITY |
The Group is exposed to liquidity risk, arising from
the need to finance its ongoing operations and
growth. If the Group is unable to obtain sufficient
credit owing to capital market conditions, it may
not be able to raise sufficient funds to develop
new projects, fund acquisitions or meet its
ongoing financing needs. As a consequence, the
ability to operate and grow may be adversely
affected.
The Group is also exposed to counterparty
risk from customers, suppliers and business
partners, should they become unable to meet
their obligations to Anglo Platinum it could
result in financial losses.
The Group’s treasury function, which is
outsourced to Anglo American, is responsible
for managing the Group’s funding requirements
and liquidity risk in conjunction with the
Group’s management. The treasury department
also has a role to play in managing counterparty
risk, particularly with banks in which Anglo
Platinum places cash deposits. |
| |
EMPLOYEE SAFETY AND
HEALTH |
Mining is a hazardous industry. Failure to adopt
high levels of safety management can result in a
number of negative outcomes, such as harm
to our employees and contractors. In addition
to this, failure to provide a safe working
environment may result in government
authorities closing mines on a temporary or
permanent basis or refusing mining-right
applications. The Group’s Enhanced Safety
Improvement Plan (ESIP) and other safety
initiatives are ongoing and have yielded initial
results. Safety will remain a key risk until all the
underlying issues have been addressed and will
require continued management focus, given the
17 fatalities in 2008.
The failure to meet safety objectives impacts on
the well-being of our employees, employee
morale, on the achievement of production
targets and the reputation of the Group.
These impacts have consequences for many of
our stakeholders, including investors, the
government and trade unions. Furthermore, it
may impact on Anglo Platinum’s ability to
attract and retain skilled staff in a globally
competitive labour market.
Employee risk mitigation strategies include the
implementation of the safety standards, training
and management systems, participation in the
Anglo American plc peer-review programme,
compliance with the fatal risk standards and the
implementation of safety risk management
processes (including the rollout of an extensive
training programme across the Group).
Anglo Platinum sets a very high priority on
safety, health and the environment. It invests
considerable resources in seeking to improve
the safety performance of the Group’s
operations, and in research and development
to minimise its impact on the environment and
improve its energy efficiency. The Group is
constantly reviewing practices in order to
improve safety performance, and works closely
with unions and governments in striving to
produce a safer mining industry.
Anglo Platinum recognises that the HIV/AIDS
pandemic is a significant threat to the Group’s
economic growth and development. Anglo
Platinum provides antiretroviral therapy to
employees with HIV/AIDS and also undertakes
education and awareness programmes to help
protect employees and their families against
becoming infected or spreading infection.
The risk of cholera outbreaks on a regional
basis, especially in areas that are close to
infected regions in neighbouring countries, is
being monitored and countered by awareness
campaigns and the monitoring and treatment of
water resources.
Metal exposure and other occupational health
risks are actively monitored and managed
through the Group’s structures. |
| |
COMMUNITY RELATIONS |
The nature of Anglo Platinum’s mining
operations is such that disputes in relation to
community matters may arise from time to time.
These disputes are not always predictable and
may cause disruption to projects or operations.
The Group’s operations can have an impact on
local communities including, from time to time,
the need for communities to relocate. Failure to
manage relationships with local communities,
the government and non-governmental
organisations could result in reputational risk
and also in our inability to obtain mining
property rights, which would limit our growth
opportunities.
The Group has developed and continues to
refine a process to manage relationships with
communities effectively and actively seeks
engagement with all those communities
affected by the Group’s operations.
Community relations, especially arising from the
Eastern Limb expansion programme, continue
to impact capital projects and Anglo Platinum’s
reputation. As part of the relocation review
process, Anglo Platinum continually reviews the
process followed in community resettlement
and includes the lessons learnt in refining the
way it deals with communities. |
| |
OPERATIONAL
PERFORMANCE |
Failure to meet production targets can result in
increased unit costs that are pronounced at
operations with higher levels of fixed costs. Unit
costs may exceed targeted unit costs, adversely
affecting performance and the results of
operations.
Lower-than-planned production may also
impact the Group’s ability to deliver metals in
terms of commercial agreements. This risk has
both financial and reputational consequences.
In order to mitigate this risk, the Group has
implemented monthly production reviews by
the Operations Committee to focus on safety,
operational excellence, people and the future.
Production results are monitored daily and
monthly, action plans are formulated and
production plans revised accordingly. |
| |
COST ESCALATIONS |
Cost pressures on operational and capital
expenditure have been further exacerbated by
increasing steel, oil, labour, electricity and other
key inputs costs. Capital cost escalations have a
significant impact on marginal projects in
particular and in turn affect the project pipeline.
The slowdown in the global economy should
ease some of the inflationary pressures on
certain key commodities going forward.
However, the lag between PGM price reductions
and the rate at which the cost of input
commodities are expected to decrease may
place further strain on the Group.
Initiatives to leverage the Group’s spend via
the Supply Chain project are in progress. Other
mitigation strategies include an increased focus
on core mining efficiency, the enhancement of
long-term planning and budgeting processes,
the improvement of the cost-control
environment, the introduction of scorecards
and raising the level of operational review and
analysis. |
| |
INFRASTRUCTURE |
The acute shortage of and dependency on
infrastructure (power, water, housing,
transportation) places sustained production,
safety and growth at risk. The unavailability of infrastructure may delay projects and result in
unexpected costs. Specific electricity-related risk
events include load shedding, localised outages,
imposed longer-term reduced consumption,
new project supply not being approved and a
significant increase in electricity costs.
The electricity crisis is mitigated by high level
discussions with Eskom; a continuous information
flow in terms of power and distribution
requirements; and monitoring of Eskom’s
progress with project delivery, including the
commissioning of an external study on power
requirements. All Anglo Platinum operations
have completed risk assessments and developed
business continuity management plans in
response to the possibility of a sustained power
outage. Preparation measures are in the process
of being implemented, including the acquisition
of additional emergency-power generators and
the establishment of a Crisis Command Centre to
manage a national electricity or other significant
crisis. |
| |
SKILLS SHORTAGES |
There has been an industry-wide shortage of
experienced professional and technical skills
across the board, both internally and in terms of
contractors. This impacts the quality and
efficiency of work performed, through either
lack of experience or capacity constraints,
which in turn influence investment confidence.
The retention of artisans and other technical
skills is critical going into the future. Lack of
mine technical services and other specialised
skills are viewed as a high risk to long-term
plans, affecting the Company’s ability to meet
its growth requirements and leading to the
understaffing of critical technical functions and
the inability to perform planned maintenance
schedules. The current economic slowdown is
likely to mitigate the risk somewhat.
Anglo Platinum has intensified its recruitment
processes, implemented retention strategies
through its employee share option plan,
introduced ‘market allowances’ for artisans and
engineers, increased learnerships for artisans and
is building a mine training centre at Twickenham
Mine. It has formed alliance partnerships with
Engineering, Procurement and Construction
Management (EPCM) contractors, implemented
performance management and communication
policies, introduced a comprehensive talent-management
programme supported by
coordinated systems, and is offering ongoing
skills training and graduate programmes. |
| |
PROJECT EXECUTION |
The inability to manage and deliver a large
capital project pipeline will impact Anglo
Platinum’s reputation and strategic intentions,
and its capacity to meet its growth objectives
and targeted platinum ounces.
The Company is currently reviewing its project
portfolio and resetting its priorities as a result of
the change in global outlook, the increased cost
and scarcity of capital, resources availability,
power supply constraints and the strategic fit
going forward. However, if the global economic
environment remains weak for the medium to
long term, the Group’s ability to deliver growth in
future years may be adversely affected. |
| |
JOINT VENTURES |
Some of the Group’s operations and associates
are managed, and in some instances controlled,
by joint-venture partners and associates or
other companies. The management of these
assets need not comply with Anglo Platinum’s
safety, health, environmental or other standards.
This may lead to higher costs and lower
production, and have a negative effect on
operational results or on the reputation of
Anglo Platinum.
The Group seeks to mitigate this risk by
undertaking a thorough evaluation process
before committing to any joint venture and by
implementing adequate governance processes
in such joint ventures.
Anglo Platinum manages its relationships with
its partners on a basis of mutual respect and
in terms of seeking mutual benefit. It has
appropriate management structures in place to
ensure that the needs of these arrangements
are met.
The current global financial crisis, together with
the material decline in platinum group metal
prices, is impacting the completion of the
Anooraq transaction. Anglo Platinum is in the
process of reviewing this transaction. Together
with Anooraq, it remains committed to
concluding the transaction during the first half
of 2009. |
| |
POLITICAL INSTABILITY |
Anglo Platinum may be affected by political or
regulatory developments in the countries and
jurisdictions in which it operates, including
changes to fiscal or other regulatory regimes.
These may result in restrictions on the export of
currency, the expropriation of assets, the
imposition of royalties and requirements for
local ownership or beneficiation. Political
instability may also result in civil unrest, and in
the nullification of existing agreements or
mining leases and permits. Any of these threats
may adversely affect the Group’s operations or the results of those operations. The Group has
no control over changes in local market interest
rates or over political acts or omissions that may
deprive it of the economic benefits of
ownership of its assets. In response to potential
developments such as these, the Group actively
monitors regulatory and political developments.
Anglo Platinum has a project at Unki Mine in
Zimbabwe. The political instability in Zimbabwe
at present is of concern to Anglo Platinum, and
may have operational and longer-term
consequences for the Group’s future plans in
that country.
The Company’s relationship with the South
African Government is actively managed via
Anglo Platinum’s Executive Committee and
various Anglo American relationships. |
| |
ACCESS TO MINERAL
RESOURCES AND RESERVES |
Anglo Platinum has received letters of grant for
new order mining rights for Rustenburg,
Amandelbult, Union, Lebowa, Mogalakwena,
Twickenham, Der Brochen and BRPM mining
areas. Where required, revised social and labour
plans are being submitted. The application for
conversion of mineral rights associated with
the Modikwa Joint Venture is being prepared as
a joint submission from both partners.
Whereas Anglo Platinum’s key mining rights
have largely been received, consequential and
preservation risks require attention. The Group
is implementing and monitoring the mining
charter requirements and continues with
negotiations around some of its prospecting
rights in order to obtain security of tenure. |
|
