Chief executive’s review

Glyn Lewis, Chief executive

The reporting landscape has changed substantially in recent years as companies move towards integrated reporting to all stakeholders, and seek greater levels of compliance and assurance on a plethora of parameters. Additional guidelines and indices have certainly added a significant reporting burden and, in some cases, have resulted in improved reporting.

Our 2012 Sustainability Report is deliberately focussed and brief. At the heart of our sustainability thesis is the need for our business to survive, thrive and grow. Without that, there would be no impacts and benefits to report on, there would be no mitigating measures and, above all, there would be no value added.

Reporting on compliance for the sake of it does not add value in our view. Reporting on material issues does – and this is what we have attempted to do in this report.

Integrated reporting and assurance

In the previous reporting period, for financial year 2011, I believe we made some fundamental strides in broadening our data-gathering base and getting to grips with our material issues. These are something we regularly interrogate and revise as necessary. In F2011 this culminated in the publication of our first annual integrated report. In F2012, in this report and in the accompanying annual integrated report, we hope to have made some modest gains in terms of this reporting framework, even though the focus in this past year was the very sustainability of the business, in what is becoming an increasingly hostile operating environment.

For the fifth consecutive year we have produced a stand-alone sustainable development report, which is available to all our stakeholders both in printed and electronic format. We continue to be guided by the GRI third generation G3.1 guidelines, and have identified certain key indicators to be assured by our external assurers, Environmental Resources Management Limited (ERM). Their independent assurance report is available within this report.

Once again this year, at the Zondereinde sustainable development workshop, held in July this year, we took the time with a number of discipline heads, to assess the material issues we had identified in the past, and to re-evaluate them in the context of more recent business developments and the constantly evolving operating environment.

Material issues

Operating safely and efficiently to protect the lives and livelihoods of employees, and – in so doing – to ensure the sustainable profitability of the company.

Against the background of flat metal prices and revenues and relentless cost increases on almost all fronts, the safe and efficient operation of our mines has never been more critical.

On our mines we have to focus on avoiding safety stoppages – not only because working safely and caring for the safety of our people is the right thing to do, but also because the loss of production days has a profoundly negative impact on our profitability, and hence on the sustainability of the business. For this reason we have, in the past year, also relied on the courts to scrutinise orders by the authorities to close our operations. We believe that the summary closure of operations can be avoided by a more collaborative relationship between us as business and the authorities – in this case the DMR – certainly one of our most significant stakeholders The meaningful discussions and collaborative approach which have ensued from this have signified real and significant strides in this relationship.

Tragically two employees lost their lives in mining related accidents during the financial year. Once again, in a document of record such as this, it is appropriate to mark the deaths of Messrs Sydney Thou Kampare and Alfred Hanisi, who died at Zondereinde during the year, the former in a loco accident in July 2011 and Mr Hanisi in a fall of ground some 10 months later in May this year.

While the total injury incident rates have continued to fall over an extended period, we have seen a worrying increase in the severity of injuries and accidents since 2010. The majority of the accidents this year have been associated with material and equipment handling and falls of ground, the latter being of greater concern and which points to a worrying drop-off in skills levels and competencies along with a disregard of compliance to standards amongst supervisory staff. These have occurred predominantly on the reef or stope horizon. We continue to apply punitive measures where we find contraventions. However, we would prefer to focus primarily on preventative measures, and so to foster a safety culture amongst all players.

Establishing and maintaining constructive relations with employee and community stakeholders.

The recent violent conflict in the platinum sector has highlighted for us the volatility in the sector.

We are conscious that we are not immune to any such developments. Nevertheless, with vigilant management we are keeping a close watch on any irregular activity in order to avoid the unbridled violence and lawlessness characteristic of these events.

At the Zondereinde mine the National Union of Mineworkers (NUM) has traditionally been the dominant employee union and we continue to focus our engagement efforts with this employee body Our managers in human resources are in constant communication with union representatives to discuss matters of concern. We recognise too, that it is also appropriate to engage with any registered employee body which meets our thresholds.

During the year we believe that good progress was made with the NUM, given the absence of the annual negotiations around wages and basic conditions of employment. This has provided the space required for us to really focus on cementing structures such as the employment equity and training forum, the housing and living conditions forum and the CSI/LED forum. These structures have evolved into more effective platforms for dialogue between management and the employee community.

In general, the industrial relations climate in South Africa continues to be dominated and flavoured by political developments. Specifically at Zondereinde the previous financial year had been dominated by protracted and acrimonious industrial action. Wage negotiations to determine agreements for the F2012 year were resolved in October/November last year, and settlement was reached on a two-year deal.

On the eastern limb our progress at Booysendal has been hampered by an illegal land invasion during the last few months of the financial year. We have since made some progress, and in partnership with Eskom we have persisted with an extensive community dialogue process in order to expedite the delivery of power to the Booysendal mine site, while in tandem, helping the communities to protect their heritage sites. The goal remains for us to commission the plant at Booysendal in H2 of F2013.

Achieving and maintaining legislative and regulatory compliance, including our social licence to operate, and ensuring the underlying systems and processes are in place to achieve this.

All permitting and other records of regulatory compliance are in place at both our operations, following the granting of a Water Use Licence at Zondereinde in May 2012 Engagement with the DMR in terms of the SLP at Zondereinde, has led to a review of the Life Community Centre and the model on which it is based. A revised and more sustainable model for the project is being finalised and will be submitted to the DMR by 30 September 2012. We are committed to engaging more proactively with the DMR to develop a model that will be more appropriate and sustainable in the longer term.

On an equity level, we remain subject to the commitment of our major BEE shareholders to maintain their equity in the group. We have advised shareholders of the potential risk that the slide in these empowerment equity levels holds for the group, and hence for their investment. We are currently in discussions with the DMR to forge a way forward, while we are also working at putting a structure in place which would be resistant to the vagaries of the market and its inevitable repercussions. As a responsible listed entity, we also need to guard against the erosion of the interests of the balance of our shareholders to ensure that they are not prejudiced in our quest to comply with existing empowerment requirements. I am confident that there are adequate checks and balances in the corporate legislative environment to protect shareholders in this regard.

Successfully delivering the Booysendal project on time and within budget.

Booysendal remains the company’s primary vehicle for growth. Progress on site has been more than satisfactory, and we remain on track to commission this mine in H2 of F2013. Critical to its delivery, as well as for any prospects of expanding on phase 1 of the Booysendal UG2 North mine, is our ability to fund it adequately – something which has become more and more uncertain given the state of the world economy and the PGM sector. This has, for a while, been something management has monitored closely, particularly during this time of diminishing cash margins at Zondereinde, and the potential risk attached to the conclusion of the sale of Booysendal South within our own capex timeline requirements.

Nevertheless, I am pleased to report that, with the prudent application of capital at Booysendal, we have only recently started drawing down against the R1 billion debt facility we raised in November last year. This facility and the additional domestic medium term note programme (DMTN) facility of R1.25 billion raised post the year end will be adequate to cover the completion of Booysendal phase 1, the deepening project at the Zondereinde mine, as well as other operational and working capital requirements of the group.

Elsewhere in this report we review the extensive stakeholder engagement exercise that is ongoing at Booysendal. From the company’s point of view it has therefore been disappointing to have had to approach the courts to provide us access and space for Eksom and its contractors to complete the line which feeds electrical power to Booysendal We have always said that the development of the second phase of the Booysendal north mine will depend on the success of phase 1, and the issue of infrastructure availability. It would be a pity to take phase 2 off the planning table.

Ensuring access to and optimising the use of resources, particularly energy and water, and to mitigate emissions, particularly CO₂ and SO₂.

This aspect of our business remains inextricable from engineering design and management, and oversight of environmental performance continues to be monitored by this department. We are pleased to have made progress on a number of environmental fronts, with the allocation of an integrated water use licence (IWUL) at Zondereinde, continued implementation of the ISO14001 standard for environmental management at the metallurgical facilities, a reduction in electricity purchases from Eskom, and, in terms of air quality control, we have made provision for a feasibility study into effecting material reductions in SO₂ emissions.

To maximise cash flows and optimise capex, so as to maintain and grow the value of the company, and to be able to raise capital cost-effectively to fund further growth.

In our business review we have dealt comprehensively with the performance of our operations, our growth prospects and valueenhancement initiatives. The market’s response to our fund-raising activities (as mentioned above) has been encouraging and positive. Booysendal will start contributing to output in the next financial year and should reach steady state production in F2015.

To attract, retain and develop human capital in the face of general and localised skills shortages and to meet Mining Charter commitments.

Our approach to transformation has been driven by the achievement and maintenance of legal compliance on the one hand, and on the other by what we consider to be the constant improvement of relationships between organised labour and management. This has been a challenge on both counts.

The essence of legal compliance remains greater participation of black South Africans and more specifically of women in the economy, and in the traditionally male-dominated fields such as mining As management we have embraced this intent, and we are proactively supporting candidates at secondary and tertiary educational institutions in an effort to assist in building a pool of skilled, competent and qualified black professionals in relevant core fields in this sector. This is not an easy journey, given the sector’s vulnerability to fluctuations in the global economy and the resultant uncertainty in the workplace.

A word to conclude

At the end of what has been a challenging year I must thank the management at both Zondereinde and Booysendal for their focus and commitment. In the current climate in the PGM sector the adage of sticking to one’s knitting, and focussing on those aspects of the business environment which we can control, will stand us in good stead into the future. With the aim of continuing to create wealth for all our stakeholders, we intend to be in good shape as a company to be able to deliver PGMs into a rising price environment when the global economy starts recovering.

Glyn Lewis, chief executive
Johannesburg

28 September 2012