Integrated Annual Report 2014

External context

Reported G4 indicators:
  • G4-2
  • G4-10
  • G4-11
  • G4-15
  • G4-16
  • G4-EC7
  • G4-EC9
  • G4-EN21
  • G4-LA2
  • G4-LA5
  • G4-LA6
  • G4-LA8
  • MM10

LEGISLATIVE, REGULATORY AND POLITICAL ENVIRONMENT

As a mining company with assets based in South Africa, each of our operations holds a right to mine and/or prospect in accordance with the Minerals and Petroleum Resources Development Act, 2002 (Act No 28 of 2002) and its associated Mining Charter. This legislation aims to promote equitable access to the nation’s Mineral Resources, expand opportunities for historically disadvantaged South Africans (HDSAs) who would like to participate in the South African mining industry, advance social and economic development, and create an internationally competitive and efficient administrative and regulatory regime, based on universally accepted principles and consistent with common international practice that Mineral Resources are part of a nation’s patrimony.

A review of the South African mining industry’s level of compliance with the requirements of the Mining Charter was commissioned by the Department of Mineral Resources. It is being audited by the Department of Mineral Resources and the outcome is expected in April.

RESPONSIBILITIES

The fiduciary and other duties and responsibilities of our Board of Directors are governed by the South African Companies Act and King III. The Companies Act prescribes the Group’s activities in respect of social and economic development, including compliance with the Broad-Based Black Economic Empowerment (BBBEE) Act, 2003 (Act No 53 of 2003) and the Employment Equity Act, 1998 (Act No 55 of 1998), the Group’s standing in terms of the International Labour Organisation (ILO) protocol on decent work and working conditions, employment relationships and the Group’s contribution to the educational development of its employees.

In addition, the Group also subscribes to the 10 Principles of the International Council on Mining and Metals (ICMM).

In terms of the JSE Listing Requirements, Sibanye also adheres to the 10 principles of the United Nations Global Compact and the Organisation for Economic Co-operation and Development (OECD) recommendations regarding corruption.

The Board’s performance and interaction with stakeholders is guided by the Constitution of the Republic of South Africa, 1996 (Act No 108 of 1996), which includes the Bill of Rights, tasking management with the development and implementation of corporate citizenship policies and programmes for relevant stakeholders.

In terms of the National Development Plan 2030 of South Africa’s National Planning Commission, which aims to eliminate poverty and reduce inequality by 2030, the mining sector will continue to play a major role in generating the resources needed to build the necessary capacity and capabilities. Government has committed to assisting the industry in doing this by providing policy and regulatory certainty, extracting reasonable taxes, investing in infrastructure to support the industry, enabling value-adding opportunities and employment, and supporting the industry while encouraging mines to reduce carbon emissions.

Sibanye’s Board and management complies with the listings requirements of the JSE and the New York Stock Exchange.

In compliance with our responsibilities under the Companies Act and the listings requirements of the JSE, our Board has a duty to ensure that all shareholders are treated equitably.

ECONOMIC CONDITIONS

As a general rule, gold produced is sold at prevailing market prices in the period it is produced.

Historically, the price of gold has been primarily affected by macro-economic factors, such as inflation, exchange rate volatility, reserves policy, and global political and economic events, and to a lesser extent by simple supply and demand dynamics. Sibanye’s revenues and costs are highly sensitive to the Rand/US dollar exchange rate.

Gold and uranium sales are denominated in US dollars, with US dollars converted at a realised Rand/US dollar exchange rate, while operating costs are incurred principally in Rand. Depreciation of the Rand against the US dollar, therefore, results in higher Rand revenue or, alternatively, lower operating costs when they are translated into US dollars, thereby increasing the operating margins of our operations. Conversely, appreciation of the Rand results in lower Rand revenue or higher operating costs when translated into US dollars, thereby decreasing the operating margins of our operations. The impact on profitability of changes in the value of the Rand against the US dollar can be substantial.

Rand/dollar exchange rate December 2012 to December 2014 [chart]
Gold price from 2012 to 2014 [chart]

MARKET FORCES

In South Africa, there are currently 35 large-scale gold mines, mining mostly narrow-vein, deep underground deposits, which require manual extraction and are inherently labour-intensive. However, technologies have been developed that facilitate the mechanisation of new mines, which allow for mining of these deposits in a more economical manner.

The key gold producers in South Africa – Gold Fields; AngloGold Ashanti Limited (AngloGold Ashanti); Harmony Gold Mining Company Limited (Harmony) and Sibanye – produced 6,237kg (200,500oz); 38,000kg (1.2Moz); 36,453kg (1.17Moz) and 49,432kg (1.59Moz), respectively, in South Africa in 2014, and together accounted for approximately 86% of the country’s total gold production for the year.

Sibanye is the largest individual producer of gold in South Africa, based on annual production of 49,432kg (1.59Moz) of gold in 2014, and the Group is the ninth largest producer of gold worldwide.

In order to maintain competitiveness in the South African labour market, regular industry market surveys are conducted to benchmark remuneration practices, and to keep abreast of any shifts in industry practices with regard to employee benefits, and non-financial employee reward and recognition programmes.

Strikes over remuneration and working conditions are a persistent feature of the mining industry in South Africa. Worker pay has been rising in the South African gold mining industry at a steady pace with average wage inflation consistently higher than the benchmark inflation rate. In June 2014, the South African government announced that it was investigating the introduction of a national minimum wage or “living wage” to address “income inequality”. A report on the national minimum wage and its implications is due in July 2015. As a member of Business Unity South Africa (BUSA), the Chamber of Mines addressed Parliament’s Portfolio Committee on Labour in September 2014. Business Unity South Africa has since entered into negotiations with the National Economic Development and Labour Council (Nedlac) on this matter.

Centralised negotiations on wages and conditions of employment are held between the Chamber of Mines, representing the majority of gold mine employers, and recognised trade unions, representing their members. The Chamber provides a venue for the negotiations, which are often referred to as the "Chamber negotiations".

The smaller gold mines negotiate on a decentralised basis.

SOCIAL FORCES

The Minerals and Petroleum Resources Development Act requires the submission of, among others, a social and labour plan as a prerequisite for the granting of mining or production rights. The social and labour plan requires applicants to develop and implement comprehensive human resource development programmes, including employment equity plans, local economic development (LED) programmes, and processes pertinent to the management of downscaling and retrenchment.

Sibanye participates in the socio-economic development (SED) initiatives of our local municipalities, and supports projects aimed at uplifting people and infrastructure development, as well as projects identified and prioritised to address key areas such as poverty reduction, economic viability, healthcare, public safety, job creation, urban renewal and preferential procurement.

Our experience to date has shown that the approach to local economic development, in terms of the social and labour plans, has varying degrees of success. While the construction of schools and clinics has added the necessary value, other projects have not necessarily had the desired impact. A key component of the success achieved to date in the construction of schools and clinics is the upfront buy-in and support of all critical role players. The signing of a memorandum of agreement (MOA), which enunciates key responsibilities before construction begins, has proven invaluable. Projects initiated without proper collaboration have not been successful. These and other lessons have prompted Sibanye to consider an approach that includes:

  • fewer but more impactful projects;
  • focus on community development, education, agriculture/environment, health and sustainable human settlements;
  • options ranging from corporate social investment (CSI) to infrastructure and enterprise development;
  • all role players influencing the decision on how to best invest the money available for LED in terms of the Sibanye budgeting process;
  • a tripartite engagement platform that assists in making appropriate decisions on LED projects with the DMR and municipalities; and
  • ongoing feedback on projects approved for implementation.

HEALTH AND SAFETY

Health and safety performance on mines is regulated by the South African Mine Health and Safety Act, 1996 (Act No 29 of 1996) (MHSA). The Act requires employers and others to ensure that their operating and non-operating mines provide a safe and healthy working environment, it provides for penalties and a system of administrative fines for non-compliance, gives the Minister of Mineral Resources the right to restrict or stop work at any mine, and requires an employer to take steps to minimise health and safety risks. Further, it provides for employee participation through health and safety committees and representatives, gives employees the right to refuse dangerous work, and describes the powers and functions of the Mine Health and Safety Inspectorate, within the jurisdiction of the Department of Mineral Resources and as part of the process of enforcement.

As legally required, all employees are represented in formal joint management/worker health and safety committees, through their representatives, to help monitor and advise on occupational health and safety programmes.

In terms of the Mine Health and Safety Act, an employer is obligated, among others, to ensure that mines are designed, constructed and equipped to provide conditions for safe operation and a healthy working environment, and the mines are commissioned, operated, maintained and decommissioned so that employees can perform their work without endangering their health and safety or that of any other person. Every employer must ensure that people who are not employees, but who may be directly affected by the activities at a mine, are not exposed to any health and safety hazards.

The principal health risks associated with mining operations in South Africa arise from occupational exposure to silica dust, noise, heat and certain hazardous chemicals. The most significant occupational diseases affecting our workforce include lung diseases such as silicosis, tuberculosis (TB), a combination of both, and chronic obstructive airways disease (COAD) as well as noise induced hearing loss (NIHL).

The Occupational Diseases in Mines and Works Act, 1973 (Act No 78 of 1973) (ODMWA) governs compensation paid to mining employees who contract certain occupational illnesses, such as silicosis. The South African Constitutional Court has ruled that a claim for compensation under the Occupational Diseases in Mines and Works Act does not prevent an employee from seeking compensation from an employer in a civil action under common law (either as individuals or as a class).

NATURAL ENVIRONMENT

Sibanye’s operations are subject to various laws relating to the protection of the environment and South Africa’s Constitution grants the country’s people the right to an environment that is not harmful to human health or well-being, and to protection of that environment for the benefit of present and future generations through reasonable legislative and other measures. The Constitution and the National Environmental Management Act, 1998 (Act No 107 of 1998) (NEMA), as well as various other related pieces of legislation enacted, grant legal standing to a wide range of interest groups to bring legal proceedings to enforce their environmental rights, which are enforceable against private entities as well as the South African government. South African environmental legislation commonly requires businesses whose operations may have an impact on the environment to obtain permits, authorisations and other approvals for those operations. The rationale behind this is to ensure that companies with activities that have environmental impacts, can put reasonable mitigation measures in place to manage these impacts. The applicable environmental legislation also imposes general compliance requirements and incorporates the “polluter pays” principle. Prior to 8 December 2014, under the terms of the Minerals and Petroleum Resources Development Act, all prospecting and mining operations had to be conducted according to an environmental management plan/ programme (EMP), which had to be approved by competent officials of the Department of Mineral Resources. From 8 December 2014, the “One Environmental System” for the mining industry, which changed the previous environmental regulatory regime, came into force following the commencement of legislation creating the new regime on 2 September 2014. In terms of the One Environmental System, prescribed officials at the Department of Mineral Resources became competent to grant environmental authorisations under National Environmental Management Act for prospecting/mining operations. Since then, environmental authorisations have replaced the traditional environmental management plans/programmes. However, the Department of Environmental Affairs remains the appeal authority. Directors, in their personal capacity, may be held liable under provisions of National Environmental Management Act for any environmental degradation and/or the remediation thereof.

The Minerals and Petroleum Resources Development Amendment Bill, which was published on 27 December 2012 for public comment, contains further proposed amendments to allow for the smooth transition to the One Environmental System. A second version of this Bill was published in June 2013 and, although the parliamentary process is complete, the Bill which has yet to be published as an Amendment Act.

Another key change is the introduction of “perpetual liability”, meaning that previous holders of rights remain responsible for environmental liability notwithstanding the issuance of a closure certificate in terms of the Minerals and Petroleum Resources Development Act. A mirror of this provision was brought into force under National Environmental Management Act on 2 September 2014. A further Amendment Act was published on 2 June 2014 and came into effect three months after its publication in the Government Gazette on 2 September 2014. However, this only came into effect on 8 December 2014 with the introduction of the One Environmental System. The 2014 Amendment Act amends National Environmental Management Act to allow for the integration of environmental management with mining activities. Among others, it designates the Minister of Mineral Resources as the competent authority for environmental matters insofar as these matters relate to prospecting, exploration, mining or the production of mineral and petroleum resources.

In terms of the 2014 Amendment Act, the Minister of Environmental Affairs may, under certain circumstances, make an environmental decision insofar as mining activities are concerned. It also allows for the Minister of Mineral Resources to appoint environmental mineral resource inspectors to monitor mining companies’ compliance as well as the enforcement of provisions insofar as it relates to prospecting, exploration, mining or production. Importantly, Section 28 of the 2014 Amendment Act repealed section 14(2) of the 2008 National Environmental Management Act Amendment Act, deleting the provisions which provided for an 18-month transitional period after the commencement of the Minerals and Petroleum Resources Development Act Amendment Act with effect from 1 September 2014 (or presumably now with effect from 8 December 2014).

The National Environmental Management Waste Act, 2008 (Act No 59 of 2008) (Waste Act) commenced on 1 July 2009 with the exception of certain sections relating to contaminated land, which came into force on 2 May 2014. Responsible waste management has become a priority for the Department of Environmental Affairs. We have assessed, through a waste gap analysis, which requirements of the Waste Act are applicable to our operations and would proceed with the waste management licensing process on that basis. We have two waste disposal facilities at our Beatrix Operation and one at Driefontein (which is currently dormant and in respect of which we intend to apply for a closure certificate). We are now duty bound to rehabilitate this dormant site. We must ensure that it has the appropriate waste management licences and environmental authorisations for the closure and rehabilitation of all its waste sites.

Sibanye undertakes activities which are regulated by the National Nuclear Regulator Act, 1999 (Act No 47 of 1999) (the NNR Act). The National Nuclear Regulator Act requires Sibanye to obtain authorisation from the National Nuclear Regulator and undertake activities in accordance with the conditions of these organisations. During the reporting period, internal and external audits and inspections were conducted, and registered an average compliance index of 84%, which is higher than the benchmark of 80%. Each of Sibanye’s mining operations possesses and maintains a Certificate of Registration (CoR) as required by the National Nuclear Regulator Act.

Although South Africa has a comprehensive environmental regulatory framework, enforcement of environmental law has traditionally been poor. However, this situation is improving vastly, given the appointment, and appropriate resourcing of, environmental management inspectors in the Department of Environmental Affairs, Department of Water and Sanitation and now the Department of Mineral Resources. As of 8 December 2014, under the One Environmental System, separate environmental management inspectors will be appointed under the Department of Mineral Resources to regulate environmental compliance of the mining industry.

POWER SUPPLY

Our mining operations depend on electrical power generated by the state utility, Eskom, which holds a monopoly on power supply in the South African market. Tariffs are determined by the National Energy Regulator of South Africa (NERSA). Ongoing disruptions in electrical power supply have an adverse impact on our operations and there is no assurance that conservation programmes will ensure sufficient electricity for us to run our operations at full capacity or at all. Eskom continues to warn us of constraints in the supply of power, which is frequently curtailed.

We are also subject to increases in costs relating to our energy-intensive assets and assets that emit significant amounts of greenhouse gases (GHGs) as a result of regulatory initiatives in South Africa. These regulatory initiatives are either voluntary or mandatory and either impact our operations directly or by affecting our suppliers or customers. These costs may include, among others, emission measurement and reduction, audit processes and human resource costs.

Energy is a significant input in our mining and processing operations with our principal energy sources being electricity, purchased petroleum products, natural gas and coal. With a substantial weight of scientific evidence concluding that carbon emissions from fossil fuel-based energy consumption contribute to global warming, greenhouse effects and climate change, a number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impact of climate change that may restrict emissions of greenhouse gases. In particular, the “Durban platform” – established during the United Nations Framework Convention on Climate Change (UNFCCC) in Durban, South Africa, in 2011 – commits all parties to the conference to developing a global mitigation regime with the specific terms of that legally binding accord, including individual targets, to be finalised by 2015.

In addition, a carbon tax that would endeavour to change behavioural and consumptive patterns with regard to the use of carbon-intensive energy sources is currently being mooted by government. No legislative instruments in this regard have been promulgated, however significant work has been done by all stakeholders, including National Treasury in so far as the carbon tax regime and its implementation is concerned.