Sibanye considers an issue to be material if it substantially affects the Group’s ability to create and sustain value in the short, medium and long term.
PROCESS TO DETERMINE MATERIAL ISSUES
Sibanye gathers information from the external business environment, from internal enterprise risk management (ERM) processes and from engagement with stakeholders, both internal and external, as part of the process used to determine material issues.
INITIAL INPUT OBTAINED FROM:
Analysis of factors in external environment affecting Sibanye’s ability to deliver on objectives
ENTERPRISE RISK MANAGEMENT
Analysis of information from internal business processes
Analysis of issues raised through stakeholder engagement
Most important issues assessed in terms of ability to impact value creation over time
EVALUATION OF INPUT BASED ON MULTIPLE PERSPECTIVES:
Review of issues based on strategic, financial, non-financial and operational aspects
Review of issues based on implications for reputation, licence to operate and compliance concerns
REVIEW AND PRIORITISATION BY EXECUTIVE MANAGEMENT
Application of filters for risk determination and allocation of responsibilities to ensure mitigation and control
DETERMINATION OF MATERIAL ISSUES
Significant material issues agreed and appropriate response determined – see below for an analysis/discussion of Sibanye’s material issues based on context, approach and strategic response, actions to mitigate and manage issues, extent of control, measurement and targets, and outcomes
Analysis of the business environment in which the organisation operates
THE GOLD PRICE AND THE RAND
Sibanye’s revenue is driven by commodity prices and the rand exchange rate relative to the US dollar. The primary commodity price driver in 2015 was the dollar gold price, which has been under pressure since mid-2013 and continued to test lows not seen since 2010. Over the past year, lacklustre physical demand and the liquidation of above-ground stocks, predominantly in the form of exchange traded funds (ETFs), were the primary drivers of the price weakness, with anticipation of a recovery in the US economy rising US interest rates and a strong dollar, perceived as being negative for gold demand.
The sharp decline in the oil price in the latter half of 2015 and weaker-than-expected economic data out of China, coupled with significant political turmoil globally, and negative real interest rates in a number of countries, seem to have restored gold’s safe-haven status somewhat and the dollar gold price appears to have stabilised recently.
The lower gold price has resulted in significant restructuring in the global gold industry and the rationalisation of overhead costs, reduced capital expenditure, the sale of non-core assets and restructuring of debt on balance sheets. Restructuring in the gold-mining sector preceded that in the non-gold mining industry with the result that gold producers are significantly better placed to weather the current phase of the commodity cycle. Low prices will continue to constrain growth and the ability to pay dividends to shareholders.
South African gold producers have been protected, to a large extent, from the declining US dollar gold price by the rand, which has depreciated as the US dollar strengthened. A deteriorating outlook for the South African economy, coupled with recent politically related changes in the South African finance ministry, were poorly received by the market and resulted in a significant structural deterioration in the rand/US dollar exchange rate. The weaker rand has translated into a substantial increase in the rand gold price received at year end, and significantly expanding margins for South African gold producers.
The outlook for the dollar gold price remains positive. Increasing global political and economic uncertainty are likely to be supportive, and gold continues to be regarded as an important reserve asset by central banks globally.
SOUTH AFRICAN ECONOMY
The economic outlook for South Africa deteriorated markedly in 2015, partly due to the fall out experienced by all emerging market economies as economic growth in China continued to stall, but was exacerbated by South Africa-specific economic and political issues and concerns.
The increasingly negative outlook for the country’s prospects were reflected in the final weeks of 2015, when three rating agencies lowered their assessments of South African sovereign debt to just above junk status, adding to weakness in the currency.
POLICY AND REGULATORY CERTAINTY
Policy and regulatory issues are cited by international investors as being primary concerns and barriers to investment in the South African gold-mining sector. Of most concern is the continued delay in passing the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill into law, and uncertainty around its final contents, particularly as related to compliance with the Department of Trade and Industry (DTI) Codes of Good Practice. During 2015, the previous Minister of Mineral Resources suspended the Bill’s passing into law, pending further review. In late 2015, the Department of Mineral Resources (DMR) announced that the mining industry would be exempt from compliance with the DTI codes until the Bill had been finalised.
The DMR’s assessment of mining companies’ compliance with the Mining Charter, and in particular equity ownership by historically disadvantaged South Africans (HDSAs), has given rise to a difference of opinion between the department and the industry. An independent analysis commissioned by the Chamber of Mines indicates that all Chamber members had met this requirement. However, the DMR’s interpretation indicated lower levels of compliance. The discrepancy lies in the interpretation of ‘continuing consequences’ of BEE transactions concluded since 2004. At issue is those transactions in which the BEE shareholding has not remained at 26% as, given changes in market circumstances, the BEE partner had either sold or departed from the transaction.
The Chamber of Mines has applied to the High Court for a declaratory order that will clarify the empowerment clauses in the Mining Charter and on whether or not the so-called ‘once empowered, always empowered’ principle applies. The industry remains concerned that, should further equity issues be required to maintain BEE ownership at 26%, there may be further dilution of shareholder value.
These issues, along with the pending alignment of the MPRDA, 2002 (Act No 28 of 2002) and the Mining Charter with those of the BBBEE Act, 2003 (Act No 53 of 2003), and of the DTI codes, continue to create uncertainty and are perceived by investors as an investment risk.
It is hoped that these concerns and many other broader issues will be addressed and settled through the Presidency’s Project Phakisa. Towards the end of 2015, Project Phakisa brought the industry, government and other key stakeholders together for discussions to stimulate collaboration on ways to revitalise the South African mining sector and ensure its survival in the long term. It is encouraging that, in these developments, government has displayed an appreciation of the need for a stable, justiciable and clear regulatory environment. The next step in Project Phakisa will involve the implementation and, where required, the modification of agreed plans, as well as monitoring, reporting and evaluation.
ENERGY AVAILABILITY AND COST
The Board is ultimately accountable for risk management and is ably assisted by the Risk Committee.
See the Corporate governance section for our risk reporting structures.
ENERGY AVAILABILITY AND COST
The major challenge facing the mining industry and South Africa as a whole is the reliability of supply and cost of electricity. In South Africa, electricity is supplied by Eskom, the state-owned power utility, which has, owing to a backlog of undercapitalisation, poor project delivery and inconsistent maintenance, been unable to reliably supply power to the country since 2007. In addition, Eskom has implemented significant, above-inflation, electricity price increases, which have seen electricity costs, as a proportion of overall costs at Sibanye, rise from 9% in 2007 to about 18% in 2015. Adding to Sibanye’s concern about energy costs is the proposed carbon tax that will be particularly damaging for heavy industrial users of coal-fired electricity.
South Africa’s power difficulties seem likely to persist for some years and Sibanye is proactively developing ways to reduce its reliance on Eskom power. Currently, a 150MW photovoltaic plant, which is expected to begin first production towards the end of 2017, is being developed on Sibanye property at Driefontein and Kloof (See Secure alternative energy sources).
LABOUR RELATIONS AND EMPLOYMENT
The South African gold sector has well-established labour relations processes and practices, including its history of collective, centralised bargaining. Industry-wide centralised bargaining takes place under the auspices of the Chamber of Mines, giving rise to an established system of wage and benefits adjustments that are largely the same across all mines.
The 2015 wage negotiations began in June 2015 and were concluded in October 2015 without any industrial action. Agreement on wages and conditions of service was reached with three of the four representative unions and, at Sibanye, the wage agreement was implemented for all employees when it became clear that no agreement could be reached with AMCU, which represented around 42% of employees (see page 48). Category 4-8 employees and B-lower officials will receive an increase of 12% in year 1, 11% in year 2 and 10% in year 3. Miners, artisans and officials will receive an increase of 6% on standard rate of pay in year 1 and 6% or consumer price index (CPI), whichever is greater, in years 2 and 3. Further detail on the wage agreements is available at www.goldwagenegotiations.co.za.
An incident of inter-union rivalry did, however, lead to the closure of operations at Beatrix in February 2015 although the matters were rapidly resolved (see Reflecting on stakeholders below).
ENTERPRISE RISK MANAGEMENT
An overview of Sibanye’s risk-management approach, governance structures and top ERM risks
Risk management is a continuous, proactive and dynamic process designed to identify, understand, manage and communicate risks that may have a negative impact on Sibanye’s ability to achieve its business objectives.
Sibanye’s risk-management process is established and well-considered. Risk-management policies, practices and management systems are reviewed annually by the Board’s Risk Committee, and approved by the Board. Policies, practices and systems are embodied in Sibanye’s ERM Framework, which is aligned with the King III codes and International Organization for Standardization (ISO) 31000 standards, and entrenched at the operations.
The Board is satisfied that governance, risk management and compliance, internal control and compliance with the Sarbanes-Oxley Act (SOX) of 2002 as well as internal audit processes operated effectively for the period under review. Business activities have been managed within the approved risk-tolerance and risk-appetite levels. Primary controls have been implemented and further mitigating action has been taken to improve primary controls.
The risk-management process is a systematic application of management policies, procedures and practices in communicating, consulting and establishing the context, and identifying, analysing, evaluating, treating, monitoring and reviewing risk. Risk-management documents include the Risk Policy, Plan and Charter, which sets out the requirements for effective oversight of risks, including the identification, assessment, evaluation, treatment and reporting of risks. The risk-management process is embodied in Sibanye’s Risk Management Framework, which is used for implementation. Sibanye’s ERM process combines operational and strategic risk processes.
During the period under review, Sibanye conducted an independent risk-management effectiveness assessment and maturity review. The results showed some significant progress towards full maturity and support the introduction of the advanced measurement approach Sibanye has adopted.
The combined assurance process is embedded within Sibanye’s operations.
The approach is based on three levels of assurance.
Line management function
Primarily responsible for risk management, the process of assessing, evaluating and measuring risk is ongoing, and is integrated into the day-to-day activities of the business. This process includes implementing the risk-management framework, identifying issues and taking remedial action where required. Business-unit management is also responsible for reporting to governance bodies within the Group.
‘Oversight’ management (internal unbiased-person assurance)
Oversight management functions appropriately independent of line management function
Assurance is provided by employees within the Group who are employed in oversight positions in Central Services and corporate departments.
Internal audit function, external auditors and independent external parties (independent assurance)
Internal audit function, external auditors and independent external parties
An independent assessment of the adequacy and effectiveness of the overall risk-management systems is provided.
An analysis that provides a view of our relationships with key stakeholders and their concerns
The outcomes of stakeholder engagement – the concerns of our primary stakeholders (see below) – are important determinants of Sibanye’s material issues and hence inform decisions taken to control risk and identify opportunities for the business.
Sibanye is committed to proactive, open and constructive stakeholder engagement, which informs participative decision-making. Our stakeholder engagement aims to:
- strategically inculcate a culture of effective engagement within the organisation
- develop and implement formal and informal systems of communication for the benefit of the Group and stakeholders
- ensure regular engagement and response to issues material to stakeholders
- accurately understand the influence of business activities on stakeholders and the potential impact stakeholders may have on the business, whether positive or negative, to enhance the engagement process
- ensure engagement is conducted in a timely, accurate and relevant manner
- continuously monitor, review and improve engagement activities.
As a responsible corporate citizen, Sibanye fosters and maintains constructive engagement with all stakeholders in order to deliver on our vision to create superior value for all stakeholders, to maintain our licence to operate, and ultimately for the long-term success and sustainability of the business.
The Board’s performance and interaction with stakeholders is guided by the South African Constitution, including the Bill of Rights, and management is tasked with the development, and implementation of corporate citizenship policies and programmes for relevant stakeholders.
Sibanye expects employees and communities to appreciate the importance that a profitable and sustainable business holds for them and the other stakeholders who rely on the mining industry.
REFLECTING ON STAKEHOLDERS
INVESTORS AND MARKET ANALYSTS
Excluding Gold One, which represents a consortium of Chinese investors who have acquired a strategic 20% stake in the Group, Sibanye’s investors are primarily geographically diverse institutional investors, located predominantly in the US and South Africa. Engagement is regular and structured with quarterly operational updates, and more detailed six-monthly operational and financial reviews, which enable investors to engage directly with management via live webcast or conference calls. Senior management also undertakes regular global roadshows to interact directly with current and prospective investors. Shareholders expect management to deliver on operational forecasts and the communicated corporate strategy. Adherence to the highest standards of corporate governance are expected. Shareholder investment strategies and tenures differ, making it difficult to target and cater to specific investor groups. A consistent and transparent strategy is crucial to building investor confidence.
Sibanye is widely covered by sell-side analysts who provide investment research and advice to existing and prospective institutional investors. Sell-side analysts tend to do relatively detailed and in-depth analyses of relevant sectors and companies, including peer-group comparisons and benchmarking. Sibanye is comprehensively covered by local and international sell-side analysts from smaller brokers to global, bulge bracket banks. At least nine analysts produce independent research on the Group at any given time.
SUPPLIERS AND CONTRACTORS
Sibanye has categorised its suppliers and contractors into three groups: strategic, tactical and local. Strategic suppliers provide services and products that could have a high impact on Sibanye’s operations, such as reagents and underground support. Without their inputs, production would be seriously hampered. Engagement with them is interactive and contracted to minimise any potential risk to production. Continuous innovation would enhance solutions and drive down costs. A highly interactive partnership ensures that Sibanye’s ability to produce is enhanced.
Tactical suppliers provide Sibanye with the bulk of the day-to-day goods and services required for production. Engagement with these suppliers takes place at an operational level and any issues are managed through the supply chain, which is bound by the Group’s procurement policy. The quality and cost of goods and services are managed through tenders and the ordering process.
Local suppliers are small, medium and micro enterprises (SMMEs) within communities around Sibanye’s operations. Engagement is highly active as the Group needs to develop and grow these suppliers to enable them to support local economic development (LED) and job creation. The skills and experience of local suppliers need to be developed and enhanced to ensure good-quality and sustainable supply of goods and services. These stakeholders expect to play an active and sizeable role in Sibanye’s supply chain.
CHAMBER OF MINES AND INDUSTRY PEERS
Sibanye engages regularly with its peers in the gold, platinum, coal and bulk minerals segments. Collaborative engagement, involving non-competitive issues of common interest, is more prevalent in the gold sector with information and other lessons, particularly sharing health and safety management and community engagement, and collaboration is actively pursued where it can be more effective. The Group also co-operates in strategic industry interventions with potential for synergies. Co-operation is based on agreed mechanisms for and mature rules of engagement. Among gold-mining companies, particularly, co-operation to promote achievement of common goals is strong.
The Chamber of Mines, which plays an important role in expediting peer engagement and in lobbying national government on behalf of the industry, protects the collective interests of mining companies and promotes a positive image of the mining sector as being progressive, transformed and effective, in consultation with other national stakeholders. Chamber membership is voluntary and most major South African mining companies are members.
The Chamber provides a platform, through company representation on collective committee structures, to discuss matters of strategic importance to the mining industry and to provide a mandate to the Chamber. Experts within the Chamber provide leadership in strategic thinking on a broad range of policy domains. Established communication channels are in place to secure strong alignment between the Chamber and its members.
EMPLOYEES AND ORGANISED LABOUR
Sibanye employs 46,269 people with a diverse set of skills, and various educational and cultural backgrounds. They provide services ranging from core mining to processing and support services. Engagement varies, based on the nature of the issue and level of employee. Engagement with management is generally constructive.
Allied to engagement with employees is engagement with organised labour, which includes unions representing certain employee categories, principally those involved in core mining and processing. The unions with whom Sibanye engages are AMCU, the National Union of Mineworkers (NUM), the United Association of South Africa (UASA) and Solidarity. The nature of this engagement is formal. Wage negotiations, conducted collectively for the gold producers under the auspices of the Chamber of Mines, are the most visible subject in union engagement. Inter-union rivalry and its effects are a major concern. Sibanye’s engagement and interaction with the unions is generally respectful and constructive.
Since listing, Sibanye has made significant effort to re-establish direct lines of communication with its employees. Given the close contact and consistent communication, there has been a shift from an adversarial to a more collaborative approach, albeit with some level of scepticism. Sustainable employment, higher wages and benefits are the main tangible employee expectations. However, they also expect a relationship based on values. Union relationships tend to be more complex with a clear political influence affecting relations. The quality of the relationship with employees is evident in greater participation in Group programmes, feedback and the degree of workplace disruptions.
COMMUNITY AND CONSULTATIVE FORUMS
Communities in the vicinity of and affected by Sibanye’s operations, together with those in the Southern African Development Community (SADC) labour-sending areas, are an important stakeholder grouping. Engagement is undertaken with formal and informal representatives through community and consultative forums as well as civic groups, non-governmental organisations (NGOs), and other special-interest groups. These forums, which are often multi-stakeholder in nature, comprise local community leaders and representatives as well as local government officials. They address issues of mutual concern, such as employment and LED, especially business development and access to supply chain opportunities. The forums have introduced greater degrees of transparency and openness between Sibanye and communities. Ongoing, structured engagement facilitates positive dialogue to identify and address the negative impacts of mining on communities. The chief focus is to identify, discuss and resolve issues affecting communities.
REGULATOR, NATIONAL, PROVINCIAL AND LOCAL GOVERNMENT
Sibanye engages with all levels of government and various government departments but principally with office bearers based in the Gauteng and Free State, as well as (following the Burnstone acquisition) the Mpumalanga regional offices of the DMR regarding safety and mining rights. Other departments with which Sibanye engages include environmental affairs, water and sanitation, labour, health and education, among others.
Engagement with the national offices is on an as-and-when-needed basis. Engagement is ongoing and generally robust yet constructive. Inconsistencies in the application of regulatory requirements and individuals’ preferences can be problematic, and engagement at local level is frequently included in the community and consultative forums in which local government is represented.
Other regulators with whom Sibanye engages are the National Nuclear Regulator and National Energy Regulator of South Africa as well as the JSE, the NYSE and US SEC regarding its stock-exchange listings.