Our most material issues

Merafe determines its material issues at board and executive level workshops during which we considered financial and non-financial information, the issues driving our sustainability and their possible impact on Merafe and its stakeholders.

In order to make informed decisions and take appropriate action Merafe and its stakeholders need to identify the issues material to the sustainability of our business. The stakeholders that could be affected by these issues include our employees, shareholders, our partners in the Glencore-Merafe Chrome Venture (the Venture), the Venture’s employees, trade unions, the communities in which the Venture operates, government at local, provincial and national level (in particular the Department of Mineral Resources (DMR) and the South African Revenue Services (SARS)).

We determined our material issues at board and executive level workshops during which we considered financial and non-financial information, the issues driving our sustainability and their possible impact on Merafe and its stakeholders.

   Global economic environment

Possible impact
The global economic environment can have a positive or negative impact on the demand for the ferrochrome and chrome ore the Venture produces. When it is doing well then demand increases and prices tend to follow suit. The volatility of the Rand/Dollar exchange rate also affects our profitability. This year, for instance, the fall in the value of the Rand against the Dollar has increased our profitability. All our stakeholders are affected by our ability to be profitable and sustainable.
How we responded to the risks and opportunities during 2015
We cannot influence the Rand/Dollar exchange rate or the global economy, and market demand dictates the price of ferrochrome. Both Merafe and the Venture can, however, take action to contain costs and remain profitable. The Venture’s investment in increasing the energy efficiency of its operations and reducing the cost of the reductants makes it the lowest-cost producer in South Africa.

  Exposure to one commodity

Possible impact
Diversification into other commodities would provide us with a buffer against the cyclical nature of ferrochrome which can and has negatively impacted our profitability in certain years. This issue could impact our shareholders, management and employees.
How we responded to the risks and opportunities during 2015
In August 2014, the Board announced its strategy to solely focus on ferrochrome and chrome in the medium term. The Board is confident that the competitive advantages enjoyed by the Venture as set out on Our operating context mitigate this risk.

  Venture in which we do not have a majority stake

Possible impact
By not being in control of our own destiny we could be negatively impacted by such a partnership. Decisions taken in the best interest of the Venture may on the other hand negatively impact Merafe. Both shareholders and employees stand to be affected by this issue.
How we responded to the risks and opportunities during 2015
Contractual provisions and increased participation interest, in addition to partnering with a world-class operator and global ferrochrome leader, are all helpful in bolstering our overall sustainability. We also benefit from economies of scale. We continually strive to ensure the interests of both partners in the Venture are aligned and to maintain strong relationships between both management teams based on mutual respect.

  Empowerment credentials

Possible impact
These credentials are important to maintain a competitive advantage and they also affect the empowerment status of the Venture.
How we responded to the risks and opportunities during 2015
In 2015 Glencore BV acquired the shares of Royal Bafokeng Holdings in the Company. The industry is awaiting clarity regarding the once empowered always empowered principle. See the Chairmain’s report on Chairman's report for more details.

  Safety, health and wellbeing of Merafe’s employees and the Venture’s employees and contractors

Possible impact
Maintaining a safe and healthy environment is one of the cornerstones of our success. Employee morale is affected by how we manage this issue. Significant reputational damage is also a key factor. This issue could impact employees, contractors and their families; the Department of Mineral Resources (DMR) – Mine Health and Safety Inspectorate; trade unions and investors.
How we responded to the risks and opportunities during 2015
The Venture invests in safety training and efforts to transform its safety culture into one where every employee takes responsibility for their safety and that of their fellow employees.

  Industrial action in the mining industry and in particular in the operations of the Glencore-Merafe Chrome Venture

Possible impact
Loss of production impacts on profitability. We also need to consider increased costs and the possible damage to property. The safety of the Venture’s employees is also at risk; intimidation of employees by strikers and a breakdown in the relationship with Venture employees are all important factors affecting not only Venture employees but families, communities, DMR and shareholders.
How we responded to the risks and opportunities during 2015
Communication and mutual understanding and respect are fostered daily with employees. We also invest time and effort in establishing an understanding with the trade unions. The Venture also abides by the collective agreements in place and negotiates with the unions with the aim of reaching agreement on annual wage increases.

  Our social licence to operate

Possible impact
Dissatisfied communities embarking on action to remove the Venture’s social licence to operate would create an unsustainable working environment as well as cause significant reputational damage. Communities, investors, DMR, employees and local municipalities would all be affected.
How we responded to the risks and opportunities during 2015
Community social issues are addressed regularly with goodwill, commitment and leadership. By addressing social issues the South African mining industry can achieve a more sustainable environment for itself and the communities in which it operates.

  Chrome ore exports to China

Possible impact
Ferrochrome sales to China are impacted by the export of unbeneficiated chrome ore from South Africa, which is facilitating the growth of a ferrochrome industry in China (see CEO's strategic review of this report). Profitability would be negatively impacted and shareholders, Merafe management, Merafe employees, Venture partners, Venture employees and communities, as well as government (SARS) would feel the effects.
How we responded to the risks and opportunities during 2015
Pending support from government the strategy of being the lowest-cost producer mitigates this risk. The Venture further believes that market forces over the medium term will reduce this risk.

  Power prices and the availability of electricity

Possible impact
Loss of sales is highly likely if increased costs make our product prices uncompetitive. A further possible impact is a loss of production because of electricity not being available. Should the Venture be unable to secure an electricity supply for new projects, it would be unable to grow its operations. This issue could impact shareholders, Merafe management and employees as well as Venture management, employees, communities and customers.
How we responded to the risks and opportunities during 2015
The Venture’s continued development and application of energy-efficient technology allows it to maintain its position as South Africa’s lowest-cost producer of ferrochrome and therefore the most competitive South African producer. The Venture regularly engages with Eskom and is represented on the Energy Intensive User Group (see Natural capital of the our online report).

  Climate change and water

Possible impact
Climate change can impact business continuity and profitability; health and safety; environmental aspects. The Venture’s operations give rise to a significant quantity of indirect and direct greenhouse gas (GHG) emissions and are also exposed to the potential impacts of climate change resulting from GHGs. Water is also an important input in our operations. All stakeholders are impacted by this issue.
How we responded to the risks and opportunities during 2015
The Venture continually engages with legislators, researchers and industry bodies to track and evaluate the situation and develop an improved awareness of and preparation for the risks associated with climate change. The Venture continues to take steps to reduce its carbon footprint. These include the development of energy-efficient technology and research into the use of alternative sources of energy. With regard to water we ensure we have adequate supply and storage facilities. We have access to different water schemes, we reuse a large portion of water and we have access to underground water.

 

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