Organisational Overview / Our most material issues
Our most material issues
MATERIALITY DETERMINATION PROCESS
The directors’ statement regarding the materiality determination process
As the Board of Merafe, we acknowledge our responsibility to ensure the integrity
of the Integrated Annual Report, including the determination of material issues. We
acknowledge that we have applied our collective mind in determining the material
issues for Merafe and have used the materiality process described
We believe that this process is suitably designed to identify our material issues. The material issues disclosed in this
section accurately reflect the outcome of this process and have taken into consideration our business model, operating
context, stakeholder concerns and strategic plan.
Global economic environment
The global economic environment can have a
positive or negative impact on the demand for the
ferrochrome and chrome ore that the Venture
produces. When it is doing well, demand
increases and prices tend to follow suit. The
volatility of the ZAR:USD exchange rate also
affects our profitability. In the current financial
year, for instance, the weakening of the rand
against the US dollar again improved our
profitability. All our stakeholders are affected by
our ability to be profitable and sustainable. Global
conflict and the Russia/Ukraine and the Middle
East conflict might affect markets.
We cannot influence the ZAR:USD 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 one of the efficient producers in South Africa.
The Venture will monitor the conflicts in Russia/Ukraine and the Middle
East as well as other global conflicts and attempt to manage any
situation which has the potential of affecting operations negatively.
Power prices and the availability of electricity
Loss of sales is highly likely if increased costs
make our product prices uncompetitive. A further
possible impact is the loss of production because
of electricity shortages. Should the Venture be
unable to secure 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, Venture employees, communities
and customers
The Venture’s continued development and application of energy-efficient
technology has allowed it to sustain its relevance in the ferrochrome
industry. The Venture regularly engages with Eskom and is represented
on the Energy Intensive User Group. The concluded Negotiated Pricing
Agreements with Eskom provide pricing certainty and alternative energy
sources that are being explored will help with power availability and
pricing. The Venture's strategy to explore and exploit alternative sources
of energy should mitigate this issue. See
natural capital.
Infrastructure and logistics
The deterioration of South African infrastructure
and associated services (railways and harbours)
impacts the reliability of delivery of the Venture’s
products. It also impacts the transportation of raw
materials to our operations.
The Venture uses different ports for product delivery. Road haulers are
also used to complement other transportation modes.
The Venture will continue to engage proactively with key stakeholders to
attempt to find solutions to critical logistics issues which have worsened
over the years
Climate change
Climate change can impact business continuity,
profitability, health and safety and 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.
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. See natural capital.
Water
Water is an important input in our operations.
All stakeholders are impacted by this issue.
With regard to water, we ensure that we have adequate supply and
storage facilities. We have access to different water schemes. We re-use
a large proportion of water and we have access to underground water.
In 2017, as part of its water conservation and water demand
management strategy, the Venture implemented compressive model
base water balance at all our sites. All of the mines and water reticulation
are comprehensively mapped and assimilated into the model to ensure
all water streams are covered. The models also have a predictive
function, which simulates any process changes to assess the impact on
the whole water reticulation system.
Our social licence to operate
Dissatisfied communities embarking on action to
remove the Venture’s social licence to operate
would create an unsustainable working
environment and cause significant reputational
damage. Communities, investors, the Department
of Mineral Resources (DMRE), employees and
local municipalities would all be affected.
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.
See social capital and stakeholder responsiveness.
Exposure to one commodity
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.
In August 2014, the Board announced its strategy to focus mainly on
ferrochrome and chrome in the medium-term and this was the main
focus from 2015 to date. The Board, by participating in the Venture,
ensures that the competitive advantages enjoyed by the Venture as set
out on
Organisational overview mitigate this risk of exposure to one commodity. The
Venture has since exploited the opportunity to produce platinum group
metals as a consequence of these being associated minerals in the
production of chrome ore. The Company, however, will also consider
acquisitions outside of ferrochrome on an opportunistic basis.
Venture in which we do not have a majority stake
By not having a majority stake in the Venture,
decisions that are taken in the best interest of the
Venture may on the other hand negatively impact
Merafe.
Contractual provisions and partnering with a world-class operator and
global ferrochrome leader are all helpful in bolstering our overall
sustainability. We continually strive to ensure the interests of both
partners in the Venture are aligned and to maintain strong relationships
based on mutual respect between both management teams.
Empowerment credentials
These credentials are important to maintain a
competitive advantage. Any future acquisitions in
the mining industry will require empowerment to
be ensured.
In 2015 Glencore BV acquired the shares of Royal Bafokeng Holdings
Limited. The “once empowered, always empowered” principle allows the
company to benefit from continued recognition of black ownership. The
empowerment credentials of Merafe and the Venture however continue
to be a focus.
Safety, health and wellbeing of Merafe's employees and the Venture's employees and contractors
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, DMRE, Mine Health
and Safety Inspectorate, trade unions and
investors.
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.
See
human capital
.
Industrial action in the mining industry and in particular in the operations of the Venture
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 their families, communities, the
DMRE and shareholders.
Communication and mutual understanding and respect are fostered
daily with employees to enhance the working relationship. 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 an agreement on
annual wage increases.
See
human capital.
Chrome ore imports into China
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
Our operating context. Profitability would be negatively
impacted as would shareholders, Merafe
management, Merafe employees, Venture
partners, Venture employees and communities,
as well as government stakeholders e.g. South
African Revenue Service (SARS).
The Venture further believes that market forces over the medium term
will reduce this risk (see the
Chief Executive Officer’s strategic review and the graphs on
below ). The Venture supports a tax
on chrome ore exports, and in October 2020, cabinet announced the
introduction of a chrome ore export tax. Details however are still awaited
around implementation by government. Should market dictates force the
Venture to pivot away from smelting, we believe that our significant and
quality reserves and resources, and our efficient operations and
experienced management team should position us well to be a
competitive miner.