Organisational Overview / Our most material issues
Our most material issues
MATERIALITY DETERMINATION PROCESS
- The Board sets and approves three-year strategic plans for the Company. On an annual basis the Board reviews and adjusts the strategic plan
- The Board, through the Audit and Risk Committee and Board strategic workshops, annually considers the risks (see Approach to risk management) the
Company may face and a risk matrix listing the risks and their importance is updated quarterly. There are approximately four Board and separate
Board committee meetings during a year and further separate executive, management and Board strategy sessions to set a new strategic plan
and/or assess the current plan in operation.
- Key to our process is consultation with stakeholders (see Stakeholders). Stakeholder feedback is then discussed at management,
executive and Board strategic meetings and incorporated into the strategic plan and risk register.
- The executive and management of Merafe participate in the Venture (including participation in executive and Board meetings of the Venture),
which assists with the assessment and consideration of the Venture's material issues (see Our approach to governance).
- During the integrated reporting process, the Board and its committees assess the report to ensure that our reporting is aligned in terms of
strategy, key risks and issues material to both Merafe and its stakeholders.
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 below.
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, then demand increases and prices tend to follow suit. The volatility of the Rand/US Dollar exchange rate also affects our profitability. In the current financial year, for instance, the weakening of the Rand against the US Dollar improved our profitability. All our stakeholders are affected by our ability to be profitable and sustainable. Global conflict and the Russia/Ukraine conflict might affect markets.
We cannot influence the Rand/US 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. The Venture will monitor the Russia/Ukraine and other global conflicts and manage any situation which has the potential of affecting operations negatively.
COVID-19 is a pandemic that destabilised nations in 2020 and had a negative impact on our employees, our operations and the global environment. COVID-19 continued into 2022, but the impact on the operations was less severe. However, the zero COVID-19 policy of China is relevant to the industry and might affect the markets.
Our operations’ response to the COVID-19 pandemic in 2020 and 2021 was to create awareness, training and education videos, as well as providing face masks, personal thermometers and information to all employees and contractors. Operations continue to adapt with a view to working efficiently and without much interruption in the face of the pandemic.
OUR SOCIAL LICENSE TO OPERATE
Dissatisfied communities embarking on action to remove the Venture's social license to operate would create an unsustainable working environment as well as 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.
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 inour operating context mitigate this risk of exposure to one commodity. 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 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.
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 team.
These credentials are important to maintain a competitive advantage. Any future acquisition in the mining industry will require empowerment to be ensured.
In 2015 Glencore BV acquired the shares of Royal BafokengHoldings 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 continue to be a focus.
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 products 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.
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, the 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.
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.
CHROME ORE EXPORTS 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. Profitability would be negatively impacted and shareholders, Merafe management, Merafe employees, Venture partners, Venture employees and communities, as well as government stakeholders (for example SARS) would feel the effects of this issue.
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. The Venture supports a tax in chrome ore exports, and in October 2020, cabinet announced the introduction of a chrome ore export tax. Details are awaited around implementation by government.
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 a 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, employees, communities and customers.
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.
Climate change can impact business continuity and 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.
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 reuse a large proportion of water and we have access to underground water. In 2017, the Venture embarked, as part of its water conservation and water demand management strategy, to implement compressive model base water balance at all our sites. All of the mines and two of the smelters were completed during 2017 and the rest of the smelters were completed during 2018. The water reticulation is 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.