Approach to risk management
The Merafe Board is responsible for our governance of risk and for setting
levels of risk tolerance. It has tasked the Audit and Risk Committee with
assisting the Board in carrying out its risk responsibilities. The process of risk
management has been delegated to management and the Audit and Risk
Committee, acting on behalf of the Board, ensures that there is ongoing
assessment and monitoring of our risks. The Merafe Executive Committee
is accountable to the Board for designing, implementing and monitoring
Merafe's risk management processes and senior managers are responsible
for effectively managing risks within their respective areas of responsibility.
Merafe's risk management policy and framework describes our risk management philosophy, approach and
process and guides the implementation of our risk management process in
a uniform manner across the Company.
Certain risks are inherent in a mining business and these need to be
managed effectively. The Venture's risk management system allows it to
pursue business opportunities and grow shareholder value, while at the
same time developing and protecting its people, assets, environment and
reputation. Its processes are defined within a risk framework that is well
understood across its operations.
Both Merafe and the Venture undertake comprehensive quarterly risk
reviews, the results of which are included in their annual business plans and
The Board will continue in 2023 to focus on the principal risks set out
hereunder and also attempt to identify any further emerging risks in a
This summary should be read in conjunction with material issues set out in
this report .
Our principal risks, which include risks related to the Venture, are the following:
- The possible negative impact on our earnings of commodity price
volatility, currency exchange rate fluctuations and the health of the global
economy. Controlling costs is the most effective manner to weather
such volatility and the Venture prides itself on being a low-cost producer
and cost control is a key management performance measurement.
The Venture's development of cost-efficient proprietary technology
plays a significant part in its cost reduction. We are also engaging
with government regarding carbon taxes and electricity costs. The
preventative actions the Venture takes to reduce the impact of such
volatility, which include managing production levels, scaling down
mining and smelting activities during downturns in global demand and
maintaining its position as the lowest cost ferrochrome producer in South
Africa, are described in the principal risks and uncertainties table.
- Lack of reliable and competitively priced energy supply could impact the
Venture's ability to operate. The Venture has an ongoing programme,
and is engaged with various governmental departments, to assess
and monitor energy-related risks, including scenario analyses. We also
manage the risk by implementing energy-efficiency plans and assessing
the risks associated with energy supply at the design phase of our
- The Venture operates in a high-risk safety environment, with potential
injuries, illnesses and fatalities being inherent to the Venture's
operations. As such, the company is subject to extensive health, safety
and environmental regulations and legislation as well as community
expectations. The Venture has invested heavily in workplace safety
training, programmes and initiatives to promote and reward safe
behaviour at all of our operations by all of our employees and adopting a
zero-tolerance policy to non-adherence of these requirements.
HIV and Aids and other diseases (such as the current COVID-19
pandemic) remain major healthcare challenges for our industry, and if
the Venture's employees suffer from symptoms associated with any of
these diseases it could have a negative impact on its production levels
and our profitability. The Venture gives these issues priority and significant
resources are committed to providing a safe and healthy workplace,
keeping our impact on the environment to a minimum and addressing
the impact of HIV and Aids and other diseases on our employees and the
communities in the vicinity of our operations.
A possible tailings facility/dam failure as well as any insufficient capacity
at any of the facilities represent significant risks to the operations and
reputation of the Venture. Our tailings dams are regularly monitored by
competent engineers to ensure that any risks of failure are detected
promptly to allow corrective measures to be implemented. Capacity
monitoring technologies are also employed to ensure that sufficient
capacity is available as and when required.
- The Department of Water and Sanitation are planning on the
implementation of substantial increases in water tariffs over the next
three to ten years with increased requests from governmental institutions
for mining houses to invest in water infrastructure to assist in providing
a secure water supply. This could increase production costs and limit
expansion potential of the Venture's operations. Actions to mitigate this
risk are the implementation of contracts undertaken with water providers,
as well as the increase of reservoir facilities to ensure constant supply
when water is scarce. The Venture has also successfully reduced its water
consumption per tonne of product produced.
- A breach in the Venture's Information Technology (IT) system by
fraudsters in an attempt to gain confidential information or to sabotage
the operation of the company could result in external parties having
access to confidential and sensitive information that can be used against
the company. Furthermore, systems could become unavailable or not
function correctly. The Venture makes significant investments in
IT security measures to minimise the risk of potential breaches
- The socio-political and economic climate in South Africa (especially in
light of the COVID-19 pandemic and the current electricity/energy crisis)
has seen a significant increase in unemployment in the country. This
scenario creates opportunities for increased crime and industrial unrest,
causing the risk of the Venture not winning broad support for its activities
from local communities.
Both of these possibilities could result in disruptions affecting our
profitability. To reduce these risks, the Venture's stakeholder engagement
and responsiveness efforts play a critical role. In addition, Merafe and
the Venture invest in social and labour plan commitments, which include
local economic development, healthcare and education projects. We also
invest in corporate social responsibility initiatives.
- Delays or non-delivery of final product to customers could occur should
any breakdowns in the supply chain be experienced. The COVID-19
pandemic and the current electricity/energy crisis has highlighted this
uncertainty, with border challenges experienced throughout 2021 which
remained uncertain into 2022. Additional storage facilities have been
secured at various ports to ensure that stock holdings are available when
and as required to meet contractual deliveries.
- Any disruption in the supply of raw materials to the production process
could have detrimental consequences on the Venture's ability to operate.
Supply contracts are entered into as far as possible to secure delivery and
raw material stock holdings have been increased to ensure that enough is
available should an industry shortage be experienced.
- A lack of key and skilled employees within the business to support the
transformation strategy of the Venture could result in financial loss and
reputational damage. The Venture continues to implement management
retention strategies and staff training programmes to enhance the
transformation of the group. Investors' negative perceptions of the South
African mining industry impact on investors' appetite for investment in
South African mining stocks. Merafe focuses on maintaining relationships
with our existing investors and building new relationships. To achieve
this our team regularly makes presentations and has discussions with
investors and potential investors. We also keep investors informed
through our reporting and our website.
- Inability to obtain debt finance due to a downgrading of Merafe's credit
status could adversely affect our financial position. To counteract this
risk we maintain a strong balance sheet, low gearing, a good reputation
and relationship with our bankers and have tangible assets to secure
- Empowerment credentials: In this regard see our commentary in the
material issues section in this report and the chairperson's
report in this report.
See stakeholders for more information on
Merafe's and the Venture's risks and stakeholder engagement.