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 regularly reviewed.
The Board will continue in 2024 to focus on the principal risks set out
hereunder and also attempt to identify any further emerging risks in a
fast-changing environment.
This summary should be read in conjunction with material issues set out in this report.
Principal risks
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 projects.
- 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 wherever possible.
- 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. 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 financing.
- Empowerment credentials: In this regard see our commentary
in the material issues section of this report and the chairperson's report of this report.
See stakeholders for more information on Merafe's and the Venture's risks and stakeholder engagement.