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.
Principal risks
Our principal risks, which include risks related to the Venture, are the following:
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The possible negative impact on our earnings of commodity price volatility,
currency exchange rate fluctuations and the health of the global economy. The
preventative actions the Venture takes to reduce the impact, 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 |
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Socio-political climate in South Africa, which includes industrial unrest and
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 |
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Investors’ negative perceptions of the South African mining industry impacts
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 travels to Europe, the United
States and Asia to meet with and make presentations to investors and potential
investors. We also keep investors informed through our reporting and our website |
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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 and a good reputation and
relationship with our bankers and have tangible assets to secure financing |
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Non-compliance with and changes to laws, regulations, taxes and mining
rights can result in extensive disruption to the Venture’s operations, loss
of revenue and fines. The loss of mining rights could affect our business.
The Venture and Merafe maintain extensive, transparent and open relationships
with regulators and local, regional and national government bodies. We keep
abreast of all changes to legislation and closely monitor compliance with it. The
Venture has achieved its mining scorecard targets |
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Empowerment credentials: in this regard see our commentary in Material Risk report and the Chairperson's report of this
report |
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Operational risks include a number of factors that are out of our control
including the availability of raw materials, water and power, unusual ground
conditions and the impact of climate change. To combat the impact of
these risks the Venture has a comprehensive programme in place to
identify, understand and manage the risks that could affect our business
and our operations. The risk registers of both Merafe and the Venture are
regularly updated |
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Chrome ore exports to China could undermine the South African ferrochrome
industry. The ferrochrome industry engaged with government to develop a
solution that will support government’s beneficiation and job creation strategies
and ensure the sustainability of South Africa’s ferrochrome industry. Any
change in circumstances for China, which include increased chrome ore
prices, freight rate increases and environmental issues covered, also reduce
the risk of China undermining our industry |
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Cost control is a key factor in the Venture’s competitiveness and profitability.
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-effective
proprietary technology plays a significant part in its cost reduction. We
are also engaging with government regarding carbon taxes and electricity costs |
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Lack of energy supplies could impact on the Venture’s ability to operate.
The Venture has an ongoing programme 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 |
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Emissions and climate change regulations could have an adverse impact on
our ability to maintain profitability and water scarcity has also become an issue
that could in future affect the Venture’s ability to operate. The Venture continually
engages with government and key policymakers to advocate a rational approach
to carbon taxes and it has reduced the carbon emissions attributable to the
electricity it purchases by improving the energy efficiency of its operations
and investigating the use of renewable energy sources. The Venture has also
successfully reduced its water consumption per tonne of product produced |
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The Venture’s operations are subject to extensive health, safety and
environmental (HSE) regulations and legislation and community expectations; HIV
and AIDS and associated disease remain the major healthcare challenges for our
industry and if the Venture’s employees suffer from symptoms associated with
HIV and AIDS 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 on our
employees and the communities in the vicinity of our operations |
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Loss of key and skilled employees, particularly to competitors, could result in
financial loss and reputational damage. The policy of both Merafe and the Venture
is to invest in future key contributors and to implement adequate notice periods |
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