EXECUTIVE
CHAIRMAN’S
REPORT

Dr Patrice Motsepe
Executive Chairman
DEAR SHAREHOLDER AND STAKEHOLDER
I am pleased to report a 20% increase in adjusted headline earnings for the 2018 financial year (F2018) driven mainly by an improvement in US Dollar prices for most of the commodities that we produce. Management also initiated successful interventions to maximise revenue, contain unit cost increases and address marginal assets.
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CHIEF EXECUTIVE
OFFICER’S
REPORT

Mike Schmidt
Chief Executive Officer
After approximately two years of extensive initiatives to address loss-making operations we are pleased that in the financial year under review all continuing operations reported positive headline earnings. Lubambe Mine, which was sold in December 2017, reported a headline loss of R6 million.
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FINANCIAL
REVIEW

Abigail M Mukhuba
Finance Director
ARM, ARM Coal, Glencore and Glencore Operations South Africa (GOSA) successfully concluded the restructuring of ARM Coal debt on 25 June 2018, with an effective date of 1 July 2017.
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OUR VALUES

Our management style is supported by our values, which guide the way we conduct our business.

Aim for operational excellence.
Provide a safe and healthy work environment for all our employees.
Maintain a non-discriminatory workplace.
Improve the lives of those living in the communities where we operate.
Work responsibly to achieve the balance between the economic, social and environmental aspects of our business.
Maintain the highest standards of corporate governance.
We do it better

STRUCTURE

  1. ARM’s effective interest in Modikwa Mine is 41.5%, local communities hold 8.5%.
  2. ARM’s interest in Two Rivers Mine increased to 54% from 9 November 2017 when the mine’s amended mining right was executed by the Department of Mineral Resources.
  3. ARM’s effective interest in GGV Mine is 26% and 20.2% in PCB.
  4. The disposal of ARM’s 40% effective interest in Lubambe and Lubambe Extension Area was completed on 22 December 2017.
  5. As at 30 June 2018, ARM’s shareholding in Harmony was 12.70%. On 17 July 2018, ARM subscribed to approximately 11 million Harmony shares increasing ARM’s shareholding to 14.6%.

WHERE WE OPERATE

SOUTH AFRICA

MALAYSIA

NORTHERN CAPE NORTH WEST MPUMALANGA LIMPOPO KWAZULU-NATAL MACHADODORP FERROMANGANESE AND FERROCHROME WORKS CATO RIDGE FERROMANGANESE WORKS MODIKWA PLATINUM MINE NCHWANING AND GLORIA MANGANESE ORE MINES TWO RIVERS PLATINUM MINE NKOMATI GOEDGEVONDEN (GGV) COAL MINE PARTICIPATING COAL BUSINESS KHUMANI IRON ORE MINE BEESHOEK IRON ORE MINE
South China Sea Brunei SABAH SARAWAK SAKURA FERROALLOYS WORKS

Modikwa: Platinum Mine

6E PGM metals

Underground

333 888 6E PGM oz

More than 30 years

4 577

0.72

70th percentile

Goedgevonden (GGV): Coal Mine

Thermal coal

Open pit

6.0 Mt saleable thermal coal

22 years

Not reported by ARM

Not reported by ARM

35th percentile

Participating Coal Business (PCB)

Thermal coal

Open pit and underground mechanised

16.6 Mt saleable thermal coal

21 years

Not reported by ARM

Not reported by ARM

30th percentile

Two Rivers: Platinum Mine

6E PGM metals

Underground mechanised

348 405 6E PGM oz

More than 30 years

3 192

0.39

27th percentile

Sakura: Ferroalloys Works

Ferromanganese

Smelter

129 kt ferromanganese

More than 30 years

Not reported by ARM

Not reported by ARM

45th percentile

Nchwaning and Gloria: Manganese Ore Mines (collectively Black Rock Mine)

Manganese ore

Underground mechanised

3.7 Mt manganese ore

More than 30 years

4 623

0.20

40th percentile

Khumani Mine: Iron Ore Mine

Iron ore

Open pit

14.7 Mt iron ore

22 years

5 066

0.10

55th percentile

Cato Ridge: Ferromanganese Works

Ferromanganese

Smelter

138 kt ferromanganese

612

0

80th percentile

Beeshoek: Iron Ore Mine

Iron ore

Open pit

3.9 Mt iron ore

8 years

1 378

0.07

65th percentile

Nkomati: Nickel Mine

Nickel, PGMs, chrome, copper, cobalt

Open pit

13.3 kt nickel, 110 koz PGM, 328 kt chrome, 7 kt copper, 1 kt cobalt

10 years

2 069

0.30

62nd percentile

Goedgevonden (GGV): Coal Mine

Thermal coal

Open pit

6.0 Mt saleable thermal coal

22 years

Not reported by ARM

Not reported by ARM

35th percentile

Participating Coal Business (PCB)

Thermal coal

Open pit and underground mechanised

16.6 Mt saleable thermal coal

21 years

Not reported by ARM

Not reported by ARM

30th percentile

Modikwa Platinum Mine

6E PGM metals

Underground

333 888 6E PGM oz

More than 30 years

4 577

0.72

70th percentile

Two Rivers: Platinum Mine

6E PGM metals

Underground mechanised

348 405 6E PGM oz

More than 30 years

3 192

0.39

27th percentile

Nkomati: Nickel Mine

Nickel, PGMs, chrome, copper, cobalt

Open pit

13.3 kt nickel, 110 koz PGM, 328 kt chrome, 7 kt copper, 1 kt cobalt

10 years

2 069

0.30

62nd percentile

Nchwaning and Gloria: Manganese Ore Mines (collectively Black Rock Mine)

Manganese ore

Underground mechanised

3.7 Mt manganese ore

More than 30 years

4 623

0.20

40th percentile

Iron ore

Open pit

14.7 Mt iron ore

22 years

5 066

0.10

55th percentile

Ferromanganese

Smelter

138 kt ferromanganese

612

0

80th percentile

Beeshoek: Iron Ore Mine

Iron ore

Open pit

3.9 Mt iron ore

8 years

1 378

0.07

65th percentile

Sakura: Ferroalloys Works

Ferromanganese

Smelter

129 kt ferromanganese

More than 30 years

Not reported by ARM

Not reported by ARM

45th percentile

MATERIAL MATTERS

ARM’s material matters are determined at the Board, executive and operational level by considering the financial and non-financial risks, opportunities and other factors that affect ARM’s strategy, performance, prospects, stakeholders and governance. They represent the matters that have the biggest potential impact on stakeholders and on ARM’s ability to create long-term sustainable value.

DELIVERING FINANCIAL RETURNS TO SHAREHOLDERS AND OTHER PROVIDERS OF CAPITAL
Components of the material matter:
  • Commodity price and exchange rate fluctuations;
  • Cost escalations;
  • Addressing loss-making operations;
  • Long-term business strategy;
  • Capital allocation; and
  • Political and fiscal risks.
F2018 PERFORMANCE
Headline earnings per share
F2018: 2 526 cents per share
F2017: 1 684 cents per share
Headline earnings per share
F2018: 2 526 cents per share
F2017: 1 684 cents per share
F2019 OBJECTIVES
  • Maintain positive headline earnings at all operations.
CONTINUOUSLY IMPROVING OPERATIONAL PERFORMANCE
Components of the material matter:
  • Operational efficiencies;
  • Technological advancements;
  • Efficient use of natural resources;
  • Access to infrastructure and logistics; and
  • Legal compliance and effective governance.
F2018 PERFORMANCE
Volumes
F2018: Each operation’s volume performance against target is included in the scorecards in the Operational reviews.
Changes in unit costs
F2018: The iron ore, Sakura and Cato Ridge operations achieved below inflation unit cost increases. Unit costs increased above inflation at the coal, PGM, nickel and manganese ore operations.
F2019 OBJECTIVES
  • Volumes
Each operation’s volume guidance is provided in the outlook section of the Operational reviews.
  • Changes in unit costs
Achieve below mining inflation unit cost increases at all operations.
MAINTAINING OUR SOCIAL LICENCE TO OPERATE
Components of the material matter:
  • Relationships with key stakeholders, particularly host communities and labour;
  • Corporate social responsibility;
  • Relevant legislation;
  • Socio-political stability; and
  • Ethical business conduct.
F2018 PERFORMANCE
CSR expenditure
F2018: R156 million
F2017: R115 million
F2019 OBJECTIVES
  • CSR expenditure
Continue to invest in our host communities.
  • Ethics
Roll out the 2019 edition of the Code of Conduct training for employees.
ENSURING A SAFE, HEALTHY AND APPROPRIATELY SKILLED WORKFORCE
Components of the material matter:
  • Commitment to zero harm;
  • Attracting and retaining key skills;
  • Investing in the development and skills of the workforce;
  • Fostering diversity in the workplace; and
  • Maintaining good relationships with our employees and organised labour.
F2018 PERFORMANCE
Fatalities
F2018: 1
F2017: 0
LTIFR per 200 000 man-hours
F2018: 0.38
F2017: 0.28
Historically Disadvantaged South Africans (HDSA) representation in management
F2018: 61%
F2017: 55%
Number of women in the workforce
F2018: 12%
F2017: 12%
Training expenditure
F2018: R239 million (9% of payroll)
F2017: R180 million (6% of payroll)
F2019 OBJECTIVES
  • Fatalities
Zero.
  • LTIFR
Continued reduction in LTIFR towards zero harm.
  • HDSA in management
Improve the HDSA representation in management.
  • Number of women in the workforce
Improve the number of women in the workforce.
  • Training expenditure
Uphold and improve the current level of training expenditure.
ENSURING RESPONSIBLE STEWARDSHIP OF OUR NATURAL RESOURCES
Components of the material matter:
  • Climate change;
  • Efficient energy use;
  • Water management;
  • Reducing and responsible disposal of waste; and
  • Biodiversity, closure and rehabilitation.
F2018 PERFORMANCE *
Scope 1 and 2 carbon footprint
Target: 5% absolute reduction relative to the F2014 baseline.
F2018: 1.03m tCO2e (16% decrease vs F2014 – material reduction due to divestment of Dwarsrivier Mine and reduced production rates at our smelters)
F2017: 1.05m tCO2e
Electricity consumption
F2018: 1 656 GWh (0.03 MWh per man-hour)
F2017: 1 785 GWh (0.04 MWh per man‑hour)
Water abstracted
F2018: 18.3 million m3 (0.38 m3per man‑hour)
F2017: 14.3 million m3 (0.31 m3 per man‑hour)
* F2018 environmental data excludes Lubambe Mine.
F2019 OBJECTIVES
  • Scope 1 and 2 carbon footprint
Continued reduction in Scope 1 and 2 emissions.
  • Electricity consumption
Increase efficiencies.
  • Water abstracted
Further improve efficient use of water.
Further improve water accounting at operational level.
Strengthen stakeholder engagement at the catchment level.

HOW WE CREATE VALUE

FINANCIAL CAPITAL PEOPLE RELATIONSHIP NATURAL CAPITAL MANUFACTURED ASSETS INNOVATION BUSNESS PROCESS
FINANCIAL CAPITAL
INPUTS
Financial capital refers to our assets (including cash balances), cash flow from operations and funding from shareholders and other providers of capital.
OUTCOMES
>
R1 714 million paid as dividends to ARM shareholders (F2017: R426 million).
>
R394 million paid to finance providers (F2017: R471 million).
>
R2 739 million paid as taxes and royalties (F2017: R1 518 million).
PEOPLE
INPUTS
Our people are crucial to achieving our strategic objectives and creating value for all stakeholders. We aim to maintain a safe, healthy and non-discriminatory work environment for all our employees and ensure that our operations are adequately resourced with skilled, engaged and motivated employees. The Board provides strategic direction and leadership, monitors the implementation of business and strategic plans and approves the capital funding for these plans to support a sustainable business.
OUTCOMES
>
One fatality was recorded at the operations directly managed by ARM.
>
Increase in the LTIFR to 0.38 per 200 000 man-hours (F2017: 0.28).
>
R3 685 million paid to employees as salaries, wages and fringe benefits (F2017: R3 450 million).
>
9% of payroll invested on employee training (F2017: 6% of payroll).
>
Reskilling and redeployment of employees to production roles.
>
9% decrease in number of employees including contractors to 21 862 (F2017: 24 106).The F2018 number of employees excludes employees and contractors at Lubambe Mine.
RELATIONSHIPS
INPUTS
Relationships with all our stakeholders are key to the sustainability of our business. In particular, the relationships we have with our employees, host communities, regional and national governments, and regulators allow us our social licence to operate. We continue to engage and partner with these and other stakeholders consistent with our strategy.
OUTCOMES
>
R156 million invested in host communities through our CSR programmes (F2017: R115 million).
>
Preferential procurement exceeded Mining Charter targets.
NATURAL CAPITAL
INPUTS
The mineral resources and reserves in our portfolio represent the largest part of our natural capital. Other natural resources we use to extract and process the minerals that we mine include energy, water and land.
OUTCOMES
>
2% reduction in Scope 1 and 2 carbon emissions.*
>
Water abstracted increased by 28% to 18.3 million m3 (F2017: 14.3 million m3).*
>
Concurrent rehabilitation of land continued.
>
Responsible waste disposal.
* excludes Lubambe Mine.
INNOVATION
INPUTS
Access to and investment in innovation and technology allows ARM to continuously improve production processes. Mining is a technology intensive industry. The knowledge, experience and expertise that we have among our subject matter experts is key in differentiating ARM. Our innovation also includes information technology systems, risk management processes, research and development and our brand and reputation.
MANUFACTURED ASSETS
INPUTS
Our operations rely on above and below ground infrastructure and specialised equipment to extract and process the minerals that we mine. Efficient use of this infrastructure and equipment is crucial to cost-effective extraction and processing of our minerals.
OUTCOMES
>
R2 464 million invested as capital expenditure (on a segmental basis) (F2017: R2 383 million).