Integrated annual report 2017

Integrated
annual report
2017

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Headline
earnings

R3 196 million

(F2016: R1 051 million)

Dividends
Declared

650 cents per share

(F2016: 225 cents per share)

Cash generated
from operations

R1 611 million

(F2016: R1 225 million)

Capital
expenditure

R1 022 million

(F2016: R930 million)

Read Group Financial Review >

Executive
chairman's report

Patrice Motsepe

After a few years of persistent headwinds in the global mining industry, the 2017 financial year (F2017) was characterised by an improved outlook as US Dollar prices for the commodities that ARM produces increased relative to the previous financial year.

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Chief executive
officer's report

Mike Schmidt

ARM is pleased to report a 204% increase in headline earnings for the year ended 30 June 2017. All the operational divisions reported an improvement in their headline earnings contribution.

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Our values

Our "We do it better" management style is supported by
values that guide the way we conduct our business.

Aim for operational excellence

through continuous improvement and by employing a leading practice sustainable development framework.

PROVIDE A SAFE AND HEALTHY WORK ENVIRONMENT FOR ALL OUR EMPLOYEES

and remain an employer of choice by continually investing in our people.

Maintain a non-discriminatory workplace

based on fairness and employment equity, fair labour practices and freedom of association, which empowers our employees to contribute to the best of their ability, offers them rewarding career opportunities and supports transformation in the South African mining industry.

Improve the lives of those living in the communities in which we operate

by creating jobs, investing in projects that directly benefit them, providing skills training that equip them for employment and supporting enterprise development in our host communities.

Work responsibly

to achieve the balance between the economic, social and environmental aspects of our business, all of which are essential to the sustainability of our Company.

Maintain the highest standard of corporate governance

Our structure

African Rainbow Minerals (ARM) is a leading South African diversified mining and
minerals company with long-life, low unit cost operations.

ARM mines and beneficiates Iron Ore, manganese ore, platinum group metals (PGMs), copper,
nickel and coal. Arm also produces manganese and chrome alloys and has
an investment in gold through it's shareholding in harmony.

our-structure
  1. ARM's effective interest in Modikwa Mine is 41.5%, local communities hold 8.5%.
  2. Two Rivers Mine received consent during August 2017 i) to transfer the Tamboti rights to it, and ii) to have its mining right amended accordingly. The amended mining right will be issued to Two Rivers imminently, at which point ARM's interest in Two Rivers will increase to 54%. margin-top: -200px; margin-right: 70px;
  3. ARM's effective interest in GGV Mine is 26% and 20.2% in PCB.
  4. ARM announced on 15 August 2017 that an agreement had been concluded for the disposal of its 40% effective interest in Lubambe Mine and Lubambe Extension Area.
  5. Completion of the disposal is subject to the fulfilment of conditions precedent.
Operational Reviews >

WHERE WE OPERATE

* Machadodorp Works is currently recovering ferrochrome from the historical slag dump through the metal recovery plant.

Khumani Mine

Iron Ore mine

  • Iron ore

  • Open pit

  • 14.5 Mt iron ore

  • LOM 23 years

  • EMPL 5 162 employees

  • LTIFR 0.10

  • 58th percentile

Nchwaning and Gloria

Manganese ore mines (collectively black rock mine)

  • Manganese ore

  • Underground mechanised

  • 2.9 Mt manganese ore

  • LOM More than 30 years

  • EMPL 5 016 employees

  • LTIFR 0.24

  • 40th percentile

Beeshoek

Iron ore mine

  • Iron ore

  • Open pit

  • 3.2 Mt iron ore

  • LOM 10 years

  • EMPL 1 076 employees

  • LTIFR 0.15

  • 65th percentile

Participating coal business (PCB)

  • Thermal coal

  • Open pit and under-ground mechanised

  • 16.6 Mt saleable thermal coal

  • LOM 22 years

  • EMPL Not reported

  • LTIFR Not reported

  • 30th percentile

Goedgevonden (GGV)

Coal mine

  • Thermal coal

  • Open pit

  • 6.5 Mt saleable thermal coal

  • LOM 23 years

  • EMPL Not reported

  • LTIFR Not reported

  • 35th percentile

Modikwa

Platinum mine

  • 6E PGM metals

  • Underground

  • 301 0228 6E PGM oz

  • LOM More than 30 years

  • EMPL 4 949 employees

  • LTIFR 0.58

  • 70th percentile

Two rivers

Platinum mine

  • 6E PGM metals

  • Underground mechanised

  • 390 214 6E PGM oz

  • LOM More than 30 years

  • EMPL 3 219 employees

  • LTIFR 0.31

  • 20th percentile

Nkomati

Nickel mine

  • Nickel, PGMs, chrome, copper, cobalt

  • Open pit

  • 15.9 kt nickel, 124 koz PGM, 241 kt chrome, 8 kt copper, 1 kt cobalt

  • LOM 11 years

  • EMPL 2 172 employees

  • LTIFR 0.00

  • 62nd percentile

** ARM announced on 15 August 2017 that an agreement had been concluded for the disposal of its 40% effective interest in Lubambe and Lubambe Extension Area. Completion of the disposal is subject to the fulfilment of conditions precedent.

Lubambe**

Copper mine and extension area

  • Copper

  • Underground mechanised

  • 18.3 kt copper

  • LOM 27 years

  • EMPL 1 647 employees

  • LTIFR 0.14

  • 95th percentile

Sakura

Ferroalloys project

  • Ferromanganese

  • Smelter

  • 129 kt ferromanganese

  • LOM More than 30 years

  • EMPL Not reported by ARM

  • LTIFR Not reported by ARM

  • 27th percentile (in F2021)

Mine/operation type LOM Approximate life of mine   EMPL Number of employees including full-time employees, contractors and expatriates
LTIFR F2017 lost time injury frequency rate per 200 000 man-hours Position on the respective global commodity unit cost curve (F2017)

Material Matters

Components of the material matter:

  • Commodity price and exchange rate fluctuations;
  • Continued cost escalation;
  • Long-term business strategy;
  • Capital allocation; and
  • Political and fiscal risks.
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F2017 KPI performance

Headline earnings per share

1 684 cents

per share

Dividends per share

R6.50 cents

per share

Headline earnings per share

1 684 cents

per share

DIVIDENDS are considered in the capital allocation process taking into account re-investment into the operations and growth.

Components of the material matter:

  • Operational efficiencies;
  • Labour and equipment productivity;
  • Technological advancements;
  • Efficient use of natural resource;
  • Access to infrastructure and logistics; and
  • Legal compliance and effective governance
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F2017 KPI performance

LTIFR

0.28 per 200 000 man-hours

Safety-related stoppages

21

Changes in unit costs

All operations achieved unit production cost increases below or in line with inflation, except GGV Mine.

F2018 objectives

LTIFR

Continued reduction in LTIFR towards zero harm.

Safety-related stoppages

nil

Changes in unit costs

Achieve below inflation unit production cost increases at all operations.

Components of the material matter:

  • Stakeholder engagement and relationships;
  • Transformation and the Mining Charter;
  • Corporate social responsibility, socio-political instability, ethical business conduct; and
  • Upholding human rights.
Read more >
F2017 KPI performance

CSR Expenditure

R115 million

F2018 objectives

CSR Expenditure

Continue to invest in our host communities

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.
Read more >
F2017 KPI performance

Number of fatalities

fatality free

LTIFR

0.28 per 200 000 man-hours

HDSA in management

55%

Number of women in the workforce

12%

Training expenditure

R180 million (6.0% of payroll)

F2018 objectives

Number of fatalities

nil

LTIFR

Continue reduction in LTIFR towards zero harm.

HDSA in management

Continue to monitor and evaluate progress to uphold and improve the HDSA in management.

Number of women in the workforce

Continue to monitor and evaluate progress to uphold and improve the number of women in the workforce.

Training expenditure

Continue to monitor and evaluate progress to uphold and improve the current level.

Components of the material matter:

  • Climate change, energy, water, waste,
  • Biodiversity, closure and rehabilitation.
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F2017 KPI performance

Scope 1 and 2 carbon footprint

1.05 million tCO2e

Electricity consumption

1.8 GWh

Water abstracted

14.3 million m3

F2018 objectives

Scope 1 and 2 carbon footprint

5% absolute reduction relative to the f2014 baseline.

Electricity consumption

Increase efficiencies.

Water extracted

Further improve efficient use of water.

Strengthen stakeholder engagement at the catchment level.

Material Matters

Delivering financial returns to shareholders and other providers of capital

Maintaining our social licence
to operate

Components of the material matter:

  • Stakeholder engagement and relationships;
  • Transformation and the Mining Charter;
  • Corporate social responsibility, socio-political instability, ethical business conduct; and
  • Upholding human rights.
Read more >
F2017 KPI performance

CSR Expenditure

R115 million

F2018 objectives

CSR Expenditure

Continue to invest in our host communities

Our business model

Financial capital refers to our assets (including cash balances), cash flow from operations and funding from shareholders and other providers of capital. Allocation of this capital to re-investment into the business, growth and dividends is a crucial component of creating long-term sustainable value.

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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.

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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.

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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 water and land.

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Access to and investment in innovation and technology allow ARM to continuously improve our 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, the Strategic Services and Exploration division, as well as our brand and reputation.

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.

Business model

Financial Capital

  • R426 million paid as dividends to ARM shareholders (F2016: R761 million).
  • R471 million accrued to finance providers (F2016: R406 million).
  • R1 518 million paid as taxes and royalties (F2016: R901 million).

People

  • No fatalities in F2017.
  • LTIFR of 0.28 per 200 000 man-hours, the lowest in ARM's history.
  • R3 450 million paid to employees as salaries, wages and fringe benefits (F2016: R3 794 million).
  • 6.0% of payroll invested on employee training (F2016: 6.9% of payroll).
  • Reskilling and redeployment of employees to production roles.
  • ARM was certified as a Top Employer by the Top Employers Institute.
  • 4% increase in number of employees including contractors to 24 106 (F2016: 23 128 employees).

Relationships

  • Invested R115 million in our host communities through our CSI and LED programmes (F2016: R106 million).
  • Preferential procurement exceeded Mining Charter targets.

Natural capital

  • 3% reduction in Scope 1 and 2 carbon emissions.
  • Water abstracted decreased by 25% to 14.3 million m3 (F2016: 19.1 million m3).
  • Concurrent rehabilitation of land continued.
  • Responsible waste disposal.

Manufactured assets

  • R2 383 million invested as capital expenditure (on a segmental basis) at the operations (F2016: R2 352 million).

Our suite of reports

  • Integrated Annual Report

  • Annual Financial Statements

  • Sustainability
    Report

  • Corporate Governance Report

  • Mineral Resources & Mineral Reserves Report

  • King IV Application Register





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