Integrated Annual Report, including the Notice of Annual General Meeting

140 Pages·2017·7.08 MB·English

IINNTTEEGGRRAATTEEDD AANNNNUUAALL
RREEPPOORRTT 22001177
We do it better
OUR SUITE OF REPORTS
and additional material are available at www.arm.co.za
Integrated Annual Annual Financial Sustainability
Report Statements Report
INTEGRARTEEPDO ARNTN 2U0A17L ASNTNAUTEAML EFNINTASN 2C0IA1L7 SUSRTEAPIONRATB I2L0IT1Y7
CONTENTS We do it better We do it better We do it better
The Integrated The Annual The Sustainability
Annual Report Financial Report provides
presents a holistic Statements present detailed information
view of ARM and the audited fi nancial about our
OVERVIEW discusses the statements which sustainable
About this report 1 Company’s have been prepared development
operational, in accordance with performance and
Our structure 2
fi nancial and the International how economic,
Our values 3 sustainability Financial Reporting social and
Our strategy 3 performance as Standards (IFRS). environmental
Where we operate 4 well as its impacts are
governance managed. The
Executive Chairman’s report 6 structures and Mineral Resources report addresses
Chief Executive Offi cer’s report 10 operating context. and Mineral those sustainability
Material matters 14 The report focuses Reserves Report issues that are
Our approach to sustainability 18 on the Company’s material to ARM
material matters and its
Our sustainability performance year-on-year 21
Key stakeholders 22 and strategy. MINERRAEALS NREDER SVMOEISUN RE2RC0EA1SL7 stakeholders.
Our business model 26
Value add 28 Corporate King IV
Governance Report Application
OPERATIONAL REVIEWS 29 Register
ARM Platinum 30
ARM Ferrous 42 GROCEPVOOERRRPNTO AR2N0AC1TE7E We do it better
ARM Coal 54 The Mineral
ARM Copper 60 Resources and
Gold: Harmony 67 Mineral Reserves
SUMMARY OF THE 2017 MINERAL RESOURCES Rine apcocrot risd apnrceep awreitdh KAR2IPENGP0GLIS IICTV1AE RTI7ON
AND MINERAL RESERVES REPORT 68 We do it better the South African We do it better
Code for the
SUMMARISED CORPORATE GOVERNANCE REPORT 74 This report Reporting of
Summarised Corporate Governance Report 74 summarises our Exploration Results, The King IV
commitment to the Mineral Resources application register
Board of Directors 76 highest standards and Mineral summarises the
Summarised Remuneration Report 85 of corporate Reserves (SAMREC King IV principles
Report of the Social and Ethics Committee 100 governance and 2016). implemented and
how our the progress made
GROUP FINANCIAL REVIEW 102 governance towards achieving
structures and the practices and,
GLOSSARY OF TERMS AND ACRONYMS 125 systems support ultimately, the
our values and the governance
NOTICE OF ANNUAL GENERAL MEETING 127 way in which we outcomes
conduct our envisaged.
FORM OF PROXY 135 business.
REFERENCES
All monetary values in this report are stated in INTEGRATED ANNUAL MINERAL RESOURCES
SRoouutnhd iAnfgri coaf nfi gRuarneds umnaleys rse southlte irnw cisoem sptautteadti.o nal IAR A20N1N7UAL REPORT AFS FSITNAATNECMIEANL TS R&R ARNESDE MRVINEESR RAELP ORT
dtaibscurlaetpioanncs.ies on management and operational review SR SRUEPSOTARITN A20B1IL7ITY CGR CGROOEPRVOEPRRONTRAANTEC E www.arm.co.za
OVERVIEW: ABOUT THIS REPORT 1
ABOUT THIS REPORT
The Integrated Annual Report is our primary communication with stakeholders. While the report is
primarily aimed at shareholders, potential investors and other providers of capital, financial information in
the report is balanced with non-financial information to allow all stakeholders including employees, host
communities, customers, suppliers, the governments of the countries in which we operate and regulators
to better understand our business.
Our integrated approach to reporting aims to present a holistic The fi nancial information included in this report is derived from
view of the Company, and therefore reports on the material the Annual Financial Statements which have been prepared
matters that most affect the sustainability of our business according to International Financial Reporting Standards (IFRS).
and provides stakeholders with the information necessary to
properly assess our Company’s strategic intent, performance, The unqualified opinion of the independent external auditors on the
prospects and value. AFS AAundniuteadl F Ainnannucaial lF Sintaantecmiael nSttsa.t ements may be found on page 5 of the
REPORTING SCOPE AND BOUNDARY
COMBINED ASSURANCE
The 2017 Integrated Annual Report covers the period from 1 July
A selection of material non-financial disclosures included in the
2016 to 30 June 2017. It provides an overview of and discusses
report has been assured by an external assurance provider to
the operational, fi nancial and sustainability performance of
ensure reliability of the disclosures published. The assurance
our operations and projects. Our sustainability performance is
statement may be found in our Sustainability Report.
reported only for those operations where ARM has direct or joint
management and does not include the ARM Coal, Sakura and the
ARM’s Combined Assurance Model defines what constitutes
Harmony operations.
appropriate assurance. A combined assurance report, which
is included in the Corporate Governance Report, identifies
The 2017 Integrated Annual Report is supplemented by the
comprehensive and detailed Annual Financial Statements, the potential gaps and duplication in assurance, and provides input
Sustainability Report, the Mineral Resources and Mineral Reserves into strengthening the control environment. The inter-relationship
Report and the Corporate Governance Report, all of which can between ARM’s Enterprise Risk Management (ERM) processes,
be found on our website: www.arm.co.za. Printed copies of all internal audit initiatives, external audit activities and various
these reports are available on request from the Investor Relations management assurance interventions by specialists/subject
Department. Please refer to the inside back cover of this report matter experts further reinforces comprehensive management
for the department’s contact details. assurance processes and reporting.
MATERIALITY BOARD APPROVAL
In the interest of focused and concise reporting the contents of The ARM Board of Directors (Board) acknowledges its responsibility
the Integrated Annual Report are based on our material matters. to ensure the integrity of this report. The Audit and Risk
These are the matters that materially impact the strategy, Committee, which has oversight responsibility for the Integrated
governance, performance and prospects of the Company and Annual Report, recommended the report for approval by the
its stakeholders.
Board. The Board confi rms it has collectively assessed the
contents of the report and is of the opinion that the 2017
The process of determining these matters is discussed on pages 14 to
IAR 15 of this report. Integrated Annual Report addresses all material matters and
presents fairly the Company’s integrated performance. The
REPORTING PRINCIPLES AND FRAMEWORKS Board has therefore approved the release of the 2017 Integrated
Annual Report.
We have responded to the relevant statutory frameworks in
preparing this report. These include, but are not limited to,
Patrice Motsepe
the Integrated Reporting <IR> Framework of the International
Integrated Reporting Council (IIRC), the Companies Act 71 Executive Chairman
of 2008 (as amended), the King IV Report on Corporate
Governance for South Africa 2016, (King IV), the JSE Listings Mike Schmidt
Requirements, as well as all legislation, regulations and codes Chief Executive Offi cer
of practice applicable to the South African mining sector and
the countries in which we operate.
The King IV Application Register detailing our application of the WE APPRECIATE YOUR FEEDBACK
King IV principles is included on our website. The Summarised In the interest of continuous improvement and fulfi lling the information and
Corporate Governance Report included on pages 74 to 101 engagement needs of our stakeholders, we welcome any feedback on the content
and format of our reports. Please direct any feedback to the Investor Relations
discusses our approach to governance, risk management and
Department. Refer to the inside back cover of this report for contact details.
stakeholder engagement.
2 INTEGRATED ANNUAL REPORT
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 ITS SHAREHOLDING IN HARMONY.
100% 100% 10% 51% 100% 14.5%
PGMs IRON ORE COAL COPPER
41.5% Modikwa1 50% Khumani 20% Participating 40% Lubambe
51% Two Rivers2 50% Beeshoek Coal Business (PCB)3 and Lubambe
Extension Area4
NICKEL, PGMs MANGANESE ORE COAL
& CHROME 50% Nchwaning 51% Goedgevonden
50% Nkomati 50% Gloria (GGV)3
PGM Exploration MANGANESE
46% Kalplats ALLOYS
50% Cato Ridge
25% Cato Ridge Alloys
50% Machadodorp
27% Sakura
CHARGE CHROME
50% Machadodorp
1. ARM’s effective interest in Modikwa Mine is 41.5%, local communities hold 8.5%.
2. T wo 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%.
3. A RM’s effective interest in GGV Mine is 26% and 20.2% in PCB.
4. A RM 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.
Completion of the disposal is subject to the fulfi lment of conditions precedent.
OVERVIEW: WHO WE ARE 3
mes
below tAhlel o5p0etrh apteiorcnesn ttoil ebe Raainmndtp iienrnignt ialau tipg nrvgo olwntueh w projects
OUR VALUES
Quality growth
Operational continues in
efficiencies ARM’s portfolio of
commodities
Our “We do it better”
management style is
supported by values that
guide the way we conduct Acquisitions
Africa
and partnerships
our business.
AEXIMCE FLOLREN OCPEE tRhrAoTugIhO cNoAntLin uous Coacnvtiqenuintusiiutnrigeo tnoos p apasonrsdt ejusonisi tnit es ARM Exploration
improvement and by employing a leading Owner- Entrepreneurial Profi t -
operator management focused
practice sustainable development
framework.
World-class
Partner Employer
management
of choice of choice
team
PROVIDE A SAFE AND HEALTHY
Partnering with
WORK ENVIRONMENT FOR ALL communities,
workers and
OUR EMPLOYEES and remain an other
employer of choice by continually investing stakeholders
in our people.
OUR STRATEGY
MAINTAIN A NON-
DISCRIMINATORY WORKPLACE

ARM’s strategy focuses on quality growth
based on fairness and employment
equity, fair labour practices and freedom in our existing portfolio of commodities,
of association, which empowers our
employees to contribute to the best of operational effi ciencies, acquisitions and
their ability, offers them rewarding
career opportunities and supports partnerships and exploration. The ARM Board
transformation in the South African
mining industry. provides strategic direction and leadership,
monitors implementation of business and
IMPROVE THE LIVES OF THOSE
strategic plans and approves the capital
LIVING IN THE COMMUNITIES
IN WHICH WE OPERATE funding for these plans.
by
creating jobs, investing in projects that
directly benefi t 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.
4 INTEGRATED ANNUAL REPORT
WHERE WE OPERATE
PARTICIPATING COAL GOEDGEVONDEN (GGV) MODIKWA
BUSINESS (PCB) COAL MINE PLATINUM MINE
Thermal coal Thermal coal 6E PGM metals
Open pit and under- Open pit Underground
ground mechanised
6.5 Mt saleable thermal coal 301 228 6E PGM oz
16.6 Mt saleable thermal coal
LOM 23 years LOM More than 30 years
LOM 22 years
EMPL Not reported by ARM EMPL 4 949 employees
EMPL Not reported by ARM
LTIFR Not reported by ARM LTIFR 0.58
LTIFR Not reported by ARM
35th percentile 70th percentile
30th percentile Refer to pages 54 Refer to pages 54 Refer to pages 30
to 59 for more to 59 for more to 41 for more
information information information
SOUTH AFRICA
LIMPOPO
NORTH WEST MACHADODORP* * M achadodorp Works is currently
MPUMALANGA FERROMANGANESE AND recovering ferrochrome from the
FERROCHROME WORKS historical slag dump through the
metal recovery plant.
NORTHERN CAPE
CATO RIDGE
FERROMANGANESE
WORKS
NCHWANING AND GLORIA KHUMANI MINE BEESHOEK
MANGANESE ORE MINES IRON ORE MINE IRON ORE MINE
(COLLECTIVELY BLACK Iron ore Iron ore
ROCK MINE)
Open pit Open pit
Manganese ore
14.5 Mt iron ore 3.2 Mt iron ore
Underground mechanised
LOM 23 years LOM 10 years
2.9 Mt manganese ore
LOM More than 30 years EMPL 5 162 employees EMPL 1 076 employees
EMPL 5 016 employees LTIFR 0.10 LTIFR 0.15
58th percentile 65th percentile
LTIFR 0.24 Refer to pages 42 Refer to pages 42 Refer to pages 42
40th percentile to 53 for more to 53 for more to 53 for more
information information information
OVERVIEW: WHO WE ARE 5
TWO RIVERS LUBAMBE**
PLATINUM MINE COPPER MINE AND
6E PGM metals EXTENSION AREA
Copper
Underground mechanised
390 214 6E PGM oz Underground mechanised
18.3 kt copper
LOM More than 30 years
LOM 27 years
EMPL 3 219 employees
EMPL 1 647 employees
LTIFR 0.31
LTIFR 0.14
20th percentile Refer to pages 30 to 41 Refer to pages 60 to 66
for more information 95th percentile for more information
** A RM 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 fulfi lment of conditions precedent.
ZAMBIA NORTHERN
LUAPULA MUCHINGA
MALAYSIA
NORTHWESTERN COPPERBELT Brunei SABAH
EASTERN
CENTRAL
South China Sea
LUSAKA
WESTERN
SARAWAK
SOUTHERN
NKOMATI SAKURA
NICKEL MINE FERROALLOYS PROJECT
Nickel, PGMs, chrome, copper, Ferromanganese
cobalt
Smelter
Open pit
129 kt ferromanganese
15.9 kt nickel, 124 koz PGM, 241 kt
chrome, 8 kt copper, 1 kt cobalt LOM More than 30 years
LOM 11 years EMPL Not reported by ARM
EMPL 2 172 employees LTIFR Not reported by ARM
LTIFR 0.00 27th percentile (in F2021)
Refer to pages 30 Refer to pages 42
62nd percentile to 41 for more to 53 for more
information information
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)
6 INTEGRATED ANNUAL REPORT
EXECUTIVE CHAIRMAN’S
REPORT
PATRICE MOTSEPE
OVERVIEW: EXECUTIVE CHAIRMAN’S REPORT 7
OVERVIEW Lubambe Mine
After a few years of persistent headwinds in the global mining On 15 August 2017, ARM announced that an agreement had
industry, the 2017 fi nancial year (F2017) was characterised by an been concluded for the disposal of ARM and Vale’s 80%
improved outlook as US Dollar prices for the commodities that interest in Lubambe Mine to EMR Capital for a consideration of
ARM produces increased relative to the previous fi nancial year. US$97 million. The disposal included the equity holding and
loans to Lubambe Mine. Completion of the sale is subject to the
The higher US Dollar prices contributed signifi cantly to the fulfi lment of conditions precedent which are expected to be
204% increase in headline earnings reported for F2017 despite concluded within six months of the signature date.
being partially offset by a 6% strengthening of the South African
Nkomati Mine
Rand against the US Dollar. Headline earnings were R3.2 billion
compared to R1.1 billion in F2016. Nkomati Mine contributed headline earnings of R91 million
mainly due to improved chrome prices. Waste stripping was
Throughout the commodity markets downturn over the past few curtailed because of the low nickel price and is currently being
years, ARM continued to pay dividends. In the year under accelerated in order to open up ore reserves to gain increased
review, an eleventh annual consecutive dividend of R6.50 per mining fl exibility. Work is also being done to stabilise the pile
share was declared. This is an increase of 189% compared wall on the Western Section of the mine. The Eastern Section
to the previous fi nancial year’s dividend and is the highest of the pit has lower grade ore resulting in a reduction in the
dividend to date. forecasted production volumes for the next three years.
Despite improved commodity prices, we continued to focus on Nkomati Mine is expected to return to production volumes of
proactively managing those factors which are within management’s 18 500 tonnes per annum from the 2021 fi nancial year.
control. These include:
We are concerned about the outlook for nickel prices in the
> maintaining a safe and healthy work environment; short-term, but remain positive on the medium- to long-term
> restructuring loss-making operations; outlook. The mine is implementing a number of initiatives to
minimise funding requirements from partners in this low nickel
> improving operational effi ciencies and containing unit cost
price environment.
increases;
> focussing on the effi cient allocation of capital; Modikwa Mine
> improving our fi nancial position;
Modikwa Mine’s headline loss reduced by 21% to R66 million
> partnering and investing in our employees; (F2016: R84 million). PGMs produced at the mine increased by
> improving our relationship with key stakeholders; and 3% as the head grade and plant recoveries improved. Unit
> ensuring that we remain responsible stewards of our costs per PGM ounce increased at a rate below the infl ation rate
environmental resources. of 3%. Despite these improvements, Modikwa Mine is likely
to continue requiring funding support from the partners for a
MAINTAINING A SAFE AND HEALTHY WORK portion of its sustaining capital expenditure.
ENVIRONMENT Interventions are under way to improve the mine’s profi tability
and cash fl ow generation. These include the cessation of mining
We are proud to report that there were no fatalities at any of our
in areas that are producing at a loss.
operations in F2017, resulting in ARM being fatality-free for two
consecutive fi nancial years. In the fourth quarter of F2017 Modikwa Mine reported
improvements in tonnes milled, production volumes and unit
The Company’s Lost Time Injury Frequency Rate (LTIFR)
costs. This positions the mine well for the coming fi nancial year.
improved by 14% from 0.32 per 200 000 man-hours in F2016 to
Unit production costs for the quarter were R1 174 per tonne
0.28 per 200 000 man-hours in F2017.
milled, compared to an average of R1 265 per tonne milled
reported for F2017.
Safety-related stoppages (i.e. section 54 Notices) reduced to 21
from 28 in F2016. This improvement was achieved through ARM and Anglo Platinum are committed to ensuring that the
increased discipline at all our operations and collaboration with expenditure on capital is effi cient and to return the operation to
the Department of Mineral Resources (DMR) to improve our profi tability.
adherence to safety standards.
ARM Coal
OPERATIONAL REVIEW
ARM and Glencore Operations South Africa are in discussions
The CEO’s Report deals with ARM’s operational performances concerning the restructuring of the ARM Coal partner loans to
in greater detail and I will therefore review our operations in improve ARM’s debt obligations in terms of these loans.
broad terms.
IMPROVING OPERATIONAL EFFICIENCIES
RESTRUCTURING LOSS-MAKING OPERATIONS AND CONTAINING UNIT COST INCREASES
During F2017 the businesses that we primarily focussed on for Positioning all operations below the 50th percentile of the
restructuring included the Lubambe, Nkomati and Modikwa respective global commodity unit cost curves, remains a key
mines as well as ARM Coal. part of ARM’s strategy.
8 INTEGRATED ANNUAL REPORT
EXECUTIVE CHAIRMAN’S REPORT continued
ARM'S OBJECTIVE IS TO ENSURE THAT ALL OPERATIONS ARE BELOW THE 50th PERCENTILE
Two Rivers PCB Coal Manganese Ore Khumani Beeshoek Lubambe
Platinum Operations Operations Iron Ore Iron Ore Copper*
Nkomati Modikwa Cato Ridge
Sakura GGV Coal Nickel Platinum Ferromanganese
Ferroalloys
(F2021)
Commodity
unit cash
cost
25% 50% 75% 100%
Percentile on cost curve (based on cumulative production)
* A RM announced on 15 August 2017 that an agreement has been concluded for the disposal of ARM's 40% effective interest in the Lubambe Mine and
Extension Area.
In the fi nancial year under review a number of ARM’s operations in the fourth quarter of F2017) are expected to further improve
moved up the global unit cost curves, as per the diagram above. the mine’s position on the global PGM unit cost curve.
These are; the Khumani, Beeshoek, Nkomati, Modikwa and
Lubambe Mine:
Lubambe Mine continues to be positioned
Lubambe mines, as well as Cato Ridge Works.
well above the 50th percentile of the global copper unit cost
Khumani and Beeshoek mines: curve. An agreement for the disposal of Lubambe Mine has
Despite the iron ore
been concluded as discussed earlier in this report.
operations achieving unit cost increases below infl ation in F2017,
Khumani and Beeshoek Mine moved to the right of the global Cato Ridge Works:
ARM and Assore are currently reviewing
iron ore unit cost curve (which is based on, all-in cash costs
their strategy for the local manganese alloy production.
including sustaining capital expenditure on a 62% fi nes adjusted
basis). The move to the right was mainly as a result of a Only three of the six furnaces at Cato Ridge Works are operating,
fl attening of the global iron ore unit cost curve as new low cost owing to the high cost of production at this operation.
production from the major iron ore producers ramped up.
IMPROVING OUR FINANCIAL POSITION
Even at the current cost curve position the iron ore operations
remained very profi table delivering an EBITDA margin of 45%. The cash dividend received from Assmang increased from
Khumani Mine realised premiums for the lumpy and high iron R875 million in F2016 to R2 488 million in F2017. This, along with
ore content that it sells. other cash generated, enabled ARM to fully repay its corporate
revolving credit facility and reduce the overdraft and short-term
Nkomati Mine:
Nkomati Mine is expected to remain borrowings. The net debt improved from R4 235 million at
positioned above the 50th percentile of the global nickel unit 30 June 2016 to R1 271 million as at 30 June 2017.
cost curve (which is based on a C1 unit cash costs net of by-
The ARM Ferrous attributable cash and cash equivalents balance
products) during the three-year period of reduced production
(which is excluded from the net debt calculation) was R3 165 million
volumes, as discussed earlier in this report. When the mine
at 30 June 2017 (F2016: R2 399 million).
ramps back up to 18 500 tonnes per annum its position is
expected to improve to the 50th percentile of the F2021 global PARTNERING AND INVESTING IN OUR
nickel unit cost curve. EMPLOYEES
Modikwa Mine:
In F2017 Modikwa Mine improved to be Our employees are crucial to our ability to create sustainable
positioned below the 75th percentile. The global PGM unit cost value for all our stakeholders. We continued to build on the good
curve has fl attened in recent years. Consequently, incremental relationships we have with our employees and the trade unions
unit cost improvements at Modikwa Mine (such as those achieved that represent them through open and honest engagement.