ARM’s integrated reporting for 2011 includes the publication of a separate Sustainability Report, which provides comprehensive information on how our strategy and approach to doing business is ensuring our long-term sustainability, the material issues that could impact on our business, including our compliance with the revised Mining Charter and delivery against our social and labour plan commitments.
This review provides a summary of our approach to sustainability, our material issues and our successes and challenges in this regard.
A summary of the Company’s non-financial key performance indicators can be found in this report.
Our approach to sustainability
By their very nature, mining activities impact on the natural environment. They also present both potential social benefits and risks for local communities.
Yet it is possible for mining to be economically, socially and environmentally sustainable over the long-term and we believe our approach to mining is achieving long-term sustainability. In addition, the products we mine provide society with basic materials needed for economic development. Many are recycled and reused. Our use of the resources we mine and the raw materials we require to operate is efficient and responsible. Our activities and investments are creating lasting social and economic benefit both for the communities and the regions in which we operate.
ARM is committed to identifying, understanding and mitigating the environmental impacts of our activities. We also identify our impacts on the communities in which we operate and work closely with communities and government to ensure that communities enjoy the social benefits that our operations can provide and that any risks are mitigated.
In order for ARM to continue to create value for our shareholders we need to comply with the JSE Listing Requirements, which include compliance with the principles set out in the third report on corporate governance in South Africa, referred to as King III. The Corporate Governance report included in this report provides detail on our performance in this regard.
ARM has also participated in and met the requirements of the JSE Socially Responsible Investment (SRI) Index for the past three years. This pioneering set of criteria, against which companies are assessed, provides guidance on environmental, economic and social sustainability as well as governance best practice. The SRI Index further offers a platform to recognise listed companies that incorporate sustainability principles into their everyday business practices and is a tool which investors can use to assess companies on a broader base.
ARM became a member of the International Council on Mining and Metals (ICMM) in September 2009 because it shares the ICMM vision of a respected mining and metals industry which is widely recognised as essential for society and a key contributor to sustainable development. As a member of the ICMM, ARM also subscribes to the Extractive Industries Transparency Initiative (EITI) – a global standard that promotes revenue transparency and the management of revenues from natural resources.
As a member of the ICMM, ARM is required to act in accordance with ICMM position statements and comply with the three elements of the ICMM Sustainable Development Framework, namely (i) implementation of the 10 ICMM Sustainable Development Principles throughout the business, (ii) a commitment to transparent and accountable reporting practices (we continue to report in line with the GRI G3 framework) and (iii) independent third-party verification that we are meeting the ICMM commitments.
Subsequent to becoming a member of the ICMM, we initiated an externally conducted gap analysis in F2010 to assess the alignment of our sustainable development practices with the ICMM’s 10 principles. The key recommendations arising from this process were for ARM to go beyond legal compliance in its management of risk, to include emerging sustainable development risks in its risk management system and to strengthen its reporting framework based on the GRI. These recommendations were successfully implemented during the previous financial year (F2010) and resulted in successful external assurance at a moderate level of our Sustainability Report in F2010.
During F2011, we continued to broaden our approach to sustainability reporting and we have further integrated issues material to our sustainability into our risk management system. The transitional sustainable development model which we presented for the first time last year suits our reporting requirements well and we continue to use this to integrate sustainability across our business.
Our Sustainability Report meets application level B+ of the GRI Sustainability Reporting Guidelines, including the Mining and Minerals Sector Supplement and complies with the ICMM Sustainable Development Framework.
ARM’s sustainable development model
Managing sustainability in our business
The Group Manager: Sustainable Development, who reports to the Chief Executive Officer of ARM with oversight from the Social and Ethics Committee (formerly called the Sustainable Development Committee), is responsible for reviewing sustainable development policies, strategies and targets, and ensuring that they are aligned with the Board’s commitment to zero tolerance of harm throughout our business.
The purpose of the Social and Ethics Committee is to monitor and report on the manner and extent to which ARM protects, enhances and invests in the wellbeing of the economy, society and the natural environment in which it operates in order to ensure that its business practices are sustainable. The committee also reviews and considers the efficacy of ARM’s systems to promote local economic development opportunities to enable historically disadvantaged South Africans to develop economically while meeting the requirements of mining rights conversions, the Mining Charter and other requirements detailed in the Minerals and Petroleum Resources Development Act, 2002 and other legislation.
The Social and Ethics Committee has three members, of which two are Independent Non-executive Directors as described in the Corporate Governance report of the Integrated Annual Report.
The ARM Management Risk Committee, which is a management sub-committee of the Audit Committee, is tasked with assisting the Audit Committee in discharging its duties relating to risk matters by implementing, co-ordinating and monitoring a risk management plan, policy and processes to ensure that broader strategic and significant business risks are identified and quantified with attendant controls and management assurance. The Leader: Risk Management together with the Group Manager: Sustainable Development attend the Social and Ethics Committee meetings, are members of the Management Risk Committee and are instrumental in integrating sustainability risks which are identified at operational and corporate level, into ARM’s comprehensive risk management process. Both these individuals attend Board meetings to respond to any risk-related matters raised by the Directors.
The ARM Risk Management programme integrates the management of risk and assurance and provides both corporate governance compliance and a practical and effective tool for the management of risk (including sustainability risk) within ARM. The Risk Register/Enterprise Risk Management (ERM) System is used to ensure that a robust system of identifying, quantifying, monitoring, managing and reporting risks and opportunities is applied consistently throughout the Company.
At an operational level, risk registers and risk and control dashboards are continuously reviewed and updated. We have a number of management and control assurance providing initiatives and processes at divisional and corporate level including:
- Monthly performance reviews of our operations through Operational Committee meetings;
- Quarterly performance reviews of operations through Executive Committee meetings;
- Quarterly ARM Management Risk Committee meetings;
- Quarterly ARM Sustainable Development Management Committee meetings;
- Quarterly operational Sustainable Development meetings;
- Quarterly ARM Sustainable Development Committee meetings (as of September 2011 called the Social and Ethics Committee);
- Quarterly ARM Audit Committee meetings; and
- Quarterly Board meetings.
These meetings and regular reviews form an important part of the combined assurance process and provide appropriate oversight of management processes and the management and mitigation of associated risks to an acceptable level.
ARM’s efforts towards sustainability are underpinned by its commitment to maintaining the highest standards of governance, which include the application of sound business practices which link into the management systems, structures and policies of the Company. The new, as well as frequent changes in legislation in South Africa and the many pieces of legislation that govern the mining industry make it challenging to ensure that we remain compliant. These are detailed in our Sustainability Report.
Monitoring, measuring and reporting on our sustainability performance
Currently, the data we require for our sustainability reporting is drawn from a number of different systems, which involves significant time being spent on consolidating data. There are also challenges regarding ensuring accuracy and comparability of data. We are piloting a system in our Ferrous Division that will allow for the implementation of uniform reporting systems across our operations.
ARM commissioned SustainabilityServices.co.za to provide high-level independent third party assurance over the content of our F2011 Sustainability Report. The report on this assurance process, which is included in the Sustainability Report, contains comment on data collection in ARM.
Our material issues
We determine what is material to our business through a combination of internal performance measurement and the monitoring and evaluation of the external context within which we manage our business and operations. We do this through ongoing stakeholder engagement, review and assessment of our performance to date, monitoring of media coverage, the reporting of material issues by members of the extractive industry and policy and regulatory trends.
We have also developed a formal stakeholder engagement process, which assigns specific engagement responsibilities to the relevant positions in ARM.
The material issues which ARM has identified include economic, social and environmental issues and the maintenance of the highest standards of corporate governance.
Our material economic issues include:
Electricity costs and our ability to use electricity efficiently
As a responsible South African company we supported the increase in Eskom’s tariffs which was intended to facilitate its infrastructure building programme since that infrastructure would help us to continue growing our business. We are, however, concerned that a new round of price increases may adversely impact not only our business but also the communities in which we operate. ARM, together with other industrial users of electricity, is in discussions with government institutions to ensure future tariff increases strike a balance between allowing Eskom to build new infrastructure and sustaining industries that provide jobs and revenue for government. While we fully support measures that seek to promote the efficient use of energy and have a number of initiatives under way within ARM to ensure the efficient use of energy in our organisation (these are described in our Sustainability Report), we are concerned that the proposed carbon tax, if it goes ahead, will add to the already heavy energy cost burden.
The ARM Ferrous Division, which is responsible for 80% of the Group’s consumption of electricity, is a member of the Energy Intensive Users Association and has developed its own Energy Efficiency Charter, which maps its development and implementation of energy efficient practices.
Our logistics concerns are in connection with the railing of our products. ARM exports iron ore through the Sishen-Saldanha Iron Ore Export Channel (SIOEC), a single channel rail and port facility and our ability to increase exports is limited by its capacity, any industrial action affecting Transnet Freight Rail (Transnet) and its operational performance. We are working closely with Transnet and other industry role players to explore the potential for expanding the SIOEC beyond 60 million tonnes (Mt) per annum.
Another concern is the lack of rail capacity in South Africa, which means that, in many cases, ARM has to transport its products by road. This substantially increases our carbon footprint and limits the extent to which we can manage the environmental impact.
The commodities we produce are globally traded and, as a result, ARM does not control the prices we receive for our commodities. The prices of the commodities we produce and beneficiate are significantly affected by global economic conditions and global demand for metals and energy. Price and exchange rate fluctuations impact our revenues, cash flows, profitability and asset values. ARM’s diversified portfolio allows it to deliver more stable returns due to improved flexibility and ability to manage the risk associated with commodity price cycles.
We are on track to achieve our strategic objective of having all our managed operations positioned below the 50th percentile of the unit cost curve for the various commodities we produce. In order to achieve our target ARM is reducing its ferrochrome production and increasing the production of ferromanganese at its Machadodorp Works. However, going forward, increasing energy and labour costs will present further challenges to containing production costs.
Our material social issues include:
Employee safety and wellness
We are committed to providing our employees with a safe and healthy work environment, which also allows us to run our operations in a sustainable and efficient manner.
Responsibility for safety at operational level lies with line managers and supervisors. Each operation has its own safety policy and strategy, which is aligned to ARM’s zero harm commitment, but also addresses the operation’s unique requirements.
The majority of our operations have obtained certification in terms of the international occupational health and safety management system, OHSAS 18001.
Regrettably, a fatal accident occurred at Machadodorp Works during the year. On 2 February 2011, Mr Solomon Vusi Sindane, a trainee crane operator was fatally injured at furnace No 2. ARM and its Board of Directors would like to extend our sincerest condolences to Mr Sindane’s family, friends and colleagues.
Our safety training is designed to address the key safety risks identified at each operation. Every person working in our operations receives regular health and safety training. We continually monitor and review procedures and conduct safety and health awareness campaigns.
There has been a significant improvement in our safety performance in F2011. Our Lost Time Injury Frequency Rate (LTIFR) decreased from 0.77 per 200 000 man hours worked in F2010 to 0.43 per 200 000 man hours worked in F2011, and our Reportable Injury Frequency Rate (RIFR) decreased from 0.42 to 0.29 in F2011. Some of our key achievements during the year were:
- Modikwa Platinum Mine achieved 8 000 000 fatality-free shifts on 21 June 2011 and has been awarded the Department of Mineral Resources (DMR) Safety Achievement Flag for Platinum Mines. According to the Modikwa team, this huge safety success is attributable to the diligent adherence to standards and the practicing of one of Modikwa’s core values of “caring for each other”.
- Beeshoek Iron Ore Mine recorded 8 000 fatality-free production shifts in the DMR (Northern Cape) safety competition. During the third quarter, Beeshoek also achieved 12 months without a lost time injury.
- On 11 November 2010, Two Rivers Platinum Mine completed 2 000 000 fatality-free shifts.
- Khumani Iron Ore Mine achieved its first 1 000 000 fatality-free shifts in November 2010.
- Black Rock Manganese Mine achieved 1 000 000 fatality-free shifts during the fourth quarter.
To ensure the health risks present in each of our operations are identified, monitored and managed, specialist external service providers are engaged to assist with the implementation and management of the medical surveillance programmes running in all our operations. Our principal occupational health issue remains noise-induced hearing loss (NIHL). The most common illnesses diagnosed among our workforce (including chronic and primary health-related diseases) remain hypertension upper respiratory tract infections and back/muscular/skeletal ache. We have increased our efforts to reduce workplace noise, in line with the DMR’s 10-year targets agreed at the Mine Health and Safety Summit in 2003. It is compulsory for any of our workers who are exposed to the internationally accepted noise level limit of 85 decibels (A), or above, to wear hearing protection. We also regularly monitor and measure noise emission levels of equipment. The hearing of employees exposed to high levels of noise is tested at least once a year.
HIV & Aids and other chronic diseases remain a risk to the wellness and productivity of our employees. While the focus of our wellness programmes differs, depending on the requirements of each operation, we have focused during this financial year on facilitating access to chronic medication (including anti-retroviral drugs).
ARM’s HIV & Aids management guideline, which was compiled with reference to the South African National Standard (SANS 16001:2007), the International Finance Corporation (IFC) HIV/Aids Guide for the Mining Sector and the GRI Guideline on HIV & Aids, provides our operations with guidelines and standards for the management of HIV & Aids. The guideline, which is regularly reviewed and updated in line with internal and external developments, is used as a reference source for planning and implementing the HIV & Aids management programmes at our operations. Details can be found in our Sustainability Report. We have also developed a scorecard based on the framework provided by this document which is used to monitor and measure the performance of our operations in terms of our comprehensive HIV & Aids programme. Our internal minimum standard, known as the Sustainable Development Standard (SDS), provides a target for our operations. Details regarding our performance against these standards, are published in our Sustainability Report.
Our operations continue integrating HIV & Aids community outreach projects into their programmes for the management of HIV & Aids. These programmes form part of their community social investment.
Relationships with the communities in which we operate, labour and government
Details of our stakeholders, our methods of engagement with them, points of discussion and concerns raised and how ARM has responded to these concerns, can be found in our Sustainability Report.
Stakeholder engagement is a key strategic focus at ARM. To retain our licence to operate and continue having access to resources, we need to earn the trust of the communities in which we operate through our engagement processes. Each ARM operation engages with its stakeholders in a manner appropriate to their specific needs and concerns. To ensure learnings from these interactions are documented and shared at operational and corporate level, we have revised our current processes.
We regularly engage with organised labour and value our good relationship with the trade unions. During F2011 ARM was recognised as one of the top 60 best employers in South Africa.
During F2011 ARM created three permanent positions in its operations per calendar day. Over the past five years we have created an average of 2.5 permanent jobs per calendar day, a total of 4 553 new jobs.
Our engagement with government takes place at local and national level on a range of topics including social investment, health and safety, environmental management and transformation. The aim of this engagement is to share information and partner with government to achieve delivery on local economic development strategies.
We embrace the national agenda of broad-based economic transformation and strive to make the mining industry reflective of all South Africans in partnership with our stakeholders. We seek to comply with the spirit of the Broad-Based Socio-Economic Charter of the Mining Industry (Mining Charter) and currently exceed the Mining Charter targets for employment equity and gender diversity. Areas which are particularly challenging to improve in the short-term are local procurement and local economic development because the essential elements of skills transfer and capacity building take time. We are committed to being a transformation leader in the industry and our action plans are focused on delivering on the commitments of our Social and Labour Plans. There is still uncertainty over the application of the Mining Charter Scorecard and how the scoring will be applied. ARM has, however, submitted the scorecards for all its mines to the DMR, based on the guidelines published in the Gazette. We will continue to consult with the DMR and through the Chamber of Mines forums to remain informed as the understanding with regard to the implementation of the Mining Charter Scorecard develops.
Attraction, retention and development of skills to support our aggressive growth plan
ARM aims to be the employer of choice in the mining industry. We believe this will allow us to retain our talent pool and attract new talent. We regularly benchmark our levels of remuneration against our peers.
Two of the major challenges facing our industry are the retention of skills and the development of new skills. ARM is currently well-placed in regard to skills. However, the risk of a skills shortage remains as a result of the small pool of skills available in the mining industry and our aggressive growth plans. We have identified the lack of appropriate housing around some of our operations as a significant risk to our ability to attract the right people and have embarked on a major housing project to address this proactively.
Our employee turnover rate at 4.8% for F2011 (F2010: 5.7%) is one of the lowest in our industry, which indicates that we are achieving our goal of being an employer of choice. The fact that we recruit as many employees as possible from communities local to our operations also contributes to our low turnover rate.
We invest in learnerships (mainly in the engineering disciplines), internal and external bursaries and offer study assistance. ARM spent 6.4% of it’s annual payroll on skills development during F2011.
Our graduate development programme concentrates on meeting our requirements for mining, mechanical and electrical engineers, metallurgists, geologist and surveyors. Over the past three years we have successfully filled most senior vacancies from within.
We identify talented employees and put in place development plans and succession plans. Our development programmes include a shift boss/mine overseer development programme which prepares talented employees for general management level appointments, and a foreman development programme aimed at developing supervisory skills and preparing artisans for management level appointments.
The most material environmental issues facing ARM are climate change and resource management, with water and energy being our particular areas of concern.
While each ARM operation has its own environmental policy and strategy, they are all aligned with our commitment to responsible environmental stewardship. Our operations’ environmental management systems include identification of the impacts of the site’s activities, mitigation plans and performance monitoring. The majority of our operations are ISO 14001 certified.
All our operations have quantified targets and objectives for their key environmental parameters such as water management, emissions (at our two smelters) and biodiversity, which are aimed at minimising/reducing our impact on the environment.
The environmental performance of our operations is reviewed quarterly in executive Safety, Health, Environment and Quality (SHEQ) meetings chaired by divisional executives and attended by corporate SHEQ staff. There are annual internal audits and biennial external Directors’ Liability audits of SHE performance at our operations. These audits monitor legal compliance and aim to identify potential liability issues for ARM and its directors. Our ISO-certified operations also undergo external ISO-prescribed legal compliance audits.
Following on the results of our carbon footprint analysis, ARM is developing a carbon management strategy and implementation plan which includes an emissions reduction plan. The main contributors to our carbon footprint are our consumption of electricity produced from coal, our use of diesel, and carbon-based reductants in our smelters such as coke and coal.
ARM engaged Environmental Resource Management (ERM) to facilitate divisional carbon strategy workshops. Following on these workshops custom-made training programmes are being implemented in all our operations. The training will focus on awareness, capacity building, reporting and improving performance.
To better manage our energy consumption we have appointed a Group Electrical Engineer responsible for energy efficiency at ARM. Our smelters at Cato Ridge and Machadodorp are the most energy intensive of our operations. In addition to the information provided in our key performance indicators in this report, our Sustainability Report details our efforts to better manage our energy consumption and provides statistics on our energy consumption and emissions.
Availability, consumption and pollution of water are key risks. We aim to use water as efficiently as possible, to recycle and to avoid any negative impacts on water quality in the environment in which we operate. Our operations run closed circuit water systems as far as practically possible in order to minimise discharge into the environment.
Some of our operations have had to address legacy issues of groundwater contamination and rehabilitate historically contaminated land that impacts on surface groundwater.
In line with the terms of their integrated water use licences our operations source water from rivers, boreholes and municipal sources.
Our operations engage with the Department of Water Affairs, local communities, local authorities, irrigation boards, catchment management agencies and other industry users to ensure the sustainability of water resources for all stakeholders. The availability of water is a key consideration when we plan the expansion or construction of an operation.
During the year under review ARM created significant value for a diverse range of stakeholders in the form of:
- Employee wages and benefits;
- Dividends paid to shareholders;
- Taxation and royalties paid to government;
- Socio-economic development initiatives in the communities in which we operate;
- Providers of capital; and
- Re-investment to ensure its sustainability over the long-term and value creation for stakeholders.
ARM’s value added statement shows an overall increase of 50% in wealth created and distributed in F2011, up from R5 673 million in F2010 to R8 522 million. Sales for the year increased by 35% to R14.9 billion (F2010: R11.0 billion).
Value added statement
|Sales||14 893||11 022||10 094||12 590||6 152||4 622|
|Net cost of products and services||6 441||5 604||4 201||4 318||2 527||2 361|
|Value added by operations||8 452||5 418||5 893||8 272||3 625||2 261|
|(Loss)/income from associate||(135)||(51)||147||461||16||–|
|Income from investments||216||209||414||168||51||24|
|Wealth created||8 522||5 673||6 968||9 063||3 706||2 424|
|Applied as follows to:|
|Employees as salaries, wages and fringe benefits||1 856||1 491||1 399||1 053||738||709|
|The state as taxes||1 671||1 009||1 727||2 084||781||377|
|Providers of capital||836||725||1 034||1 213||561||297|
|– Equity – dividend||426||371||847||315||–|
|– Non-controlling interest||194||162||(198)||460||191||163|
|– Outside – finance cost||216||192||385||438||370||134|
|Total value distributed||4 525||3 245||4 160||4 350||2 080||1 383|
|Re-invested in the Group||3 997||2 428||2 808||4 713||1 626||1 041|
|Reserves retained||2 885||1 441||2 021||4 172||1 220||601|
|Wealth distributed||8 522||5 673||6 968||9 063||3 706||2 424|
Our sustainability performance year-on-year
|Economic and related core baseline indicators|
|Revenue (Rm)||15 357||11 425||10 712|
|Sales (Rm)||14 893||11 022||10 094|
|Duties, levies and taxes paid (Rm)||1 671||1 009||1 727|
|Headline earnings (Rm)||3 319||1 714||2 317|
|EBITDA (Rm)||6 434||3 907||4 484|
|Purchased materials and services (Rm)||6 441||5 624||4 201|
|Value added||8 461||5 653||6 968|
|Procurement of capital goods, services and consumables from BBBEE Suppliers (%)||74.4||52.5||37.3|
|Number of environmental administrative penalties/fines||None||2||None|
|Total number of all ARM employees and contractors||28 704||22 776||16 777|
|– Employees (permanent)||11 496||10 281||9 643|
|– Contractors (mainly used in capital projects)||17 208||12 495||7 134|
|New jobs created (direct employment only)||1 215||802||896|
|Employee turnover (excluding contractors) %||4.8||5.7||4.5|
|Investment in employee training and development|
|– Total expenditure (Rm)||96||50||57|
|– % of payroll||6.4||3.6||6|
|Employment equity (% representation of previously disadvantaged groups among permanent employees)|
|– Top management||38||44||44|
|– Senior management||40||32||32|
|– Professionally qualified||50||45||47|
|– Technically qualified||69||67||56|
|Lost Time Injury Frequency Rate (LTIFR) (200 000 man hours)||0.430||0.770||0.736|
|Reportable / serious accidents||74||90||82|
|Number of lost workdays due to industrial action||14 816||2 411||115|
|Total water withdrawn (m³) (municipal, surface and groundwater)||15 091 358||15 060 418||14 314 155|
|– Electricity (000 kW/h)||2 547 836||2 003 918||2 038 751|
|– Oil (000 litres)||2 909||2 934++||2 565++|
|– Diesel (000 litres)||73 559||55 732||54 625|
|Carbon footprint equivalent (equivalent tonnage CO2)|
|Total||##||3 073 431||2 576 634++|
|– Scope 1||##||654 665||559 040|
|– Scope 2||##||1 979 020||1 735 289|
|– Scope 3||##||439 746||282 305|
|Carbon emission intensity ratios (Scope 1 & 2)|
|– Tonnes CO2e/1 000 ZAR||##||0.24||0.23|
|– Tonnes CO2e/Full Time Employee||##||202.3||226.1|
|Direct emissions (tonnes)|
|– CO2 emissions – direct (tonnes) Cato Rige and Machadodorp only||561 060||589 559++||748 473|
|– NOx (tonnes)||1 120||1 169++||–|
|– SOx (tonnes)||816||1 572++||–|
|– Particulate matter (tonnes)||460||381++||–|
|Domestic waste (tonnes)||16 689||13 928++||14 051++|
|Corporate Social Responsibility|
|Total community upliftment and corporate social investment (Rm)||124.5||72.9||60.0|
|– CSI (Rm)||18.1||14.5||19.3|
|– LED (Rm)||100.4||43.8||28|
|– ARM BBEE Trust (Rm)**||6.0||14.6||n/a|
Non-financial data based on 100% (versus attributable to equity) unless otherwise stated.
The Employment Equity report was submitted to the Department of Labour on 28 September 2011 and complies with Section 21 of the Act.
LTIFR: Injury rates are measured per 200 000 man hours, in line with general SA practices and include both ARM employees and contractor incidents.