BEE and transformation

Focus area	Performance
Continue to increase BEE procurement by our target of 2.5% per annum	Procurement performance improved to 55.9% (F2011: 44.4%), but did not achieve our target of 57.5% due to changes in the DMR’s definition of HDSA suppliers. Our target for F2013 remains 57.5%.
Source and attract new BEE and BBBEE compliant suppliers	Increased BEE and BBBEE compliant suppliers.
Review and revise preferential procurement policy and procedures in line with the revised Mining Charter	All Group preferential procurement policies and procedures have been aligned to the revised Mining Charter.

	All ARM’s business units which had differentiated their procurement into capital, services and consumables exceeded the Mining Charter targets in these categories for F2012.		Meeting the 2014 Mining Charter BEE targets for capital, services and consumables preferential procurement.
	ARM was independently verified as a Level 4 BEE Contributor with scores of 69.33% (F2011: Level 3, 75.18%).		Understanding and embedding the new dti Codes (presently in draft).

ARM is committed to being a transformation leader in the mining industry. We recognise that the transformation of the industry into one reflective of all South Africans is in the best interests of the Company, the industry and the nation.

Transformation is essential to enable ARM to operate sustainably over the long term. Failing to transform would not only run counter to the founding principles of the Group, it would lead to labour unrest and result in the Group being marginalised as an industry player over time.

Transformation in terms of the Mining Charter and the Department of Trade and Industry Codes of Good Practice (dti CoGP) covers many aspects of broader sustainable development. The aim of this section is to indicate where each of these aspects is dealt with in this report and to address those that are not dealt with elsewhere. Given the overlap between the transformation categories of both the Mining Charter and dti CoGP, these are addressed together where possible.

Our approach to transformation is guided by:
Our values	ARM maintains a non-discriminatory workplace based on fairness and employment equity, fair labour practice and freedom of association, in which employees can contribute to the best of their ability and are empowered to develop rewarding careers. In this way we contribute to the transformation of the South African mining industry and our efforts to give all South Africans a stake in the country’s mineral wealth.
ICMM	Principle 3 – Uphold fundamental human rights and respect cultures, customs and values in dealings with employees and others who are affected by our activities.
Employment Equity Act	ARM’s commitment to transformation is led by our values, rather than driven by compliance. The Labour Relations Act regulates our approach to human capital and the Employment Equity Act guides how we manage diversity in the workplace.
MPRDA	The Mineral and Petroleum Resources Development Act (MPRDA) stipulates requirements for beneficiation and social development through the Social and Labour Plans.
Mining Charter	The Mining Charter sets transformation goals across categories for the mining industry as a whole, in the spirit of the MPRDA.
dti CoGP	Through its joint venture with Assore in Assmang, where smelters are operated outside the ambit of the MPRDA, ARM also reports transformation progress against the Department of Trade and Industry (dti) Codes of Good Practice (CoGP).

Our approach to managing transformation

Compliance with the transformation requirements of the Mining Charter and dti CoGP is managed as an integral part of the relevant business function. So, for example, performance against the environmental requirements is managed through the Group’s environmental management processes and issues that impact human capital – such as employment equity and skills development – are managed as part of the Human Resources strategy.

Line management implement transformation plans and the ARM Transformation Committee monitors transformation and implementation progress at Group level.

Transformation risks are assessed and addressed as appropriate in the circumstance facing each individual operation. We continue to build capacity, including providing training, in order to enable operations to fully understand and comply with the applicable legislation.

All figures in the performance sections below are reported on a 100% basis (as if ARM owned 100% of the joint ventures).

Comparison of Mining Charter and dti CoGP parameters

Mining Charter		dti CoGP
Application	Applies to all holders of mining licences in terms of the MPRDA	Applies to all Government entities and therefore to all companies that do business with these entities. ARM sells coal to Eskom and buys services from Transnet
Relevance	Mining industry only	Generic
Time period covered	Calendar year (to 31 December 2011)	Financial year (to 30 June 2012)
Entities covered	Seven ARM mines	ARM Group
Nature	Black Economic Empowerment (BEE)	Broad-Based Black Economic Empowerment (BBBEE)
External verification	Third party verification of procurement data by DECTI	BEE Verification Agency CC
Scorecard categories	1. Reporting	N/A
	2. Ownership	Ownership
	3. Housing and living conditions	N/A
	4. Procurement and enterprise development	Preferential procurement Enterprise development
	5. Employment equity	Management control Employment equity
	6. Human resource development	Skills development
	7. Mine community development	Socio-economic development
	8. Sustainable development and growth	N/A
	9. Beneficiation	N/A

Overall performance against the Mining Charter Scorecard

Mining Charter (year to December 2011)

Across the nine categories of the Mining Charter Scorecard, ARM achieved over 90% in five of its seven mining operations. All operations fall into the “Excellent Performance” category. The two operations that scored below 90% were negatively affected by external issues that delayed implementation of projects against their Social and Labour Plans. Six of the mines showed an improvement in their score compared to 2010. The seventh declined slightly due to profit constraints causing a shortfall on its SLP commitments.

dti CoGP (year to June 2012)

ARM’s overall score on the dti Scorecard decreased to 69.33 (F2011: 75.18). During F2012, the dti employment equity target weightings changed which resulted in a decrease in our overall score. This qualifies ARM as a Level 4 contributor (F2011: Level 3).

The increased target in the preferential procurement category effective in F2012 is likely to cause ARM’s contributor level to fall in F2013.

1Reporting

All mining operations in the Group submitted reports for the calendar year to 31 December 2011 to the Department of Mineral Resources.

ARM’s externally verified BBBEE certificate is available. Download our BEE certificate (PDF - 420KB).

2Ownership

The Mining Charter seeks to promote equitable access to South Africa’s mineral resources and to expand opportunities for Historically Disadvantaged South Africans (HDSAs) to enter the mining and minerals industry. The Mining Charter accordingly sets a target of 15% HDSA ownership by 2011 and 26% by 2014, as measured by the flow through principle.

The flow through principle attributes the HDSA ownership of a holding company to a subsidiary in proportion to the percentage held by the holding company.

Mining Charter (year to December 2011)

ARM operations have structures in place that achieve meaningful economic participation by HDSA. All of the operations already exceed the 2014 ownership target. These structures have clearly identifiable beneficiaries, full shareholding voting rights and full participation in cash flow from investments (dividends).

dti CoGP (year to June 2012)

ARM’s overall Group ownership structure scored 19 on the dti Scorecard in F2012 (F2011: 18.92) out of a possible 20.

3Housing and living conditions

The Mining Charter requires mining companies to implement measures to improve the standard of housing and living conditions for mineworkers. This is stipulated in the targets to be achieved by 2014, namely:

• converting or upgrading hostels into family units; and/or
• attaining an occupancy rate of one person per room; or
• facilitating home ownership options for all mine employees in consultation with organised labour.

After engaging with our workforce to establish their preferences, ARM’s approach is to facilitate home ownership, guided by the Group Housing Development Plan and Housing Policy. ARM’s goal is to assist all interested employees to obtain home ownership in a sustainable settlement near the respective operation. Our approach has been guided by the comprehensive “Integrated planning of housing and ancillary land uses” project in terms of the Planning Professions Act (2002) which we commissioned in F2011 to better identify the existing state of housing and living conditions and to guide future planning.

Only one of our mines has employees still living in hostel accommodation and this is being upgraded to family units. Roadshows have been conducted with employees to create awareness around home ownership.

The Housing Development Plan includes a comprehensive property acquisition and development programme that includes a housing finance facility, based on a thorough affordability assessment, a housing subsidy scheme and a debt consolidation facility to improve affordability.

Mining Charter (year to December 2011)

Our overall BEE procurement for F2012 was 55.9%, an increase on F2011’s 44.4% but below our target of 57.5%. The decline in 2011 was due to the revisions to the Mining Charter that excluded suppliers with less than 25% + 1 vote HDSA shareholding as qualifying suppliers. Our overall target for 2013 remains 57.5%.

The figures for the calendar year to 2011 showed that all seven mines that report against the Mining Charter Scorecard exceeded the 2011 targets for Capital Goods, Services and Consumables procurement. Capital Goods and Services procurement already exceed the 2014 target.

dti CoGP (year to June 2012)

ARM’s BBBEE procurement in F2012 was 95.5% (F2011: 74.4%) against our internal target for F2012 of 70%. This exceeds the current dti target (50%) as well as the 2013 dti target (70%).

The dti requirements for preferential procurement changed in February 2012 to accept only BBBEE certificates issued by SANAS accredited verification agencies or IRBA accredited auditors. These certificates are valid for 12 months from issue.

4Preferential procurement and enterprise development

Mining Charter (year to December 2011)

The Mining Charter requires that mining companies procure from BEE Entities. The term “BEE Entity” is defined as an entity of which a minimum of 25% plus 1 vote of share capital is directly owned by HDSAs as measured by the flow through principle.

The Mining Charter splits procurement into Capital goods, Consumables and Services and sets annual targets for each. The 2011 year targets were 10%, 15% and 40% of discretionary procurement spend respectively.

dti CoGP (year to June 2012)

The dti CoGP Scorecard measures total procurement spend with BEE suppliers, small and emerging BEE enterprises and black women-owned suppliers.

ARM is committed to assisting previously disadvantaged South Africans to become a part of the industry supply chain through identifying, developing, facilitating and making available business opportunities to both BEE and BBBEE compliant suppliers at all of its operations. We source goods, services and capital items from BEE and BBBEE compliant suppliers wherever possible, provided these are competitive in terms of our other adjudication criteria.

ARM’s preferential procurement policy and procedure documents are aligned with the Mining Charter criteria favouring BEE suppliers with HDSA shareholdings of 25% plus one vote. Our procurement databases are being aligned with the split of procurement into Capital Goods, Consumables and Services. Each operation has targets in place to measure its performance towards achieving compliance with the Mining Charter.

ARM’s preferential procurement information is independently consolidated and verified by an external rating agency. The information primarily consists of stores procurement data supplied from operations. Service level agreements, such as reagent and ore supply contracts, are not included in the figures and would likely lead to a fall in preferential procurement scores if included.

Procurement data is excluded for those operations in the Company where this function is managed by the joint venture partner. Modikwa’s procurement data is separately managed by Anglo Platinum, and ARM Coal/GGV’s procurement data is managed by Xstrata Coal. Procurement data for the ARM/Vale partnership is also excluded as this data needs to meet current Zambian legislative requirements. It is pleasing to note that in excess of 65% of the Konkola capital commitments are with Zambian-listed companies.

The ARM Coal operations’ procurement scores exceed the Mining Charter requirements.

Mining Charter (year to December 2011)

Capital Goods preferential procurement was 42.1% in calendar 2011 (2010: 49.0%).

Services preferential procurement rose to 76.4% in calendar 2011 (2010: 50.6%).

Consumables preferential procurement was 40.5% in calendar 2011 (2010: 32.1%).

As can be seen from the graphs, all three categories exceeded the 2011 Mining Charter targets and both Capital Goods and Services exceed the 2014 targets.

dti CoGP (year to June 2012)

The Group’s overall preferential procurement score rose to 17.63 for F2012 (F2011: 17.35). While ARM already scores highly for broad preferential procurement, further improvements will require more procurement spend targeted at Qualifying Small Enterprises, Emerging Micro Enterprises and black women-owned suppliers.

ARM’s procurement expenditure increased 5% to R17.6 billion in F2012 (F2011: R16.6 billion). Significant capital procurement at Khumani and Black Rock Mines were due mainly to expansion projects.

We have a number of initiatives in place to source and attract BEE and BBBEE compliant suppliers in order to increase our preferential procurement scores, including:

• where feasible, to encourage existing principal suppliers to form meaningful partnerships with BEE, BBBEE and SME vendors;
• where feasible, to divide contracts into smaller components, there by enabling emerging BEE and BBBEE compliant suppliers to qualify. Some contracts may be exclusively reserved for BEE, BBBEE and SME suppliers; and
• to arrange favourable terms of payment for BEE, BBBEE compliant and SME suppliers, and ensure that all procurement processes are transparent and auditable.

A challenge we face is ensuring that qualifying BBBEE vendors can produce valid BBBEE certificates as proof of their status. With the increase in BBBEE verification agencies, it is expected that more suppliers will be able to demonstrate compliance. Supplier workshops were held to inform suppliers of the importance of supplying valid certificates.

Enterprise development

Enterprise development is managed through our Local Economic Development (LED) and Small to Medium Enterprise (SME) initiatives which are included under Mine Community Development below and reported in full in the Corporate Social Responsibility section of this report.

Mining Charter (year to December 2011)

Mining companies are required to collect 0.5% of spending with multinational suppliers of capital goods. This is to be contributed to a social fund for use in enterprise development initiatives.

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While one of our mines managed to collect an allocation from a multinational supplier, we are instituting mechanisms to collect these contributions in accordance with the requirements of the Mining Charter.

dti CoGP (year to June 2012)

The dti CoGP Scorecard reports the percentage of net profit after tax spent on enterprise development initiatives.

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Enterprise development as a percentage of net profit after tax (NPAT) decreased to 2.24% in F2012 (F2011: 2.97%).

5Employment equity

Mining Charter (year to December 2011)

In terms of the Mining Charter, mining companies must achieve a minimum of 40% HDSA demographic representation at executive level, senior, middle and junior management and core and critical skills by 2014.

dti CoGP

The dti CoGP Scorecard measures performance against a similar range of metrics for black representation at executive and management levels as well as representation of black disabled employees.

The Management Control and Employment Equity categories are reported together here to better align with the Mining Charter. The recent revisions to the dti CoGP consolidate these two indicators for reporting in future years.

Mining Charter (year to December 2011)

Core skills and junior management across all mines already satisfies the 2014 target of 40%. Increasing HDSA representation at top, senior and middle management is our biggest employment equity challenge, although senior management achieved the 2011 target in this reporting cycle.

Overall, the Group achieved 15 out of a target weighting of 16 against the 2011 targets.

dti CoGP (year to June 2012)

ARM achieved a score of 7.3 on the dti Management control category (F2011: 6.40) and 1.91 in the employment equity category (F2011: 7.41).

The percentage of black employees in top management increased in F2012 which led to an increase in the Management Control score for the year. As reported in the Human Capital section of this report, many of these top managers came from senior and middle management (reported under employment equity (EE) on the scorecard). This led to a slight decline in HDSA representation at these levels. At the same time, the EE target scores increased significantly in F2012, which led to ARM’s EE score declining from 7.41 in F2011 to 1.91 in F2012.

While we are making progress in achieving a representative workforce at all levels, there are many areas still left for improvement. We discuss our employment equity and human capital transformation initiatives in more detail in the Human Capital section of this report.

6Human resource development

Mining Charter

The Mining Charter requires that mining companies invest a percentage of annual payroll in essential skills development activities reflective of the demographics. This includes support for South African-based research and development initiatives.

dti CoGP

The dti CoGP sets a target of 3% of net profit after tax on skills development in HDSA, 0.3% spend on HDSA disabled people and 5% on learnerships.

Mining Charter (year to December 2011)

All operations achieved above the 2011 target of 3.5% and all but two spent more than 5% (the 2014 target) of payroll on human resources development.

Overall, the Group spent 6.01% (2010: 6.4%) of payroll on human resources development during the calendar year to December 2011.

dti CoGP (year to June 2012)

ARM scored 7.30 out of 15 for the skills development category of the dti CoGP in F2012 (F2011: 6.28).

Our skills development programmes include learnerships, artisan, and apprenticeship programmes, ABET training and other in-house and external training initiatives. Our approach to managing Human Resources training and the related training programmes in place are discussed in more detail in the Human Capital section of this report.

7Mine community development

Mining Charter

The Mining Charter requires mines to invest in the communities around them and those from which their labour is sourced. These community development projects should be informed by ethnographic community consultative and collaborative processes which take place before implementation.

Developmental needs should be identified in collaboration with mining communities and projects should support the objectives of the Integrated Development Plan (IDP). Community investment includes enterprise development, community development and infrastructural development projects in line with the MPRDA regulations on Social and Labour Plans (SLP).

dti CoGP

The dti CoGP Socio-economic development indicator has a target of 1% of net profit after tax to be invested in community projects.

Mining Charter (year to December 2011)

ARM scored an average of 13.1 out of a possible 15 points in the Mining Charter Scorecard for Mine Community Development. Five of our seven mines achieved the full 15points for 100% implementation of their IDP-approved projects during 2011.

Implementation of projects involves other parties, including dependencies on municipal involvement, which need to be resolved before projects can proceed. ARM is engaging with all parties to ensure efficient implementation of these projects for the benefit of the communities.

dti CoGP (year to June 2012)

ARM scored 5 for Socio-Economic Development in F2012 (F2011: 3.97) out of a possible 5 points.

Operations engage with municipalities every three months at a high level to assess progress of community projects and understand community expectations and concerns. Several of our operations also participate in IDP representative forums.

In addition to SLP commitments, other projects were undertaken during F2012, including a number of Corporate Social Investment initiatives that do not form part of the Mining Charter measurements. These are more fully discussed in the Corporate Social Investment section of this report.

8Sustainable development and growth

The Mining Charter requires every mining company to implement elements of sustainable development commitments included in the “Stakeholders declaration on strategy for the sustainable growth and meaningful transformation of the SA mining industry of 30 June 2010” (Chamber of Mines).

Mining companies are specifically required to address three broad areas of sustainable development:

• Environmental management compliance relating to specified requirements including implementing environmental management systems, rehabilitation, safe storage and disposal of residual waste and process residues and adequate provisions to meet closure requirements.
• Improve the health and safety performance of the industry by implementing the tripartite action plan on health and safety.
• Enhance research and development capacity and skills in relevant South African facilities to ensure quality, quick turnaround, cost effectiveness and integrity of such facilities.

ARM scored 26.75 out of a total possible 29 points for the Sustainable Development and Growth category in 2011 (2010: 26.66).

Full details of our approach to environmental management and health and safety can be found in the Environmental section and the Occupational Health and Safety sections of this report, respectively.

ARM uses 100% South African-based facilities across the Company for environmental, product quality, or biological testing wherever possible. One of our mines, Nkomati Mine, from time to time uses international laboratories for asbestos fibre monitoring.

9Beneficiation

The Mining Charter aims to assist the State in meeting its developmental priorities by facilitating local beneficiation of mineral commodities by adhering to the provision of Section 26 of the MPRDA and mineral beneficiation strategy. The intention behind these requirements is to take advantage of South Africa’s mineral wealth to enhance industrialisation of the country.

The beneficiation provisions only apply from the 2012 calendar year. ARM is investigating how to comply with these provisions and seeking clarity on baselines and how beneficiation will be measured.

Transformation

Focus for 2013

• Continued focus to increase BEE procurement by 2.5% year-on-year.
• Managing the availability of valid BBBEE certificates from suppliers.
• While BEE capital procurement requirements should reasonably be met, BEE services and consumables will require strong effort.