Material issues

Industrial unrest and union rivalry have featured in the South African mining industry for some time. This undermines Sibanye’s operational efficiency and performance, and negatively affects financial performance. Labour unrest can result in work stoppages. Demand for higher wages results in increased costs often without a corresponding increase in productivity.

Sibanye is concerned that strikes in the major mining companies could damage the South African economy, and hold back growth and employment. This remains a threat to the Group’s operations in light of the implementation of the wage agreement without full acceptance during the negotiations. Union rivalry may further fuel the situation.

Sibanye recognises and respects employees’ rights, including the right to work safely, to develop and contribute, and to associate. Harmonious relations are top of mind.

Sibanye understands its history and the union-membership landscape so it has been essential to create and sustain an engagement platform where all represented and recognised unions are allowed equal rights to engage with employees and management. Information is shared and discussed using agreed joint leadership and future forums when rights and obligations are consistently applied.

Sibanye’s vision is to create superior value for all its stakeholders, and this has resulted in processes to modernise employee engagement within and outside the workplace.

Employees understand the positive impact that the operating model has had on extending life of mine (LoM) and thus creating employment opportunities. However, this could be jeopardised by union rivalry, which does not consider the stability of the business as a top priority.

Since inception, post the 2012 unbundling of Sibanye from Gold Fields, the Group proactively tried to win the hearts and minds of employees with the (People at Sibanye) strategy. This integrated approach deals with key employee-related aspects and focuses on implementing integrated solutions.

Elements of the People at Sibanye strategy include:

• selling Group houses and facilitating affordable housing aligned to home-ownership allowances paid to employees
• indebtedness programmes focused on moving beyond consolidating debt to personal balance sheet growth and financial wellbeing
• career development
• personal wellbeing
• community development
• integration

These initiatives are backed by unfiltered dialogue between employees and line managers, supported by frequent factual communication from the desk of the Chief Executive Officer (CEO). Recent employee survey findings have clearly indicated that employees prefer management communication and engagement to gather information as the union-rivalry phase has created a measure of confusion and distrust.

For further information, refer to:

• Optimise – Develop a productive, skilled and engaged workforce
• Sustain – Social upliftment and community development

Underground mining exposes miners to, among others, heat, dust, noise and injury from fall of ground. Consequently, the industry is subject to stringent health and safety laws and regulations. In addition, the industry is experiencing the negative effects of pandemics, such as HIV/Aids, along with accidents, accident investigations and stoppages, which adversely affect productivity and costs. Furthermore, investors do not want to invest in companies that do not manage their safety and health matters effectively.

Sibanye believes that the safety and health of employees are essential for an engaged, productive workforce and that healthy employees work safely.

In striving for zero harm at its operations, Sibanye aims to eliminate the potential for accidents and injury, and to minimise hazards inherent in the working environment in a practical manner.

Sibanye has extensive systems of control in place to minimise health and safety risks. About 80% rely on employees taking ownership – from the CEO to line management, supervisors and mineworkers. Sibanye’s integrated safety and health strategy includes adherence to operational standards and responsibility, engineering-out risk initiatives, fall-of-ground initiatives and action plans, improvement of employee wellbeing, application of appropriate technologies, and effective education and training.

For further information, refer to:

• Optimise – Develop a productive, skilled and engaged workforce
• Sustain – Health and safety focus
• Grow – Modernisation and technological innovation

The South African mining environment is governed by legislation to redress some of the social and economic imbalances of the past. The mineral rights are subject to legislation in terms of the MPRDA, the Mining Charter and SLPs. Policy changes, particularly related to the MPRDA and the Mining Charter, create a framework for the transformation of the mining industry but increase the risk of non-compliance and handicap Sibanye’s ability to deliver value.

It is important to maintain sound relations with the regulator, the DMR, particularly upholding licence conditions. This includes directives, instructions, suspension or cancellation of mining rights.

The political environment is outside of Sibanye’s control but any negatives can be improved by the quality of stakeholder relations.

The threat of policy changes, including amendments to the MPRDA and legislative concerns, such as the outcome of the interpretation of BEE ownership, increases uncertainty and deters investment required for growth and sustainability.

Policy uncertainty is making South African business reluctant to invest in the country and adding to the difficulty of attracting investors.

As 2015 preceded an election year, the DMR was under increasing pressure, particularly from local government officials, to compel mining companies to comply with Mining Charter requirements and SLP commitments. Operations have had to bear the brunt of these demands in the form of stringent compliance inspections. Sibanye made an effort to maintain relations with the regulator to ensure that a neutral platform prevails for issues to be raised before sanctions are considered.

In view of the pending local elections in 2016, Sibanye has made an effort to engage with executive mayors in district and local municipalities, particularly in the Free State. This was important to understand the socio-political dynamics on the ground and potential risks for our operations. Executive mayors and councillors were kept in the loop about developments at Sibanye and realistic assessment of projects that can be funded. This engagement is expected to gain momentum in early 2016.

At industry level, differences between the interpretation of the ‘once empowered, always empowered’ principle saw the Chamber of Mines approaching the courts to seek a ‘declaratory order’ on the issue. The matter is still pending. Sibanye has yet to engage the new Minister following Cabinet changes made by the President.

The recent promulgation of the BBBEE Amendment Act, 2013 (Act No 46 of 2013) has resulted in the introduction of a ‘trumping’ provision (the Act will trump other laws) in relation to legislation on transformation. The current Mining Charter now needs to be aligned with the BBBEE Amendment Act before it is published. We have been part of the consultation process and will continue to influence the process to ensure that the requirements can be achieved.

For further information, refer to:

• Sustain – Social upliftment and community development
• Sustain – Transformation
• Grow – Secure alternative energy sources

National supply of electricity has been constrained due to the shortage of available generating capacity at Eskom. This has resulted in regular load curtailment, especially during the first half of 2015, which interrupted certain production activities, mainly in the milling and processing of low-grade surface sources.

Eskom has been successful in reducing the extent of load curtailment, albeit through extensive use of expensive generating plant, which increases the upwards cost pressure on Eskom tariffs. Electricity tariffs have escalated substantially above general inflation for several years, resulting in electricity costs increasing from 9% of operating costs in 2007 to over 20% in 2015.

While Eskom expects minimal load curtailment in 2016, risks of load curtailment, with associated impact on production operations, are expected to remain appreciable for the next five years.

Despite the operations reducing energy consumption by 2% to 3% per annum since initiatives to improve energy efficiency and reduce energy wastage were implemented, electricity costs have increased to about 18% of operating costs.

Escalation of electricity tariffs is expected to continue well above general inflation for Eskom’s tariffs to remain cost-reflective, as included in the national electricity regulation framework. This escalation will contribute significantly to above-inflation increases in mining costs, which will erode margins and raise pay limits, thereby potentially sterilising Mineral Resources.

Electricity tariff escalation is partially offset through continuous effort to reduce electrical-energy consumption through efficiency improvement and reduction in wasted energy with a view to continuing to secure a reduction in energy consumption of 2% to 3% per annum.

In addition, strategies for complying with load-curtailment obligations are being enhanced to lessen the impact on revenue-generating activities. The above-inflation electricity cost escalation that cannot be offset is accommodated in the pay limit calculations that are the basis of declaring Mineral Reserves and annual operational planning.

For the longer term, Sibanye has developed an alternative electricity programme that focuses on establishing private electricity-generating capacity that will provide energy security and cost-competitiveness. In addition to assessing various opportunities to generate baseload electricity supply with an independent power producer (IPP), a 150MW photovoltaic project is currently in permitting phase with a target date for first generation of electricity towards the end of 2017.

For further information, refer to:

• Optimise – Optimise and integrate operations
• Sustain – Manage environmental impact
• Grow – Secure alternative energy sources

Sibanye’s reputation is determined and defined by stakeholders’ perceptions of the Group, particularly communities in the vicinity of the mining operations. Sibanye recognises that its long-term success is based on establishing and maintaining sound and respectful relationships of trust with a wide range of internal and external stakeholders.

Sibanye recognises that there are enormous challenges and developmental needs among some members of its communities, and recognises its own limitations in terms of what it can do.

Sibanye’s engagement efforts are guided and underpinned by its CARE philosophy and vision. This enables it to immediately hear and validate its stakeholders’ concerns while respectfully affirming the Group’s position.

Through sound stakeholder engagement, the Group is able to make a lasting and meaningful contribution to human development while ensuring that its reputation and business remain intact.

While building and maintaining good relations with stakeholders does not guarantee avoidance of social unrest, this positions Sibanye well to navigate issues that arise within its communities from time to time.

Sibanye engages proactively and speedily to avoid the reputational impact that could result from non- responsiveness. It endeavours to form meaningful partnerships with other businesses in its areas of operation in order to pool its resources for greater impact. Collaboration bodes well for all parties and keeps local municipalities in the loop as key stakeholders.

For further information, refer to:

• Sustain – Social upliftment and community development
• Sustain – Manage environmental impact
• Sustain – Transformation

Sibanye’s social licence to operate is the vehicle that drives government’s transformation agenda in that it revolves around the level of satisfaction within communities adjacent to the operations. At the heart of this agenda is the Mining Charter.

While the Mining Charter expired at the end of 2014, this does not mean that there is no need to continue with the transformation effort. Work currently underway on the new Mining Charter seems to indicate that there will be a renewed sense of urgency in the next few years.

At a minimum, Sibanye will continue to engage with its stakeholders, deliver on its socio-economic development initiatives, share value with all stakeholders, and submit and implement its SLPs.

The Group has continued to engage with the DMR to ensure that it remains proactive and compliant with regard to the maintenance of mining rights for all the operations.

The Corporate Affairs department plays a critical role in the Chamber of Mines Charter Reference Group developing industry proposals on the new Mining Charter and alignment with the new DTI codes and the BBBEE Amendment Act.

Sibanye has established relations with structures representing communities in order to streamline processes relating to employment and procurement opportunities in the Free State. The same approach is being tested before rolling out in the Gauteng area. The current partnership, which includes the Matjhabeng Local Municipality, is underpinned by a memorandum of understanding (MoU).

Sibanye has begun engaging with traditional leaders and municipal councillors in rural labour-sending areas as well as representatives of the governments of Lesotho, Botswana and Mozambique. As these stakeholders have potential influence over more than 67% of Sibanye employees, it was important to ensure that they were apprised of Sibanye and how the CARE approach is implemented.

Corporate Affairs has been instrumental in providing guidance and support to the mining operations to ensure that adequate compliance levels are achieved. This includes scanning the internal and external environments for potential and other risks, and identifying and implementing mitigation strategies.

For further information, refer to:

• Sustain – Social upliftment and community development
• Sustain – Manage environmental impact
• Sustain – Transformation

Timely and efficient integration of Sibanye’s inorganic acquisitions into the operating model and supply chain will be essential to deliver on the business strategy.

The proposed acquisitions of Anglo American Platinum’s Rustenburg Operations and Aquarius will require significant management focus to align them with the Sibanye operating model. The lessons learnt from the integration of the Cooke Operations and Burnstone will be taken into account.

Sibanye will integrate the acquisitions based on sound project-management principles and, where applicable, external parties may be contracted to assist with post-acquisition integration and stakeholder communication.

For further information, refer to:

• Optimise – Optimise and integrate operations
• Grow – Acquisitions and funding model

Increasing costs – of power and labour in particular – affect operating margins, inhibit cash flow and profitability, and consequently Sibanye’s ability to pay dividends.

As a result of escalating cost of electricity, wages and other costs, and other input price increases, the mining sector is losing out on opportunities to sustain current jobs or create more jobs. Rising costs and squeezed margins are contributing factors to slowing economic growth and the unemployment rate increasing from 25.0% to 25.5% in 2015.

From Sibanye’s point of view, these are the critical implications of rising costs:

• increased pay limit (break-even grade)
• reduction in Mineral Reserves and LoM
• possible early closure of shafts
• impairment
• labour tension due to downsizing
• reduced cash generation impacting the dividend

Dealing with rising costs is an ongoing initiative, which includes:

• conservative commodity and exchange-rate assumptions for planning
• business restructuring
• cost management and control
• mining-grade management
• strategic procurement initiatives
• short interval reviews
• stakeholder management (for example, with Eskom)

For further information, refer to:

• Optimise – Optimise and integrate operations
• Sustain – Project development and capital allocation
• Grow – Secure alternative energy sources
• Grow – Modernisation and technological innovation

The revenue Sibanye earns is determined largely by the prices received for gold sold and, to a lesser extent, for uranium. Both these prices, over which Sibanye has no influence, are set on global markets in terms of US dollars.

As Sibanye is domiciled and operates in South Africa, dollar receipts for product sold must be converted to South African rand, and the amount received in rands is thus a function of the rand/US dollar exchange rate. Ultimately, rand revenue is then a function of the gold price in dollars and the local exchange rate. As the dollar gold price has continued to weaken over the past three years so too has the rand/US dollar exchange rate, which has helped to counter declines in the dollar price of gold in terms of rand revenue earned.

Volatility in the gold price and the rand/US dollar exchange rate in recent years has resulted in financial uncertainty in terms of revenue generated, cash flows and profitability.

Furthermore, the rand/US dollar exchange rate also has an impact on costs incurred, chiefly in rand. A weakening rand contributes to higher rand revenue, to lower costs in terms of US dollars and to increased operating margins. The opposite is also true: a stronger rand implies reduced rand revenue, higher costs in terms of dollars and decreased operating margins. It is therefore vital that the business is managed to counter the effects of this volatility.

To counter the effects of market volatility, Sibanye has devised an operating model that, to increase margins, is based on:

• optimising capital expenditure
• reducing costs and pay limits
• optimising LoM plans

For further information, refer to:

• Optimise – Optimise and integrate operations
• Sustain – Project development and capital allocation
• Grow – Acquisitions and funding model

Modernisation of mining processes is a means to improve productivity and the safety of employees in the workplace.

Development of new technology or innovation will have a substantial impact on Sibanye’s ability to create value over time. Improved mining methods and cycles will allow extraction of maximum value from assets and resources by lowering cut-off grades, decreasing dilution and increasing production rate. The net result will be higher volumes of better-quality product with substantial reductions in injury-frequency rates, facilitated by reduced employee exposure to danger areas.

In order to develop fit-for-purpose technology, Sibanye has developed partnerships with developers and suppliers as well as MoUs governing information sharing with counterparts in the mining industry.

Sibanye established the Safe Technology department in July 2014. It has since facilitated industry-wide due diligence on past, current and future developments with respect to modernising narrow, tabular and steeply dipping ore-body extraction. The process yielded a number of technologies that have been actively pursued, and are in various stages of investigation, development and implementation.

For further information, refer to:

• Optimise – Optimise and integrate operations
• Grow – Secure alternative energy sources
• Grow – Modernisation and technological innovation

Inadequately maintained infrastructure can result in unplanned breakdowns and stoppages with possible production delays, increased costs and industrial accidents.

Maintaining infrastructure necessitates a planned programme of maintenance and upgrades, which has to be funded by capital expenditure.

Capital expenditure is linked to infrastructure risk assessment. Sibanye keeps a maintenance risk register and conducts regular shaft-infrastructure maintenance management inspections.

For further information, refer to:

• Optimise – Optimise and integrate operations
• Sustain – Project development and capital allocation
• Grow – Acquisitions and funding model

Appropriate and required financing can be difficult and often expensive. Efficient, sensible funding of acquisitions and aging infrastructure must be planned and co-ordinated, and optimum levels of debt and funding mechanisms determined.

Sibanye is particularly aware that:

• lack of finance can cause short-term liquidity constraints during periods of low delivery (extended Christmas and Easter breaks) and during strikes (legal/illegal)
• availability and cost of funding can impact internal organic growth and acquisitive growth
• the cost of finance can have a severe impact on cash flow and the dividend

Debt facilities are in place at competitive interest rates:

• R2.5 billion revolving-credit facility
• R1 billion term-loan facility
• US$350 million revolving-credit facility
• US$150 million bridge financing for the Aquarius acquisition
• restructuring or refinancing of debt will be considered when appropriate

For further information, refer to:

• Sustain – Project development and capital allocation
• Grow – Acquisitions and funding model

By its very nature, mining has an impact on its surrounding environment. The South African mining industry is governed by extensive laws and regulations to regulate its use of natural resources and to protect the environment against adverse impacts caused by its activities.

Sibanye believes it is vital that it acts as a responsible environmental steward. Preventing and minimising the environmental consequences of mining activities will also contribute to positive stakeholder relations and will minimise any reputational damage.

Sibanye must make optimal use of natural resources, especially water and energy, conserve land and comply strictly with environmental legislation.

For further information, refer to:

• Sustain – Manage environmental impact

Illegal mining impacts Sibanye on the surface and in its underground working areas. These activities are difficult to control, and can disrupt the business and expose it to liability. This negatively impacts employees, production and profitability.

While illegal surface mining holds lesser risks for Sibanye from a reputational, health and safety, and financial perspective, illegal mining in its underground workings is of grave concern. Illegal mining in the underground workings negatively impacts infrastructure, health and safety, equipment, product, production schedules/targets, and people.

In some instances, central blasts are tampered with resulting in lost blasts and therefore lost production. In other instances, winches and other equipment are used by illegal miners and this equipment is often damaged, which incurs repair costs or lost time with a negative impact on production.

Health and safety may be compromised by illegal miners lighting fires, indiscriminately urinating and defecating, smoking, undermining underground support and spiking water-supply systems. A major consequence of illegal miner-induced anomalies could be statutory stoppage of operations, which results in substantial production and financial loss.

Also of concern is employees (including security employees) being coerced, corrupted or compromised to assist the practice of illegal mining.

Illegal mining activities, on the surface and within the underground workings at Sibanye, may be described as manageable. In order to deal with this risk, Sibanye has the following in place:

• a security roll-out plan to deal with this issue from a preventative, investigative and criminal perspective
• a highly trained tactical response team to locate and extricate illegal miners from underground workings
• an anonymous reporting platform
• a reward system for whistleblowers and employees who apprehend illegal miners
• a well-developed internal communication strategy
• a focused Illegal Mining Task Team (multi-disciplinary with senior representation)

For further information, refer to:

• Optimise – Optimise and integrate operations