CHIEF EXECUTIVE’S REVIEW
PROVING OUR METTLE
“ Creating and leaving a positive legacy"
|Chris Griffith, Chief executive|
A report such as this gives us the opportunity to reflect on what we do and how we do it, as well as on the consequences of our actions. We understand that, as a group, we cannot simply go about our business in isolation from society. We are, and must be, an integral part of a broader group of stakeholders who are either affected by Kumba, or have an impact on our business. How these stakeholders judge our efficiency and effectiveness is as important as our own assessment of our performance. In effect, we need to prove our mettle – as a business and as a citizen.
Steel is fundamental to modern life, and we at Kumba – as the world’s fifth largest producer of iron ore – play an important role in the development of infrastructure all around the world.
We turn to account iron ore oxides from remote regions of the Kalahari and beyond, in massive scale mining and processing operations, involving thousands of people. We then transport this material by rail and by sea to destinations around the globe. And in doing so, we make an impact at many levels. Some basic facts about Kumba in the year under review are set out below.
- We mined 245.5Mt of material in 2011.
- We produced 41.3Mt of iron ore, and sold 43.6Mt, with 37.1Mt for the export market and 6.4Mt for domestic consumption.
- We employed 11,898 people at the end of December 2011, comprising 6,303 full-time employees and 5,595 full-time contractors. A further 4,131 project contractors were also employed on our construction projects. Direct payments to employees (excluding contractors) amounted to R2.4 million, with a further R2.7 billion paid out from Envision.
- We completed the year without a fatality, and had an excellent safety performance overall, with a 33% decrease in our LTIFR.
- We spent R120.4 million (4.4% of the total wage bill) on training and development, with each employee receiving an average of approximately 80 hours of training during the year. A total of 953 employees, community members and others participated in our learnership, bursary, professionals-in-training and adult basic education and training programmes.
- We generated revenues of R48.6 billion, and spent R16.6 billion on costs related to the business.
- We paid R8.7 billion to the government in taxes and royalties.
- We paid dividends of R17.9 billion to shareholders, of which R4.2 billion went to BEE shareholders of SIOC, that is, to Exxaro, the SIOC CDT and the company’s employees.
- We used 8.2 million cubic metres of water for primary activities, and 7.05 million gigajoules of energy in our business. Through our energy use we generated around 0.91 million tonnes of carbon dioxide (CO2).
- We invested R5.8 billion in capital expenditure to grow and sustain our business.
- We contributed R184.9 million to expenditure on social and community development, largely in the communities surrounding our operations. Including contributions to Anglo American plc’s Zimele, this amounts to R191 million, 1% of the company’s net operating profit after tax (NOPAT) from 2010.
But these numbers do not tell the real story of Kumba. To discover that, you need to dig a little deeper and this we have done in the pages that follow, providing some insight for our stakeholders into our business.
The Board of Directors’ Report 2010 was our first step towards integrated reporting, a format that recognises the interdependence between financial and non-financial performance, and our obligation to report on both these aspects to a broad range of stakeholders, including shareholders, employees, government, unions, communities, customers and suppliers. In 2011, we have produced an integrated report which is the continuation of that journey.
This Sustainable Development Report 2011 is intended to provide greater insight into the non-financial aspects of our business and supplements the role of the Integrated Report 2011. But these are not separate from, or in addition to, the fundamental business case for sustainability. Since inception, Kumba has considered the triple bottom line as an integral part of its business strategy and performance, taking the financial, social and environmental parts of the business into account and giving the same weight to each aspect. This is simply the way we run the company.
In the stakeholder engagement section of this report, we provide greater detail on the way in which we engage with stakeholders. Overall, our stakeholder relationships are sound and are underpinned by structured, strategic and transparent engagement processes, and a genuine willingness to achieve mutually beneficial outcomes. The theme of the 2011 suite of reports, ‘Towards sustainable partnerships’, signifies our desire to pursue this journey with our stakeholders.
Risk management, materiality and strategy
Kumba’s risk management process is intensive and thorough, and identifies key risks that could have a material impact on the business now and in the future. Further, the board applies itself on an annual basis to the review, identification and consideration of macro risks, taking a broad, ‘helicopter’ view. The outcome is a risk register which specifies mitigating measures and the processes to ensure the review, monitoring and reporting of risks. With respect to sustainability, we have the benefit of the guidance and vigilance of the board’s SSDS&E Committee which, under the leadership of chairman Dolly Mokgatle, has continued to play an invaluable role.
We are deeply cognisant of stakeholders’ interests and concerns, which have been raised through our extensive formal and informal processes and structures. A considered combination of the key risks of the business and the issues raised by stakeholders are addressed as material issues. It should be noted that these have been compiled to assist stakeholders in delineating and understanding the issues facing the group, but this process is inevitably subjective and possibly simplistic. Stakeholders wishing to attain a holistic picture of our business are referred to our comprehensive suite of reports, available on our website.
In 2011, we undertook a thorough review of our strategy through a consultative process, taking new and emerging issues into account and updating our view of the global economy and iron ore market, as well as of other external factors that affect our business. This was carried out internally and the review was then scrutinised by the board. I have been very encouraged by the robust nature of the process and pleased with its outcomes.
Our strategy has evolved during the year under review: we have moved from being a South African company focused on growth, to becoming an African company, with the potential for much more ambitious growth from a second, African footprint. We have set our sights on the mineral-endowed west and central African region and we will keep our stakeholders informed of progress on this in due course.
We are supportive of the Global Reporting Initiative (GRI) and this report has been developed in line with its G3.0 Guidelines and Mining and Metals Sector Supplement. We have declared an A+ level of reporting. Certain key performance indicators and our compliance with GRI have been assured by PricewaterhouseCoopers. In addition, this report has been checked by GRI.
In accordance with the organisational responsibility and capability pillar of our strategy, Kumba will seek to create and leave a positive legacy in the communities in which we operate, and through its commitment to safety and health, environmental management and social and community development, become the partner of choice for the broadest range of stakeholders. Our objectives are spelt out below:
- We will grow our business to achieve production of 80 to 90Mtpa of iron ore by 2020; 70Mtpa from South Africa and 10 to 20Mtpa from the rest of Africa.
- We will do this safely, aiming for Zero Harm to employees, contractors and communities.
- We will continue to optimise our business performance by maximising the input and potential of our human capital, attracting the necessary skills and resources and retaining and developing them within the group.
- We will ensure the continued delivery of our BEE programme. In particular, we have implemented the second phase of the Envision employee share participation scheme to ensure that employees maintain a vested interest in the success of the company.
- We will continue our transformation initiatives within the company (through the attraction and development of historically disadvantaged South Africans and of women to core mining activities), and externally (through local economic development and affirmative procurement).
- We will strive to reduce our environmental footprint per tonne of ore produced, by increasing the recycling of water, optimising energy usage (and hence minimising CO2e emissions) and rehabilitating affected areas concurrently with mining where this is practical.
- We will maintain our relationships with customers so that we continue to be able to place our ore for niche applications, at the right price.
- We will resolve the legal issues we are currently facing in respect of Sishen mine’s mineral rights.
- We will care for our people and communities, and their development, and fully implement our social and labour plans.
- We will develop and sustain mutually beneficial partnerships with all our stakeholders.
Kumba’s performance in 2011 is a credit to the people in our business and associated with our business – our partners, employees, contractors, suppliers, customers and communities. I thank them for their efforts and support.
|Chief executive’s review of the year|