APPROACH AND OVERVIEW

GOVERNANCE OF SUSTAINABILITY

EXCELLENT BUSINESS LEADERSHIP

The massive P&H 560 shovel in the middle section pit at Sishen mine.

SOUND CORPORATE GOVERNANCE

Kumba’s board of directors ensures that the principles of good corporate governance are implemented and upheld at all levels of the company. To guarantee that the group continues to deliver value to all its stakeholders, the board ensures that all deliberations, decisions and actions of the group’s business and operational structures are based on integrity, responsibility, accountability, fairness and transparency.

Corporate governance at Kumba is guided by the company’s Memorandum of Incorporation, the Kumba Delegated Authority Framework (DAF), the Listings Requirements of the JSE Limited, the New South African Companies Act (Act No 71 of 2008), the third King Code of and Report on Governance Principles for South Africa (King III) and any other applicable governance principles and legislation.

Formal mechanisms for shareholders to communicate with the company are in place and include one-on-one meetings with management, presentations, annual and special general meetings, media releases, interim and year-end results announcements, the company’s website, the company’s annual integrated report and the proxy form shareholders use to exercise their voting rights.

To ensure that the company reports on topics that reflect its significant economic, environmental and social impacts, or that would substantively influence the assessment and decisions of stakeholders, Kumba has assessed the materiality of those issues that could have an impact on the business now and in the future.

In doing so, the company has amalgamated those issues which have been identified by way of its robust risk management system on the one hand and the interests and concerns raised by its stakeholders, through extensive formal and informal processes and structures on the other.

By reporting on its material issues, Kumba seeks to provide stakeholders with insight into the company’s strategic intent. See the stakeholder engagement section of this report for more information on how Kumba engages with its stakeholders.

Corporate governance

RISK MANAGEMENT

Responsibility for the oversight of risk management at Kumba starts with the board, which delegates some of the associated duties to the Risk Committee. The overall quality, integrity and reliability of the company’s risk management function rests with this committee.

Kumba maintains an integrated risk management programme which facilitates the identification of key risks that could have a significant impact on the ability of the group to achieve its strategic objectives; the analysis of risks and controls; implementation of appropriate controls and responses to mitigate identified risks; the monitoring of the effectiveness of those controls; and regular reporting to the Executive Committee, the Risk Committee and the board.

MANAGEMENT APPROACH AND RESPONSIBILITY

Management is responsible for monitoring the progress of actions taken to mitigate key risks and is supported by the group’s internal audit programme which evaluates the design and effectiveness of controls to mitigate risks. The results of the integrated risk management process are reported to the Executive Committee every month, and to the Risk Committee and the board every quarter.

The following risk areas have been identified:

• regulatory, political and legal;
• resources and reserves;
• employee safety and health;
• social;
• commodity price and demand;
• infrastructure;
• environment;
• employees;
• foreign exchange; and
• operational performance.

COMPOSITION OF BOARD (%)		COMPOSITION OF BOARD BY GENDER (%)

Kumba has a unitary board, led by an interim non-executive and independent chairman, Allen Morgan. The board comprises two executive directors (20%) and eight non-executive directors (80%), five of whom are independent (50%), and two of whom are black women (20%).

The company’s operating entity, Sishen Iron Ore Company (Proprietary) Limited (SIOC), in which Kumba has a 73.9% shareholding, has a fully operational board of directors, consisting of three executive (60%) and two non-executive directors (40%), in place. The DAF regulates the authority limits and the relationship between the Kumba and SIOC boards. Accordingly, SIOC directors retain unencumbered discretion with respect to SIOC matters.

The Kumba board charter regulates how business is conducted by the board according to the principles of good governance by:

• regulating the parameters within which the board operates;
• setting out specific responsibilities to be discharged by board members;
• enforcing adherence to the provisions of the Memorandum of Incorporation; and
• delineating matters pertaining to board governance and the key issues that the board considers in the course of its direction of the company.

As outlined in the board charter, the board maintains a clear separation between the responsibilities of the chairman and the chief executive officer. While the chairman holds responsibility for the overall leadership of the board, the chief executive officer focuses on the operation of the business.

The board has established four standing committees through which it executes its duties, namely:

• the Audit Committee;
• the Risk Committee;
• the Human Resources, Remuneration and Nomination Committee (Remco); and
• the SSDS&E Committee.
  
  

Jimmy Makolokwane, electrician, and Kabelo Leeka, process engineer, at work on module 3 at the Sishen mine jig plant.

The SSDS&E Committee came into being in February 2012 and replaces the Safety & Sustainable Development Committee. It oversees the same areas of concern, such as safety, health, environmental and community matters, in addition to new social and ethical aspects of the company’s performance, in line with the requirements of the new Companies Act.

LEADERSHIP

While overall responsibility for sustainable development lies with the board, specific oversight of the development of policies and guidelines to manage sustainable development, safety, health and environmental matters has been delegated to the SSDS&E Committee. Transformation and compliance with the Mineral and Petroleum Resources Development Act (MPRDA) and the Mining Charter are considered by the board as a whole with responsibility for implementation allocated to Remco and the human resources department.

Directors are appointed to the Kumba board based on their individual competencies and experience relevant to achieving the group’s objectives as a leading iron ore supplier. The board seeks to maintain a balance of business, governance, project management, technical and financial skills and expertise. Since Kumba regards the company’s economic, social and environmental performance as integral to all aspects of its business and to its overall success, candidates in any of these fields are required to demonstrate an intimate understanding of the specific challenges faced by mining companies in these areas, and how they would consider these concerns in their potential board role.

The board recognises that improved performance and effectiveness may be achieved through regular and timely appraisals both of the board as a collective and of its individual members. In line with Anglo American plc’s requirements in this regard, the board, its subcommittees and its individual members undergo externally facilitated performance appraisals every two years, which include self appraisals and peer reviews of individual, committee and board performance against targets. The performance of the board in terms of sustainable development is addressed as part of this process, particularly as part of the appraisal of the SSDS&E Committee.

Remco ensures that the board comprises suitably qualified individuals and consults other directors in its evaluation of the chairman, the chief executive officer and individual directors. Regular evaluations of the board and its committees, involving one-on-one interviews with individual directors and internal questionnaires which address a broad range of issues relating to board performance, are conducted on a regular basis.

The board ensures that the remuneration of both board members and senior executives reflects the overall performance of the company as a whole. This includes an assessment of financial and non-financial performance indicators. While executives receive fixed compensation for their work in line with the terms of their individual contracts, bonuses are only awarded if all the necessary key performance indicator targets have been achieved. This excludes non-executive directors, whose remuneration is awarded for services to the board and is considered separate from the operational performance of the company.

The relationship between compensation for members of the highest governance body, senior managers, and executives (including departure terms), and the organisation’s performance is covered in detail in the company’s remuneration report, which can be found in the company’s Annual Financial Statements.

Remuneration report

ETHICS

Kumba is committed to the highest ethical standards. The group has in place numerous policies that govern the relationships between the group and its stakeholders. These policies may be accessed on the company’s website. These codes apply to directors, executives, managers, employees, contractors, communities, clients, customers and suppliers. Their implementation and monitoring is ensured by the SSDS&E Committee.

Kumba against corruption

www.angloamericankumba.com/pdf/policies/business_integrity_policy_ may2011.pdf

Conflicts of interest

Kumba has a conflict of interest policy designed to assist directors and managers in identifying situations that could present potential conflicts of interest. The policy is intended to comply with the requirements of the Companies Act and the JSE Listings Requirements and contains an outline of the procedures to be followed, which could include recusal, once a conflict of interest has been reported or identified.

The company requires that all management employees and directors disclose details regarding external shareholding and directorships which could potentially create conflicts of interest while they serve as directors on the board. A comprehensive register of interests is maintained and updated and signed by each management employee and director.

Where necessary, the company may seek independent legal opinion regarding potential conflicts of interest in so far as these may affect specific directors or employees, to determine whether or not a conflict of interest exists and to provide appropriate recommendations to the company to follow in dealing with these matters.

Donations and gifts

Kumba prohibits political donations to any politician, political party or related organisation. No political donations were made in 2011. The company makes charitable contributions and social and community investments which are intended to promote sustainable community development. Any form of facilitation payment is prohibited. Employees are not allowed to accept any gifts that may create a sense of obligation, may influence their judgement or that could result in a conflict of interest.

Insider trading

In terms of both the Securities Services Act No. 35 of 2004, the insider trading rules of the JSE Listings Requirements and the company’s policy for dealing in the company’s securities, neither directors nor employees are allowed to deal in the company’s shares if they are in possession of material price-sensitive information, or when the company is in a closed period. The directive also applies to close relatives of directors and employees. Directors and employees are required to obtain prior approval before dealing in the company’s shares. In addition, employees are periodically advised of closed periods.

Whistle-blowing

Employees and other parties are encouraged to anonymously report corrupt and fraudulent activity or any concerns about conduct by making use of Tip-offs Anonymous, a 24-hour whistle-blowing facility. Independently operated, the Tip-offs Anonymous facility provides telephone, e-mail and website contact details and can be accessed via www.anglospeakup.com or by emailing anglocorp@anglospeakup.com. All whistle-blowers are protected against any form of victimisation provided that disclosures are made in accordance with the provisions of the Protected Disclosures Act, No. 26 of 2000.

External initiatives and memberships in associations

Kumba is a signatory of the United Nations Development Programme (UNDP) through Anglo American plc. The UNDP advocates for change and connects countries to knowledge, experience and resources to create solutions to global and national development challenges.

Kumba is also an advocacy member of the Chamber of Mines of South Africa, and the company’s CEO, Chris Griffith, is a member of the Chamber’s executive council. The Chamber of Mines is a private sector employer organisation which is the principal advocate of major policy positions endorsed by mining employers. It represents these to various organs of South African national and provincial governments and to other relevant policy-making and opinionforming entities, both within the country and abroad. The Chamber also works closely with the various employee organisations in formulating these positions where appropriate.

SIGNIFICANT LEGAL ISSUES OR FINES

Kumba did not incur any fines in respect of non-compliance with laws or regulations in 2011, and was not involved in any legal action relating to anti-competitive behaviour, anti-trust or monopoly practices during the year.

Mineral rights dispute

After ArcelorMittal South Africa (AMSA) failed to convert its old order rights, SIOC applied for the residual 21.4% mining right previously held by AMSA and its application was accepted by the DMR on 4 May 2009. A competing application for a prospecting right over the same area was also accepted by the DMR. SIOC objected to this acceptance. Notwithstanding this objection, a prospecting right over the 21.4% interest was granted by the DMR to Imperial Crown Trading 289 (Pty) Limited (ICT). SIOC initiated a review application in the North Gauteng High Court on 21 May 2010 in relation to the decision of the DMR to grant a prospecting right to ICT.

The High Court Review, in which SIOC challenged the award of the 21.4% prospecting right over Sishen mine by the DMR to ICT, was presided over by Judge Raymond Zondo in the North Gauteng High Court in Pretoria, South Africa, from 15 – 18 August 2011.

On 21 December 2011, judgment was delivered in the High Court regarding the status of the mining rights at the Sishen mine. The High Court held that, upon the conversion of SIOC’s old order mining right relating to the Sishen mine properties in 2008, SIOC became the exclusive holder of a converted mining right for iron ore and quartzite in respect of the Sishen mine properties. The High Court held further that as a consequence, any decision taken by the DMR after such conversion in 2008 to accept or grant any further rights to iron ore at the Sishen mine properties was void. Finally, the High Court reviewed and set aside the decision of the Minister of Mineral Resources or her delegate to grant a prospecting right to ICT relating to the iron ore as a 21.4% share in respect of the Sishen mine properties. On 3 February 2012, both the DMR and ICT submitted applications for leave to appeal against the High Court judgment. SIOC has noted an application for leave to present a conditional cross appeal, in order to protect its rights, and is awaiting the date for the hearing of the application for leave to appeal.

The High Court order does not affect the interim supply agreement between AMSA and SIOC, which will endure until 31 July 2012.

SIOC will continue to take the necessary steps to protect its shareholders’ interests in this regard.

Etienne Fourie, shift co-ordinator, in discussion with Sasha Kimemiah, project engineer, at the Thabazimbi mine despatch and collision avoidance control room.

PRECAUTIONARY PRINCIPLE

The integration of good corporate citizenship, sound business principles, a risk-based approach and a Zero Harm mindset collectively contribute towards the fulfilment of the precautionary principle as captured in Article 15 of the Rio Declaration.

As required by the principle, Kumba ensures that all its operations and projects undertake effective environmental impact identification and assessment, in line with the group’s environmental policy.

Added to this, Anglo American plc’s Social and Environmental Impact Assessment Standard and the various Environmental Performance Standards are designed to ensure that there is proactive management of the environment and that there is a risk-based approach in whatever activity is undertaken. Similarly, this is implemented through compliance with ISO14001 and OHSAS18001. In cases where there is uncertainty in terms of the requirements, Kumba has always opted for the most stringent requirements, thereby ensuring that proper measures are in place for the protection of the environment.