Integrated Annual Review 2012 Annual Financial Report 2012 Mineral Resources and Mineral Reserves Regional overview  
 

3.1.5 Issue 5: Challenging new growth environments

Issue

Gold mining companies are increasingly pursuing high-quality growth opportunities in locations that do not have an established history of industrial gold mining. As a result, they can face challenges in terms of:

  • Effectively managing the social and political risks and opportunities such environments can pose. This includes establishing and maintaining a strong licence to operate amid challenges around (for example) unrealistic community expectations, civil activism, weak governance, public service vacuums, poor local operating standards, and insecurity
  • Addressing additional operational and technical risks and opportunities, including challenging logistics, insufficient water and energy supply infrastructure, under-explored geological environments and the need for increasingly sophisticated mining methodologies

Drivers

Aside from the well-established high-risk/high-reward equation that will always encourage certain operators to target more challenging opportunities – there are additional dynamics helping drive this issue. These include:

  • The ongoing depletion of existing high-grade deposits – as well as a lack of new large, high-grade discoveries – in traditional gold mining areas
  • The increasingly high costs associated with M&A activity in more established mining locations
  • The availability of relatively prospective, but under-explored potential growth opportunities in ‘frontier’ locations
  • The high price of gold which makes the additional risks associated with high-quality projects in such areas tolerable

Furthermore, some of these new operating environments – which can present a range of latent social, political and economic risks – are in some respects getting more challenging to operate in. This is due, for example, to:

  • An increase in government interference in mining activity – ranging from local employment requirements to hardening fiscal regimes
  • Increasingly well-organised and funded civil society groups ready to oppose mining projects, sometimes irrespective of whether or not they are perceived to fall short of expectations
  • The increasing availability and communication of information (whether accurate or otherwise) relating to mining projects, which requires much more proactive and timeous management of stakeholder relations
  • Rising community – and local government – expectations around the benefits that should accrue to them as a result of mining activity in their area
  • Evolving national and international regulatory regimes that are raising compliance costs (e.g. around issues ranging from carbon emissions through to mineral traceability)
  • Emerging social pressures that are fuelling competition for land and water, and placing additional strain on existing infrastructure

Implications

For mining companies operating in such environments, failure to effectively manage these challenges can result in additional costs or operational delays that undermine project viability at an early stage. Even companies that do successfully manage these challenges are likely to incur significantly higher costs (e.g. on extensive stakeholder engagement and risk mitigation programmes) – with commensurate impacts on project viability and profitability.

This dynamic is adding to existing investor concern over the ability of companies to execute major capital projects without significant cost overruns and/or delays. In turn, it is further reducing the willingness of investors and lenders to finance speculative long-term mining projects in non-traditional mining regions.

Companies that demonstrate their ability to operate profitably and responsibly in new operating environments through the effective management of these challenges will enjoy a marked competitive advantage in terms of:

  • Winning new licences in these higher risk areas, due to host government confidence that they can deliver revenue-generating projects where others would otherwise fail
  • Raising capital for new, high-quality projects in higher risk areas
  • Providing upfront assurance to local stakeholders, based on a strong track record of responsible practice, impact management, stakeholder engagement and the creation of lasting benefits
  • Maintaining steady and profitable production in circumstances that would otherwise result in operational disruption, production delays or unviable costs associated with stakeholder opposition and activism
  • Gaining a strategic, long-term advantage over other operators, by ‘widening the field’ in which they can operate

Strategic approach

We believe that responsible practice, effective risk management and the ability to establish a social and political licence to operate in challenging circumstances represent genuine competitive advantages. In particular, we recognise that:

  • Stakeholders are becoming better informed, more active and more demanding – and need to be closely and effectively engaged through highly developed stakeholder engagement programmes
  • The management of key stakeholder issues and concerns need to be fully ‘locked into the DNA’ of each new mining project from the very start, to ensure long-term alignment
  • Traditional ‘philanthropic’ interactions with local communities are no longer sufficient, with interactions instead needing to be based on mutual benefit and shared value creation through collective engagement
  • We need to continue going ‘beyond compliance’ to minimise negative impacts and maximise positive impacts on local communities, generate trust and maintain our reputation

This is the primary reason we have put proactive stakeholder engagement (using dedicated teams of internal and external specialists) and the generation of shared value (managed by our well-resourced Growth and International Projects Sustainable Development function (p103)) at the heart of our exploration and development activities and beyond.

This is why we are focused on developing strong relationships based on open, honest and frequent dialogue – and the creation, measurement and delivery of shared value (p103). We have defined shared value to include local economic contributions based on contributions to:

  • Local employees, including salaries, benefits and dividends (p142)
  • Host governments, including taxes, royalties and dividends (p143)
  • Local suppliers, including the local procurement of goods and services (p144)
  • Local communities, including our Socio-Economic Development contributions around the environment, infrastructure, education and training, health and wellbeing, and economic diversification (p145)

In 2012, these contributions amounted to US$5.30 billion.

In addition, we are committed to applying best practice with respect to the management of environmental, social and governance issues – and communicating this to our stakeholders. This includes, for example:

  • Our ongoing application of the ISO 14001 international environmental management standard (p90) and the OHSAS 18001 international safety management standard (p87) at all our operations and exploration projects
  • The benchmarking of our performance against our peers through our participation in the Dow Jones Sustainability Index (DJSI). In 2012, we increased our score from 81% to 84% putting us third amongst 144 participating mining companies from around the world, and within 2% of sector leader Anglo American. Furthermore, it means we are the top-ranked South African listed mining company on the DJSI.