Group Performance
Chief executive officer's review

Considerable progress has been made in improving our safety performance. The Group's fatal injury frequency rate improved by 33.8% to 0.043 per million man-hours worked, which is a significant achievement considering it is off the back of a 25.3% improvement reported in 2013. The lost-time injury frequency rate improved by 6.9% to 3.92 per million man-hours worked.

However, during the year, four colleagues distressingly lost their lives on duty and on behalf of the Group I extend my sincere condolences to the families and friends of the deceased. We remember Osika Chidhakwa, Lebogang Abednego Moiteri, Khalepile Joseph Matama and Shaun Pelser.

Our safety strategy involves a number of initiatives, which include active participation in the industry CEO Elimination of Fatalities task team as well as the Mine Occupational Safety and Health (MOSH) task teams. These task teams are focused on falls of ground, mobile machinery and dust in the workplace. We continue to build on changing the culture of the organisation (as included in the industry cultural transformation framework), improving our supervision and adopting and implementing various technical initiatives, which aim to improve workplace safety.

There were some notable safety achievements at our operations during the year, as highlighted below:

While there continues to be an increased focus on delivering against leading indicators, the absolute numbers were affected by the Impala Rustenburg strike. Activities included a 22% increase in the number of breathalyser tests, a 24% increase in road behaviour checks and 73 444 STOP® visible felt leadership observations. In addition, there were 2 562 internal work stoppages, a notable decrease of 27%.

A total of 52 stoppage instructions (excluding Section 55s) were issued by the DMR in 2014 (2013: 65), resulting in the relevant shaft being closed for a period. All shafts collectively lost approximately 205 days of production at our Rustenburg operations, and 29 days at Marula (compared with 261 and 21 days respectively in 2013). We continue to engage actively with the authorities on these stoppage instructions, including challenging them legally where we feel this to be justified. While we support all safety work stoppages where its condition or behaviour has been identified that poses a direct danger to safety, extending these stoppages beyond the scope of the risk is problematic and in certain instances may have a negative impact on safety performance. Notwithstanding this, we remain committed to safety and some of our initiatives are summarised below.

An important achievement was the full implementation of nets and bolts on both the Impala Merensky and UG2 Reef horizons as well as at the Marula operation. Impala has also successfully installed safety nets in all development ends. The South African operations have now equipped the entire trackless vehicle fleet with Proximity Detection Systems and we plan to initiate a programme to install this technology in underground locomotives, which will commence in 2015. All people on shafts who are operating trackless machines have also been equipped with Proximity Detection Systems. In addition, all underground employees are now equipped with self-contained self-rescuers. We continued the process of replacing the entire centralised blasting system at Implats with the Sasol SafeBlast® system used in conjunction with the SafeStart® detonators, which offer significantly improved levels of safety and reliability over our blasting legacy systems. The system has now been installed at Marula, Mimosa and at the Impala 20, 16, 6, E&F, 7A and 4 Shaft complexes. Zimplats has installed a similar system called the Electronic Centralised Blasting system supplied by AEL and this was fully implemented during the year under review. Furthermore, the Group is also in the process of replacing all of its conveyor belts with fire retardant conveyor belts. As part of a fire prevention programme the Group has made a decision that in future only fire retardant conveyor belts will be used. This applies to current and new conveyor installations and as at year end 11.4% of all conveyor belts were now of the fire retardant type. As part of a continued drive to improve our management of flammable gas, various initiatives were implemented this year. These include: reviewing and updating an initial risk assessment; undertaking gas sampling at Rustenburg and Marula to determine the flammable gas emissions at each shaft; and holding a very successful methane awareness campaign in August 2013.

Employee health has received continued attention during 2014, with 59 000 (2013: 90 000) employees and contractors undergoing occupational screening examinations across the operations. This was lower than last year due to the prolonged strike at Rustenburg, which has resulted in a backlog of occupational examinations. For non-occupational healthcare, medical aid membership of the Impala Medical Plan increased by 9%, with 21 994 people now on the scheme and the antiretroviral uptake increased by 6%, with 4 276 people on the programme.

In 2014, 36 employees with potential NIHL were diagnosed and submitted for assessment for compensation, as compared to 50 in 2013. While the decrease is partly due to reduced levels of medical and audiometric screening examinations during the strike period, encouraging improvements across all parameters of our NIHL performance were achieved in the months before the strike. We continue to introduce equipment with improved sound suppression and exposed individuals are trained in the use of custom-made hearing protection devices. However, ensuring adherence to relevant requirements remains a challenge. All patients diagnosed with early signs of NIHL (5% to 9.9%) on screening audiograms were investigated, counselled and monitored.

Alignment with the Department of Health and National Health Insurance continued and last year we reported on the renovations to the Job Thabane Hospital Neonatal Unit and the Freedom Park Clinic. Impala has now entered into agreements with the Department of Health and the Impala Bafokeng Trust to extend and renovate the primary care clinic situated in Luka village. In Zimbabwe, Mimosa has also assisted with renovations to the Zvishivane district hospital.

Over the past year the Group's direct environmental impact was significantly reduced as a result of the closure of the Rustenburg operations for a five-month period. Monitoring of the Group environmental indicators at Rustenburg was also affected. The decline in production translated into a decrease in the levels of water and energy consumed. Water consumption at a Group level decreased by 15% (2013: 40 711Mℓ), while an increase in the percentage of water recycled by 1% (2013: 38%) at all operations contributed to our improved water management performance.

In implementing our carbon management strategy, our focus remains on energy-efficiency projects. Security of energy supply and rising prices are material risks for our operations in South Africa and Zimbabwe. Electricity consumption accounted for around 70% of our total energy consumption in 2014 and almost 11% (2013: 11%) of our overall cash cost base. Total energy consumption declined by 18% (2013: 17 574GJ), mainly as a consequence of the disruption in operations in Rustenburg as well as the implementation of energy conservation programmes.

Our projected expansion into deeper operations that are more energy intensive, coupled with the proposed introduction of a carbon tax in South Africa in January 2016, emphasise the business imperative to focus on reducing and optimising our energy use.

During the last year, many of the pending regulations in South Africa were finalised and published by the South African Department of Environmental Affairs. The most significant implications for Implats are associated with the National Environmental Management: Waste Amendment Act, and the National Environmental Management Laws Amendment Act. This will place additional administrative demands on mining companies and entail potentially significant costs. Clarifying and understanding the discrepancies between the newly imposed requirements under the National Environmental Management: Waste Amendment Act, and the current regulations under the Mineral and Petroleum Resources Development Act will remain a focus for Implats in the coming year.

Global economic conditions and excess above-ground stocks have weighed heavily on PGM prices and US$ prices for all major metals were lower than the prior year. For the second year in a row, both the platinum and palladium markets were in deficit. The platinum market deficit for calendar year 2013 was more than 600 000 ounces and this is being driven by reduced primary supplies from the South African producers. For calendar 2013, gross auto-catalyst demand for platinum reduced marginally to 3.1 million ounces and this was offset by increases in jewellery, investment and industrial demand. There was record jewellery demand from China (1.7 million ounces) and the introduction of the ABSA platinum exchange traded fund absorbed almost a half a million ounces in 2013. Auto-catalyst recycling amounted to 1.1 million ounces of platinum, which was marginally up on 2012 levels.

For the same period, palladium moved into a deficit of nearly 800 000 ounces as a result of lower primary production and increased demand. Gross auto-catalyst demand was at an all-time high at 6.5 million ounces for 2013 and reflects the growth in gasoline car production. Industrial, dental, jewellery and investment demand during the year was static. Auto-catalyst recycling increased to 2.2 million ounces of palladium.

Primary PGM supply in 2014 will no doubt be adversely affected by the five-month strike and as a result there will likely be significant market deficits for all PGMs. For the foreseeable future there will be an increase in auto-catalyst demand for both platinum and palladium and total PGM auto-catalyst demand is expected to increase at a rate of approximately 3.8% per annum. This is being driven by increased motor vehicle production, especially in the United States and Asia, as well as new emissions standards being implemented in various parts of the world. Platinum use in auto-catalysts will rebound as a result of the introduction of Euro VI emission standards for light-duty diesel vehicles and Euro VI emission standards for heavy-duty diesel vehicles in 2014.

Our commitment to advancing our employee relations was severely challenged this year by the ongoing trade union rivalry, the failure of the wage negotiations with AMCU late in 2013, and the subsequent five-month strike at the platinum mines across the Rustenburg area. The strike, the longest in the history of industrial relations in South Africa, has revealed significant shortcomings in the manner in which we, as a mining sector, have traditionally been conducting our business and is having a profound impact on the nature of the industrial relations landscape in the country.

Following the conclusion of the crippling strike, our immediate priority is for the resumption of production at our operations in a safe and sustainable manner

In the first half of the financial year, we made some progress in delivering on our employee relations commitments that were made last year, with various initiatives aimed at improving communication with employees, building the people leadership skills of our supervisors and mine managers, and delivering the change management initiatives aimed at developing a culture of shared corporate values. Unfortunately, many of these initiatives were placed on hold during the second half of 2014, which was dominated by efforts to manage the union rivalry and resolve the strike.

Prior to the strike, we devoted considerable effort to ensuring a smooth transition from a work environment dominated by NUM, to one dominated by AMCU. In June 2013 we signed a recognition agreement with AMCU in respect of the Rustenburg operations that led to the wage negotiation process. At this time we also resumed negotiations with the NUM for Marula and for the Refineries, which ran smoothly and were settled timeously and within mandate.

The Rustenburg strike that resulted from the breakdown of the wage negotiations with AMCU has come at a profound social, economic and financial cost to all parties concerned. In seeking to mitigate the safety and health impact of the strike, we consulted with AMCU and concluded a Health and Safety agreement regarding the Rustenburg operations. The signing of this agreement has paved the way in advancing an employee relations strategy that will foster a more collaborative environment.

Following the conclusion of the crippling strike, which ended with a three-year settlement agreement signed on 24 June 2014, our immediate priority is for the resumption of production at our operations in a safe and sustainable manner. Ensuring that our mines are financially viable in the context of low metal prices and increasing costs is a prerequisite for delivering on our wage agreement. In terms of successfully delivering our employee relations strategy, we have identified a range of activities that we will be implementing over the short and medium term aimed at building better relationships across the organisation.

As part of the agreement that ended the strike, we have committed with all other parties to continue talks on various outstanding issues including (but not limited to): the provision of micro-loans and garnishee orders; the retrenchment agreement/severance policy; retirement benefits and funeral cover; sub-contracting, labour hire and employment agencies and the nature of the job grading review. In terms of the agreement, we are obliged to run three separate processes of negotiations in respect of the Refineries, Marula and the Rustenburg operations. Recent developments at Marula point to the possibility of an AMCU majority at the mine and formal meeting structures have been established for the necessary continued engagement.

In our drive to build better relations, we will be implementing a new employee engagement model, presenting an attractive value proposition to employees and developing new values through the Respect, Care and Delivery initiative. To achieve the necessary shift in culture throughout the organisation, we will be implementing a robust process of coaching and training to assist line managers to deal with difficult labour situations in a collaborative way. We will also be working to further develop the direct two-way communication process through SMSs that we put to use for the first time during the industrial action. In addition, we are continuing our participation in relevant employee relations forums at the Chamber of Mines.

As a part of the change management initiative that I lead, we conducted a Barrett Survey among Implats employees to assess their perceptions of the current Implats culture, and to offer an opportunity for employees to provide input into the culture they desire. The results of the survey, which represented approximately 10% of employees across all geographies and demographics, indicated that there are issues requiring further cultural or structural transformation and leadership development. Most of these issues relate to health, the viability of the business, and the nature of the interpersonal connections experienced at work. This initiative will be progressed in the coming year; with focus groups planned at all operations to better understand these issues and develop appropriate response programmes.

Unfortunately the five-month strike interrupted a good start to the financial year and all initiatives to ramp-up production at the mine over the next five years were curtailed. During the year, there were 312 (2013: 505) lost-time injuries at a lost-time injury rate of 5.04 (2013: 4.91) per million man-hours worked. Ore milled decreased by 43.3% to 6.2 (2013: 10.9) million tonnes while refined platinum decreased by 42.0% to 411 000 (2013: 709 200) ounces. Milled head grades (6E) were marginally higher at 4.34 (2013: 4.32) grams per tonne. Recoveries improved to 87.4% (2013: 85.3%) as a result of better efficiencies and lower opencast volumes milled.

Total development activity at 61.3 (2013: 97.4) kilometres decreased as well as on-reef development, which declined by 28.9% to 21.1 (2013: 29.7) kilometres. In the period before the strike commenced, 17.4 kilometres of face was mined at an average panel length of 24.1 metres and a face advance of 9.9 metres per month. Currently, there is 20.5 kilometres of mineable face length, which remains a constraint. The key to reversing this situation and improving reserve flexibility is to optimise development, equipping, construction and ledging activities on existing shafts and at the newly commissioned 20 and 16 Shaft complexes.

Impala's unit costs increased 27.8% to R22 036 (2013: R17 241) per refined platinum ounce for the year. The impact of the strike, above inflation wage increases, lower productivities and above inflation power costs (in conjunction with lower volumes) all affected unit costs.

The protracted industrial action had a material impact on operations in 2014, particularly in terms of lost revenues. Moreover, consequential delays in project and development build-up profiles and the four-month start-up process in itself was affected by, amongst other things, significant copper theft during the strike, all of which will result in reduced projected volumes for 2015. Current indications are that production at Impala will be approximately 575 000 ounces of platinum in 2015. These factors, together with tempered metal prices, will result in profit margins at Impala being under pressure in the short to medium term. A strategic planning exercise has therefore been initiated to assess the full impact of low PGM prices and the strike consequences on the profitability at Impala. This is due for completion by December 2014.

Zimplats' safety performance improved to six (2013: 12) lost-time injuries in the year and a lost-time injury rate of 0.41 (2013: 0.70) per million man-hours worked. Ore milled increased by 26.8% to 5.9 (2013: 4.7) million tonnes while platinum in matte increased by 21.0% to 239 700 (2013: 198 100) ounces. During the year, capital of US$118 million (2013: US$164 million) was spent mainly on the Phase 2 expansion project on the underground infrastructure at the Mupfuti mine. Platinum unit costs in matte decreased by 1.2% to US$1 291 (2013: US$1 307) per ounce mainly due to US$ inflation of 6.4% (2013: 6.2%) offset by the 21.0% increase in platinum production. A strategic decision was taken to refurbish the Base Metal Refinery (BMR) at Selous as an important first step in a multi-phased plan for local beneficiation. A pre-feasibility study was initiated in February 2014 to establish cost estimates and time frames for this work. As part of the study outcomes a recommendation has been made to pursue a truncated process flow sheet which will enhance plant capacity and simplify future process updates. The total project cost for the BMR refurbishment is estimated at approximately US$100 million, and project implementation started in July 2014 and with an estimated 24 months completion period.

Post year end, in July 2014, a collapse within a section of the underground working area of the Bimha mine was triggered by the accelerated deterioration of ground conditions associated with a major fault, the Mutambara Shear, which transgresses through the mining area. As a result of the proactive response from the Zimplats management team and the timely evacuation of all personnel, no injuries or damage of mobile equipment were reported.

By 20 August 2014, ground conditions had continued to deteriorate and as a consequence, it was decided to withdraw all employees across the rest of the portal. A team of Company and independent advisers have been appointed to conduct detailed investigations to re-engineer and/or arrest the current mine stability concerns. Consequently, there is a possible production impact of up to 70 000 platinum ounces in 2015.

Marula's safety performance rates improved slightly. However, there were 47 (2013: 45) lost-time injuries during the year and the lost-time injury rate was 5.29 (2013: 5.42) per million man-hours worked. Ore milled increased by 10.2% to 1.8 (2013: 1.6) million tonnes while platinum in concentrate increased by 9.5% to 78 500 (2013: 71 700) ounces. Marula's costs per platinum ounce in concentrate increased by 1% mainly due to mining inflation of 7.3%, offset by increased production. Additional mining crews were employed towards the end of the year in preparation for increased volumes planned for 2015. No major capital projects are currently being advanced on the mine.

Mimosa delivered a good safety performance despite a deterioration in the lost-time injury frequency rate

Mimosa delivered a good safety performance despite a deterioration in the lost-time injury frequency rate from 0.26 per million man-hours worked in 2013 to 0.38 in 2014. Tonnes milled at 2.45 (2013: 2.38) million for the year increased by 3% and platinum in concentrate increased by 9.9% to 110 200 ounces. Mimosa's unit costs decreased by 3.9% from US$1 782 per platinum ounce in concentrate to US$1 713 per platinum ounce in concentrate mainly due to the increased PGM production levels and cost reduction initiatives. Power interruptions affected production and discussions to minimise the impact continue with the power authority. During the year, US$34 (2013: US$30) million was spent on capital projects mainly incurred on stay in business projects.

	Gross platinum refined at 1 178 000 (2013: 1 581 500) ounces was 25.5% lower
	Management's swift action to protect employees during the strike reduced costs to 30% of normal operating levels

Two Rivers improved its safety performance with 10 (2013: 13) lost-time injuries for the year. The lost-time injury rate was 1.4 (2013: 1.78) per million man-hours worked. Tonnes milled were 3.4% higher at 3.3 (2013: 3.2) million for the year and platinum in concentrate increased by 8% to 175 100 (2013: 162 200) ounces. Costs per platinum ounce in concentrate decreased by 2.1% to R11 433 per ounce. Capital expenditure amounted to R319 (2013: R489) million, which included R171 million spent on underground extensions and fleet replacement and R97 million on a new plant, commissioned during the first quarter of 2014, to recover chrome and additional PGMs from the tailings stream.

Gross platinum refined at 1 178 000 (2013: 1 581 500) ounces was 25.5% lower than that refined in 2013 largely as a result of the Impala Rustenburg strike. Mine-to-market operations decreased by 18.8% to 985 700 (2013: 1 214 400) ounces while third-party refining volumes reduced by 48% on the back of 174 800 ounces lost due to the termination of the auto-catalyst recycling contract and the suspension of deliveries from Everest South, Crocodile River and Smokey Hills operations, which were placed on care and maintenance due to the prevailing market conditions. A total of 157 100 (2013: 116 200) ounces of platinum were refined for Northam and Platmin during the year. Costs at the refineries were well contained at a 6.5% decrease year-on-year. However, unit costs increased to R747 (2013: R595) per platinum ounce due to the 403 500 ounce decline in throughput. Mineral processing pipelines were drawn down to minimum levels during the strike and will be replenished during 2015. The refineries' pipelines at the end of June 2014 were slightly higher than the previous year due to treatment of stockpiled IRS material at year end.

The construction of a final metals processing facility to replace the existing final metals section is on schedule with all of the necessary upfront detailed engineering, permitting and zoning having been completed. This is a R2.2 billion project that is estimated to take six years to complete. Also, to ensure ongoing legal compliance and environmental performance improvement, a new boiler emissions abatement plant was advanced during the year and this R250 million project is still planned for completion by the end of calendar 2015.

In South Africa, the Group has continued to meet its commitment in terms of the Mining Charter targets set for 2014. A detailed account of our performance can be found in the sustainable development report (refer to the scorecard here).

As part of the transformation agenda, we continue to advance previously Historically Disadvantaged South African's (HDSAs) and women into key positions. HDSAs represent 50% (2013: 48%) of management and women now comprise 19% (2013: 19%) of management. Procurement with HDSA suppliers was up at 65% from 55% in the previous year. Overall there was acceptable performance in the key Charter elements of capital goods, consumables and services against the 2014 targets. We remain committed to the national transformational agenda, and during the year, we participated in the DMR's compliance assessment process. We look forward to the outcomes of this process and to provide input into the review of the Mining Charter through the Chamber of Mines in the year ahead.

The amended MPRDA was passed in April 2014 by the National Assembly, following considerable engagements between the DMR and the Chamber of Mines. However, the signing has now been delayed with the announcement by the new Minister of Mineral Resources that there is a need for further consultation. The potential impact of these deliberations remains a concern and the Group will continue to engage on this matter through the Chamber of Mines.

We continue our discussions with the Government of Zimbabwe on the subject of indigenisation and how it can be implemented. We have been advised by the government to factor in certain Corporate Social Responsibility projects with a view to accruing credits towards the 51% indigenous shareholding target. The Company is engaged in discussions with the Minister of Youth Development, Indigenisation and Economic Empowerment with regard to the indigenisation implementation plan.

On 1 March 2013, a Zimbabwe Government Gazette was published indicating the President's intention to compulsorily acquire about 50% of the mining claims owned by Zimplats' operating subsidiary company. Zimplats formally objected to this acquisition and lodged a claim for compensation under Zimbabwean law. There has been no response to the objection raised.

The total socio-economic expenditure decreased to R71 million (2013: R102 million) for the South African operations inclusive of social and labour plan commitments. The decrease was due to the strike and the subsequent declaration of force majeure at the Rustenburg operations. Due to this, project implementation and verification was delayed and covered less than half of the plan. This considerably reduced our ability to assess the number of beneficiaries from our social initiatives. Current indications are that 12 000 people benefited from 14 projects assessed (2013: 100 000 people).

Despite the impact of the strike, we advanced a number of social initiatives within our communities during the year. In South Africa a key initiative that was advanced during the year, was the construction of Phase 1 (R210 million) of the project to build 557 out of a planned 2 420 new houses at “Platinum Village” located near the Impala 10 Shaft complex.

During the strike-affected year a total of 283 houses were completed and 181 handed over to employees in the Platinum Village. The strategy of providing the opportunity to employees to purchase quality houses is key to normalising the living and working environment of our employees. Another highlight for the year was the completion of the Sunrise View High School alongside the primary school that opened in 2013.

	At Zimplats, social development projects spend totalled US$5.3 million and US$15 (2013: US$8) million was spent on employee housing
	We firmly believe in PGMs and their importance for society at large

At the Refineries, the Tswelopele home ownership development comprising 108 housing units has been completed to the value of R36 million. A total of 104 units have been sold to employees. Further afield, Implats also signed a contract to build 122 houses at Marula, of which 58 units have been completed and project completion is on schedule for December 2014. The project cost is estimated at R144 million.

We have now also conducted evidence-based research to better understand some of the social challenges that impact our communities and to further inform our social strategic interventions. In collaboration with our social partners, two studies were initiated at the Rustenburg operations in the year under review, to ensure that our:

• interventions are informed by empirical evidence on key social indicators identified in communities;
• approach to stakeholder engagement is robust and inclusive, having been conducted in collaboration with key stakeholders; and
• medium and long-term social interventions address Implats' own long-term strategic outlook.

The first study covered approximately 36 000 households as at the time of reporting. While preliminary findings from the survey highlight the depth of the social challenges brought about by in-migration and the increased competition for limited resources, it has equally brought into sharp focus the need for an integrated and collaborative approach to addressing social challenges that exist in our local communities. Over the coming year the details of these findings will inform our strategies for community sustainability during and after the life of mine. A similar study is planned for the Marula operations in Limpopo and will commence in the new financial year.

The second study will assist in understanding the social challenges being faced by mining-specific households, the impact of Social and Labour plans, and the migrant labour system.

At Zimplats, social development projects spend totalled US$5.3 million and US$15 (2013: US$8) million was spent on employee housing. Zimplats has a target of directing 60% of annual spend towards local suppliers to assist in the broader economic recovery of the country and during the year local suppliers accounted for 66% (2013: 64%) of the annual expenditure on goods and services.

At Mimosa, spend on community development decreased by some 20% to US$3.7 (2013: US$4.6) million and a further US$146 000 (2013: US$2.1 million) was spent on employee housing. Indigenous procurement as a percentage of total discretionary expenditure was 92% (2013: 92%).