2011 INTEGRATED ANNUAL REPORT

Transcription

1 2011 INTEGRATED ANNUAL REPORT

2 VISION Optimum Coal has the vision to become the country s benchmark South African-owned and controlled coal mining and exploration group. MISSION The mission of Optimum Coal is to be a commercially prosperous mining and exploration group, supplying the needs of local and international coal consumers. VALUES Empowerment Optimum Coal is an organisation built on transparency and a true desire to harness the talent of its people without prejudice. Integrity Optimum Coal values loyalty and trust while honouring interests and undertakings made to others. Care Optimum Coal places a high premium on the wellness and safety of its people and the communities it operates in. Respect Optimum Coal values diversity and harnesses the value of quality relationships. Purpose-driven Optimum Coal is driven by achievement of clear business and people goals. Simplicity Optimum Coal embraces an approach of keeping business clean and simple. Accountability Optimum Coal people are accountable for decisions taken and delivery of agreed undertakings. / The scope and boundaries of this report / This integrated annual report covers the Optimum Coal Holdings Limited Group for the financial reporting period from 1 July 2010 to 30 June Included in the Group are Optimum Collieries and Koornfontein Mines, located in the emalahleni area of the Mpumalanga province of South Africa. Financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB), the AC 500 series as issued by the Accounting Practices Board and the South African Companies Act 71 of 2008, as amended. These financial statements were audited by KPMG, who continued in office as auditors of Optimum Coal and its subsidiaries. In reporting on the non-financial aspects of the Company s performance we have been guided by the Global Reporting Index (GRI) and the King Report on Governance for South Africa, 2009 (King III). The report has further been informed by various standards and codes that govern specific areas, including the dti Codes of Good Practice and the Mining Charter. Internal reporting guidelines have been used for collating and reporting sustainability Key Performance Indicators (KPIs) and these have been determined to be an appropriate basis for the intended users. The boundaries for each KPI are disclosed in the relevant section of the report. KPMG was engaged to provide limited assurance on selected sustainability information in this report, in accordance with the International Standard on Assurance Engagements (ISAE) 3000: Assurance Engagements other than the audits or reviews of historical information, and their assurance report is presented on page 76. The selected sustainability information within the integrated annual report subject to limited assurance is marked by the symbol (LA). This integrated annual report serves as a summary review, and does not contain all the information needed to provide a full understanding of the Group s performance. Further detailed information is contained in the full integrated annual report 2011, which can be viewed online at For more information regarding the contents of this report, please contact: Anlia Swart-Larmigny Tel: +27 (0) Group company secretary anlia.larmigny@optimumcoal.com Optimum Coal Holdings Limited

3 Contents / OVERVIEW / Results at a glance 2 Historical milestones 3 / STRATEGY / Chairman s review Taking advantage of strong energy demand 8 CEO s report Delivering on our strategy 12 Governing the business 16 / PERFORMANCE / Delivering strong financial performance 22 Stabilising operational performance 26 Managing our resources and reserves 32 Growing the business 35 Driving transformation beyond compliance 37 Ensuring safety, health and wellness 40 Developing our people 42 Empowering communities 46 Mitigating our impact on the environment 49 / leadership and corporate governance / Board of directors 58 Independent assurance report on selected sustainability information 76 / FINANCIAL STATEMENTS / Statement of directors responsibilities 80 Approval of the Company annual financial statements 80 Audit and Risk Management Committee report 81 Independent auditor s report 84 Certificate by company secretary 85 Directors report 86 Remuneration report 89 Statements of comprehensive income 94 Statements of financial position 95 Statements of changes in equity 96 Statements of cash flow 97 Notes to financial statements 98 / OTHER INFORMATION / Shareholders information 139 Shareholder analysis 140 Non-GAAP Disclosure 141 Notice of annual general meeting 145 Glossary of terms 150 Form of proxy 151 Notes to proxy 152 Corporate details IBC 1

4 results at a glance The table below represents our performance against each of our material issues for the past three years. Commentary on these indicators and details of our performance in all of the areas is presented in the various chapters of this report. This is the first year that we have obtained external assurance on certain of our non-financial indicators and those that have been assured are marked with a limited assurance symbol. (LA) DELIVERING STRONG FINANCIAL PERFORMANCE (Page 22) Revenue (Rm) EBITDA (Rm) EBIT (Rm) Capital expenditure (Rm) Normalised earnings per share (cents) STABILISING OPERATIONAL PERFORMANCE (Page 26) Run of mine (ROM) coal (million tons) Saleable coal (million tons) On-mine cash cost per saleable ton (R) MANAGING OUR RESOURCES AND RESERVES (Page 32) Total estimated coal resources (million tons) DRIVING TRANSFORMATION AND COMPLIANCE (Page 37) Dti BEE scorecard score Optimum Collieries Level 3 Level 4 Non-compliant Koornfontein Mines Level 4 Level 5 Level 8 DMR score Optimum Collieries 80 n/a n/a Koornfontein Mines n/a n/a HDSA employees in supervisory and management positions (C band and upper) (%) 62% (LA)* 49% n/a Female employees 12% (LA)* 14% n/a Female employees in core mining positions 5% (LA)* 6% n/a ENSURING SAFETY, HEALTH AND WELLNESS (Page 40) Fatalities 0 (LA) 2 1 Lost time injury frequency rate (LTIFR) 1.31 (LA) DEVELOPING OUR PEOPLE (Page 42) Number of employees n/a Number of contractors n/a Staff turnover rate (%) <1% <1% <1% Total training expenditure (Rm) 41 (LA) n/a n/a EMPOWERING COMMUNITIES (Page 46) Socio-economic development expenditure (Rm) 32 (LA) n/a n/a MITIGATING OUR IMPACT ON THE ENVIRONMENT (Page 49) Total CO 2 emissions (tons) % recycled water used 86% 79% 72% Number of environmental incidents (Level 2) 8 (LA) (LA) = limited assurance provided by the independent assurer provider (KPMG) 2. (LA)* figures are as at 30 June Fatalities and LTIFR is for employees and contractors combined 4. % Females in Mining, Fatalities, LTIFR, training expenditure and environmental incidents are for Optimum Collieries and Koornfontein Mines 5. SED spend is for Optimum Community Trust, Optimum Collieries and Koornfontein Mines 6. Comparative figures have been provided where they exist. Where they do not exist, FY2011 will be used as a baseline for figures going forward. 2

5 Historical milestones / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / 1968 Optimum Collieries is formed March 2010 Optimum Coal acquires Sentula Mining s 49.99% interest and Inkwali Resources 5% interest in Koornfontein Mines, resulting in effective 96% interest. Optimum Collieries is commissioned. March 2010 July 2008 Management buy-out of Optimum Collieries and 6.86 million tons per annual Richards Bay Coal Terminal (RBCT) entitlement, from BHP Billiton. Optimum Coal lists on the Main Board of the Johannesburg Stock Exchange (JSE) Limited with share code OPT. August 2010 December 2008 Optimum Coal acquires shares in the controlling shareholder of Koornfontein Mines, resulting in a 19.2% effective interest. Optimum Coal acquires outstanding 4% interest in Koornfontein Mines from the Koornfontein Employee Trust. April 2011 November 2009 Optimum Coal increases ownership in Koornfontein Mines to 41% by acquiring a further 21.87% in the controlling shareholder of Koornfontein Mines. Optimum Coal signs acquisition agreements with Umcebo Mining (Pty) Ltd to acquire TNC reserves. TNC reserves provide 12-year high quality export coal life extension to Koornfontein Mines. August 2011 Signature of acquisition agreements to acquire Remhoogte prospecting rights from BHP Billiton. 3

6 our structure HOLDINGS LIMITED MINING OPERATIONS AND BROWNFIELDS PROJECTS LOGISTICS GREENFIELD PROJECTS SERVICES Optimum Collieries Brownfields projects Kwagga North Schoonoord 8.44 mtpa RBCT entitlement Vlakfontein Overvaal Mpefu Group Services TFR rail contract Remhoogte (1) (1) Koornfontein Mines Brownfields projects TNC (1) 4 seam (1) Acquisitions signed but remain subject to completion conditions. 4

7 Optimum coal at a glance / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Optimum Coal is South Africa s sixth-largest coal producer and fourth-largest coal exporter. Listed on the JSE Limited in March 2010, the Company is blackowned and controlled, with 61.18% (LA) of its shares being held by HDSAs. The Company has two large operating mining complexes, both located in the Mpumalanga province. Optimum Collieries is an opencast and underground mining complex, while Koornfontein Mines is an underground mining complex. Brownfields and greenfields projects are situated in the Limpopo and Mpumalanga provinces. The company owns 8.44 million tons per annum (mtpa) of coal export entitlement at RBCT and has a substantial infrastructure footprint including, two rapid load-out facilities, six coal-washing plants and nine draglines. Botswana Limpopo Mpefu M North West Gauteng Mpumalanga Swaziland LIMPOPO Namibia Northern Cape Western Cape Free State Eastern Cape Lesotho R KwaZulu- Natal Optimum Koornfontein Mines K TNC T Overvaal O O R V MPUMALANGA Vlakfontein Remhoogte Atlantic Ocean Indian Ocean Operating mines Infrastructure development Greenfields projects O K V O M R Optimum Collieries (including Kwagga North and Schoonoord Projects) Koornfontein Mines (including No 4-Seam Project) Vlakfontein Project Overvaal Project Mpefu Project RBCT (8.44 million tons per annum) 580 km rail line to RBCT T *TNC (1) brownfields project R *Remhoogte (1) (1) Acquisition agreements signed, but remain subject to completion conditions. 5

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9 / strategy / Optimum Coal is well-placed to take advantage of the compelling fundamentals of BOTH global AND DOMESTIC energy markets. 7

10 chairman s review Letter from the Chairman Taking advantage of strong energy demand / Bobby Godsell, chairman / Dear Stakeholders In my first year as chairman of Optimum Coal I am pleased to report that the Company has sustained its positive performance, and that, while global economic recovery remains fragile, the macroeconomic outlook for the thermal coal sector is strong, with most estimates predicting a 26% increase in local and international demand to A strong domestic coal demand About 53% of South Africa s total coal production is used in domestic power generation, with the majority of this going to Eskom, Optimum Coal s most significant domestic customer. This Eskom market is growing with the addition of new power stations and the re-commissioning of moth-balled facilities. Its return-to-service programme, in addition to its capital growth projects, bodes well for domestic coal suppliers. The country s current power generating capacity of MW is planned to increase to MW by 2025, and this fact alone is expected to maintain an increasing demand for coal from local suppliers. Optimum Coal is committed to supply Eskom s Hendrina power station with coal until 2018, and is in discussions with the energy provider on additional opportunities. These include supply opportunities at Koornfontein Mines situated adjacent to the Komati power station, and the greenfields Overvaal and Vlakfontein projects located close to the Camden power station. Such opportunities will be pursued provided they are commercially viable and incentivise the commitment of capital. International coal demand remains robust Overall, international coal demand remains extremely robust, with Macquarie research estimating global demand increases from 6.85 billion tons in 2010 to 8.65 billion in This growth is being driven chiefly by the demand coming out of the Asia-Pacific region, in particular India and China. Asian-Pacific coal consumption rose 26% during the year under review and this market is expected to import in the region of 46 million tons of coal in the coming financial year. It is our view that the supply of coal for energy generation is unlikely to be materially impeded by the current economic slowdown being experienced in the United States and Europe. We look forward to the recovery of these markets, which will drive further international demand, and to ongoing and increasing demand from the Asia-Pacific region. India and China now account for 35% and 10% respectively of shipments out of RBCT, compared with 32% and 11% in the previous year. These figures support an increasing trend of exports migrating away from the Atlantic region towards the Asian and Pacific markets. Transport constraints and cost During the year under review, the cost of coal transportation to RBCT increased by 26%, from R90 per ton to R113 per ton, with effect from 1 April The increase is driven by Transnet Freight Rail s (TFR) five-year R15 billion capital programme to improve the lines and grow capacity, an investment TFR is looking to 8

11 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / recover through increased rail transport rates. TFR expects to reach a railage capacity of 81 million tons per year by The impact of these increases is being felt by all South African coal exporters. However, a convenient geographical location and consistency of quality and supply means that RBCT remains a destination of choice for thermal coal procurement globally, and this, together with strong international demand, will benefit South African coal producers who have RBCT export entitlement. 26% predicted increase in local and international coal demand In line with the rest of the export coal industry, we were affected by the 20-day TFR rail maintenance shutdown in June 2011, and consequently built up substantial on-mine export stock toward year end June TFR railings have now normalised and our on-mine export stocks are reducing. With TFR s expansion programme approved and underway, and with increased TFR rail rates now implemented, an improvement in TFR s railings performance to RBCT is expected in the coming year. Renewable energy and its impact on coal There has been growing attention around the development of renewable energy sources in South Africa, with Eskom itself aiming to reduce its reliance on coal to 70% of the total energy mix by 2025 and the national treasury moving to finalise the introduction of a carbon tax. In addition, the government s draft Integrated Resource Plan (IRP2) strongly favours nuclear and renewable energy sources over coal, calling for MW of wind-generated power, MW of solar photovoltaic power, MW of solar power and MW of nuclear power by This is compared with a proposed MW of coal-generated power following the completion of the Kusile and Medupi power stations currently being built by Eskom. Although this will have a long-term impact, coal-fired energy generation will remain the fulcrum of South Africa s energy needs for the foreseeable future. This is supported by the World Bank s recognition that coal-fired power stations are the only power source large enough to meet the demand from growing energy needs. We therefore expect the domestic coal market to remain strong with robust demand. 9

12 chairman s review continued Exchange rate and coal price movements During the past financial year, the Rand appreciated by an average of 8% against the US Dollar. While a strong Rand remains a critical risk factor for South African mining companies with export commodity exposure, this exposure has been offset by a 36% increase in the net US$ price of export coal received during the year which increased from $73.80 per ton to $ per ton. We anticipate the Rand to remain at current levels or slightly weakened due to global opportunities for investment opening up in the rest of the world. This will benefit coal producers. Labour action Our production at operations was affected by the protected strike action in the coal mining industry, which commenced on Sunday, 24 July The strike lasted for 10 days and was resolved after a two-year agreement was reached at the Chamber of Mines. This agreement was concluded within a Board mandate on labour cost increases. Nationalisation of mines The nationalisation of South African mines has been much in the press of late. Optimum Coal believes that nationalisation is neither in the best interest of economic development, nor will it solve the problems of poverty and unemployment currently facing the country. These complex challenges require a comprehensive and multi-faceted solution that cannot be encompassed in a single economic intervention. Sustainability In our commitment to the principles of sustainable development, we recognise the value of the recommendations made in King III and the integrated approach to triple-bottom-line reporting. So saying, this year we have produced our first integrated annual report. We believe that this report reflects the way in which non-financial issues are incorporated with financial issues in the risk register of the Company, and tells the story of how Optimum Coal is meeting its responsibilities to all stakeholder groups. letter to the Board of directors of Optimum Coal advising of its interest to acquire directly and indirectly, the entire issued ordinary share capital of Optimum Coal, other than the shares of certain shareholders that are restricted from selling. As at 14 September 2011, the consortium acquired a 25.8% direct interest in Optimum Coal and signed conditional agreements with various other shareholders which, if and when concluded, will result in the consortium owning more than 35% of Optimum Coal. Should it achieve this level of ownership, the consortium will be required by the JSE and Takeover Regulations Panel (TRP) rules to make a general offer to the remaining outstanding shareholders of Optimum Coal. In preparation for a potential change in control, the Board has appointed a sub-committee comprising independent and unconflicted Board members to address matters relating to the potential change in control. This sub-committee is chaired by myself and has appointed various advisers to assist it with the factual and regulatory requirements relating to the potential change in control. Looking forward Optimum Coal is well-placed to take advantage of the opportunities presented by the current environment. We have a strong executive team in place, and mine management remains critically focused on safety, tons and cost targets. The departure of Henry White, the former chief operating officer of Optimum Coal, has resulted in a restructuring of the Optimum Collieries management team and a renewed focus on coal exposure, extraction and yield at Optimum Collieries, our flagship operation. I would like to extend my thanks to the Board for their insight and continued support during the year. I look forward to another rewarding year of working together with you all. Potential change in company control After year end, a consortium led by Piruto BV, a wholly-owned subsidiary of Glencore International AG, and Lexshell 849 Investments (Proprietary) Limited, a company wholly-owned by Cyril Ramaphosa, submitted a Bobby Godsell Independent non-executive chairman September

13 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / We continue to opportunistically pursue coal acquisitions that will create value and expand our business 11

14 Chief executive officer s report CEO report Delivering on our strategy / Mike Teke, Chief executive officer / Our financial results for the year under review reflected good operational performance by Optimum Coal. Our coal mines are maturing and our life-of-mine extension projects have gained positive momentum during the year. Overall, our safety performance has been commendable and we remain focused on achieving our Zero Harm targets. The year s success can be attributed in large part to the commitment and dedication of all our employees and stakeholders. Optimum Coal is driven by its mission to be a commercially prosperous mining and exploration group that supplies the needs of both local and international coal consumers, and seeks to establish itself as the country s benchmark coal mining and exploration group. Our core strategy is still to expand the scope of our current coal operations by developing brownfield projects, to continue to opportunistically pursue coal acquisitions that will create value and expand our business, and to generate stakeholder value and empower our people and communities in which we operate. As such, we remain focused on three strategic pillars, namely: achieving operational stability and efficiency; optimising our portfolio in order to achieve capital efficiency; leveraging our position as a leading BEE Company. Achieving operational stability and efficiency We are focused on ensuring that both Optimum Collieries and Koornfontein Mines are operationally efficient, whereby we create a Zero Harm environment from a safety perspective and achieve our tonnage targets at competitive unit costs. Zero Harm remains a core priority and we are pleased to report that in this important area, our employees delivered great improvements. There were no fatalities during the year and the lost-time injury frequency rate (LTIFR) improved with a further 5% to 1.31 (LA). This confirmed the trend of continuous improvement towards our Zero Harm objective. Optimum Collieries did not fully meet its production targets for the year under review. The four mining areas of Kwagga, Boschmanspoort, Pullenshope and Eikeboom continue to receive undivided attention from our operational teams. We are confident that the new organisational structure in place at Optimum Collieries, which includes the appointment of a new chief operating officer and three general managers to increase the size and capacity of the senior management team, together with a renewed focus on the effectiveness of coal exposure, extraction methodologies and overall yield performance will enable us to achieve stated production targets. 12

15 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Koornfontein Mines has exceeded expectations and every indication is that its performance will continue. During the year, we commenced with several projects that will bring about greater synergy between the two operations. NET Profit generated R460 million Optimising our portfolio and achieving capital and cost efficiencies Part of our strategy, wherever possible, is to leverage growth off our existing infrastructure through the development of brownfields projects within the precincts of a working operation. At Optimum Collieries, the Boschmanspoort project has been completed and is now delivering coal at expected annualised targets. Furthermore, the development of the Kwagga North opencast extension section, which is critical to Optimum Collieries, is progressing well. We are already coaling from this extension area and the overland conveying infrastructure will be completed in early The development of Kwagga North opencast reserve is critical to the long-term sustainability and cost competitiveness of Optimum Collieries. Additionally, work has begun at Pullenshope to prepare an underground section, and the development of the Schoonoord brownfield project is being expedited as we foresee additional near term opportunities in these coal blocks. At Koornfontein Mines we expect to mine the Gloria 2 seam at current run rates until around 2015, where after the development of the 12 year life-of-mine TNC reserve, will ensure that Koornfontein Mines returns to being a long life, high quality export coal operation. Additionally, the Koornfontein 4 seam reserve will be developed subject to Board approval and could be sold either domestically or potentially be exported. 13

16 Chief executive officer s report continued From a greenfields perspective, we continue with our feasibility work at Vlakfontein and Overvaal, and we are particularly excited about the recent acquisition of the Remhoogte resource from BHP Billiton. Importantly, we have increased our overall project capability during the year through the appointment of an experienced full-time chief project development officer at executive level to oversee and manage the project pipeline. This has resulted in substantial project development traction. Growth opportunities can and will only be developed if the Company has the necessary access to export, has access to RBCT entitlement to export the target coal, or has secured commercially viable off-take agreements with domestic users. These constraints remain priority areas for management to address. We are currently comfortable with our position as a pure thermal coal player. In line with this we disposed of our 26% shareholding in Afarak Platinum Holdings (Pty) Ltd for a total purchase consideration of R121 million. The sale resulted in a profit of R74 million. Leveraging our position as a BEE coal leader It is our goal to be South Africa s benchmark blackowned and operated coal mining company, and to deliver tonnage safely and responsibly, at a competitive cost in order to ensure sustainable growth. We remain 61.18% (LA) black-owned and -controlled, with a substantial broad based component owned by the Employee and Community Trusts with a collective and unencumbered shareholding of 19.8% in Optimum Coal. We believe that this level of BEE equity participation is unique across the South African coal mining sector and remains well ahead of minimum Mineral and Petroleum Resources Development Act (MPRDA) black-owned equity targets. We intend leveraging our position as a robust BEE coal company, with a strong capital base, to grow aggressively. Our BEE credentials make us an attractive partner for other mining operations. As such, we remain opportunistically acquisitive, targeting acquisitions that deliver incremental volume and margin growth at efficient cost. Among these opportunities are the potential acquisitions of existing operations and resources being disposed of by other coal players. The acquisition of TNC from Umcebo and Remhoogte from BHP Billiton are good examples. As the fourth largest coal exporter out of RBCT where we own 8.44 million tons export entitlement per annum, we have the ability to export coal efficiently providing us with direct exposure to international thermal coal markets. We continue to evaluate further opportunities to increase our access and exposure to international coal markets. In his letter our chairman has detailed the strong macroeconomic outlook for the coal sector one that we intend to take advantage of. During the year ahead, we will continue to pursue opportunities for growth and development in a responsible and prudent manner that considers the various constraints and risks that exist. Optimum s people Our people provide us with a unique competitive edge and securing their interests, together with those of the communities in which we operate, remains critically important to the company. 14

17 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / During the year we continued to make substantial investments in community upliftment projects, including our milestone handover of 100 new houses to members of the Rockdale community. Our investment in the development of our people remains of paramount importance and is directly linked to our ongoing ability to remain competitive. In the year ahead we plan to increase this investment, which is aligned with the requirements of both the dti and the Mining Charter. Looking ahead FY2012 Optimum Coal is on track to produce 13.5 million tons of saleable coal in order to meet our export and domestic supply commitments. We remain well-placed to benefit both from continuing strong US$ export coal prices and from increases in domestic coal procurement requirements, especially from Eskom. I would like to express my appreciation for the commitment and dedication of Optimum Coal employees and other stakeholders, and I look forward in the coming year to working together to create a strong and focused coal mining group. Let us produce safely. Mike Teke Chief executive officer September

18 Governing the business Optimum Coal has adopted the recommendations on governance as contained in the King III Report on Corporate Governance, and complies with the recommendations as set out in the report. The Board of directors endorses and accepts full responsibility for the implementation of sound principles to ensure effective governance of Optimum Coal. We strive to be stakeholder-inclusive and integrate governance into every aspect of the business to ensure the sustainability of the Company and its success. Optimum Coal has adopted the recommendations on governance as contained in the King III Report on Corporate Governance. The Company s compliance level was assessed, and complies with the recommendations as set out in King III. The provisions of the new Companies Act No 71 of 2008, which came into effect on 1 May 2011, are in the process of being implemented. Given the uncertainty surrounding the ambit of the wording of section 45 of the Companies Act, as amended, a general meeting took place on 8 August 2011 to pass special resolutions to approve the authority to provide financial assistance to related or inter-related companies or corporations and non-executive directors fees, as required by the Act. The act further requires the establishment of a Social and Ethics Committee as part of the Board Committee structure. The terms of reference of the envisaged Social and Ethics Committee, as provided for in the act, corresponds substantially with those of the current Transformation Committee of the Board. The Board therefore, revisited the terms of reference of its Transformation Committee to reflect the requirements of the act in respect of the envisaged Social and Ethics Committee. Board of directors Composition of the Board Optimum Coal has a unitary Board and the roles of the chairman and CEO are separate with clear divisions of responsibilities. The chairman and the majority of directors are non-executive directors. Currently the Board comprises six independent non-executive directors, four non-executive directors and two executive directors. A third of the non-executive directors retire by rotation each year and stand for re-election at the next annual general meeting (AGM) of shareholders. The members of the Board of directors, its responsibilities, and the role of the chairman, deputy chairman and chief executive officer are listed in full in the corporate governance report on page 58. Board meetings Board meetings are held quarterly with ad hoc meetings called to consider specific issues if the need arises. In addition to the Board meetings, a two-day strategy session is held annually comprising Board members and senior executives to discuss strategy and to provide Board training. 16

19 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / The record of attendance is detailed in the corporate governance report on page 64. Board education, induction and the role of the Group company secretary The Group company secretary is a central source of guidance and all directors have access to the advice and services of the Group company secretary who ensures compliance with applicable procedures and legislation and oversees the induction of new directors, and ongoing education of directors. The Group company secretary is responsible for the duties as specified in section 88 of the new Companies Act No 71 of 2008, as amended. Board committees and governance structure The following sub-committees report to the Board: Audit and Risk Management Committee Nomination and Remuneration Committee Health, Safety and Environmental Committee Transformation Committee Responsibilities and records of attendance for each committee are detailed in the corporate governance report on pages Governance oversight through the internal audit function Optimum Coal s internal audit department consistently conducts formal reviews and evaluations of the design, adequacy and effectiveness of the internal controls and risk management systems of the Company, management processes and systems ensuring that business objectives are met. The department conducts its activities in accordance with the International Standards for the Professional Practice of Internal Auditing. These reviews are tabled at the Audit and Risk Management Committee and discussed with management and the external auditor. Based on these reviews, the committee is of the opinion that internal audit was appropriately dealt with for the period under review. Code of ethics Optimum Coal s ethics policy ensures and encourages ethical behaviour. The Company is committed to ethical behaviour and bona fide business practices in all its dealings with stakeholders, clients and third parties. A whistle-blowing toll-free helpline is in place to facilitate the confidential reporting of alleged incidents. Details of the ethics policy can be found in the corporate governance report on page 71. There were two instances of fraud during the year. In one instance the loss was fully recovered, and in the other, partially so. There were no material breaches of the country s laws and regulations, and no fines were paid or provided for. Determining materiality We have identified our most important risks and opportunities through an understanding of the legal environment, our risk management and strategy processes, as well as through engagement with various stakeholder groups. These risks and opportunities are discussed in the following chapters of this report: 1. Delivering strong financial performance (page 22) 2. Stabilising operational performance (page 26) 3. Managing our resources and reserves (page 32) 4. Growing the business (page 35) 5. Driving transformation and compliance (page 37) 6. Ensuring safety, health and wellness (page 40) 7. Developing our people (page 42) 8. Empowering communities (page 46) 9. Mitigating our impact on the environment (page 49) At Board level, risk management is overseen through the Audit and Risk Management Committee. The Transformation Committee drives the Company s transformation process, while all people-related issues are the responsibility of the chief people officer. The day-to-day management of material issues are devolved to operational level. 17

20 Governing the business continued Legal compliance Internal audit has compiled a register of all relevant and material legislation impacting the Company and its operations. Policies to guide the Company s compliance within the legal environment are either already in place, or are in the process of being drawn up and approved by the Board. Managing risk There is a structured risk management system in place to identify, understand, assess, monitor, report and manage risks. The Audit and Risk Management Committee, a sub-committee of the Board, reviews the effectiveness of this system, while Group internal audit provides assurance that risks are being effectively identified, managed and controlled. Ultimately, responsibility for risk management rests with the Board. Clear risk-related roles and responsibilities have been established by the Executive Committee. At operational level, operating entities are responsible for the implementation and management of relevant risk control measures, and quarterly reports are submitted to the Board to give account of progress against goals and actions taken to mitigate risks. The Company s nine most material risks are listed below. Details on how to mitigate them can be found in the risk register table in the corporate governance report on page Coal demand and pricing 2. Foreign exchange 3. Health, safety and environment 4. Logistics infrastructure 5. Cost control 6. Legal and regulatory 7. Project development 8. Social and community 9. Group financing All operations and corporate functions undergo a comprehensive annual risk review, the results of which are communicated to the Audit and Risk Management Committee. An International Mining Industry Underwriters (IMIU) survey, undertaken in FY2010, ranks Optimum Coal s overall risk reduction initiatives above the global average, placing it within the top 10% of the industry. The Company s risk exposure was also categorised way below industry averages for This survey is usually done on a three-yearly basis. Engaging our stakeholders Stakeholder engagement is central to the process of managing sustainability and is undertaken as a matter of course in business. The Company s various material stakeholder groups are identified by the extent to which they are affected by the Group s performance, its operations and its environmental, social and financial impact. The Company s reputation with stakeholders is a regular Board item. Regular perception audits are performed by external specialists. Feedback from these audits is incorporated into the stakeholder policy on a regular basis. A comprehensive list of stakeholder issues is contained in the table on page 73 in the full corporate governance report. In addition, stakeholder issues and the way in which they inform various areas of the business, are dealt with in each chapter of the report. Shareholder relations Optimum Coal communicates regularly with shareholders and other stakeholders regarding its financial and operational performance and strategy. Optimum Coal meets with interested institutional and private investors on a regular basis, and participates in conferences and roadshows throughout South Africa. 18

21 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Shareholders are encouraged to attend the AGM where interaction is welcomed. All presentations and announcements are available on the website. Other stakeholders For a summary list of stakeholder groups and the nature of our engagement with them, see the corporate governance report on page 73. The Company s material issue list reflects the issues of concern to Optimum Coal and its stakeholders. 19

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23 / Performance / It is our goal to be South Africa s benchmark black owned and operated coal mining company. We aim to deliver tonnage safely and at competitive cost in order to deliver responsible and sustainable growth. 21

24 Delivering strong financial performance WITH R941 million in cash generated by our operations during the year, Our statement of financial position remains strong, with low gearing at 8.6% and net debt at R82 million as at 30 June / Doug Gain, Financial director / Introduction Financial highlights During FY2011 we produced 13.6 million tons of saleable coal, generated revenue of R5.3 billion, EBITDA of R1.2 billion and attributable earnings of R460 million. This is a significant improvement from FY2010 during which we produced 10.8 million tons of saleable coal, generated revenue of R3.4 billion, EBITDA of R166 million and attributable earnings of R229 million. During the year, our EBITDA increased by R1.03 billion from R166 million to R1.2 billion primarily as a result of a 26% increase in export and Eskom production coal sales volumes and a 25% increase in the net received Rand export coal price over the year. Higher profitability has resulted in the generation of R941 million cash from our operations, an increase of R948 million on the R7 million utilised by our operations last year. Our Earnings per share (EPS) and Headline earnings per share (HEPS), for IFRS purposes, have increased by 75% and 605% to cents per share (cps) and cps respectively, from cps and cps in the prior year. From a commercial point of view, we feel that it is also useful and appropriate to also disclose Normalised EPS and HEPS. Normalised EPS and HEPS are calculated using IFRS earnings, however they are calculated based on the total number of issued shares outstanding during the year, ignoring the IFRS accounting impacts of the consolidation of the Employee, Community and Executive Share Incentive Scheme Trusts. The consolidation of these trusts in terms of IFRS results in a deemed reduction in the issued share capital of 52 million shares. Calculated on this basis, normalised EPS and HEPS have increased by 83% and 637% to cps and cps respectively, from cps and cps in the prior year. Our statement of financial position remains strong, with low gearing at 8.6% and net debt at R82 million as at 30 June Commentary Revenue Group revenue increased by R1.9 billion from R3.4 billion to R5.3 billion, primarily due to increased coal sales volumes and increased net export prices received for coal exported. The average net ZAR price of export coal received during the year was R per ton, an increase of 25% on the net price of R per ton received in the previous financial year. Overall export sales increased from 5.1 million tons to 6.5 million tons. Sales to Eskom increased in volume from 5.5 million tons to 6.6 million tons and contributed R694 million to revenue (2010: R529 million). 22

25 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Revenue R1.9 billion INCREASE IN GROUP REVENUE Rm FY10 Volume (tonnages) Exchange rate (R/US$) Rand coal price (API#4) FY11 EBITDA EBITDA generated for the year was R1.2 billion compared to R166 million in the previous year. EBITDA is defined as earnings before interest, taxation, depreciation and amortisation, environmental provision movements and is adjusted to exclude the impact of once-off, non-cash items. EBITDA FY10 Volume (tonnages) Volume (cash costs) Coal price (AP#4) Exchange rate (R/$) Rate variance (cash costs) Logistics Inflation Rm Other FY11 Mining and related costs On-mine costs are reflected and reconciled in the table below, and have increased by R896 million from R3.8 billion to R4.1 billion. This increase arose due to an increase in volume related contractor costs and overhaul and maintenance spend at Optimum Collieries, as well as the full 12 month inclusion of attributable Koornfontein cost. Koornfontein Mines was acquired on 1 March 2010 and provided only four months of attributable cost to the Group during the prior year ended 30 June

26 Delivering strong financial performance continued Mining and related costs Year ended 30 June 2011 ZARm Year ended 30 June 2010 ZARm Variance ZARm Mining costs Logistics costs Net stock movement (98) (49) (49) Other costs (2) Mining and related costs Group cash 30 June 2011 ZARm 30 June 2010 ZARm Long-term interest-bearing borrowings Short-term interest-bearing borrowings Total Cash and cash equivalents (567) (751) Net debt (1) /(cash) Notes (1) Net debt calculated excludes the impact of the finance lease raised on the Coalcor contract which amounts to R186 million at 30 June 2011 (30 June 2010: R281 million) and is guaranteed by the Group in terms of the current borrowing facilities. Debt The Group has achieved all requisite debt covenants during the year under review and consequently, outstanding loans and borrowings have been re classified into appropriate non-current and current liability categories. The implementation of a new corporate debt facility will materially increase the Group s ability to utilise debt for general corporate purposes including capital expenditure, working capital requirements and acquisitions. It is expected that the new corporate debt facility will be available for use during H1, FY2012. Net debt Rm (150) (300) (450) Opening balance FY10 Cash generated by operations Acquisition of PPE Interest and tax Other Opening balance FY11 24

27 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Working capital The increase in net working capital has been driven primarily by an increase in inventory stocks at Optimum Collieries which was adversely affected by the TFR 20 day shut-down during the year. Receivables have been positively affected by higher export coal prices. Trade payables have stayed constant year-on-year. At At 30 June 30 June Working capital ZARm ZARm Inventories Trade and other receivables Trade and other payables (610) (611) Net working capital Acquisitions Optimum Coal signed an agreement on 21 April 2011 with Umcebo Mining (Proprietary) Limited to acquire two prospecting rights (the TNC prospecting rights) for a cash consideration of R420 million. This agreement is subject only to regulatory consents from the DMR for the renewal and transfer of ownership of the TNC prospecting rights to Optimum Coal. The effective date of the transaction will be upon the fulfilment of these conditions precedent. After year-end on 18 August 2011, Optimum Coal signed an agreement with BHP Billiton Energy Coal South Africa (BECSA) to acquire two prospecting rights (the Remhoogte prospecting rights) for a cash consideration of R235 million. This agreement is subject to various conditions precedent including regulatory consents from the DMR for the transfer of ownership of the Remhoogte prospecting rights to Optimum Coal. The effective date of the transaction will be upon the fulfilment of these conditions precedent. Disposals During the year, Optimum Coal disposed of its 26% interest in and loan account claims against Afarak Platinum Holdings (Proprietary) Limited for a total purchase consideration of R121 million consisting of R76 million proceeds and a repayment of loan receivable of R45 million. The sale resulted in a profit of R74 million. Environmental matters Both Optimum Collieries and Koornfontein Mines have fully cash funded closure cost liabilities for DMR purposes. R1.28 billion has been set aside for ground and water management rehabilitation requirements at our operations. This amount is carried as a restricted investment on our statement of financial position. The Group s overall environmental liability provision, which includes the present value of net water treatment costs associated with mine water treatment, has reduced by R126 million to R1.77 billion from R1.89 billion as at the end of the prior year. The net R126 million reduction in environmental liability is shown through the statement of comprehensive income as the net of a R287 million environmental liability movement reduced by a R161 million unwinding of the discount associated with the present valuation of the liability. This reduction is consistent with increased confidence on water treatment parameters given that the Optimum Collieries water treatment plant is commissioned and is supplying water to the Steve Tshwete Local Municipality under a five year contractual arrangement. Hedging It is the Group s policy to remain substantially unhedged at the revenue level and to provide shareholders with optimal exposure to the risks and rewards associated with the movement of international US$ coal prices and exchange rates. Optimum Coal has fixed the US$ price of 1.02 million tons of export coal at a gross price of US$87.33 per ton for the 2011 calendar year. The Group does implement ad hoc exchange rate hedging on imported items where it is commercially prudent to do so. Special dividend The Board of directors has declared a special dividend of 30 cents per share. The special dividend represents the pre-tax profit made on the sale of our platinum prospecting rights which the Board wishes to return to the Companies shareholders. Doug Gain Financial director September

28 Stabilising operational performance Koornfontein Mines exceeded output expectations for the year under review with a 6.9% year-on-year improvement in ROM production. The R420 million acquisition of the TNC resource from Umcebo Mining, expected to close in FY2012, will increase the high quality export life-of-mine of Koornfontein by 12 years. Koornfontein Mines No 2 Seam is expected to be mined until FY2015. Overview and highlights With two operations located in the Witbank Coalfield of Mpumalanga province, Optimum Coal is the sixth largest producer of thermal coal in South Africa and the country s fourth largest coal exporter. The year under review has been a positive one from an operational perspective, with operations approaching steady state production and brownfields project delivery on track. The year s biggest highlight relates to safety, with the achievement of our zero fatalities goal. Further to that the LTIFR improved 5% and the TRIFR improved 11% year-on-year. Highlights at Optimum Collieries include the fact that the new Kwagga North project is on track for completion in time and on budget. A new organisational structure implemented at the Optimum Collieries operation is expected to increase production, reduce unit costs in real terms and ensure delivery of production targets. Although Optimum Collieries had a challenging year in terms of production there was a year-on-year improvement of 6.9% in terms of the ROM production. The management team is focused on specific improvement projects that will further improve the efficiency of coal exposure and extraction. Overall, production has increased during the year under review thanks to improved operational efficiencies and the full year of contribution from Koornfontein Mines. ROM tonnage increased by 21% from 14.1 million tons in FY2010 to 17.1 million tons in FY2011. Total attributable saleable tons increased from 10.8 million tons to 13.6 million tons, an increase of 26%. Of this, 6.8 million tons is saleable export coal, up 28% from 5.3 million tons the previous year, and 6.8 million tons is saleable Eskom coal, an increase of 24% from FY2010 s figure of 5.5 million tons. The all-in cash cost per export sales tons decreased 1% from R per ton to R per ton. This equates to an improvement in real terms of 5% due to the benefit of additional output offsetting the inflationary pressures. Total capital expenditure for the year was R692 million, down from last year s figure of R891 million. 26

29 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Optimum Collieries Overview Operating since 1971 and acquired by Optimum Coal in 2008, Optimum Collieries is the third largest opencast coal mine in South Africa and incorporates both opencast and underground mining. It comprises the Pullenshope, Kwagga, Boschmanspoort and Eikeboom mines, located in the Witbank Coalfield between Middelburg and Hendrina, and is situated directly adjacent to Eskom s Hendrina and Arnot power stations. It has estimated coal resources of million tons and an estimated reserve base of million tons of ROM coal, of which million tons are classified as saleable as at 30 June The operation includes three opencast strip mining operations and one underground mining section. There are three processing plants, nine draglines, two railway sidings and a single rapid load-out facility. The life of the mine is expected to go beyond Key indicators: Optimum Collieries FY11 FY10 FY09 ROM (million tons) Saleable (million tons) Reserves (tons) On-mine cash cost/rom ton (R/t) On-mine cash cost/saleable ton (R/t) Capex (Rm) Number of employees Safety rate TRIFR LTIFR Greenhouse gas emissions (GHG) emissions (tons) (combined Scope I and II) Safety Optimum Collieries has seen some improvement in safety indicators during the year under review, the most significant being zero fatalities following FY2010 in which two employees lost their lives. LTIFR for the year was 1.61, up 14% on the previous year s score of TRIFR improved 10% from 3.87 in FY10 to 3.45 in FY11. The ongoing visible leadership campaign includes head of department walkabouts and a more intense focus on entrenching a culture of productivity, while the Asiphephe III training programme is scheduled to start in FY2012. These initiatives are expected to bring the operation in line with its safety targets. Tons Production at Optimum Collieries is up 6.8% on the previous year s performance, from 13.1 million tons to 14 million tons, thanks to a variety of interventions. The most significant of these was the R50 million investment in the installation of pumps and pipelines to manage opencast water drainage more effectively, a direct response to the fact that the previous year s production was significantly hampered by unusually high rainfall. The new system ensured ongoing production during the year s wettest periods. Effective system availability has also improved due to an increase of 6% in belt availability. In spite of an improvement on the previous year s performance, general production performance at Optimum Collieries was unsatisfactory. The operation embarked on a renewed productivity improvement campaign with staff that drive accountability at all levels. This includes a focus on the effectiveness of coal exposure, extraction methodologies applied on mine as well as overall yield achieved. Senior management undertook a series of road shows as part of this initiative, using the opportunity to uncover the key 27

30 Stabilising operational performance continued issues identified by staff as hampering productivity. This campaign is ongoing and is starting to deliver results. Previous pre-strip challenges experienced by contractors relating to machine availability at the Pullenshope Mine were addressed with the appointment of a second pre-strip contractor. This has increased the ROM production. However, a major overhaul of the Marion 2 dragline during the year took longer than anticipated, impeding production at this section. The Boschmanspoort and Kwagga sections also experienced production challenges in the first half of the year. At Boschmanspoort hard underground cutting conditions caused by in-seam rock intrusions affected cutting productivities, which were not anticipated by the geological models. Production at the Boschmanspoort underground section has since normalised. At Kwagga North an in-fill drilling programme was undertaken to provide more accurate geological information, and is expected to result in more precise predictions and fewer geological variances. Notwithstanding that Optimum Collieries has a rapid load out facility with excellent loading efficiencies, railings to RBCT of 4.7 million tons were lower than anticipated, partly due to the 20 day rail maintenance shutdown in May and June At year end, tons of export stock was available on-mine for railing to RBCT. Marketing contracts Optimum Collieries supplies coal to both export and local thermal coal customers. The majority of export quality coal is sold to BECSA at RBCT under a long-term coal purchase agreement which runs to June The price payable in terms of this contract is linked to the API 4 Dollar coal price, and provides for a marketing fee, payable to BECSA. Optimum Collieries entered into a fixed pricing contract with BECSA for 1.02 million tons of coal to be delivered evenly during the 2011 calendar year at a price of $87/t. This was implemented as a debt requirement upon the re-financing of the Optimum Collieries debt facility in November At 30 June 2011, we have already delivered 50% of the committed volume under this fixed price contract and will deliver to BECSA the balance of the committed volume of tons per month between July 2011 and December 2011 at a fixed price of $87/t. Around tons of export quality coal, mainly from the Eikeboom section, is committed to inland customers on short- to medium-term contracts. This coal is marketed through Mercuria Energy. Optimum Collieries has a contract to supply 5.5 million tons per annum to Eskom s Hendrina power station until December This contract was subject to arbitration during the year under review, and the related dispute with Eskom was settled before year-end. Optimum Collieries will continue to supply the committed volume to Hendrina until December 2018, under new pricing and penalty arrangements. Costs Optimum Collieries most significant cost line items include diesel, consumable spares, labour and engineering operating costs. During the year under review, Optimum Collieries cost per saleable ton increased by 0.07% to R from R in the prior year. Mining cost inflation increases were substantially offset through a 6.9% increase in ROM volumes mined during the year and consequent increase in saleable production. Three main projects have been initiated to manage this unit cost increase. They are coal exposure, yield and cost optimisation. A strong cost management drive was undertaken during the year to identify key cost reduction opportunities. The most significant of these involved mining seams at Eikeboom for Eskom quality coal, 28

31 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / thereby reducing the buy-in cost from external sources. Previously, middlings coal was purchased from outside to ensure that the operation could avoid sacrificing export quality coal to meet its Eskom contract requirements. During the year, the operation also placed a strong focus on achieving more cost-effective earth-moving processes. More efficient blasting methods have improved the cost effectiveness of volume stripping in opencast areas, minimising the need for costly machine rehandling. In addition, truck-and-shovel stripping operations at Eikeboom have been partly replaced by bulldozer stripping, resulting in a 50% cost saving. Optimum Collieries has also identified alternative suppliers in India through which it has begun purchasing some consumable spares at a 30% reduced rate. A study is currently being conducted into the impact of reducing the number of contractors at the operation, who currently comprise more than 50% of the workforce and contribute significantly to labour costs. Capital expenditure During the year under review, capital expenditure of R566 million was spent at Optimum Collieries comprising development capital expenditure of R273 million and sustaining capital expenditure of R293 million. Looking forward Optimum Collieries is targeting million tons of export production and 5.5 million tons of Eskom production in the coming year. The Kwagga North ramp-up project is on target and scheduled for completion during 2012, while the ROM initiatives implemented at Boschmanspoort are delivering results. Koornfontein Mines Overview Koornfontein Mines is a large underground mining complex that has been operating since It includes six underground mining sections, three processing plants, one railway siding and a rapid load-out facility. Optimum Coal acquired Koornfontein Mines in stages during FY2010 and full operational control was assumed from March The operation has estimated coal resources of million tons and an estimated reserve base of 63.3 million tons of ROM coal, of which 29.4 million tons were classified as saleable as at 30 June Key indicators: Koornfontein Mines FY11 FY10 FY09 ROM (million tons) Saleable (million tons) Reserves (mt) On-mine cash cost/rom ton (R/t) On-mine cash cost/saleable ton (R/t) Capex (Rm) Number of employees Safety rate TRIFR LTIFR GHG emissions (tons) (combined Scope I and II)

32 Stabilising operational performance continued Safety Safety performance at Koornfontein Mines during the year under review has been outstanding, with no fatal accidents and significant improvements on the two key safety indicators. The LTIFR for FY11 was 0.57, down 69% on last year s figure of 1.85, and well below the target of 1.7. Similarly, the TRIFR improved 8.3% from 2.78 in FY10 to 2.55 in FY11. The main contributions are believed to be the continued drive in changing behaviour and thereby the safety culture at Koornfontein Mines, accompanied by numerous initiatives. Some of these initiatives included: safety representative coaching and training; middle management health and safety systems specific training; and risk-based inspections and in-field visibility by management throughout the operation. The staff and management of Koornfontein Mines believe that through continued focus and commitment, that continuous improvement is possible thereby embracing the Company s goal of Zero Harm. Tons ROM comes from the underground operation at Gloria, transported on an overland belt to the process plant at the Blinkpan Section. This coal is processed through Plant 1 and 3 for the export market and the arising discard is fed to Plant 2 and processed for the Eskom market. Additional discard is mined from the discard dump and then fed into Plant 2 to fill the capacity of the plants. Any spare capacity of Plants 1 and 3 is also utilised to batch wash discard from the discard dump to produce additional Eskom product. Slurry is mined from the dump and this is sold to the market on a voetstoots basis. Koornfontein Mines performed exceptionally well during the year under review and surpassed operational targets across the board. ROM tonnage increased from 2.9 million tons in FY10 to 3.1 million tons in FY11, and the operation saw a significant improvement in total attributable saleable tons to 3.2 million tons, up from FY10 s 3.0 million tons. Of the saleable tons, 1.9 million tons was saleable export coal which represents a 4% increase on the previous year. Excellent underground production and plant performance, driven by operational fine-tuning and plant upgrades, accounted for this increase in the operation s export yield. These include the following projects: Plant 1 Electrical upgrades, electrical switchgear and automation. Plant 2 Wemco Drum internal replacement. Main product belt upgrade. Saleable Eskom production is down year-on-year from 1.1 million tons to 1 million tons. During the period under review, Koornfontein Mines renegotiated its off-take agreement with Eskom, extending it until March However, Eskom indicated its intention to purchase a higher quality middlings product than was stipulated in the previous contract, which necessarily results in a significant lower yield. This development reduced the production of Eskom saleable coal from a projected tons per month to tons per month. To make up for the ton shortfall between projected and actual sales to Eskom and the associated shortfall in revenue, Koornfontein Mines is aggressively pursuing a market for its slurry. During the year under review, it secured three new contracts for tons of slurry products, and will continue to drive development of this market in the coming year. 30

33 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Marketing contracts Koornfontein Mines supplies coal to both export and local thermal coal customers. From a marketing point of view, export coal produced is principally marketed by Mercuria Energy under a 10-year marketing agreement, in terms of which Koornfontein Mines has the option to appoint Mercuria as either the principal coal purchaser or agent. The price payable in terms of this contract is linked to the API 4 Dollar coal price, and provides for a marketing fee, payable to Mercuria. During 2011, 1.7 million tons were sold to Mercuria for export purposes. In addition, a portion (~10%) of export quality coal is sized and sold to various inland customers for industrial purposes, on short- to medium-term contracts. This inland export quality coal is also marketed by Mercuria. Koornfontein Mines supplies a middlings quality product to Eskom and various local industrial users, at volumes of 1.1 million tons per year. During the year under review, it also started to supply slurry to various customers on an ad-hoc basis. Koornfontein Mines has one of the most efficient rapid load-outs in the export coal industry. Railings to RBCT totalled 1.7 million tons. Notwithstanding general TFR underperformance during the year, Koornfontein Mines maintained an excellent RBCT railing tempo and still has substantial underutilised loading capacity. At year-end, 241 kt of export stock was available on-mine for railing to RBCT. Key capital expenditure items during the year included the purchase of two new continuous miners at a cost of R37.6 million. Koornfontein s Mines on-mine cash cost per saleable ton increased 10% during the year under review from R per ton to R per ton, largely as a result of the reduced volumes for Eskom. However, the use of existing Koornfontein Mines infrastructure for the new TNC operation is expected to drive unit cost per ton down as soon as it becomes operational. And notwithstanding the cost per saleable ton increase, Koornfontein Mines remains a very competitive and low-cost producer. Capital expenditure Capital expenditure of R115 million was spent at Koornfontein Mines during the year, comprising development capital expenditure of R22 million and sustaining capital expenditure of R93 million. Looking ahead Koornfontein Mines export production target for the year ahead is 1.7 million tons, with a 1 million ton Eskom/middlings product target. The operation will continue feasibility work on the No 4 Seam development and advance project development work on the TNC reserve. Costs Koornfontein Mines on-mine key cost drivers include consumables, engineering-related refurbishments and labour, with the biggest line items after labour being engineering costs, roof bolts, cutter picks and magnetite. Riaan du Plooy Chief operating officer September

34 Managing our Mineral resources and reserves Resource classification Resource classification and reporting has been conducted in accordance with the requirements of the SAMREC Code 2008, the terms, definitions and guidelines of which have been used by the company s geological department in assessing the status of classifiable coal resources. Introduction The mineral resource and reserves underpinning Optimum Coal s current operations and development projects are summarised in the tables on pages 33 and 34. Mineral resources reported include those that have been converted to reserves and at 100%, irrespective of the percentage attributable to Optimum Coal. Significant changes in resources or reserves figures are explained by footnotes to each table. Resource estimations are based on resource models, which incorporate all new validated geological models and, if applicable, revised resource definitions and classifications. The resource models are compiled as a rule up to June of each reporting year, unless otherwise stated. Our reserves are estimated using the relevant adjustment factors at the time of reporting (mining, metallurgical, economic, marketing, legal, environmental, social and government regulatory requirements). Mineral resources in which Optimum Coal held the controlling interest were reviewed in 2010 to comply with reasonable and realistic prospects for eventual economic extraction, as outlined in the South African Code for reporting of Mineral Resources and Mineral Reserves 2007 (SAMREC Code 2007). Rowan Karstel Chief project development officer September 2011 Principally, the main criteria for classification is based on the number of boreholes intersecting a particular coal seam(s) within a specified area. The confidence in projecting the coal quality across each seam is based on analysis from samples taken from the cores of the individual borehole intersections. Classification was guided by the following: Borehole density; Geological and grade continuity; Geological structure and its influence on mining; and Complexity of the geology. The borehole density and spatial distribution of cored boreholes, sampled and analysed, should be sufficient to allow for confident extrapolation of physical and quality parameters between boreholes. It also allows for the coal resources to be adequately categorised into inferred, indicated and measured resources as per the SAMREC Code. In the case of Optimum Coal the classification based on borehole density (points of observation) is as follows: SAMREC classification Drill intensity Boreholes/100 ha Approximate drill grid size Measured >16/100 ha 250 m x 250 m Indicated 4 16/100 ha 500 m x 500 m Inferred <4 100/ha >500 m x 500 m Coal reserves The reserve estimation was based on the current mining methods and conditions at Optimum Collieries and Koornfontein Mines for both open cut and underground operations. Optimum Collieries utilises side cast dragline dozer assist methods, for single and double bench operations. The underground consists of standard board and pillar mining methods using continuous miners paired to 16 and 20 ton shuttle cars. 32

35 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / The table below details the total coal resources estimated as at 30 June 2011: Operation or project Seam/ Total Tons Mt Measured Indicated Inferred CV (1) MJ/kg % VM % Ash % S Tons Mt Optimum Collieries (2) 4L U L A Koornfontein Mines (3) Vlakfontein Project B CU CL Overall Project BU BL CU CL Mpefu Project (4) 1.85WD Total Mpumalanga resource Total Soutpansberg Notes 1. CV is calorific value in MJ/kg 2. Inclusive of Schoonoord 3. a. A New Minex resource model was created from base principles at Koornfontein b. Re-classification of the resources based on borehole density SAMREC c. Minimum Seam height reduced from 1.80m to 1.50m d. Coal left in pillars not included as resources 4. a. Additional occurrence of 19.8 million tons. i.e. total resource million tons b. Coal resources GTIS defined in the Waterberg-type coal as the total coal zone washed at 1.85 RD yielding coal only, and commensurate qualities reported. Total underground resource of 294 million tons. CV MJ/kg % VM % Ash % S Tons Mt CV MJ/kg % VM % Ash % S 33

36 Managing our resources and reserves continued The reserves were derived from measured and indicated resources that are included in the life-of-mine plan. The reserves are assessed and tabulated by conversion of the measured and indicated resource blocks to proven and probable reserve blocks incorporating approximately assessed mining dilution and recovery factors. The ROM reserves are as mined reserves taking into account geological losses, mining losses, contamination and mined moisture adjustments. The table below details the total coal reserve estimates as at 30 June Total coal resources estimated as at 30 June 2011 Operation or project % attributable to Optimum Coal Optimum Collieries (1) 100% Koornfontein Mines (2) 100% Schoonoord Project 100% Vlakfontein Project 100% Total Reserve category ROM (Mt) Saleable export Saleable Eskom ROM (Mt) Saleable export Saleable Eskom Proven and probable Proven and probable Proven and probable Proven and probable Proven and probable Notes 1. a. Coal mined out at Optimum Collieries for the 2010/11 financial year is 14 million tons. b. Coal sterilised due to environmental restrictions and farmland at Kwagga North is 8.5 million tons. c. Coal losses due to changes in mine plan at Boschmanspoort Underground 2.4 million tons. d. Coal losses due to updated geological drilling 2.6 million tons. 2. a. New reserve blocks have been included which were not in the previous year s reserve blocks. b. The reduction in the seam thickness cut-off has contributed to an increase in the reserves. c. The previous two points were offset negatively by: The reserve has been discounted to account for low safety factor, checkerboard mining and secondary extraction areas on the No 2 Seam. The exclusion of Leeufontein open cut (until further studies are complete). New geological model was developed from base principles. The reduction in the seam thickness for resource delineation purposes has contributed to a decrease in the reserves. The No 2 Seam pillar extraction areas have been excluded for reserve calculation purposes. Mining activities in 2010/11 financial year. d. The No 4 Seam reserves will be processed for a kcal/kg export product. 34

37 Growing the business / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Optimum Coal has a robust pipeline of projects at various stages of exploration and development. It is the Company s strategy to develop organic growth projects in a manner which provides incremental volume and margin growth at effective and efficient capital and operating cost. The brownfield projects, specifically the Kwagga North and Schoonoord projects at Optimum Collieries, and the TNC and 4 Seam Projects at Koornfontein Mines, will leverage off the current installed infrastructure at each of these mining operations. We have also advanced geological and technical studies on the Overvaal, Vlakfontein and Mpefu greenfields projects and have also commenced technical work on Remhoogte which shall be advanced in the new financial year. Brownfield projects Optimum Collieries Kwagga North project The Kwagga North opencast project is on track to be completed by FY2012, and began coaling during the year under review. The new mining area will be a key driver of unit cost efficiencies at Optimum Collieries going forward due to efficient stripping ratios and infrastructure synergies. It is expected to produce 4.5 million tons in the coming year. The expected life-of-mine is 11 years and the total project capital expenditure is estimated at R720 million. Schoonoord project The Schoonoord project is a proposed new opencut and underground mining section situated within the Optimum Collieries mining complex, 7 km south of Eskom s Arnot power station and 10 km east of Hendrina power station. The mine will employ similar opencast and underground mining methods currently applied at Optimum Collieries and will leverage off the existing Optimum Collieries infrastructure. The Company expects Schoonoord to produce a total of 21.1 million tons of ROM coal over the life-of-mine of 15 years, of which approximately 13.2 million tons is expected to be produced by the opencast operations and approximately 7.9 million tons by the underground operations (utilising two continuous miner sections). Koornfontein Mines TNC In April 2011, Optimum Coal signed an agreement to acquire the TNC prospecting rights from Umcebo Mining (Proprietary) Limited for a cash consideration of R420 million. The acquisition is expected to become unconditional during FY2012. The TNC resource, situated approximately 10 km from Koornfontein Mines, is a critical life extension opportunity to enable best value extraction from Koornfontein Mines installed but underutilised infrastructure. The acquisition will enable Koornfontein Mines to produce high-quality export coal for an additional 12 years (until 2026) while also boosting its middling product capacity by half a million tons per annum. The TNC prospecting area has approximately 120 million tons of in-situ coal resource, from which the Company plans to extract 35 million tons of extractable ROM coal. In order to maximise the value of the resource, the Company plans to construct an overland conveyor from the TNC prospecting rights area to Koornfontein Mines, utilising its processing plants to wash the coal before being rapid loaded into trains destined for export at RBCT. The TNC prospecting rights area will likely be mined by opencast methods, and is expected to be developed for first coal in FY2015. It is expected that the Gloria No 2 Seam will be mined at current run rates until FY2015. Koornfontein No 4 Seam project The Koornfontein No 4 Seam project also has substantial potential. The 4 seam project has the potential to produce up to 27.1 million tons of saleable product over a 14-year life-of-mine period. In the past, coal was extracted from the No 4 Seam of up to 6 m in thickness and was supplied to the adjacent Komati power station, until this was closed in Komati power station is being recommissioned as part of Eskom s return-to-service programme, and substantial coal reserves still exist in the No 4 Seam, which may be mined again for Eskom supply or the lower-quality kcal export market. Mining will take place at Gloria, Blinkpan and Leeufontein and the project is expected to produce 3.2 million ROM tons per annum for 12 years. 35

38 Growing the business The Company plans to invest capital to build a decline shaft from the surface to the No 4 Seam at Blinkpan, while an incline shaft will be sunk from the existing No 2 Seam to the No 4 Seam in order to provide underground access at Leeufontein. Its development will, in all probability, depend on securing a profitable off-take with Eskom and/or other domestic users for the product, although the product could potentially be exported. Greenfield projects Overvaal The Overvaal project is located in the Ermelo district of the Mpumalanga province, 8 km south of Camden power station. Since the reserve is fairly deep, we are currently conducting a pre-feasibility study to investigate accessing the underground reserve with a 900 m twin decline. The coal seam thickness varies from 1.4 m to 2 m. Approximately 1.29 million saleable export tons per annum can be produced for 12 years with six continuous miner sections. Vlakfontein The Vlakfontein coal resource is located in the Ermelo district of the Mpumalanga province, approximately 240 km east of Johannesburg and close to the existing TFR infrastructure. It contains 40.8 million tons of in-situ coal resources. The Company is planning a conventional open-cut mining operation and coal processing plant that will produce about 1.3 million tons per annum of export or high-value domestic coal (5 700 kcal), with a life-ofmine of 13 years. The average total effective stripping ratio estimated for the project is 7.1 BCM/ROM ton. Mpefu The Mpefu project is located 30 km north of Makhado (Louis Trichardt), in the Limpopo province. On 2 September 2011, Optimum Coal signed a sale of shares agreement with a third party to sell a 51% interest in Optimum Mpefu Mining and Exploration (Pty) Ltd, the 100% owner of the Mpefu project, for an amount of US$5 million. The remaining 49% interest is subject to put and call option arrangements amongst the parties for a further amount of US$5 million. At year-end 30 June 2011, the Mpefu interest was capitalised as a disposal group held for sale under current assets on the statement of financial position. Remhoogte In August 2011, Optimum Coal signed an agreement to acquire the Remhoogte prospecting rights from BECSA for a cash consideration of R235 million. The acquisition is expected to become unconditional during FY2012. The Remhoogte prospecting rights are located to the south and west of Davel, in the Ermelo Coalfield. The Remhoogte prospecting rights have an inferred resource of approximately million tons, based on the 219 boreholes. These resources are based predominantly on the C Lower seam and the C Upper seam where it is able to be mined together with the C Lower seam. Once developed, the Remhoogte mine will be a large scale, underground export focused mine with new infrastructure and a life-of-mine of 16 years. The mine is expected to produce 4 million ton per annum run of mine product that will produce an estimated 2.5 million tons per annum of saleable kcal export coal and an estimated tons per annum of Eskom middlings product with a quality of 20.8 Mj/kg. Remhoogte is conveniently situated for exports of thermal coal as it is directly adjacent to the RBCT coal line. Remhoogte is closer to Richards Bay than the mines of the Witbank Coalfield. 36

39 Driving transformation beyond compliance / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Accolades 2011 Top 100 Empowerment Companies: Optimum Coal is rated No 1 empowerment company in the resources sector and No 19 overall, with a score of (Source Empowerdex) Improvements in dti BEE score to level 3 at Optimum Collieries (level 4 FY2010) and level 4 at Koornfontein Mines (level 5 FY2010). Rated on DMR scorecard for first time in 2011, with both operations exceeding compliance (87.25 out of 100 at Koornfontein Mines and 80 at Optimum Collieries). Transformation is one of Optimum Coal s key strategic priorities and a critical component of the sustainability framework outlined in King III. Our vision is to be South Africa s coal empowerment partner of choice. The transformation agenda is integral to the way in which we do business and, as such, our processes, policies, standard operating procedures and structures are all aligned with the transformation goals. Internally, our goal is to be a company that reflects the demographic profile of South Africa, something that we are working towards by addressing under-representation in the areas of race and gender, as well as through a targeted skills development programme. We also strive to increase the country s percentage of black economically active individuals through a focus on preferential procurement and enterprise development. In achieving these goals we are guided by the dti Codes of Good Practice, the Social and Labour Plan (SLP) deriving from the MPRDA (2002), as well as the BBBEE Act (2008) and the Mining Charter. For detail on the structures in place to manage transformation, please reference the full integrated annual report online at Tracking our performance While the transformation strategy is centrally derived and managed, each operation has obtained separate dti Scorecard verification. In 2011, Optimum Collieries improved from a level 8 to a level 3 contributor while Koornfontein Mines improved from a Level 5 to a Level 4 contributor as verified by the National Empowerment Rating Agency (NERA). The year ahead will see an internal verification and gap analysis being conducted for Optimum Coal Services, following which we plan to obtain external verification for this entity as well. In addition, plans are in place to verify the Optimum Coal Group as a whole externally before the end of the next financial year. The Company also submitted its first official scorecard following the Mining Charter review. In total Optimum Collieries achieved a compliance score of 80 while Koornfontein Mines scored We are pleased with this performance and will focus future efforts on ensuring that structured interventions are adequately resourced so that we can move beyond compliance towards becoming an industry benchmark in BBBEE. For the full dti Scorecard and the Mining Charter scorecard, please reference the full integrated annual report online at Overall, we are pleased with the progress made on meeting our transformation agenda, particularly with the improvement seen in Koornfontein Mines BEE verification level during the year and the upward trend on many of the dti Scorecard elements for both operations. Ownership The Optimum Community Trust and the Optimum Employee Trust each own 25 million shares of the Company s issued share capital. Therefore, each contributes 9.93% to the total 61.18% (LA) HDSA ownership (as at 30 June 2011). The issue of 37

40 Driving transformation beyond compliance transformation features high on the agenda of both of these entities. Both Koornfontein Mines and Optimum Collieries scored 21 points for ownership, exceeding the dti target of 20 points. Management control and employment equity During the year, we continued to meet and exceed the management control objectives and as at 30 June % (LA) of our employees in supervisory and managerial positions (C band and upper) are HDSA. Although 12% (LA) of employees are female, only 5% (LA) are employed in core mining positions (both figures as at 30 June 2011). This is significantly lower than the Mining Charter requirement of 10%, and female representation remains our most critical employment equity challenge. This is therefore a focus area and specific action plans are in the process of being implemented to meet the 10% target. To this end, we are focusing on boosting the number of women in our learnership and internship programmes, thereby growing our internal pipeline of female employees. for skills development is particularly high, at out of a possible 15 points (up from 3.92 in the previous year), while Optimum Collieries improved its score by 29.8% from 8.42 in 2009 to 12 in In terms of the DMR Scorecard, both operations scored very high for human resource development, with Optimum Collieries scoring the full 25 points and Koornfontein Mines achieving The 18 graduates in training and learnership programmes will enable the Company to meet its own skills needs and to address the industry-wide shortage of trained artisans. Mining technical skills, including mining engineers, geologists, surveyors and planners, are also in short supply. Currently our bursary programme seeks to address this issue therefore 70% of our 30 bursars are HDSAs. Employment equity Employment equity is our key transformation challenge, particularly in the area of women and people with disabilities. Koornfontein Mines scored 3.92 compared with 2.09 in 2009 and while this leaves room for improvement, it enables the operation to meet the Mining Charter target. The year saw improvements to Optimum Collieries employment equity score at senior management levels, which enabled it to meet the Mining Charter requirement. The operation improved its dti score marginally from 3.82 to Programmes are in place to address current challenges. Optimum Coal invested R41 million in skills and human resources development during the year. Africa Khumalo a boilermaker at Optimum Collieries. Skills and human resources development We invested R41 million (LA) in skills and human resources development during the year across Optimum Collieries and Koornfontein Mines. Koornfontein Mines dti score Preferential procurement At Optimum Collieries preferential procurement scores for the year improved from to 18.02, while Koornfontein Mines score improved from 5.62 to In total R2.6 billion was spent with BEE suppliers, accounting for 72% of the total R3.7 billion procurement spend. Both operations score 12 out of 15 for procurement on the DMR Scorecard. 38

41 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Enterprise development Enterprise development remains a challenge for the Company, and we were delayed in implementing the planned enterprise development programme to identify five HSDA-owned businesses each year for development. The programme aims to develop these businesses to initially become suppliers to the Company, with a long-term objective to assist them becoming self-sustaining enterprises with a broad market. The main difficulty however lies in identifying suitable organisations. In the future we plan to expand our focus from simply identifying existing businesses, to looking for opportunities to create new small enterprises by identifying supply opportunities within our business. Some examples include outsourcing employee benefits and the manufacture of various items of safety clothing. During the financial year, the Board approved a mandate to develop an economic development strategy, and commitment was received from the operations to channel 3% of NPAT to fund this initiative. The strategy will be aligned with our SLP commitments. Optimum Collieries improved its economic development score from 0 to 15 points, due to expenditure and improved measurement. Koornfontein Mines score improved from 0 in 2009 to 6.47 in Both operations have provided preferential payment terms to beneficiary organisations which includes early payment. Socio-economic development and mine community and rural development R32 million (LA) was spent on community upliftment activities in 2010, with flagship projects being delivered in the areas of education and poverty alleviation. Both operations scored well for socio-economic development on the dti Scorecard, showing year-onyear improvements, with 4.64 for Koornfontein Mines (compared to 0 in 2009) and 5.00 for Optimum Collieries, up from 1.06 in the previous year. On the DMR Scorecard, both operations score the full 12 points. These improvements were driven by the appointment of the transformation manager who, together with the Optimum Working Committee, is responsible for identifying and ensuring the implementation of community upliftment projects. Housing and living conditions Optimum Coal s policy remains to assist employees in living in family accommodation and therefore the last hostel was closed in August 2009 and no single-sex hostels are currently operating. This makes Optimum unique in an industry where migrant labour and single-sex hostels are still very evident. Looking ahead While maintaining high scores remains an ongoing priority, our goal for the year ahead will be to add greater substance to all areas of transformation to ensure a wider and more sustainable impact. In the year ahead, Optimum Coal will focus on improving its BBBEE rating to move closer to its target of being a Level 2 contributor. Action plans to meet this objective have been developed and are actively pursued and monitored both at Board and operational level. 39

42 Ensuring safety, health and wellness During the year, we completed the development and roll-out of Asiphephe III, a phased safety awareness training programme. This programme ensures that employees are fully versed in the Rules of the Game with respect to the operation s health, safety and environmental standard operating practices, fatal risks and the commitment to Safety, Tons and Costs. The health and well-being of our employees is a key priority at Optimum Coal. Dr Thandi Nobatana assesses Willem Marx s hearing. Along with tons and costs, safety is one of our core performance indicators and is embodied in the Company s commitment to Zero Harm. Securing the safety of our employees, contractors and communities is of paramount importance to the business. An integrated Health, Safety, Environment and Community (HSEC) policy which outlines our safety commitments and goals, including a health and safety agreement signed by both management and union representatives is in place. Our most important safety stakeholders are employees, contractors, unions and regulators. All safety and occupational illness statistics include both employees and contractors. Safety indicators and information published in this section relate to Optimum Collieries and Koornfontein Mines only. The Group health, safety and environment (HSE) manager is responsible for driving the safety agenda, while the CEO bears ultimate accountability for the Company s safety record. The Mine Health and Safety Committees, comprising management, employees and organised labour at the operations, meet on a monthly basis. Employees and contractors are constantly made aware of the responsibility they carry for their own safety and are fully briefed on the behaviours expected to secure a safe, accident-free working environment. Induction programmes include extensive safety-related training and are rolled out to both new employees and existing employees annually. Daily safety toolbox talks take place prior to the commencement of every shift, new tasks are preceded by an analysis of potential safety risks, and head of department teams are required to conduct daily safety walkabouts in their area of responsibility. Our key safety challenges relate to machine-man interaction and are detailed in the fatal risk protocols. These include surface and underground mobile equipment, light vehicles, working at heights, blasting and explosives, hazardous materials and drowning. Compliance and progress with the entrenchment of these fatal risk protocols are audited on a regular basis and form part of the operation s monthly safety indicators reported to Opco, Exco and the HSE Council. The Company benchmarks its safety performance against industry norms on a quarterly basis and has consistently shown a relatively good safety record. Overall, safety performance improved slightly during the year under review, and there were no fatalities (LA). We achieved an 11% improvement in TRIFR from 3.6 in FY2010 to 3.19 (LA) in FY2011, and a 5% improvement in LTIFR (previously reported as classified injury frequency rate or CIFR), from 1.38 in FY2010 to 1.31 (LA) in FY2011. The TRIFR represents the total number of fatalities and injuries resulting in lost time, restricted work duties or medical treatment per million work hours. The LTIFR represents workplace injuries that result in persons not returning to their normal duties after the day on which the injury was received, per million work hours. In the year under review we began implementing a system to better understand, report on and manage absenteeism, and expect to be able to provide more comprehensive reporting on absenteeism in the coming financial year. For detailed tables on three-year performance on each safety indicator, please reference the full integrated annual report online at 40

43 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / For detailed tables on three-year performance on each occupational health indicator, please reference the full integrated annual report online at George Talane, a medical technician at Optimum Collieries, checks driver, George Haparari s, eyesight. Taking care of health and well-being Issues of occupational health and wellness are managed by the same structures that manage health and safety. Our key occupational health risks are exposure to coal dust, silica and noise, leading to the occupational diseases of tuberculosis (TB), silicosis, coal workers pneumoconiosis and noise-induced hearing loss. (The Company s definition of new TB cases includes those new cases developed from working at the mine as well as non-mine-related cases, i.e. new employees joining the company who already have the disease). The Company has a programme in place to ensure early detection and treatment of these conditions in its employees and contractors. All employees undergo an annual medical surveillance with the Occupational Medical Practitioner (OMP) in which they are tested for occupational diseases in accordance with their job risk profile. A monthly sampling programme is in place to check levels of coal dust, noise and silica, and any deviations are immediately addressed by management. All employees belong to a compulsory medical aid. Improvements have been made in the monitoring of occupational and non-occupational diseases. However, while we have seen good curing rates, TB remains an area of concern and appears to be linked to a number of employee deaths. The number of new TB cases increased from 18 in FY2010 to 36 (LA) in FY2011. The TB cure rate increased from 11 in FY2010 to 28 in FY2011. We maintained our performance of no new cases of silicosis (LA), coal workers pneumoconiosis and noiseinduced hearing loss (LA) for the third year running. Optimum Coal also subscribes to the Mining Sector Occupational Health and Safety Targets and Milestones for silicosis and noise-induced hearing loss. We fully comply with the elimination of silicosis requirements (95% of all exposure measurement results will be below the occupational exposure limit for respirable crystalline silica of 0.1 mg/m 3 ) and partially comply with the requirement that there is no deterioration in hearing greater than 10% among occupationally exposed individuals. Operations have implemented Hearing Conservation Committees to improve compliance. All employees are currently tested annually for nonoccupational diseases including hypertension, diabetes, epilepsy, and those who volunteer are tested for HIV/Aids. Voluntary HIV testing is rolled out in an annual voluntary counselling and testing (VCT) campaign during Aids awareness week. HIV prevalence rates are between 12% and 15% among employees and between 18% and 20% among contractors. Employees who test positive can sign up to the HIV/Aids management programme, through which they receive treatment and antiretrovirals via the compulsory medical aid. The next VCT campaign is planned for late November A Directly Observed Treatment, Short-Course (DOTS) programme is in place to manage TB and its co-morbidity with Aids. Optimum Coal s long-term policy of doing away with single-sex hostels was implemented partially in response to the HIV/Aids pandemic, and has paid dividends in decreasing the HIV infection rate. The holistic well-being of employees received greater attention during the year, and the newly appointed employee relationship manager has been mandated with establishing a comprehensive employee wellness strategy. An employee assistance programme (EAP), offering counselling with respect to employee wellness is currently available. Heightened awareness of employee wellness, together with the appointment of a single EAP contractor, is planned for the year ahead and will help to increase the number of employees using this service. 41

44 Developing our people Optimum Coal is dedicated to Zero Harm and safe work practices. Mark de Wet does a routine safety inspection at the water plant s control room. Our people are our business; they enable the achievement of all Company goals and objectives. Their safety, fair treatment, well-being and ongoing development are of critical importance to the Company and have a direct impact on its productivity. As such our most material people issues include safety, health and wellness; labour relations and employee engagement; retention and procurement of talent; training and skills development; employment equity; leadership; and human rights. (While listed here as key people-related issues, safety, health and wellness are dealt with in a separate chapter). The responsibility for all people issues rests with the chief people officer, who, as an Executive Committee member, reports to the CEO. The Company s human resources department was restructured during the year, with all functions now being managed on a centralised basis. This was done to provide a centre of excellence rather than duplicating scarce services and resources at each operation. As part of the restructuring, and to place enhanced emphasis on the developmental objective of the people strategy, a Group talent manager was appointed. Similarly, the capacity of the Group transformation manager was enhanced by the appointment of additional staff. Group transactional human resources issues, such as employee benefits, industrial relations and recruitment, were centralised under the jurisdiction of a Group employee maintenance manager. Various policies and sub-committees govern each of the human resource areas and are detailed in the sections that follow. In securing the interests of its employees, Optimum Coal is governed by and fully complies with legislation that includes the Labour Relations Act (1995), the Basic Conditions of Employment Act (1997), the Skills Development Act (1998), the Occupational Health and Safety Act (1993), the Unemployment Insurance Act (1995) and the Mine Health and Safety Act (1996). Optimum Coal s staff complement at financial year-end 2011 was employees and approximately contractors. Contractors are employees of contracting firms supplying contracting services to Optimum Coal. The Company only uses contractors for tasks and services where specialised skills are required or where services are required for a defined period of time. It does not, therefore, utilise contractors as a labour cost-saving mechanism. Contractors are required to fully comply with labour legislation and are subject to labour agreement compliance audits. Figures listed in this section relate to Optimum Coal Services, Optimum Collieries and Koornfontein Mines, except for women in mining which refers to Optimum Collieries and Koornfontein Mines only. For full workforce profile, please reference the full integrated annual report online at Employment equity remains an ongoing challenge for the Company, particularly in the area of representation of black women in the core mining business and people with disabilities. Female representation in the core mining business of the Company is 5% (LA), falling short of the Mining Charter compliance target of 10%. The Company continues to exceed by about 3% the Mining Charter requirement for 40% of managers to be HDSAs. Labour relations and employee engagement Optimum Coal is committed to protecting employees right to freedom of association and strives to establish 42

45 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / harmonious, transparent and constructive engagement with employees and their union representatives. The rules of engagement between the Company, employees and unions are governed by collective agreements, which set out the procedures to be followed in the event of union recognition, engagement with unions and dispute resolution. Employment contracts include minimum conditions of service and notice periods, which are more favourable than those stipulated by the Basic Conditions of Employment Act (1997) and were proven to be in the top quartile of the industry as was evidenced in the recent wage negotiations. Downscaling and retrenchment agreements cover the procedures to be followed in the event of operational changes. Grievance procedures are in place and are communicated to employees on induction and at departmental meetings. Around 70% of employees are covered by collective bargaining agreements and 75% belong to unions the National Union of Mineworkers (NUM) and the United Workers Union of South Africa (UWUSA). The recognition threshold is 30% of the bargaining unit to obtain collective bargaining rights and 15% to obtain organisational and access rights. The bargaining unit is defined as all employees employed in the Paterson B and C levels (i.e. blue collar and supervisory level employees). Currently the NUM enjoys collective bargaining rights, while UNISA enjoys organisational and access rights only. After the end of the reporting period, the Company did experience the effects of the 2011 strike in the mining industry, relating to the review of salaries and other conditions of employment. The strike resulted in members of the NUM embarking on a 10-day strike after deadlock was reached in the negotiations that took place at the Chamber of Mines. The strike ended after agreement was reached regarding a two-year agreement, with the provision of increasing salaries in 2011 with 10% at the B-level and 8.5% at C-level (respectively the operator and specialist/supervisory levels of the Company). The Company is in the process of re-evaluating its in-house communication, consultation and collective bargaining structures to strengthen its relationship with employees and unions and to make it less dependent on the centralised collective bargaining structure at the Chamber of Mines. Employee engagement is ongoing and is being strengthened by the introduction of formalised consultation and communication structures. These include regular roadshows of senior executives and regular formal meetings between management and union representatives to discuss issues of mutual concern. During the year, we re-visited the recognition and procedural agreement with unions and, amongst others, the dispute resolution procedures were re-affirmed. These procedures provide for disputes to be resolved timeously, within a stipulated and agreed 10-day period, or else they are referred to third parties for intervention such as arbitration. Attracting and retaining talent The competitiveness of our business relies on the talent of our people and Optimum Coal is committed to attracting and retaining the best skills available. This is particularly important since the global mining industry is negatively impacted by a scarcity of skilled people and a reluctance amongst young people to enter what is perceived to be an old technology -style industry. The challenge is therefore to address the reality of scarce skills through properly defined and implemented strategies. Our strategy in attracting and retaining talent hinges on four focus areas: Ensuring that the work environment is challenging and that the career needs of employees are addressed. In this regard mission-directed work teams are being introduced to provide employees with enhanced participation in business objectives and the opportunity to align personal and business objectives. Alignment of personal objectives with business objectives is further enhanced with personal development plans and the provision of study assistance. 43

46 Developing our people continued Ensuring that salaries and conditions of employment remain market competitive and sufficiently innovative to address employee needs and aspirations. In this regard Optimum Coal classifies as one of the highest paying companies in the industry. Optimum Coal conducts annual remuneration benchmarking exercises, and consistently ranks in the top quartile in the mining sector for all levels of employment. Its lowest paid employees earn in excess of R per month, while the ratio between highest and lowest paid employee is 1:28. Development of employees to meet the anticipated shortage of mining skills into the future. It is anticipated that the shortage of mining skills, as is the case with many similar type of smoke-stack industries will continue into the future with service and technology intensive industries attracting more young talent. To counter this, much effort is placed on internal development of skills as well as promotion from within. Nurturing external feeder channels such as skills development programmes in the community, learnerships and bursary programmes. We measure our ability to retain staff through the rate of turnover which has remained below 1% in This is less than half of the industry average of 2%. Optimum Employee Benefit Trust The Optimum Employee Benefit Trust is a broad-based socio-economic empowerment initiative underpinned by the objectives of the Mining Charter for greater ownership by HDSAs in the mining industry. The Trust receives dividends from the Company when dividends are declared and uses these dividend receipts to benefit the beneficiaries of the Trust, these being all current employees of Optimum Coal. The trustees have developed a distribution policy whereby the largest part of receipts are paid in equal cash disbursements to Optimum Coal employees, while about 10% of receipts are used to assist employees for deserving causes. Optimum Coal is committed to continuously develop and grow the skills of its workforce. John Skosana a boilermaker at Optimum Collieries. Investing in skills and the development of our people In addition to being informed by Group strategy and performance, the Company s key skills needs are determined through a workplace skills plan. Our two biggest skills shortages lie in the areas of technical and engineering skills, and in particular in sourcing HDSAs for such positions. While we track the development of black skills as defined in the dti Scorecard, training and development in this area is integrated with the people development programme rolled out in the rest of the Company. In all instances, preference is given to HDSAs. The Group talent manager, reporting to the Group people officer, is responsible for skills development and training, and a learning and development strategy sets out training and skills development objectives. During the year under review, Optimum Coal invested R41 million (LA) in training and development of its people. (Training spend includes all direct and associated costs of training including direct course and tuition, accommodation, travel, catering, content development, training building maintenance and staff salaries directly related with skills development). Various training and skills development initiatives assisted in the development of our internal skills pipeline. These include an Adult Basic Education and Training (ABET) programme; employee study assistance programme; and a graduates in training programme. For full details on each of these programmes, please reference the full integrated annual report online at 44

47 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / The year reflected a renewed focus on ensuring that regular performance reviews are conducted with all employees on an annual basis. Initially the Company rolled out performance reviews on D and E bands (middle and senior management) but plans are in place to implement these on a Company-wide basis. They will include career path planning and the mapping out of individual development plans for all employees. While internal training and skills development initiatives help to develop our existing talent, externally focused programmes assist to attract scarce skills to our business. These include two bursary programmes one that targets the Company s immediate skills needs and one that benefits community members and a learnership programme. Developing effective leaders During the year, the Company conducted an online 360º leadership evaluation of managers in D-upper, E and F bands (middle, senior and executive management), assessing 120 employees in total. Together with a focus on culture, this survey formed part of a drive to cultivate an environment conducive to transformation and to help define values and behaviour necessary to achieve this. It provided a useful baseline and identified leadership gaps and challenges. In response to the findings of the evaluation, we are in the process of rolling out a new leadership development programme to address the shortcomings highlighted in the survey. We continue to roll out the year-long Mining Qualifications Authority (MQA)-accredited supervisory development programme, which builds leadership, business and financial management capacity among technically skilled employees who are promoted to supervisory positions. Our commitment to protecting human rights Optimum Coal is committed to the protection of human rights, not only in terms of our own people but also of those affected by the work of our contractors and suppliers. Our procurement procedures and contracts include strict stipulations regarding human rights, and all suppliers and contractors are expected to comply with the Basic Conditions of Employment Act and the Bill of Rights as contained in the Constitution. We do not at this stage, however, offer human rights training to suppliers and contractors, nor do we conduct human rights audits or spot checks. Optimum Coal s operations are not in areas considered high risk for human rights violations. The Company itself complies with all human rights legislation and that which prohibits child labour, forced or compulsory labour, discrimination and the violation of the rights of indigenous peoples. There were no incidents of human rights violations of any kind during the year. The year ahead will see the roll-out of training on the Equator Principles which will necessarily include an element of human rights. Currently, our most important human rights issue is the relocation of the Alzu community in the Kwagga North area where new mining development is underway. While some community members have successfully relocated, others require suitable livestock grazing at the new location before they can move. We continue to engage in extensive and ongoing communication with all relevant stakeholders, including local government and community leaders, on this relocation. Looking ahead People issues will remain key priorities in the year ahead, with a particular focus on the areas of skills development and diversity. A human resources information system has been approved and will be implemented in the coming year. It will include all people-related information, including that covering transformation, community trust and corporate social investment (CSI) figures, and enable more comprehensive reporting on human resources in the year ahead. As a black empowerment leader in the mining industry we are looking forward to continuing to deliver a positive contribution in meeting these challenges. 45

48 Empowering communities Awards received during the year Black Management Forum Award for Most Improved CSI Projects in Special Mayoral Award from Steve Tshwete Local Municipality recognising the company as a Community Builder that makes outstanding contributions towards community empowerment. programme. Responsibility for this area rests with the Transformation Committee, which is a sub-committee of the Board and chaired by an independent nonexecutive director. Optimum Coal will continue to create wealth for its shareholders, but will remain committed to do so in a manner that is mindful of its communities and the environment. Optimum Coal recognises the importance of investing in the long-term health, well-being and ultimate self-sufficiency of the communities in which it operates and from whence it draws its labour. It is committed to the sustainable development of the livelihoods it touches throughout its business value chain, and within the communities in which it operates. Our commitment to communities is underpinned by the corporate values of Care, Simplicity, Accountability, Purpose-driven, Integrity, Respect and Empowerment. In living these values, Optimum Coal has pledged to actively empower communities, particularly the poor, vulnerable and marginalised, expanding their realm of opportunities and constitutional rights. In this way it is committed to helping foster the development of sustainable communities that survive beyond the life of the mine. An issue of good corporate citizenship, this is also linked to our ability to maintain a licence to operate. Our community investments are governed by the sustainable development strategy and managed as part of the Company s socio-economic development Two key vehicles ensure that our investments are relevant, appropriate and impactful. The CSI fund, governed by the CSI policy, has a budget of 1% of the Company s net profit after tax, while the Optimum Community Trust owns 25 million shares in Optimum Coal and is governed by a trust deed that details policies and procedures for investment. The Trust derives its income from dividends earned on its investment in the Company. It currently has R12 million in capital, available for community projects Investments that form part of our SLP also contribute to our socio-economic development programme and are informed by development imperatives as highlighted by local government structures. Social investment spend % Public infrastructure Education Poverty alleviation Social welfare During the year under review Optimum Coal invested a total of R32 million (LA) in community upliftment and empowerment projects (Optimum Collieries invested R19.8 million while Koornfontein Mines invested R9.6 million and the remaining R2.9 million was spent from the Optimum Community Trust). Of Optimum Coal s total socio-economic development spend of R32 million, R29.4 million came from the CSI budget. 46

49 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Engaging with community members Our most important community stakeholders are the almost members of the communities that fall within the Steve Tshwete Local Municipality, where our mining operations are concentrated, and the surrounding emalahleni area from which we draw the majority of our labour. Other important stakeholders include local municipalities, the health and education departments, various non-profit organisations and the Chamber of Mines. Two community members including two company representatives forms part of the trustees of the Optimum Community Trust. The Optimum Working Committee, which represents the direct interests of the community, nominates two community members to represent their interests on the Optimum Community Trust. The Optimum Working Committee is a body that informs the activities of the Trust and, in particular conducts research in order to recommend projects for consideration by the Trust. An AGM ensures communication with Trust beneficiaries on an annual basis. The Company is represented at the local economic development forum of the Steve Tshwete Local Municipality, the Nkangala District Municipality, the local Aids council, and the integrated development forum of the Steve Tshwete Local Municipality. Outside of these, engagement with community members has been on an informal and ad hoc basis. To allow for more proactive and constructive community engagement, the Company strengthened the department of the transformation manager with the appointment of staff specifically dedicated to social economic development. These additional staff members will be responsible for remaining in close and ongoing contact with community members, establishing formal engagement forums and understanding community needs and concerns. The most pressing issues facing our stakeholder communities, as identified by the Optimum Working Committee, include poor education, lack of access to healthcare, poverty and unemployment. Whilst some areas of the community are relatively well developed, others lack basic infrastructure such as water, housing and electricity. To address these issues, we focus our community upliftment efforts in the areas of education, health and social welfare, social infrastructural development and enterprise development. Optimum Coal is committed to leaving a sustainable infrastructural legacy behind for its communities. It developed 200 high-quality affordable houses in partnership with the Steve Tshwete Local Municipality. The project was launched by the Minister of Human Settlements, Tokyo Sexwale in July Uplifting the community Our corporate social investment Our investment strategy is underpinned by the need for sustainable impact and, as such, the year saw the consolidation of existing projects and a strong focus on implementation. Expenditure was distributed across education, community development, enterprise development, employee engagement, women empowerment and social welfare/poverty alleviation. Social investment spend % Optimum Collieries Koornfontein Mines Optimum Community Trust Good progress is being made on many of our flagship projects. These include the learner and educator development programme, which builds capacity in mathematics, physical science, accounting and English, and the schools nutrition project which provides daily meals to some needy high school learners. A further 100 houses were handed over to senior citizens and disabled individuals in the Steve Tshwete Local Municipality, as part of Optimum Collieries R13 million housing project partnership with the municipality, while Koornfontein Mines constructed a R4 million multipurpose community centre. 47

50 Empowering communities continued Water reclamation plant ends 18-month water restrictions During the year, Optimum Coal s R542 million water reclamation plant delivered benefits to the residents of Hendrina and KwaZamokuhle, ending water restrictions that have been in place for 18 months. A bulk water supply agreement between Optimum Collieries and the Steve Tshwete Local Municipality sees the mine now supplying three million litres of potable water a day to these communities via the municipal water reservoir. This will have a significant impact on the ongoing development of these communities, as all development projects were previously halted during the water restriction period. Managing the impact of mine closure on communities Communities are significantly impacted by the closure of mines and if mine closure planning is not managed responsibly, they risk losing their livelihoods and the economic infrastructure that supports the places where they live. The Company complies fully with the mine closure requirements of the MPRDA (2002) but believes the issue is more than just a legislative one. We see mine closure planning as a key area of community responsibility and seek to minimise our closure liability and empower communities to become self-sufficient long before a mine has reached the end of its active life. Socio-economic mine closure issues are governed by a closure plan, with financial provision made at all our operations. The focus of our SLP and CSI programmes is to create sustainable communities that continue to thrive after closure. Investment by the Community Trust The Optimum Community Trust was formed in March 2010 when 25 million unencumbered Company shares were ceded to the Trust. The proceeds of the shareholding are used to invest in socio-economic development of the community, in the areas of education, health and social welfare, women empowerment, enterprise development, job creation, and social infrastructure. During the year, the Community Trust disbursed R2.9 million to in projects that include the Tsebo Matric Rewrite Project, Mphephethe Primary School early childhood development centre and bursaries. For more detail on these projects, please reference the full integrated annual report online at Alleviating poverty and fostering job creation Optimum Coal believes that true community upliftment comes from eradication of poverty and economic empowerment, and to this end the Company fosters the development of small to medium black-owned enterprises and creates procurement opportunities for black-owned companies. In addition, some of our socio-economic development projects focus on alleviating poverty through the creation of jobs. For details of the poverty alleviations greenhouse project and ED strategy, please reference the fully integrated annual report online at Relocating the Alzu community In extending its operation into the Kwagga North reserves, the Company needs to relocate residents from three farms in the area. We have engaged extensively with community members as well as with the Department of Land Affairs, Department of Housing, the Steve Tshwete Local Municipality and the Land Claims Commission. Through the engagement process, community members were afforded the opportunity to raise issues of concern, which are individually addressed. The majority of the Alzu community has been relocated to Extension 24 at a farm called Rockdale in the Steve Tshwete Local Municipality jurisdiction. We expect this relocation to be completed following the provision of livestock grazing for the remaining residents. Some 212 ha has been set aside for this purpose. Looking ahead Optimum Coal introduced benchmark thinking regarding broad-based black empowerment into the South African empowerment scene, with the Optimum Community Trust being a major shareholder in the Company. This has led to a greater involvement of the community in the business of the Company, and delivered direct economic benefits to the community as shareholders in Optimum Coal. The Company remains committed to its overall twin objectives of positively contributing towards eradicating poverty in the community, and providing a sustainable community into the future, even after the Company s operations in the area are closed. 48

51 Mitigating our impact on the environment / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Determining our most material environmental issues The materiality of environmental issues is determined by the impact of our operations, the potential liabilities associated with these and the issues raised by key environmental stakeholders. Optimum Coal s flagship water reclamation plant started treating water in July Optimum Coal recognises its responsibility to manage its impact on the environment and is committed to protecting the environment. Environmental issues are overseen by the Group HSE manager who reports to the HSE committee comprising Exco and Board members. The committee is made up of three Board members, CEO, chief operating officer and Group HSE manager. The meeting is chaired by the deputy chairman of the Board. Environmental issues are discussed at quarterly HSE committee meetings and appear on the agenda of monthly opco and exco meetings. An integrated Group-wide HSE policy sets out the Company s environmental management objectives and commitments. Environmental officers, based at each of the Company s two operations, are responsible for the daily management of environmental impacts. In addition to complying with all relevant environmental legislation, Optimum Coal subscribes to the Equator Principles regarding the assessment of environmental impact and risk. Our compliance with these principles is audited on an annual basis by independent consultants. The Optimum Collieries operation is ISO accredited and the Koornfontein Mines operation undertook the ISO certification in June 2011 and has been recommended for certification. This section relates to Optimum Collieries and Koornfontein Mines only. As Optimum Collieries is a largely opencast operation, its chief environmental impacts relate to land rehabilitation, biodiversity and water management. Land rehabilitation involves levelling, top-soiling and establishing sustainable vegetation on mined-out opencast areas. This forms part of the Company s Environmental Management Plan (EMP) and closure planning commitments, and accounts for a substantial portion of environmental expenditure. Opencast mining generates significant surplus water, which needs to be treated and managed. Acid mine drainage and the effects on downstream water quality are additional water-related issues. Noise and dust associated with opencast blasting activities have been raised by communities as issues of concern. All noise-related complaints from the community are investigated in detail by the mine and feedback is given to the complainants. To ensure the mine monitors its blasting-related impacts, numerous seismographs are placed at various locations surrounding the active mining areas, including farms, the Hendrina power station and the Pullenshope village. Damages resulting from blasting activities are generally repaired at the mine s cost. Dust emanating from mining activities is monitored via numerous dust fall collectors on the boundary of the mine. The mine has also commenced with a PM10 monitoring programme in line with the Pullenshope village. Results of the abovementioned monitoring initiatives are shared with interested and affected parties on an annual basis. The environmental impact of underground coal mining is not as extensive as that of opencast operations. Water management and acid mine drainage, as well 49

52 Mitigating our impact on the environment continued as the management of waste streams such as slurry, discard and hazardous waste, are the key environmental impact issues relating to the Company s underground operations. Climate change, energy efficiency, and the management of waste and pollutants are issues relevant to both operations. The treated water is sold to the Hendrina municipality at municipal rates. Closure planning Issues of environment are of material importance to closure planning and our obligation to comply with the regulatory requirements for mine closure as stipulated by the MPRDA (2002). In order to fully understand our liability in this regard, we annually update a land management plan; biodiversity action plan; integrated water management plan; environmental management programme report (EMPR) performance assessments; a closure plan; and financial provision. For expenditure breakdown, please reference the full integrated annual report online at Both Optimum Collieries and Koornfontein Mines have fully cash-funded closure cost liabilities for DMR purposes. R1.3 billion has been set aside for ground and water management rehabilitation requirements at our operations. This amount is carried as a restricted investment on our statement of financial position. The Group s overall environmental liability provision, which includes the present value of net water treatment costs associated with mine water treatment, has reduced by R126 million at the end of the prior year. The net R126 million reduction in environmental liability is shown through the statement of comprehensive income as the net of a R287 million environmental liability movement reduced by the unwinding of the discount associated with the liability amounting to R161 million. This reduction is consistent with increased confidence on water treatment parameters given that the Optimum Collieries water treatment plant is commissioned and is supplying water to the Steve Tshwete Local Municipality under a five-year contractual arrangement. For details on what each of these includes, please reference the full integrated annual report online at External legal compliance audits are conducted every two years to ensure the Company is compliant with all relevant environmental legislation. The last audit was undertaken in April There were no significant spills or fines regarding pollutants or waste during the year under review. The total actual environmental spend for the year was R160.6 million. The plant produces 15 million litres of potable water per day. Ashton Drummond, a junior process engineer at the water plant takes a water sample. Engaging with environmental stakeholders Our key environmental stakeholders include the communities directly affected by our operations; the Department of Water Affairs; the Department of Agriculture, Forestry and Fisheries; the Department of Environmental Affairs; the DMR; employees; and environmental non-profit organisations such as the Federation for a Sustainable Environment. 50

53 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Each of our operations holds an interested and affected parties meeting on an annual basis, to which representatives of these stakeholder groups are invited. Optimum Collieries held its meeting in September 2010, while Koornfontein Mines held a meeting in August In compliance with the requirements of the National Environmental Management Act (NEMA) (No 107 of 1998) and the Minerals Act (No 50 of 1991), the Company also follows a comprehensive consultation process with all relevant stakeholders for new initiatives or whenever changes are made to its EMP. Stakeholders also have access to environmental impact assessment (EIA) documentation. EIAs are undertaken prior to the development of any new projects in compliance with environmental legislation. Current projects include those at Vlakfontein, Overvaal, Schoonoord and the Eikeboom pillar mining project. Optimum Coal participates in the Chamber of Mines Environmental Policy Committee and sits on a local forum that focuses on issues of water quality in the Olifants River. It funds and is actively involved in various research projects conducted by the Coaltech Research Association and the South African Water Research Commission. For details on the research initiatives undertaken by each institution, please reference the full integrated annual report online at All issues raised by communities are logged at each operation and investigated before feedback is provided to the complainant. During the year, 10 such concerns were raised, relating to blasting, dust and groundwater. All community complaints are registered in a complaints register and are investigated in detail to ensure mitigatory measures are implemented and that appropriate feedback is given to the community. We engage employees on environmental issues mainly through environmental training, which forms part of the induction training provided to new employees and existing employees on an annual basis. Standard operational procedures also include issues of environmental importance and are communicated to employees as a matter of course. Managing our water usage and impact Water management is Optimum Collieries key environmental area of impact and the area where the most money is spent (R52.8 million in 2011). For details on how the water management plan assists the Company in meeting its key water management objectives, please reference the full integrated annual report online at Managing the water discharged from our operations Optimum Collieries experiences significant water decant, particularly at the opencast operations, which decant in the region of 26 Ml/day. Of this decant water roughly 11 Ml/day are reused by the operation, while the remaining 15 Ml/day are desalinated to potable water standards. (By comparison, Koornfontein Mines may ultimately decant between 2 and 3 Ml/day). This water needs to be treated for pollutants in order to be stored, sold, reused or allowed to flow back into the environment. The Optimum Coal Water Reclamation Plant was completed during the year under review and started treating water in July The R542 million investment in this project has enabled Optimum Collieries to make significant progress towards achieving its goal of being a zero effluent discharge (ZED) operation. We are 80% of the way there and expect to achieve full ZED status in the coming year. The treated water is currently sold at municipal rates to the nearby Hendrina Municipality. In total, 2.8 million m 3 of water has been treated in the Optimum Coal Water Reclamation Plant since July The issue of acid mine drainage has been much in the news during the year under review. Fortunately, the nature and geochemistry of the rock that remains in the mined-out areas of the Company s operations is such that it provides sufficient alkalinity to counter the acid 51

54 Mitigating our impact on the environment continued reactions. The water decanting from these mines has a ph of between 7.7 and 8.3, placing it around the neutral mark. Significant water management projects undertaken during the year include the construction of a diversion berm in the Optimus area, which diverts clean water from an existing stream away from the mining areas to prevent it becoming polluted. The Company also invested R20 million in a major stream diversion project in the Pullenshope area, upgrading the existing stream diversion to facilitate further opencast mining activities in the area. The stream diversion is designed to cater for a 1:300 year flood event. There were 8 (LA) Level 2 environmental incidents during the year under review, associated with affected water discharges from the Lapa Dam at Optimum Collieries. The completion and commissioning of the Optimum Coal Water Reclamation Plant will help to significantly reduce the risk of future affected water discharges. All incidents were reported to the Department of Water Affairs. water sources affected by the withdrawal of water are the Nooitgedacht and Vygeboom dams, situated within the Komati River catchment area. Koornfontein Mines draws the majority of the water it uses from the same sources as Optimum Collieries. This operation used 69.8 kl of potable water to produce one ROM ton of coal, kl of potable water to produce one saleable ton of coal, and during the year consumed kl of water. In total, Optimum Coal s total potable water consumption for the year was kl (LA). There was a slight increase in water consumption compared to the previous financial, due to improved monitoring activities. While the Company actively monitors its water management through impact assessments and the installation of water meters that record monthly water consumption at all operations, it is not yet able to determine its full water footprint. This will be a focus area in the coming year. An inter-mine flow and water balance study, commissioned when Koornfontein Mines were acquired by Optimum Coal, was finalised during the year under review. This study assisted the operation in modelling the flow of all water into and out of the mining area, allowing for more informed water management at the complex. For figures relating to water consumption and recycling, please reference the full integrated annual report online at Optimum Coal considers the responsible use of energy an important business and environmental issue. It actively measures both its fossil fuel and electricity consumption. Ernst Searle is responsible for Optimum Coal s Energy Management System (EMS). Water usage During the year, Optimum Collieries used 48.6 kl of potable water to produce one ROM ton of coal and 67.3 kl of potable water to produce one saleable ton of coal. During the year, the operation consumed kl of potable water that is supplied via the Wintershoek pipeline and Hendrina power station. Key Optimum Coal s management team is responsible for enforcing the responsible management of land in line with the company s environmental policies. 52

55 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Minimising our carbon footprint Optimum Coal considers the responsible use of energy an important business and environmental issue, and one that is directly related to the Company s ability to reduce its carbon footprint. It actively measures both its fossil fuel and electricity consumption. The underground operations and coal washing plants at Koornfontein Mines primarily use electricity, while energy consumption at the opencast operations includes fossil fuel in the form of diesel, used by the truck and shovel fleet, and electricity which powers the draglines and coal washing plants. NOx, SO 2 and methane are not measured or included in our carbon footprint calculations. Performance in 2011 Optimum Coal s total carbon emissions in 2011 were tons, slightly up on the FY10 value, due to an increase in indirect energy consumption resulting from the full implementation of the Optimum Coal Water Reclamation Plant and the Boschmanspoort underground section. GHC intensity per product ton was Electricity consumption (Scope 2) is slightly up on the previous financial year, from kwh to kwh. This increase should be viewed in light of the fact that the year saw the Boschmanspoort operation and the Water Reclamation Plant begin operating. Improved management of resources and the installation of an energy management software system allows the Company to monitor its consumption and optimise savings. Diesel consumption increased slightly from kl to kl; petrol consumption decreased from 102 kl to 87 kl and the emulsions (from explosives) consumption decreased slightly from tons to tons. Methane and spontaneous combustion were not included in the carbon footprint measurements. Scope 3 emissions are not yet measured and therefore not included. Indicator Operation FY11 FY10 FY09 Scope 1 direct CO 2 emissions (tons) GHG emissions diesel (tco 2 EQ) Optimum Collieries Koornfontein Mines Total GHG emissions petrol (tco 2 EQ) Optimum Collieries Koornfontein Mines Total GHG emissions emulsion (tco 2 EQ) Optimum Collieries Koornfontein Mines Total Total scope 1 emissions (tco 2 EQ) (LA) Scope 2 indirect CO 2 emissions (tons) GHG emissions electricity (tco 2 EQ) Optimum Collieries Koornfontein Mines Total scope 2 emissions (tco 2 EQ) (LA) Total scope 1 + scope 2 emissions (tco 2 EQ) * Figures for FY2010 and FY2009 restated to correct inaccuracies in the previous year s report owing to the incorrect units being applied and explosives not being included in the calculations. Direct and indirect energy consumption FY11 FY10 FY09 Indirect energy consumption (GJ) (LA) Direct energy consumption (GJ) (LA)

56 Mitigating our impact on the environment continued Responsibly managing land and biodiversity Responsible land management is a legal obligation in terms of the Company s EMP commitments, but it also affects our core business and the relationships we have with the surrounding communities, not only now but also into the future. The management team is responsible for enforcing the responsible management of land in line with the Company s environmental policies. Each mining operation has land management and biodiversity plans in place. Land management focuses on rehabilitation of mined-out areas, while biodiversity plans encompass the broader environment and include all the land owned by Optimum Coal, whether it is mined or not. Key habitats affected by our operations include rocky outcrops, grasslands, wetlands and alien bush clumps. The Company does not own, lease or manage any land in or adjacent to any protected areas or areas of high biodiversity. Predominantly an opencast complex, Optimum Collieries carries the greatest land management liability, while the underground Koornfontein operation has a negligible impact. During the year, Optimum Collieries disturbed 210 ha of new land. This includes the removal of topsoil and overburden (the rock, soil and ecosystem that lies above a coal seam). The restoration and rehabilitation of mined-out areas is ongoing and includes levelling, top-soiling and the re-establishment of vegetation, as committed to in the Company s EMP. The table below provides detail on the number of hectares disturbed, levelled, top-soiled and grassed. During 2011, we spent R92.9 million on rehabilitation, and good progress was made at reducing the rehabilitation backlog. Land management rehabilitation efforts during the year under review FY11 FY10 FY09 Total disturbed (ha) Levelled (ha) 273 (LA) Top-soiled (ha) Grassed (ha) 220 (LA) 97 0 Total rehabilitated Rehabilitation backlog unavoidable (ha) Rehabilitation backlog avoidable (ha) Biodiversity surveys were conducted as planned at both the Koornfontein Mines and Optimum Collieries operations. Action plans arising out of these focus on the removal of alien vegetation. Reducing pollutants and controlling waste Apart from GHG, noise and dust, Optimum Coal s key pollutants and types of waste are those generated by engineering functions and coal washing activities. The coal washing plant generates coal discard and slurry, both of which are placed back into the mining pits. Sulphate, the key contaminant arising from these waste streams, finds its way into the water which is then treated at the water reclamation plant. Hazardous wastes include used oil and greases and are disposed of in accordance with the requirements of the Hazardous Substances Act (No 15 of 1973). 54

57 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / General and hazardous waste generated and disposed (tons) FY2011 FY2010 FY2009 Koornfontein Mines Koornfontein Mines Koornfontein Mines Optimum Collieries Total Optimum Collieries Total Optimum Collieries Total General Hazardous waste (LA) Total waste (LA) Slurry and discard ( 000 tons) FY2011 FY2010 FY2009 Koornfontein Mines Koornfontein Mines Koornfontein Mines Optimum Collieries Total Optimum Collieries Total Optimum Collieries Total Slurry (disposed) (LA) n/a 853 Discard (disposed) (LA) n/a A waste minimisation strategy is in place to reduce waste generation at source and improve waste management systems. All operations have proper waste disposal facilities managed by certified external contractors, who dispose of waste in accordance with the National Environmental Management Waste Act (No 59 of 2008). Looking ahead In the year ahead we will be working towards reducing potable and affected water consumption by 3% each, and reducing electricity and fossil fuel consumption by 2% each. From a land rehabilitation point of view, we have identified targets for the number of hectares disturbed (228) and the number of hectares top-soiled (190). During the year, the Company appointed a new contractor who focuses on the recycling of plastic, paper, cardboard, scrap metal and glass. This has substantially increased the amount of waste we recycle from 0 tons in FY2010 to tons in FY2011. The financial benefits have also been significant, reducing our waste management spend from R to R a month. Optimum Collieries recycles around 48% of its input materials, while Koornfontein Mines recycles around 92%. 55

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59 / leadership and governance / HAS A STRONG TEAM OF TALENTED LEADERS WITH RECOGNISED RELEVANT EXPERIENCE AND SKILLS TO RUN A WORLD-CLASS MINING BUSINESS. 57

60 Board of directors Optimum Coal is committed to ensuring good corporate governance, and the Board of directors endorses and accepts full responsibility for the implementation of sound principles to ensure effective governance across the organisation. Our approach to sustainability includes a strong focus on stakeholder-inclusiveness and on integrating governance into every aspect of the business. CHAIRMAN DEPUTY CHAIRMAN Bobby Godsell Date of birth: 14 September 1952 Qualification: BA Sociology & Philosophy, MA Liberal Ethics Titles: Chairman Optimum Coal Holdings Limited since 2010 Chairman Business Leadership South Africa (BLSA) Co-chairman Millennium Labour Council Experience: : CEO AngloGold Ashanti former president SA Chamber of Mines former chairman World Gold Council Joined Optimum Coal Holdings Limited in February 2010 Paul Nkuna Date of birth: 21 February 1952 Qualification: Qualified as a teacher at Botshabelo Training Institution in 1973, Management Advanced Programme (MAP) certificate from Wits Business School, Effective Directorship certificate from Kagiso Leadership School and Gordon Institute of Business. Titles: Experience: director of Optimum Coal Holdings Limited since November 2010 He has been the CEO of the Mineworkers Investment Company (Pty) Ltd since March 2003 Chairman Primedia (Pty) Ltd Chairman Peermont Holdings (Pty) Ltd Chairman Nimble Group (Pty) Ltd Non-Executive director Metrofile Holdings Ltd Non-Executive director Tracker Investment Holdings (Pty) Ltd Non-Executive director BP Southern Africa (Pty) Ltd he was elected NUM Regional Secretary (Wits Region) from He was elected COSATU Regional Chairperson (Wits Region) from 1985 to 1987 He was elected NUM National Treasurer from He served as chairperson of the Executive Committee of the Brakpan Transitional Local Council from He served as a member of the Executive Committee of the Gauteng Association of Local Authorities (GALA) and the South African Local Government Association (Salga) serving as a chairperson of the Local Government Labour relations Working Committee. Executive chairman of the Mineworkers Investment Company (Pty) Ltd from 1 April

61 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / EXECUTIVE DIRECTORS Doug Gain Date of birth: 29 December 1976 Qualification: BCom, BCompt (Hons), CA(SA) Titles: financial director of Optimum Coal Holdings Limited since Various other directorships Experience: he is a chartered accountant with extensive experience in resource finance and mining. He has been integral to the growth and development of Optimum Coal since its inception. Michael Teke Date of birth: 15 August 1964 Qualification: BA (Education), BEd, Bachelor of Arts (Hons) master of Business Administration Titles: Chief Executive Officer of Optimum Coal Holdings Limited since Various other directorships Experience: he was human resources director at Impala Platinum, a JSE listed mining company. He previously worked in HR at Bayer and Samancor, and was vice-president (HR) at Ingwe Collieries. He has extensive experience in people and business management. NON-EXECUTIVE DIRECTORS Dr Mlungisi Kwini Date of birth: 1 September 1958 Qualification: PhD in Chemistry Titles: director of Optimum Coal Holdings Limited since Various other directorships Experience: he is the chairman of Kwini Mining Investments and chairman of Lukhanyo Transport and Logistics, a family owned business that provides transportation and logistics solutions to the industrial, mining, agriculture, fuels and chemicals sectors. Peter Gain Date of birth: 2 May 1975 Qualification: Bachelor of Business Science (UCT) Titles: Director of Optimum Coal Holdings Limited since 2006 various other directorships Experience: he is the founder of Warrior Coal Investments, through which he has helped build a group with a range of investments and exploration assets in the South African coal sector. He was formerly commercial director of Metallon Corporation, and is on the board of several private companies in the mining and logistics sectors. He has more than 10 years experience in the mining sector. 59

62 Board of directors continued NON-EXECUTIVE DIRECTORS Tom Borman Date of birth: 25 March 1967 Qualification: CA(SA) Titles: non-executive director Optimum Coal Holdings Limited since 2007 BHP Billiton various other directorships Experience: Joined the Optimum Coal Holdings Limited Board in 2007 Eliphus Monkoe Qualified as a CA with PWC. Eleven years with BHP Billiton specialising in resource finance for the mining industry and vast experience working in various countries such as the Netherlands, United Kingdom and Australia. Date of birth: 10 October 1959 Qualification: Master s degree in Mining Titles: Director of Optimum Coal Holdings Limited since 2006 various other directorships Experience: eliphus is a mining executive with proven technical, operational and strategic skills as well as hands-on experience. He completed his mining degree and master s degree in Moscow and began his career as a graduate trainee miner, working his way up to group executive level over 26 years. eliphus has a proven track record in improving mining operations, both in cost reduction and increase in productivity. He has been recognised for driving transformation within several organisations in the coal mining industry, and has earned a reputation in the formulation and implementation of strategic objectives especially in the turnaround of brownfield operations. he was President and COO of BHP Billiton Energy South Africa (Becsa) 2005 to Becsa is one of the largest coal exporters in the world; it owns and operates six collieries in South Africa. Becsa is a subsidiary of the Energy Coal Division of BHP Billiton Plc, the world s largest diversified resources company, with operations in over 25 countries. 60

63 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / INDEPENDENT NON-EXECUTIVE DIRECTORS Nomavuso Mnxasana Date of birth: 1 September 1956 Qualification: CA(SA) Titles: director of Optimum Coal Holdings Limited since Various other directorships Experience: during her tenure at Sizwe Ntsaluba VSP she specialised in consulting, internal auditing and the attest function. Nomavuso started the corporate governance division which housed the internal audit services. She was involved in staff development and training as a staff partner for five years. She left Sizwe Ntsaluba VSP in 2006 to join Imperial Group as group audit and risk executive, where she implemented risk management both locally and internationally. Deon Dhlomo Date of birth: 14 January 1972 Qualification: BSc (Chemical Engineering), MBA Titles: Experience: non-executive director of Optimum Coal Holdings Limited since 2010 various other directorships Over the past five years he has played significant strategic advisory roles in the petrochemical and energy fields. Loutjie Smit Date of birth: 13 April 1951 Qualification: BCom, MBL Titles: director of Optimum Coal Holdings Limited since February 2010 director Xstrata SA Experience: vice president risk assessment and assurance for BHP Billiton Chief executive group finance for Billiton Plc Finance director for Billiton International BVI Finance director for Ingwe Coal Corporation Lulu Letlape Date of birth: 2 December 1965 Qualification: Bachelor of Arts, Bachelor of Education master of Arts in Public and Development Management Titles: Director of Optimum Coal Holdings Limited since 2010 executive head of corporate affairs at Sanlam various other directorships Experience: at Sanlam she is responsible for sustainability management, corporate social investment, public affairs, communication and transformation. She was previously executive director responsible for corporate affairs at Mercedes-Benz South Africa. 61

64 corporate governance Commitment and approach Optimum Coal is committed to ensuring good corporate governance, and the Board of directors endorses and accepts full responsibility for the implementation of sound principles to ensure effective governance across the organisation. Our approach to sustainability includes a strong focus on stakeholderinclusiveness and on integrating governance into every aspect of the business. The Board regulates the Group in its commitment to a transparent and high-quality governance system and continuously re-examines compliance with legislation. Optimum Coal has adopted the recommendations on governance as contained in the King III Report on corporate governance. The Company s compliance level was assessed by internal audit together with the Group company secretary and are satisfied that the Company complies with the recommendations as set out in the King III. Board of directors Board members RM Godsell (chairman), AP Nkuna (deputy chairman), MS Teke, DR Gain, PK Gain, TI Borman, NP Mnxasana, EO Monkoe, DSC Dhlomo, Dr M Kwini, CL Smit, LL Letlape. Composition of the Board Optimum Coal has a unitary Board, which plays a fundamental role in ensuring that management preserves the long-term interests of shareholders and other stakeholders. The chairman and the majority of directors are non-executive directors. Currently the Board comprises six independent non-executive directors, four non-executive directors and two executive directors, of which six are HDSAs and two are female. In accordance with the Company s articles of association, a third of the non-executive directors retire by rotation each year and stand for re-election at the next annual general meeting of shareholders (AGM). Accordingly, Bobby Godsell, Loutjie Smit, Deon Dhlomo and Paul Nkuna have been put forward for re-election. As reported in the previous annual report, Dr Sivi Gounden did not avail himself for re-election at the last annual general meeting, and Bobby Godsell, an independent non-executive director, was appointed as chairman on 26 November Paul Nkuna, an independent non-executive director, was appointed on 26 November 2010 as a director of the Board and deputy chairman of the Company. Mr Henry White resigned as a director on 30 April The current members of the Board are Bobby Godsell (chairman), Paul Nkuna (deputy chairman), Dr Mlungisi Kwini, Tom Borman, Doug Gain, Peter Gain, Deon Dhlomo, Eliphus Monkoe, Loutjie Smit, Mike Teke, Lulu Letlape and Nomavuso Mnxasana. The Board is satisfied that the balance of skills, knowledge and experience of its members, as well as its size and diversity, renders it effective. The role of the Board is regulated in a formal Board Charter and a formal delegation of authority is in place which defines the powers and authority of management. 62

65 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Chairman, deputy chairman and chief executive officer The chairman sets the ethical tone for the Board, and provides it with overall leadership. This is done without limiting the principle of collective responsibility for Board decisions, bearing in mind the individual duties of Board members. The deputy chairman provides leadership and advice to the Board, without detracting from the authority of the chairman. The role includes chairing Board meetings which deal with the succession of the chairman and the chairman s performance appraisal. The roles of the chairman, Bobby Godsell, and the chief executive officer, Mike Teke, are separate with a clear division of responsibilities at Board level. This ensures a balance of power and authority and prevents any single individual from holding unfettered powers of decision-making. Responsibilities of the Board of directors The Board of directors is ultimately responsible for creating value and monitoring the relationships between the Board and management, and between the Company and its stakeholders. Furthermore, it is responsible for approving Optimum Coal s financial objectives and long-term and short-term strategies. Members of the Board of directors are nominated and appointed by the Company s shareholders at each AGM. The Company s Board of directors also has the power to appoint additional directors subject to confirmation of such an appointment at the AGM. Directors who are members of the Executive Committee are involved in the day-to-day business activities of the Group and are responsible for ensuring that the decisions of the Executive Committee, as approved by the Board of directors, are implemented in accordance with the mandate given by the Board and Executive Committee. All directors are given access to the information needed to carry out their duties and responsibilities fully and effectively. Furthermore, all directors are entitled to seek independent professional advice regarding the affairs of the Group, at the Company s expense. Board meetings Board meetings are held quarterly with ad hoc meetings called to consider specific issues should the need arise. The quorum for Board meetings is a majority of the directors. Board members are required to declare any material interests involving the Group which may pose potential conflicts of interests, and any other directorships at each Board meeting. 63

66 corporate governance Meeting attendance during the year ended 30 June 2011 Name of director 27 August November February June 2011 RM Godsell (chairman) CL Smit DSC Dhlomo DR Gain Dr M Kwini x EO Monkoe L Letlape MS Teke NP Mnxasana PK Gain x P Nkuna 1 TI Borman Dr S Gounden 2 HC White 3 x Submitted apologies 1 Appointed on 26 November Dr S Gounden did not avail himself for re-election at the AGM held on 25 October Resigned on 30 April 2011 Board committees and governance structure To enable the Board to properly discharge its responsibilities and duties, certain responsibilities of the Board have been delegated to a number of subcommittees, which operate within defined terms of reference laid down by the Board in writing and in line with the recommendations of King III. Members of these sub-committees are suitably qualified and experienced to meaningfully contribute to the workings of the sub-committee on which they serve. All sub-committees report to the Board and all Board Committee mandates have been reviewed to take into account amendments to relevant legislation. All committees report back regularly to the Board at quarterly meetings, and reports from the chairmen of these committees are tabled. The structure of Board committees was amended during the year and a change in chairmanship effected. All committees are chaired by independent nonexecutive directors who attend the AGM to answer any shareholder queries. Audit and Risk Management Committee (ARMCO) Members CL Smit (chairman), NP Mnxasana and DSC Dhlomo The Audit and Risk Management Committee is responsible for: providing the Board of directors with additional assurance regarding the quality and reliability of financial information, the integrity of the financial statements and other relevant external financial reports; reviewing the internal control systems, the financial control systems, the accounting systems, financial risk management systems and reporting, and the internal audit functions; recommending to the Board the appointment of the external auditors; approving the terms of engagement and fees to be paid; and monitoring their independence, objectivity and effectiveness, taking into consideration relevant professional and regulatory requirements; 64

67 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / liaising with the Company s external auditors; monitoring compliance with legal requirements; ensuring that management addresses any identified internal control weaknesses; assessing the performance of financial management, budgets, plans and performance; and conducting an annual review and assessment of the business risks faced by the Company; setting the principles for the use of external auditors for non-audit services; receiving and dealing appropriately with any concerns or complaints relating to accounting practices, internal audit, the content or auditing of the Company s financial statements, the internal financial controls of the Company or any related matter; performing other functions determined by the Board, including the development and implementation of a policy and plan for a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes within the Company; and considering and recommending proposals in terms of new projects and acquisitions. The Audit and Risk Management Committee comprises three independent non-executive directors, as required by King III. Deon Dhlomo was appointed as a member of the Audit and Risk Management Committee following the resignation of Tom Borman. The Audit and Risk Management Committee meets quarterly, and a representative of the Company s independent external auditors and the internal auditors attend committee meetings by invitation. The Committee also meets at least once a year on an individual basis with the external and internal auditors. Other executive members of the Board are not present at these meetings. In terms of the new Companies Act and the recommendations of King III, shareholders must elect the members of the Audit and Risk Management Committee at each annual general meeting. The appointment of Loutjie Smit, Nomavuso Mnxasana and Deon Dhlomo as members of the Committee is subject to shareholder approval at Optimum Coal s AGM on 25 November Meeting attendance during the year ended 30 June 2011 Committee members 26 August November February April 2011 CL Smit * NP Mnxasana DSC Dhlomo 1 TI Borman 2 * Submitted apologies 1 Appointed on 26 November Resigned on 26 November 2010 Invitees DR Gain MS Teke TI Borman W van der Merwe KPMG For more detail on the activities of the Audit and Risk Management Committee, please refer to the Audit Committee report that appears on pages 81 to 83 of the integrated annual report. 65

68 corporate governance Nomination and Remuneration Committee (REMCO) Members NP Mnxasana (chairman), RM Godsell and AP Nkuna The Nomination and Remuneration Committee is responsible for: considering the remuneration of all of the Company s employees with the assistance and guidance of independent experts; considering the payment of bonuses, which are discretionary and based upon general economic variables, the Company s performance and the individual s performance, share options and certain other employee benefits and schemes. No remuneration of any nature to any director may be paid, increased or varied without the prior approval of the members of the Nomination and Remuneration Committee; and ensuring that the procedures for appointments to the Board of directors are formal and transparent, by making recommendations to the Board of directors on all new Board appointments. The Committee regularly evaluates the Board of directors performance, undertakes performance appraisals of the chairman and directors, evaluates the effectiveness of Board committees and makes recommendations to the Board of directors. The chairman of the Committee is appointed by the Board of directors and the Committee itself comprises a majority of independent non-executive directors. Bobby Godsell stepped down as chairman of the Committee during the year under review, and was replaced by Nomavuso Mnxasana. Paul Nkuna was appointed as a member of the Committee to replace Dr Sivi Gounden. The Nomination and Remuneration Committee meets quarterly. Meeting attendance during the year ended 30 June 2011 Committee members 11 August November January April 2011 NP Mnxasana RM Godsell x AP Nkuna 1 Dr S Gounden 2 x Submitted apologies 1 Appointed on 26 November Resigned on 25 October 2010 Invitees MS Teke NP Khoza A de Beer 66

69 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Remuneration report The Company s remuneration philosophy is described on page 89 of the integrated annual report. Details of remuneration paid to directors, and executive directors interests in share incentive scheme awards, are set out on page 92. Health, Safety and Environmental Committee Members AP Nkuna (chairman), EO Monkoe and NP Mnxasana The Health, Safety and Environmental Committee (SHEQ) is responsible for: assisting the Company s Board of directors in meeting its health, safety and environmental obligations, and providing additional guidelines on key sustainable development issues; monitoring and evaluating the effectiveness of policies and strategies related to health, safety, environmental and sustainable development issues; monitoring health, safety and environmental performance in accordance with stated goals and objectives, including measurement against local and international norms and benchmarks; monitoring the SHEQ management function and recommending improvements where such are considered necessary; and reviewing the health, safety and environmental element of the Company s business plan. The Committee comprises two independent nonexecutive directors and one non-executive director. Bobby Godsell stepped down as chairman of the Committee during the year and was replaced by Paul Nkuna. Nomavuso Mnxasana was appointed as a member of the Committee to replace Dr Sivi Gounden. The Health, Safety and Environmental Committee meets quarterly. Meeting attendance during the year ended 30 June 2011 Committee members 10 August November January April 2011 AP Nkuna 1 EO Monkoe NP Mnxasana 2 RM Godsell 3 Dr S Gounden 4 1 Appointed on 26 November Appointed on 8 November Resigned on 26 November Resigned on 25 October 2010 Invitees MS Teke Dr V Cogho R du Plooy 67

70 corporate governance Transformation Committee Members LL Letlape (chairman), RM Godsell and DSC Dhlomo The Transformation Committee s key objective is the promotion of an environment free of racial discrimination, cultural bias, ethnic and religious intolerance or inequality in providing opportunities to employees and relevant shareholders. The Committee is responsible for: ensuring that all transformation principles, policies and procedures are integrated into the Company s business strategy; providing the Board of directors with a detailed quarterly progress report regarding transformation imperatives and related activities, including the requirements of the Mineral and Petroleum Resources Development Act (MPRDA) (2002), the Employment Equity Act (1998), other related legislation and all the broad-based black economic empowerment (BBBEE) initiatives from the Department of Trade and Industry; and ensuring transparency in communication. The Committee comprises three independent nonexecutive directors. During the year, Deon Dhlomo was appointed as a member of the Committee to replace Dr Sivi Gounden. The Transformation Committee meets quarterly. Meeting attendance during the year ended 30 June 2011 Committee members 11 August November January April 2011 LL Letlape x RM Godsell x DSC Dhlomo 1 Dr S Gounden 2 x Submitted apologies 1 Appointed on 26 November Resigned on 25 October 2010 Invitees MS Teke PN Khoza 68

71 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Executive Committee (Exco) Members MS Teke (chairman), DR Gain, PN Khoza, R Karstel and R du Plooy The Executive Committee (Exco), chaired by the chief executive officer, comprising five senior executives, deliberates on matters of strategy, business planning and effective operation of the business, and provides leadership on key issues. The Committee s main focus is to align activities and initiatives throughout the Company s operations. To this end it is responsible for developing strategies and proposals for consideration by the Board, and for implementing Board objectives. Exco s responsibilities include: monitoring operational and financial performance; assessing and controlling risk; prioritising and allocating resources; developing and implementing strategy, operational plans, policies, procedures and budgets; and developing a strategy and suitable policies for the management of stakeholder relationships. Exco meets monthly with ad hoc meetings when necessary. P Steyn, Dr V Cogho, F de Waal and P Khoza, who are all senior general managers within the Group, attend all Exco meetings by invitation on a permanent basis. Operations Committees (Opco) To assist with the management of the operations, Operations Committee s for both Optimum Collieries and Koornfontein Mines were formed. Both Opco meetings are chaired by the Chief operating officer who provides feedback at the Exco meetings on a monthly basis. Optimum Community Trust Trustees Dr M Kwini (chairman), J Mahlangu, F Selolo (appointed 1 March 2010), O Ntuli (resigned 1 March 2010) The Optimum Community Trust was established by Optimum Coal as a BEE shareholder and has an independent legal status. It is represented in its affairs by the body of trustees comprising two community members and two representatives from Optimum Coal. The management and the administration of the Trust vest in the trustees who are principally responsible for: identifying and selecting socio-economic projects; setting the rules governing the selection and implementation of projects; employment of trust staff and appointment of advisers; management of trust finances and accounts; and communication with beneficiaries. Optimum Employee Benefit Trust Trustees MS Teke (chairman), HC White (resigned 30 April 2011), M Mtupha, P Mnguni, EO Monkoe (resigned 19 April 2010), AP Nkuna (appointed 1 March 2011) The Optimum Employee Benefit Trust was established by Optimum Coal to enable members to participate in a broad-based socio-economic empowerment initiative by acquiring, holding and administering shares and by distributing benefits derived from shares held in the Trust to members from time to time in accordance with the provisions of the Trust Deed. The Trust has an independent legal status and is represented in its affairs by a body of five trustees. Trustee meetings take place twice a year and the management and control of the Trust vest in the trustees. Optimum Mine Rehabilitation Trust and Koornfontein Mine Rehabilitation Trust Trustees MS Teke (chairman), Dr V Cogho, TI Borman, A Mgadza BHP Billiton representative (resigned 20 June 2011), M Forbang BHP Billiton representative (appointed 20 June 2011) 69

72 corporate governance The Optimum Mine Rehabilitation and the Koornfontein Mine Rehabilitation trusts were established solely for the rehabilitation of the mines upon premature closure, decommissioning, final closure and for post-closure to cover any latent and residual environmental impacts. The trusts comprise four trustees and meetings take place twice a year and the management and control of the Trust vest in the trustees. Board education and induction Board education is ongoing. The Board as a whole is kept abreast of all applicable legislation and regulations, changes to rules, standards and codes and is regularly updated and informed of relevant developments in the mining sector which could have an impact on the Group and its operations. Induction includes a briefing on fiduciary and statutory duties and responsibilities in terms of the Companies Act and the JSE Listings Requirements. Board members may consult with independent professionals at the Company s expense should they wish so. Group company secretary The Board considers the Group company secretary qualified to perform her duties in accordance with applicable legislation, and fit and proper for the position. The secretary is a central source of guidance and provides advice to all directors where required to do so. She ensures compliance with applicable procedures and legislation and oversees the induction of new directors, and ongoing education of directors. The Group company secretary is responsible for the duties as specified in section 88 of the new Companies Act 71 of 2008, as amended. Related party transactions The Company has a process in place whereby the directors and key management have confirmed that, to the best of their knowledge, the information disclosed in Optimum Coal s annual financial statements fairly represents their shareholding in the Company, both beneficial and indirect, interest in share options of the Company and the compensation earned from the Company for the financial year. In addition, the directors and key management have confirmed that all interests have been declared. Dealings in securities No director or employee with inside information about the Group may deal, directly or indirectly, in Optimum Coal s securities, which include allocations of and dealings in the Group s share incentive schemes. The Board has determined closed periods from the end of the relevant accounting period to the announcement of the interim or year-end results, during which neither directors nor employees may deal, either directly or indirectly, in the shares of the Company. In addition, the Group has adopted a policy requiring directors and the company secretary to obtain permission from designated individuals before trading in Optimum Coal s securities. Directors and employees may also not deal, either directly or indirectly during prohibited periods as stipulated by the JSE and the Companies Act. Shareholder relations Effective and ongoing communication with shareholders is fundamental to create shareholder value. Optimum Coal communicates regularly with shareholders and other stakeholders regarding its financial and operational 70

73 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / performance and strategy. The Company meets with interested institutional and private investors on a regular basis, and participates in conferences and road shows both locally and internationally. Shareholders are encouraged to attend the Company s AGM, where their interaction and input is welcomed. All presentations and announcements are available on the website. Ethics Optimum Coal has an Ethics Policy in place to ensure and encourage ethical behaviour among directors of Optimum Coal companies, trustees and/or representatives appointed and serving on Optimum trusts, employees, consultants and contractors. The policy outlines: confidentiality and disclosure of information; conflicts of interest; the acceptance of donations and gifts; protection of intellectual and Company property; and the disciplinary action to be taken in the event of contravention. At the Transformation Committee meeting held in August 2011 it was decided to integrate the Social & Ethics Committee into the Transformation Committee and in view of the fact that the terms of reference of this committee corresponds substantially with the requirements in the Act, the name of the committee was changed to the Sustainability, Transformation and Social & Ethics Committee. Whistle-blowing Internal audit is responsible for the management and review of the Group s whistle-blowing process. Processes and procedures have been implemented whereby staff may, in confidence, raise concerns regarding possible irregularities in the Company. A whistle-blowing toll-free helpline is in place to facilitate the confidential reporting of alleged incidents. There is a process in place to conduct independent investigations on matters reported. A detailed progress report is tabled quarterly at the Audit and Risk Management Committee. The Committee is satisfied that all reported cases have been appropriately dealt with during the period under review. IT governance Information technology governance forms part of the overall Corporate Governance Strategy. The primary goal of IT governance is to assure that the investments in IT generate business value, and to mitigate the risks that are associated with IT. This area is the responsibility of Group IT, the IT Steering Committee and the Audit and Risk Management Committee. In March 2011, the Company compiled a detailed IT functional risk register, depicting all prevalent IT risks and the accompanied exposure level. Approved at ARMCO and incorporated into the overall risk register, this register enables Group IT to concentrate and align, specifically, in mitigating the identified risks. During 2010, PWC and KPMG undertook extensive system audits, both from an IT (security and database management) and SAP (configuration and authorisation) perspective. To date, 90% of the findings have been mitigated and the other 10% are in the process of being addressed. The focus of Group IT is to complete the remaining 10% during

74 corporate governance Risk register Ranking Risk Cause Impact Mitigation 1 Coal demand and pricing 2 Foreign exchange 3 Health, Safety and Environment 4 Logistics infrastructure Decline in coal demand and weakening of US$ coal price Strengthening of the ZAR Fatal injuries, environmental damages, irresponsible corporate citizenship Insufficient rail to transport export coal to RBCT 5 Cost control Inadequate supplier management and lower than expected production, resulting in higher than expected costs per ton 6 Legal and regulatory 7 Project development 8 Social and community 9 Group financing Not obtaining required licensing and/or BEE level Late delivery of projects: Licensing not obtained Late or non-acquisition of surface rights Non-availability of electricity and water Late procurement of mining rights Irresponsible corporate citizenship and inability to procure and maintain employee skills Adverse economic conditions could impact group s profitability and cash flow Adverse effect on export revenues, EBITDA and cash flow Adverse effect on ZAR denominated export revenues, EBITDA and cash flow Negative impact on mining operations, increase in liabilities and damage to corporate reputation Loss of revenue, stock build and cash flow deferral Lower EBITDA and reduced cash flow Mining activities being limited and nonqualification for coal new supply off-takes Slower than anticipated growth ramp up affecting anticipated profitability Damage to corporate image and negative impact on operations and subsequent Company performance Inadequate cash available to service growth requirements as well as debt Opportunistic hedging philosophy, alternative inland suppliers, optimising export volumes. Currently none. Appropriate safety management systems, reduction of rehabilitation backlog, water treatment, remain within legislative requirements. Negotiating long-term agreement with TFR, alternative inland markets, obtaining access to additional RBCT entitlement. Dedicated working team in place. Regular review meetings. Active supplier management strategy. Ensure licences are obtained timeously. Complete database of licences and retain at least current Level 4 BEE rating. Legal team in place. Robust project management process and proactive risk management Remain within legislative requirements including the Mining Charter and DTI BEE requirements. Talent management plan with critical talent management retention strategy. Robust cash management plan and group debt facilities currently being re-financed into R2.2 billion revolving credit facility. 72

75 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Stakeholder engagement Stakeholder group Engagement method/forum Frequency Stakeholder issues raised during the year Our response Shareholders AGM Analysts site visit Annually Twice a year Wanted clarity and comfort on production performance, cost containment, corporate governance and growth strategy Investor road shows and individual sessions with shareholders are held on a regular basis as the need arises and these issues are addressed there. Communities members of the communities that fall within the Steve Tshwete Local Municipality, and the surrounding Emalahleni area Optimum Coal Community Trust AGM Interested and affected parties meeting Optimum Coal Community Trust Working Committee meetings Annually Annually Quarterly No issues logged as there was no AGM Enquiries relating to the Water Treatment Plant. Additional info shared included the Community Grievance Procedure Enquiries relating to underground mining activities Company secretariat sought waiver of AGM. Process and preventative measures in place were communicated in the forum. Specific details were sought outside the meeting and facilitated through the respective process owners. ALZU relocation Steering Committee Throughout project lifecycle and on an ad-hoc basis as and when issues arise Other issues are raised and resolved on ad-hoc basis, such as how to access CSI and/or Community Trust funding, supply chain and employment opportunities Transformation manager holds regular engagements with the education authorities and local government engagement and consultation forums. Employees 360º leadership survey Roadshows Production and safety meetings As and when the need arises Monthly Payment of dividends into Employee Trust Acknowledge good performance Bonus system not attractive Business training courses Production and safety meetings Key suppliers Transnet Freight Rail (TFR) Verbal, written, personal Daily logistical and ad-hoc strategic liaison General TFR railing performance Rail rate increases on the export coal line to RBCT Rail shutdown Long-term contractual matters In line with the rest of the export coal industry, we were affected by the 20-day TFR rail maintenance shutdown in June 2011 and have consequently built up substantial on-mine export stock. TFR railings have now normalised and our on-mine export stocks are reducing. With TRF s expansion programme approved and underway, and with increased TFR rail rates now implemented and improvement in TFR s railings performance is expected in the coming year. 73

76 corporate governance Stakeholder engagement Stakeholder group Engagement method/forum Frequency Stakeholder issues raised during the year Our response Customers Eskom Operational meetings Strategic sessions Off-take opportunity discussions Monthly Ad-hoc Ad-hoc Arbitration settled Abrasive Index Optimum growth plans at Koornfontein Mines and at greenfields projects Plan to work with Eskom to improve Abrasive Index. Want to engage with Eskom on further off-take projects subject to them being value enhancing. Discussions with Eskom re potential further suppliers of coal. BECSA and telephone interaction Market updates Daily Typically quarterly Ramp-up in export coal production at Optimum Collieries TFR railings tempo from Optimum Collieries Boschmanspoort now stabilising with consistent production. Kwagga ramp-up on time with budget increasing exportable tonnages consequently to be produced. TFR railings critical. OCM is totally reliant on TFR railing performance to ensure deliveries in terms of contractual obligations. Mecuria and telephone Revenue optimisation meetings Daily Every second month Life of mine (LOM) of Gloria 2 Seam production Sustainability of TFR railings performance Export and inland coal market opportunities Gloria 2 Seam to be mined at current run rates until approximately FY15 whereafter TNC tonnages will extend high-quality export life. Continuously assess export qualities, middlings, coal buy-in and briquetting opportunities. RBCT Optimum Coal is a shareholder of RBCT and executives attend Board and committee meetings Optimum Coal has representation on the RBCT FINCO and OPCO Quarterly meetings Quarterly meetings Completion of phase 5 operating expansion programme enabling up to 91 million tons (this is not fully utilised due to current rail constraints) Operational challenges at RBCT including stacker reclaimer maintenance To work with RBCT and TFR to improve overall efficiencies and to ensure that our export coal is timeously railed and exported. 74

77 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Stakeholder engagement Stakeholder group Engagement method/forum Frequency Stakeholder issues raised during the year Our response Unions National Union of Mineworkers United Workers Union of South Africa Joint Forum Area Forum Transformation Forum EE and SD Forum Contractors Forum Lekgotla meeting Monthly Monthly Quarterly Quarterly Quarterly Quarterly Transformation Training and Development Consider the laboursending areas regarding development New housing stands Tendering process Company procedure and policy Succession planning being formalised Request to be formalised Will investigate Union part of tendering process To be strictly applied Government and regulators: Chamber of Mines Environmental Policy Committee (EPC) Optimum is a member of the EPC Committee and meetings are held monthly on issues and proposed legislation that affect mining industry Monthly Dual approval of applications which is done by both DME and DEA on environmental impact assessments Until the matter is resolved between the departments, Optimum sends its documents through to both departments for approval. Department of Mineral Affairs (DMR) As and when the need arises Ad hoc Engagements were related to the regulatory processes on Optimum projects and EMPs Clarity and submission of additional information. Department of Agriculture, Forestry and Fisheries As and when the need arises Ad hoc Regulatory issues Department of Environmental Affairs As and when the need arises Ad hoc DEA s compliance section visited the Optimum Water Treatment Plant s waste disposal site, i.e. the sludge and brine dams The team was taken through the infrastructure and the monitoring and management process of the dams. Department of Water Affairs As and when the need arises Controlled release scheme (for all participating mines and power stations) Ad hoc Monthly Engagement on water use licence applications approvals Water quality issues in the catchment area in which Koornfontein operates DWA is in the process of investigating the matter and will provide feedback to the mine. Department of Labour Site visits As and when required None N/A 75

78 independent assurance report on selected sustainability information To the directors of Optimum Coal Holdings Limited We have undertaken a limited assurance engagement on selected sustainability information, as described below and presented in the 2011 integrated annual report (the Report) of Optimum Coal Holdings Limited (Optimum Coal) for the year ended 30 June We have complied with the International Federation of Accountants Code of Ethics for Professional Accountants, which includes comprehensive independence and other requirements founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Our engagement was conducted by a multidisciplinary team of health, safety, social, environmental and assurance specialists with extensive experience in sustainability reporting. Level of assurance on selected sustainability information We are required to provide limited assurance on the following key performance indicators prepared in accordance with Optimum Coal s internally developed guidelines, marked with a LA on the relevant pages of the Report: Employment Equity Indicators (Optimum Coal) HDSA percentage representation in supervisory and managerial positions, women in mining as a percentage of total employees, women as a percentage of total employees and ownership and joint ventures HDSA percentage. Social Performance Indicators Socio-economic development (SED) spend (Optimum Collieries, Koornfontein and Optimum Community Trust) and total training spend (Optimum Collieries and Koornfontein). Environmental Indicators (Optimum Collieries and Koornfontein) Direct energy consumption (gigajoules), indirect energy consumption (gigajoules), carbon footprint scope 1, carbon footprint scope 2, total potable water consumption, total waste generated, waste disposed (by category slurry, discard and hazardous), number of environmental incidents, rehabilitated area green grass and rehabilitated area- spoil levelling. Health and Safety Indicators (Optimum Collieries and Koornfontein) Number of new silicosis cases, number of new TB cases, number of new noise induced hearing loss (NIHL) cases, employee and contractor lost time injury frequency rate (LTIFR), employee and contractor total recordable injury frequency rate (TRIFR) and employee and contractor work related fatalities. Directors responsibilities The Directors are responsible for the selection, preparation and presentation of the sustainability information, the identification of stakeholders and stakeholder requirements, material issues, for commitments with respect to sustainability performance, and establishing and maintaining appropriate performance management and internal control systems from which the reported information is derived, and for such internal control as the directors determine is necessary to enable the preparation of the integrated annual report that is free from material misstatement, whether due to fraud or error. The Directors are also responsible for the selection and application of the criteria, which are Optimum Coal s internally developed guidelines, to the selected sustainability information. Our responsibility Our responsibility is to express a limited assurance conclusion on the selected sustainability information based on our work performed. We conducted our engagement in accordance with International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements other than the Audits or Reviews of Historical Financial Information, issued by the 76

79 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / International Auditing and Assurance Standards Board. That Standard requires that we plan and perform our engagement to obtain limited assurance about whether the selected information is free from material misstatement. Our procedures and the extent of our procedures depend on our judgement including the risks of material misstatement of the selected sustainability information. In making our risk assessments, we considered internal control relevant to Optimum Coal s preparation of the Report. In a limited assurance engagement, the evidence gathering procedures are less than where reasonable assurance is expressed. We believe the evidence we have obtained is sufficient and appropriate to provide a basis for our limited assurance conclusion. Summary of work performed Our work included the following evidence gathering procedures: Interviewing management to obtain an understanding of the internal control environment, risk assessment process and information systems relevant to the sustainability reporting process. Inspecting a sample of selected supporting documentation and performing analytical procedures. Evaluating whether the information presented in the Report is consistent with our overall knowledge and experience of sustainability management and performance at Optimum Coal. Limitation of liability Our work has been undertaken to enable us to express a limited assurance conclusion on the selected sustainability information to the Directors of Optimum Coal in accordance with the terms of our engagement, and for no other purpose. We do not accept or assume liability to any party other than Optimum Coal for our work, for this report, or for the conclusion we have reached. KPMG Inc. Registered Auditor Per N Morris Chartered Accountant (SA) Director 26 September Albany Road Parktown South Africa 2193 Conclusion Based on our work performed, nothing has come to our attention that causes us to believe that the selected sustainability information set out above, for the year ended 30 June 2011, is not prepared in all material respects in accordance with Optimum Coal s internally developed guidelines. 77

80 FINANCIAL STATEMENTS 78

81 / OVERVIEW / STRATEGY / PERFORMANCE / LEADERSHIP AND GOVERNANCE / FINANCIAL STATEMENTS / OTHER INFORMATION / Statement of directors responsibilities 80 Approval of the consolidated and separate annual financial statements of the Company 80 Audit and Risk Management Report 81 Independent auditor s report 84 Certificate by company secretary 85 Directors report 86 Remuneration report 89 Statements of comprehensive income 94 Statements of financial position 95 Statements of changes in equity 96 Statements of cash flow 97 Notes to the annual financial statements 98 OTHER INFORMATION Shareholder information 139 Shareholders analysis 140 Non-GAAP disclosure 141 Notice of annual general meeting 145 Glossary of terms 150 Form of proxy 151 Notes to proxy 152 Corporate details