Palabora Mining Company Limited

Transcription

1 Palabora Mining Company Limited Integrated Annual Report 2009

2 Palabora, with its major shareholder Rio Tinto, is committed to the principles and operating practices of sustainable development and has adopted the triple bottom-line approach to managing its operation Forward-looking statements Certain statements contained in this document other than statements of historical fact contain forward-looking statements regarding Palabora s operations, economic performance or financial conditions, including, without limitation, those concerning the economic outlook for the copper mining and our joint- and by-products industries, expectations regarding copper prices, production, total cash costs and other operating results, growth prospects and the outlook of Palabora s operations. Although Palabora believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government actions, fluctuations in copper prices and exchange rates, and business and operational risk management. Palabora is not obliged to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of the Annual Financial Statements or to reflect the occurrence of unanticipated events. All subsequent written or oral forward-looking statements attributable to Palabora or any person acting on its behalf are qualified by the cautionary statements herein. For more information visit

3 Palabora Mining Company Limited Contents Company overview IFC Forward-looking statements 2 Mission statement and Group operations in brief 3 Group highlights 4 Board of directors 6 Executive management 8 Chairman s report 10 Review by the Managing Director 11 Chief Financial Officer s letter 12 Group financial analysis 14 Corporate governance 19 Statement by the Company Secretary 20 Report of the audit committee Operations review 22 Operations review Company overview Operations review Sustainable development review in summary Sustainable development review Annual financial statements 48 Annual financial statements 100 Analysis of shareholders 101 Selected data Financial and statistical 103 Selected data Production 107 Ore reserves and mineral resources overview 109 Notice to members 111 Shareholders diary 111 Addresses 112 Definitions Inserted Proxy form Annual financial statements Palabora integrated annual report

4 Mission statement Palabora Mining Company Limited extracts and beneficiates copper, magnetite and vermiculite from its mines in the Limpopo Province. It is the primary aim of the Company, a member of the worldwide Rio Tinto Group, to achieve excellence in all aspects of its activities and to develop the Company s resources and assets in a socially and environmentally responsible way for the maximum benefit of its shareholders, employees, customers and the community in which it operates. It is the Company s firm belief that efficient and profitable operations go hand-in-hand with high quality products and comprehensive and effective safety, health and environmental protection programmes. Group operations in brief Palabora Mining Company is South Africa s major producer of refined copper. Products The primary product of the Company is copper rod. Joint products include magnetite and by-products include nickel sulphate, anode slimes and sulphuric acid. The Industrial Minerals division produces and markets vermiculite. Operations The Copper operation is comprised of an underground mine, a concentrator, a copper smelter with anode casting facilities and an associated acid plant, an electrolytic refinery tank house, a rod casting plant and joint- and by-product recovery plants. The Magnetite operation consists of a stock pile greater than 200 million tonnes and the Vermiculite operation comprises an open pit mining operation and recovery plant. Subsidiaries in the United States of America, the United Kingdom and Singapore are responsible for the sale and marketing of vermiculite. Production perspective Material mined (million tonnes) Copper produced (thousand tonnes) 2 Palabora integrated annual report 2009

5 Group highlights Financial R million Sale of products Profit before net finance cost and tax (EBIT) Cash flow from operating activities Net profit Headline earnings Shareholders equity Capital expenditure Performance per share Cents per share Basic and diluted earnings Headline earnings (note 14) Final dividends (declared) (note 39) Market price: High Low Production Metric tonnes Material mined Ore milled Concentrate produced (copper content) Cathode produced Sales Metric tonnes Copper sold Permanent employees at 31 December All tonnes referred to in this report are metric tonnes. Sales of product (Rm) Net profit (Rm) Headline earnings (Rm) Cash and cash equivalents Company overview Palabora integrated annual report

6 Board of directors Matthew D Gili Charles A Asubonten Executive directors Matthew D Gili (41) was appointed to the position of General Manager Underground Operations in January 2005 and General Manager Operations in charge of the Underground, Concentrator and Vermiculite in October He was appointed as Managing Director on 1 March Mr Gili has been with Rio Tinto for 11 years, prior to joining Palabora as Mine Manager at Kennecott Greens Creek Mine. Before joining Rio Tinto, Mr Gili worked in various North American operations for Hecla Mining Company. He holds a BSc degree in Mine Engineering and is a registered Professional Engineer (USA). Charles A Asubonten (47) was appointed chief financial officer and executive director on 27 July Mr Asubonten, formerly a finance executive at DTE Energy in Detroit, USA, joined Rio Tinto in 2006 with more than 15 years of increasing accounting and financial leadership experience from Fortune 500 companies including Ford Motor Company and The Dow Chemical Company. He started his professional career as an auditor with KPMG. Mr Asubonten earned an MBA in Finance and Corporate Strategy from the University of Michigan and a BBA in Accounting from North Carolina Central University. He also served on numerous civic and community boards in the Detroit area. Mr Asubonten is a Certified Public Accountant (USA) and a Chartered Financial Analyst charterholder. Mr Asubonten s secondment contract as chief financial officer from Rio Tinto to the company ended on 31 December Clifford N Zungu Johan C Posthumus Non-executive directors Clifford N Zungu (54) was appointed an independent non-executive director in April 2002 and Interim Chairman in March His career to date has been in marketing and service-driven corporations. He has held various positions with BP Southern Africa, CG Smith Sugar, Engen Petroleum and Avis Rent a Car. He is currently General Manager People Management for Zurich Insurance Company South Africa. Mr Zungu has a BCom degree from the University of Zululand and attended the Graduate Advancement Programme at Wits Business School in 1982, the Industrial Relations Development Programme at the Stellenbosch School of Business Leadership in 1991 and the Advanced Executive Programme at the Unisa School of Business Leadership in Johan C Posthumus (54) was appointed a non-executive director on 27 January He has worked for the Anglo American Group for more than 30 years in a number of financial and marketing positions. He is based in Johannesburg, where he is responsible for coordinating the base metals marketing function and certain administrative and financial functions. Mr Posthumus is a member of various management committees and boards of certain of Anglo American s southern African operations. He holds a BCom degree from the University of the Free State and completed an Advanced Management Programme at a business school in France. Mr Posthumus resigned as nonexecutive director, effective 5 February Palabora integrated annual report 2009

7 Board of directors continued... Shelley Thomas Kay Priestly Kay Priestly (54) was appointed non-executive director on 1 January Ms Priestly has over 30 years of diverse financial and management experience. Ms Priestly is currently Chief Financial Officer for the Rio Tinto Copper Group. She joined the Rio Tinto Group in 2006 as Chief Financial Officer for Kennecott Utah Copper, the second largest copper producer in the United States. Ms Priestly is a certified public accountant and is a member of the American Institute of Certified Public Accountants. She graduated Summa Cum Laude from Louisiana State University with a Bachelor of Science degree in accounting. Lindsay Kirsner (42) was appointed as a non-executive director on 1 August Mr Kirsner has in excess of 19 years mining industry experience in a range of roles in mineral exploration, business development, resource development and projects. He is a citizen of both Australia and the UK and is currently resident in Australia. Mr Kirsner holds a science degree (geology and chemistry) and an MBA, both from the University of Melbourne, and has been with the Rio Tinto Group since Presently, he holds the role of Mining Executive, Copper. Lindsay Kirsner Alternate directors Jo-Ann Yuen (39) was appointed as an alternate nonexecutive director to Ms Priestly on 21 September Mrs Yuen is Australian, was based in Rio Tinto s London office from 2003 to March 2008 and has been based in the US since April She has had previous Finance and Accounting roles with Borax and Dampier Salt (both Rio Tinto businesses). She is a chartered accountant and holds commerce and business administration degrees from the University of Western Australia, together with a diploma in applied finance from the Securities Institute of Australia. Jo-Ann Yuen Coen HM Louwarts Shelley Thomas (43) was appointed an independent non-executive director on 7 May Ms Thomas established a consulting firm, Shelley Thomas and Associates, in August 2004 focusing on financial management, internal auditing and systems reviews, investigations and due diligence. She has been a member of the National Lotteries Board since October 1997 and a member of the evaluation, audit, investment and review committees. She was a senior consultant at African Bank Corporation from January to November 2003 and prior to that worked for Ubambo Investment Holdings Limited as Financial Director. Ms Thomas has held a number of financial and auditing positions including partner at Ian Pierce and Partners Incorporated. She is a Chartered Accountant (South Africa). Coen H M Louwarts (37) was appointed alternate non-executive director to Clive Latcham in April Mr Louwarts currently holds the position of Manager Business Analysis for Copper within the Rio Tinto Copper Group. His responsibilities in the role include management of business analysis for Rio Tinto s investments in the operating business of Escondida in Chile and Freeport in Indonesia. He is also a member of the technical committees for these operations. Mr Louwarts holds an MSc in Mining Engineering from Delft University of Technology, I.D.C. from Royal School of Mines London and an MBA from Queensland University of Technology. Company overview Palabora integrated annual report

8 Executive management Management The Company is managed by an executive committee comprising the managing director, Mr M Gili, the acting chief financial officer, Mr B Snyder, and six general managers. M. Bruce Snyder Bill Scheding M. Bruce Snyder (49) was appointed in the interim as acting chief financial officer on 1 January 2010 whilst a comprehensive recruitment process for a suitable candidate is undertaken. Mr Snyder is American and was based in Rio Tinto s Salt Lake City office from He is currently a Business Development Executive of Rio Tinto in the Copper Group. He has had previous Finance, Accounting, Treasury and Investor relations roles with several New York Stock Exchange publicly held real estate operating companies. Bruce holds BBA Accounting and MBA Finance & Investment degrees from the George Washington University. Johan van Dyk Dawid Pretorius Mpho Mothoa Percy McCallum Bill Scheding (50) was appointed to the role of General Manager Copper Processing in June 2009, having previously filled the roles of Technical Director Magnetite business in June 2007 to June 2009, and General Manager Concentrator from August 2004 to June Mr Scheding has been with the Rio Tinto Group for 16 years. Prior to joining Palabora, he was concentrator manager for the Kennecott Greens Creek polymetallic operation in Alaska, and previously as principal consultant for process development and design of the Century leadzinc project in Australia. Prior positions were held in metallurgical development roles in copper, lead, zinc and tin concentrators in Canada (Kidd Creek, Cyprus Anvil) and the UK. Mr Scheding holds a BSc (Hons) degree in Mineral Process Engineering from Camborne School of Mines. Johan van Dyk (50) was appointed Principal Advisor Safety, health, environment and quality (SHEQ) in November 2005 and General Manager of SHEQ and Auxiliary services in December Johan has been with the Rio Tinto Group for nine years, most recently as manager Safety, health, environment and external relations at Northparks Mines in New South Wales, Australia. Johan joined Palabora in 1999 as safety manager and was later appointed as manager Vermiculite operations. He previously worked for Sasol Coal and was Group Safety Manager. He holds a Government Competency Certificate in Mining. Herbert Hanke Mpho Mothoa (37) was appointed to the position of General Manager Concentrator in June Mr Mothoa has been with Palabora for 10 years. He worked in various line management roles which included Superintendent Heavy Minerals Plant, Superintendent Vermiculite Plant and Superintendent Mill Operations before being appointed as Manager Concentrator Operations in Prior to Palabora, Mr Mothoa worked for Mintek as metallurgical research and development technician. He is a Chemical Engineering graduate from Tshwane University of Technology. He has also completed an Emerging Leaders Programme at London Business School in the United Kingdom. 6 Palabora integrated annual report 2009

9 Executive management continued... Dawid Pretorius (41) was appointed to the position of General Manager Underground and Vermiculite Operations in May Mr Pretorius has been with Palabora for five years. He joined the Company as Manager Technical at Underground and has 16 years of experience in geology exploration, mine geology and mining. Mr Pretorius holds a BSc Honours Degree in Geology from North West University and MSc Degree in Mineral Resource Throughput Management from the University of the Free State. He is a registered member of the Geological Society of South Africa and Southern African Institute of Mining and Metallurgy. Percy McCallum (49) was appointed to the position of General Manager Human Resources in April Mr McCallum previously worked over a period of 25 years for the De Beers Group in senior/executive positions with experience in strategy, human resources management, projects business turn-around, productive and competitive human resources. He holds a BA Law degree from the Western Cape University and a Higher Diploma in Personnel Management from Wits Business School. Herbert Hanke (57) was appointed to the position of General Manager Marketing, Sales and Logistics in November He has been with the Rio Tinto Group for 30 years and Palabora since November 1999 where he previously filled the manager roles in the Smelter, Refinery, Engineering and Marketing. Mr Hanke was previously employed at Rössing Uranium, where he held the positions of Senior Manager Mining and Senior Manager Processing. Mr Hanke holds a BSc (Eng) Electrical degree from the University of Pretoria. He also holds an MDP diploma from the University of Cape Town Business School. He is a member of the South African Council for Professional Engineers (SACPE) and the South African Institute of Electrical Engineers (SAIEE). Keith N Mathole Company secretary Keith N Mathole (34) was appointed company secretary in August 2004 having previously filled the role of assistant company secretary at the State Information Technology Agency from 2002 to Mr Mathole was senior consultant, Corporate Actions at Georgeson Shareholder Communications from 2000 to 2002 and prior to that held a position of audit consultant at Seroto Consulting from 1990 to Mr Mathole also serves as principal officer and secretary of the Palabora Pension Fund and Chairman of the Peer Group Educators on HIV and AIDS. He is a Chartered Secretary and an Associate of the Institute of Chartered Secretaries and Administrators (ACIS) and a Fellow of the Chartered Institute of Business Management (FCIBM). Company overview Palabora integrated annual report

10 Chairman s report The spirit of togetherness, commitment and dedication that have become our hallmarks over the last five years remains unchanged new safety strategy was launched during the year focusing on leadership, best practices on site, employee commitment to safety, increased communication and rewarding for good safety performance. The safety performance showed a significant improvement during 2009, the top-down drive and commitment from management and their teams in terms of safety has resulted in increased safety awareness amongst the workforce, including contractors and suppliers. The Lost Time Injury Frequency Rate, a statistic we use to measure our safety performance decreased from 0,33 in 2008 to 0,29 in The All Injury Frequency Rate, another statistic used to manage safety, decreased significantly from 0,88 in 2008 to 0,50 in Palabora is optimistic that with commitment, dedication and participation of its employees, contractors, vendors and associated members in its safety efforts, it will be able to attain a targeted additional 20 per cent reduction in all injuries during Chairman C N Zungu Dear stakeholder A year of challenges The past year was a challenging year for Palabora one in which we believe we reacted swiftly to the challenges brought by the global economic downturn. Appropriate steps were taken to preserve cash and to safeguard assets against any adverse consequences from the global financial crisis. Net Cash increased by 737 million rand from 555 million rand in 2008 to million rand in 2009 and the net profit for the year decreased from 720 million rand in the previous year to 284 million rand. This decrease in net profit was primarily due to the global reduction in metals pricing and increased costs which put pressure on our margins. A final cash dividend of 300 million rand was declared for the year under review. Palabora suffered its first fatality in seven years to one of our contractors. This fatality is a reminder that we must be vigilant in our focus on safety and improving our safety performance. Our heartfelt condolences to the family of the deceased. I must commend management and all employees on the manner in which they responded to the fatality. A Board and governance Palabora s commitment to its values of good corporate governance, compliance with the principles of the King II report and the Listings requirements of the JSE Limited has enabled the Company to conduct its business with integrity, transparency, discipline and accountability. In 2010, we will adopt the provisions established in the King III report and will work diligently with management to develop the business to enhance shareholder value. George Negota resigned as a non-executive director and Chairman of the board, with effect from 24 March 2009 and I was asked to chair the board in the interim. Clive Latcham resigned as a non-executive director of the board, with effect from 31 July With effect from 1 August 2009, Lindsay Kirsner was appointed as a nonexecutive director of the board. Philip Robinson resigned as an alternate non-executive director with effect from 18 September Jo-Ann Yuen and Coen Louwarts were appointed as alternate non-executive directors to Kay Priestly and Lindsay Kirsner. Charles Asubonten s secondment contract as Chief Financial Officer from Rio Tinto to the Company ended on 31 December With effect from 1 January 2010, 8 Palabora integrated annual report 2009

11 Chairman s report continued... Bruce Snyder was appointed in the interim as acting Chief Financial Officer whilst a comprehensive recruitment process for a suitable candidate is undertaken. Bruce is American and was based in Rio Tinto s Salt Lake City office from He is currently a Business Development Executive for Rio Tinto in the Copper Group. He has had previous Finance, Accounting, Treasury and Investor relations roles with several New York Stock Exchange publicly held real estate operating companies. Bruce holds BBA Accounting and MBA Finance and Investment degrees from the George Washington University. The board assessed its composition, experience and skill and decided to recruit three independent non-executive directors. Two people have been appointed as independent non-executive directors as detailed below with a search for the third director currently underway. With effect from 11 January 2010, Mr Ray Abrahams and Ms Francine Ann du Plessis were appointed as Independent non-executive directors. Mr Abrahams joins the Company with significant practical experience in operations, design, construction, maintenance and projects within the mechanical engineering fields of opencast mining, petrochemical, utilities and manufacturing industries. He is a member of several professional organisations including the Institute of Directors, Engineering Council of South Africa, Black Management Forum and Future Leaders Forum. Mr Abrahams holds a BSc (Mech Eng) from Wits University and is a registered professional engineer. He also holds Government Certificates of Competency in Mining and Factories from the Departments of Labour and Minerals and Energy respectively. Ms Du Plessis joins the Company with extensive experience as a director. She has held several positions as director as well as serving on board committees in many listed and nonlisted companies including SAA (Pty) Limited, KWV Limited, Sanlam Limited, Naspers Limited. She was admitted as an Advocate of the High Court of South Africa (Cape Town) in 1994 and she was a Senior Lecturer at the University of Stellenbosch, Department of Accounting, Faculty of Commerce and Department of Commercial Law, Faculty of Law in 1985 to Ms Du Plessis is a qualified Chartered Accountant and holds B Comm (Hons) (Taxation), LLB and B Comm (Law) degrees from the University of Stellenbosch. I thank all the outgoing directors for their valuable contributions and welcome the new directors to the board of Palabora. We look forward to your commitment and contribution towards our transformation for growth and sustainability. Transformation for growth and sustainability Significant progress has been made to conclude the Broad Based Black Economic Empowerment (BEE) transaction. It is presently envisaged that 26 per cent of a newly formed, special purpose subsidiary of Palabora, which subsidiary will acquire all or an appropriate part of Palabora s business under the BEE transaction (the transaction), will be held by a combination of three parties; (i) a consortium of experienced black business leaders, (ii) Palabora employees and (iii) a trust established for the communities of the Ba-Phalaborwa area, with the remaining 74 per cent held by Palabora. George Negota is leading a group of entrepreneurs (the consortium) to hold an equity interest not exceeding 6 per cent. Transformation continued to be one of the focus areas during The implementation of the Social and Labour Plan (SLP) began during Targets have been set for the next five years (2009 to 2013) to improve human resource development and procurement. As part of its SLP, Palabora has chosen three local economic development projects to help the Ba-Phalaborwa municipality in its efforts to improve service delivery, create employment and alleviate poverty. As at the end of December 2009, the Company had 42 per cent of employees from Historically Disadvantaged South Africans and females at professional and management level. Concerted efforts and focus was also made to progress females into the business which resulted in the number of female employees working in the business increasing to 9,3 per cent. Looking ahead The key focus in 2010 will be to continue to work with management on initiatives that grow our assets and enhance shareholder value as follows: Exploration The board approval of 36 million rand to complete phase II drilling to access the remaining copper ore body and assess the potential economic impact of a second lift in the underground operation; Magnetite Initial studies are being completed to determine viability of expanding the magnetite business. This is in response to growing worldwide demand of iron ore; and Operations Initial feasibility studies to access improvements to the Concentrator, Smelter, Refinery and Rod plant to increase performance and efficiency. Finally, we look forward to completing the BEE transaction and welcoming our new partners as owners in Palabora. Appreciation I thank all the members of the board for their insight and guidance during the year and congratulate the management team for steering the ship under difficult conditions. We look forward to the year ahead. C N Zungu Chairman 29 April 2010 Company overview Palabora integrated annual report

12 Review by the Managing Director With safety interventions and continued dedication at all levels, all injuries reduced significantly by 50 per cent The year that was Looking back at 2009, the year started out bleak indeed. In the middle of a global financial crisis we saw significant price declines in all of our major commodities. I am pleased to be able to inform you that we finished the year as strong as ever. Copper production remained consistent and we saw a gradual price increase throughout the year. The star performer for the year proved to be magnetite, with ever increasing demand for our product in the Asian markets. This increased demand led to a greater than 35 per cent increase in our magnetite sales for Safety performance in 2009 continued to be challenging. While overall we are proud of our safety culture and leadership at Palabora, we did experience a fatal accident to a contractor during March. Palabora is saddened by the fatality and management continues to focus its efforts to ensure a safe working environment by increasing management visibility and continued engagement and education of the work force about accepting personal responsibility towards safety. With safety interventions and continued dedication at all levels, all injuries reduced significantly by 50 per cent compared to the previous year (21 in 2009 vs 43 in 2008). The All Injury Frequency Rate (AIFR) declined from 0,88 in 2008 to 0,50 in Our safety leadership has progressed to the point where we no longer measure ourselves only on Lost Time Injuries (LTIs) but rather on any injury requiring medical treatment. Strong supervisory leadership is fundamental to improving safety and this is where our focus is firmly embedded in The net profit for the year decreased significantly from 720 million rand in the previous year to 284 million rand, or 587 cents per share for 2009 compared with cents per share in Headline earnings per share also decreased from cents per share in 2008 to 598 cents per share in Palabora s profit in 2009 demonstrated our ability to adapt our operating strategy to manage our business successfully in spite of the global economic crisis. We are also in the process of acquiring new partners in our business, having signed a Framework Agreement with our Broad Based Black Economic Empowerment (BBBEE) partners in April Our new partners will be a collaboration of employees, the local tribal communities and a group of business entrepreneurs led by our previous Chairman, Mr George Negota. We are busy finalising the details of the transaction but are pleased that the partnership embraces the true spirit of HDSA empowerment and will reach virtually every citizen of the Ba-Phalaborwa municipality. The Palabora Foundation continues to deliver to its vision of providing exemplary educational and health care opportunities to our citizens. In addition to the work done by the Foundation, we have included local economic development projects that are already having a significant effect. The Palabora Foundation is recognised world-wide as a leader in sustainable development initiatives and we have been privileged to leverage off their expertise in developing the skills of our citizens and future employees. Going forward, we have not allowed the short-term decline in metal prices to impact our long-term vision. Significant copper mineralisation exists past our current mine plan and we are aggressively drilling and analysing methods to exploit this resource. Additionally, we are in possession of a magnetite reserve of greater than 200 million tonnes. With the growing demand from Asia for iron ore, we are in cooperative discussions with our logistic providers in order to increase our export tonnage. Finally, we are assertively developing our most important resource and that is the employees of Palabora and the citizens of the Ba-Phalaborwa community. The continued development and growth of the Palabora business is our first priority and we look forward to many successes in Matt Gili Managing Director 29 April Palabora integrated annual report 2009

13 Chief Financial Officer s letter Our commitment to financial discipline will bolster our successes in the coming year 2009 A year of two halves 2009 can best be described as a tale of two halves. The first half, which was characterised by weak demand and low product pricing due to the unprecedented global economic crisis, had a profound impact on 2009 financial results as compared to With improving economic conditions during the second half of 2009 the mining sector began to slowly recover and Palabora s financial results also began to improve. While we remain cautious about the recovery, we see signs of continued strength in 2010 with rising demand for copper in South Africa and magnetite in Asia. Our financial strategy is to prudently manage our balance sheet with a sharp focus on working capital management, maintaining appropriate levels of debt and cash reserves. We will continue with our efforts on reducing operating costs in order to optimise our financial position and continue to pursue growth through disciplined capital expenditure in an effort to increase shareholder returns. Key accomplishments: Net cash increased by 737 million rand from 555 million rand in 2008 to million rand in 2009; Dividends declared increased per share from 82 cents in 2008 to 785 cents in 2009; and Fully repaid the 80 million rand outstanding balance on the senior term facility. Prices The effect of price movements on all of our commodities in 2009 was to decrease earnings by 436 million rand compared with Average US dollar copper prices were 18 per cent lower in 2009 than in Exchange rates There was significant movement in the US dollar during 2009 relative to the Rand. Compared with 2008, on average, the Rand weakened by 1,2 per cent against the US dollar. The effect of the currency movement was to decrease underlying earnings relative to 2008 by 64 million rand. Volumes Total copper sales volume was slightly higher in 2009 at thousand tonnes compared to thousand tonnes in In addition magnetite sales volume increased by 670 million tonnes to 2,569 million tonnes in 2009 from 1,899 million tonnes in 2008 which increased earnings by 74 million rand in 2009 compared with Debt The outstanding balance of 80 million rand on the senior term facility was fully repaid. The outstanding balance on the revolving credit facility totalled 103 million rand. Derivative financial instrument The impacts of the commodity swap contract, sales of copper tonnes hedged, decreased sales revenue by 547 million rand in 2009 as compared to million rand in Only tonnes in 2009 were contractually bound to be hedged as compared to tonnes in The commodity swap contract expires in Broad Based Black Economic Empowerment On 30 April 2009, Palabora signed and submitted a Transaction Framework Agreement bearing the signatures of its empowerment partners to the Department of Minerals and Resources (DMR). Palabora is working with its partners to the transaction to finalise this agreement and present it to shareholders for approval in the first half of As the world begins to recover from the financial crisis, competition by mining companies to supply a growing world with products will substantially increase. As a result, Palabora is committed to executing on its financial strategies to enable the business to effectively compete and in turn drive shareholder value. We thank you for your continued support and as always welcome the opportunity to communicate directly with our shareholders. M Bruce Snyder Interim Chief Financial Officer 29 April 2010 Company overview Palabora integrated annual report

14 Group financial analysis For the year ended 31 December December 2008 Net profit for the year R284 million R720 million Basic earnings per share 587 cents cents Earnings before interest, tax, depreciation and amortisation (EBITDA) R1 128 million R1 308 million Headline earnings (note 14) R289 million R721 million Headline earnings per share (note 14) 598 cents cents Excess cash (excluding hedge) (note 28) R1 292 million R555 million Final dividend per share (declared) 620 cents 82 cents Net profit The net profit for the year decreased from 720 million rand in 2008 to 284 million rand in 2009, or cents per share in 2008 compared with 587 cents per share for Headline earnings per share also decreased from cents per share in 2008 to 598 cents per share in Sales revenue Sale of goods decreased by 352 million rand (6 per cent) to million rand in 2009, mainly as a result of the following: Lower average copper prices realised which resulted in a decrease of million rand in sales (the realised average copper price was 231 USc/lb in 2009 compared with 317 USc/lb in 2008); A decrease of 26 per cent in other by-products sales of 62 million rand from 238 million rand in 2008 to 176 million rand in 2009, mainly due to reduced industrial demand for sulphuric acid; and A decline of 13 million rand in sales due to vermiculite sale volumes decreasing by 3 per cent from tonnes in 2008 to tonnes in These decreases were partially offset by: An increase in sales of 395 million rand as a result of higher magnetite sales volumes. In 2009 magnetite sold were thousand tonnes, a 35 per cent increase compared with thousand tonnes in 2008; Higher magnetite and vermiculite prices increased sales by 319 million rand and 24 million rand respectively. Magnetite prices increased due to changes in terms of sale from Freight-on-Board (FOB) to Cost-Freight- Insurance (CFI)/Cost-Freight-Rail (CFR) for exported magnetite; Higher realised copper premiums increased revenue by 145 million rand; A marginal increase in cathode and copper rod sales volumes from tonnes in 2008 to tonnes in 2009 contributed an additional 83 million rand in revenue; and The weakening of the average SA Rand/US dollar exchange rate for the year from 8,26 in 2008 to 8,33 in 2009 increased sales by 77 million rand. The Group achieved an average realised selling price (post hedge) for copper rod and cathode of R per tonne (2008: R40 426) and R per tonne (2008: R40 433) respectively. The sales revenue was further positively impacted by lower realised hedging losses resulting from the contractual reduction in the swap settlement terms from 42 thousand tonnes of copper in 2008 to 22 thousand tonnes in This resulted in a million rand reduction in the swap settlement costs in Production and sales volumes Copper cathode produced for sale decreased 9 per cent from 75,9 thousand tonnes in 2008 to 69,4 thousand tonnes in Copper sales volumes increased 2,3 per cent from 85 thousand tonnes in 2008 to 87 thousand tonnes in Magnetite sales volumes increased 35 per cent from thousand tonnes in 2008 to thousand tonnes in Acid sales volumes decreased 22 per cent from 109 thousand tonnes in 2008 to 85 thousand tonnes in Cost of sales The Group adopted a cost containment and cash flow preservation strategy in response to the world economic recession. Discretionary spending was curtailed and new labour recruits restricted to critical areas only. The total Group cost of sales increased by 13 per cent, from million rand in 2008 to million rand in The increase in cost of sales was largely impacted by: An increase in cathode purchased. In light of production difficulties faced during the second half of the year, tonnes of cathodes were purchased at a cost of 343 million rand (2008: 753 tonnes of copper cathode at a cost of 49 million rand), of which tonnes were converted into rod and 854 tonnes were sold directly; Increased plant maintenance costs. Plant breakdownrelated expenses increased repairs and maintenance costs by 8 per cent to 645 million rand in 2009 compared with 595 million rand in This was a result of smelter breakdowns, failure on one of the auto mill motors and a breakdown of the north winder drum; 12 Palabora integrated annual report 2009

15 Group financial analysis continued... Employee costs increased by 84 million rand, an increase of 12 per cent. Although a hiring freeze of non-critical positions was imposed, the annual salary increase and retention strategies introduced during the previous financial year impacted on the costs; Depreciation expense (a non-cash charge) increased by 81 million rand compared with the 2008 year, representing a 17 per cent increase from 470 million rand in 2008 to 551 million rand in This is attributed to the additions during the second half of 2008 and during the current year, as well as an escalated depreciation factor based on the lower copper yield as was assessed in the annual ore reserve statement at the end of the previous year; and Increases in power tariffs. The 27 per cent tariff increase by Eskom in July 2009 increased costs by 38 million rand. exchange rate weakened the value of our dollar/rand denominated cash balances declined. Income tax The effective tax rate increased from 13,3 per cent to 37,4 per cent in 2009 mainly as a result of the tax legislation changes (Royalty Act) that impacted the recognition of deferred tax on the State share in Cash flow For the year ended 31 December 2009, the Group recorded net cash inflows of 745 million rand compared with net cash outflows of 175 million rand in 2008, mainly due to lower dividend and tax payments, pension fund surplus received, decrease in investing activities due to the postponement of non-critical capital projects until market conditions improve, and lower repayments on borrowings. Changes in inventory and finished goods and work in progress of 210 million rand in 2009, compared with a credit of 240 million rand in 2008, resulted in an increase of 450 million rand in cost of sales. The Group saved 509 million rand on supplementary copper concentrate purchases due to the lower copper prices paid in addition to the 44 per cent reduction in volumes purchased of tonnes in 2009 compared with tonnes in EBITDA 1 The Group achieved earnings before interest, income tax expense, depreciation and amortisation (EBITDA) of million rand in 2009 compared with million rand in EBITDA is calculated by adding depreciation and amortisation charges to the profit before net finance costs and tax as reported on the face of the income statement. Selling and distribution costs Selling and distribution costs increased by 599 million rand. The increase in the selling and distribution costs from 587 million rand in 2008 to million rand for 2009 is mainly as a result of higher magnetite volumes sold, the change in magnetite shipping terms from FOB to CFI/CFR and increased freight and railage-to-port rates. Administration costs increased by 44 million rand. EBIT 1 The Group s earnings before interest and tax (EBIT) was 577 million rand compared with 838 million rand in 2008, a decrease of 261 million rand. Net finance cost Net finance cost increased by 116 million rand due to higher foreign exchange losses on revaluations of financial instruments, primarily cash and cash equivalents. As the Cash generated from operations during the year totalled million rand. After receiving the pension surplus of 241 million rand, tax payments of 253 million rand, funding the dividend payments of 119 million rand, net investing activities of 111 million rand, repayment of borrowings of 80 million rand, net interest payments of 6 million rand and excluding exchange losses of 97 million rand, the closing cash position was million rand (compared with 747 million rand in 2008). Capital investment of 132 million rand was primarily spent on the underground mine (65 million rand), concentrator (24 million rand) and the smelter (26 million rand). The main capital costs spent in 2009 for the underground mine related to committed development costs of the Western Extension (27 million rand), replacement of four LHDs (15 million rand) and winder costs (14 million rand). The concentrator s main capital projects for 2009 consisted of the construction of the south paddock tailing dams (10 million rand), remedial work at the dams (6 million rand) and improvements to the Magnetite load out and booster station (5 million rand), whilst the smelter s capital costs consisted of statutory replacements of waste heat boilers one and two. The net cash outflow was offset by other investing activities of 22 million rand. The 80 million rand used in financing activities was for the final repayment of the senior term facility. Net cash Net cash increased from 555 million rand in 2008 to million rand in 2009 as a result of an increased emphasis on preserving cash through dedicated focus on the working capital management and efficiency programme. The Company finally received the employer s portion of the pension fund surplus in October 2009, amounting to 241 million rand. 1 The Group utilises certain non-gaap performance measures and ratios in managing the business which may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the reported operating results or any other measure of performance prepared in accordance with IFRS. In addition, the presentation of these measures may not be comparable to similarly titled measures used by other companies. Company overview Palabora integrated annual report

16 Corporate governance Our commitment Palabora Mining Company Limited, a company incorporated in South Africa under the provisions of the Companies Act, 1973, as amended, has been listed on the JSE since Palabora and its subsidiaries (the Group) are committed to the principles of openness, integrity and accountability advocated in the King Report on Corporate Governance for South Africa 2002 (King II) and comply with the additional governance requirements of the JSE and various other legislative requirements. Accordingly, the board continues to take careful note of the recommendations contained in the King II report, as a minimum standard. A great deal of the Group s practices continue to be aligned with these requirements. The board has identified three areas where strict compliance with King II would add little or no value and where alternative workable systems existed: Executive directors remuneration, which is determined according to the holding company s (Rio Tinto plc) scales of remuneration; Directors appointments, which are influenced by the two major shareholders; Rio Tinto plc and Anglo American plc; and Evaluations and risk management, which are managed by the Company s executive committee. The responsibility for risk management still lies with the board. By supporting the King II recommendations, the board has demonstrated its commitment to conduct the affairs of the Group with integrity and in accordance with generally accepted corporate practices. The board places strong emphasis on achieving the highest level of financial management, accounting and reporting. The financial statements are prepared in accordance with International Financial Reporting Standards. The board will be addressing the challenges of the King III recommendations and other new legislative requirements during the 2010 financial year. Application Although the King II recommendations are generally applied to all entities in the Group, it is specifically adopted by Palabora Mining Company Limited, the Company, as the subsidiaries are not material in size. Specifically, the directors report on the matters that follow: Board of directors The Company has a unitary board structure. The board meets on a quarterly basis, retains effective control over the Company and monitors executive management. The board was comprised of seven directors, two executives, three nonexecutives and two independent non-executive directors. Mr George Negota resigned as a non-executive director and Chairman of the board, with effect from 24 March With effect from 24 March 2009, Mr Clifford Zungu was appointed as interim Chairman of the board. Mr Clive Latcham resigned as a non-executive director of the board, with effect from 31 July With effect from 1 August 2009, Mr Lindsay Kirsner was appointed as a nonexecutive director of the board. Mr Philip J Robinson resigned as an alternate non-executive director of the board, with effect from 18 September With effect from 1 April and 21 September 2009, Mr Coen Louwarts and Mrs Jo-Ann S Yuen were appointed as alternate non-executive directors respectively. At 31 December 2009 the Palabora board was constituted as follows: Directors Alternate directors 1. Clifford N Zungu (Chairman) 2. Matthew D Gili (Managing Director)*+ 3. Charles A Asubonten+ 4. Shelley Thomas 5. Johan C Posthumus 6. Kay S Priestly+ Jo-Ann S Yuen^/ Coen H Louwarts# 7. Lindsay W Kirsner^ Coen H Louwarts#/ Jo-Ann S Yuen^ * Executive directors +American ^ Australian # Dutch The following changes occurred since 31 December 2009: Mr Charles A Asubonten s secondment contract as Chief Financial Officer from Rio Tinto to the Company ended on 31 December With effect from 1 January 2010, Mr Marshall Bruce Snyder was appointed in the interim as acting Chief Financial Officer whilst a comprehensive recruitment process for a suitable candidate is undertaken. The board assessed its composition, experience and skill and decided to recruit three independent non-executive directors. Two people have been appointed as independent non-executive directors as detailed below, with a search for the third director currently underway. With effect from 11 January 2010, Mr Ray Abrahams and Ms Francine Ann du Plessis were appointed as independent non-executive directors. Mr Abrahams joins the Company with significant practical experience in operations, design, construction, maintenance and projects within the mechanical engineering fields of opencast mining, petrochemical, utilities and manufacturing industries. He is a member of several professional organisations including the Institute of Directors, Engineering Council of South 14 Palabora integrated annual report 2009

17 Corporate governance continued... Africa, Black Management Forum and Future Leaders Forum. He holds a BSc (Mech Eng) from Wits University, He is a registered professional engineer and also holds Government Certificates of Competency in Mining and Factories from the Departments of Labour and Minerals and Energy respectively. Ms Du Plessis joins the Company with extensive experience as a director. She has held several positions as director as well as serving on board committees in many listed and non-listed companies including SAA (Pty) Limited, KWV Limited, Sanlam Limited, Naspers Limited. She was admitted as an Advocate of the High Court of South Africa (Cape Town) in 1994 and she was a Senior Lecturer at the University of Stellenbosch, Department of Accounting, Faculty of Commerce and Department of Commercial Law, Faculty of Law in 1985 to Ms Du Plessis is a qualified Chartered Accountant and holds B Comm (Hons) (Taxation), LLB, and B Comm (Law) degrees from the University of Stellenbosch. W J (Bill) Abel was appointed a non-executive Director on 5 February He is currently Group Head of Mining for Anglo American. Mr Abel has extensive South African and International surface and underground mining and project experience in a number of commodities. Mr Abel is a Fellow of the Southern African Institute of Mining and Metallurgy (SAIMM) and holds a BSc (Min Eng) from London University and an MBA from Wits University. He is a registered professional engineer and also holds Government Certificates of Competency in Coal and Metal Mines from the Department of Minerals and Energy. Full details regarding changes in the Company s directorate and emoluments paid to directors are disclosed in the directors report on pages 51 to 54. Details of directors presently constituting the board appear on pages 4 and 5. There are no contracts of service between any directors and the Company or any of its subsidiaries that are terminable at periods of notice exceeding one year and requiring payment of compensation. No director holds any shares beneficially or non-beneficially, directly or indirectly in the Company and there are no share option schemes. A third of the directors are subject to retirement by rotation and re-election by shareholders each year in accordance with the Company s articles of association. In addition, all directors are subject to re-election by shareholders at the first annual general meeting following their appointment. The appointment of new directors is approved by the board as a whole. The names of the directors submitted for re-election are accompanied by sufficient biographical details in the notice of the annual general meetings to enable shareholders to make an informed decision in respect of their re-election. The board retains full and effective control over the Group and monitors the executive management. The board is responsible for the adoption of strategic plans, monitoring of operational and financial performance and management, approving capital expenditure, succession planning as well as the determination of policies and processes to ensure the integrity of the Group s risk management systems among other duties. These responsibilities are set out in the approved board charter, which is reviewed annually. The directors believe that they have adhered to the terms of reference as articulated in the board charter for the financial year under review. Details of attendance by directors at board meetings during the financial year ended 31 December 2009 are set out below: Name of director 23 February April July November 2009 G N Negota P NAD NAD NAD C N Zungu A P P P J C Posthumus P P P P S Thomas P P P P M Gili P P P P C A Asubonten P P P P K Priestly P P P A C H Louwarts NAD (Attended by P P P invitation) C J Latcham P A A NAD L Kirsner NAD NAD NAD (Attended by invitation) P Company overview A = Absent with apology P = Present NAD = Not a director at the time Palabora integrated annual report

18 Corporate governance continued... All directors have access to the advice and services of the company secretary, who is responsible to the board for ensuring that board procedures are followed and for ensuring compliance with procedures and regulations of a statutory nature. Directors are entitled to seek independent professional advice concerning the affairs of the Group at the Group s expense, should they believe that course of action would be in the best interest of the Group. Nonexecutive directors remuneration is recommended by either the company secretary or chief financial officer, after consultation with independent advisors on fees prevailing in comparable local companies. Independence of directors The board considers two of its non-executive directors independent. These directors demonstrate complete independence in character, judgement and action in fulfilling their duties. During the year under review, the executive directors with the support of Rio Tinto proposed a BEE transaction for Palabora that would include the three HDSA directors (Messrs Negota and Zungu and Ms Thomas). Mr Zungu declined to participate in the BEE transaction as he wished to remain an independent non-executive director. Mr Negota and Ms Thomas expressed interest in participating in the transaction and as such, recused themselves at the meeting held on 23 February at which meeting their participation was discussed. Subsequent to the meeting, Mr Negota resigned from the board. Ms Thomas expressed interest in participating in the transaction by entering into a separate deal with the Consortium led by George Negota (former Chairman) post the conclusion of the transaction. Ms Thomas continued to recuse herself from all discussions relating to the BEE transaction and was excluded from receiving any information relating to the transaction. Induction and education Palabora recognises that the induction of new directors, as well as the ongoing education of all directors, is critical to ensure that they are kept up to date with new developments and that they are able to effectively discharge their responsibilities within the Company s governance structure as well as the legislative framework under which it operates. During the year, the directors received briefings and presentations by an independent adviser on the new Companies Act and the King III. In addition, the directors received an updated directors manual containing duties and responsibilities of directors, revised JSE listings requirements and other relevant legislative updates. In-committee meetings During the year under review the board held in-committee meetings immediately following the four board meetings. Executive committee The board delegates the day-to-day management of the business of the Group to the managing director assisted by the executive committee. The committee meets weekly to review operations and performance, develop strategy and policy proposals for consideration by the board and to implement its directive. Members of the executive committee at present comprise: the managing director, the interim chief financial officer and six general managers for underground and vermiculite operations; concentrator; copper processing and magnetite; human resources; safety, environmental and quality; and sales, marketing and logistics. The company secretary attends all executive committee meetings. Details of attendance by members of the BAC during the financial year ended 31 December 2009 are set out below: Name of director 28 January April July November 2009 S Thomas P P P P J C Posthumus P P P P C N Zungu P NAM NAM NAM A = Absent with apology P = Present NAM = Not a member at the time Internal control The Group maintains systems of internal control over financial reporting and over safeguarding of assets against unauthorised acquisition, use or disposition, which are designed to provide reasonable assurance to the board of directors regarding the preparation of reliable published financial statements and the safeguarding of the Company s assets. The systems include a documented organisational structure and division of responsibility, established policies and procedures, and the careful selection, training and development of staff. Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the BAC. Corrective actions are taken by management to address control deficiencies and other opportunities for improving the system as they are identified. The board, operating through its audit committee, provides oversight of the financial reporting process. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation and the safeguarding of assets. Furthermore, the effectiveness of an internal control system can change with circumstances. 16 Palabora integrated annual report 2009

19 Corporate governance continued... The Group assessed its internal audit control system as at 31 December 2009 in relation to the criteria for effective internal control over financial reporting and other control areas as set out in the Rio Tinto internal control questionnaire. Based on its assessment, the Group believes that, as at 31 December 2009 and at the date of this report, its system of internal control over financial reporting and over safeguarding of assets against unauthorised acquisitions, use or disposition, met those criteria. Risk management The board is responsible for the total risk management process within the Group. The executive committee is accountable to the board and has established a group-wide system of internal control to manage significant Group risks. This system supports the board in discharging its responsibility for ensuring that the range of risks associated with the Group s operations are effectively managed in support of the creation and preservation of shareholder wealth. The management of risk encompasses all significant risks, including operational risk, which could undermine the achievement of business objectives. The board has approved the level of acceptable risk and requires that operations manage and report in terms thereof. Issues and circumstances which could give rise to material adverse reputational considerations are also considered to be unacceptable risks. Management has outlined the risks below. There may be additional risks unknown to Palabora and other risks, currently believed to be immaterial, could turn out to be material. These risks, whether they materialise individually or simultaneously, could significantly affect the Group s business and financial results. The following areas of risk have been identified and will continue to receive management attention: BEE/Mining Charter On 30 April 2009, Palabora signed and submitted a Transaction Framework Agreement (TFA) bearing the signatures of its Broad Based Black Economic Empowerment (BBBEE) partners to the DMR in Polokwane. The negotiations to finalise terms of the agreement have entered final stages and the new structure is projected to be concluded during One of the key challenges has been to source and secure high level HDSA individuals in key leadership positions. Palabora has been successful in developing these individuals and we currently have an HDSA percentage of 42 per cent in senior roles. Plant, machinery and equipment Management are monitoring and actively seeking solutions to improve efficiencies in the smelter and rod casting plant. Surface subsidence and ore reserves No increase in surface subsidence was experienced during Continuing movements and failure on the north wall is normal as the cave is mined at a rate of 110mm per day. Rio Tinto s Technical Evaluation Group completed a study on the integrity of the Western wall stability with regards to the impact of mining the Western extension on the Foskor infrastructure. The report will be used to make a final decision on the risk if the reserves from the Western extension are extracted using block caving methods. The locked-in reserves could add approximately two and a half years to the current Life of Mine. An Order of Magnitude study on Lift II is currently being conducted with a target completion date set for July Drilling into the Lift II ore body has restarted after being stopped towards the end of HIV/AIDS HIV/AIDS continues to be a real issue with death in service rising during Palabora acknowledges HIV/AIDs as a workplace issue and that it is impacting significantly the Ba-Phalaborwa Municipality in which Palabora operates. Palabora believes that a healthy workforce and good management of community relationships is vital for business success and that this is consistent with Palabora s other contributions to sustainable development. Palabora in conjunction with the Palabora Foundation operates a combined workplace and community HIV/AIDS strategy that demonstrates Palabora s commitment to the good health of employees and contractors, and the communities in which it operates. Palabora will continue to maintain the HIV/AIDS and Health training programme as well as the voluntary counselling and testing programme and the free condom distribution programme. The full time HIV/AIDS and health educator will continue to play a pivotal part in this programme. Business continuity plan On an annual basis, the executive committee reviews a business plan for the following year. Forecasts are also prepared for the subsequent four years. The plan takes into account key performance indicators, plan assumptions and key value drivers, costs and capital, risks and opportunities and key performance areas. The business plan is reviewed by the board at the last board meeting of the year. On the basis of this annual review, the board has recorded that it has a reasonable expectation that the Company and the Group have adequate resources and the ability to continue in operation for the foreseeable future. For these reasons, the financial statements have been prepared on a going concern basis. Insider trading No employee may deal directly or indirectly in Palabora ordinary shares on the basis of unpublished price-sensitive information regarding its business or affairs. No director or Company overview Palabora integrated annual report

20 Corporate governance continued... officer of the Company may trade in these shares during a closed period determined by the board. Closed periods are operated prior to the publication of the interim and year end results. Where appropriate, the closed period is also extended to include other sensitive periods. In terms of the JSE Listing Requirements, details of any transactions by directors in the shares of the Company are required to be advised to the JSE for publication through SENS. There were no director dealings during the year. Worker participation and affirmative action The Group employs a variety of participative structures on issues which affect employees directly and materially and is committed to complying with the Employment Equity Act. These participative structures are further developed and adapted from time to time to meet variations in operational requirements and to accommodate changing circumstances. Management and employee representatives meet in formal and informal forums at Company and operational levels to share information and to address matters of mutual concern. Code of ethics The Group has developed and promulgated a formal written code of ethics. In accordance with this objective, the code of ethics has been circulated throughout the Group to provide a clear guide to the conduct expected of all employees in their dealings with each other and with the Group s stakeholders. All employees of the Group are required to maintain the highest ethical standards to ensure that the Group s business practices are conducted in accordance with high standards and expectations. The Group is committed to the highest standards of integrity, behaviour and ethics in dealing with all its stakeholders, including its shareholders, directors, managers, employees, customers, suppliers and the society at large. The Group participates in a Rio Tinto Speak-OUT system for the anonymous reporting of unethical or risky business. It is the responsibility of the chief financial officer to oversee compliance with the code of ethics. All breaches of ethical behaviour are consistently and fairly dealt with under the Group s disciplinary code and appropriate disciplinary action is taken. As well as being dealt with under the disciplinary code, all cases of fraud or theft are reported to the South African Police Service for further action. The board is of the belief that ethical standards are being met and supported by the abovementioned ethics programme. 18 Palabora integrated annual report 2009

21 Statement by the Company Secretary I, the undersigned, in my capacity as Company Secretary, do hereby confirm that for the financial year ended 31 December 2009, Palabora Mining Company Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Companies Act, 61 of 1973, and that to the best of my knowledge all such returns are true, correct and up to date. K N Mathole Company Secretary 29 April 2010 Company overview Palabora integrated annual report

22 Report of the audit committee The legal responsibilities of the Palabora board audit committee (BAC) are set out in section 270A (1)(F) of the Companies Act, 61 of 1973 (as amended by the Corporate Laws Amendment Act). These responsibilities, together with the requirements of the JSE and compliance with appropriate governance and international best practice, are incorporated in the committee s charter, which was reviewed and approved by the board during The committee has regulated its affairs in compliance with this mandate, and has discharged all of the responsibilities set out therein. The biographical details of the committee members are set out on pages 4 and 5 and the members fees are included in the table of directors remuneration on page 54. Chief Financial Officer As required by the JSE Listings Requirements 3,84(h), the BAC has satisfied itself that the Chief Financial Officer had appropriate expertise and experience during the 2009 financial year. External auditors The BAC considered the matters set out in section 270A (5) of the Companies Act, as amended by the Corporate Laws Amendment Act, and: Is satisfied with the independence and objectivity of the external auditors; Approved the external auditors fees for 2009; and Approved the non-audit related services performed by the external auditors in the year. Internal auditors Considered and confirmed the internal audit charter and audit plan for the 2009 financial year as well as reviewed the results of the internal audits conducted during the 2009 year. To assist the BAC in discharging its responsibilities, internal audits are performed throughout the Group, according to an annual internal audit plan. The internal audit function is under the control of the Assurance and Tax Manager, who is assisted by a team of appropriately qualified and experienced employees as well as by the Business Risk Services division of Ernst & Young. The primary mandate of the Group s internal auditors is to examine, review and evaluate the effectiveness of the applicable operating activities, the attendant business risks and the systems of internal operation and financial control, so as to bring material deficiencies, instances of non-compliance, high-risk exposure and development work needs to the attention of management for resolution. They report on an administrative basis to the chief financial officer, who was an executive director for the year under review, and functionally to the BAC. Separate meetings are held with management, external and internal audit representatives to discuss any problems and other matters that they wish to discuss. To the best of their knowledge and on the basis of the information and explanations given by management and the internal audit function as well as discussions with the independent external auditors on the results of their audits, the BAC is satisfied that there was no material breakdown in the internal accounting controls during the financial year under review. The BAC has evaluated the financial statements of Palabora Mining Company Limited for the year ended 31 December 2009 and, based on the information provided to the BAC, considers that the Group complies, in all material respects, with the requirements of the Companies Act (61 of 1973), IFRS and the Listings Requirements of the JSE. The BAC has recommended the financial statements to the board for approval. The board has subsequently approved the financial statements which will be open for discussion at the forthcoming annual general meeting. The head of internal audit and risk and external auditors have unlimited access to the chairman of the BAC. The chairman of the BAC attends annual general meetings and is available to answer any questions. 20 Palabora integrated annual report 2009

23 Report of the audit committee continued... The chairman of the BAC reports to the board at each meeting on matters discussed and recommendations made by the committee. During the year, the BAC held in-committee meetings with the internal and external auditors separately. The BAC terms of reference include inter alia: Review significant accounting and reporting issues, including recent professional and regulatory pronouncements, and understand their impact on the financial statements; Consider with the internal audit department and the external auditors any fraud, illegal acts, deficiencies in internal control or other similar issues; Review and approve, subject to board ratification, preliminary announcements, interim financial information and the annual financial statements and determine whether they are complete and consistent with the information known to committee members; Assess whether the financial statements reflect appropriate accounting policies; Review judgements and evaluations, for example those involving valuation of assets and liabilities; warranty, product or environmental liability, litigation reserves and other commitments and contingencies; Pre-approve any non-audit services provided by external auditors for which pre-approvals are required by applicable regulations, and ensure disclosure of such approval is made in the Company s public filings in accordance with applicable regulations; and ensure that external auditors are not providing any services prohibited by applicable regulations; Evaluate the independence and effectiveness of the external auditors and consider any non-audit services rendered by such auditors as to whether this materially impairs their independence; Evaluate the performance of the external auditors; and Consider and make recommendations on the appointment and retention of the external auditors, and any questions of resignation or dismissal of the auditors. Following the appointment of Clifford Zungu as interim chairman of the board, he stepped down as a member of the BAC. The BAC consisted of three directors appointed by the board until after Mr Zungu s resignation from the BAC after which the BAC consisted of two directors, both of whom are non-executive directors and one independent. A quorum for any meeting is two members present and voting on the matter for decision, of whom at least one shall be an independent nonexecutive director. The chairman of the board is not a member of the BAC. Members of the BAC as at 31 December 2009 comprised the following: Ms S Thomas ** (chairman) Mr C Zungu ** Resigned 24 March 2009 Mr J C Posthumus* Resigned 04 February 2010 * Non-executive ** Independent non-executive Subsequent to year end, the following directors were appointed to the BAC: Ms F du Plessis Mr R Abrahams S Thomas Chairman of the BAC Company overview Palabora integrated annual report

24

25 Operations review 2009

26 Operations review Providing and maintaining a safe working environment remains our top priority Underground The good safety performance of 2009 with an all injury frequency rate (AIFR) reduction from 1,03 to 0,55 was marred by the fatality of Michael Smith, a contractor, on 21 April The significant reduction in AIFR was due to an excellent safety improvement plan and the new Palabora Safety Strategy implemented during the year. Eight injuries were incurred during the year, which is lower than the eighteen incurred in Once again the lost time injuries were of relatively low severity but were completely preventable. The focal aspects of the Safety drive were on leadership behaviour with regard to interaction and managing from the workforce. Palabora has both an objective within the Environmental Management Programme Report as well as a licence requirement in the Integrated Water Use Licence to ensure the long-term and sustainable clean up of all riparian habitats including Loole Creek and Plant Stream. To this effect, the Loole Creek clean-up project commenced in This was to remove contaminated material from the water course as part of a longer-term remediation objective. This project will be completed in The underground division demonstrated sustained delivery of tonnes per day of production. A total of 11,55 million tonnes were hoisted, a slight decrease over 2008 tonnages. The decrease in hoisted tonnes was due to the north winder drum failure. The copper grade achieved was 0,67 per cent compared to 0,69 per cent in The surface operation realised 6,3 million tonnes of stockpile material reclaimed and delivered to the concentrator crushing facilities for re-processing. Operationally, the performance from the cave continues to improve. Increased mobile equipment availability and a general awareness on the possible impact of the open pit waste have compelled the underground team to focus closely on proper draw control principles. Other improvements include the use of two LHDs in one crosscut to attain the required sector 4 split and a continued use of oversize treating philosophy where a rock breaker and a loader operate in the same production crosscut simultaneously to improve productivity. Ventilation conditions in the underground are still on a continuous improvement trend and cooling cars installed in the Western section of the mine had a major positive impact on temperatures in the Western part of the mine. The increased production in the Western section of the mine and the possibility of restarting the Western extension will place a high priority on completing at least one horizontal spray chamber. This will improve efficiency of the chilled water distributed from surface to this site, until the underground refrigeration plant is commissioned in the last quarter of A change is evident in the overall geometry of the North wall failure. No new tension cracks were observed along the outer failure reach some 250m from the crest. Failure selfbuttressing continues to have a significant stabilising effect and only limited draw related movement is anticipated on the Eastern wall. The upper failure surface in the North wall has dropped some m. The failure surface is dropping in a vertical motion, roughly equivalent to the block cave draw rate. On the underground infrastructure, crusher pads were reconstructed six times during the year. All drains in the cave were refurbished to a more efficient standard, all tags recessed and water sprays installed. Cross Cut 1 roadway was fully refurbished during The Western extension project was deferred in October 2008 due to the economic downturn. Subsequent to the recovery observed in the second half of 2009, a decision was made to revisit this project and the Lift II Exploration programme during the course of Concentrator Safety Overall Concentrator safety performance showed a marginal improvement in all injuries from six in 2008 to five in However, the LTIs sustained in 2009, which were similar to the previous year, further highlight the need to continue working on developing safe leaders and safe employees through visible safety leadership, coaching and supervisor development. 24 Palabora integrated annual report 2009

27 Operations review continued... A Hitachi excavator awaits a haul truck for loading. Copper production Underground ore processed was 11,1 million tonnes at a head grade of 0,67 per cent, which was slightly below the 11,6 million tonnes at 0,69 per cent processed in Proportion of underground ore processed through the autogenous milling circuit was limited to 73 per cent as compared to 80 per cent in 2008 following the recurring failures on one of the auto mill motors. The motors failures contributed to a 9 per cent decline relative to 2008 in both mechanical availability and mill running time. Overall recovery and concentrate grade from underground ore, including tap-off material, was 87,3 per cent at 31 per cent copper which was comparable to 2008 performance of 87,9 per cent at 30,3 per cent copper. Tap-off material is mainly dolerite rich pebbles screened from the autogenous mills and has been stockpiled for later re-processing through the conventional circuit. Copper in concentrate delivered to the smelter was tonnes and reflected a 4 per cent decline relative to 2008 as a result of a 48 per cent reduction in the volumes of low grade copper reclaimed from the dewatering ponds. New Palabora copper in concentrate of tonnes represented 85 per cent of the total copper in concentrate delivered to the smelter as compared to 83 per cent in Excluded from new Palabora copper in concentrate above, smelter reverb furnace bottoms and high grade slag materials containing tonnes of copper were also processed as a blend with underground ore. The metallurgical performance of this material was 81 per cent recovery and 33,7 per cent copper grade as compared to 83 per cent recovery and 31 per cent copper concentrate grade in This material contributed an additional tonnes of copper in concentrate to the smelter. On behalf of Foskor, 5,89 million tonnes of low copper bearing ore at 0,12 per cent copper were processed on a toll milling basis as compared to 3,4 million tonnes in 2008; with copper price participation provisions to Palabora s account. The copper recovery and concentrate grade of this material was increased to 52,2 per cent and 28 per cent respectively from 49,6 and 27,1 per cent in Magnetite production Combined magnetite production was increased by 46 per cent to 2,8 million tonnes from 2,0 million tonnes in 2008 with 88,6 per cent of the total production destined for the export iron ore market. The remaining tonnes of magnetite, which was in line with 2008 production of tonnes, was produced mainly for domestic coal washery to satisfy steady domestic demand. Furthermore, the first shipment of tonnes dense medium separation magnetite was exported in the third quarter to meet the growing demand of overseas coal washery. Improved rail logistics to the ports of Maputo and Richards Bay continues to support the reclaim and reprocessing of stockpile material by contract re-mining, to augment the current arising magnetite in order to fill available trains. In addition to the rail-based organic growth model being pursued for the iron ore export business, Palabora has entered into a study with IMBS to establish the feasibility of using Palabora magnetite resource as a primary feed for iron-making in Phalaborwa. This study on alternative iron-making technologies will conclude the fit for purpose technology to be trialled on a plant scale. Copper processing Safety and environment The copper processing division sustained 5 LTIs and two MTCs in 2009, compared to 6 LTIs and 8 MTCs in Company Operations overview review Palabora integrated annual report

28 Operations review continued... AIFR decreased from 0,91 to 0,59 as a result of the late Safety pledge, the 2009 Safety Strategy implemented in mid-year and a focus on full investigation of nearmisses (Significant Potential Incidents). The reduction in AIFR was achieved despite a major focus on the prompt and complete reporting of all incidents. Despite a renewed emphasis on contractor management, 2 LTIs and one MTC were suffered by smelter maintenance in shutdown work. Smelter operations had only a single MTC, while Refinery operations maintained the improving trend seen in the second half of 2008, and Engineering services maintained a zero AIFR for the year, as in The number of instantaneous, hourly and daily exceedances at station 2 increased with respect to the new air quality guidelines, primarily due to water-cooled converter hoods coming to the end of their useful lives. Fugitive emissions and gas stream dilution both increased, leading to poor conversion at the acid plant, which was exacerbated by unstable converter operation. Sulphur capture fell from 66 per cent to 55 per cent, and production was curtailed to manage community impact. Some neutralisation of product acid with carbonatite was necessary to control high stocks due a continued poor market for acid, compounded by reduced offtake by the Sasol plant, with its eventual closure in October. New markets for acid have been developed to replace this long-term baseload customer. Smelter production Production of new anode copper totalled tonnes, a decrease of 13 per cent from the prior year. Revenue loss was partially offset by a further reduction in the volume of purchased concentrates from tonnes in 2008 to tonnes in Import concentrate quality fell below expectations and ceased altogether in the last quarter as Zambian export controls on unbeneficiated product took effect. Overall recoveries decreased from 95 per cent in 2008 to 92 per cent in 2009, as a result of returning contaminated matte to the concentrator, rather than holding it as a smelter stock of low-grade reverts. The combination of low first pass recovery and high copper price made import economics marginal, while a lack of blister availability of appropriate quality prevented its use in place of concentrate. Anode production in the first half met expectations, but competition for boiler contractor slots forced both planned statutory waste heat boiler shutdowns into the second half for a weak finish to the year. The reverb and waste heat boiler number 1 shutdowns were completed on scope and on schedule, but the waste heat boiler number 2 and acid plant shutdowns ran over by seven and ten days respectively. Burner tips were lost on the reverb furnace on one occasion and three converter end-wall failures were experienced, mainly as a result of magnetite and temperature control, but also because longer blowing times per cycle were required at lower matte grades. Powerhouse operations did not cause significant loss of production, beyond the statutory boiler outages. Due to a strong focus on working capital reduction, reverts and Palabora concentrate in excess of immediate capacity were sold. Sulphuric acid production decreased from to tonnes, due to lower copper production and sulphur capture. Refinery production Cathode production of tonnes was 8,6 per cent lower than the previous year, but higher than anode supply due to a reduction in working capital from a minimum number of sections in operation. Current efficiencies averaged 83 per cent for the year, but improved through the year to 87 per cent in the final quarter, despite uneven anode supply during the second half and measures to minimise inventory to maintain supply to the rod plant. Rod production for 2009 was tonnes. The new casting furnace has remained prone to burner plugging and hangups, despite its much better fuel efficiency. An expert from the furnace design company has revised operating protocols during an extended site visit and in the final quarter Deloitte consulting group completed an in-depth process improvement engagement to improve reliability and capacity and minimise re-work. Low cathode availability during the second half was made up by purchased cathode to maintain market commitments. This cathode was processed at acceptable margins and improving good work rates in the final quarter. Anode slimes production fell 5 per cent to 90 tonnes for 2009, while nickel sulphate production was relatively unchanged at 431 tonnes (hexahydrate crystal basis). The new ion exchange process ramped up towards expectations in the second and third quarters, but on-specification output was badly affected in the fourth quarter by copper and iron breakthrough issues, as well as fouling with high calcium levels derived from the new mouldwash used in the anode casting section. A barite mould wash is now being trialled. Engineering services Workshop utilisation improved further in 2009, and availabilities of the light vehicle fleet, cranes and locomotives were maintained at 2008 levels, despite minimal replacement of light vehicles. Palabora is reviewing its surface fixed plant asset management systems by benchmarking with other Rio Tinto operations and by a planned engagement with Rio Tinto Asset Management. This is aimed at better aligning work done with maintaining productive capacity. Marketing, sales and logistics Copper prices steadily recovered from a level of US146c/lb since January 2009 to US317c/lb in December The average Copper prices finally averaged at US233c/lb for 26 Palabora integrated annual report 2009

29 Operations review continued... A view over the vermiculite open pit. A drill rig is drilling blast holes at the bottom of the pit. Vermiculite is a very versatile natural mineral that is found between 5 45m beneath the earth s surface. 2009, as compared with US315c/lb in The South African Rand strengthened by 25 per cent during the year. As copper concentrate stocks built up during the annual smelter shutdowns, advantage was taken of the high copper prices and a total of tonnes of copper in concentrate was sold during 2009 in the form of high and low grade copper concentrate, as well as copper reverts. Other copper sales of tonnes in the form of cropped bar, copper skulls and starter sheets were sold to maintain continuous cash flow and take advantage of high copper prices. Local rod sales were 7 per cent lower compared with rod sales in Total local rod production was tonnes compared to tonnes in One major customer continued to operate its own rod casting plant whilst another plant was closed and the tonnages allocated to Palabora for rod production. Export rod increased to tonnes from tonnes in in Magnetite destined for the iron and steel industry in China increased by 45,3 per cent to 2,3 million tonnes. Revenue growth from magnetite continued to be strong on the back of strong iron ore pricing. Contract pricing was linked to benchmark iron ore prices and freight sharing which contributed to magnetite revenue of million rand compared to 789 million rand from magnetite in Vermiculite sales volumes (metric tonnes) were 3 per cent lower compared with Higher vermiculite prices increased sales by 24 million rand in A vermiculite product profit of 40,9 million rand was generated during 2009 compared to a product profit of 75,2 million rand during The decrease in profit was mainly due to the stronger exchange rate and stock variation, offset by higher sales volumes. Sale of copper cathode was tonnes, of which 79 per cent was sold into the local market. For 2009, total local sales of finished copper products amounted to 78 per cent of total sales volumes. Reduced sections in operation in the Refinery rendered revenue of 140 million rand from 89 tonnes of anode slimes in 2009, compared to 148 million rand from 105 tonnes in High gold and silver prices contributed to minimising the impact of reduced volumes. Nickel sulphate sales were 370 tonnes in line with reduced nickel sulphate production due to quality related issues. Magnetite sales tonnes increased by 35,3 per cent to 2,5 million tonnes during A total of tonnes of South African coal washing magnetite was sold compared to Logistics During 2009, total products moved from site were 2,9 million tonnes, while 2,5 million tonnes were shipped from ports. The breakdown of tonnages is as follows: Vermiculite A total of tonnes of vermiculite was dispatched to local customers and to port, which was 14 per cent lower than Shipments from port were also impacted at tonnes compared to tonnes in 2008; Demand from the market slowed during the latter part of the year due to the international economic crisis; and Packing of vermiculite containers was relocated to site during June 2009, due to liner shipping opportunities from Maputo, resulting in significant savings in supply chain costs. Company Operations overview review Palabora integrated annual report

30 Operations review continued... Magnetite A total of 0,3 million tonnes of magnetite was dispatched locally to customers and port, whilst 2,3 million tonnes were exported mainly to China; Additional railing capacity was secured from Transnet Freight Rail (TFR) and by the third quarter of 2009 the supply chain capacity had exceeded magnetite production due to production constraints resulting in TFR withdrawing excess capacity; and Both Maputo and Richards Bay ports have maintained planned berthing systems to improve vessel performance and continued refurbishment programmes initiated in Richards Bay port will dedicate a berth to magnetite, in quarter one of 2010, once the 801 berth upgrade project is complete. In addition to the tonnages indicated above, significant concentrates and reverts tonnages were also moved to and exported from Richards Bay during Vermiculite business Safety The vermiculite team achieved man hours, LTI free on 27 January This was a remarkable team achievement considering the number of contractors employed and the 45 month build up to accomplishing this target. This success was driven by the implementation and following of a comprehensive safety strategy. The current approach is to make safety not just a goal but an embedded value system, a way of life. Vermiculite production Production of vermiculite at tonnes was 2 per cent ahead of plan for the year. Grades produced ahead of plan were Large at 12 per cent, Fine at 13 per cent and Superfine at 3 per cent. The production of Medium and Superfine were below plan. The ore body produced less material in some of the coarser fractions resulting in a shortfall. The strong demand for coarser grade vermiculite continues to exceed production capacity and placed an increased strain on the supply chain stocks in meeting customer demand. Currently further improvement work on the Medium circuit involves the incorporation of the split grade concept. This plant modification will improve the recovery from 69 per cent to 72 per cent. Capital will be approved during 2010 to further implement this concept for the Superfine and Micron circuits. Human resources During 2009 the Human Resources Strategy focused on short- and long-term priorities, including a roadmap to provide assurance regarding implementation Human Resources Strategy Short-term Long-term Organisational effectiveness Talent and organisational development Organisational agility and workforce flexibility Focused, flexible and agile organisation Employment value proposition Employee engagement Cost containment and increased efficiency Talent and recognition Business partnering Operational practices fit for purpose Underpinned by Health, Safety & Environment 28 Palabora integrated annual report 2009

31 Operations review continued... A group of community members being trained as facilitators for a Rio Tinto Employee Engagement Survey. They are being trained to interview all Palabora Mining Company staff so as to measure employee satisfaction, business performance and to understand the needs of the employees better. Short-term priorities Develop organisational agility and workforce flexibility Embed employee engagement Cost containment and increased efficiencies Functional optimisation and business partnering Ability to build a fit for purpose organisational design to meet market and geographical conditions Complete employment value proposition, ongoing process to measure employee engagement through surveys. Greater management capability in the area of talent and performance management and communication Continue to evolve our model to optimise quality, speed and knowledge through the rigorous application of the Rio Tinto 3D model Define HR metrics that support business excellence through increased analytical capability. Increase the level of business acumen and knowledge leading to strong HR business partners Long-term priorities Talent and organisational development Focused, flexible and agile Flexible and adaptable people and systems Employee engagement Enhanced employment value proposition Talent and recognition Capability based on projected growth, technical requirements and location Embedding performance culture and discipline Leadership selection, development and retention Effective people development Operations review Palabora integrated annual report

32 Operations review continued... Major indicators As at the end of December 2009, the Company s actual employment stood at permanent and 181 fixed term employees, making a total of The average age of employees at the end of 2009 was 41,0 with an average length of service equating to 8,9 years per employee. The chart below shows the Company s progress and standing on HDSA at professional and management levels. HDSA at professional and management levels 50 The Employee Value Proposition (EVP) that was introduced in June 2008 as well as the emphasis placed by management to retain scarce skills has resulted in a positive downward trend in labour turnover ,5% 41,5% 42,0% Labour turnover statistics Role 2007% 2008% 2009% Artisans 23% 13% 8% Professional 42% 19% 8% ,1% Employee relations The labour relations climate remained positive in 2009 despite the tough business and economic conditions during the year including the changes to the NUM branch leadership and the 2010 Solidarity wage negotiations. With the support of the unions and employees, the Company successfully implemented the employee engagement survey actions identified during the 2008 Rio Tinto s global engagement survey. These survey actions are critical for the business to position the value proposition necessary to sustain the business, ensure its competitiveness and prominence regarding safety, business leadership and attraction and retention of talent. The implementation of the historic multi-year wage agreements with both NUM and Solidarity continued successfully although under severe pressure by the adverse higher CPI. On the other side, collective participation and engagement with organised labour in various forums such as Employment Equity, Skills Development and HIV/AIDS continued productively. Employment equity and women in mining At the end of December 2009, HDSA at professional and management level was 42 per cent, which is 2 per cent above the base 40 per cent target required by the Mineral and Petroleum Resource Development Act/Mining Charter. Concerted efforts and focus was also made to progress females into the business which resulted in the number of female employees in the business increasing to a historic 9,3 per cent. However, the Company prioritised female employment in core mining roles, employment of the disabled and the numerical expectations by government average Actual 2008 average Jan 2009 HDSA target (40%) Dec 2009 Training and development Training and organisational development Focus was maintained on collaborative systems to underline and form the basis for globally compliant capability development practices in the business. Activities centred around: Integration of revised The way we work and Leading at Rio Tinto programmes into training programmes; Participation in national and sector talent management and skills development forums and groups to assure knowledge of current practices and objectives; Revised and newly implemented systems and processes to drive mentoring, coaching and development of talented employees, as well as employees with potential for accelerated development in terms of the social and labour plan; Graduate development continued in alignment with Rio Tinto, with revised structures to include regional talent management in future; Design of the new Rio Tinto Front Line leadership Development Programme, to merge with the EMEA programme; Continued capacity and relationship building with organised labour and collaborative forums to foster a sound and positive skills development environment; Close relationships with the Palabora Foundation continued in the following areas: Design of new and enhancement of existing skills development structures 30 Palabora integrated annual report 2009

33 Operations review continued... 99% pure copper being poured from the anode furnace into anode casting moulds on a big revolving wheel. About 240 tonnes of pure copper is cast per session and this amounts to approximately 800 anodes in total. Support for community based ABET training initiatives Inclusion in safety leadership training for the development of Foundation leadership; ABET training saw most Palabora candidates passing to next levels, and a successful World Literacy day function was hosted by Palabora; Support of the Social and Labour Plan development initiatives also saw the initiation of a Palabora core contractor forum which showed great progress in terms of people development amongst contractor groups; and Continuation of secondary school scholarship programme, aligned with Foundation/Palabora talent development programmes, saw the first four Grade 12 graduates, with excellent results. Rio Tinto Capability Development initiatives impacting on Palabora human capital development plan Global banding final alignment of internal bands with global benchmarks, and the implementation of global bands to supervisor level; and Talent management the maintenance of a database, and personal development plans for people with potential and/or specialist and integration of Business Unit and functional HR Reviews. Operations review Palabora integrated annual report

34

35 Sustainable development review 2009

36 Sustainable development review Our sustainable development is more than lip-service Two women from the co-operative dressed in beautifully decorated traditional clothing that was made by the co-operative. This co-operative was founded by a group of local women in 2002 and is subsidised by the Palabora Foundation. It is managed by 12 women and run as a business. They make a range of items including bags, clothing, place mats and bead work. Their work is sold largely to lodges and to tourists that visit the co-operative. This is one of the many community development projects that the Foundation supports. We support the holistic development of disadvantaged people and communities by working with all stakeholders. This brief review details our commitment to sustainable development as well as performance highlights for A detailed tenth sustainable development report can be accessed on the Company s website ( or from the Company secretary (keith.mathole@palabora.co.za). A shared vision towards community selfempowerment Rio Tinto has made a strategic policy commitment to contribute to sustainable development. This commitment has been characterised by leadership of the Global Mining Initiative and efforts to build sustainable development thinking into all aspects of the Group s activities. More specifically, Rio Tinto has developed a sustainable development policy, which is To ensure our businesses, operations and products contribute to the global transition to sustainable development. The approach taken by this diverse group has been to encourage the development of local solutions whilst taking account of, and bringing together, each operation s particular economic, community and environmental factors. While there is no universal one size fits all template for Rio Tinto, there has been a need for more specific policy guidance as the basis for moving forward. Each Rio Tinto business is required to develop its business case for contributing to sustainable development by: Determining what the global transition to sustainable development means to the business the risks and opportunities; Engaging with stakeholders and examining what measures, targets and reporting requirements are necessary; Finding ways to include sustainable development principles in business plans and decision making; and Investigating how social, environmental, economic and governance issues can be integrated. Rio Tinto s reputation as a leader in this area brings benefits in interactions with host governments and communities. There are also risks, however, and it is essential that Group 34 Palabora integrated annual report 2009

37 Sustainable development review continued... We support the holistic development of disadvantaged people and communities by working with all stakeholders performance leads, or at least matches, this reputation in practice. The local actions of each Rio Tinto business unit will influence the Group s overall reputation, hence the need to embed sustainable development principles (outlined in the Mining and Minerals Sustainable Development report) into The way we work. To achieve its Communities Relations core business objective, Palabora will: Ensure that all Palabora and Foundation employees have a common understanding of the policy; Seek adherence to this policy by the contractors and suppliers providing services to Palabora and the Foundation; Use the Integrated Development Plan as a cultural and socio-economic database of the communities within which Palabora and the Foundation operates; Establish an ongoing consultation process that promotes consensus in the community towards a common vision and actions aimed at continuous improvement; Evaluate the effectiveness of current programmes and initiate appropriate new programmes; Develop the necessary skills of Palabora and Foundation employees to deal effectively with community relations; Integrate the communities policy into the Company s long-term objectives and corporate plans, and establish quantifiable and appropriate reporting arrangements; and Strive towards best practice, at all times, through information exchange with other Group companies and authoritative sources. Palabora s policy on human rights is based on its support for the United Nations Declaration of Human Rights, and enshrined in the South African Constitution. The company s approach to local communities is set out in its Communities Policy and follows the Rio Tinto policy as stated in The way we work. Palabora will roll-out the global communities framework during Once again, we are pleased to announce that we have retained both our ISO 9001 and certification during The business unit planning process The high-level business unit planning process is as follows: Rio Tinto context Plan consolidation PRC review and approval Group Business hall BU Context & Target Setting BU Tactical Planning BU Financial Planning BU strategy Rio Tinto context Corporate Functions BU 2 year strategy Rio Tinto context Plan consolidation Marketing plan HSE & Support plan PRC review and approval Production plan Maintenance plan Capital plan Financial plan Updated NPV BU Review and approval Tracking and reporting Sustainable development review Palabora integrated annual report

38 Sustainable development review continued... How we make a difference While Palabora has its own directorship and management, it is also governed by high level strategic policies from Rio Tinto, the major shareholder, that provide context and guidance for Palabora s strategic planning, management and operating practices. For example, Palabora operates within Rio Tinto standards for occupational health and safety, environment and financial practices. Palabora also operates within Rio Tinto guidelines on The way we work, human rights, corporate governance and business ethics. Palabora is committed to providing a safe and healthy work environment, ensuring sound environmental management, and supplying good quality products and services. This commitment is achieved by continual improvement of business practices and prevention of pollution as well as complying with relevant legislation, regulations and other requirements, and ensuring that we have an enlightened workforce. Palabora s environmental impacts, i.e. sulphur dioxide and dust emissions, water consumption and effluent, mineral and non-mineral waste, energy consumption, associated greenhouse gas emissions and cultural heritage, will be managed ensuring responsible land stewardship and sustainable development through the global framework rollout. To achieve this Palabora will: Conduct its operations with due regard to South African legislation, standards and other requirements relevant to the business in terms of safety, health and environment (SHE); Train and hold employees and contractors accountable for performance within their areas of responsibility pertaining to safety, health and potential environmental impacts, ensuring high quality products and services; Manage risk by implementing systems to identify, assess, monitor and control standards, and by reviewing performance. These are to be documented, maintained and audited, and certification is to be retained where applicable; Seek continual improvement through a framework of setting and reviewing SHE objectives and targets, and assessing and reporting SHE performance; Provide a structure and responsibility to facilitate effective SHE management, to contribute effectively to the Company s business; Communicate this policy to employees, contractors and visitors to ensure their understanding of their obligations in respect of this policy; Maintain open communication with all stakeholders including employees, contractors, communities, and government and non-government organisations on SHE issues and contribute to the development of sound legislation; Protect the environment (both the natural systems on site as well as the responsible consumption of natural resources) and prevent pollution in the areas in which the activities are conducted, and restore the environment to an acceptable land use when disturbance cannot be avoided, ensuring sustainable biodiversity; and Maintain a plan for eventual closure of Palabora s operation including management of social and environmental impacts, estimates of closure costs and financial provision, and consultation and co-operation with local communities and other stakeholders. Our safety and health contribution Prevent all injuries and occupational illness The safety performance showed a significant improvement during The top-down drive and commitment from management and their teams in terms of safety has resulted in increased safety awareness amongst the other work force, including contractors and suppliers. During 2009, Palabora embarked and improved on several high level safety initiatives in order to improve its safety performance which included but are not limited to: Semi Quantitative Risk Assessment (SQRA) Strategic Process Safety Risk Review Refinement of the Disaster Management and Recovery methodology On site Palabora Safety Improvement Plan and Strategy Due to the effective implementation of the corrective actions identified during the SQRA, Palabora managed to achieve a risk reduction of 12 per cent for 2009 versus a target of 10 per cent per annum. Of significance is that Palabora reduced its SQRA identified risk by 30 per cent of a possible 35 per cent reduction over a two year period. Emphasis was placed on the reporting of injuries which brought about an improved correlation between the different classes of injuries in terms of numbers as for Birds triangle, to 1:2:6 referring to LTI, MTC and FAC respectively. Medical Treatment and First Aid Cases saw decrease and increase respectively in 2009 versus 2008 (MTCs 9 in 2009 vs. 27 in 2008 and FACs 111 in 2009 vs. 95 in 2008). The Lost Time Injury Frequency Rate decreased from 0,33 in 2008 to 0,29 in The all Injury Frequency Rate decreased significantly from 0,88 in 2008 to 0,50 in 2009 as a result of the reduced reported number of medical treatment cases. Palabora is optimistic that with commitment, dedication and participation of all role players in its safety efforts, it will be able to attain a targeted additional 20 per cent reduction in all injuries during The safety of our employees The safety and health of Palabora employees and contractors is a core value of the Palabora business and of paramount importance to the Palabora management team. We firmly believe all injuries and occupational illnesses as well as safety incidences are preventable and regard safety 36 Palabora integrated annual report 2009

39 Sustainable development review continued... as a core value and a major priority. Everyone at Palabora is accountable for his or her own safety. The collective goal for all of the above is zero. To achieve this goal in 2010, Palabora will drive a more hands-on approach in terms of safety leadership with emphasis of the four pillars of our 2010 strategy namely: 1. Safe Leaders 2. Safe Employees 3. Safe Practice 4. Safety Recognition Visible Felt Leadership and portraying genuine care towards employees and contractors in order to foster mutual respect and trust will also be high on the agenda. To drive a culture of zero tolerance for unsafe acts and conditions, we will ensure that all employees and contractors comply with our 2008/9/10 safety improvement plan and strategy described in the diagram on page 38. Palabora understands that safety is not about numbers but people. The systems and targets set are very important towards ensuring a fatality and injury free workforce. Progressive LTIFR rate from January 2006 December Dec 09 Nov 09 Oct 09 Sep 09 Aug 09 Jul 09 Jun 09 May 09 Apr 09 Mar 09 Feb 09 Jan 09 Dec 08 Nov 08 Oct 08 Sep 08 Aug 08 Jul 08 Jun 08 May 08 Apr08 Mar 08 Feb 08 Jan 08 Dec 07 Nov 07 Oct 07 Sep 07 Aug 07 Jul 07 Jun 07 May 07 Apr07 Mar 07 Feb 07 Jan 07 Dec 06 Nov 06 Oct 06 Sep 06 Aug 06 Jul 06 Jun 06 May 06 Apr 06 Mar 06 Feb 06 Jan 08 Progressive ATIFR rate from January 2006 December AIFR Dec 09 Nov 09 Oct 09 Sep 09 Aug 09 Jul 09 Jun 09 May 09 Apr 09 Mar 09 Feb 09 Jan 09 Dec 08 Nov 08 Oct 08 Sep 08 Aug 08 Jul 08 Jun 08 May 08 Apr08 Mar 08 Feb 08 Jan 08 Dec 07 Nov 07 Oct 07 Sep 07 Aug 07 Jul 07 Jun 07 May 07 Apr07 Mar 07 Feb 07 Jan 07 Dec 06 Nov 06 Oct 06 Sep 06 Aug 06 Jul 06 Jun 06 May 06 Apr 06 Mar 06 Feb 06 Jan 06 Sustainable development review Palabora integrated annual report

40 Sustainable development review continued Palabora integrated annual report 2009

41 Sustainable development review continued... Lost time injury history by month from 2003 to Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals Lost time injury history by month from 2003 to 2009 Occupational health Occupational diseases are defined as those diseases or ill health conditions which are primarily caused by exposure to physical, chemical, biological, ergonomics and psychological agencies in the workplace. Typical diseases include diseases of the lung (asbestosis, silicosis), diseases of the skin (dermatitis), diseases of musculo-skeletal system (back problems, white finger), diseases of the ear (mainly noise induced hearing loss), as well as less tangible diseases such as work related stress, fatigue and ergonomic conditions. Palabora is fully aware of such potential health risks in the business and maintains a staff complement of four employees in the Occupational Hygiene and Radiation section to support the business to ensure that the health of workers is not adversely affected. Levels of temperature, ventilation, noise, illumination, dust, hazardous substances, gases and radiation are monitored and in high exposure areas, programmes of measurement, control and risk reduction are in place. Four levels of control are recognised, namely eliminating the risk, controlling the risk at source, minimising the risk, and as a last resort and in so far as risk remains, providing personal protective equipment (PPE) All employees and contractors undergo pre-engagement medical examinations to ensure fitness to work. This is followed by regular risk based medical examinations during employment and an exit medical examination when leaving the Company. There were no cases of occupational diseases reported during the year Dust and gas The control of dust and gas exposures on site follows the guidelines set by the DMR. The low occurrence of occupational lung disease amongst the existing workforce confirms that effective controls are in place. These controls include: Re-entry which is observed after blasting; Regular wetting down of material before loading, shovelling or hauling is initiated; Watering down of dirty roads to reduce liberation of airborne pollutants; Capturing dust at source by means of wet scrubber and bag house systems; and Atomised water sprays at tipping points to prevent airborne dust. Where engineering control is not possible, areas are demarcated as respirator zones. Pictograms are posted at entry and exit points of process plant areas and entry is prohibited unless employees are wearing approved respiratory equipment. Employees and contractors are issued with respiratory equipment free of charge. Sustainable development review Palabora integrated annual report

42 Sustainable development review continued... Regular planned maintenance of controls continued during the year to ensure correct functioning of relevant extraction and ventilation systems. The DMR has issued a milestone programme for silicosis, which has the final objective of no more new cases of silicosis occurring amongst previously unexposed individuals. We believe this milestone is achievable. Hazardous substance control Data sheets for all hazardous substances on site are available on the Company electronic network. Hazard sheets contain all relevant information about a particular substance including flammability, toxicity, medical and pollution precautions (16 Point Material Safety Data Sheet MSDS). Safety appointees are, in terms of the Mine Health and Safety Act, required to ensure that material safety data sheets are available for all hazardous substances in their area of responsibility at point of storage and use. The database is continually being reviewed and approximately 50 per cent of all the MSDSs are now up to date from suppliers and are electronically available. Requests for the purchase of all new substances are forwarded, together with material safety data sheets, to the SHEQ Department for approval, prior to the substance being allowed on site. Noise The Occupational Health and Safety Act, No 85 of 1993 requires that controls be put in place where the maximum noise level exceeds 82 db (A). Routine noise surveys are carried out throughout the mine property and where noise levels are found to be in excess of this limit, appropriate measures are taken to reduce the high level of noise at source. Where this is not practicable, a Hearing Conservation Programme, as required by the DMR as per SABS 083 code of practice, becomes applicable. Personnel in the affected areas are provided with custom made hearing protection devices, and pictograms are also placed at all entrances to these areas to warn employees and visitors. The entire mining operations have been divided into noise zones and have been demarcated accordingly. Ongoing programmes of employee awareness education, engineering controls and issuing of custom made hearing protection devices are in place. Another programme is in place to ensure the maintenance of all custom made hearing protection. The DMR has also issued another milestone programme for noise induced nearing loss, which has an objective that by 2013 the total noise emitted by all equipment installed in any workplace must not exceed a sound pressure level of 110 db(a) at any location in that workplace. After December 2008, the hearing conservation programme implemented by the industry must ensure that there is no deterioration in hearing greater than 10 per cent amongst occupationally exposed individuals. Palabora will be evaluating opportunities in 2010 to see which equipment that exceeds the 110 db(a) can be either replaced or engineered in such a manner to reduce the noise levels to less than 110 db(a). Radiation control Hazard assessments have been carried out by Palabora s own radiation protection officers and, where necessary, external radiation experts (RPS). These assessments determine the areas within the mine and community that require radiation controls. Ways to reduce radiation levels and, ultimately, employee and civilian exposure, are constantly being sought and the ALARA (as low as reasonably achievable) principle is followed. Radioactive scrap and equipment is prevented from leaving the mine and strict monitoring is undertaken to ensure levels are below the required limits. Effective control is maintained by cleaning contaminated equipment at a dedicated scrap and decontamination facility on the mine. Continuous analysis of all the export products is conducted to ensure legal compliance. The Radiation Protection Programme and its procedures at Palabora were reviewed in 2009 and all outstanding issues were resolved and submitted to the National Nuclear Regulator (NNR) during the year. A risk assessment for the Palabora workforce was conducted during the year which was also submitted to the NNR for approval. Develop the potential of employees and communities Although corporate social investment has a short history in South Africa for many companies, it has been a fundamental force in driving social change. Our social investment arm, the Palabora Foundation, has been involved in development of the local communities since 1986 and continues to do so with the objective of supporting the holistic development of disadvantaged people and their communities. We support the holistic development of disadvantaged people and communities by working with all stakeholders. Palabora is committed to reducing its impact on the environment in which it operates by managing its activities in an environmentally responsible manner. A summary of the targets and actual performances of key indicators and the main impacts on the environment for 2010 are disclosed in the full sustainable development report. 40 Palabora integrated annual report 2009

43 Sustainable development review continued... Palabora is committed to complying with the MPRDA. The purpose of the MPRDA is amongst other things to transform the mining and production industries in South Africa. In order to ensure effective transformation in this regard, the Act requires the submission of the Social and Labour Plan (SLP) as a pre-requisite for the granting of mining or production rights. The SLP requires applicants for mining and production rights to develop and implement comprehensive Human Resources Development Programmes including Employment Equity Plans, Local Economic Development Programmes and processes to save jobs and manage downscaling and/or closure. The above programmes are aimed at promoting employment and advancement of the social and economic welfare of all South Africans whilst ensuring economic growth and socioeconomic development. The management of downscaling and/or closure is aimed at minimising the impact of commodity cyclical volatility, economic turbulence and physical depletion of the mineral or production resources on individuals, regions or local economies. The SLP is driven by the following key pillars: (a) Proactive management and addressing of impacts that could be caused by mine closure; (b) Provision of opportunities for the development of employees; (c) Capacity building which incorporates portable skills; and (d) Local economic development or community development. On 19 March 2009, Palabora lodged its application for the conversion of old order mining rights to new order mining rights with the DMR in Polokwane along with the SLP, mining works programme and environmental management plan. On 30 April 2009, Palabora signed and submitted a Transaction Framework Agreement (TFA) bearing the signatures of its Broad Based Black Economic Empowerment (BBBEE) partners with the DMR. Under its BBBEE transaction (the transaction), Palabora will sell 26 per cent of its operations to a broad based BEE group comprising employees, the community and key individuals. A significant feature of the transaction is its focus on community development. Culminating a key-stakeholder consultation process that Palabora has undertaken since 2007, it signed the TFA with the five tribes of the Ba-Phalaborwa community. A community trust to be held for the benefit of the Makhushane, Selwane, Maseke, Mashishimale and Majeje tribes will acquire 10 per cent of the equity in a newly formed, special purpose subsidiary of Palabora, which subsidiary will acquire all or an appropriate part of Palabora s business under the transaction. The host communities will not be required to contribute upfront equity for their stake in the subsidiary of Palabora as the transaction is being vendor-financed by Palabora. Palabora believes it has set up a meaningful BBBEE transaction to achieve the Spirit and Letter of the law. Palabora is still awaiting approval of its application. However, the implementation of the SLP began in The SLP is made up of six sections, being: (i) The Preamble (ii) Human Resource Development Programme made up of: a) Skills Development plan b) Career path plan c) Mentorship plan d) Internship and bursary plan e) Employment equity plan (iii) Local-Economic Development Programme: a) Social and economic background information b) Socio-economic impact of the operation on the mine community c) Infrastructure development, poverty eradication and welfare creation projects d) Measures to address housing, living conditions and nutrition e) Procurement (iv) Programme for managing downscaling and retrenchment: a) Establishment of a future forum b) Mechanisms to save jobs and avoid a decline in employment c) Mechanisms to provide alternative solutions and procedures for creating job security where job losses cannot be avoided d) Mechanisms to ameliorate the social and economic impact on individuals, regions and economies where retrenchment or closure of the mine is certain (v) Financial provision for implementation of the SLP: (vi) Undertaking by the Managing Director and Chairman of the board; In order to effectively compile and implement the Palabora SLP, relevant and up-to-date socio-economic information on the characteristics of employees, including their dependents, and affected communities, was gathered. The Baseline Socio-Economic Trends Survey (BSETS) was undertaken from 15 September to 26 September Sustainable development review Palabora integrated annual report

44 Sustainable development review continued... The purpose of the BSETS was to: 1. Determine the background socio-economic details and dynamics of the Palabora workforce; 2. Determine the socio-economic characteristics of the environments surrounding the mine, and primary labour sending areas; and 3. Establish an accurate baseline to assist in the implementation of the SLP. The BSETS primarily consisted of: 1. One-on-one socio-economic questionnaire interviews with a representative sample of employees (permanent and core contractor) at the operation, which formed part of a broad socio-economic survey of Palabora s internal environment (mine); 2. An analysis of LED strategies, plans and initiatives in the Limpopo Province, Mopani District Municipality (MDM) and Ba-Phalaborwa Local Municipality (BPLM); and 3. A detailed consultation process with stakeholders from Palabora, Phalaborwa, BPLM and MDM. The bulk of the information was gathered by means of a questionnaire survey with employees at Palabora and a regional socio-economic analysis of the communities affected by the mine. The questionnaire covered the following aspects: Demographic background information of employees Socio-economic background information Skills training and experience Employee household details Housing and accommodation Perceptions and concerns External socio-economic environment Surrounding and labour sending communities LED activities and the IDPs. The survey data were captured into a customised electronic database, which was set up in a user friendly manner so that the personal and socio-economic information could be easily accessed for further assessments, project implementation, skills training and LED initiatives. Palabora has assessed and analysed the findings of the BSETS and developed detailed action plans and projects for its SLP. The results of the BSETS will be made available to the DMR and to the BPLM and MDM for integration into their IDPs. The data from the BSETS have been used to inform each section of the SLP and the formulation of detailed action plans for its implementation, i.e. the findings from the BSETS have informed the implementation of the Palabora SLP. A detailed consultation process was undertaken with stakeholders (Ba-Phalaborwa local municipality, unions, employees and core contractors) for the compilation of the SLP. Primary focus of the SLP The SLP action plans are applicable to the permanent employees and core contractor employees of Palabora. The primary focus areas of the SLP are: Increasing literacy/numeracy; Implementing career development; A group of community members being trained as facilitators for a Rio Tinto Employee Engagement Survey. 42 Palabora integrated annual report 2009

45 Sustainable development review continued... Providing skills development opportunities; Mentoring Historically Disadvantaged South Africans and empowerment groups; Providing study grants, bursaries, scholarships, learnerships to employees and the community; Increasing HDSA participation in management; Increasing women s participation in mining; Fostering enterprise development; Alignment with the IDPs of BPLM and MDM; Implementing local economic development projects, which focus on basic services and infrastructure, poverty eradication and welfare creation; Improving housing and living conditions of employees; Providing access to adequate basic services and housing; Providing access to primary health care; Ensuring healthy nutrition; Increasing the participation of HDSAs and communities in procurement opportunities; Continuing HIV/AIDS awareness programmes and Voluntary Counselling and Testing (VCT); Transforming Palabora in line with the Mining Charter; Maintaining and establishing training centres; Initiating a Future Forum (FF) with management and employees; Committing adequate funds for the SLP initiatives; Putting systems and performance indicators in place; Implementing and reporting on the progress of SLP initiatives; Measuring the sustainability and effectiveness of the SLP on employees and communities; Engaging with stakeholders; and Integrating core contractors. The SLP will be implemented over a five year period ( ), after which a new plan and targets will be set. Minimise the spread of HIV and AIDS The impact of HIV/AIDS continues to be felt in Palabora and Phalaborwa as is the case in the rest of the country. The effects, though difficult to quantify due to the confidentiality and stigma that still surround the disease, include absenteeism, reduced productivity, loss of personnel and increased direct and indirect costs. It is realised that there are no quick fixes for the pandemic. The Company does not discriminate against HIV positive employees. These employees are supported by counselling, emotional support and vitamin supplements in addition to their medical aid programmes. Medical aid is 50 per cent subsidised by the Company. Through the medical aid programmes, employees have access to HIV treatment and many of them return to productive work whilst they stay on treatment. During 2009 there was an average of 80 known positive employees still fit and working. Employees that are too sick to continue working and are not responding to treatment, are assisted by the medical and pensions departments to go on a disability pension via the Company pension fund and the Company s disability insurers. Palabora believes that only sustained education and awareness will eventually pay off to prevent the spreading of more infections. To this end, the Company has several ongoing initiatives. HIV and AIDS steering committee The committee consists of members of Palabora management, the Human Resources Department, the Medical Department, the Palabora Foundation and the Community HIV Programme head as well as NUM s full time shop steward and Solidarity s secretary. The unions were incorporated after the HIV/AIDS steering committee resolution not to create a separate or subordinate forum to the existing one. The committee co-ordinates plans and reviews progress on a regular basis. HIV and AIDS education and awareness This is the main aim of the Company s HIV activities. The Company believes that every employee should have access to the right HIV information so as to empower them to protect themselves and to know how to handle the disease at a personal level and in the community. To achieve the highest level of awareness, the following is maintained: HIV and health education The company has a full-time position for an HIV and health educator. The incumbent occupies himself by increasing awareness, giving talks and lectures mine-wide at safety meetings, contractor inductions and other gatherings. He is a skilled educator and has suitable office facilities for confidential counselling. It is important to note that he manages the HIV portfolio plus general health and wellness education. This reduces any stigma that could be attached to his job that could otherwise have prevented employees to talk to him. He also counsels persons with conditions like hypertension, diabetes, obesity, substance dependence and stress. Peer Group Educator Programme The Company has a group of approximately 55 trained peer group educators (PGE). This small but enthusiastic team is doing outstanding work. They operate under the leadership of the PGE committee and the full time Health and HIV educator. The committee s role is to provide leadership and vision to the PGEs in a way that will enhance the HIV and AIDS programme and thereby contributing to the sustainable development and growth of the Company. The main function of PGEs is to give five minute HIV talks and one-on-one awareness discussions at shop floor level. They have monthly activities on which they compile reports that are submitted to the HIV and Health Educator. Monthly meetings are held where progress, problems and new initiatives are discussed. Sustainable development review Palabora integrated annual report

46 Sustainable development review continued... Summary of awareness programmes All company training sessions also incorporate an HIV awareness module; HIV slogans have been displayed on the safety board at the mine entrance as well as on pay slips; The Company supported the HIV Candle Lighting Day, which was presented by the community HIV initiative. This is an annual event to remember those infected and affected by HIV as well as those who have passed on due to conditions related to it. The Company is always invited to the candle lighting event, the managing director and some of the employees attended; Palabora commemorated the World AIDS Day on 1 December. The Peer Group Educators arranged for an industrial theatre for awareness on the World Aids Day. A local theatre group, Entangeni Entertainment gave an HIV play called, The Shadow. The play was about the challenges of HIV in the community with regard to risky sexual behaviour, the silence about HIV and the community solidarity required in overcoming these negative attitudes. Custom branded lunch cooler bags were handed to the attendees; and Voluntary counselling and testing is continuously advocated and available free of charge for employees and contractors. VCT outreaches were also done by visiting some departments like Vermiculite Operations Underground and the Refinery. In the months that these areas were visited the uptake was significantly higher. Summary of prevention programmes Condom distribution: Condoms are supplied at strategic locations all over the mine and co-ordinated by the HIV educator and the PGEs; STI treatment: All employees belong to a medical aid and STIs are now treated by the general practitioners of the employees; and HIV treatment: The company facilitates access to ARV treatment for all employees by a 50:50 subsidised medical aid for all employees. The available medical aid options have HIV programmes where a patient can register to obtain up-to-date support, care and HIV treatment. There are a number of employees on ARV treatment through these programmes. HIV and health related statistics HIV voluntary tests Number of condoms issued each year People reached by HIV talks during generic induction People reached by HIV talks at sectional SHEQ meetings Audio-visual audiences People reached by HIV presentations by Training Officers N/A People reached by general health topics at sectional SHEQ meetings People reached by health counselling sessions and other health problems N/A Palabora integrated annual report 2009

47 Sustainable development review continued... Minimise the environmental impacts of Palabora s operations through optimal usage of resources Introduction Palabora, forming part of the Rio Tinto group, is committed to reducing its impact on the environment in which it operates by managing its activities in an environmentally responsible manner. Palabora has incorporated the Rio Tinto Environmental Policies and Standards into the site Safety, Health, Environmental and Quality (SHEQ) policy and the standards and procedures that guide the operations in how to manage and limit the impacts on the environment. This ultimately contributes towards a sustainable approach to the way natural resources are used and undisturbed aspects are conserved for future generations. The following table is a summary of the objectives and targets with actual performances of key indicators and the main impacts on the environment for OBJECTIVES CEILINGS 2009 ACTUAL 2009 CEILINGS 2010 Air Quality: Reduce SO 2 and dust emissions to atmosphere SO 2 annual ground level concentrations at Station 2 Sulphur Capture (overall) kg SO 2 emitted to atmosphere per tonne Cu anode produced Total tons SO 2 emitted to atmosphere during year Dust level at Station 7 (PM10) Water Management: Reduce fresh water intake and increase recycle component Fresh water consumption/intake (Ml) excluding rainfall impounded Recycled water Greenhouse gas emissions for Copper Operations; Reduce GHG emissions per tonne of Cu Electricity consumption (MWh) Total greenhouse emissions (tonnes CO 2 -e) Total energy use (GJ) Energy Efficiency Value (GJ per kt new Cu cathode; 2008 is the baseline year) Non-mineral waste management: reduce amount of waste to be disposed and increase recycle component Land stewardship: Keep land disturbances to a minimum and rehabilitate areas once available Others Not to have significant environmental incidents Public complaints: Minimise impact on local community ISO certification: Ensure a credible operational Environmental Management System is in place 15ppb >77% <75 μg/m 3 /day <40 μg/m 3 /year 15Ml/day 5 475/year Ml < ,9 16ppb 56% exceedance 21 μg/m 3 /year 15,2Ml/day 5 587/year Ml ,3 <15ppb >77% <75 μg/m 3 /day <40 μg/m 3 /year 15Ml/day 5 475/year Ml < ,5 See table 1 See table 1 See table 1 Disturbed: 0 ha Rehabilitated: 17 ha Category III 0 Category IV 0 <5 Retain ISO certification Disturbed: 3,6ha Rehabilitated: 0 ha signed off Category III 0 Category IV 0 30 Retained ISO certification Targets 2013 Disturbed: 0 ha Rehabilitated: 17 ha to sign off Category III 0 Category IV 0 <15 Retain ISO certification Sustainable development review Palabora integrated annual report

48 Sustainable development review continued... Prepare for closure in order to leave behind a safe and environmentally acceptable site and an economically self sustaining community Closure Management Plan Palabora s aim is to prepare for closure in order to leave behind a safe and environmentally acceptable site and an economically self-sustaining community. Palabora updated the Closure Cost Estimate component of the Closure Management Plan in 2009 and the estimated Present Closure Obligation (PCO) cost for direct costs as at December 2009 was 863 million rand where the Total Projected Cost (TPC) estimate is 873,0 million rand. The revised Life of Mine plan which projects 2016 as the date for the copper stream to cease operating, was used for these calculations. The financial provision in the Rehabilitation Fund as at 31 December 2009 was 360,4 million rand (current market value). In addition to the reinvested interest and dividends received of 4,6 million rand and 22,6 million respectively, a contribution of 2,8 million rand was made to the Rehabilitation Fund at the end of 2009 after receiving approval from the DMR. Item R million Rehabilitation 227,9 Infrastructure removal 145,1 Monitoring 11,1 Employee benefits 321,3 Other 167,6 Total 873,0 Summary of capital expenditure 2009 The actual total capital spent for 2009 was 135 million rand compared to 314 million rand in The total capital expenditure planned for 2009 was reduced from an initial 250 million rand to 154 million rand due to the impact of the global financial crisis. This coincided with the change in the philosophy for the management of capital to a cash flow based system. An investment committee reviews all the applications for capital funding and the available capital is then allocated to where it is deemed to give the best returns, but also taking into account all relevant statutory requirements. The TPC estimate was updated to reflect December 2009 money terms and is as follows: SAA Jet 8854 just landed at Phalaborwa airport. 46 Palabora integrated annual report 2009

49 Sustainable development review continued... Top capital expenditure projects for 2009 were: Western extension development of the underground mine 27,6 million rand; Replacement of 3 LHD loaders for the underground mine 23,5 million rand; Increasing the capacity of the tailings complex and improving the stability of the existing tailings dam walls 15,2 million rand; Various projects to improve the quality of the stockpiled magnetite and to increase the loading capacity 13,5 million rand; and First phase of the refurbishment of the waste heat boilers 10,8 million rand. Projects that are directly related to the improvement of safety, health and the environment totalled 8,5 million rand. A total of 19,9 million rand was spent on two projects to manufacture and install sheave wheels and winder rope attachments. A total of 19,9 million rand was spent on two projects to manufacture and install sheave wheels and winder rope attachments. The capital budget for 2010 totals 224 million rand of which the major portion is allocated to sustaining capital. Major capital projects planned for 2010 are as follows: Replacement of 3 LHD loaders for the underground mine 24 million rand; Second phase of the waste heat boiler refurbishment 15,6 million rand; Sulphuric acid plant repairs 30 million rand; Refurbishing of dust removal equipment 12 million rand; and A total of 89 million rand is allocated to completing projects that commenced before A total of 14,5 million rand was made available for the improvement of DMS (Dense Media Separation) magnetite production rate and additional drying capacity for the increased production rate. The amount of 36 million rand for the exploration drilling or to determine the available ore reserves for a second lift in the underground mine is included in the operating cost budget of the Underground mining division. Some of the above mentioned projects continue into Anna Mahlane (head baker) takes a fresh load of baked bread out of the oven. This bakery is one of the many community projects sponsored by the Palabora Foundation. Sustainable development review Palabora integrated annual report

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51 Annual financial statements 2009 Contents Independent auditor s report 50 Statement of responsibility by the board of directors 50 Directors report 51 Consolidated income statement 55 Consolidated statement of comprehensive income 56 Consolidated statement of financial position 57 Consolidated statement of changes in equity 58 Consolidated statement of cash flows 60 Notes to the consolidated financial statements 61 For more information visit