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Sustainable Development Report for the year ended 30 September 2012

03/People, Planet, Profit

planet:
(noun) our earth; an integrated system of land, water and air,
the unique combination of which supports all known life

Addressing climate change

Lonmin is an intensive user of energy, particularly fossil-fuel generated non-renewable energy, and we recognise that we have a role to play both in mitigating climate change and in responding appropriately to its potential consequences. Our primary product, platinum, is an important component in the development of a low-carbon intensity economy.

Lonmin’s Climate Change Response Strategy is customised for the Company and aligned with our Corporate Business Strategy. Specific aspects within the Corporate Strategy have been influenced by Climate Change aspects, including global risks pertaining to climate change policy and competitiveness, resource management efficiency in terms of energy, water and waste management, and strengthening partnerships in cost management, operational efficiency and growth, which include exploring opportunities for PGMs.

Our climate change strategy focuses on identifying risks, opportunities and adaptation measures. As one of the first steps of this process, Lonmin conducted both a top-down and bottom-up risk and opportunity identification exercise in line with our risk process. This involved conducting structured interviews with key Lonmin staff across the business areas, ranging from staff members from supply chain, procurement, long-term planning, mining, processing, technical services, marketing, investor relations, environmental, community and senior executives. The structured interview process involved mapping out all possible risks and opportunities pertaining to climate change within the business, building capacity within Lonmin with regard to climate change risks and opportunities, and assessing the likely impact of climate change on our operations. Our implementation of a structured and comprehensive risk management system across Lonmin establishes a common understanding and methodology for identifying, assessing, monitoring and reporting risks. It provides management and the Board with the assurance that our principal and key risks are identified, managed and controlled.

We identified numerous climate change related risks across our business at operational and corporate levels. These were separated into four risk categories-physical, regulatory, reputational and litigation. Low-, medium- and high-potential scenarios were developed for priority risks. We developed a financial model to help us understand the potential implications of these risks and provide an initial indicative cost.

The short-term strategy to address our priority climate change risks, addresses:

  • physical risks pertaining to operational disruptions /damage to facilities (due to extreme weather events); and
  • regulatory risks in respect of the introduction of a Carbon Price Mechanism in South Africa (Carbon Tax), where Lonmin faces a carbon tax liability/cost resulting in increased operating cost. It is proposed that a Carbon Tax per tonne of emissions will be introduced within the 2013/2014 budget period; the tax will start at R120 (US$15) per tonne and increase by 10% a year, reaching R213 (US$26) per tonne by 2019/2020.

The medium- to longer-term strategy in respect of the priority climate change risks addresses the following:

  • physical risks relating to operational disruptions/damage to facilities leading to water scarcity and impact on existing operations and the execution of the long term business plan; and
  • increasingly complex regulatory environment nationally and internationally combined with the physical changes in climate, potentially leading to contraventions of laws.

Opportunities in gaining a strategic advantage over our competitors include:

  • exploring low-carbon technologies and products that use PGMs as an input;
  • driving operational efficiency through efficient resource management (energy, water, waste);
  • efficient governance systems;
  • prioritising greenhouse gas (GHG) emission and energy consumption reduction measures;
  • embedding climate change in operational risk management throughout the value chain and in existing performance management systems;
  • developing and implementing effective systems to collect, manage, verify and report energy and GHG data;
  • introducing adaptation measures; and
  • increasing resilience of Lonmin’s operations to physical weather events and managing the financial impact thereof.

Lonmin has developed a carbon optimisation model which quantifies the carbon stresses by source through the value chain and forecasts Scope 1, 2 and 3 emissions. The model serves as an input into strategic planning and informs the feasibility for different operational interventions that have the potential to reduce GHG emissions. The model will remain dynamic in response to policy development and business conditions. The model is structured to provide the following: GHG emissions by source, GHG emissions by activity, GHG intensity, Carbon Tax liability (low-high scenarios) and Carbon Tax liability per activity.

Adapting to climate change

CASE STUDY: Adapting to climate change

Consideration of and planning for climate change is an integral part of our business. Lonmin has made a number of substantial business decisions during the reporting year that have been influenced by the climate change-driven aspects of our strategy. Read case study

Management of carbon emissions

The two greatest contributors to our GHG emissions remain our dependence on electricity (93.53%) and the use of fuel (6.1%). As a result, our efforts to reduce carbon emissions focus on these two areas.

Lonmin’s carbon footprint was calculated in accordance with the GHG Protocol: Corporate Accounting & Reporting Standard developed by the World Business Council for Sustainable Development (WBCSD) and the World Resources Institute (WRI) as well as the ISO 14064 International Standard Part 1 (for reporting of GHG emissions and removals at the organisational level). We calculate our carbon footprint for the purposes of disclosure in both annual reporting and voluntary disclosure through the CDP. The current Lonmin carbon footprint calculation covers carbon emissions for the period October 2011 – September 2012. The GHG Protocol divides emissions into three categories:

tCO<sub>2</sub>e per scope (%)
  • Scope 1 – direct emissions from sources owned or under the operational control of the Company;
  • Scope 2 – indirect emissions from the consumption of purchased electricity; and
  • Scope 3 – indirect emissions an optional reporting category allowing for other indirect emissions associated but not controlled by the Company to be included.
The emissions sources per scope
Scope Emission sources included Benefits to the GLC
Scope 1 – Direct Emissions Mobile combustion Petrol
Diesel: including diesel used to transport concentrate and ore and diesel used in forklifts
Jet Fuel
Stationary Combustion Petrol used in mining operations
Diesel used in mining operations
Coal Peas used in the BMR and Smelter
Acetylene used in welding
LPG
Methane
Natural Gas
Process Emissions Smelter
BMR
Lab
PMR
Explosives Shellsol
Ammonia Nitrate
Anfo
Emulsion
Non-Combustion Oils
Lubricants
Refrigerants R22
HFCs
Landfill Waste disposed of at Lonmin owned landfill sites
Scope 2 – Indirect Emissions
  • The consumption of purchased electricity at facilities both owned and leased by Lonmin.
Scope 3 – Indirect Emissions
  • Transportation of general waste to the Mooinooi Landfill Site;
  • Transportation of employees in and around the Marikana operations;
  • Employee business related travel (e.g.  flights, car hire and accommodation);
  • Waste management services at the PMR; and 
  • Third Party waste disposal at landfill.
Emission profile over five years
Breakdown per operation (tCO<sub>2</sub>e)

Lonmin’s total carbon footprint for 2012 is estimated at 1,571,940RA tonnes CO2e, which represents a decrease of 76,403 tonnes (or 4.6%) over the 2011 performance. This can be attributed to lower electricity and lower fuel consumption during the year.

Lonmin is currently in the process of ascertaining and confirming its Scope 3 emission reporting boundary and has committed to finalising the scope boundary by 2014. The sources of outstanding Scope 3 emissions for which CO2e data is not yet disclosed and which are applicable to the Company include: purchased goods and services; upstream transportation and distribution; third party waste disposal at landfill; waste management services at the PMR; downstream transportation and distribution; and use of sold products. In the graph alongside we provide a five-year comparison of our emissions profile. See www.iwmp.ap.gov.in

Carbon emissions per location

The largest contribution to total emissions is Marikana at 97.7% (1,536,015 tCO2e).

The Scope 2 indirect emissions from Marikana’s purchased electricity purchased is the single largest contributor to Lonmin’s carbon footprint, making up 91.4% of the total (1,436,645 tCO2e). Electricity use accounts for 93.5% of Marikana’s total carbon footprint. Although our electricity consumption has been lower than 2011 this has not been significant due to the commissioning of the chrome plants and activities at K4 shaft. The second largest contributor to Lonmin’s total carbon footprint was Marikana’s scope 1 direct emissions at 6.1% (95,713 tCO2e).

Lonmin significantly improved on our CDP disclosure in 2012, achieving 78% (B-band)* on the disclosure index in comparison with 65% (C-Band) in 2011.

  • * The carbon performance is given as a banded score. Band B achieve above 60% and the integration fo climate change is seen as a priority. Band C had some activity and climate change above 40%.