Ernest Mothoagae, a Tractor Operator, demonstrates how the proximity detection system works.

Supplementing Lonmin’s Annual Report and Accounts 2016, this report covers the Company’s most material sustainability matters. This chapter outlines how these material sustainability matters are determined.

Materiality determination process

The materiality process used to inform Lonmin’s 2016 Sustainable Development Report was guided primarily by the approach to materiality outlined in the GRI’s G4 Sustainability Reporting Guidelines. Recognising the importance of having a coordinated and integrated approach across Lonmin’s annual reports that aligns with globally accepted standards, the materiality process also drew on the guidance provided in the International Integrated Reporting Council’s (IIRC) Integrated Reporting <IR> Framework and the Corporate Reporting Dialogue.

Lonmin defines material matters as those matters that substantively affect the Company’s ability to create value in the short, medium or long term and considerably influence key stakeholder decisions.

Six-step process

An extensive materiality determination process was undertaken to establish our most material matters. The process included an analysis of internal operational variables and external factors that followed a structured six-step process, as depicted below.

Informed by the analysis, the existing five material focus areas have been retained, with some revisions to the associated set of material matters in each case, and one additional focus area, namely a challenging operating environment.

A challenging operating environment is reported as an overview section of this report. The next four chapters outline the context, risks, stakeholders, governance and performance of then employee relationships, safety and health, social licence to operate and environment focus areas, and the final chapter consolidates Lonmin’s vision for addressing these challenges in partnership with government.

Stakeholder perspectives

Our goal is to rebuild and protect Lonmin’s relationships with critical stakeholders. This requires genuine and robust stakeholder engagement, and an acknowledgement that trust and reputation are built on actions, not words. Building trust with external stakeholders and between management and employees helps to create an environment of peace and tolerance in which all stakeholders engage constructively.

Building relationships starts with a thorough understanding of stakeholder expectations and requires that we communicate key issues transparently, consistently and in a timely manner. Functional partnerships between government, organised labour and community leaders are essential to create the necessary environment for a sustainable future and realise the true meaning of “shared value for all”.

Lonmin follows a risk-based approach to identify and prioritise stakeholder groups. We also perform desktop reviews, analysis of media coverage, online sources, internal conversations and consultation sessions to improve our understanding of stakeholder views. We aim to develop and protect Lonmin’s relationships with all stakeholders who have a material ability to impact Lonmin’s operations and investment case.

Our stakeholder initiatives centre on improving communication and transparency, driving engagement to align the Company and our stakeholders with a shared vision of a sustainable and profitable Lonmin through all cycles, and minimising business interruptions. Formal engagement structures, including specialist sub-committees, have been established in the form of bilateral forums with the Bapo Ba Mogale traditional authority and surrounding communities. During engagements the most pressing community needs, such as employment, economic development, community infrastructure programmes and the SLP status, are addressed. Customers are engaged through the Company’s marketing function and Lonmin interacts with customers daily, monthly and in the ordinary course of business.

The Executive Vice-President of Communications and Public Affairs is responsible for corporate communications, media, public relations and stakeholder management. For further information, refer to the supplementary report on stakeholder engagement, which includes an overview of the method and frequency of engagement, concerns raised and Lonmin’s responses.

Risk analysis

Approach

We take an integrated approach to risk management that informs the internal audit process and includes the implementation of mitigation measures, where necessary. The Company’s risk management process includes a consideration of social and environmental risks, and sustainability risks make up a substantial portion of our risk profile. Sustainability risks are reviewed by the Safety, Health and Environment (SHE) and the Social, Ethics and Transformation (SET) Board Committees.

Risks are rated on a matrix scoring system based on probability of occurrence and potential severity, should they materialise. These are measured against the overall risk tolerance of the Company – the amount of risk we are willing to accept to meet our strategic objectives. The risk process marries top-down and bottom-up risk reviews that are carried out in the business and involve Executive Committee (Exco) and operational management. All senior managers are responsible for risk management and monitoring of risks. The causes and consequences of each risk are assessed and mitigation controls are developed. Where required, the internal audit department will perform internal reviews of these controls.

At an operational level, risk registers are regularly reviewed to take any operation-related risks that might occur during the daily activities into consideration. These risk registers roll up to the corporate risk register that is updated on a three-month cycle and reviewed by Exco. During the Exco review, strategic risks are discussed that take the changing macro environment into account, as well as how the country and industry circumstances evolve. Lonmin’s risk profile is benchmarked biannually with industry peers.

The risk management process was refined to improve analysis and understanding of macro-economic factors, and there was an enhanced focus on ensuring regulatory compliance as well as on the management of risks that might potentially cause operational disruption. Other additions included the grouping of risks to key business KPIs to further enhance the alignment with organisational strategy. A risk dashboard was introduced for all meetings to give a visual breakdown of key risks and mitigating strategies. This dashboard is also submitted to the Board of Directors (the Board) on a quarterly basis.

The risk management structure below shows how the risk management process integrates into, and cascades throughout, the various levels of the organisation. More detail on how we manage and mitigate risk is available in the Annual Report and Accounts 2016. The start of each of the material focus area chapters also includes a description of the relevant key risks, their impact and related opportunities and mitigation.

Principal risks

The risks have been ranked on a residual basis, according to the magnitude of potential impact, probability, and taking into account the effectiveness of existing controls.

Lonmin’s principal risks are addressed within the Annual Reports and Accounts 2016, in the Principal Risks and Viability section, as well as detailed within this report.

01 Operational execution

02 Price and market volatility

03 Employee and union relations

04 Safety performance

05 Community relations

06 Utilities

07 Changes to the political, legal, social and economic environment, including resource nationalisation

08 Lack of geographical and product diversification

09 Loss of critical skills

This is not an exhaustive list of all risks the Company faces. As the macro environment changes and country and industry circumstances evolve, new risks may arise, existing risks may recede or the rankings of these risks may change.

Lonmin’s principal operating subsidiaries are concentrated in one geographical location.