Integrated report
Profile
Scope and boundary
Organisational overview and activities
- Business model
- Assurance
- History of the group
- Group at a glance
- Location of markets
- Location of operations
- Group structure of operating companies
- Governance structure
Risks and opportunities
- Operating context
Strategic objectives
- Strategy
- Key performance indicators
Operational review and commentary
Future performance objectives
Remuneration
Financial highlights
Risk and opportunities
Operating context
The performance of the Assore group is largely dependent on global economic growth and the state of the global economy as a whole, as almost all its commodities are used in the production of crude and stainless steel, the consumption of which is intimately related to the incidence of global capital spend. Global economic growth, in turn, together with demand and supply dynamics, drives inter alia US dollar prices for commodities and exchange rates, which are the two most important factors underlying the group’s performance. In assessing the group’s risks and analysing its performance, it is essential to understand that changes to global supply and demand occur over long periods. Factors that influence this timeline include:
- The ability and cost competitiveness of existing facilities, taking planned capital improvements into account, to meet global demand;
- Exploration for and development of new and existing mineral deposits;
- The establishment of new, technologically advanced facilities;
- The existence of, or establishment, of efficient overland logistics;
- The availability of suitable vessels, and the efficiency and capacity of the South African and overseas ports;
- Global inventory levels of inputs into steelmaking processes; and
- Political conditions in the countries of ore and material production where ores and crude and stainless steel production plants are located.
While ensuring that every reasonable opportunity is pursued to add value to shareholders’ returns, management is aware of the impact of the group’s activities on other stakeholders as well as on the environment. The manner in which the group interacts with its stakeholders and its impact on the environment is addressed in the “Sustainability report”. The table below sets out the most significant material risks to which the group is exposed and describes the mitigation measures adopted:
Risk description |
Impact |
Mitigating measures |
Financial risks |
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Fluctuations in exchange rates |
Since most sales are denominated in foreign currency, fluctuations in exchange rates (the level of the rand against the US dollar and the euro) can have a significant impact on the group's earnings |
Assore has an established Treasury Committee, whose purpose is to limit exposure to exchange rate fluctuations. A limited degree of hedging occurs, given that some capital expenditure occurs in foreign currency as well |
Changes in international commodity prices |
Most iron ore sales are priced on a quarterly basis, while manganese ore is priced quarterly, monthly or on a shipment-by-shipment basis. Most other commodities are priced quarterly in advance. Fluctuations in these prices have a significant impact on the profitability of the group |
Market prices of commodities are continually monitored by Ore & Metal, and the diversified portfolio of commodities does provide a degree of hedging against variable commodity prices |
Operational risks |
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World economic growth |
Since most of the group's commodities are used as inputs in the steel industry, the group's ability to continue to distribute and sell its commodities is largely dependent on the level of demand for steel, which in turn is generated by economic growth |
Management continually monitors developments in the steel industry, and ensures that ore reserves are exploited in a manner that ensures suitable sustainable supply of material to our customers |
South African logistical infrastructure |
The available channels for the export of commodities from the mines to the ports, and the facilities in South Africa's ports, are both dependent on the level of infrastructural investment by the State. The level of maintenance and quality of management of the logistical facilities has a direct bearing on the group's sales volumes |
Assmang management and representatives of Ore & Metal meet regularly with all levels of Transnet's port and rail management to ensure optimum use of the existing channels and to explore expansion of these channels |
Reserves and resources |
The quality of orebodies can vary over the course of the life of the mine and, depending on commodity prices, their lives can either increase or decrease, given that mining deeper becomes increasingly more costly. Customer choices and preferences, therefore, have a direct bearing on the economic lives of the deposits |
Orebodies are continually monitored, and are exploited in conjunction with market demand. Customer relationships are carefully managed in order to ensure that customer requirements are met within physical, chemical and economic constraints. (For a detailed analysis of our orebodies, refer "Mineral Resources and Reserves report" (refer here)) |
Mining Charter |
The Mining Charter places onerous requirements on the operations in order to meet its requirements. Changes to the Charter can significantly impact the ability of the operations to continue to operate in compliance with the Charter |
Management of the compliance aspects of the Charter is undertaken at all operations and every attempt is made to ensure compliance, both at the operations and at a corporate level (refer "Black economic empowerment status report" (refer here)) |