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Annual report suite 2012

Managing our supply chain

Parker Kapp

PODCAST

Parker Kapp
AngloGold Ashanti
Senior Vice President: Global Supply Chain

Ethical supply chain management

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Nils Steward

PODCAST

Nils Steward
Golder Associates
Principle Consultant
Member of the Technology Innovation Consortium

The benefits of a consortium of minds to address the future of mining

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CASE STUDY

The future of mining: technology and innovation in the 21st century

The Technology Innovation Consortium was established by AngloGold Ashanti to develop innovative technological solutions, improve safety and enhance mining efficiencies by collaborating with industry partners as well as partners beyond traditional mining borders.

See case study: South Africa – The future of mining: technology and innovation in the 21st century

Supply chain management has always been a critical operational drive and, in recent times, has become an important ethics and human rights consideration.

Supply chain management is increasingly the focus of external ratings agencies and regulation.

What we said we would do

While the issue of supply chain management was not specifically identified as a material issue in the 2011 Sustainability Report, we have commited ourselves to developing an understanding of the ethical behaviour of suppliers in 2012, and to reporting fully on the suppliers screened by the company in respect of human rights by 2016.

A distinct but important aspect of supply chain management is the achievement of specific objectives in respect of in-country and local procurement. Nowhere is this more evident than in the South Africa Region, where procurement initiatives and targets form a fundamental part of the industry’s transformation programme. This region has continued to work towards achieving the targets set in our Social and Labour Plans* (SLPs).

  1. * Mining companies are required to submit and work in accordance with SLPs that have been developed as part of the Minerals and Petroleum Resources Development Act (MPRDA) and the Broad Based Socio-Economic Charter for the South African Mining Industry (Mining Charter). The Mining Charter was amended in 2010 and its revision includes a requirement for multinational suppliers of capital goods to contribute a minimum of 0.5% of their locally-generated annual income towards a “social development fund” for the benefit of local communities.

SLPs have an important role to play in regulating the way in which mining companies approach local economic development, use and expand the existing skills base of local communities (and in particular historically disadvantaged South Africans (HDSAs)), and provide the necessary support to emerging small and medium-sized enterprises (SMMEs). Our 2012 SLP target was for 20% of our capital goods, 50% of our services, and 25% of our consumables to be sourced from black economic empowerment* (BEE) companies.

  1. * BEE companies are those defined as qualifying BEE entities with a minimum 25% black ownership status.

Our performance in 2012

Ethics and human rights form a cornerstone of our Code of Business Principles and Ethics with which all suppliers are expected to comply.

Good progress was made in 2012 in respect of integrating ethics and human rights considerations into our formal procurement systems, culminating in a workshop to launch our Ethical Supply Chain Tool. The tool encompasses a self-assessment questionnaire that has been designed for suppliers to complete. In late 2012, the process of the Ethical Supply Chain Tool supplier screening software refinement (in line with the implementation of the group’s OneERP project) continued and supplier training will begin during 2013.

The tool forms part of a supply chain management project that addresses human rights, including labour standards, health standards and also environmental issues, and is aimed in the first instance at “first-tier” suppliers. First-tier suppliers are those that have direct contractual relationships with AngloGold Ashanti, while “second-tier” suppliers are our suppliers’ suppliers.

The implementation of the Voluntary Principles on Security and Human Rights (VPSHRs) has been an important part of our supply chain process, particularly security personnel training. For further detail, see Securing our people and assets.

Detailed reports of our compliance with our SLPs will be available on our website at www.anglogoldashanti.com in May 2013. While the numbers alone do not reflect the full impact of our endeavours, they provide useful insight.

By the end of 2012, the South Africa Region had spent $359m (approximately R3.03bn) with qualifying BEE entities. This represents 45% of procurement expenditure of $797m (approximately R6.7bn). No contribution has yet been reported against the target for multinationals because the social development fund has not yet been established by the Department of Mineral Resources (DMR) in South Africa. We have issued notices to our suppliers to set aside, either in a trust account or as an accrual, such required funding until such time as the fund details are finalised. Overall, we achieved 75% in terms of the DMR compliance scorecard. The table below translates the achieved actual BEE expenditure per category and objectives (capital, services and consumables) into actual points achieved as measured against the target points.

Expenditure Target points Actual
Capital 5 5
Services 5 4
Consumables 2 2
Multi-national contribution 3 Pending

In terms of supporting emerging SMMEs, we are setting up a supplier development centre in the labour-sending area of Mthatha, Eastern Cape, South Africa. This supplier development centre is intended to become a gateway for suppliers to access business from the company and other entities, as well as training and development in entrepreneurship and basic business management skills. We have appointed a service provider in O.R. Tambo District Municipality in the Eastern Cape who will develop the specific enterprise development intervention programmes and operationalise the supplier development centres. In our host communities of Merafong, Gauteng, South Africa, and Matlosana, North West, South Africa, a survey was conducted to establish the business profile of SMMEs in these communities to enable us to begin the development of a customised SMME strategy for each area.

Key performance indicators

Expenditure with qualifying BEE entities [graph] Procurement performance against targets [graph]