Understanding and mitigating our risks, identifying and harnessing opportunities
AngloGold Ashanti recognises that risk is present in all business and operational activities, that threat and opportunity are the two sides of risk, and that successful risk management is critical.
Risk assessment and management are fundamental components of AngloGold Ashanti’s business – in planning for the future and executing its strategy. The company identifies, evaluates and manages significant threats and opportunities as it seeks to deliver against its business objectives, within the framework set for group risk.
Group risk management structure
Risk management is a central part of group strategic management and is the process whereby the risks associated with group activities are methodically addressed with the goal of achieving sustained benefit. Risk management increases the probability of success, and reduces both the failure potential and the uncertainty associated with achieving the group’s overall objectives.
The group risk management system was formally initiated when the revised and invigorated focus on risk management was approved by the Board of Directors in 2009 when commitment, in terms of the implementation of the group risk management process, was obtained. This involved the development, building and roll-out of the group risk management process, improvement of the quality of risk knowledge and risk response tasking.
Specific objectives of group risk management
Specific objectives of the group risk management focus are to:
- avoid or reduce threats to business objectives and exploit opportunities to add sustained value to all group activities in line with group risk tolerance and threshold;
- provide timely risk information and appropriate responses to assist with meeting business objectives;
- reduce future operational performance uncertainty by minimising surprises and associated costs and losses;
- develop and implement a best practice group risk management system that is owned and championed at all levels of the organisation;
- monitor and report on group and industry risk trends and outcomes and ensure appropriate board and executive reporting and briefing;
- improve deployment of capital by using robust risk information to effectively assess overall capital needs and allocation; and
- ensure that risk management forms an integral part of normal business practice and engenders a culture of ‘risk awareness’.
Risk management framework
The group risk management framework has the following core elements:
- policy, that provides the context for risk management and prescribes the scope, objectives and required outcomes of this process;
- plan, prepared by management and which is reviewed and approved annually by the Risk and Information Integrity Committee of the board;
- standard, that defines the approach adopted and methodologies that are based upon the principles of the International Standards Organisation ISO 31000, and prescribes the minimum requirements; and
- guidelines, enabling operations to access detailed information concerning risk management principles and practice in order to define risk management strategies.
Our risk management structure, depicted generically below, and accountabilities are defined in the framework and ensure that risk identification, assessment and management are considered at every step in the business planning process.
A core outcome of the risk management system is to promote risk awareness throughout the group. This is undertaken primarily via:
- Regional and site-based risk training workshops annually and as appropriate;
- An intranet-based, group risk management community of practice maintained and updated regularly;
- Regional, site- and discipline-based training initiatives;
- Preparation of a risk knowledge database; and
- Regular risk owner and risk champion interaction and support.
The board, as required by King III, receives assurance regarding the effectiveness of the risk management process.
The Group Internal Audit (GIA) charter approved by the Audit and Corporate Governance Committee (Audit Committee) requires the Senior Vice President: GIA to provide a written assessment of the system of internal controls and risk management to the Audit Committee. In satisfying this requirement, GIA conducts reviews to assess the design adequacy of the following processes within the risk management process: adherence to the Group Risk Management policy, standard and guidelines; risk management system and technologies against best practice information available; risk management performance measurement, monitoring and reporting processes; compliance with King III; and current approaches to risk management.
In so doing GIA forms an opinion on the adequacy of the design of the risk management framework driving the risk management process to ensure that the framework addresses the requirements of King III. It also confirms that the roll-out and implementation of the framework is in line with the approved implementation plan. To meet these obligations GIA, working with the Planning and Technical group and others, conducts combined assurance reviews that are risk-based and draws upon appropriate functional expertise.
The specific risks and opportunities that affect the company’s ability to create value over the short, medium and long term and how these are dealt with
“Risk assessment and management are fundamental components of our business.”
The diagram below provides an overview of key risks as at the first quarter of 2014, plotted in terms of the potential severity of consequence and likelihood. The risks are:
- external (risks to AngloGold Ashanti from uncertain, uncontrollable events – indicated by black circles);
- operational (preventable risks from employees’ undesirable and unauthorised actions as a result of breakdowns in routine operational processes and human error – indicated by orange circles); and
- strategic (risks undertaken voluntarily after consideration of risk-versus-reward to achieve our strategic objectives – indicated by grey circles).
There may be additional risks unknown to AngloGold Ashanti and other risks, currently believed to be immaterial, that could become material. Additional risks, either individually or in the aggregate, could significantly affect AngloGold Ashanti’s business, financial results and the price of its securities. The company advises investors to carefully read the document on risk factors in the prospectus supplement to AngloGold Ashanti’s prospectus, dated 17 July 2012, that was filed with the United States’ SEC on 26 July 2013.
The following tables rank these risks in two time frames (imminent horizon of six to nine months, and a medium- to long-term horizon of one to three years) and provide details of the mitigation strategy for each risk.
The cumulative impact of a number of these and other risks, should they materialise simultaneously or in succession, as well as the possible magnitude and velocity of the risks, is of major concern since they will create significant headwinds that could adversely impact the implementation of AngloGold Ashanti’s strategy, despite successes to date, potentially threatening AngloGold Ashanti’s liquidity and viability.
|Top group risks|
|External||Sharp continued gold price dislocation (Gold price)||
|Protracted labour-related stoppages in South Africa (Strike)||
|Long-term de-rating of gold equity valuation multiples (De-rating)||
|Portfolio rationalisation impediments (Portfolio)||
|Legacy occupational health compensation claims and litigation (Health)||
|Unfavourable regulatory environment changes (Regulatory)||
|Socio-economic, artisanal small scale and illegal mining (Socio-economic)||
|Foreign exchange volatility and local currency strengthening (Currencies)||
|Operational||Delayed ramp-up of capital projects (Ramp-up)||
|Critical skills and talent retention (Skills)||
|Top group risks|
|External||Elevated country risk profile in core production areas (Country)||
|Inability to mitigate legacy environmental contamination (Environment)||
|Operational and financing||Failure to achieve Obuasi rationalisation and turnaround (Obuasi)||
|Material underperformance negatively impacting recent improving track record (Production)||
|Reversal of improving safety performance (Safety)||
|Asset integrity failures and compromised reliability (Reliability)||
|Input cost inflation exceeding costs containment and productivity strategies (Inflation)||
|Refinancing of existing facilities as a result of negative external factors (Gold price)||
|Strategic||Inability to develop strategic growth and development projects to bring reserves to account as per plan (Growth)||
|Failure to successfully implement the start of a technology step change in South Africa (Technology)||
|Impediments to Mongbwalu divestment (Divestment)||
Risk correlation refers to the likelihood of an event having a direct impact on another and is a measure of how risks could move in relation to each other. The figure below shows the top risks and their correlations.
The top group risks are arranged around the circumference of the diagram and are classified into external, operational and strategic risk. The risks that have the potential to impact other top risks are linked by orange, dark grey and light grey ribbons, coloured according to their classification. The purpose of this diagram is to highlight the interconnectedness of the top group risks.
The most highly correlated top risks are:
- portfolio rationalisation impediments (portfolio);
- socio-economic, artisanal, small scale, illegal mining (socioeconomic); and
- failure to achieve rationalisation and turnaround (Obuasi).
POTENTIAL RISK IMPACT on strategic building blocks
The top risks are likely to most strongly affect the group strategic building blocks of ‘optimise overhead, direct costs and capital expenditure’ and ‘focus on people, safety and sustainability’.
The purpose of this diagram is to highlight the potential for the top group risks to impact the strategic building blocks that comprise AngloGold Ashanti’s strategic goal of “sustainable cash flow improvements and returns”.
Top group opportunities
We recognise that identifying and managing opportunities is an important component of risk management. The company identifies suitable opportunities, endeavouring to exploit, harness, or maximise them with the aim of creating value from mitigating our risks. The following table lists our key opportunities along with the strategy for each.
|Operational||Cost reduction to benefit from increase in gold price||
|Technology step-change in South Africa||