Strategy
Managing and mitigating risks
Strategically managing threats and capitalising on opportunities
Risk and its identification, assessment, management and mitigation are fundamental to our business. All aspects of the risk management process underpin the execution of our strategy and planning for the future.
Hand-in-hand with this risk assessment process is the identifying of opportunities so as to harness and capitalise on these for the benefit of all stakeholders. Once they have been evaluated, significant risks and opportunities are prioritised and managed within the group’s risk framework.
OUR PRINCIPAL RISKS
AngloGold Ashanti’s major risks are classified in terms of three aspects as follows:
- Strategic risks are those taken voluntarily after consideration of risk-versus-reward to achieve AngloGold Ashanti’s strategic objectives.
- Operational risks are preventable risks resulting from employees’ undesirable and unauthorised actions as well as from breakdowns in routine operational processes and human error.
- External risks are those emanating from uncertain and uncontrollable events.
Risks assessments are undertaken annually. The risks discussed here were identified, reviewed and assessed by the Executive Committee.
Full details and the status of each of the risks are monitored on a continuing basis. The information provided for each risk includes details of the: risk context and background; risk performance indicators; mitigation plans; expected outcome and residual risks; expected dates for completion of mitigation measures; possible root causes and consequences; and mitigatory and preventative controls. This information is updated and provided twice a year to the Audit and Risk Committee.
TOP GROUP RISKS
The top group risks are depicted in the graphic below which maps the severity and likelihood of the top risks. The risks depicted are those that are considered to be within the ‘likelihood’ range of ‘almost impossible’ to ‘almost certain’ and ‘consequence’ of ‘moderate’ to ‘extreme’ should they materialise.
Top group risks heat map
![Top group risks heat map [map]](https://www.aga-reports.com/14/img/map-top-group-risks-heat-map.png)
Our risks and their time horizons
We have categorised our risks in terms of their expected time horizons. Those with an imminent (short-term) horizon are more likely to occur within around 12 months. Those categorised as medium-term risks are considered to have a one- to three-year time horizon.
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. Such an occurrence would be likely to cause significant headwinds that could adversely impact the implementation of AngloGold Ashanti’s strategy, despite the successes achieved to date, and could potentially threaten AngloGold Ashanti’s liquidity and viability.
The table below lists the top risks – both imminent and medium-term – to the group, ranked from highest to lowest in terms both of the potential severity of the consequence of each risk and the likelihood of that risk arising.
Risk ranking | Type | Potential risk |
---|---|---|
2014 | ||
1 | Strategic | Protracted financial pressure on the business from the depressed gold price coupled with high debt and declining grades and consequential rise in unit costs as assets mature ** |
2 | External | Adverse gold and commodity prices, and currency movements * |
3 | Strategic | Inability to develop projects to bring the Ore Reserve to account ** |
4 | External | Covenant compliance and inability to reduce debt * |
5 | External | Protracted labour-related stoppages in South Africa * |
6 | Operational | Operational and safety underperformance negatively impacting improved track record ** |
7 | External | Legacy occupational and community health compensation claims/litigation ** |
8 | Strategic | Inability to remain competitive impacting the long-term investment case * |
9 | External | Elevated country risk profile in core production areas ** |
10 | Operational | Input cost inflation exceeding cost containment and productivity strategies ** |
11 | External | Security of power supply and rising cost of power in South Africa * |
12 | Strategic | Failure to successfully operationalise (ATIC) technology step-change ** |
13 | Operational | Asset integrity failures and compromised reliability at South African operations * |
14 | Strategic | Failure to demonstrate and/ or realise business case for Obuasi redevelopment * |
15 | External | Unfavourable regulatory environment changes * |
16 | Operational | Critical skills and talent retention * |
17 | External | Failure to acquire or loss of ‘social licence to operate’ * |
18 | Strategic | Lack of strategic growth projects to renew portfolio ** |
19 | External | Operational disruption in West Africa resulting from Ebola virus disease ** |
- * Denotes a risk with an imminent time horizon
- ** Denotes a risk with a medium-term time horizon
MITIGATION OF RISKS
Action plans to mitigate the risks identified have been put in place. The mitigation measures associated with the top five imminent risks are detailed in the table below.
Risk (ranking) | Potential consequences | Mitigation action plan | Expected outcome and residual risk | Progress/current status |
---|---|---|---|---|
Adverse gold and
commodity prices, and
currency movements a (2) |
|
|
|
|
Covenant compliance
and inability to reduce
debt b (4) |
|
|
|
|
Protracted labour-related
stoppages
in South Africa c, d (5) |
|
|
|
|
Inability to remain competitive impacts long-term investment case e (8) |
|
|
|
|
Security of power supply and rising cost of power in South Africa f, g (11) |
|
|
Over the next three to
five years:
|
|
- aIR: Refer to discussion on the gold market
- bAFS: Refer to group note 27 on group borrowings
- cIR: Refer to Engagement with organised labour
- dSDR: Refer to the discussion on labour relations
- e IR: Refer to section entitled Planning for future
- f SDR: Refer to Energy usage, efficiency and security
- g IR: Refer to Discussion on energy constraints
The mitigation measures associated with the top five medium-term risks are as follows:
Risk (ranking) | Potential consequences | Mitigation action plan | Expected outcome and residual risk | Progress/current status |
---|---|---|---|---|
Protracted financial
pressure on business
from depressed gold
price coupled with high
debt and rapidly rising
costs of mature asset
portfolio (1) |
|
|
|
|
Inability to develop
projects to bring the Ore
Reserve to account (3) |
|
|
|
|
Operational and safety underperformance negatively impacting improved track record a, b (6) |
|
|
|
|
Legacy occupational and community health compensation claims/ litigation c, d (7) |
|
|
|
|
Elevated country risk profile in core production areas e, f (9) |
|
|
|
|
- a SDR: Improving safety performance
- b IR: Refer to the discussion on safety performance in the regional review
- c SDR: Building workplaces free of occupational illness
- d AFS: Refer to group note 36 on contingencies and contractual commitments
- e SDR: Engaging with stakeholders, communities and governments
- f IR: Refer to the regional review
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.
Type | Opportunity | Strategy |
---|---|---|
Operational | Benefits from increase in gold price enhanced by cost reduction |
|
Technology step-change in South Africa |
|
|
Benefits from weaker currencies and lower oil price |
|
|
Strategic | Colombia |
|
Obuasi |
|
|
Business planning and portfolio optimisation processes |
|
|
Asset sale or joint venture for full value |
|
- a IR: Refer to the discussion on technology and innovation in Planning for the future
- b IR: Refer to the Americas regional review
RISKS BY STRATEGIC OBJECTIVE
(Risk ranking as above)
![People, safety and sustainability [icon]](https://www.aga-reports.com/14/img/icon-safety.png)
Focus on people, safety and sustainability
- Operational and safety underperformance negatively impacting improved track record (6)
- Protracted labour-related strikes (1) (5)
- Critical skills and talent retention (2) (16)
- Failure to acquire or loss of ‘social licence to operate’ (17)
- Legacy occupational and community health compensation claims/litigation (7)
![Ensure financial flexibility [icon]](https://www.aga-reports.com/14/img/icon-financial.png)
Ensure financial flexibility
- Adverse gold and commodity, and currency movements (2)
- Protracted financial pressure on business from depressed gold price coupled with high debt and rising costs of mature asset portfolio (1)
- Covenant compliance and inability to reduce debt (4)
- Protracted labour-related strikes (5)
- Legacy occupational and community health compensation claims/litigation (7)
- Operational and safety underperformance negatively impacting improved track record (6)
![Optimise overhead, costs and capital expenditure [icon]](https://www.aga-reports.com/14/img/icon-costs.png)
Optimise overhead, costs and capital expenditure
- Protracted labour-related strikes (5)
- Failure to demonstrate and/or realise business case for Obuasi redevelopment (14)
- Security of power supply and rising cost of power in South Africa (11)
- Unfavourable regulatory environment changes (3) (15)
- Operational and safety underperformance negatively impacting improved track record (6)
- Input cost inflation exceeding cost containment and productivity strategies (10)
- Asset integrity failures and compromised reliability at South African operations (13)
- Operational disruption in West Africa resulting from outbreak of Ebola virus disease 4 (19)
![Improve portfolio quality [icon]](https://www.aga-reports.com/14/img/icon-portfolio.png)
Improve portfolio quality
- Adverse gold, commodity, and currency movements (2)
- Inability to remain competitive impacting long-term investment case (8)
- Protracted labour-related strikes (5)
- Inability to develop projects to bring the Ore Reserve to account (3)
- Lack of strategic growth projects (18)
- Legacy occupational and community health compensation claims/litigation (7)
- Failure to successfully operationalise ATIC technology step-change (12)
![Maintain long-term optionality [icon]](https://www.aga-reports.com/14/img/icon-optionality.png)
Maintain long-term optionality
- Adverse gold, commodity, and currency movements (2)
- Inability to remain competitive impacting long-term investment case (8)
- Inability to develop projects to bring the Ore Reserve to account (3)
- Failure to demonstrate and/ or realise business case for Obuasi redevelopment (14)
- Lack of strategic growth projects (18)
- Elevated country risk in core production areas (9)
- (1) SDR: Implementing business strategy through people
- (2) SDR: Talent management and succession
- (3) SDR: Monitoring and respecting regulatory change
- (4) SDR: Delivering a health value proposition to communities