Anglo American Annual Report 2012

OPERATING AND FINANCIAL REVIEW RISKOPERATIONAL RISKS continuedLinking to our 4 strategic pillars for more informationEVENT RISKDamage to physical assets from fire, explosion, naturalcatastrophe or breakdown of critical machinery.Impact: The direct costs of repair or replacement combinedwith business interruption losses can result in financial losses.Root cause: Some of our operations are located in areas exposedto natural catastrophes such as earthquake/extreme weatherconditions. The impact of climate change may intensify theseverity of weather events.The nature of our operations exposes us to potential failureof mining pit slopes and tailings dam walls, fire, explosionand breakdown of critical machinery, with long lead timesfor replacement.Mitigation: Specialist consultants are engaged to analyse suchevent risks on a rotational basis and provide recommendationsfor management action in order to prevent or limit the effects ofsuch a loss.Contingency plans are developed to respond to significant eventsand restore normal levels of business activity. Anglo Americanpurchases insurance to protect itself against the financialconsequences of an event, subject to availability and cost.No change in riskEMPLOYEESINVESTINGOPERATING Page 22ORGANISINGEMPLOYINGThe ability to recruit, develop and retain appropriate skills forthe Group.Strikes or other industrial relations disputes frequently occur.Impact: Failure to retain skilled employees or to recruit new staffmay lead to increased costs, interruptions to existing operationsand delay in new projects.Industrial disputes have an adverse effect on production levels,costs and the results of operations.Root cause: We are subject to global competition for skilledlabour. Our assets and development projects are often in remoteplaces or in countries where it is a challenge to recruit suitablyskilled employees.In the key countries where the Group operates, the majority ofemployees are members of trade unions. Negotiations overwage levels or working conditions can sometimes fail to resultin agreement.Mitigation: Anglo American’s objective is to be the employer ofchoice in the mining sector. A comprehensive human resourcesstrategy has been devised to support that objective, focused on theattraction, retention and development of talented employees andthe effective deployment of talent across the Group. The Groupseeks constructive relationships and dialogue with trade unionsand employees in all its businesses.Commentary: During the second half of 2012 we suffered fromstrike action in our Platinum and Kumba Iron Ore business units inSouth Africa. These strikes had a significant impact on productionlevels as described on pages 57 and 80.BUSINESS INTEGRITYFailure to prevent acts of fraud, bribery, corruption oranti-competitive behaviour.Impact: Potential impacts include prosecution, fines, penaltiesand reputational damage.Anglo American may suffer financial loss if it is the victim of afraudulent act.Root cause: In certain countries where the Group operates therisk of corruption is high, as indicated by indices prepared byindependent non-governmental organisations (NGOs).Mitigation: Anglo American has very clear principles on themanner in which it conducts its business and expects allemployees to act in accordance with its values. Policies,procedures and awareness programmes are in place to ensureconsistent understanding of the Group’s expectations.The Group’s internal control environment is designed to preventfraud and is regularly reviewed by an internal audit team to provideassurance that controls are designed and operating effectively.Commentary: The continued implementation of our programmeof measures to raise awareness, understanding and managementof bribery risk during 2012 should have a positive impact inreducing the likelihood of this risk materialising. The global spreadof our business, however, means we can never eliminate this risk.Decreased riskJOINT VENTURESFailure to achieve expected standards of health, safety andenvironment performance in joint ventures.Impact: If similar standards are not implemented in joint ventures,higher costs or lower production may result and have a bearing onoperational results, asset values or the Group’s reputation.Root cause: Some of the Group’s operations are controlled andmanaged by joint venture partners, associates or by othercompanies. Management of non-controlled assets may notcomply with the Group’s standards.Mitigation: The Group seeks to mitigate this risk by way of athorough evaluation process before commitment to any jointventure and through implementation of ongoing governanceprocesses in existing joint ventures.Commentary: During 2012, we completed the acquisition of theOppenheimer family shares in the De Beers business, whichincludes a number of joint ventures. We also completed the Tarmacjoint venture with Lafarge in early 2013, (refer page 89). Thus, asthe number of joint ventures in the Group increases, the profile ofthis risk has increased in consequence.Increased riskINVESTINGOPERATING Page 22ORGANISINGEMPLOYINGINVESTING Page 14 ORGANISING Page 18OPERATING Page 22 EMPLOYINGDecreased riskINVESTINGOPERATINGORGANISINGEMPLOYING Page 3252 Anglo American plc Annual Report 2012