The Institute of Risk Management South Africa’s (IRMSA’s) recently launched 2017 risks report presents four scenarios laying out how the country’s National Development Plan (NDP) might potentially be executed.

As part of ensuring that mining companies have a thorough understanding of the South African mining environment and how this may impact on strategy execution, platinum mining company Lonmin group risk manager Brendan Maseti has established four scenarios that could apply to mining companies in 2017, which he bases on the IRMSA scenarios. These are the ‘missed window’, ‘sunny summit’, ‘steep climb’ and ‘avalanche’ scenarios.

Maseti tells Mining Weekly that he believes that South Africa-based mining companies potentially could be exposed to these scenarios.

He says the ‘missed window’ scenario is characterised by a stable mining environment coupled with a vulnerable mining company; the mine is vulnerable owing to its inability to execute its organisational strategy. Maseti says that some of the key aspects in this scenario are mining companies’ inability to influence future legislative amendments and limited proactive engagements with the regulator, as well as limited influence on government policies.

He comments that another key aspect of this scenario is that, despite a favourable stable mining environment, investors remain risk averse, as companies or role-players within them fail to provide significant evidence that they are able to improve their strategy execution capabilities.

Maseti elaborates that the ‘sunny summit’ scenario is characterised by a stable mining environment coupled with a resilient mining company, which is able to effectively execute its organisational strategy. He says that this could also be described as the ‘blue sky’ scenario in which the best possible outcome is achieved, namely that all targeted objectives are achieved and sound relations with stakeholders are established.

Maseti says that the ‘steep climb’ scenario is characterised by a mining company, which is resilient in terms of strategy execution. However, he notes that it is also a ‘taker’ of volatile commodity prices and rand:dollar exchange rates, as well as higher input costs, owing to the economic indicators resulting from the unstable mining environment.

Maseti comments that, despite being ‘takers’, the resilient mining companies in this scenario are able to absorb these factors as a result of their planning and execution processes. In addition, he points out that they are able to meet stakeholder demands, optimise limited capital availability, establish relationships with labour unions and meet the required regulatory requirements.

The ‘avalanche’ scenario can be regarded as the “worst-case scenario” under which a mining company can operate, as it is characterised by an inability to execute its organisational strategy and has thus become a vulnerable mining company. Maseti adds that this is linked to the mining company’s inability to respond to the unstable mining environment.

He says that mining companies in general may find themselves at various points on a horizontal axis, ranging from a position closer to being a vulnerable mining company to a position closer to being a resilient mining company. Maseti emphasises that mining companies must be cognisant of their ability to execute their strategies, as it is what they have the most control over in terms of responding to their mining environment.

He recounts that a Lonmin board member recently enquired of him what he thought the return on investment (ROI) would be were a mining company to find itself in each of these scenarios.

“I answered that I am of the opinion that putting a number to each scenario requires a detailed exercise. However, I could indicate the risk management steps required to perform as a resilient mining company and thereby support sound strategy execution,” Maseti says.

He proposes some high-level steps to consider. The first is to establish a simplistic principal risk register that clearly identifies the key uncertainties impacting on the set strategic objectives, as well as the associated risk mitigation measures.

The second step is to align appropriate key performance indicators (KPIs) with the principal risks and establish risk tolerances for identified KPIs that should flow into a company’s reporting and its organisational risk appetite statement.

Maseti says the third step is to enhance a company’s combined assurance process by ensuring ongoing verification of critical controls and progress of risk mitigation plans. He explains that combined assurance processes do not guarantee the reduction of risk exposures, but do provide comfort that the controls and status of risk mitigation have been verified.

The fourth step, from a regulatory compliance perspective, ensures that the compliance universe is established and that an appropriate verification exercise is undertaken to ensure that all key controls are in place and functioning effectively.

Maseti says that the fifth step, from a business continuity management perspective, is to have a thorough understanding of the key factors that may cause denial of access to business operations and how this will be managed by means of business continuity plans coupled with the required crisis communications.

He comments that the sixth step is to understand stakeholder demands by appropriately mapping and analysing their potential impact on strategy execution.

The seventh step is to understand external environmental factors and the impact these have on strategy execution. This step should also include demand-side factors (key customers or markets) as certain mining companies tend to mostly focus on managing supply-side factors related to their operations.

He adds that the final step is an assessment of the effectiveness of a company’s risk management process, or “risk efficacy”, as Maseti terms it, over a specific period, requiring an analysis of where risk reduc- tion has occurred and thus aided in strategy execution.