Mining Excellence in Africa

Transcription

1 Mining Excellence in Africa PwC in Africa Mining Capability Statement 2015

2 Contents The new game 1 Our global footprint 2 An extensive African Footprint 4 A variety of solutions 6 Advisory Services organisational change Enterprise Performance Management Deals 13 Advisory Services increase performance 17 Capital Projects and Infrasctructure 18 Asset optimisation 23 Advisory Services - align your support functions 24 Human Capital 25 Finance Function Effectiveness 29 Technology and Data 33 Taxation 37 Building Trust by Managing Governance Sustainable Value Risk 47 Financial Reporting Assurance 2 53 Mining Value 55 Thought Leadership 56 Keeping you connected 57 Mining Excellence in Africa

3 The new game Times are changing: The cost base of the industry is experiencing permanent change as lower grades, shortages of labour and increasing input costs take effect. Commodity prices continue to fall. There are new CEOs in nearly 50% of the Top 40 mining companies over the last two years. Shareholders are putting pressure on companies to improve returns. Cost reduction initiatives are taking time to implement. It s becoming increasingly difficult to obtain a licence to operate, particularly in emerging economies. There has been an increase in emerging-market companies in the Top 40. Hein Boegman Africa Mining Industry Leader T: +27 (11) M: +27 (82) hein.boegman@za.pwc.com Mining companies are facing an increasingly complex environment globally and in Africa, with a shift in investment drivers. Times are changing, forcing mining companies to reassess their strategies in order to play the new game successfully exploring emerging mining markets. Regulatory requirements aimed at increasing the take of Governments, a shortage of skilled labour, generally rising costs, weak infrastructure, pervasive corruption and increased stakeholder expectations are common features of mining in Africa. Resource nationalisation has always been another risk for mining companies, and the issue is growing as governments look for a bigger share of resource wealth to pay off their growing debts and respond to the demands of their citizens. But there are enormous opportunities and potential for companies who focus on Africa and are willing players in the new game. A leading advisor to the mining industry, PwC works with clients to unlock opportunities in their industry. PwC has in excess of mining professionals across the globe, located in all significant mining territories. Strength in serving this global industry comes from highly developed skills, experience and the strong interconnection we maintain across our global industry specialists. Our expertise, global coverage and track record with public and private mining companies and industry associations put us in a position to provide our clients with solutions that add real value to their business. Since the formation of PwC Africa, our mining network has benefitted from a more co-ordinated market approach through our Africa Mining Centres of Excellence (CoE). Through our CoEs in the East, West and South Markets, we re contributing significantly to meeting the business needs of miners operating on the African continent. Through our strong network we re able to provide you with the right solution, wherever your needs are. We want to be involved as you identify issues and work towards solving them. We know you expect to be able to come to us, ask a tough question, and get a useful, thoughtful answer in reply. We strive to go a step further to not only understand your queries but question the available solutions in order to help you plan for growth. Our experience allows us to help you ask the right questions, not just provide the right answers. This statement of our capabilities has been prepared to show you how we can help you. In every area of your business, we re able to help you address your needs. We look forward to the opportunity to work with you, and I trust that you ll find this statement of our capabilities useful. PwC 1

4 Our global footprint More than 195,000 people who are committed to delivering quality in assurance, tax and advisory services Over mining professionals across the globe located in all significant mining territories Professionals in 157 countries, working collaboratively Our promise to you: Our relationship with you creates the value that you are looking for. 2 Mining Excellence in Africa

5 Navigating the territory Our ability to quickly combine the right competencies, market knowledge and mining industry insights uniquely for each client issue and territory sets us apart from the rest. We help organisations explore opportunities, navigate risk, achieve business goals and change business networks across Africa. Our professionals have financial and operational experience, knowledge of business processes, and industry insight which enable us to listen and understand your goals and the environment (competitive, economic and regulatory) in which you operate and provide you with a solution that s right for your organisation. Apart from our extensive global reach and our deep level of industry experience and skills, building relationships with our clients is key to us. This is the core of what makes partnering with us effective and the return on your investment with us invaluable. Our African mining practice actively recruits seasoned, multi-disciplined leaders with proven industry experience, a demonstrated ability to solve the most difficult business problems and a history of leading successful and sustainable continuous improvement initiatives from start to finish. We believe it s critical that our professionals can quickly understand your business, challenges and culture and then design and implement an effective solution for your organisation. PwC 3

6 An extensive African Footprint 4 Mining Excellence in Africa

7 An extensive African Practice Our African mining practice focuses on delivering professional services to companies of all sizes across the region. We operate in 34 countries in Africa as a whole, with over staff and more than 400 partners. This means that we re able to provide our clients with seamless and consistent service, wherever they do business on the continent. Our in-depth knowledge and understanding of African operating environments enables us to offer tailored tax, assurance and advisory solutions for every business challenge. Mining Centre of Excellence Globally, our PwC mining network has benefited from a more co-ordinated market approach through our Mining Centres of Excellence. In line with this approach, aimed at strengthening the collaboration of the mining teams in the Africa region, 2014 has seen the birth of the Mining Centres of Excellence (CoE) in the South, East and West Market Regions in Africa. Our Africa CoE assists with requirements and requests of companies operating within the mining industry. Our strategies are developed and matured to ensure that we support all companies operating throughout the African continent, which will be made possible with concerted co-ordination between the centres in all three regions. Our priority is to ensure that we develop strategies that will establish an integrated approach across lines of service and regions so that we deliver a seamless service to mining clients to enhance the returns on their operations thus delivering to you the real value you are looking for. PwC 5

8 A variety of solutions We assist our mining clients from exploration to operations, mine closure and rehabilitation. Our clients range from the largest multinationals to smaller entrepreneurs. Our services are tailored to meet the specific needs of each client, taking into account size, location and sector. Services over the mining life cycle Exploration Feasibility and planning Construction Mine operation Mine closure and reclamation Scoping Study Pre Feasibility Study Feasibility Study Contract Strategy Project Controls Schedule and Cost Management Operational readiness Extraction & Processing Asset Maintenance Support Services Shut down Decommissioning Reclamation Post-Closure Economic impact studies Capital Projects & Infrastructure management and governance Capital Projects risk reviews Organizational strategy including taskforce planning and retention Corporate Social Responsibility strategy Environmental, Health & Safety programs and assurance IT Strategy, Architecture & Governance programs Finance Function assessment, visioning and performance Anti-bribery and corruption programs Strategic sourcing, and contract/supplier management ERP selection, implementation and controls Enterprise Performance - KPIs and management dashboards Productivity improvement and cost reduction Supply Chain Management strategy and design Enterprise Risk Management (ERM) Internal Audit transformation and (co) sourcing IT and Business Controls assessments Information Security & Privacy programs planning Shared services Change Management Programs 6 Mining Excellence in Africa

9 Investors expect greater reliability, more oversight and clear evidence of internal controls If information is important enough to be relied upon, it s important enough for assurance. Audit and assurance Mining companies want audit teams that know their issues and understand their business challenges. As one of the world s leading audit and assurance firms, we audit many of the world s best-known companies, including many of the top-performing mining companies on stock exchanges around the world and thousands of other organisations, both large and small. Our industry-dedicated professionals receive specialised training, including regular updates on mining-specific issues. We have the knowledge and experience necessary to help you with complex financial accounting issues related to matters such as valuations, pensions and share plans, listings, conversion to International Financial Reporting Standards (IFRS), and corporate treasury and company secretarial functions. AfriTax News Our quarterly newsletter providing you with a snapshot of the most significant recent tax changes on the African continent We can help you through a variety of solutions: Financial, operational and performance statement audits and reviews Integrated reporting Sarbanes-Oxley compliance Accounting, technical and regulatory advice IFRS reporting Secondments Assistance on capital market transactions Assessment or determination of accounting policies Advice on controls and processing system weaknesses SAP implementation and support Actuarial services. remuneration strategy) that will assist you in delivering value. Tax services Tax regulatory issues are top of mind for mining companies operating in Africa. Our tax services focus on helping our clients understand local tax regimes and develop tax strategies for all of the various taxes that come into play. Mining clients engage us because we combine a strong understanding of their business and economic environments with specialist tax knowledge on Africa s national and local jurisdictions. Our tax professionals solve challenging issues, anticipate changes that can impact your tax situation and financial statements, and keep you appraised of local, state, foreign and international tax regulations as they relate to your company s operations. We can help you through a variety of solutions, including but not limited to: International tax services (including constructing effective cross-border strategies) Tax management and accounting services (including corporate tax compliance, accounting, payroll and related services as well as tax function effectiveness) Transfer pricing Mergers and acquisitions Indirect taxes and royalty taxes Liaising with authorities Tax compliance and tax structuring advice PwC 7

10 Advisory services Advisory Services Consulting and deals We understand the importance of delivering early and sustained value. We re leading advisers to a large and growing number of organisations that operate within the mining industry. At PwC, we design strategies to help you innovate, grow, reduce costs and leverage talent all essential strategies in the current mining environment. We can help you execute them, deliver value and ensure long-term success. We do this by creating sustainable solutions that work for you, allowing you to benefit from our industry knowledge, subject expertise and collective experience in the mining industry. Our advice will assist you in building trust and improving operational performance, profitability and stakeholder value a burning priority for so many mining companies. Our African footprint will allow us to work with you wherever you are or want to go in Africa. We invest in experienced, specialised staff who, combined with their deep mining industry insights, are powered through our training, tools, research and access to the global PwC network. This ensures they know what you need them to know. In addition, we have longstanding and extensive experience as advisers on mergers and acquisitions activity in the mining industry. Whether you are pursuing new opportunities, responding to events or coping with the daily pressures of growth, we are there to help. We can help you through a variety of solutions: Innovation and profitable growth Cost reduction Leveraging of talent Risk and regulation management Efficient, effective IT systems Restructure troubled businesses (company liquidation and windup) Forensics and fraud prevention Capital project assessment, approval and monitoring Modelling and business planning Financial and operational due diligence Accessing capital markets and other sources of finance Valuing all or part of a business, including the implications and risks Managing assets amid increased competition Gaining value from mergers and acquisitions Maximising value post-deal. Human resources Our multidisciplinary approach allows us to advise on all aspects of people management, helping our clients to create value and deliver competitive advantage for their businesses through people. We can assist you with human resources and remuneration consulting (determination of KPIs and Helping organisations work smarter and grow faster working with you to solve your complex and day-to-day problems 8 Mining Excellence in Africa

11 Mozambique Case Study: A variety of solutions We assisted in valuing a global gold mining company s heap leach for the purpose of determining its decommissioning cost, and carried out an impairment assessment on the heap leach. We independently determined the value of the heap leach components at the time of the exercise and what it was likely to be at the point of decommissioning the heap leach. We developed a model for the company to track all components of the heap leach up to the point of decommissioning. We also assisted this company to compile its annual financial statements to ensure compliance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act. We assisted the company to document its business processes for all operational areas in the mining value chain (from exploration to mining, procurement, logistics and finance) to ensure compliance with the Sarbanes-Oxley Act 2002 section 404 (SOX 404) and Public Company Accounting Oversight Board Auditing Standard No. 5 (AS5). Value: An in-depth relationship with the client meant that we were able to service more than one of their needs. Our mining experience and in-depth knowledge of the client helped them all-round. Fact: Vast swathes of untapped high-grade coal reserves, which have only just started attracting interest. Opportunity: Solid demand in Asia for coking coal will provide a sizeable opportunity as Mozambique becomes a major source of coal exports. Threat: The government recently announced its intention to increase taxes on the mining sector and to ensure more mineral wealth is allocated locally. This has the potential to deter new entrants to the sector. Population currently (million) 26,5 Population expected 2020 (million) 30,6 CPI Inflation (average % yoy) 4,5 OECD country risk rating 6 (1 very low - 7 very high) Source: OECD report Zambia Fact: Vast swathes of untapped copper reserves, which have been redeveloped. Opportunity: Zambia s copper deposits are high-grade, averaging around 2-3% compared with a global average of approximately 0.8%. Threat: The country s infrastructure is perennially unable to meet the demands of the mining sector. This is likely to deteriorate as the mining sector grows rapidly, unless there is substantial investment in electricity supplies and transport routes. Population currently (million) 15 Population expected 2020 (million) 18,3 CPI Inflation (average % yoy) 8,2 OECD country risk rating 5 (1 very low - 7 very high) Source: OECD report PwC 9

12 Advisory Services organisational change How our Advisory Services can help you with organisational change Enterprise transformation is about fundamental change at a strategic or operational level or both. Companies in the mining industry are being forced to change the way they do business in order to redefine growth and ensure future success in an environment posing many challenges that are impacting their success and relationship with stakeholders. Investment activity in Africa is also on the rise as mining companies look to emerging markets as part of renewed strategies. We can work with you to transform the way you operate and perform. We design and implement practical change with measurable business benefits. Our support throughout your journey provides capacity to deliver success. We can help you through a variety of solutions, including: Strategic enterprise transformation Enterprise performance management (EPM) Deals 10 Mining Excellence in Africa

13 Enterprise Performance Management Driving business performance beyond the traditional finance role of budgeting Successfully navigating your business through today s complex and volatile market conditions requires an understanding of the past, a firm grasp on the present and real insight into the future. Mining companies today operate in an increasingly complex and dynamic environment where realtime information is key whether operational or financial. With investment activity into Africa on the increase, companies are becoming more geographically dispersed, more complex and thus more difficult to manage. Mining regulatory burdens are forcing companies to become more transparent and reliable, and timely information is therefore essential to survive and ensure that mining companies build trust with all stakeholders. The challenge: The right information, at the right time, at your fingertips The right information, at the right time, to the right person at a sufficient level of granularity is key to making informed business decisions. To make the right decisions you need to gather the right information, analyse it, report on it and apply it across the business. But you need to do this in an optimal manner that will create real business insight and the agility you need to support your key business decisions. To really drive enhanced business performance, your organisation s processes, data and systems, as well as the behaviours of your people, must be working in unison. Issues that you may be facing and that may prevent you from achieving the above may include the following: You have no clear picture of performance across your entire business. You re constrained in providing financial and non-financial analyses of your business to the Board and other stakeholders. You have a high reliance on manual intervention to gather and analyse key performance data. You re faced with unreliable information. You experience long lead times in reporting. 80% of organisations lack the right information to improve the performance of their business 60% of organisations today have a weak link between their strategy and their execution. PwC 11

14 How we can help you Our team at PwC will work with you to translate your strategy and business environment into a meaningful framework of metrics to effectively manage performance and strategic alignment. We ll help build your capability to analyse past performance; identify patterns, trends and dependencies; report on performance; and perform predicative modelling. Our data and technology specialists will work with your teams to design and implement the most appropriate solutions, leveraging your current and future investment in technology and data. We can help you through a variety of solutions, including: Diagnostics and maturity assessments, benchmarking and business case development Re-engineering of decision support capability (incl. BI, reporting and scenario modelling) Target setting and development of SMART KPIs and business scorecards Process and technology optimisation To help you create efficiency in your mining operations, our solutions focus on the following: We ll work with you to get the basics right. We do this together with you by firstly removing redundant information and manual interventions that exist in the core reporting, budgeting and planning process; reporting the metrics that matter to deliver core insight to the board and to divisional and business group leadership teams; and aligning reward models to create focus on and motivation for executing the business strategy. Secondly, to create efficiency, the core disciplines of consolidation, management information, budgeting and forecasting are standardised. Systems are consolidated and streamlined onto a common platform, a centre of excellence is used to reduce costs, and one version of the truth and self-service reporting is delivered. The third phase consists of delivering insight. Here, scorecards are cascaded to communicate the business strategy, key risk measures and workforce responsibilities and priorities. Risk measures are integrated and forward-looking information, such as customer, operational and commercial insight supported with business intelligence and data visualisation, is delivered. We deliver detailed product/stock-keeping unit costing and profitability management and we integrate sales, operational and financial plans. The final phase entails the unlocking of value: delivering total business impact and value-based measurement; embedding analytic capabilities and using Big Data to create competitive insight; and setting up advanced centres of excellence to actively drive insight to chief executive officers of divisions, business groups and business units. Lastly, we deliver business insight to the front office and make it pervasive via mobile deployment. Opportunities for you Better insight into business performance and increased confidence in decision making 20% to 50% reduction in inefficiencies time, effort and costs are removed Improved credibility with investors, resulting in higher returns on equity Improvement in profit through workforce effectiveness, process efficiency, revenue optimisation, cost efficiency and asset optimisation Tanzania Fact: Vast swathes of untapped coal reserves, which have only just started attracting interest. Opportunity: The majority of mineral deposits are high-grade when compared globally, which provides companies with greater margins. Threat: Prohibitive mining code, with high taxes and high levels of government involvement. This makes Tanzania one of the most taxed countries when compared to East and Southern Africa. Population currently (million) 50,8 Population expected 2020 (million) 60,4 CPI Inflation (average % yoy) 6,3 OECD country risk rating 6 (1 very low - 7 very high) Source: OECD report 12 Mining Excellence in Africa

15 Deals Inorganic growth getting the best deals in the market In order to meet global demand for ore bodies, take advantage of growth opportunities within developing markets, and obtain access to new technologies and competencies, mining companies create new ventures, invest in consortiums, acquire competitors, and dispose of or acquire specific assets. Doing deals in developing markets is a topic that is featuring in many mining companies growth strategy. For many, doing a deal is the best (or only) way of tapping into these growth markets, affording mining companies an opportunity to get access to untapped natural resources and thereby allowing the company to grow and meet the demands of its shareholders. The challenge: Getting the best deal in a competitive and complex market Mining companies are competing in their exploration for growth within Africa, and even though the investment opportunities are on the rise, there are many challenges that face companies wanting to expand into Africa. Responding quickly to deal opportunities entails bridging language, legal and cultural gaps across Africa, and building the most realistic business case for a transaction decision. Heightened transaction risks arise when there is insufficient time to learn all about these intricacies: a cultural nuance or practice is misinterpreted, or the consequences of a hostile bid are not fully understood. These factors can be challenging at times, and can even deter the advancement of an opportunity. So, when doing a transaction, it s invaluable to have a trusted advisor where the deal is unfolding an advisor that s experienced in structuring deals, knows how to manage risks, and has a significant footprint in Africa with local resources, know-how and experience. How we can help you Our Deals team provides comprehensive commercial, financial, economic and strategic advice to mining companies facing large business growth opportunities. We ve developed a reputation for excellent advice, strong relationships, high levels of independence and the successful implemention of transactions with our clients. These attributes, coupled with a vast range of experience in the mining industry, have made our Deals team key corporate advisers in the African market, and our position has been reinforced through the completion of key local and cross-border deals. Through our international, miningspecific expertise and networks we can add value to your chosen corporate strategies. As regards pursuing growth opportunities or divestitures, our dedicated merger and acquisitions research resources are able to identify opportunities, locally and internationally (in conjunction with our global network). They can also provide input on trends and global transactions, while assisting you during your transaction. According to our 17th Annual Global CEO Survey, 94% of CEOs in South Africa are focused on growing their businesses in other African countries. PwC 13

16 DEALS Independence Strong relationships High quality advice Extensive experience Stategy and Valuation Mergers and Acquisitions Transaction Services Strategy advisory (corporate restructuring) Asset efficiency advisory Accounting valuations Tax valuations Valuation consulting Smart procurement advisory Corporate lead advisory M&A advisory Debt and equity Capital advisory JSE regulatory services Infrastructure, government and utilities advisory Privatisations advisory Public-private partnership Financial due diligence Tax due diligence Sell-side due diligence No-acces due diligence Bid support Post-deal services Independent expert opinions Comprehensive commercial, economic and financial advice If you are expanding into Africa, we will partner with you to ensure you are getting the best deal: Mergers and acquisitions (M&A) We focus on the deal process from deal origination strategy through to post-deal integration. Our highly dedicated and experienced M&A team is able to identify opportunities and assist in deal negotiation and structuring, disposals, corporate listings, management buy-ins and buy-outs, capital market accessing and valuing. Our team is also highly experienced in advising companies and black investment groups on BEE (Black Economic Empowerment) transactions, and raising finance. Debt and Equity Capital Advisory Services (DECAS) We provide independent and objective strategic advice, working with our clients and their sponsors to structure, negotiate and implement holistic financing solutions across the capital structure. Valuations and Economics (V&E) We provide independent expert valuation advice to value a business, equity and other assets; we evaluate the financial implications, for example, of corporate debt, restructuring, investments, mergers and joint ventures; and we advise on large capital investments. Fair and reasonable opinions are also a key offering, as are purchase price allocation exercises. 14 Mining Excellence in Africa

17 Case study: Business Recovery Services Strategic review of a financially distressed gold mine adopting business rescue proceedings in terms of Chapter 6 of the South African Companies Act, 2008 Critical analysis of historical and forecast information, development of a functional financial model, and support to various parties in terms of Chapter 6, resulting in a successful sale of the asset, and the avoidance of an unnecessary liquidation and a resultant loss of value. A gold mining company found itself in financial distress as defined by Chapter 6 of the Companies Act when its production began trending down, driven by a drop in grade, public holiday interruptions, and seismicity-related work stoppages. These difficulties were exacerbated by higher electricity charges. The Board of Directors of the holding company suspended the provision of financial assistance to our client under the Companies Act, forcing our client s Board to institute business rescue proceedings in terms of Chapter 6 of the Companies Act, We identified and assisted the company in appointing a business rescue practitioner ( BRP ). A joint team was developed, including legal advisors, a BRP and the Board of Directors and management to: Perform a strategic review of the asset, mining practices and options available; Critically analyse the historical results, thereby identifying areas for improvement and cost savings; Interrogate projections and mine plans to ensure the reasonableness thereof; Construct a forward-looking financial model, which included the ability to model various sensitivities and alterations to the mine plan; Prepare a business rescue plan as required by s150 of the Companies Act; Facilitate the administration process as required by Chapter 6 of the Companies Act; and Provide support and advice to the BRP in matters relating to the Employees Union and Eskom, and during negotiations with creditors and other stakeholders. Value: Our work ensured that the company was afforded the full protection offered by Chapter 6, in addition to the development of a realistic forward-looking mine plan to extricate the company from financial distress. The strategic emphasis of our work allowed for concurrent options to be pursued with the company, consisting of an operational turnaround plan plus the alternative of a sale of the company. The stabilisation of operations and cash allowed the company to be removed from business rescue once a buyer had been identified. This resulted in the successful sale of the holding company s shares to another mining concern, whose operating model and strategy better suited the management of this marginal, deep-level gold asset. PwC 15

18 Case study: Mergers & Acquisitions Case study: Due diligence Assisted a Spanish power utility group to acquire a South African coal producer in order to hedge the group s exposure to the volatility of coal prices A Spanish integrated international energy company involved in the generation, distribution and supply of electricity, was looking to acquire operating coal mines in South Africa in order to hedge its exposure to the volatility of coal prices. We were appointed to search for suitable acquisition opportunities in South Africa. The services included: We performed due diligence advisory services for a major Chinese metal-producing company, after they negotiated to invest in the share equity of a US affiliate in Cameroon that was the holder of the exploration license of the largest cobalt and nickel deposits yet found in the Eastern part of Cameroon. Value: The results of our due diligence work helped the Chinese multi-national conclude their further actions, following the interest they had expressed in investing in the equity of the Cameroon affiliate. Search for and analysis and identification of suitable investment opportunities; Design and execution of approach strategy and contact with targets; and Value analysis, co-ordination of the due diligence investigations, and assistance in negotiating the deal and closing the transaction. Value: We identified a suitable target and advised the Spanish company on the successful conclusion of the transaction, which resulted in the Spanish international acquiring a controlling equity interest in the identified target. Nigeria Opportunities for you When in distress, avoid liquidation and a resultant loss of value by acting in time. Maximise the return on deals and manage associated transaction risks. Gain full insight into targeted acquisitions before committing. Selling non-core operations to optimise and realign portfolio of assets Fact: Contains some of the world s largest untapped mineral deposits, particularly in iron ore, bauxite and gold. Opportunity: Most iron ore deposits are high-grade, averaging around 40-60%, providing a boost to companies profit margins. Threat: The region s infrastructure is perennially unable to meet the demands of the mining sector. This is likely to deteriorate as the mining sector grows rapidly, unless there is substantial investment in electricity supplies and transport routes. Population currently (million) 178,5 Population expected 2020 (million) 210,2 CPI Inflation (average % yoy) 8,2 OECD country risk rating 5 (1 very low - 7 very high) Source: OECD report 16 Mining Excellence in Africa

19 Advisory Services increase performance How our Advisory Services can help your organisation increase its performance Optimising core operations is about achieving consistent high quality, reducing waste, increasing throughput and managing costs effectively all pressures that are currently haunting companies in the mining industry. We can help you increase performance by improving the efficiency and effectiveness of your core mining operations, including your supply chain. We will assist you to continuously evolve and adapt in the face of a constantly changing and increasingly complex global supplier, production and customer mining environment. We can help you through a variety of solutions, including: Enterprise asset management Lean operations and supply chain management Revenue growth Infrastructure funding, development and management PwC 17

20 Capital Project and Infrastructure Spending your capital well Investment in capital projects is a catalyst for growth and a necessity in the current mining industry, with expansion into Africa on many mining companies agendas. Building infrastructure, however, is usually a complex multi-year process of managing many diverse inputs and stakeholders. It requires intense planning and project management, and ongoing effective operation once built. Managing variables, quality, timeframes and budgets is challenging, and the anticipated benefits and quality are easily eroded when delays and budget overruns occur. Irrespective of whether mining companies have outsourced their risk to an EPC/EPCM contractor or have the in-house capability to perform all engineering design, procurement, construction and contract management themselves, less than 10% of projects complete on time and within budget, and as many as 15% have a 100% over-expenditure. The challenge: Accelerating the delivery of infrastructure projects within budget, agreed timeframes and quality expectations A capital project is rarely derailed by a single problem; it usually takes a series of failed steps along the way to put a project in jeopardy. When you re wrapped up in the execution of a project with pressures for delivery and things are falling apart, you seldom have the clarity of distance to identify exactly what went wrong, or the intimacy with the problem to determine what to change to fix the project. Challenges you may be facing include: You re concerned about the possible delivery and funding risks associated with your capital projects. You can t trust the feedback you re getting to help you anticipate project delays and disruptions, and mitigate their impact. Your in-house team doesn t have the skills and experience to contract with and manage large international construction companies and external stakeholders. New infrastructure will have an impact on your organisation and you re not ready to operate these new assets effectively. Your project/portfolio of projects is not properly governed and controlled using leading practices and tools that deliver the highest ROI. You face the risk of complex and protracted disputes and/or litigation relating to a capital project. 18 Mining Excellence in Africa

21 How we can help you Integrated Capital Project Assurance Framework Different from traditional project finance and engineering advisors, we are independent from vested interests in downstream construction and financing and can address your challenges without bias. We put your objectives at the heart of the infrastructure project design and help you manage complex supplier, stakeholder and funder arrangements through our Integrated Capital Project Assurance Framework and first-hand mining-experienced consultants. We re able to help you plan, secure funding for and manage the delivery of your capital projects. Where required, we draw on our network of global mining, energy, water and transport infrastructure experts to ensure you benefit from global lessons and leading practice to strenghten your own team so they can deliver the value you re looking for. Agile change control Embeddded life cycle assurance and learning Active management Integrated suppliers Strong governance and reporting Twelve Elements of Project Management Excellence Smart financing Engage stakeholder High performing teams Clear Scope Managed risks and opportunities Deliveryenabling plans Focusing benefits management PwC 19

22 20 Mining Excellence in Africa

23 Case study: Correcting the course of a capital project on a process plant project for an opencast bulk ore mine Developing a new mine is a challenging and risky endeavour for a mature mining company, and even more so for a start-up junior miner without proven and tested project management processes and methodologies. Many owners of mature capital projects do not realise that they retain a significant level of risk in respect of design and construction, even when employing an EPCM (engineering, procurement, and construction management) or EPC (engineering, procurement and construction) contractor. They often fail to recognise the ongoing need for an adequate owner s team with strong project management and risk management capacity to establish the proper project management governance structures, monitoring procedures, and risk management processes. As a result, they don t anticipate unforeseen events and don t build in the necessary contingency plans. Because of shortcomings in project controls, they often don t realise the severity of delays and cost overruns until well after a project has foundered. We were approached by one such junior mining company when they realised that they required a strong owner s team to correct the course of their severely distressed project. We worked with the client to redesign the client s project organisation and strengthen it in strategic positions with experienced capital project engineers, project control specialists and commercial experts to allow the owner s team to fulfill its project oversight responsibilities. are implemented: proper transparency of controls, clear accountability of responsibilities, and a meaningful audit trail of information. This was achieved by: streamlining confusing roles resulting from having two EPCMs with partially overlapping responsibilities determining the actual level of design completeness, which allowed the development of a realistic re-baselined schedule and budget the introduction of a suitable project management IT tool, supported by appropriate management processes to manage variances from planned performance. Value: Independent project assurance was introduced by deploying owner s field engineers to verify and validate progress on site. An effective risk management process was introduced. This process enables the owner s team and EPCM project managers to monitor risks and identify when they need to put a mitigation plan in place to actively manage the risks. By training in-house staff on these newly documented project processes, we ensured that its intervention will continue to deliver value into the future as this junior miner grows and expands its mining assets to achieve its vision of becoming a mining house of note on the African continent. The new owner s team worked with the EPCM team and introduced good governance practices in project execution to ensure that the three key elements of the control environment Opportunities for you Get help in securing funding Plan and manage the delivery of capital projects Deliver on the expectations of all stakeholders Benefit from global and leading practice PwC 21

24 Namibia Fact: Some of the largest reserves of diamonds in the world. Opportunity: Substantial reserves of uranium could find buyers in China, Saudi Arabia and India. Threat: The government appears to be looking at raising the state s ownership of mining assets in the country, which bodes badly for the mining industry. Namibia Population currently (million) 2,3 Population expected 2020 (million) 2,6 CPI Inflation (average % yoy) 5,6 OECD country risk rating 3 (1 very low - 7 very high) Source: OECD report South Africa Fact: Country remains one of the most stable destinations for investment in Africa. Opportunity: Domestic and Asian demand for coal is likely to increase substantially over coming years. Threat: Labour unrest has the potential to spiral out of control, resulting in violence which would disrupt production and deter future investment Population currently (million) 53,1 Population expected 2020 (million) 55,1 CPI Inflation (average % yoy) 6,3 OECD country risk rating 3 (1 very low - 7 very high) Source: OECD report 22 Mining Excellence in Africa

25 Asset optimisation Making your assets deliver In the current economic environment especially where many mining assets are imported, coupled with the depreciating African currencies assets are expensive to acquire. In addition they re costly to operate, protect and maintain. Yet assets contribute to the success of mining companies. Increased uptime, output and asset reliability are therefore non-negotiables today. This means effective asset planning, scheduling, maintenance, operation, performance monitoring, acquisitions and disposals, funding of assets, and accounting for and disclosing of assets. The challenge: Managing the performance of your assets to deliver your strategy, maximise return on investment and reduce overall life cycle costs Many of the risks and challenges facing mining companies today add to the burden of ensuring that your assets operate optimally. These challenges include: Unplanned electricity outages due to poor infrastructure in many African countries, resulting in asset downtime, underperforming assets and general asset unreliability The depreciating currencies of certain African countries, adding financial pressure where assets are imported by causing operating costs to soar and straining cash flows Regulatory compliance changes in compliance with new acts, standards, guidelines and regulations that impact on the management of assets Getting IT systems to give reliable data with regard to your asset portfolio Implementing a fully ISO 9001-compliant asset management solution Scheduling issues, growing maintenance costs (ageing assets), risk and safety concerns, and environmental issues. How we can help you We ve dedicated enterprise asset management specialists in PwC who not only advise on, but work together with you to develop and implement an integrated asset management strategy. This includes optimising assets throughout the entire asset life cycle, from procurement to verification, valuation, maintenance, decommissioning or replacement. Our asset management scope includes mine development through to mining, processing and logistics. We can help you through a variety of solutions to ensure mature and continuously improving asset management for your business. This includes: Physical asset management / ISO maturity assessments Strategic asset management / ISO implementation programmes Enterprise asset management advisory Opportunities for you Reduced maintenance and operating costs Increased productivity and throughput Greater safety and environmental integrity Higher plant availability and reliability Increased asset utilisation Improved product quality PwC 23

26 Advisory Services - align your support functions How our Advisory Services can help your organisation align its support functions to its business needs Strengthening enabling functions is about creating value-adding business services across your organisation s support functions. Support functions must anticipate, and deliver to, the changing demands of business. Creating cost-effective and agile support functions is critical in the current mining environment with its soaring costs, commodity price fluctuations and stakeholder pressures. Aligning support functions to the business needs will assist in releasing scarce resources to focus on core business strategies. We help you transform your support functions taking advantage of best-fit delivery models that harness technology. We can help you through a variety of solutions, including: Human Capital Optimisation Technology, Transformation and Data Optimisation Finance Function effectiveness Developing People and Talent Management Business Solutions Implementation and Hosting 24 Mining Excellence in Africa

27 Human Capital Optimising the investment in human capital and employee relations We ensure you have the right people with the right skills in the right place to achieve your business strategy today and in the future. While mining companies central focus is on finding and extracting scarce natural resources, all too often doing this successfully is dependent on effectively managing resources of the human kind. The challenge: Finding and retaining the right people Across all industries, CEOs consistently tell us that access to talent is a critical business issue and one of the most important factors in ensuring long-term growth and sustainability. Yet this is not always reflected clearly in mining companies investment decisions. Given the margin pressure in the mining industry, the full potential of a successful strategy and sound management systems cannot be achieved if a company lacks either the right people or the necessary skills. Research has found that accounting for individual differences during the selection and recruitment of operators can increase equipment output by up to 14% (Source: Organisational psychologist from Change Focus Group (Pty) Ltd). The process of selecting, training and evaluating staff therefore requires continued attention and investment, even during periods of cost constraint. With business activities across Africa on the increase, many mining companies have large workforces with diverse skills and operations, often in numerous locations. Relocating employees (and their families) overseas, often to developing countries where both living and working conditions can be challenging, adds a further dimension and complexity to recruiting and retaining a workforce with the necessary skills and experience. This scenario brings the added challenges of incentivising staff and managing talent mobility. At the same time, mining companies increasingly recognise international experience as an important credential for top performers and a necessity to support growing operations in developing countries. In our 17th Annual Global CEO Survey, 63% of CEOs expressed concern about the availability of key skills, 58% were worried about rising labour costs in emerging economies and 93% said they recognised the need to change, or were changing, their approach to attracting and retaining talent. PwC 25

28 Enabling your people. Building value. In an increasingly complex environment, our People Solutions offer you proven expertise and leading practices in managing cross-cultural, multi-workforce, cross-generational change on a local and global scale. How we can help you Despite the enormity of the task, formulating and delivering on a clearly articulated human resources strategy can help mining companies generate the superior returns they aim to deliver. And our People Solutions teams are here to help you do it. Our People Solutions practice brings together all of the professionals working in the human resource service arena talent management, organisational culture and change, organisation design, transformation, technology, capability building, analytics, tax, benefits, retirement, communications, international assignment, equity, compensation, strategy, regulatory, legal, and process management affording our clients an unmatched breadth and depth of expertise, both locally and globally. Our mission is to help mining businesses optimise the ROI of their human capital. We can help you through a variety of solutions, elaborated on below. Employment law and taxes Our employment law, tax and benefit specialists provide a wide range of services and advice on employment-related issues, including employers obligations with regard to employees taxes, social security and other levies. Assisting you to grow in Africa Immigration Our specialist immigration practice is able to deliver customised inbound and outbound immigration solutions and project management services. International mobility Our mobility specialists can assist with the establishment of a global mobility programme, ensuring that the global mobility policy meets the current and future needs of the business and developing custom tools and templates for HR, assignees, tax/finance and managers. International assignment services Mining companies international assignments can be greatly assisted by our international assignments team, who assist with assignment coordination tax compliance procedures for expatriate employees, assignment planning and structuring, payroll calculations, and advice on exchange controls and expatriate payroll outsourcing. 26 Mining Excellence in Africa

29 Actuarial services Our actuarial division is uniquely positioned to provide holistic solutions to actuarial, financial, investment and risk management needs that will enhance shareholder value, improve employee relations, reduce risk and meet executive needs. Benchmarking remuneration survey Our REMchannel Survey database is the largest in the mining sector in South Africa, giving us access to a range of research. This includes top executive surveys, general staff surveys, mining-specific surveys, job-based surveys and grade-based surveys. Remuneration and reward Our reward specialists are actively involved in the mining industry through ongoing remuneration committee advisory assignments, advising on the roles and responsibilities of members, and maintaining and assessing remuneration committee effectiveness and non-executive directors fees. We assist remuneration committees in the development of reward strategies and policies. By blending our tax, legal, HR and financial professional knowledge, we are able to help companies tie their employee rewards to business goals and shareholder value. Incentive plans We design long- and short-term incentive plans as well as broad-based employee plans for the mining industry. Based on local and international best practice, our services include tax structuring, financial modelling, and statutory and IFRS 2 compliance and implementation. Talent and Performance Optimisation We have proven competencies in the development of talent and performance management strategies, balanced scorecards, competency frameworks and employee value propositions to make sure you have the right people with the right skills in the right place to achieve your business strategy today and in the future. HR Transformation Our specialists will work with you to develop HR strategies, improve HR and HR service delivery models, reduce costs and transform the HR function into a high performing business with measurable results. HR Technology Our consultants will assess how new technology changes business processes, requires new skill sets and requires effective change management and communications. HR Analytics We work with your organization to match HR to the organisation s objectives through the development of measurable indicators enabling the organisation to plan for the future. Capability Building Through leadership development, training strategies and performance support we will equip your people with new capabilities needed for high performance. Organisation Change and Culture Our solutions will transform your organisation and your people to keep pace with change, including organisational alignment and culture change. Organisation Design and Effectiveness We will assist you with the development of your operating model, organisational design and strategies for transition thereby leveraging the power of people effectively when implementing new business models. PwC 27

30 Case study New long-term incentive plan Implementation of a new long-term incentive (LTI) plan for a multi-national mining company following the unbundling of their assets Following the review of the existing LTI scheme rules and the strategic objectives of the long-term incentive plan, we advised our client on the following: Current best market practice as it relates to the design and structuring of LTIs for listed companies; A comparison of the Company s current remuneration approach against best market practice; and Based on the preceding analysis, recommendations on a new LTI plan. Recommendations for an appropriate LTI covered the following aspects: Nature of the instruments Award policy Award levels Vesting period Settlement methods The appropriate individual and/or company performance measures to be used Mechanisms to track performance during the performance period Appropriate quantum (capping) Provisions on termination of employment and corporate action We also provided a high-level indication of the tax implications for employees and the company. We specifically considered the following: The tax implications for participants The employer s withholding and reporting obligations The corporate tax implications. We also provided high-level guidance on the accounting implications of the new LTI at group and subsidiary levels. Value: Contractual and regulatory compliance Our work included the development of detailed LTI rules and pro forma award letters for the LTI, setting out the mechanics and workings thereof. We also assisted the company with the preparation of the salient features for inclusion in their notice of the shareholders meeting, and their engagement with the JSE via their sponsor to obtain JSE approval of the new LTI rules. Opportunities for you Create capabilities and leadership to execute your business strategy Create development and growth for a diverse workforce transformation Fill your skills gaps and retain your talent enabling you to innovate Enable your people to drive and sustain change within your business 28 Mining Excellence in Africa

31 Finance Function Effectiveness Transforming your finance function to drive efficiency In the current environment, mining organisations are under increased pressure to improve operational efficiency, reduce cost, increase agility and ensure that their finance function supports business decision-making. Yet in many cases, support functions are constrained from raising their game legacy structures, ways of working and investment choices often limit their ability to respond. This provides an opportunity to improve services, processes and technology and look at cost-effective structures and locations for delivery. Key to a high-performing finance function is its ability to balance the three competing objectives of control, efficiency and insight. CEOs and CFOs alike expect the finance function to be smarter and faster doing more with less in an increasingly complicated regulatory and competitive environment. How the function is structured, the strategic services it delivers, where these services are delivered and how they are delivered are but some of the key elements for future success. Aligned Compliance and control Business insight Governance, Organisation, People, Process, Technology Integrated Agile Transactional efficiencies The challenge: Transforming finance from scorekeeper into value-adding business partner Issues that you may be facing in the current mining industry in your finance function include: You re concerned about what governance standards you need to establish to align finance with the business. You re seeking to reduce the costs and improve the efficiency of the finance function. You re concerned about having the appropriate balance of controls and ensuring that they re not constraints to the business. You re setting up shared services and outsourcing arrangements, and are keen to ensure sustainable benefits. You re not satisfied with the capability, expertise and experience within your finance function. You need to eliminate non-valueadding activities from transactional finance processes. Your finance systems lack the ability to provide you with accurate real-time information, or you have low confidence in their ability to do so. Compliance with regulations and reporting standards is driving up the cost of the finance function, or you have to prepare information to satisfy requirements outside of your normal systems and processes. Over and above the issues you face on a daily basis that prevent your finance function from driving efficiency are the following typical key reasons why finance functions are struggling to respond, resulting in high cost, lack of business alignment and poor value for money. A focus on the wrong things Doing the basics, rather than focusing on what creates value. Silo thinking Spending time recreating information and working independently rather than sharing information. Operational complexity Investments made bit by bit have left a mix of support contracts, locations and systems, making it difficult and cumbersome to respond. Poor service quality Inconsistent processes create inefficiencies, leaving internal customers dissatisfied. A people and skills gap Staff lack the skills to respond to changes in demand, resorting to working within their comfort zone. Retained Captive Onshore Shared Outsourced Offshore PwC 29

32 Over 60% of CEOs wish they had more time to spend on operational efficiency, and up to 70% of functions today are struggling to deliver what their business really wants. How we can help you From a structured assessment of current capability through to the development of a roadmap and full implementation of change, we help our mining clients design, plan and deliver significant improvements, either within a single function or across multiple functions. After assessing your business needs, we work with you to design and implement best-fit finance functions taking the finance function out of your back-office and making it front-line support for key decision makers, eliminating redundancy and consolidating activities. We also assist you in taking advantage of leading operating models for shared services, outsourcing and technology. We work with you to create consistent business services across your finance function. We advise and assist in the implementation of performance metrics for the business as well as frameworks for the management of the finance function. We assist you to develop and implement the necessary building blocks centred on people, process and technology. And the help doesn t stop here we can assist you through a variety of solutions, including: Finance process improvement and finance function effectiveness diagnostics Strategic planning, value driver analysis and performance management and reporting Finance organisation reviews and process improvement Financial management solutions Operations and supply chain management Enterprise-wide cost management Quantitative and qualitative benchmarking, and King III (Principle 3.6) assessments Case-for-change and business case development Design and implementation of FinToMs (incl. SSCs) + lean operations Programme and change management. 30 Mining Excellence in Africa

33 Case study:assessment of finance function Ghana We assisted with an assessment of a major coal mining company s finance function across all its sites (including globally situated sites) with the aim of alignment to King III compliance standards. They wanted to drive additional value out of compliance with King III, and so requested that the initiative serve a dual purpose in also assessing the finance function against world-class practices. We developed a survey targeted at their finance function at all operational sites. The survey comprised three elements, not only testing the principles of King III Principle 3.6, but also including a high-level impact assessment of the 12 key functions of a world-class finance function as well as a voice-of-the-customer view. Additional questions were posed at manager level to allow for a 180-degree view of the results. This survey was deployed electronically and feedback was analysed. Value: The impact on the business was not only compliance with the principles of good governance (King III); in addition, for the first time they had a robust assessment of the finance function, highlighting key areas for improvement. Our report was presented to the Audit Committee and information gathered has been used for further positioning of the finance function. Fact: Ghana is one of the most politically stable countries in Africa, with a sound business environment. This contrasts sharply with the rest of West Africa. Opportunity: Unlike much of the rest of Africa, Ghana s infrastructure is relatively sound and should be able to handle an increase in mining activity. Threat: We expect the government to raise taxes on gold mining in the coming year, in response to record profits for gold firms and elevated prices. Population currently (million) 26,4 Population expected 2020 (million) 29,7 CPI Inflation (average % yoy) 14,5 OECD country risk rating 5 (1 very low - 7 very high) Source: OECD report Opportunities for you Lower finance function operating costs between 20% and 50% Increase quality and control through standardisation and simplification Become a business partner who creates insight spend 10% to 20% less time gathering data and performing activities and 20% to 30% more time providing greater insight Democratic Republic of Congo Fact: Vast swathes of untapped gold and cobalt reserves, which have only just started attracting significant interest. Opportunity: Most of the Democratic Republic of the Congo (DRC) s copper deposits are high-grade. Threat: Security remains of key concern in the DRC, especially in Katanga province, where much of the mining activity occurs. Population currently (million) 69,4 Population expected 2020 (million) 81,3 CPI Inflation (average % yoy) 1,7 OECD country risk rating 7 (1 very low - 7 very high) Source: OECD report PwC 31

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35 Technology and Data Enabling your business through smart technology and data More and more mining companies realise that information and communication technology is either a disrupter or an enabler: it can either transform or destroy business models and competitive advantage. Coupled with the explosion of data, technology is complex and expensive to acquire, implement and maintain. With IT being yet another cost centre to mines with already thinly stretched budgets and rising operating costs, all decisions taken need to be informed on all possible levels. The challenge: Driving value from your technology investments Aligning technology with business needs, making the right technology choices, appointing the right vendors, and managing the implementation and the associated human change with the least disruption and at the best value are some of the challenges facing mining CIOs today. Issues that you may be facing that create a need for investment in technology include: Your current technology is hampering your ability to grow across markets, channels and customers. You re considering a large technology upgrade or change, or you re facing difficulties with a current technology change. Technology and data are dispersed and siloed across the mine, plant, back office and front office and are slow to respond to changing business needs. Your current technology environment and operating model are costing too much. You don t trust the quality of the information and reliability of the reports generated by your IT systems and how the underlying data is managed. Your systems and data are not secure from natural or intentional spam. How we can help you We can help you ensure that your current technology does not hamper your ability to support the growing information needs of your business. Mines often use a plethora of technical, operational, business support and ERP systems, and these should be simplified, standardised and integrated to avoid loss of effectiveness and unnecessary cost. We can help you through a variety of solutions: Our Digital Mine Framework Apart from the ever-present pressure on costs, the mining industry is also facing technology-driven disruptions or transformations brought about by high-bandwidth mining networking technology, mobile trends, the cloud, software as a service, the power of social media, a data explosion and low-cost sourcing. We work with mining companies to develop practical and affordable technology and data strategies and architectures to distinguish between noise and real business value. Our Digital Mine Framework can assist you to not only get the basics right by aligning multiple technology solutions to your business, but also enhance business value by simplifying your systems architecture and reducing costs. Enhancing Business Value Workflow Business Intelligence, Dashboards Knowledge Management Business Planning & Consolidation RFID Mobile Solutions Business-to-Mining integration Loading systems Weighbridge systems Vehicle Dispatch System (incl. GPS) Mine Scheduling Mine Planning Mine Design Reserve Est. Geological Modelling GIS Mining Specialist Systems Enterprise Managment Systems Integrated Systems of a DME Finance & Costing Human Resources Materials Management Getting the Basics right Plant Maintenance Investment Management Logistics Management Quality Management Environmental, Health & Safety Production Control System Stockpile management and blending Plant Execution Systems Data Historian SCADA PLC/DCS Automation PwC 33

36 Technology upgrades or changes Mining IT projects have a notoriously bad reputation for not delivering business value, often overshooting the budget (apart from being late). With cost pressures increasing, this cannot be tolerated anymore. If you are considering a large technology upgrade or change, or you are facing difficulties with a current technology change, our experienced consultants in technical, operational and ERP system implementation in the mining environment can use our project assurance framework to act on your side of the table, independently from systems integrators and vendors, to help you reduce risks associated with the project and deliver real business benefits on time and within budget. Strategy & Architecture Enterprise Architecture Emerging Technologies Application Architecture Technology Strategy Enterprise Applications Microsoft Oracle SAP Customer / Channel Applications Package Selection/SDLC / IT Programme & Project Management Industry Applications Information Management Business Intelligence & Analytics Enterprise Data Management Enterprise Content Management Information Strategy, Architecture & Governance IT Sourcing Advisory IT Shared Services IT Outsourcing IT Procurement & Supplier Management Managed Services IT Function Transformation IT Organisation IT Governance IT Cost & Value Management IT Portfolio Management IT Infrastructure Data Centre Technologies IT Service Management & IT Asset Management Networking Technologies Disaster Recovery IT Security & Resilience Security Strategy & Governance Identity Management Security Assurance BCM IT Risk Assurance IT Control design and review Project Assurance Data Assurance igrc Solutions 34 Mining Excellence in Africa

37 Technology transformation Due to the digitisation of the mining environment and the availability of systems to all levels, from mechanical mining equipment to C-level executives, you are not only faced with an explosion of information, security threats to mine-critical systems, different demands on your operating staff, and the encroachment of the engineering function on your IT function; you may also suspect that your IT operating model is inefficient and costing too much. We empower and build the capacity of the CIO s office to respond to this rapidly changing environment through the right skills, structures, project management, service level agreements, security services and reporting. Business Solutions Implementation and Hosting More than ever, mining companies are operating in a stakeholder-integrated environment. All stakeholders are claiming their share of the industry returns. Across the world, metals and mining companies have embarked on a journey to transform their businesses by incorporating best business practices. They do so by using the latest proven information technology systems that focus on many areas, including keeping expensive assets running at the lowest cost; delivering against clients stringent requirements, specifications and delivery times; improving product quality; and predicting and managing demand. Our dedicated business solutions team deploys selected SAP, Microsoft Dynamics ERP CRM and Sage X3 technology for mining organisations to drive benefits in diverse areas such as: Inventory management and stores management Asset utilisation Plant maintenance and repairs Vendor management Financial management Production reporting Pit-to-port enablement and reporting Fleet operations Contract / Lease management SHEQ (Occupational, Health, Safety & Environmental). The implementations typically range from onsite implementation to full managed service offerings covering all aspects of IT capabilities. PwC 35

38 Case study: Transforming process, technology and strategy We were originally approached to manage a portfolio of IT projects for this start-up mining company (Leading manganese mining company) At the start of the engagement we used our mining reference model to create context and evaluated all IT initiatives, business processes and systems for alignment to the business goals. This assisted to identify gaps and improvement opportunities, and resulted in a prioritised list of work to be executed. Inefficient business processes were then simplified, optimised and standardised, and these processes formed the basis of statements of work for various IT projects such as ERP, pit-to-port, mine technical systems, maintenance management, LIMS, SHEQ, HR, access control, time and attendance, document management and IT infrastructure. We also assisted with package selection, vendor evaluation and the appointment of vendors, as well as providing programme management for all the different IT projects. Establishing an IT function and IT strategy can be daunting in a changing environment, especially when the skills are primarily mining and finance. We therefore further assisted the client to develop IT management processes, a business case to appoint an outsourced services provider, a bidding process and the operational transition. A need to effectively use the various IT systems required us to develop standard system procedures. This included the development of business processes around mine-specific technical and production control systems as well as assisting with business process training. Value: Opportunities for you Practical technology and data strategies and architectures. Project Implementation support in the form of business analysis and user requirements to project management and project assurance. Being able to respond to this rapidly changing environment through the right thought leadership, mega trend awareness, skills, structures, project management, service level agreements and reporting Botswana Fact: World s largest diamond producer by value. Opportunity: Holds over 60% of Africa s identified untapped coal reserves. Threat: Weak commodity prices could prevent the country diversifying away from diamonds. Population currently (million) 2 Population expected 2020 (million) 2,2 CPI Inflation (average % yoy) 4,6 OECD country risk rating 2 (1 very low - 7 very high) Source: OECD report Significant budget savings were achieved through this exercise. Identified gaps and improvement opportunities within the business processes and systems. Increased the efficiency of business processes and IT systems. 36 Mining Excellence in Africa

39 Taxation Taking the sting out of taxation The mining industry is a truly global industry. Mining companies often have interests spread over multiple locations, requiring not only tax expertise in each of those locations but also the ability to provide best-scenario advice from an overall perspective. The challenge: Dealing with tax risk and regulatory expectations in emerging markets Africa holds enormous potential for the mining industry, but it is a difficult place to do business. Investors face arbitrary or non-existent law enforcement, stifling taxation and conflicting legal codes. This places an immense burden on companies to ensure that they not only account for unfamiliar and new tax laws and regulations in an accurate way, but are able to identify their regulatory risks and strategise to mitigate these. How we can help you Due to the complexity of the tax laws across the African continent and the impact thereof on the industry, it is necessary to have a thorough understanding of not only the tax legislation, but also the specific needs of the mining industry in these countries. Our dedicated mining tax team combines both legal and accounting expertise to ensure that we provide a comprehensive, industry-focused tax service to our clients. Mining clients engage us because we understand the business and economic environment and combine this with specialist tax knowledge. We help mining clients navigate complex issues and achieve business objectives by reducing tax risks and meeting their compliance obligations. At the same time, we assist them to improve their business and operating efficiency through tax efficiency. Finally, we help them understand and manage the total tax contribution their business makes to governments. With our market-leading credentials in dispute resolution across multiple sectors, we have successfully negotiated a number of large settlements with the revenue authorities. As preferred advisors, we strive to assist our clients efficiently and effectively across Africa through a variety of solutions, including: Opinions, advice and tax planning Calculations and compliance Valuation of mining assets Environmental funding Liaison with treasury revenue, and mineral and energy authorities Mergers and acquisitions in the mining sector Transfer pricing Research and development allowances and incentives Mineral and petroleum resources royalty implementation, business process analysis, compliance and calculations. Tax incentives and government grants The process of applying for any tax incentive programme requires an in-depth technical knowledge of the support programme, including its rules and requirements and the tax legislation around it. Our team comprises mining, financial and tax specialists and incentive experts who can help your company apply for these programmes and maximise your incentive opportunities. Tax management and accounting services We offer a complete and comprehensive range of tax function effectiveness services. By applying our global methodology, we work with you to understand and enhance how you manage risk within your business. We can work with you to define your tax strategy, help to communicate the tax strategy internally and externally, or review the design and operating effectiveness of your key tax controls. At an optimised level, your tax control framework will be consistently applied across your organisation and to each part of the business that impacts on tax. Recent assistance in the mining industry included a review of the tax maturity level of a client through the use of our Tax Management Maturity Model and reporting on areas for improvement; the preparation and review of tax risk management policies; and recommending key controls to be implemented to address tax risks and SOX reviews. PwC 37

40 Tax technical We have a dedicated tax technical team that provides technical support to the tax practice, interacts with the tax authorities on matters of tax policy and interpretation, develops innovative tax solutions and is responsible for much of our thought leadership on tax matters. The tax technical team acts as a centre of excellence and innovation for the tax practice and has been involved in numerous complex matters ranging from merger and acquisition transactions to tax disputes. We ve developed numerous generic and bespoke tax solutions for clients. Cross-border activity Our Africa Desk in Johannesburg is currently staffed by tax specialists from Nigeria, the Netherlands, Uganda and South Africa. We ve assisted several clients with mining interests across various African countries to address important issues facing their mining businesses across the continent. One of the benefits of having a wide presence is our ability to co-ordinate assignments between clients and our PwC offices in other African countries by leveraging on our relationships. This enables us to provide quick responses to specific and generic questions that they need answered with respect to their investments in Africa. It also makes it possible for us to obtain key information on the crossborder aspects of corporate restructuring, acquisition and divestiture planning, holding company strategies, financing arrangements, withholding tax minimisation, foreign tax credit utilisation, and many other facets of international tax planning. International tax Our International Tax Division has extensive experience in inter alia advising multi-national mining groups in respect of their cross-border investment structures and modus operandi, both in Africa and internationally. We follow a holistic business approach to international tax planning that applies a global methodology, referred to as Integrated Global Structuring (or IGS), which combines tax technical and lobbying skills and experience to provide practical tax and exchange control-efficient solutions within the framework of that group s global blueprint. The goal of IGS at the strategic level is to align tax with business strategies, leveraging off tax strategies and value drivers to grow profit potential, implement in-country and cross-border regulatory and tax efficiencies, and move profits/cash without material exchange control or tax compliance obligations and/or cost. Corporate tax services We have a long-established relationship with a number of revenue authorities across Africa which we have successfully leveraged to assist a number of mining clients in resolving disputes. We also advise clients on all aspects of mining tax, including new tax laws, royalty tax, regulatory environments and the tax consequences of proposed transactions. Over the years, we ve seconded numerous employees to the major mining houses to assist in their respective tax departments. Indirect tax Our Indirect Tax department has a dedicated team that focuses on the mining industry and has extensive knowledge on the industry from an indirect tax perspective as well as all areas of customs and excise. On numerous occasions we ve been engaged by mining clients to assist with rulings applications, compliance procedures and reviews, processes and control environment, data analytics, duty draw-back and incentive scheme application and implementation, and objections and negotiations with revenue authorities. Transfer Pricing We have a full service transfer pricing offering executed in a manner which is consistent with our global transfer pricing network standards, including global core documentation. We have deep experience of business restructuring and associated transfer pricing planning in the mining sector, including work in connection with Marketing hubs and centralised Procurement. Working with colleagues in our Strategy and Operations practice we help groups find the right balance between local and centralised control and decision making and to align Transfer Pricing outcomes with value creation. 38 Mining Excellence in Africa

41 Case study: Tax controversy and dispute resolution A South African mining company in business rescue appointed us to assist with objecting to various tax assessments raised by SARS on key technical mining tax concepts. The objections lodged by the client were disallowed and the matter was taken on appeal. We assisted the client not only in the objection phase of this tax controversy management matter, but also in lodging an appeal against the disallowed objections previously filed with SARS. The assignment required the preparation and lodging of the appropriate objection and appeal documentation as well as a number of robust meetings with various high-ranking officials within SARS, and culminated in the matter being placed before SARS Internal Settlement Committee. Value: Our support to the client during the tax controversy and dispute resolution process resulted in the negotiation of a successful settlement of all tax matters between the client and SARS and was also a pivotal turning point in the client s business rescue position. Case study: Tax controversy and dispute resolution We were asked by a major Ivorian mining company to assist in facing a government tax audit. The assignment was to cut or reduce the CFA franc 2 billion tax assessment notified to the company. We provided invaluable assistance to the client, preparing responses to tax notifications and attending all key meetings held with the tax authorities. Value: As a result, our team succeeded in getting the tax authorities to relinquish the entire amount. PwC 39

42 Case study: Analysis of tax issues arising upon receipt of loans We were involved with a significant financing project for a leading mining Guinea company. A Russian mining group was considering opportunities to finance its subsidiaries in Africa using cash available in other companies. The assignment involved providing a detailed analysis of tax implications arising in Guinea upon the provision/receipt of loans by African companies to each other, and to other group companies situated abroad. Therefore, it was planned that the Guinea Company would provide/receive loans to/from other group companies situated outside Guinea. We worked deeply to advise the client on the tax implications of the receipt/provision of loans, considering the deductibility conditions of interest and VAT, and WHT on interest payments; thin capitalisation rules; transfer pricing requirements and documentation; practising the arm s length principle; the possibility of tax optimisation; and a provision regulating the margin ratio. The assignment also considered the specific tax regime of the mining agreement signed with the Guinea Government, including practices likely to affect the financing transaction. Value: The client was able to tap into the skills and experience of PwC Guinea and receive valuable tax advice. Case study: Tax Advisers - variety of tax services We ve worked with a leading mining services client as their tax advisors for a number of years and have provided a wide range of tax-related services to them. Value: Successfully negotiating with the tax authorities regarding penalty waivers; Tax planning and efficiency projects to ensure proposed transactions are as tax efficient as possible; Salary planning and expatriate tax management; and Transfer pricing document reviews and preparation of comprehensive supporting documentation, including benchmarking surveys. Opportunities for you Identify and reduce tax risks, including the risk of significant penalties Understand and meet your compliance obligations Resolve disagreements with Revenue Authorities Implement a tax strategy that complements your business and operational objectives Manage your tax accounting and reporting issues and design a best of class tax function 40 Mining Excellence in Africa

43 Building Trust by Managing Governance Businesses are under increasing pressure. Pressure not just to produce ever growing profits, but to show that they contribute to society and can be trusted to think about more than just profit and consider the impact of their operations on a broader group of stakeholders. Too often this trust between companies and their stakeholders (including society) is broken by the company s own actions. Whilst this may sometimes be due to an obvious and deliberate action that the company has taken, it is often the case that the company has failed to take the environment in which it operates into account and has taken decisions based on only a limited set of information rather than on a holistic basis. Furthermore, a changing risk landscape means organisations are facing new, unfamiliar challenges. The issues are varied and complex and the risks are increasingly hard to spot. All key business decisions come with risks and potential mitigation strategies, which will vary depending on the risk tolerance of the decision makers. Five inter-related forces are causing the world to change an an ever-faster pace. Demographic shifts The Challange: The changing landscape Increasingly companies face scrutiny from a host of stakeholders. These often appear in the form of shareholders or finance providers, community activists, environmental advocates or an array of other interested parties. There can be little doubt that managing and governing a business through this raft of stakeholders requires a steady hand and a firm grasp on both the internal processes of the company and understanding of its external environment. Technological breakthroughs Climate change and resource security Accelerating urbanisation/ social unrest Shift in global economic power PwC 41

44 Evolving information needs, old information The reality of the flow of information within organisations has not however necessarily followed suit. Sound business decisions increasingly need to reflect accountability to a wider set of stakeholders, and require broader and more integrated consideration of the outcomes and impacts of an organisation s activities. Our discussions with both executives and non-executives reveals that most information reported internally, and used for decision making and informing the board is still largely of a financial nature. Nonfinancial information, like customer satisfaction results, carbon emissions and employee wellness is often not reported or monitored internally and is not considered as part of the decision making process. In some instances, the race to produce the highest IRR appears to leave the other factors that may have the potential to have a significant impact on the company with very little space to prove their worth. Information systems within companies still largely report financial information. However, directors and senior management are increasingly realising that decision making in the context of the financial results alone is not sustainable. In order to make decisions in the best interest of the company, directors and senior management must have information, not solely about the financial effects of a proposed transaction or course of action, but also information about how the decision taken will impact its other stakeholders like employees and the communities that it operates in. 42 Mining Excellence in Africa This information must form part of the information that the decision maker reviews in order to make responsible decisions and is a crucial part of the director fulfilling his or her fiduciary duty. Making confident decisions with the right information Companies have systems in place to ensure that all the financial information has been through a rigorous verification process. However, this is not necessarily the case for non-financial information. When we look at integrated reports, it becomes quite clear that the financial information is only a component of the bigger story. Yet this information that is reported, either to the public or internally, is often pulled together at the last minute by a small group of individuals. The robust checks and balances that we associate with financial information are not present in much of the non-financial information that is reported. If companies are looking to rebuild trust, then decision makers need to have trust in the systems that produce that information. This means that information that comes out of the system must be capable of being used by decision makers in making decisions. It means that both financial and non-financial information must have been through a process of checks and balances and that information that is produced by the system must be capable of being relied upon due to the processes that have been applied to that information. An important component of this is whether the information has been assured, either internally or by an external assurance provider. Examples of this assurance include internal audit, BEE verification and assurance over sustainability information. How we can help you Combined assurance is a holistic way to provide decision makers with an understanding of the overall levels of assurance on the broad spectrum of company risk and thus where improvement is required or duplication needs to be eliminated from these levels to manage the risks faced. We don t only help manage governance, risk and compliance challenges, we take a broader view on regulatory, economic, social and environmental considerations and the impact these have on your business. Our extensive mining industry knowledge, experience and expertise allows us to help you design and implement appropriate frameworks and structures to manage governance, risk, compliance and controls in the mining industry. In this way you safeguard your future and your reputation and we assist you to build trust in society. We can help you through a variety of solutions, including: Sustainability, climate change and integrated reporting Performance assurance Internal audit optimisation Risk management and regulatory compliance IT risk assurance Protection of Personal Information Act (PoPI) Business continuity Corporate governance reviews Financial reporting assurance

45 Sustainable Value Creating and governing sustainable value Long-term viability is being impacted by a broad range of social, economic and environmental impacts that destroy value for a range of stakeholders. We live in a world of significant change and upheaval. We have a growing population, seeking a better lifestyle to be delivered from a planet with finite resources, many of which are now rapidly running out. The business models of today are simply not equipped to deal with this change. How business operates in the future will need to be transformed. What customers, suppliers, employees, governments and society in general expect from business is already changing Sustainability is now about long term viability and financial stability. Leading mining companies are already successfully integrating sustainability into their overall strategies by identifying the holistic risks and opportunities, understanding the interdependencies and interconnections between the traditional financial and non-financial and building trust with stakeholder through open and transparent engagement with stakeholders. The challenge: Achieving good growth What is required is an understanding of how these changes could, and perhaps should, lead to a fundamental shift in how businesses are run and how they and their stakeholders measure success or growth. Growth puts people in work and lifts them out of poverty. It generates the income to fuel a progressive and stable society. To date, growth (as conventionally measured by changes in GDP) has also been a benchmark of success. But could the kind of growth we ve been chasing be doing more harm than good? We ve seen boom and bust. We ve seen vital resources being frittered away. And we re seeing communities that are failing to benefit from business, and economic, success and the unrest that follows. As a result, many people are looking beyond today s narrow notions of input, output and profit, to something that s more real, more inclusive, more responsible and more lasting... in short, what we are calling good growth. But there are issues facing many mining companies that are preventing them from realising the good growth that stakeholders are demanding. These include: Mining companies need to put a value beyond the traditional financial profit or historic performance data - on their impacts positive and negative to show where they create and where they destroy value Labour unrest and increased wage demands are having huge impacts on economic viability Environmental legislation and regulation is increasing resulting in higher standard and expectations Extreme weather events due to climate change are reducing the efficiency and effectiveness of operations The impending carbon tax will increase costs of operation substantially Integrated performance data is not as readily available and as robust as traditional financial measure of success PwC 43

46 How we can help you Introducing TIMM Understanding and integrating all environmental, economic and social issues into your long-term strategic plan in a way that creates lasting value for all, whilst also building public trust, is a common challenge for all types of organisations. We can assist in all facets of your integrated strategy. Total Impact Measurement and Management (TIMM) is a flexible framework that enables businesses to develop a better understanding of how to create sustainable value for their shareholders while generating value for the wider communities they affect. Our Sustainability and Integrated Reporting team provides services around some of the key challenges currently facing the mining industry. We can help you through a variety of solutions: Total Impact Measurement and Management (TIMM) SHE systems, compliance and performance reviews Assurance of non-financial information for use in your Integrated and/or Sustainable Development Reports Stakeholder engagement policy, frameworks and assessments Development of non-financial performance indicators and systems and processes to generate robust data Environmental financial liability assessments Climate change strategy, risk and adaptation Carbon and water footprinting 44 Mining Excellence in Africa TIMM gives greater insight into how your business creates (and destroys) value and is designed to help you make more informed and better decisions, as it takes into consideration a broad range of impacts to give you a much more complete and total picture. It provides a holistic view of how business delivers value through: the value chain and communities they operate within their contribution to the economy and public finances their impact on the environment and wider society. A unique attribute of TIMM is its ability to assign a monetary value to both individual and aggregate business impacts that are crucial. It means that like-for-like assessments and comparisons can be made for the first time across a comprehensive range of impacts, thereby providing a much stronger bedrock for decisionmaking.

47 Case study: Economic impact assessment A large multinational mining company with three of their businesses based in South Africa was facing, like the rest of the mining sector, NGO scrutiny as an increasingly important impediment to doing business. Public and third-sector criticism is often fuelled by reports of the negative impacts of mines in developing countries, without considering the associated positive social and economic impacts. Although ahead of its competitors, the company had limited expertise in the measurement and valuation of direct and indirect socioeconomic impacts at a regional or national level. Value: Based on an Impact Methodologies Guide produced by PwC UK for the company in 2011, PwC UK, PwC SA and Genesis Analytics have: Developed a high-level overview of the company s economic and social impacts on South Africa, beyond traditional financial understanding, and presented this analysis in a slide deck; Supported the company to facilitate a scoping workshop with its stakeholders to identify priority impact areas and approaches to impact analysis which they find credible and relevant in the South African context; and Recommended steps and priorities for further analysis based on stakeholder feedback. Case study: Safety Project We conducted a high-level comparative review for this multi national mining company, Specification for the scope of safety and health management and classification and recording of incidents ( Specification ), against regulatory safety requirements (South Africa, Brazil, Chile and Australia) for the reporting of fatalities and serious injury incidents. Value: The management report also highlighted potential shortcomings identified on the Specification which could lead to the under- and over-reporting of regulatory reportable safety. PwC 45

48 Case study: Assurance of non-financial data We provided non-financial assurance on sustainability information in various mining companies sustainability and integrated reports. The assurance is over a range of indicators across the environmental, social and economic areas, and the level of assurance is a combination of limited and reasonable. The Global Reporting Initiative (GRI) application level is also assured in some cases. Our clients include many leading mining companies as well as junior mining companies. Value: We helped provide credibility for decision-making by internal and external stakeholders Opportunities for you Robust integrated performance measurement, monitoring, management and reporting. Improved communication to and the building of trust with stakeholders. TIMM - you can see at a glance the impact you re making and better still the trade-offs between alternative strategies. In effect, you can see the optimal decision for all your stakeholders. Integration of the risks and opportunities in your value chain into your decision making process thus developing a holistic sense of value creation in your business 46 Mining Excellence in Africa

49 Risk Turning risk into reward The risk landscape for mining companies is becoming ever more complicated, and the need to integrate risk into business strategy more critical than ever. The increased weight of responsibility for assessing and managing enterprise risks is being felt by all mining companies as they lose the trust and confidence of stakeholders. Although the expansion into Africa presents many opportunities for mining companies exploring these investments, it does pose the additional risk of working in new and unknown markets where traditional risk management practices may be insufficient. Understanding the environments of these African countries and their unique nuances and then mitigating negative impact is critical to sustainable business growth and shareholder confidence. Increased vigilance is therefore necessary to ensure that risk-based controls are adequate, effective and proportional to your organisational risk. Businesses need to turn to good governance to reap the wider benefits that it brings by developing their governance to become more efficient and effective in managing their business compliance, risks and opportunities. The challenge: Safeguarding your organisation and its people against physical, regulatory and other risks Mining companies are currently operating in what could be described as a risk-invested environment. In addition to having to cope with the risks related to the regulatory, political and legal environments, mines have recently found themselves having to focus on managing labour unrest, price volatility, financial sustainability as a result of cost pressures, safety and health concerns, and the risks associated with expansion operating in unknown territories and having sufficient capital to see the expansion through to the end. Driving value out of governance Embedding compliance as part of your daily routine and becoming more risk resilient Risk management and regulatory compliance Failing to comply with the mining industry s high burden of regulatory requirements has many impacts. Not only could noncompliance with regulations result in the forfeiture of mineral rights; there can also be a significant impact on the operational performance of mining companies, with safety and health concerns bringing mines to a halt. It can also impact their financial performance in the form of penalties, and have a negative impact on the share price by damaging the confidence of shareholders and stakeholders. In addition, it can result in strategic business decisions being weakened in that business risks are not taken into account. In addition to the numerous risks facing mining companies, there is the added responsibility of deliberating over the effectiveness of the control environment (internal audit). Are the controls strong enough to mitigate the risks facing mines today, and is the control environment quick enough to respond to changes in the business and any risks identified? Expansion into Africa requires a significant change in many mining companies strategies and way forward. Investment in expansion, although presenting an opportunity, requires capital outlay, detailed monitoring to avoid substantial cost overruns and meet deadlines, and in-depth knowledge of the territory you are expanding. For instance, what risks will you be facing there around fraud and bribery? It is a fact that corruption is rife in many African countries. PwC 47

50 How we can help you In today s challenging business environment and vast regulatory and risk landscape, mining companies are being forced to ensure that they are able to identify and respond effectively to all risks facing the company. Under the realm of governance, we assist mining companies to identify their real enterprise risks and governance gaps, and provide recommendations and strategies on how to manage their risks and improve their governance and control environment. We assist in forensics investigations and dispute resolutions as well as anti-money-laundering, counter-terrorist-financing and sanctions measures. We provide a single point of reference for managing risk and governance in your company to assist you in overcoming the challenges of meeting regulatory requirements. We can help you through a variety of solutions, detailed below. Risk management and regulatory compliance We offer a variety of risk and regulatory services to the market that include: Operational/Mine risk response evaluation Audit reviews on compliance with DMR expectations Business continuity Corporate governance: Identifying governance gaps and recommending governance improvements Financial risk management: Identifying, measuring and managing market risk, credit risk and insurance risk Integrated ERM: Integration of enterprise risk management with health and safety and regulatory risk management, from risk workshops for risk identification, risk strategy, framework and policy advise to mapping the risks to mitigation strategies. Regulatory advisory: Helping you stay on top of your compliance issues both locally and abroad including PoPI compliance (Protection of Public Information) Combined assurance model: We evaluate the assurance that you currently receive on the status of your response to the evaluated risk, and recommend the necessary changes to the assurance response profile. Internal audit With the increased risk in the mining industry as well as the negative impact on stakeholder confidence, mining companies are being forced to evolve their governance strategies to ensure that their internal audit function is operating effectively and efficiently. We assist mining companies in transitioning their internal audit function from value protection to value enhancement. We help you to develop your current internal audit function or alternatively provide a sourcing model with the necessary skill sets to provide the level of assurance and value-add expected from management and the Board. In today s challenging business environment the internal audit function is expected to lay more emphasis on risk management, fraud prevention, corporate governance, and regulatory and policy requirements. Never has more been needed from, and expected of, internal audit than now. Particularly having regard to the corporate scandals of the early 2000s, the recent economic uncertainty and the negative sentiment of stakeholders in the mining industry, nowadays, internal audit is more focused on the business and management. This means it is more process-based and intent on identifying risks within the mine. Internal audit must be seen to be adding value to the organisation. For internal audit functions to be seen as trusted advisors, they need to ensure that they are aligned with leading practices and that they are adequately resourced and skilled to deliver value to the business. We assist with the following solutions: We work collaboratively with you to provide internal audit services ranging from full outsourcing to cosourcing and project-by-project assistance. We offer enterprise-wide risk management systems and services that provide assurance in improving your business operations. We work with your audit committee and business managers to review your internal audit function against IIA standards, rules and recommendations (quality assurance assessments). 48 Mining Excellence in Africa

51 We use our experienced internal audit staff to help you develop a world-class approach to internal audit, involving techniques and tools that meet the needs of your organisation. We provide internal audit software and related training. We develop internal audit methodologies. Using specialists to support the core internal audit team Trends we see in the marketplace show that top executives attention has shifted, for the better. Not only have they faced the challenges brought on by the ever-changing risk landscape, they have capitalised on the associated opportunities. Much good has come from a more intense focus on risk management approaches, the alignment of strategies and objectives, and the embracing of organisational change to deal with the increased business complexity and risk. Boards agendas now include points such as risk management, new markets and innovation; and risk and response has finally become a common topic in boardrooms. But perhaps the most valuable outcome of the demise of business as usual is that significant defensive steps have been taken: balance sheets have improved and cash reserves have been built. PwC 49

52 Less good news is that future proofing a business takes a bit more than that. Risks are constantly changing and evolving, so that it s getting harder to predict where they will come from next. And no matter what preventative steps are taken, there are some risks that cannot be eliminated altogether. But it s not all doom and gloom. Businesses can position themselves so they are better able to identify and mitigate the potential impact of risk events. To do this, however, boards need to be thinking very differently about risk. What is needed is a defence system that is not only fully integrated into the organisation, but can quickly become mature enough to support the business to become risk resilient and risk ready. Internal audit s role as the third line of defence is imperative is ever increasing, with management and board not only wanting assurance on financial related matters, but also matters that drive the operations and strategy of the business. A hallmark of our internal audit approach is the extensive involvement of Mining industry and functional experts. Our specialists will provide the core internal audit team with additional perspective and insight into the risk profile of the company and greatly enhance our ability to make meaningful recommendations to management and the Audit and Risk Committee as part of the audit process. One of the methodologies we deploy is the Hub & Spokes model, as presented below. This ensures that we provide access to specialists, align our approach to the achievements of your strategic goals and provide a mechanism for management to address top of mind matters. Compliance Risk Competition Regulations and Fraud Liquidity and Cash Management Risk Management Treasury/ Cash Management Strategy Risk Information Management & Technology Operation Excellence PwC Supply Chain Management Brand Management Contract Accounting Market Optimisation Project and Operational Performance Revenue Recognition Systems Risk Corporate and Tax Compliance Health,Safety and Environment Operations Risk Financial Risk 50 Mining Excellence in Africa

53 Forensic, dispute, antibribery and corruption services Our Global Economic Crime Survey 2014 identified asset misappropriation, procurement fraud, and bribery and corruption as the most common fraud issues. These lead to financial loss, reputational damage and disruption of the business. Africa experienced the highest rate of economic crime. Globally, energy, utilities and mining experienced the second-highest instances of bribery and corruption (42% of respondents). The good news is that these irregularities can be detected and minimised by means of corporate control and culture, using tools such as data analytics and fraud risk assessments. When the facts around these issues are in doubt, we interrogate data, processes and people to establish the true position. Whether this relates to interpreting escalation or royalty formulas, verifying actual costs, or investigating bribery and procurement irregularities, our team is familiar with the issues in mining. We investigate and identify fraud risks, advise on remediation, analyse disputes and quantify damages. Corporate intelligence services Our Corporate Intelligence team gathers business-critical information to help mining companies reduce risk, enter new markets in Africa and enhance business opportunities. We are experts at identifying, accessing, analysing and corroborating public record data and market intelligence to support the decision-making process. In addition to giving you a fuller understanding of the background, management track record, attributes and activities of the third parties with whom your business interacts, our work helps identify and mitigate risks in those relationships associated with integrity, reputation, the political and regulatory environment, fraud and corruption, and unethical or criminal behaviour. 64% of the board ranks IA performance as strong, while only 49% of management do (PwC State of the IA Profession Survey June 2014) Case study: Implementation of risk management processes We engaged to provide co-sourced risk management services to one of the largest South Africa-based diversified resources groups, with interests in the coal, titanium dioxide, ferrous and energy markets to assist with the implementation of risk management processes and a system throughout the company s operations. PwC also supported the organisation with the establishment of a combined assurance framework and process. Value: We assisted the organisation to mature in their risk management practices and streamline their assurance on risk exposures. PwC 51

54 Case study: Country risk assessment Our client holds a mining licence in the Republic of the Congo. Their preliminary investigations of the area identified potential for significant resources. Our client was seeking strategic investors in the concession and required an independent assessment of the key considerations for potential investors in the Congo and the business, operational, political and reputational risks of doing business in the country. As such, we were instructed by our client to conduct a country assessment of the Republic of the Congo. The scope of our work comprised an assessment of the Congo, presenting statistics, facts and issues relevant for potential investors in the country (particularly the mining sector), including business operating risks, and political and reputational risk. The assessment included: Executive summary and info-graphics highlighting key issues; Overview of the Congo key country statistics and orientation; Business operating environment, including the economy and key data; Market review and key government individuals in the Congo associated with the mining industry; Business risks a high-level assessment of the risk of doing business in the Congo (with a particular focus on the mining sector), including: Political risk, and Regional and international relations; Legal, fiscal and regulatory risk an assessment of the political and other dynamics which affect the legal, fiscal and regulatory framework in which the client operates; Economic risk analysis of the Congo s diversification plans and the client s operations within that context; Licence to operate stakeholder analysis to identify groups or individuals with an interest in our client s operations, both inside and outside government, drawing on intelligence and social media where appropriate; Operational risk an assessment of the logistical, infrastructure and security challenges of operating in the Congo (excluding the supply chain), as well as environmental considerations; and Ethical risk challenges and mitigation strategies in dealing with corruption and ensuring compliance with global transparency and anti-bribery conventions. Value: Our country risk assessment report led to the start-up of discussions with two potential investors. Opportunities for you Achieve trusted advisor status in the business Transition your internal audit function from value protection to value enhancement Meet the expectations of management and the Board by providing the level of assurance and value-add expected Identify real enterprise risks and governance gaps Detect hidden fraud risks Enhance business opportunities by reducing your risk 52 Mining Excellence in Africa

55 Financial Reporting Assurance Getting more reliable data through financial reporting and assurance Corporate failure in the past few years has stimulated debate about what went wrong and who was to blame. What is not up for debate, though, is that there is more scrutiny of and scepticism about a company s financial statements than ever before, and mining companies have not been spared. Investors expect greater reliability, more oversight and clear evidence of internal controls. Corporate management, boards and audit committees, internal and external auditors, analysts and other investment professionals all have important roles to play in rebuilding investor trust. The challenge: Navigating through today s accounting and financial reporting challenges Accounting and financial reporting is becoming ever more complex, and the complexity increases for the mining industry as transactions escalate for growth into Africa. Proactive anticipation and resolution of issues under International Financial Reporting Standards (IFRS, formerly IAS) is a necessity for regulated mining companies that are required to file audited financial statements. Multi-national mining companies also want and need a global audit methodology to ensure consistent accounting across all locations and mine sites for ultimate accurate reporting in the financial statements. How we can help you Our dedicated mining audit teams provide quality audit services for many mining companies that require an audit for statutory or regulatory reasons. We use a single, global audit methodology, fully compliant with International Auditing Standards and applicable national standards. Our globally consistent approach to audit means that regardless of location, our people can understand and evaluate your business using a single language and common methods. This gives you a uniform level of quality in all our audits, and our methodology also enables us to quickly organise and deploy the kinds of multinational audit teams often required by mining companies with mine sites spread geographically over the Africa continent. Our deep understanding of regulation and legislation means we can also help with complex reporting issues involving Sarbanes-Oxley for SEC registrants, including foreign private issuers and IFRS. Additionally, we are leaders in the development of non-financial performance reporting, helping our clients respond to the need for greater transparency, improved corporate governance, and business models based on the principles of sustainability. We pride ourselves on matching our audit skills with knowledge of the mining industry. One of the big challenges of any financial reporting standard is how best to interpret and implement it in the context of a specific company or industry. Our Financial reporting in the mining industry handbook is a practical guide that looks at the challenges of applying IFRS in the mining industry. Drawing on our deep level and global knowledge and experience of helping mining clients apply IFRS effectively, we have compiled this publication to assist you in your reporting responsibilities. We can help you through a variety of solutions: Compliance with regulations Advice on controls and processing system weaknesses Accounting treatments with respect to complex transactions Monitoring of prospective accounting and regulatory changes Special-purpose audit engagements Independent review of externally reported information Integrated reporting PwC 53

56 Case study: GAAP reporting Angola We have helped US-based mining companies in Cameroon to map their SAP system US GAAP Chart of Accounts and Financial Statements to the standard Statutory OHADA GAAP Chart of Accounts and Financial Statements. Value: Developed a complete mapping of their chart of accounts when they were installing SAP at group level; Identified differences between US GAAP and OHADA GAAP applicable in Cameroon; and Improved financial reporting by improving both US GAAP SEC reporting, and statutory and tax returns reporting. Fact: Angola could become a major player in Africa s mining industry given the wealth of unexplored areas of the country. Opportunity: From 2 015, the Angolan government is eager to develop its iron ore reserves, which could be among the largest in Southern Africa. Threat: Infrastructure in the country is unable to support significant growth in mining away from the coast. Population currently (million) 22,1 Population expected 2020 (million) 26,5 CPI Inflation (average % yoy) 7,8 OECD country risk rating 5 (1 very low - 7 very high) Source: OECD report Opportunities for you Greater reliability of information that has been assured improving stakeholder confidence Confirmation of compliance with regulations and complex accounting treatments Identify control and processing system weaknesses Increased quality and control through standardisation and simplification across all mine sites 54 Mining Excellence in Africa

57 Mining Value While issues faced by miners across the industry may be similar, we understand that value means different things to different people. That s why at PwC it s not just about providing the right answers. Our team of mining specialists remain focused on relationships to help our clients navigate the complex world of mining and deliver on objectives. We re passionate about mining and have a team of highly skilled professionals exclusively focused on improving efficiency and adding value across the industry. In Africa, we provide our clients with a number of mining-specific services and solutions. Leading-edge knowledge and insight We ve made considerable investments to ensure our people are not only technically strong but also have strong industry experience and expertise. Our thought leadership programme is focused on providing in-depth commentary on the key issues faced by miners in today s complex operating arena. Our comprehensive industry insight programme includes: Flagship publications such as SA Mine, Mine and Mining Deals, Webcasts available at pwc.com, and The Insight Series, providing deep dives into the issues most important to miners. Connections to our vast network of mining experts and global client portfolio We have the widest network of mining experts globally who work out of strategic hubs across the world to help connect you better to vital mining markets. Our connections provide: Collaborative cross-border account management, which ensures seamless client service; A global community of mining leaders, allowing our clients to connect with key players in all markets to maximise deal potential; and A well-connected and mobile workforce. The delivery of an experience that meets our clients definition of value With mining experts working in each key mining area across Africa, our teams are helping clients deliver on specific projects and organisational growth aspirations. We offer advisory, tax and audit services to global corporations and locally listed companies. We complement this with: A suite of niche mining consulting capabilities focused on optimising value across mining operations and effectively managing risk; and A comprehensive client feedback programme to ensure we are consistently delivering on individual client needs. PwC 55

58 Overview of VAT in Africa 2014 Thought Leadership Our commitment to the industry goes beyond our services. As industry leaders, we are globally recognised for our broad knowledge of the mining industry and the laws that govern it. For a full list of our publications visit our website: Mine 2014 Realigning expectations Review of global trends in the mining industry November 2014 Helping you navigate Africa s VAT landscape Trends, challenges and future outlook Capital projects and infrastructure in East Africa, Southern Africa and West Africa 56 Mining Excellence in Africa

59 Keeping you connected John Gravelle Global Mining Industry Leader T: +1 (416) Hein Boegman Africa Mining Industry Leader T: +27 (11) M: +27 (82) Michal Kotze South Market Mining Leader T: +27 (11) M: +27 (82) Dion Shango Assurance Mining Leader T: +27 (11) M: +27 (82) Nelson Musya East Market Mining Leader T: +255 (0) M: (0) nelson.msuya@tz.pwc.com Michael Asiedu-Antwi West Market Mining Leader T: +233 (0) M: +233 (0) michael.asiedu-antwi@gh.pwc.com Emmanuel le Bras Francophone Mining Leader T: M: emmanuel.lebras@cg.pwc.com Mining Centre of Excellence mining.africa@za.pwc.com PwC 57