Controlling Standards: Evaluation and Audit of Lonmin

Lonmin Plc is listed on the stock exchanges in London and Johannesburg. The company engages in the discovery, extraction, refining and marketing of platinum group metals (PGMs) and is one of the world’s largest primary producers of PGMs. Lonmin’s core operations are situated in South Africa.

For the past 30 years, Lonmin has been a supplier of PGMs to BASF’s Precious Metals Services business and to the Precious Metals business of Engelhard Corporation, which BASF acquired in 2006.

The metals purchased from Lonmin – platinum, palladium and rhodium – are primarily used in the production of BASF’s mobile emissions catalysts. These catalysts enable automakers to comply with increasingly stringent global emissions regulations by eliminating pollutants from engine exhaust before they enter the atmosphere.

Throughout its relationship, BASF has routinely engaged with Lonmin’s operational, commercial and executive teams and conducted periodic site visits to Lonmin’s operations to ensure an understanding of its processes and compliance with BASF’s commitment to environmental and social performance.

Marikana Conflict, Farlam Commission Report

In August 2012, during an extended mining strike involving Lonmin workers in Marikana, South Africa, an escalation of tensions culminated in violent confrontations between mineworkers and armed South African police. This violence led to the deaths of 44 people, mostly Lonmin mineworkers, over the course of one week.

BASF was and is shocked by the incident and violence in Marikana 2012 and condemns this violence. The company offers its deepest sympathy to all of those impacted by these events.

Shortly after the violence in Marikana, the South African government launched a formal investigation into the incident, forming the so-called “Farlam Commission of Inquiry” to lead an investigative process.

Alongside the Farlam Commission of Inquiry, Lonmin conducted its own intensive assessment of the root causes of the Marikana tragedy. It installed new leadership and initiated a series of actions to improve mineworker relations.

In June 2015, the Farlam Commission of Inquiry Report was issued. While the investigation found that the actions of the South African police forces and the striking miners were the primary cause of the violence, Lonmin was also identified as not having used its best endeavors to prevent the tragedy.

BASF Response to the Farlam Commission Report

Following publication of the Farlam Report, BASF conducted a thorough assessment of the issues raised and took a number of steps to ensure that Lonmin is fully compliant with BASF’s Supplier Code of Conduct and its policies related to human rights, labor and social standards as well as environmental protection.

The evaluation was conducted in accordance with the “Together for Sustainability” (TfS) initiative, which a number of leading chemical companies, including BASF, founded in 2011 to establish global standards for supplier evaluations and auditing to improve sustainability sourcing practices.

Beginning in July 2015, BASF initiated a series of information gathering meetings between its Procurement and Sustainability leaders and Lonmin executives to understand the actions that had been taken to improve Lonmin’s sustainability management performance and address the Farlam Commission findings.

Between September and November 2015, BASF prepared for an intensive audit of Lonmin by identifying and contracting ERM (Environmental Resources Management), a leading TfS audit firm, to conduct the detailed supplier sustainability assessment.

At the end of November 2015, the third-party ERM audit was conducted by two independent South African auditors that had been validated and approved by TfS.

The key categories of audit assessment included: Environment, Health & Safety; Labor & Human Rights; Management; and Governance. While the audit noted room for improvement, primarily in the areas of environment and safety, there were no critical findings of Lonmin’s governance, human rights or labor practices nor any performance violations that prevented BASF’s continuation of its relationship with Lonmin.

In response to the audit findings, BASF is taking further steps in providing active knowledge sharing with Lonmin in areas which are comparable to the chemical industry. For example: providing support to help improve the mining company’s firefighting capabilities, while also sharing best practices on enhancing community grievance procedures.

As part of the collaboration with Lonmin, BASF is focused to support the company in finding long-term solutions and undertake efforts to overcome identified problems. This collaboration is based on clear goals and our expectation that measurable, verifiable and documented progress is being made on the part of Lonmin.

Ensuring results: Follow-up audit 2017

In January 2017, we had a follow-up audit conducted by independent auditors. It examined the extent to which Lonmin has eliminated the weaknesses identified during the 2015 audit. It also examined the underground working conditions, the social and work plans, Lonmin’s exchange with local interest groups and involved parties as well as progress concerning the construction of staff apartments. Our approach within the audit framework corresponds to standards which also include the workers’ perspective. Thus, during the audit at Lonmin, workers were also asked about the working conditions.

From the on-site commitment and discussions with various stakeholders, such as NGOs, mining companies, human rights experts and the South African Chamber of Mines, BASF identified issues, that have been the focus of the follow-up audit 2017. Around 90 mine-specific questions, which were not or only partly covered in the Together for Sustainability (TfS) questionnaire, were added to the checklist for this follow-up audit. This addition was made in collaboration with the internationally acknowledged human rights experts and the audit company EMR and it was based on the questionnaire prepared by the Initiative for Responsible Mining Assurance (IRMA).

This follow-up audit yielded a positive result in several areas: such as that Lonmin has high working standards. The subject of work safety is of great importance for Lonmin, particularly for underground work.

However, the audit also identified gaps that Lonmin still needs to close:

• Lonmin should take steps to better understand how the mining operation affects local communities and which measures can be derived from this.

• Furthermore, Lonmin should strengthen and systematically establish dialog formats with different interest groups in the communities and implement them on a continuous basis.

• Another topic is the grievance mechanism. Lonmin has developed a new system, however, it needs to be introduced properly and communicated more comprehensively.

So far, we have seen a great willingness on the part of Lonmin to improve the situation with regard to all of the identified deficiencies. Our ambition is to support Lonmin in its efforts. Lonmin supports the investigations and evaluations conducted by BASF and the auditors, and is participating in the necessary follow-up evaluations.

In recent years, we have intensively discussed the topic of housing construction with Lonmin, and we have also exerted our influence to intensify Lonmin's work on improving the housing situation for employees. We are aware that Lonmin's past plans called for 5,500 residential units. This goal has not been met. But we are seeing visible progress in the construction of the 1240 planned residential units, that are planned to be finished by the end of 2018.

At the Lonmin Annual Meeting in 2017, Lonmin CEO, Ben Magara, reported in detail on Lonmin’s plans regarding housing construction. We consider the transparency with which Lonmin is working to be extremely important and will continue to exert our influence in the future so that these plans are adhered to. In March 2017, the South African government announced that it would pay compensation to the families of the victims and those injured in the amount of EUR 86 million, a fact which we very much welcome. The payment of the compensation is the subject of individual negotiations between the recipients of the compensation, their lawyers and the authorities.

Status-quo 2018

In recent years, BASF's management and Lonmin have been talking very intensively about housing construction and urged Lonmin work to improve their housing situation. The management of BASF returned to Lonmin in December 2017 and also looked at the apartments in Marikana. We got the impression that the construction of the 1240 apartments planned by the end of 2018 is progressing.

In the sector initiative, we have set the goal with other industry partners to audit all mine operations in South Africa with a more comprehensive audit methodology. In this context a new audit methodology will be introduced that we developed for Lonmin's second audit with international human rights experts. We introduced this methodology to the industry initiative “Together for Sustainability” and made it an industry standard.

BASF sees progress in the introduction of the grievance mechanism in Marikana. Lonmin is in the process of informing the people concerned about the new ways and opportunities in which they can address their complaints to an independent organization. Platinum producer Lonmin on Wednesday 25^th April, launched a community grievance mechanism system in a bid to improve communication and the resolution of disputes in areas where it operates.

BASF also recognizes that Lonmin has made progress engaging in dialogue with various stakeholders in the communities, and must continue to improve in this area.

These are all hopeful signals for a positive development that encourages us to continue supporting Lonmin with its improvement process. BASF expects from its suppliers to fully comply with applicable laws and to adhere to internationally recognized environmental, social and corporate governance standards. Furthermore, BASF demands from its suppliers to ensure the same and to replicate this with their subcontractors and suppliers along the whole value chain.

Our general approach towards all our suppliers is that we act responsibly and rely on our partners to act responsibly, too. Furthermore, we offer our support to partners in their efforts to meet their respective responsibilities. We conduct reviews based on sustainability risk assessments. Whenever we become aware of violations, we urge to end these. Where appropriate, we support our partners, civil society, or cross-industry initiatives for tackling related challenges together, on a broader basis of stakeholders. In other cases, we may choose to explore business alternatives and reserve the right to terminate business relations.

In the event that the Marikana Mine will become the property of Sibanye Stillwater and Sibanye becomes BASF's supplier, BASF will expect the same from this supplier as from Lonmin.

For more information about our general approach towards all our suppliers, please click here.