EXECUTIVE SUMMARY
Royal Bafokeng Platinum (RB) was floated through an IPO as a new platinum group metals production organisation, in 2010. RB initially did not need a distinct treasury operation within the Finance Department. In time, the growth of the business and the deposit of the ZAR 1.5 billion proceeds of a major financing exercise (~= US$ 115 million) clearly represented a significant increase in financial risk exposure. If we were to achieve best practice standards of financial management, a balance of this magnitude should be managed with a high level of treasury expertise. We researched several possible solutions and determined that our best course of action was to work in close partnership with the Pretoria-based treasury services company TreasuryONE.
BUILDING A SOLUTION IN PARTNERSHIP
Among the main reasons underlying our selection of TreasuryONE were the functional scope and scalability of their service offering, which delivers much more than the basic FX execution provision and spreadsheet support of standard outsourcing functions. TreasuryONE provides investment, borrowing, cash management and treasury accounting, in addition to expert FX and commodities advisory and execution services all done on the world-class treasury management system IT2. Each client simply contracts for those front, middle and back-office services which they need, so the service scope provided – and the license fee – fit our requirements and budget.
The primary initial focus for us was achieving a competitive return on investment for RB’s capital pool, within the boundaries of our investment policy. We discussed our requirements with TreasuryONE, and together we wrote a treasury policy that fully complied with RB’s financial risk appetite, defining the counterparty mix, maturity profile, liquidity objectives and credit exposure that would be used. We agreed on the investment instruments (high-quality money market fund placements and bank instrument investments) which would be used. Having agreed on the strategic approach, we determined how we would work together on a day-to-day basis, taking advantage of TreasuryONE’s expertise in designing and executing market operations to achieve superior competitive performance over time, within RB’s defined and prudent risk limits.
TreasuryONE additionally provides comprehensive automated administrative services, delivering integrated support for the important areas of limit monitoring and updating, deal confirmation management, position keeping, settlement, reconciliation and the on-demand generation of comprehensive operational and management reporting.
HOW THE PARTNERSHIP WORKS
Our partnership with TreasuryONE is based on the transparent workings of an integrated treasury team. We use TreasuryONE’s expert team to provide the various advisory, dealing and administrative services which we need, for strategic and operational purposes. TreasuryONE is supported by the IT2 treasury management system, which includes definitions of our processes and policies; accordingly, all operations are transparently compliant with our specific requirements, and any matters such as exception handling and special authorisations are immediately reported so that any necessary decisions can be taken effectively.
TreasuryONE provides us with expert in-depth market analysis and execution. In practice, this has enabled RB to achieve superior ROI results on our investment portfolio and to unlock new value. TreasuryONE constantly monitors market opportunities in line with our policies, so that we can work proactively to take decisions and optimise yield. Their team includes specialists in all aspects of treasury operations. In practice, this means that we can easily call upon the services of TreasuryONE in different areas such as hedging strategy, regulatory compliance and management analysis and reporting, according to current needs.
UNIQUE TREASURY TECHNOLOGY SUPPORT
TreasuryONE achieves cost-effective best practice results through its use of the world-class treasury management system, IT2. The RB team enjoys real-time visibility of its treasury operations, and we can request and run an up-to-date report of our current operations and risk exposures whenever we wish. This powerful facility is very useful to see the true current status of treasury and being able to run fully dependable current enquiries and reports whenever needed. IT2 provides the process control hub, reporting engine and business logic to support all the components of our treasury operation. The environment is set up and operated in a configuration specific to RB, which enables us to meet our specific workflow, security and control requirements.
This high level of technical support has enabled us to operate a highly-automated treasury operation, front-to-back office. The result far exceeds the possibilities of any feasible spreadsheet-based solution, in terms of robustness and richness of treasury-specific functionality and business logic. It fully meets our current needs and provides a readily scalable base for accommodating future developments with minimal impact. Technical support and maintenance are provided inclusively by TreasuryONE so that we do not need to be concerned about this essential service.
A NEW WAY OF MANAGING FX RISK
We expanded our relationship with TreasuryONE to add additional value to the finance operations at the core of our business. TreasuryONE’s risk management team worked closely with us to innovate a new and improved financial process relating to the very complex area of platinum refining and the related finance. The platinum ore we mine is refined by Anglo-American, who pay us the proceeds of the sale of the refined product. Our new process involves active management by TreasuryONE, who operates a program to convert the US dollars paid by Anglo into Rand, based on their analysis of market conditions, and its probable evolution. This creative, expert innovation has proved to be very much more profitable for RB when benchmarked against the average price method which we were using before.
FUTURE-PROOFING
Our partnership with TreasuryONE enables us to run a highly effective and efficient treasury operation at a very reasonable cost. RB is enjoying the economies of scale of securely sharing superior professional resources, and the enabling technology. We have been able to expand and refine treasury operations, with a direct and very beneficial impact on our bottom line. We operate a transparent treasury operation that easily adapts and grows as our needs evolve. Our treasury operations are tightly controlled so that our compliance with internal policies and external regulation is clearly and objectively documented. Above all, we are measuring and managing treasury risk accurately and effectively, adding value for Royal Bafokeng Platinum through optimising our ROI and the quality of our operations.
We have put in place a robust platform and partnership which has proved its worth via positive financial result performance and best practice control implementation, providing a valuable degree of risk mitigation through future-proofing against external change and internal evolution, and helping to unlock new value for us. This gives Royal Bafokeng a sound base for confident future growth and development.