Page 8 - AMANGO 2017 CASE STUDY 2

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One of the risks that AMANGO had identified in its 2016 strategic risk assessments was the frequent
unplanned outages and failure of the national grid arising from the state’s (Eskom’s) lack of investment in
power generating capacity and a maintenance backlog, leading to production shortfalls -with a negative
effect on revenues, costs, profitability as well as safety implications, particularly for the underground
mines. In response to this risk, AMANGO had decided to build its own power generation capacity, with a
mix of power stations (coal, gas and nuclear) as provided in Appendix 1.2

Subsequent to that, the South African government has joined the international community in signing a
number of climate change accords, pledging to enact an ambitious sustainability agenda, with a greater
concern for the environment, setting a target -primarily, to reduce carbon dioxide (CO2) emissions by up

to 20% in the next 5 years; a target which has been incorporated into domestic law, requiring each
company to also reduce their CO2 emissions by that much. AMANGO is aware that its need for
electricity will rise by 10% over this period and is seeking to make changes to its mix of power stations to
help deliver on these goals. Therefore, it is considering 3 strategic options, any two of which if combined,
will deliver on the goals; and will be adapted for replication in other the countries where AMANGO
operates, in order to maintain its global leadership in environmental and sustainability management
practices.

Strategy 1- Build a new nuclear power station (the same as the existing nuclear type) to replace one of
the 300 MW coal stations, one of the 600 MW coal stations and, also, one of the 300 MW gas stations.
The stations being replaced are all reaching the end of their useful lives.

Strategy 2- Replace the gas and coal stations mentioned in Strategy 1 with equivalent gas and coal
stations, thus maintaining the current generation mix.

Strategy 3- Build a new nuclear station which would be same as the existing stations. A nuclear plant
takes about 5 years to build (assuming no regulatory difficulties or problems over the design choice). And
it has a working life of 40 years and costs US$1 billion at current prices to decommission although this
estimate is uncertain as each site is unique in the decommissioning difficulties which it presents.

Group Dividend, Finance and Investment Strategy

A key part of AMANGO’s 3-year viability strategy it had set in 2016, and re-expressed in the recent Board
Chairperson’s Strategic Report was to change its group dividend policy. Subsequent to the Chairperson’s
Strategic Report, a considerable disagreement on the appropriateness of such a policy has arisen. The
departing Board chair is of the view that he has led the Board for 9 years, when coincidentally, AMANGO
reported its highest ever profits, at US$8,119m, and he was now departing with a much smaller profit
figure of US$1,926m. ‘’I am keen to leave AMANGO on the upward growth trajectory I found’’, he

stated. Half the board had joined him to argue for the need to freeze dividends until even much
latter, say, 2022, in order to finance growth and deliver on long-term shareholder value.

The CFO Case Study Competition Pack (Extended scenario)
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