Wescoal’s key risk management objective is to embed an effective group-wide risk management culture. The group’s strategic objective within our three core focus areas is managed continually to identify, analyse, prioritise and treat relevant risks appropriately to ensure an optimal risk-reward profile for all stakeholders. The risk management process and controls are assessed by the group’s internal audit function as overseen by the audit, risk and compliance committee. Our risk management framework includes continuous review of the risk profile of our business and the environment in which we operate.
The group’s 10 key risks are set out below:
RISK DESCRIPTION | MITIGATION/ACTION PLANS | |
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1Interruption of operations (COVID-19) High risk | ||
Interruption of operations due to global pandemic (Covid-19) resulted in temporary closure of operations and production losses.
Broader operational environment may be affected by level of perceived risk or exposure to incidence of Covid-19 impacting operations in form of additional mitigation initiatives or rates of absenteeism of critical operators. Wescoal operations continued throughout, with some decline in export sales via RBCT and in domestic sales through the Trading segment. |
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2 Funding and liquidity High risk | ||
Breach or non-adherence to funding covenant agreements resulting in additional interest charges, drawdown restrictions or termination of funding (liquidity risk) and deferral of expansion and growth initiatives.
This risk is influenced and increased by reduced level of profitability during FY20, economic pressures experienced by contractors and specific the global and domestic impact of Covid-19. |
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3 CSA commitments High risk | ||
Unavailability of sufficient coal of suitable quality to honour minimum contractual export coal supply obligations resulting in financial losses, penalties or litigation.
This risk is influenced by unavailability of suitable priced coal of the required specification and by non-performance of third-party suppliers in terms of coal procurement agreements. |
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4 Eskom exposure (delayed payments) High risk | ||
Delays in payments from Eskom reduced or interrupted coal offtake by Eskom as main customer, impacting cash flows and profitability as well as efficiency of production at potential reduced volumes.
The risk is influenced by general the financial standing and strategic approach of Eskom and more recently the effect of Covid-19 on electricity demand. Management based on experience to date and information available remains confident of Eskom as a preferred customer, uninterrupted offtake and that Wescoal CSAs are reasonable and competitively priced. |
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5 Counterparty risk High risk | ||
Financial pressures experienced generally by contractors impacting production efficiency, quality and surety of service and compliance to performance targets causing production losses, increase of contractor-based mining rates and termination of contract mining agreements.
The risk has increased as a result of continued weakness of domestic economy, the declining trend of mining industry and more recently the impact of the global effects of Covid-19. |
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6 Stakeholder engagement (community and labour instability) Medium risk | ||
Lack of community buy-in causing community unrest resulting in business disruptions or production losses. Labour unrest at mines leading to production inefficiencies, production losses, termination of employee services or damage to business assets.The risk of community unrest is integral to mining operations and the level of risk is influenced by factors such as effectiveness of community programmes and stakeholder management, the proximity of community villages to operations, conditions of economic, political and local traditional leadership structures, local procurement initiatives and by actions and programmes of other mines both on national and regional basis. The risk of labour unrest is integral to mining operations, closely related to community buy-in and the level of risk is influenced by factors such as contractor management, changes in working or employment conditions and wages, economic and political conditions, national industry level and employee union initiatives. |
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7 Retention of skills and staff Medium risk | ||
The risk of the loss of human capital investment in key skills required or the lack of continuity of operational strategic intent increased as a result of increased staff turnover during FY20. |
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8 Regulatory uncertainty Medium risk | ||
Unfavourable (to Wescoal) changes in the regulatory environment. The frequent rate of change with often limited consultation or notice periods impacting management of change. Extensive, complex and interconnected nature of requirements. |
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9 Environmental impact of water use Medium risk | ||
Excessive rain contributing to overflow of PCD Underground water supply deterioration Regulatory uncertainty regarding water management |
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10 HDSA ownership Medium risk | ||
A key strategic objective of Wescoal is to exceed regulatory requirements and to be a leading HDSA controlled and managed mining entity. |
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