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
 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.

  • Managing essential controls and ways to ensure safe working environment of essential activities.
  • Monitored developments in terms of force majeure notice received from Eskom, which had no significant direct impact.
  • Continuous monitoring and adjustment to ensure full alignment with Covid-19 guidelines as they evolved.
  • Established ways to have largely non-production staff working remotely and activities done working remotely.
  • Extensive measures in terms of various initiatives to managing the exposure and risk of transmission (including community programmes).
  • Initiatives to be prepared to manage and treat potential a Covid-19 incidence.
  • Established guidelines and standard operating procedures and conduct, including training and monitoring of activities and contacts.
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.

  • During June 2019, the company concluded R1.1 billion long-term debt facilities, significantly improving the liquidity and capital structure.
  • Managing project execution and timing of investment outflows to optimise utilisation of debt facilities for operational improvement, extension and expansion projects.
  • Continued focus as to profitability of the trading segment.
  • Continued focus to further optimise the group’ funding in respect of mining equipment and upstream or supply chain aspect of working capital.
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.

  • Direct negotiations with counterparties to pursue potential alternate arrangements, manage relations and expectations.
  • Managing supplier performance, additional sources of coal and multiple coal source blending options.
  • Increasing sized material availability at lower cost being offered to customer due to reduction in export price.
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.

  • Sound relationship maintained with Eskom.
  • Continuous engagement on operational level with contract managers to effectively manage to coordinate offtake commitments and production scheduling.
  • Pro-actively monitoring supply and delivery schedules
  • Monitoring and expediting processes for new and timeous extension of existing CSAs.
  • Continued focus to further optimise the group’ funding in respect of mining equipment and upstream or supply chain aspect of working capital.
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.

  • Integrated operational planning and performance targets.
  • Performance management assessment processes regarding outputs as well as utilisation and productivity efficiency measures as leading indicators of economic viability.
  • Information undertakings and monitoring of indicators of key financial and operational risk aspects.
  • Jointly beneficial and integrated profit-sharing contracting strategy to progress benefits of transition to cooperative mining contractor model and progressive insourcing of mining activities.
 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.

  • Communication and coordination of SLP and community support initiatives.
  • Effective regular engagement through structured forums such as Tripartite Forums with Wescoal, the contractor and the local community.
  • Continuous pro-active engagement and management of agreed actions.
  • Identify services that can be rendered by local service providers.
  • Establishing of a process and platform to identify, screen and support local businesses to partner with as part SED.
  • Equitable local recruitment and procurement programmes and communication.
  • Employee relations management through routine engagement and coordination with structured employee representative forums
  • Continuous pro-active management of agreed actions
  • Operational supervisory leadership initiatives to promote clarity of united purpose, objectives and performance
  • Contractor management engagements to ensure effective pro-active coordination regarding labour relation aspects, specific initiatives and where relevant rectification plans agreed with subcontractors
  • Community interaction as addressed under community buy-in to assist managing relationships.
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.
  • Review and improvement of retention strategy and benefits
  • Introduction of long-term incentive
  • Staff development and communication (face-to-face and newsletters)
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.
  • Appropriate structures supported by systems and procedures are key to the compliance framework
  • Ongoing review of status and capacity to ensure optimised resource requirements for compliance and address gaps
  • The installation of a system specifically designed for compliance management is underway
  • Third party assurance reviews of the process and compliance status
9  Environmental impact of water use Medium risk
Excessive rain contributing to overflow of PCD
Underground water supply deterioration
Regulatory uncertainty regarding water management
  • Construction of an additional pollution control dam (“PCD”) at Elandspruit
  • Vanggatfontein pit extension increasing the coal seam availability and optionality, effectively reducing water dependency
  • Replacing the lining of Khanyisa PCD extended the life and capacity of water management
  • The PCD at Wescoal processing plant has been lined and the trenches and silt traps upgraded
  • Continuous monitoring of water consumption remains an area of focus as is optimisation of water supply sources and systems
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.
  • Effectively addressed through increasing to 58% HDSA ownership of which +50% is locked in through the empowerment SPV structure (FY19: 48%).