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You are here:   Home » Sustainability » Risk management

Risk Management


 

Exxaro maintains an integrated enterprise-wide risk management (ERM) programme to guide individual business units in their risk management endeavours to either prevent or reduce the adverse impacts of operational losses, earnings surprises and reputational damage.

Risk appetite
The audit, risk and compliance committee of the board approves Exxaro’s risk appetite within the board-approved risk philosophy and methodology. Exxaro’s risk-bearing capacity is a function of its ability to withstand unexpected losses and the impact of such losses on the group’s ability to continue as a going concern.

Risk culture
Risk owners are responsible for continuously monitoring both the existing and ever-changing risk profile of the environment in which they operate.

Business unit managers play an important role in identifying operational risks and appropriate mitigating strategies.

Risk identification process
The risk management process is continuous, with well-defined steps. Risks from all sources are identified and once they pass a set materiality threshold, a formal process begins in which causal factors and consequences are identified and the correlation with other risks and mitigating controls is reviewed.

The top business risks, appropriately categorised and based on impact and likelihood of occurrence, together with mitigating control measures, are disclosed below in descending order. These top business risks have been approved by the executive committee, the audit, risk and compliance committee of the board, and the board itself.

High-level business risks
Risk     Impact     Probability     Control measures    
  • Strategic
    Lengthy process of executing new mining rights and possible restrictive   conditions attached to converting rights    
  High     High     Ensure compliance with mining charter requirement.
Continuous engagement with the Department of Minerals and Energy (DME).    
 
  • Strategic
    Confirmation of long-term viable quality feedstock resource for KZN Sands smelter.   
  High     High    

Finalise sands feedstock reserve prioritisation.  

 
  • Strategic
    Long-term viable quality zinc concentrate supply to zinc refinery in Springs.  
  High     High    

Continued exploration activity at Rosh Pinah zinc mine and identification of viable zinc concentrate supply sources.

 
  • Strategic
    Funding of value-added growth within balance sheet and equity-raising constraints.   
  High     High    

Ranking value-adding opportunities in a strategy aligned growth process and within an acceptable capital structure underpinned by cash flow generation and preservation.

 
  • Strategic
    Longer term decline in commodity prices affecting dividend payouts thereby negatively impacting on stable BEE shareholder structure.   
  High     Medium    

Continuous business improvement. Optimised use of operating assets. Maintain a healthy balance sheet through judicious consideration of growth aspirations and global market conditions.

 
  • Operational  
    Anticipated significant price increases for electricity combined with power supply uncertainty, and the impact of interruptions on safety, production and profitability.
  High     High    

Participation in industry forums that engage with Eskom and the National Energy Regulator of South Africa (NERSA). Investigation into co-generation.
Implementation of power saving initiatives and examination of alternatives with regard to the conservation and use of electricity throughout operations.
Commitment to assist Eskom with additional coal supply required to achieve stability in the power grid.

 
  • Operational
    KZN Sands – not achieving cold feed furnace production capacity at both furnaces.   
  High     High    

Continuous improvement combined with projects and complementary technologies to maintain achievement of nameplate capacity, including ongoing investigation into alternative hearth technology.

 
  • Profitability
    Volatility in currencies combined with impact of forecast macro-economic parameters and commodity prices on operating margins, returns on investments, project cost escalation in respect of growth aspirations and loan covenant compliance.   
  High     High    

Judicious hedging policy. Continuous business improvement initiatives with rigorous tracking. Optimised use of operating assets to leverage benefits of higher throughput. Investigate downstream integration opportunities and diversification of markets and product sector.

 
  • Profitability
    Impact on buoyant construction and engineering market on the cost of capital projects.
  High     High    

Maintaining a database on escalation of major commodity items based on industry trends and own experience to ensure comprehensive provision for escalation on project costing and timing of long-lead items.

 
  • Profitability
    Infrastructure constraints inhibiting coal exports and ability to transfer zinc feedstock to zinc refinery.   
  High     High    

Engagement to obtain expansion of the Coal link rail capacity in order to fully utilise allocation of 6,3Mtpa by the end of 2009.

 
  • Human resources
    Attraction and retention of key skill simpacting on current production and future growth.  
  High     High    

Implementation of effective retention strategy for key disciplines. Remain an employer of choice due to:
– regularly benchmarked market-related remuneration  
– comprehensive training and development
– growth opportunities.
Focus on innovative recruitment initiatives and succession planning. Continuous rotation and exposure of own talent in multidisciplinary project teams.   

 
  • Safety
    Unacceptable safety record resulting in government, labour union and other stakeholder intervention.
  High     High    

Enhancement of safety awareness and preventative programmes through a strong  focus on hazard identification and visible felt leadership.

 
  • Safety
    HIV/Aids pandemic.    
  High     High    

Improve voluntary councelling and testing enrolment by creating a conducive environment for disclosure and treatment participation.

 
  • Environmental
    Risks posed by continuously changing and onerous environmental legislation.    
  High     High    

Continuous monitoring of work performed in line with rehabilitation strategy. Ongoing rehabilitation is managed out of operational  budgets while Exxaro Environmental Rehabilitation Fund provides for the final closure costs. Continuous engagement with authorities.    

 
  • Reputational  
    Impact to imminent changes to the mining charter and potential application of BBBEE legislation. 
  Medium     High    

Proactive planning to ensure compliance in terms of ownership, preferential   procurement and employment equity.




 

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