BISICHI MINING PLC ANNUAL REPORT 2017

STRATEGIC REPORT PRINCIPAL RISKS & UNCERTAINTIES
PRINCIPAL RISK
PERFORMANCE AND MANAGEMENT OF THE RISK
CURRENCY RISK
The group’s operations are sensitive to currency movements, especially
those between the South African Rand, US Dollar and British Pound. These
movements can have a negative impact on the group’s mining operations
revenue as noted above, as well as operational earnings.
The group is exposed to currency risk in regard to the Sterling value of
inter-company trading balances with its South African operations. It arises
as a result of the retranslation of Rand denominated inter-company trade
receivable balances into Sterling that are held within the UK and which are
payable by South African Rand functional currency subsidiaries.
The group is exposed to currency risk in regard to the retranslation of
the group’s South African functional currency net assets to the Sterling
reporting functional currency of the group. A weakening of the South
African Rand against Sterling can have a negative impact on the financial
position and net asset values reported by the group.
Export sales within the group’s South African operations are derived from a US
Dollar-denominated export coal price. A weakening of the US Dollar can have
a negative impact on the South African Rand prices achievable for coal sold by
the group’s South African mining operations. This in turn can have a negative
impact on the group’s mining operations revenue as well as operational
earnings as the group’s mining operating costs are Rand denominated. In
order to mitigate this, the group may enter into forward sales contracts in local
currencies with the goal of preserving future revenue streams. The group has
not entered into any such contracts in 2017 and 2016.
Although it is not the group’s policy to obtain forward contracts to mitigate
foreign exchange risk on inter-company trading balances or on the retranslation
of the group’s South African functional currency net assets, management regularly
review the requirement to do so in light of any increased risk of future volatility.
Refer to the ‘Financial Review’ for details of significant currency movement
impacts in the year.
NEW RESERVES AND MINING PERMISSIONS
The life of the mine, acquisition of additional reserves, permissions to mine
(including ongoing and once-off permissions) and new mining opportunities
in South Africa generally are contingent on a number of factors outside
of the group’s control such as approval by the Department of Mineral
Resources, the Department of Water Affairs and Forestry and other
regulatory or state owned entities.
In addition, the group’s South African operations are subject to the
government Mining Charter.
Any regulatory changes to the Mining Charter, or failure to meet existing
targets, could adversely affect the mine’s ability to retain its mining rights in
South Africa.
The maintenance of compliance with permits includes factors such as
environmental management, health and safety, labour laws and Black
Empowerment legislation; as failure to maintain appropriate controls and
compliance may in turn result in the withdrawal of the necessary permissions
to mine. The management of these regulatory risks and performance in the
year is noted on page 17 under the headings environmental risk, health &
safety risk and labour risk. Additionally, in order to mitigate this risk, the group
strives to provide adequate resources to this area including the employment of
adequate personnel and the utilisation of third party consultants competent in
regulatory compliance related to mining rights and mining permissions
The group also continues to actively seek new opportunities to expand it
mining operations in South Africa through the acquisition of additional coal
reserves and new commercial arrangements with existing mining right holders.
POWER SUPPLY RISK
The current utility provider for power supply in South Africa is the
government run Eskom. Eskom continues to undergo capacity problems
resulting in power cuts and lack of provision of power supply to new
projects. Any power cuts or lack of provision of power supply to the group’s
mining operations may disrupt mining production and impact on earnings.
The group’s mining operations have to date not been affected by power cuts.
However the group manages this risk through regular monitoring of Eskom’s
performance and ongoing ability to meet power requirements. In addition,
the group continues to assess the ability to utilise diesel generators as an
alternative means of securing power in the event of power outages.
FLOODING RISK
The group’s mining operations are susceptible to seasonal flooding which
could disrupt mining production and impact on earnings.
Management monitors water levels on an ongoing basis and various projects
have been completed, including the construction of additional dams, to
minimise the impact of this risk as far as possible.
Bisichi Mining PLC
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