Context and dependencies
The effective management of risk remains an area of focus and is central to the continued growth and efficient management of Wescoal. the group implemented Enterprise Risk Management (ERM) according to the framework and policies approved by the Audit and Risk Committee and the Board of Wescoal. the concept of risk appetite guides our risk management activities and the approach focusses on managing uncertainty (or risk) to ensure that controls required manage risks within pre-stated tolerances, remain effective and efficient.
Areas of focus
HDSA Ownership Dropping Below Eskom Requirement
One of Wescoal’s key strategic objectives is to be the leading HDSA-controlled mining entity. It is also a key requirement for our main customer, Eskom, for other offtake agreements and for the Mining Charter of the Department of Mineral Resources, a critical stakeholder of the business.
Wescoal has achieved the HDSA ownership targets and the potential of this risk to hinder its growth and other goals has significantly reduced but will remain an ongoing area of focus.
Wescoal is certified as a level 2 BEE contributor.
The optimisation of Wescoal’s funding and capital structure is key to it successfully implementing and concluding a range of organic growth projects and to pursue inorganic growth options.
During FY18 Wescoal raised R176 million cash though equity investment and committed R354 million cash for the Keaton acquisition. Wescoal also secured R440 million funding via structured long-term facilities with Nedbank, enabling consolidation and optimisation of various debt instruments which significantly strengthened the group’s liquidity and overall balance sheet position.
Wescoal group’s gearing ratio increased to 30% (FY17: 27%) following the Keaton acquisition.
Supported by the efficiency and stability of operations, improved financial performance, liquidity and balance sheet gearing of the enlarged Wescoal group, the beneficial long-term funding structure is being advanced at present.
Concentration of Sales to One Main Customer
Wescoal Mining’s primary product is Eskom grade coal and there is a natural tendency to have a large part of the business exposed to one client. The Trading division assists to diversify the client base.
The group’s continued focus on the development of non-Eskom based revenue streams, broadening the customer base and revenue generation activities in both local and export markets, resulted in 47% of the enlarged Wescoalgroup’s revenue being from Eskom.
The company is ever mindful of risks to the overall operation affecting the sustainability of the business. These include:
1. Criminality: fraud and theft from depots and mines
Wescoal is exposed to crimes related to theft of assets and potential acts of fraud. The group’s approach includes an outsourced independent anti-fraud hotline and improved security measures, inventory controls and policies to address these exposures.
2. Keaton transaction: failure to deliver anticipated value
The integration programme personnel redeployments and overhead reductions are complete and key technical and mining skills have been retained. Various improvement and efficiency projects are being implemented in a measured fashion. These projects represent low-risk value enhancement opportunities and support the group’s philosophy around standardisation and scalability. Operational and financial performance from the Keaton business units is in line with expectations.
The enlarged group has coal resources of 300 million tonnes, four operating mines, four processing plants and significant interests in coal supply chain infrastructure. This translates into additional revenue certainty and diversification through production of a range of coal qualities, mining and washing/processing options, customer and sales strategies across domestic and export markets, as well as optionality in contracts and off-take negotiations.
3. Community Unrest
We continue to build and sustain our relationships with our key stakeholder communities. Implementation of Wescoal’s strategy includes the tracking and monitoring of delivery against key stakeholder commitment and local requirements. This encourages the promotion of beneficial relationships with our stakeholder communities at all our operations. We undertake regular engagement with key stakeholders including with government, regulators, trade unions, community forums, media, NGOs and communities.
4. Changes and uncertainty in regulatory environment
Compliance to and implementation of changes in the regulatory landscape is the focus of a multi-disciplinary compliance programme. Appropriate systems, processes and procedures ensure compliance with applicable laws and other governance and best practice requirements, including King IV and the Mining Charter.
Structural risks have the potential of significantly affecting business sustainability or derailing business plans. These types of risks include data protection and information security, social license to operate, development and growth of alternative energy sources, climate change concerns, access to water and power. Wescoal will continue to develop its responses and actions to these risk categories.