Risk philosophy

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 wellde fined 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 Coallink 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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