Business Review
Review of the group’s development
and performance
The Chairman’s Statement and the Mining
Review on the preceding pages 2 to 7 give
a comprehensive review and assessment
of the group’s activities during the past year
and prospects for the forthcoming year.
Risk
Coal price risk: The group’s mining
operational earnings are largely dependent
on movements in the coal price. It does have
the flexibility in terms of markets where it can
sell its coal domestically (to local industrial
consumers and the power industry) or to
export to various international markets.
Coal washing: The group’s mining
operation’s earnings are highly sensitive
to coal washing, therefore a stoppage or
disruption to the process could significantly
impact earnings. However, there is scope
to raise earnings substantially if the yield
from the washing process is improved
even marginally.
Mining risk: Attached to mining there are
inherent health and safety risks. Any such
safety incidents disrupt operations, and can
slow or even stop production. The group
has a comprehensive Health and Safety
programme in place to mitigate this. As with
many mining operations, the reserve that is
mined has the risk of not having the qualities
and accessibility expected from geological
and environmental analysis.
Currency risk: The group’s South African
operations are sensitive to currency
movements, especially those between
the South African Rand, US Dollar and
British Pound.
New reserves and mining permissions:
The acquisition of additional reserves,
permissions to mine and new mining
opportunities in South Africa generally are
contingent on a number of factors outside
of the group’s control, e.g. approval by the
Department of Mineral Resources.
Regulatory risk: The group’s South African
operations are subject to the government
Mining Charter and scorecard which primarily
seeks to:
- Promote equitable access to South Africa’s
mineral resources for all people in South
Africa;
- Expand opportunities for historically
disadvantaged South Africans (HDSAs),
including women, to enter the mining and
minerals industry and benefit from the
extraction and processing of the country’s
resources;
- Utilise the existing skills base for the
empowerment of HDSAs;
- Expand the skills base of HDSAs in order
to serve the community;
- Promote employment and the social and
economic welfare of mining communities
and areas supplying mining labour; and
- Promote beneficiation of South Africa’s
mineral commodities beyond mining and
processing, including the production of
consumer goods.
The group continues to make good progress
towards meeting the Charter requirements.
However any regulatory changes to these,
or failure to meet existing targets, could
adversely affect the mine’s ability to retain
its mining rights in South Africa.
Transport risk: At present the government
owned Transnet Freight Rail (TFR) is the sole
rail freight provider for coal in South Africa.
The group’s South African operations are
therefore reliant on TFR for delivery of its
export quality coal directly or indirectly via
the Southern African ports to its end
customers.
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. The group’s
mining operations have to date not been
affected by power cuts.
Flooding risk: The group’s mining operations
are susceptible to seasonal flooding which
could disrupt production. Management
monitors water levels on an ongoing basis
and various projects have been completed,
including the construction of additional
dams, to mitigate this risk.
Environmental risk: The group’s South
African mining operations are required to
adhere to local environmental regulations.
Details of the groups Environment
Management Programme is disclosed
in the Mining review on page 6.
Health & Safety risk: The group’s South
African mining operations are required to
adhere to local Health and Safety regulations.
Details of the group’s Health and Safety
Programme is disclosed in the Mining
Review on page 6.
Labour risk: The group’s mining operations
and coal washing plant facility are labour
intensive and unionised. Any labour disputes,
strikes or wage negotiations may disrupt
production and impact earnings.
Cashflow risk: We seek to balance the
high risk of our mining operations with
a dependable cash flow from our UK
property investment operations. Fluctuations
in property values, which are reflected in the
Consolidated Income Statement and Balance
Sheet, are dependent on an annual valuation
of commercial properties. A fall in UK
commercial property can have a marked
effect on the profitability and the net asset
value of the group. However, due to the long
term nature of the leases, the effect on cash
flows from property investment activities will
remain stable as long as tenants remain in
operation.
Future development
The group seeks to expand its operations
in South Africa through the acquisition of
additional coal reserves.
Environment and employment
The group’s UK activities are principally
property investment whereby we provide
premises which are rented to retail
businesses. We seek to provide those
tenants with good quality premises from
which they can operate in an efficient and
environmentally sound manner.
Our South African mining operations are
regulated by and are operated in compliance
with all relevant prevailing national and local
legislation. Employment terms and conditions
provided to mining staff meet or exceed the
national average.
Financial Position
In the UK, a term loan facility of £5million and
an overdraft facility of £2million were signed
in March 2010 with Royal Bank of Scotland.
The group is working with the bank on the
renewal of the current banking facilities and
the bank has agreed to an extension of the
existing £5 million term facility and £2million
overdraft to the 30 June 2013 from its original
expiry date of 31 December 2012, whilst the
discussions are on-going and the new facility
is documented.
The property portfolio was externally valued
at 31 December 2012 and the value of UK
investment properties attributable to the
group at year end was £11.6million (2011:
£12.1million).
In South Africa, a structured trade finance
facility of R60million (South African Rand)
was signed in March 2010 with Absa Bank
Limited, a South African subsidiary of
Barclays Bank PLC. This facility comprises
of a R40million revolving loan to cover the
working capital requirements of the group’s
South African operations, and a R20million
loan facility to cover guarantee requirements
related to the group’s South African mining
operations. The R60million facility is renewed
annually and is secured against inventory,
debtors and cash that are held in the group’s
South African operations.
The group’s cash and cash equivalents
(excluding bank overdrafts) at year end were
£1.8million (2011: £4.0million). The net assets
of the group at the year end were
£17.8million (2011: £17.0million). During the
year the company lent £2million to Dragon
Retail Properties Limited, our joint venture
company at 6.875 per cent annual interest.
Further details on the group’s financial
position are stated in the Consolidated
Balance Sheet on page 36.
Cashflow
The group’s cashflow position remains
strong. Cash and cash equivalents (including
bank overdrafts) of the group at year end
were £0.7million (2011: £1.1million).
Further details on the group’s cashflow
position are stated in the Consolidated
Cashflow Statement on page 39. Cash
and cash equivalents as per the Cashflow
Statement comprise Cash and cash
equivalents as presented in the balance
sheet and bank overdrafts (secured).
Performance indicators
The Key Performance Indicators for our South African mining activities
are
- Profit before Tax (PBT);
- Earnings before Interest, Tax, Depreciation,
and Amortisation (EBITDA); and
- Cashflows from operating, investing and
financing activities.
The Key Performance Indicator for our UK
property investment operations is the Net
Property Valuation as shown in note 10.