Business Review
Review of the group’s development
and performance
The Chairman’s Statement and the Mining
Review 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.
There is scope to increase production by buying in
coal to compensate for disruptions in production.
As with many mining operations, the reserve that
is mined has the risk of not having the qualities
expected from geological 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;ged South Africans (HDSA’s),
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 HDSA’s;
- Expand the skills base of HDSA’s 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. HowevThe 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 has recently undergone 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 9.
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.
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.l 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
The group continues to strengthen its asset base
with strong cash generation from its South African
mining operations backed by UK retail property.
The group signed new borrowing facilities in both
its UK and South African operations.
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
term loan facility will expire in December 2012 and
is secured against the group’s UK retail property
portfolio. The property portfolio was externally
valued at 31 December 2010 and the value of UK
investment properties attributable to the group at
year end was £12.1million (2009: £11.9million).
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 £5.4million
(2009: £6.6million). The net assets of the group at
year end were £18.3million (2009: £19.3million).
Further details on the group’s financial position
are stated in the Consolidated Balance Sheet
on page 30.
Cashflow
The group’s cashflow position remains strong.
Cash and cash equivalents (including bank
overdrafts) of the group at year end were
£4.0million (2009: £5.1million).
Further details on the group’s cashflow position are
stated in the Consolidated Cashflow Statement
on page 32. 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.