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Exxaro Resources Limited
Integrated report for the year ended
31 December 2023
 

Our risks and opportunities

In a dynamic operating and economic environment characterised by change and uncertainty, risk management is a critical success factor for us to achieve strategic and business objectives to remain resilient and deliver sustainable shareholder value.

Risk management process

Environment (internal and external)

Reporting of risks

We follow a cascading approach by identifying risk events at the organisation's strategic, tactical and operational layers.

In the past four years, the mining industry has faced logistics constraints, fluctuating coal prices, global inflation and increasing geopolitical tension, among other challenges. Over this time, the global economy has also been impacted by a series of shocks, including post-COVID-19 inflation and the effects of the Russia-Ukraine and Israel-Hamas conflicts. In an uncertain and volatile environment, we rely on our mature risk management strategies to make agile and effective decisions to mitigate risk exposure and leverage opportunities.

Our risk management philosophy and approach

Embedding risk management into our daily activities and processes is key to making informed decisions and proactively planning for possible future unwanted events stemming from internal and external sources. Exxaro's risk management philosophy identifies risk management as a strategic enabler rather than being compliance driven. This ensures that we think and act proactively at every layer to pursue our strategic objectives.

Exxaro's enterprise risk management (ERM) framework provides a proactive, systematic and integrated approach to risk management. The principles outlined in the framework form the foundation for our risk management philosophy, mission and vision. The ERM framework and process illustrated below are based on principles published by the Committee of Sponsoring Organizations of the Treadway Commission, the ISO 31000 international guideline on risk management and King IV. The framework also considers applicable codes of best practice such as ISO 9001, 14001 and 18001. The ERM framework is regularly reviewed to ensure it remains relevant and effective. The ERM framework was recently reviewed by Deloitte to assess maturity of ERM and benchmark against best practice. As a result of the exercise, improvement recommendations were identified and a roadmap created to ensure these are implemented.

Accountability and governance

Exxaro's ERM process is a strategic initiative fully supported by the board and executive management. The chief strategic resilience and governance officer is responsible for enabling ERM across the group, and reports to the board and the risk and business resilience (RBR) committee. The RBR committee regularly reviews the ERM framework to ensure alignment with current governance practices and standards. The board and executive committee monitor key performance indicators (KPIs) quarterly to ensure all risks are within Exxaro's risk appetite. The board is satisfied that the company and group have a mature risk process that ensures risks potentially impacting its strategic objectives are pursued by management to create shareholder value.

Significant risks from the strategic layer are filtered down to the tactical and operational layers and are supplemented by the identification of risks that have an impact across the organisation.

Significant risks originating at an operational layer will also be elevated to a strategic or tactical layer. In this way, the process incorporates a top-down/bottom-up view of risks within the organisation.

Risk appetite and thresholds

Exxaro's board and executive committee use risk appetite and tolerance levels to evaluate the level of risk the group is willing to endure in the pursuit of the company's strategy.

Risk appetite
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Extent and type of risk we are willing to take in order to meet our strategic and capital allocation objectives.
Risk tolerance
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The maximum level of uncertainty/exposure we are prepared to accept.

The risk appetite framework is updated annually or when deemed necessary as part of the strategic planning process.

Strategy and strategic objectives linked to the six capitals
Set risk threshold
Modify risk threshold

Opportunities

We use the ERM framework to identify and realise opportunities – for example, global energy transition to maximise value in the medium to long term in view of the achievement of growth objectives risk. We believe that, for Exxaro to remain sustainable in the future, it is important to adapt the minerals business to identify and pursue possible opportunities that ultimately create value, such as diversifying away from coal to future energy material and renewable infrastructure.

The following opportunities inform our Sustainable Growth and Impact strategy:

Opportunity
Strategic objective
The drive for future-facing minerals presents opportunities to invest in exploration projects at various stages through our balanced portfolio approach towards capital allocation and managing risk and returns.
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Transition at speed and scale
Private-public participation in local rail operations is an opportunity for value unlock and vertical integration. We are currently investigating this opportunity.
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Make our minerals and energy businesses thrive
The multidimensional poverty index highlights the drivers of poverty and inequality in our communities, allowing us to focus our social impact efforts towards sustainable impact. We will focus on education, land use management and small, medium and micro-enterprise (SMME) development.
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Become a catalyst for economic growth and environmental stewardship
The early value strategy and our ability to maximise market to resource opportunities by leveraging the low cost and flexibility of our coal assets and reserves.
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Make our minerals and energy businesses thrive
Accelerated expansion into renewable energy will support our low-carbon transition.
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Be carbon neutral by 2050
Make our minerals and energy
businesses thrive
Nature-based solutions to mitigate the impacts of climate change were identified as an opportunity, especially in lieu of the vast amount of viable land that Exxaro has at our disposal. We intend to maximise this opportunity through our Sustainable Growth and Impact strategy.
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Be carbon neutral by 2050
Investing in self-generation facilities is an opportunity we are leveraging, which aligns with our energy growth strategy.

Cennergi is constructing a 68MW photovoltaic farm, near Grootegeluk, through our special purpose vehicle, Lephalale Solar (RF) Proprietary Limited. This is our first self-generation project to expand and diversify within the energy space, supporting low-carbon emissions and long-term savings on electricity usage at Grootegeluk. We will also explore the opportunity for further self-generation.
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Make our minerals and energy businesses thrive
Be carbon neutral by 2050
The global energy transition provides an opportunity to mine and supply the minerals that support green technologies. Through a rigorous screening process, Exxaro identified future energy material and renewable infrastructure as being most aligned to our experience, capabilities and market forecast.
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Make our minerals and energy businesses thrive

2024 risk trend

The trend report indicates changes in the residual risk score when comparing the 2023 and 2024 financial years. Our risk scores are derived from the product of the likelihood and the impact of the unwanted event*. The top 10 risks are arranged from highest to lowest risk score.

The 2024 ranking represents the key possible unwanted events we anticipate having a potential impact on our ability to achieve our strategic imperatives in 2024. These risks are reviewed on a quarterly basis and could change significantly depending on the internal and external root causes that drive these risks to materialise. These risks are prioritised, and treatment strategies have been designed and implemented. The effectiveness of these treatments will be monitored on an ongoing basis to ensure the risks are managed down to acceptable risk levels.

2024
ranking
2024 top risks
(forward looking)
2023
ranking
2023 vs
2024 trend
Comments
1
Unavailability of rail
capacity
1

TFR productivity remains our most significant challenge, with a low run rate (below 50Mt for the year) and increasing financial difficulties.

Initiatives by Operation Vulindlela, a joint initiative of the South African Presidency and National Treasury, and the National Logistics Crisis Committee are identifying improvements for TFR, including influencing structural and leadership changes.

Exxaro is implementing alternative solutions to close the gap on export performance created by TFR. These include road trucking and exports via alternative ports.

2
Fatal risk incidents 4 This risk has increased due to a deterioration in safety indicators. Safety improvement plans are being implemented with strong emphasis on the effectiveness of preventive controls. This is supported by various other initiatives, including leadership visibility.
3
Cybersecurity
attacks impacting
business
3 a

Exxaro remains vigilant to the high risk of cyberattacks and manages this risk through initiatives that enhance our ability to detect, protect, respond and recover from cybersecurity threats.
These include:

  • Implementing a robust cybersecurity awareness programme, establishing incident response plans, conducting penetration testing and overseeing privileged identities
  • Enhancing network security
  • Enhancing disaster recovery capabilities
  • Patching
4
Country risk
(geopolitical)
7 rarrow

The current political environment, slow economic recovery, deteriorating state infrastructure and other macro-economic factors have an adverse effect on the country risk assessment. General deterioration of infrastructure affects ability and cost of conducting business.

We continue to participate in industry-wide structures to contribute to solutions to address industry and national challenges.

5
Customer
concentration risk
2 Risk continues to be monitored, taking the power utility’s operational challenges into account.
6
Adverse threat to
licence to operate
8 Challenges in achieving required spend on SLPs were identified, raising this risk and its potential impacts. Resources are being allocated in technical, supply chain and project management areas to address the gap.
7
Community unrest 9 garrow Instability is expected before election outcomes and after the elections (forming of coalitions, etc). The team has intensified proactive stakeholder engagement efforts to build relationships with stakeholders by creating a conducive environment to ultimately reduce the number of incidents encountered.
8
Inability to achieve
growth objectives
5 garrow Increased pressure in delivering growth objectives to diversify Exxaro. The board approved additional minerals to be explored. We continue to explore further opportunities to add to the pipeline for consideration. The primary growth lever for the organisation is inorganic growth through acquisition.
9
Labour unrest 16 red The risk of labour unrest has increased due to the upcoming wage negotiations and recent unrest/hostage incidents at other mining companies.
10
Inadequate response
to climate change
11 red Collaborate with value chain partners such as Eskom and the Council for Geosciences on carbon capture and storage for the mitigation of scope 3 emissions.
* Risk = f (likelihood of risk occurring x impact of the risk).
red Ranking in the top 10 is higher compared to the previous year
a Ranking in the top 10 remained unchanged compared to the previous year
garrow Ranking in the top 10 reduced compared to previous the year
New
   

Top 10 heat map

Exxaro's top 10 risks are plotted inherently (before controls) and residually (after controls) on the heat maps below, followed by an outline of our key identified risks, their main drivers, their potential impacts and mitigating treatments. We have considered internal and external risks. Our mitigation strategies depend on the severity of impact and likelihood of occurrence.

  Likelihood Impact
1% – 10% Rare Insignificant
11% – 35% Unlikely Minor
36% – 60% Possible Moderate
61% – 80% Likely Major
81% – 100% Almost certain Extreme

Managing our risks

Various risk treatment strategies are evaluated, including risk avoidance, reduction, sharing, acceptance or transferring. When selecting risk treatment options, we consider the values and perceptions of stakeholders and the most appropriate ways to communicate them.

The decision to implement a treatment is based on risk tolerances, the effect the treatment will have on the impact and likelihood ratings, and the results of the cost versus benefit evaluation. Once a risk treatment is implemented, Exxaro develops ongoing mechanisms to monitor the implementation and effectiveness of the risk treatment.

Lines of defence

1

Management of risk (risk owner)

2

Management support and oversight

3

Independent assurance (internal audit and other assurance providers)

4

Independent assurance (external audit and regulators)

5

Governance structures (board and board sub-committees)

Risk trend

Residual risk increased compared to the previous year
Residual risk decreased compared to the previous year
Residual risk remained unchanged compared to the previous year
New

[Expand All]

1 Unavailability of rail capacity (2023: 1)

2 Fatal risk incidents (2023: 4)

3 Cybersecurity attacks impacting business (2023: 3)

4 Country risk (2023: 7)

5 Customer concentration risk (2023: 2)

6 Adverse threat to licence to operate (2023: 8)

7 Community unrest (new)

8 Inability to achieve growth objectives (2023: 5)

9 Labour unrest (2023: 16)

10 Inadequate response to climate change (2023: 11)

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ABOUT EXXARO
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Building momentum and resilience for sustainable growth and impact
About this report
Delivering sustainable value creation
Snapshot of our long-term value creation

OUR BUSINESS
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Chairperson's statement
Who we are
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How we create value
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Our business model
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Strategically positioning the business for growth
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Building resilience through governance
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OUR PERFORMANCE
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OUR MINERAL RESOURCES AND MINERAL RESERVES
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Our mineral resources and mineral reserves
ADDITIONAL INFORMATION
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