Risk management is conducted taking into account the acceptable level of risk. In 2021, the Board of Directors approved the Company’s acceptable level of risk (risk appetite) at the level of USD 15 million. Risks above this level must be managed to mitigate them.
Coal mining operations are exposed to hazards associated with the exploration and extraction of natural resources. In particular, hazards associated with underground coal mining include:
The occurrence of any of these hazards could shut down coal production, increase coal mining costs, result in injury or death to workers or contractors, damage property or harm the Company’s reputation.
Risk mitigation measures include:
The coking coal market is cyclical. It can be adversely affected by local or global fluctuations in demand, including on the steel market, as well as volatility in macroeconomic conditions. The Company adheres to an investment policy that aims to reduce and manage key costs in an effort to enhance efficiency. Cost reduction programmes have also been adopted to improve the competitiveness of assets.
In addition, the Company’s activities are contingent on obtaining the necessary licences, permits and approvals from the government authorities. Licences may be suspended, modified or withdrawn before they expire or may not be renewed. The Company constantly monitors changes in regulation and compliance with regulatory requirements to ensure that its licence agreements remain valid.
Raspadskaya operates in Russia. There is a risk that the Russian government or state institutions could potentially adopt new laws or regulations that could adversely affect the Company’s operations. New laws, regulations or other requirements may also limit the Company’s ability to attract financing on international markets, sell its products or purchase equipment.
The Russian economy is still developing, and most of its GDP comes from exports, which makes it particularly vulnerable to global market and economic crises. Over the past twenty years, the Russian economy has frequently experienced:
There is also a risk of international sanctions being expanded against individuals or sectors of the Russian economy, which may adversely affect the Russian economy, the stock market and individual companies, including Raspadskaya’s operations.
At the same time, the Kemerovo Region, where the Company’s production facilities are located, is economically and politically stable. The region has a low risk of natural disasters, riots or any other adverse circumstances that could theoretically impact the Company’s operations.
The Company is exposed to various financial risks in its operations, including currency fluctuations, liquidity risks, restrictions on access to credit financing and risks related to compliance with tax laws.
Due to restrictions imposed on Russia and heightened economic uncertainty, including greater volatility on capital markets, the depreciation of the Russian rouble, decreased foreign and domestic direct investment, as well as a significant reduction in the availability of debt financing sources, the Russian Central Bank may enact temporary restrictive measures to protect the country’s economy and financial stability. Such measures may result in restrictions on the turnover of foreign exchange earnings from exports, regulation of the movement of capital, including with non-residents, payments on obligations and other actions. The long-term effects of such restrictions as well as the threat of new ones are difficult to reliably predict.
In addition, a sharp increase in inflation, a decline in Russian stock exchange indices and the significant depreciation of the rouble may adversely affect the Company’s operating costs and free cash flow. This risk is managed through programmes to optimise net working capital, capital expenditures and costs. The Company is currently weighing the impact of market changes on its financial position, financial results and future cash flow.
Given the importance of the environmental agenda and ESG issues, coal companies face the risk of difficulties in accessing capital markets. The Company devotes much attention to the development of ESG principles to maintain its competitiveness and investment appeal. As a result, Raspadskaya attracted the first ESG loan issued to a coal company from Sberbank in 2021.
Amendments to existing tax legislation and the ever-changing practice of its application could significantly affect the total amount of the Company’s tax liabilities. These risks and uncertainties complicate the planning process.
An analysis of the practice of how legislation on taxes and fees is applied helps to identify situations in which doubts, contradictions and ambiguities could occur:
The Company is exposed to the risk of breakdowns in relations within the Company, between its shareholders, the government and society, consumers and suppliers, and other individuals and legal entities, including the risk of fraud, corruption or conflicts of interest. Reputational risk may result from:
The Company’s operations do not preclude errors in the adoption of strategic decisions that could significantly affect its further development.
The foundation of strategic risk management is planning, both at the level of forming the Development Strategy and at the level of business plans. Monitoring their implementation helps to adjust the trajectory of the Company’s development and reduces the probability of strategic risk.
The Company’s decision-making system is hierarchical, distributed and collective:
The Company’s operations are exposed to the following risk factors:
Information technology and information security risks could also affect the Company’s production activities and industrial security.
Digital transformation, which is part of Raspadskaya’s IT strategy, aims to improve the quality of procedures and reduce the risk of the inefficient use of information technology capabilities.
To mitigate information security risks, the Company regularly conducts external assessments of them, develops response measures and monitors their implementation. Critical IT systems are regularly tested and employees are trained on information security. The effective organisation of remote work by office staff during the COVID-19 pandemic also played a significant role.
In 2021, the Company continued to improve its operational efficiency, including with the use of digital tools and the online monitoring of operating activities using mobile applications. However, due to the current situation in 2022 and the imposition of restrictions on international activities, there are risks of limitations on the maintenance and support of information systems available to the Company. In the current environment, the Company is assessing risks and working on alternative sources for the procurement of IT systems. At present, it is difficult to assess the impact of such restrictions on the Company’s production activities and industrial safety.
To minimise any negative developments, Raspadskaya has prepared a system of measures both to reduce the incidence rate and to promptly identify sick employees and isolate them. It has purchased all the necessary equipment and materials as well as introduced new rules and processes. To reduce the risk of illness, the Company has switched its office staff to a remote work format, minimised in-person meetings and conferences and set up vaccination stations. During the pandemic, the Company successfully modified its operating processes without losing any efficiency overall.