Each year, Exxaro conducts a comprehensive groupwide analysis of risks. These are grouped, and ranked by both impact and probability, as well as the effectiveness of the control measure, to form the the next period. These high-level risks and control measures are reviewed at board level. In our industry, some risks are perennially high on the table (page 72) and require ongoing management. Others change in line with prevailing economic, social and environmental circumstances.

For the immediate future, safety, profitability and operational issues. The context and mitigating strategies for each of these issues are detailed in this section.

Safety

The safety of employees heads the operational and strategic agenda of Exxaro as it does for other corporate members of the Chamber of Mines. In 2008, more than 140 people lost their lives in surface and underground accidents on South African mines. Although the 2008 January-September fatality rate was 15% lower than for the same period last year, industry leaders unanimously agree it is not acceptable. Apart from the grief and distress suffered by the families of miners who are injured or killed, there is profound understanding and acceptance of the ethical business threat to industries with unsatisfactory health and safety records.

Exxaro employs over 10 000 people, many of whom work in the world’s safety performance was disappointing (read more). The key risks in our diverse mining operations are lifting and material handling, energy and machine isolation, vehicle safety, ground control, working at heights and a number of site-specific issues. For our group, the short-term impact of an unacceptable safety record could result in intervention by:

• Government revoking mining licences
• Strike action by labour unions
• Other stakeholders – leading to difficulty in attracting and retaining the required skills, lack of community support, lobbies/protests or boycotts and declining investor interest.

In the long term, apart from the scale of human tragedy, poor safety records could undermine the business as a whole, increase our cost of funding and affect our share price.

In addressing this challenge, we have aggressively reinforced a multi-pronged approach (read more) spanning, among others, enhanced safety awareness and preventative programmes, a strong focus on hazard identification and Visible Felt Leadership. Our ultimate goal for safety is an injury-free workplace. To reach this target, we aim to improve our lost-time injury frequency rate by 30% each year.

In August 2008, chief executives of Chamber of Mines member companies met to deliberate on sustainable ways in which a culture of health and safety could be strengthened and how working environments could effectively be made safer and healthier. Endorsing the target of zero harm and the milestones that have been agreed with tripartite partners to achieve this objective, the chief executives also acknowledged the principle that safety is a core value that must always take precedence over production (read more). Exxaro fully subscribes to this principle.

Profitability

Maintaining a strong balance sheet with a cash-preservation focus, together with judicious consideration of both sustaining capital and growth aspirations, further supported by continuous business improvement at all operations, is of paramount importance in the current global recessionary environment.

Operational

The key risks faced by our operations are energy (primarily security of supply) and, following the global economic meltdown which  most challenging environments. Our 2008started the second half of low commodity prices and contracting markets.

Energy 

The national electricity crisis in early 2008 had an immediate detrimental impact on the business of mining and continues to present consequences that require remedial attention and accurate assessment.

In January 2008, compelled to avert an almost certain countrywide blackout, Eskom declared a force majeure and cut the supply of power to the mining industry by 50%. With electricity being imperative to the safety and survival of employees in underground working environments (over 50% of electricity used in deep-level mines is for cooling, ventilation and pumping), most of South no alternative but to suspend operational activities.

The shutdown lasted for seven days, with a cost to the economy in lost mineral sales and lost production of R12 billion. The value of mining equities quoted on the JSE declined by a staggering R85 billion. This was a direct consequence of investment community concern about the industry’s Equally, the more than 25% drop in mining gross domestic product (GDP) effectively halved the growth rate from 5% in the fourth quarter of 2007 to slightly more than 2% in the first quarter of 2008.

Given that to remain a serious risk for the next several years until additional capacity comes on stream, the Chamber of Mines and its individual members have been closely involved in initiatives focused on electricity conservation and efficiency. The chamber is also developing a protocol for handling electricity supply emergencies based on sectoral contributions to the national economy, which will be presented to government for approval.

Exxaro was one of the early signatories of the Energy Efficiency Accord, in its previous form as Kumba Resources. Since then, the Eskom request for a 10% electricity saving requires a more urgent response. In April 2008 energy efficiency team met to outline the the crisis and to develop savings projects for implementation in the short, medium and long term. These energy-saving ideas are currently in various stages of implementation, and include the conversion to low-energy lighting; conversion to solar appliances for hot-water applications; right-sizing of electrical motors; use of high-efficiency pumps, fans and motors; improved power-factor correction; and demand-side management projects.

Alternative energy sources are being investigated at various sites where both solar and wind power could be generated. These projects are currently entering pre-feasibility phase. Capturing process energy in off-gas streams is also being investigated at various sites, creating the possibility of offsetting the company's carbon footprint.

Low commodity prices and contracting markets
Calendar 2008 was very much a year of two halves, with record prices in the first half matched by equally dramatic collapses in the second and bleak prospects for 2009 for many commodities:

• Hard coking coal's 200% price increase in 2008 is expectedviability by under commoditythe threat analystsof power to becurtailment. followed by a 50% drop in price in 2009. The patterns were similar for semi-soft coking coal and low-volatile PCI benchmarkeconomic coal, and more pronounced for the spot price of steam coal.
• The spot price for iron ore in China moved from US$170 to between US$60 and US$75/t in six months. Market low reserve margins are expected expectations for 2009 are 30 – 40% lower for Australian benchmark spot prices.
• The 2009 market forecast for the London Metal Exchange cash zinc price is considerably lower than the prior year, albeit up from December's 2008 lows.
• The rising trend for titanium dioxide prices in 2008 could be reversed by lower demand in 2009, while feedstock prices are expected to move sideways.
• Zircon prices are also forecast to move sideways in 2009 as the global economic slowdown is expected to result in a more balanced supply and demand situation.

However, countering this gloomy outlook to some extent, mining costs are expected to come down in 2009, helped by strategy to address declining energy costs. The worldwide slowdown in activity levels should lessen the shortage of contractors, equipment and mining professionals, and freight rates are the best they have been for many years.

A weaker rand and the Australian dollar at levels more in line with its historical average exchange rate to the US dollar will positively reflect in the realised proceeds of US dollar-denominated sales revenue, offset to some extent by its adverse impact on foreign currency-linked capital and operational costs.

While extremely challenging, Exxaro's operations are focused on managing these conditions through relentlessly pursuing operational efficiency, cost management and increased – but safe – productivity. In addition and as a group, our diversification strategy and product and geographic market spread afford some protection against prevailing market conditions.