Precious Metals Price Risk
Precious Metals Price Risk is measured by the impact of gold, silver and associated minerals price changes on annual revenues. The Company entered into precious metals price Hedging to provide a proportion of guaranteed net revenue to cover a planned cost structure, and debt service and repayment. The Company enters into precious metal price hedging transaction based on the identified underlying equivalent metal exposures, as detailed in the most recent production plan. Basis risk is minimized by placing hedge transaction maturities to (as closely as possible) match refinery settlements.
Foreign Exchange Risk
The Company’s major currency has moderate exposure to movements in the IDR / USD exchange rate. The Company has a transaction exposure where Precious Metals sale are recorded in USD. These are net against known USD denominated expenses to provide an overall net currency position (naturally hedged). The Company has a translation exposure to the movements in the IDR/USD for IDR denominated expenses. To protect against such short term volatility on the IDR/USD exchange rate, the Company does not propose to take any longer term foreign exchange hedging and will only do foreign exchange hedging with identified underlying expenses.
Interest Rate Risk
The Company and its subsidiaries are exposed to risk from changing interest rates due to borrowings that bear interest rates based on LIBOR (London Inter Bank Borrowing rate). Interest rate risk can be mitigated through borrowings with fixed interest rate or through hedging instruments that can reduce risk exposures to unwanted movements in interest rates.
The risks associated with unusual heavy rains normally include slowdown or stoppage in construction or mining activities, equipment failures, and road wash-outs. To minimize these risks, production will be scheduled based on the weather prediction, demand and inventory level to ensure cost targets are met, regardless of heavy rainfalls. In addition, the Company is investing in the construction of dams, road improvements, and re-landscaping to prevent rain from bringing overly adverse impacts on production processes.
Mining operations have always been closely linked to the potential of hazardous events affecting people and property. The Company implements the Environment and Social, Occupational Health and Safety Management Systems (ESMS & OHSMS) to ensure environmentally and socially responsible, as well as safe, systems and methods of work are employed throughout all stages of the project. The system is designed to comply with all relevant Indonesian legal requirements, to conform with relevant international standards and codes and to align the Company’s policies, operating standards and management plans with the Equator Principles, including International Finance Corporation (“IFC”)’s Policy and Performance Standards on Social and Environmental Sustainability.
Environmental studies and assessments are conducted on all operations and are divided into three stages: Pre-Operation, Operation, and Post- Operation. The removal of overburden and extraction of mineral necessarily disrupts the environment and the Company is committed to restoring the environment to its pre-mining condition, in keeping with regulations and stakeholders’ expectations. Industrial discharges are handled according to regulations.
Social & Community Risk
Issues with local communities in the surrounding areas where the Company operates may arise from its business activities, and may include illegal mining, and blockages. In order to settle local community issues, the Company, both individually and through its subsidiaries, employs its extensive experience to conduct a multi-target Community Development program, as part of its corporate social responsibility (CSR). Through intensive communication and consultation with local communities, as well as the recruitment of workers from the surrounding communities, the communities are able to share in the benefits of the mines, from which the Company expects good will can be created and fostered.
Permit & License Risk
Delays to obtain any operating permit and related business license may interrupt the Company’s business operation. The Company manages all renewal and issuance permits on time to allow mining activities be conducted at low operational cost, as well as focuses on managing risks related to other supporting licenses.
Regulation Change Risk
The Company at all times fully complies with all local, regional and national laws and regulations. However, changes to regulation in mining business or disagreements over interpretation may at times increase costs or necessitate changes in operating procedures. The Company’s legal team, and external legal counsel are working closely to evaluate all legalities and recommend appropriate course of action.