Risk Management
Risk Management
Risk management is one of the core responsibilities of the Board and it is central to the decision-making process. The Board’s fundamental duties as to management are:
- Assessing (quantitively and qualitatively) the principal risks to the Company. Principal risks are those risks or combination of risks that could seriously affect the performance, future prospects or reputation of the Company;
- Recognising and assessing emerging risks. Emerging risks are those which have not yet occurred but are at an early stage and anticipated to increase in significance over the medium to long term time horizon; and Risk management oversight and promotion of a risk mitigation culture.
- Risk management is designed to manage, rather than eliminate the risk of failure to achieve the Company’s business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Directors have carried out a robust assessment of the principal risks facing the Company, including those that threaten its business model, future performance, solvency or liquidity. They consider that the following are the principal risk factors that could materially and adversely affect the Company’s future operating results or financial position.
Economic Risk
The value of the Company is dependent on the value of its licences, interests and other assets, which, in turn, is derived from a risk adjusted assessment of the potential for those licences and interests etc to contain commercially recoverable volumes of metals or any other minerals. However, the Company is currently at an exploration phase and there is no guarantee that licences in which the Company is currently interested, or which it might in the future acquire, may contain such.
Even if exploration methods utilised by the Company identifies mineralisation, additional work, usually more than was necessary for the initial identification, will be required to produce an estimation of a mineral reserve or resource. Such estimations are, to a large extent, based on the interpretation of geological data obtained from drill holes and other sampling techniques and feasibility studies which derive estimates of costs based upon anticipated tonnage and mineralisation grades to be mined, extracted and processed, the configuration of the areas of mineralisation, expected recovery rates, estimated operating costs, anticipated climatic conditions and other factors. Mineral resource estimates are estimates only and no assurance can be given that any particular grade, stripping ratio or grade of minerals will in fact be realised.
Further, fluctuation in commodity prices, results of drilling and production and the evaluation of development plans subsequent to the date of any estimate, may require revisions of such estimates. The quality and volume of resources and production rates may not be the same as anticipated at the time of any investment by the Company. Additionally, production estimates are subject to change, and actual production may vary materially from such estimates. No assurance can be given that any estimates of future production and future production costs with respect to any of the fields or assets underpinning the Company’s assets or interests will be achieved.
As a result of these uncertainties, there can be no assurance that any potential mineral resources programmes carried out within any of the Company’s licence areas or interests, either now or in the future, will result in the identification of a commercially mineable (or viable) deposit that can be legally and economically exploited.
Commodity Price Risk
The Company’s business is to explore for minerals. The value of those minerals, and hence estimates of the commercial viability of any reserves or resources that may be identified by the Company in the future, as well as potential earnings, will be affected by fluctuations in commodity prices, such as the USD and GBP denominated zinc, lead, gold, silver, copper and barite prices. These prices are exposed to numerous factors beyond the control of the Company; such as global supply and demand for precious and other metals, forward selling by producers, production cost levels in major metal producing regions, and widespread trading activities by market participants, seeking either to secure access to commodities or to hedge against commercial risks. Other factors include expectations regarding inflation, the financial impact of movements in interest rates, global economic trends, exchange rates and domestic and international fiscal, monetary and regulatory policy settings. Consequently, these prices can fluctuate significantly and cannot be predicted.
Any deterioration on the prices of the commodities for which the Company is exploring could lead to a reduction in the value of the Company’s assets, interests and potential earnings as well as making it harder to raise future exploration funds.
Title Risk
The interests of the Company are in some circumstances subject to licence and contractual requirements, which include, inter alia, certain financial commitments which, if not fulfilled, could result in the suspension or ultimate forfeiture of the relevant licences or of the Company’s interests in prospects. Government action, which could include non-renewal of licences, may result in any income potentially receivable by the Company in the future or licences held by the Company being adversely affected. In particular, changes in the application or interpretation of mining and exploration laws and/or taxation provisions, could adversely affect the value of the Company’s interests. If a licence is not renewed or granted, the Company may suffer significant damage through loss of the opportunity to develop and discover any resources on that licence area.
Under its licences and certain other contractual agreements to which the Company is or may in the future become party, the Company is or may become subject to payment and other obligations. In particular, the Company may be required to expend the funds necessary to meet the minimum work commitments attaching to its licences. Failure to meet these work commitments will render the licences in question liable to be revoked. Further, if any contractual obligations are not complied with when due, in addition to any other remedies which may be available to other parties, this could result in dilution or forfeiture of interests held by the Company. The Company may not have or be able to obtain financing for all such obligations as they arise.
Changes may occur in the political, fiscal, and legal regimes of the regions within which the Company has interests which might significantly adversely affect the ownership or the economics of such interests. These include, inter alia, changes in exchange control regulations, expropriation or nationalisation of exploration and production rights, changes in government, international disputes, legislation (including contract enforceability) and regulatory systems, changes in taxation or customs polices, changing political conditions, exchange control regulations and international monetary fluctuations. No assurance can be given that applicable governments will not revoke or significantly alter the conditions of the applicable exploration and mining authorisations nor that such exploration and mining authorisations will not be challenged or impugned by third parties.
Reliance on Third Parties
The Company is reliant on third party service providers, in particular for drilling and geological reporting. However, the Company faces competition from larger companies for those same resources. Larger companies, in particular, may have access to greater financial resources, which may give them a competitive advantage in obtaining the use of third part services, thus delaying exploration programmes that the Company is planning by, for example, adversely affecting the Company’s ability to access the necessary drill rigs and laboratory time in a manner that the Company requires. Consequently, the Company’s operations and financial condition could be materially adversely affected.
Licences may provide legal rights of access but these are not normally exercised and access to land to carry out exploration activity may be at the gift of the landowner. It is critical that the Company maintains good relationships with relevant landowners to ensure access to land to carry out work. Without such access, the Company may be unable to carry outs its exploration operations.
Operational Risk
The Company’s projects involve a number of risks and hazards, including industrial accidents, labour disputes, unusual or unexpected geological conditions, equipment failure, changes in the regulatory environment, environmental hazards and weather and other natural phenomena such as earthquakes and floods. The Company’s activities may be delayed or reduced as a result of any of the above factors. Such occurrences could result in human exposure to pollution, personal injury or death, environmental and natural resource damage, monetary losses, and possible legal liability, any of which could materially adversely affect the Company’s results of operations.
Key Personnel
The Company’s business and future management is substantially dependent on the expertise and continued services of its directors, consultants and future employees. The loss of the services of any such person could have a material adverse effect on the Company’s business. The Company seeks to create a workplace that attracts, retains, and engages its workforce. However, the Company cannot guarantee the retention of its directors, consultants and future employees, nor that it will be able to continue to attract and retain such employees. Failure to do either could have a material adverse effect on the financial condition, results, or operations of the Company.
Environmental Risk
There may also be unforeseen environmental liabilities resulting from both the future and/or historic exploration or mining activities, which may be costly to remedy. In addition, potential environmental liabilities as a result of unfulfilled environmental obligations by the previous owners may impact the Company. Environmental management systems are in place to mitigate environmental hazard risks. The Company uses advisors with specialist knowledge in mining and related environmental management for reducing the impacts of environmental risk.
Climate Change Risk
Climate change and associated legislation or regulatory actions to reduce its impact may affect the Company’s suppliers and business model, and consequently may affect its operations and growth. This impact could be amplified by the perception that the Company is undertaking activities that are harmful to the environment. The Company’s approach to Environmental Governance is set out here
Uninsured Risk
The Company, as a participant in exploration and development programmes, may become subject to liability for hazards that cannot be insured against or third-party claims that exceed the insurance cover. The Company may also be disrupted by a variety of risks and hazards that are beyond control, including geological, geotechnical and seismic factors, environmental hazards, industrial accidents, occupational and health hazards and weather conditions or other acts of God.
Financial Risk
1. Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. As the Company does not, as yet, have any sales to third parties, this risk is limited.
The Company’s financial assets comprise receivables and cash and cash equivalents. The credit risk on cash and cash equivalents is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The Company’s exposure to credit risk arise from default of its counterparty, with a maximum exposure equal to the carrying amount of cash and cash equivalents in its consolidated balance sheet.
The Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Company defines counterparties as having similar characteristics if they are connected entities.
2. Liquidity Risk Management
Liquidity risk is the risk that the Company will not have sufficient funds to meet liabilities. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium, and long-term funding and liquidity management requirements. The Company manages liquidity by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Cash forecasts are regularly produced to identify the liquidity requirements of the Company. To date, the Company has relied on shareholder funding and loan arrangements to finance its operations.
The Company expects to meet its other obligations from operating cash flows with an appropriate mix of funds and equity investments. The Company further mitigates liquidity risk by maintaining an insurance programme to minimise exposure to insurable losses.
3. Interest Rate Risk
The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s holdings of cash and short-term deposits.
It is the Company’s policy as part of its disciplined management of the budgetary process to place surplus funds on short-term deposit in order to maximise interest earned.
4. Capital Risk Management
The primary objective of the Company’s capital management is to ensure that it maintains a healthy capital ratio in order to support its business and maximise shareholder value.
The capital structure of the Company consists of issued share capital, share premium and reserves. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions.
5. Exchange Rate Risk
The Company’s funding source is in Sterling and the majority of its expenditure is in Euros. The Company’s operations are thus exposed to a small degree of currency risk, which the Company manages on a regular basis. The Company does not use derivative financial instruments to manage the currency risk and, as such, no hedge accounting is applied.
In addition, the value of the Company’s assets is related to commodity prices, which can be affected by changes in exchange rates. Changes in exchange rates could lead to a decrease in commodity prices and a decrease in the value of the Company’s assets, interests and potential earnings.
6. Financing Risk
The Company is an exploration company and is not currently revenue generating. The Company will remain involved in the process of exploring and assessing its asset base for some time. The development of the Company’s properties will depend on its ability to obtain financing through the raising of equity capital, joint venture of projects, debt financing, farm outs or other means. Such funding will depend on the results of the Company’s exploration activities, commodity prices and the then prevailing market for exploration and mining finance.
There is no assurance that the Company will be successful in obtaining the required financing. If the Company is unable to obtain additional financing as needed, some interests may be relinquished, and/or the scope of the operations reduced.
