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Operating risks


Level of risk


Change in the level of risk compared to 2017:


The volume of coal production by the Group’s mines is subject to operational determinants and events beyond its control, which may disrupt its operations and affect the production volumes in the various mines in different periods. The mining activity is subject to mining and geologic and market conditions, which include, among others:
  • difficult geological conditions such as disruptions to the continuity of deposits characterized by volatility and irregularity that may curtail the effectiveness of mining longwall parcels to a greater extent than anticipated;
  • level of natural hazards higher than forecast which may lessen the ability to mine individual longwalls or increase the probability of random events, i.e. fire, explosion and ignition of methane, coal dust explosion, methane and rock outbursts, rock bumps, falls and collapses;
  • breakdowns of machinery and equipment used in mining and processing;
  • limited technical and organizational capacities;
  • inability to mine coal from available resources at a competitive cost at a given time;
  • incorrect specification of delivery times for materials, equipment and spare parts;
  • planning process conducted based on the most likely scenarios (no stress tests);
  • unexpected changes in the market conditions;
  • changes to legal regulations governing the coal industry.

Even though the Group has taken a multitude of measures to enhance safety these risks may grow in particular in conjunction with mining at deeper levels in the Group’s mines.

Actions taken to minimize these risks include: production planning based on monitoring and analysis of production indicators and forecasts concerning market conditions, current updating of production planning in connection with a systematic analysis of conditions existing in the areas where work is conducted, optimization of preparatory and mining operations, conducting production plans based on investment plans, adaptation of internal regulations and procedures to generally applicable legal and regulatory solutions.


The Group’s key business relies on the effective power of its concessions, its compliance with the terms of those concessions and its capacity to obtain new concessions. The granting or extension of a concession may be refused if the intended activity violates environmental requirements, is contrary to purpose of the real property or is a threat to its safety or is a threat to defense and security of the state or its citizens. The Group consults with local government bodies regarding the opening of coal resources in deposits adjacent to the mines. A mining concession is granted following a reconciliation with a local zoning plan and if there is no zoning plan – based on the study of zoning conditions and directions. New concessions may be obtained on certain conditions, which include among others the introduction of provisions to local zoning plans which allow for the possibility of coal mining, in particular the removal of all provisions that may indicate non-compliance of the intended mining operations with the designation or manner of land use specified in the previous planning documents or obtaining a decision from the Regional Director for Environmental Protection with a favorable approach to the intended investment project. Life expectancy of mines may be reduced significantly if new deposits are not opened.

Actions taken to minimize these risks include: development of a technical and economic design based on the deposit resources and development of the environmental impact documentation for the project; active participation in the formal process; constant cooperation with local government units and contact with the local community in the process of applying for the concession.


The coal mining technologies applied by the Group involve the use of highly specialized machinery and equipment manufactured by only a handful companies in the world. The implementation of the investment plans may involve the need to acquire new specialized mining machinery. Due to the global concentration of manufacturers of such machinery and equipment, there is a risk of unforeseen price increases or the unavailability of the required machinery or equipment, which might entail an increase in costs or cause delays in the implementation of the development strategy. Inspections, maintenance and modernization work also call for substantial financial expenditures. Such work may involve delays or an inability to complete it as a result of unforeseen factors beyond the Group’s control.

Actions taken to minimize these risks include, among others: monitoring and analysis of output indicators for the purposes of continuous updating of production plans; implementation of production plans in line with investment plans; adoption of schedules for the performance of mining works; regular analysis of geological and mining conditions existing in the areas where work is underway; continuous improvement of management’s competence and staff’s professional qualifications; review and adaptation of internal regulations and procedures to generally applicable legal and regulatory solutions in the context of planning of capital expenditure works, removal, limitation and neutralization of hazards, breakdowns, damages, defects, etc.



The factors determining this risk are above all: limited technical and organizational capabilities, the application of inappropriate production technologies, improper specification of the timing of supplies of materials, plant and spare parts, unexpected changes in coal and steel market conditions, poor allocation of human resources, failure to stick to the deadlines for purchase orders under the prevailing legal and regulatory limitations.

Actions taken to minimize these risks include: alignment of the production level to changes in demand in the supply chain by doing the following: regularly verifying market changes and needs, forecasting market demand, monitoring and analyzing production metrics, monitoring warehouse levels and monitoring the dates of supplies of plant and machinery, optimizing preparatory and mining work to check headcount when determining the ongoing production needs, analyzing and constantly enhancing management skills, enhancing staff skills, running production plans based on investment plans to select the right plant and machinery depending on the conditions present in a given deposit.


This risk is about the business and financial strategy being based on cooperation with a relatively low number of customers and the inability of enforcing payments from them. The considerable downturn in the economy, especially in the steel and coke industries, may have a material and adverse impact on the Group’s operations, its results and financial position. Furthermore, if one or more of the Group’s major buyers cuts back on the volume of coal or coke purchased or fails to extend supply contracts, this could have a material and adverse impact on the Group’s operations, results and financial position. Moreover, timely payments hinge upon many factors beyond the Group’s control.

Actions taken to minimize these risks include, among others: monitoring of the performance of coal sales agreements, reporting of payments for deliveries (debt collection), application of contractual provisions about contract performance security. The customer’s financial statements are reviewed and assessed within the JSW Group’s Procedure to Secure Payment and Collect Receivables and its Sales Procedure.


Production capacities of the coke oven batteries may be affected by a number of factors remaining outside of the Group’s control. These forecasts inevitably contain some level of uncertainty and to this extent they rely on economic and technical assumptions made, which in the end may prove to be imprecise. As a result, estimates concerning coke production are regularly checked on the basis of new information; as a result, one should expect that they may change. If the actual utilization of coke production capacity by the Group is lower than the current estimates, then this may adversely affect the Group’s outlook and value as well as its performance and financial standing. Since steel production growth was higher than forecast, in 2018 the global consumption of imported coke was approximately 26-28 million tons. Europe has approx. 30-40% share in global trade by volume. The advantage of the JSW Group over other coke producers is based on the availability of the raw material: the coking plants rely on coking coal supplies from the Group’s own mines.

Actions taken to minimize these risks include: compliance with the provisions of the Group’s Sales Procedure, weekly commercial reports submitted for information to the Management Board and information on coke inventories in the Group.


There is a probability of failure in pursuing strategic investments precipitated by the insufficient allocation of financial resources, e.g. as a consequence of the periodic downturn in market conditions on the coal and steel market, or changes in the forecast macroeconomic factors.

The materialization of risk is prevented through: development of periodic investment execution reports, continuous analysis of material, financial and scheduling deviations in key project, in-depth scrutiny of justification for projects related to current production, investment activity based on project management mechanisms, analysis of the investment project portfolio, setting of investment priorities, specification of value thresholds of capital expenditures (scenario analysis), implementation of key projects by Project Teams in accordance with a developed and implemented methodology, strict oversight over the execution of projects from Steering Committees, securing of funding that enables the financing of strategic projects in the period of adverse conditions on the coal and coke market.

One of the high-risk strategic investment projects is the modernization of the coal preparation plants at the Budryk and Knurów-Szczygłowice Coal Mines, to support the increase in production of coking coal, in particular the type 35 hard coking coal, carried out by JZR. Completion of this investment project should increase the coking coal output as compared to the mine’s net production and allow the Szczygłowice Section and the Budryk Mine to selectively enrich coal types 34 and 35. However a delay in the execution of the project may postpone the planned increases of coking coal output, which could result in lower coking coal production and lower sales revenues. If this risk materializes, it will have consequences of financial, operational and strategic nature.



Some of the contracts entered into by the Group for the sale of coal and coke provide for product delivery service to a specific venue. In transport and forwarding, the Group cooperates with external companies, which generates the following risks: unavailability of rolling stock that may result in limited ability to deliver products and contractual penalties; limited throughput capacity of rail lines connected to renovations of infrastructure curtailing the ability to deliver products on a timely basis; breakdowns and constraints in logistics processes that may generate additional costs.

Actions taken to minimize these risks include: cooperation with many carriers, constant monitoring of logistics companies and active search for the most efficient logistics solutions in consultation with its customers.



The Group has its own loading equipment sufficient to effect shipments of their output. However, its storage capacities is limited albeit predictable, which entails the need to lease external storage yards on a temporary basis. Moreover, they are exposed to a risk of limited availability of proper types of railway wagons and limited ship loading capacities in seaports.

The development of railway transport and transshipment infrastructure faces the following barriers: traditionally low storage yard parameters – limited loading and unloading capacities, shortages of transshipment equipment, repairs of railway infrastructure, high costs of access to railway infrastructure.

Actions taken to minimize these risks include continuous monitoring of coal storage capacities in mine storage yards. Long-term agreements have been signed to ensure access to storage yards and quays in seaports.


In the bituminous coal sector, trade unions play an important role in shaping the payroll policy. The position held by trade unions is particularly strong on account of the headcount in the sector and its strategic influence over the functioning of the economy. The Group’s failure to maintain proper employee relations may exert a material and adverse impact on the operational outlook, results and financial position and consequently on its perception by its economic partners. There are 125 trade union organizations operating in the Group. The total number of trade union members, since an employee may be affiliated with several unions, exceeds the number of the Group’s employees and as at 31 December 2018 it was 35,242, which means that the union membership ratio was 124.7%.

The control mechanisms applied in connection with risk include: meetings of the Management Board with trade unions to report on the Group’s economic and financial standing. Information pertaining to relations with trade unions and the collective disputes pending H1 2018 is presented in Section 8.6.4 of this report.



Risk that a dynamic movement caused by caused by a shock wave in the rock mass, stress relief in an underground working or its part or a bump in an underground working may cause danger to the safety of persons, loss of health or life, damage or destruction of the working or its part and installed equipment, i.e. JSW’s assets. Such an event may cause total or partial loss of a mine working.

The control mechanisms applied in connection with the risk include: continuous seismic and seismoacoustic observation by mining geophysics stations, ongoing seismic registration and analysis of the rock mass, analysis using a comprehensive bump hazard assessment bump hazard, analytical methods, geophysical surveys and electric resistivity measurements. Analysis and assessment of the state of emergency at monthly meetings of the Tremor Hazard and Caving Hazard Management Team or, in the case of emergencies, at ad hoc meetings of these teams, in justified cases extended with specialists or experts.

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