Despite the exposure of risks from internal and external environment, the Company's operation is expected to remain smooth by all parties in order to reach the Company’s purposes and objectives. Therefore, it is necessary for the Company to have an effective and systematic mechanism of operational risk mitigation through the implementation of risk management.
The main objective of the Company’s risk management approach is to ensure that the Company continues to thoroughly perform risk assessment on any activities that have been scheduled, which aims to safeguard and achieve the Company’s interests. In addition, the risk management enables the Company to identify and manage the risks by establishing a supervisory and management system, thus increasing the Company’s capability to attain its strategic vision, mission, and objectives.
As a realization of the Company’s commitment towards the implementation of risk management, in 2011 the Company purposedly established Risk Management Unit. This aims to enhance the Company’s capacity in managing all risks in its operational activity. The Risk Management Unit continuously develops and improves its supervisory system quality by coordinating with every line of functions to always keep up with the regulatory compliance performance in the field. The Risk Management Unit also continues to give feedback to the Company’s management to help them improve.
Risk Potential of the Company
For any enterprises, risk potential is a common thing in running business activities. If risk potential is ignored, the risk will potentially hinder the Company’s operational performance and affect its business prospects and goals. As the first step in minimizing business risk, the risk must be identified and classified beforehand. This will help the Company develop prevention program of any potential risks.
Risk of Failure in Achieving the Production Target
In running the operation, there is a possibility that the production target is not achieved. This may happen due to damage of heavy equipment used in the operation, which leads to disruption in the production process.
Risk of Human Resources
Human resources are the main assets of the Company. The Company is dedicated to improving the employee’s competence in hopes of achieving its operational activity target without putting much risks and losing control. Failure in achieving safe operations will affect the Company’s production target achievement. This will also reduce the Company’s revenue and increase cost of operations due to production inefficiency.
Risk of Equipment Damage
As a mining contractor, the Company strongly depends on production equipment and transportation. Hence, when there is damage or shortage of the equipment spare parts, the Company’s operational activity will be hampered, thus causing an uptick in the production cost. This risk is more or less similar to the risk of failure in achieving the production target. In fact, they are interconnected in one way or another.
Risk from Business Partner
The risk of contract cancellation or one-sided contract termination might happen to the Company due to inability to perform job as stipulated in the contract. Every mining contract always mentions conditions for cancellation or one-sided termination of contract. If, for example, the production volume is below the target, the Company will receive a penalty. In addition, the contract is subject to reassessment by the concession holder. This will surely affect the revenue and net income of the Company.
Risk of Failure or Delay in Project
During the execution and development of a project, the Company faces the risk of failure or delay in project. This may occur due to various factors, such as objections from people living nearby the project, the cost overrun, failure in meeting the requirements from the Local and Central Government, etc. The failure and delay of project will impact the Company’s cash flows, as the projected stream of revenue will not be realized whereas the Company has spent cost of investment and working capital for the project.
Risk of Payment
This risk may occur due to the failure of the project’s owner or other third parties to make payment according to the stipulation in the contract, which may lead to bad debts and adverse impact on the Company’s cash flows.
Risk of Foreign Exchange
The fluctuating foreign exchange will cause an unrealized foreign exchange loss, which can affect the Company’s amount of profit. The Company’s income statement is expressed in US dollar and so is the earnings and most of its liabilities. However, several liabilities such as cost of wages and trade payables are expressed in rupiah. A drastic change in the exchange rate will have an effect to the Company’s financial Performance.
Risk of Government Policies, Economic and Social Political Condition
Government regulations and policies, both from the Central and Local Government, which directly or indirectly relate to business activities, can affect the entire performance of the Company. Several policies that can negatively affect the Company’s business activities are, to name a few, the cancellation of business permits, delay of the project, revocation of mining concession, including restriction of special relations between a mining Company and a mining contractor. This may cause a delay in the project that has been or will be acquired by the Company, which eventually leads to the reduction in the Company’s income.
Risk of Business Competition
The Company faces competition from various domestic and foreign companies which offer similar business services. If the Company is unable to run its business in an effective and efficient manner and fail to maintain its quality and timely work completion, the Company’s reputation may decline. This condition will also further limit the Company’s capability to gain new contracts, which in turn will affect the Company’s revenue in the future.
Risk of Natural Disaster
Natural distaster that may impact the Company’s operations are, among others, forest fire, flood and landslide. These risks can affect the Company’s access to transportation, thus disrupting the production process. Furthermore, this risk will also increase cost of production, as the Company had to incurr more to carry out recovery operations in disaster-affected mining areas. Financially, this led to a decrease in the Company’s revenues.
Risk of Technology Development
The development of technology greatly determines the Company’s efficiency and productivity. If the Company fails to keep up with technology development, the Company is very likely to experience a hike in cost of production, which ultimately affects the Company’s competitiveness in acquiring new contracts.
Risk of Environment
The Company carries out open mining activities, which affect environmental condition around mining areas. The Company is further exposed to public outcry over environmental damage, which may lead to the Company’s being liable to restoration cost of the damage. If the Company fails to meet this public demand, the Company has the risk of having its mining areas closed and its reputation declined.