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Risk Management
NOTE 20
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks; market risk (including currency risk, price risk
and interest risk), credit risk, and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance
of the Group. Entities within the Group use derivative financial instruments such as foreign exchange contracts
and interest rate swaps to hedge certain risk exposures. Derivatives are used exclusively for hedging purposes, i.e.
not as trading or other speculative instruments. The Group uses different methods to measure different types of
risk to which it is exposed. These methods include sensitivity analyses in the case of interest rate, foreign exchange
and other price risks and ageing analyses for credit risk.
Risk management policies cover specific areas, such as mitigating foreign exchange, interest rate and credit risks,
use of forward exchange contracts and investment of excess liquidity.
2016
2015
$’000
$’000
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
126,709
59,424
Term deposits
47,660
1,217,011
Loans and receivables
146,962
79,647
Trading equities
31,605
21,300
Derivative financial instruments
2,313
–
Long term equity investments
585,703
615,645
Equity accounted associates
1,265,214
1,088,592
Other financial assets
11,837
5,425
Total financial assets
2,218,003
3,087,044
Financial liabilities
Trade and other payables
75,831
49,329
Deposits accepted
49,861
47,326
Derivative financial instruments
167
23,144
Borrowings
22,825
–
Lease liabilities
15,039
125
Total financial liabilities
163,723
119,924
a) Market Risk
i. Foreign exchange risk
Foreign exchange risk arises when in local currency terms the value of a financial commitment or a recognised
asset or liability, will fluctuate due to changes in foreign currency exchange rates. The Group is exposed to foreign
exchange risk arising from currency exposures to the US Dollar.
Forward contracts are used to manage foreign exchange risk. Senior management is responsible for managing
exposures in each foreign currency by using external forward currency contracts. Contracts are designated as cash
flow hedges. External foreign exchange contracts are designated at Group level as hedges of foreign exchange
risk on specific future transactions.
The Group’s export coal sales risk management policy is to hedge up to 65% of anticipated transactions in US
Dollars for the subsequent year, up to 57% of anticipated revenue beyond a year but less than two years and up
to 50% for revenue beyond two years but less than three years. All hedges of projected export coal sales qualify as
“highly probable” forecast transactions for hedge accounting purposes.
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