To review the current rik control and credit control structure of the business.
As part of a project team with Navitas Resources, the current risk control framework was reviewed from the perspective of the allocation of Value at Risk (VaR) in relation to the risk capital allocated to the business. The existing allocations were analysed and the revenue streams divided by purpose, the core business with little price risk held in the business and passed through to the client’s customers was separated from the more speculative businesses.
Recommendations were made to reduce the allocation of VaR to the core business and reallocated to the speculative business. Recommended allocation of VaR had been calculated using a calculation to take into account the historic volatility of the market and targeted profitability. Targeted profitability had been forecast by using historic profitability and the required risk capital.
The policies were adopted by the client and detailed in the client’s annual report.
To investigate whether a move to purchasing spot cargoes and selling index contracts of diesel fuel to local mines could be more profitable than existing back to back indexation contracts.
A joint project with Navitas Resources. An analysis of the potential risks of purchasing spot cargoes with the expected liabilities created by a mismatch in purchase and sales prices.
The findings were presented to the board of directors and the change in purchasing strategy was not adopted owing to the potential losses the client would expose itself to. However, a change in the purchasing strategy for US Dollars was adopted to reduce risk of purchasing at unfavourable exchange rates.