Annual Report and Accounts 2010

We closely monitor economic developments, both local and global, to ensure that NWR is ready for appropriate action when necessary. We are in regular contact with our main suppliers and customers so that we can minimise the potential impact of negative economic conditions wherever possible. In addition OKK Koksovny, a.s. (‘OKK Koksovny’) has constructed a new battery at Svoboda, which will enable us to respond more flexibly to changing economic conditions and demand by switching between production of foundry and blast furnace coke as appropriate.

We apply various financial instruments to minimise our exposure to currency fluctuation and interest rate volatility to acceptable levels, depending on the foreseeable time horizons of these exposures. With regard to currency fluctuation, the maximum time horizon is 12 months ahead as this generally matches the time horizon of the Group’s expected revenues and costs. We aim to mitigate at least 70 per cent of our exposure to currency fluctuation. The maximum time horizon for financial instruments used to mitigate the exposure to interest rate volatility matches the contracted periods of NWR’s indebtedness, as this ultimately determines the degree to which NWR is exposed to the volatility of floating interest rates.

1. We have long-term contracts in place with many of our customers, in which we negotiate prices on a regular basis. With regard to coking coal, in 2010, the majority of our coking coal sales were priced for the full Japanese Fiscal Year to reduce volatility.

2. We continue to have long-term business relationships with both our customers and key suppliers of our strategic commodities.

We have long-term framework agreements with our main customers, expiring at various times until 2016. These agreements, as well as the annual and quarterly supply agreements, are reviewed and re-negotiated periodically, ensuring medium-term stability in sales levels and pricing of the Group’s products. We closely monitor our customers’ solvency to ensure their continued ability to honour their contracts.

We are focused on attracting a younger workforce through a number of initiatives including liaison with local education institutes and programmes, setting up apprentice classes and hiring college graduates. The Group provides regular and comprehensive training for employees in conjunction with equipment manufacturers. Our remuneration policies include incentive arrangements, which clearly link performance to bonus payments.

Health and safety will always remain a top priority on NWR’s agenda, both for our employees and for the environment in which the Group operates. The ‘SAFETY 2010’ project, completed by the end of 2010, involved significant investment in upgrading safety tools and equipment. Following on from SAFETY 2010, we have launched the ‘PERSPective 2015 Programme’ which focuses on improving safety KPIs as well as giving us the capability to further monitor safety performance and act appropriately and proactively on possible safety issues. The Group is also working on implementing new mining techniques and processes that will significantly decrease the likelihood of damage caused by our mining activities.

NWR continues to strive to minimise its impact on the environment by investing in state of the art technology, as well as developing and pursuing best practice operating processes. In cases where we cannot avoid some environmental impact, NWR continues to focus on rehabilitation of land affected by our activities. We are co-operating closely with regional and local organisations and governments to ensure appropriate and meaningful rehabilitation. An example of this is our investment of EUR 24.4 million in the ‘Darkov sea’ project, which will ultimately see the area restored to a recreational resort. During 2010, we closed down the operations at the Jan Šverma Coking Plant and are now working on the most appropriate way to dismantle all production facilities in an effort to minimise any potential impact on the environment.

We monitor political, regulatory and social risks and hold regular discussions with local, regional and national governments in the Czech Republic and Poland and monitor current and possible future regulations closely. During 2010, we cooperated with local and regional governments to develop sustainable development projects that are meaningful for both the region and the Group.

This risk is inherent to running a coal mining business in CEE and even though the Group uses some of the most advanced mining technology, and continuously monitors and analyses the geological conditions thoroughly, it is impossible to fully mitigate such risk.

NWR is developing two organic Polish projects (Dębieńsko and Morcinek). We are currently progressing our project at Dębieńsko having put together a world-class team that is undertaking a detailed feasibility study to eliminate much of the uncertainty and execution risk. We are also exploring and developing hard coal reserves in existing mining areas. In addition we have built a solid and stable foundation for our business, from which we are well positioned to take advantage of acquisition opportunities to strengthen our regional position.