Risk Factors and Influences Affecting Operations and Future Financial Status
The company makes every effort to conduct its business thoroughly and efficiently so as to protect itself from internal and external factors, which may affect operations or financial status. Some initiatives include reducing investment in activities of subsidiaries, which are non-core businesses, leading to greater financial stability for the company.
Changes in LME World Price and Exchange Rate
Any changes in LME world zinc prices and exchange rate will have an impact on the company’s revenues since LME price is the determination of zinc buying and selling price quoted in US currency. As such the fluctuation in LME zinc prince and the US/Baht exchange rate can be considered as the structural risk of the company.
However, in order to reduce the impact from changes in such factors the company must manage both the transactional risks of raw material cost and selling price as well as start to make a currency hedging to decrease the risk of Exchange Rate fluctuations. In order to alleviate these factors, the company emphasizes on cost reduction policy and on the best usage of silicate from Mae Sot Mine.
Protection from Competition
Until recently, the Thai government imposed an import duty of 10% on zinc, protecting the company to some degree from foreign competitors who have a lower cost base than Thailand. However, current government implementation of further market liberalization measures in this sector reduced the import duty on zinc metal to 5% at the end of 2003, causing a significant impact on the company’s revenue. Nevertheless, by utilizing its own raw material source to reduce production costs and emphasizing marketing of value-added zinc alloys, the company is still able to maintain its competitive advantage in both the domestic market and in the region.
Risk involved in the investment in subsidiary
The company has one significant investment in a subsidiary under a Participation Agreement with an Australian company. The operation is now waiting for the approval for land access for further ore study. The study will determine if the resource are economically recoverable. The company understands that the nature of the application process requires time and effort.