CORPORATE GOVERNANCE AND RISK MANAGEMENT REPORT
The Assore board believes that strong corporate governance and risk management not only enhance sustainable control of an organisation, but that these elements are essential to preserving organisational reputation, investor confidence, access to capital, when required, and sustainable employee motivation.
The group subscribes in all its activities to principles of best practice in business management and corporate governance for South African companies, which it implements in accordance with the following framework:| • | Installing a risk and control environment within its business entities where management, in conjunction with the necessary support from the Audit and Risk Committee, is responsible for identifying, quantifying and managing risks to achieve the organisation’s objectives on a sustainable basis. The process of the quantification of identified risks takes into account qualitative aspects, in addition to their estimated financial impact. |
| • | Creating a process which provides the board, through the Audit and Risk Committee, with assurance over the adequacy of internal control within the organisation, ie that the risk and control environment in place is appropriate for the business concerned and is operated in a manner to provide the board with reasonable assurance that sufficient safeguarding of the group’s assets is effected. |
| • | Establishing a formalised review process to identify the effectiveness of both the risk management environment and the assurance processes. This is generally the role of the internal audit function and other independent technical assurance specialists used on a consultancy basis. |
The company’s shares are listed on the JSE Limited which requires that all listed companies comply with the Code of Corporate Practices as set out in the King Report on Corporate Governance. The King report was originally issued in November 1994 and was updated in March 2002 and in September 2009 as “King II” and “King III” respectively. The objective of the King reports is to formulate recommendations for maintaining and improving standards of corporate governance in South African companies in accordance with international best practice. For reporting purposes, King III replaced King II on 1 March 2010, and is applicable to financial periods commencing on or after this date.
Management reviews the group’s practices on an ongoing basis and has determined that they are substantially compliant with all the material requirements of King II. The company is in the process of assessing and implementing, where possible, the requirements of King III within its governance structures. Where it is not practicable either for the group to adopt the King II requirements, or for it to adopt its assessment of the King III requirements, relevant comment is provided and mention is made of the alternative procedures which the board has adopted.
BOARD OF DIRECTORS
The directors are committed to the principles of corporate discipline, transparency, independence, accountability, responsibility, fairness and social responsibility.
Composition
The Assore board has a unitary structure comprising eight directors, four of whom are executive and four non-executive.
Of the four non-executive directors, Mr Cyril Ramaphosa represents the Shanduka Group which is one of Assore’s black economic empowerment partners. The other three non-executive directors are independent and hold directorships in other listed and unlisted companies registered in South Africa. A formal evaluation process of the independence of the independent non-executive directors has not yet been implemented, and forms part of the group’s adoption process with regard to the requirements of King III.
The non-executive directors do not receive any benefits from the company other than their fees for services as directors, which, in the case of the director representing Shanduka, are paid over to his employer.
The four executive directors are Messrs Desmond Sacco (Chairman), R J Carpenter (Deputy Chairman), C J Cory (Chief Executive Officer and Financial Director) and P C Crous (Group Technical Director), and each of these executives is also on the board of joint-venture company, Assmang Limited (Assmang). Since Desmond Sacco is not regarded as an independent director, the company is in the process of appointing a lead independent non-executive director as recommended by King III.
Remuneration
Details of emoluments paid to directors and directors’ interests in shares of the company are disclosed in the Directors’ report. None of the executive directors has signed a service agreement with the company which specifies either a paid notice period or additional compensation in the event of termination. As noted in the Directors’ report, Assore does not operate a share incentive scheme. Bonuses are determined based on the results and performance of the group for the year, and are reviewed and approved by the Remuneration Committee (refer below). The impact on earnings per share for the year of the bonuses paid to executive directors of Assore is 103 cents (2009: 123 cents). Remuneration of directors depends on the size and complexity of operations, the level of professional input required by the business environment concerned and has due regard for the calibre of the person required for the position. The level of remuneration is benchmarked against remuneration paid to executives of other listed companies in the resources sector, making use of independent remuneration consultants when considered necessary.
Election
In accordance with the company’s Articles of Association, all directors are subject to retirement by rotation and re-election by shareholders at least once every three years. In addition, all directors are subject to re-election by shareholders at the first Annual General Meeting following their initial appointment. A brief curriculum vitae of each director is set out here.
Assore does not have a formalised orientation programme for directors. Appointments to the board in an executive directorship capacity are based on the nominees holding the appropriate professional qualifications and having had sufficient exposure to the business in senior managerial roles. Non-executive appointments are made based on the necessary requirements in King III, and sufficient experience in non-executive roles in industry. Independence is monitored on an ongoing basis as set out under “Composition” above.
Meetings
The board meets at least four times per annum on predetermined dates with additional meetings convened when considered necessary. The board met four times in the year under review and attendance at these meetings is tabled below:
Meetings |
||
held |
Attended |
|
| Desmond Sacco | 4 |
4 |
| R J Carpenter | 4 |
4 |
| C J Cory | 4 |
4 |
| P C Crous | 4 |
4 |
| B M Hawksworth | 4 |
4 |
| M C Ramaphosa | 4 |
2* |
| E M Southey | 4 |
4 |
| Dr J C van der Horst | 4 |
3 |
| * Two meetings attended by alternate | ||
Board and committee performance evaluation
Ongoing evaluation of the board and its various committees does not occur on a formal basis at present. However, due to the size of the business, regular interaction occurs between all levels of management to ensure that the various bodies in the Assore group act within their terms of reference. Documented terms of reference for the board are not required, since the Chairman controls the majority shareholding in Assore. The composition of the board contains sufficient balance between executive and non-executive directorship, to ensure appropriate application of authority in the decision-making process. Further, under these circumstances, formal appraisal of the Chairman’s performance would not be an effective process, and is therefore not applicable. The skill set required of directors by the group is determined by the executive, in consultation with the other executive directors where necessary. Business activities are managed through the Executive Committee (Excom), and responsible persons act on issues requiring attention, who ensure that the Excom remains sighted on all these activities.
Currently, the Chairman of the committee reports to the board on its activities at each board meeting. Representatives of the internal and external auditors are also invited to attend the regular meetings of the committee and, if necessary, have direct access to the Chairman of the committee throughout the year. The committee recommended the acceptance of the annual report to the board
on 19 October 2010.
The terms of reference of the Audit and Risk Committee are documented and were approved by the board, and are reviewed on an annual basis to ensure they remain appropriate to the activities of the group. The prime objectives of the committee that emanate from its terms of reference, which were applied during the year under review, are to:
| • | provide a forum for the management of the external and internal audit functions and the resolution of issues which arise from both external and internal audit activities; |
| • | make recommendations to the board regarding the appointment of the external auditors; |
| • | review the activities, services and performance of the external auditors, evaluating their independence and reviewing their overall role and appropriateness of fees charged; |
| • | examine and review the annual financial statements, interim reports and related disclosures and other significant announcements made by the group, making the necessary recommendations to the board; |
| • | consider the appropriateness of the group’s accounting policies; |
| • | monitor and supervise the effective functioning of the internal audit function (refer “Internal audit and internal control”), to ensure that the roles of both internal and external audit are clear to provide an objective overview of the operational effectiveness of the group’s systems of internal control and reporting; |
| • | monitor the risk profile as determined by management, and make recommendations on the composition and classification of the risk profile for the group (refer “Risk management”); |
| • | obtain representations from management, and make the necessary enquiries from external and internal audit and of management on any matters under litigation, ensure compliance with material aspects of legislation and create awareness of pending changes to legislation (refer “Legal compliance”); and |
| • | monitor the ethical tone of the group through its executives and senior officials (refer “Ethics”). |
All of the members of the committee, including the Chairman (who will make himself available to take questions at the Annual General Meeting), are independent non-executive directors, who collectively possess the appropriate level of knowledge and experience pertaining to legislative requirements, financial risks, financial and sustainability reporting and internal controls, applicable to the group. Separate meetings are held with external and internal audit without the presence of the company’s management. The committee meets at least three times per annum on predetermined dates, with more meetings convened where necessary, and holds ongoing informal meetings to keep abreast of business developments. During the year under review, the committee met on four occasions with attendance as detailed below (the additional meeting was an extraordinary meeting to approve the circular to shareholders dated 11 December 2009, which dealt with the second empowerment transaction (refer “Black Economic Empowerment” report)):
Meetings |
||
held |
Attended |
|
| B M Hawksworth | 4 |
4 |
| E M Southey | 4 |
3 |
| Dr J C van der Horst | 4 |
4 |
Internal audit has adopted its terms of reference from the board, and all internal audit work is undertaken based on the ongoing risk assessment process which is presented annually by internal audit to the Audit and Risk Committee, to ensure that the focus of the internal audit effort is optimised (refer “Risk management” and “Internal audit and internal control” below). The head of internal audit (the Chief Audit Executive) has direct access to the Chairman of the committee and meets with external audit independently in order to grant external audit its view of issues pertaining to internal audit, as well as those that may have a bearing on the external audit process and objectives. The committee, having due regard for materiality and the inherent nature of the business, is satisfied that the internal controls were effective, and operated as designed for the period under review. In addition, the committee, having reviewed the reports of internal and external audit tabled at the meetings of the committee, and having conducted enquiries of the attendees at its meetings, is not aware of any weaknesses in internal controls that have or may give rise to material financial losses, fraud or material errors during the year under review.
The group has not required the external auditors to review the interim results. The committee, after due enquiry with external and internal audit, has satisfied itself on the appropriateness of the expertise and adequacy of the finance function and experience of the senior members of management responsible for the financial function to render this process unnecessary.
REMUNERATION COMMITTEE
B M Hawksworth (Chair)
E M Southey (Acting Chair)
Desmond Sacco
Dr J C van der Horst
With the exception of Desmond Sacco, all members are non-executive directors, the majority of which are independent, including the Chairman, and the committee meets at least once a year for the annual review of executive remuneration which the Chief Executive Officer (CEO) attends by invitation. Recommendations on the broad framework and cost of executive remuneration are made annually to the committee for approval. To do so, the committee is required to determine:
• the group’s general policy on executive remuneration;
• specific remuneration packages for executive directors;
• where necessary, criteria to assess the required performance of executive directors; and
• the necessity to take independent professional advice where necessary.
The remuneration of non-executive directors is determined by the Assore executive and, in terms of the Articles of Association, requires approval at a shareholders’ meeting. Remuneration of other employees in the group is determined annually by the executive directors in conjunction with the human resources department, which benchmarks remuneration levels with the industry using independent advisers.
Insider trading and closed periods
The group operates a closed period prior to the publication of its interim and final results. During this period directors, officers and designated persons who may have access to price-sensitive information are precluded from dealing in the shares of the group. The closed period extends from the first day of the month following the end of a financial reporting period and expires on the day on which the interim or final results are published. Where appropriate, dealing is also restricted during sensitive periods where major transactions are being negotiated and a public announcement is imminent.
RISK MANAGEMENT
The board has delegated the assessment and management of the group’s risk profile to the Audit and Risk Committee, which advises the board of unresolved risk management issues. Risk is an ever-present feature of business in general. It is exacerbated in the mining industry by the cyclical nature of the resources sector, remote locations of operations, the physical danger inherent in the dayto- day activities of mining and smelting operations and the volume and complexity of legislation with which these industries have to comply. Group risk management is achieved through the identification and control of all significant business risks by various risk management committees, including operational risks, which could adversely affect the achievements of the group’s business objectives. Risk assessments are ongoing, and risk registers for all significant operations in joint-venture entity, Assmang, are prepared and updated quarterly by a dedicated risk management department, with assistance from specialised external consultants. For larger business entities, independent risk engineering consultants grade each operation against international risk standards for fire, security, engineering, commercial crime, contingency planning and mining, as well as environmental risk to monitor whether current practices meet the set criteria and are being maintained. Input is obtained from various risk management committees comprising representatives from senior management. On completion and review of these processes, the appropriate level of insurance cover is acquired. In addition to these processes, other risks deemed relevant to the Assore group are presented to the Audit and Risk Committee, which is given the opportunity to comment and provide input to the assessments tabled. The assets of subsidiary companies in the Assore group are included in a comprehensive insurance programme, with independent valuation of the assets occurring every three years.
The board is aware of the inherent risks contained in establishing the size and remaining life of the ore reserves exploited by the group in its current and intended mining operations. All orebodies and Mineral Reserves are measured and updated annually in accordance with the methodologies contained in the Mineral Resources and Reserves report (refer page), and mining is planned to ensure that optimal utilisation of the mineral resource is effected, taking into account market conditions and customer specifications.
The most prominent financial risks to which the group is exposed, namely fluctuations in exchange rates and international commodity prices in the ferrous metals sector (usually US dollar denominated), are to a large extent outside the board’s direct control and can only be indirectly controlled by timely response to market fluctuations and setting of appropriate business strategies. Refer note 26 to the consolidated financial statements for more detail on financial risks.
The most significant sustainability risks to which the group is exposed are the continuing obligations relating to the conversion of “old-order” mining rights (refer “Black economic empowerment” report), linked to the group’s ability to manage effective social and labour plans (SLPs: refer “Sustainability report”), various safety aspects pertaining to mining and smelting operations and the group’s exposure to rehabilitation liabilities. The respective risk management committees are also responsible for ensuring that appropriate financial and insurance mechanisms are integrated into the risk plan and that the group is protected against catastrophic risk, including failure of information technology (IT) systems. Therefore, the group risk management process includes ongoing review of compliance with legislation in the areas of (refer “Sustainability report”):
• environmental rehabilitation management;
• health and safety management;
• human resource management; and
• quality.
The board believes that the risk management processes described above are effective in managing the risks to which the group is exposed, and that they are sufficiently flexible to meet the changing needs of the operations and our stakeholders. Further, due to the relatively low staff complement of Assore, employees are informed of the risks relevant to their particular activities within the business and risk assessments performed indicate that these business risks are managed and mitigated where possible.
INFORMATION TECHNOLOGY
The management of information technology (IT) falls within the remit of the CEO who convenes regular meetings with responsible IT staff to address the appropriateness and relevance of the IT infrastructure, the design and maintenance of disaster recovery procedures, related staffing and administrative issues, and engages necessary external advice and consultation when required. Where appropriate, other members of senior management also attend these meetings, to provide the necessary input. External audit conducts an annual review of the application by management of the controls pertaining to the group’s hardware and software, related physical and access controls, and licensing. Where major IT projects are undertaken, a steering committee is formed, which ensures that the various aspects and deliverables of the project are scheduled and achieved. Matters of relevance to the business are communicated by the CEO to the Excom.
LEGAL COMPLIANCE
The board has delegated the responsibility for legal compliance to the Audit and Risk Committee. The majority of the legal issues confronted by the group emanate from Assmang, and are dealt with by the Assmang Audit Committee. The Audit and Risk Committee ensures matters material to the group receive the appropriate attention, and that adequate provision and appropriate disclosure are made for known and determinable exposures. Legal issues specific to the Assore group are also discussed at Audit and Risk Committee meetings, where management is provided with additional guidance where necessary.
Safety, health and environmental (SHE) legal compliance audits are conducted annually for Assmang’s operations, while these are conducted every second year for Assore’s subsidiary operations.
INTERNAL AUDIT AND INTERNAL CONTROL
The board, through its appointed Audit and Risk Committee, is accountable for ensuring the implementation of appropriate internal controls, which are reviewed regularly for efficiency and effectiveness. These controls are designed to manage the risk of failure, and provide reasonable assurance that there is an adequate system of internal control in place. As with all management systems, the assurance provided is not absolute and the risk of failure cannot be eliminated entirely. The internal audit functions at the various operations in the group have been outsourced to the respective special services divisions of recognised professional auditing firms. Internal auditors monitor the operation of the internal control systems and, after discussion with management, report findings and recommendations to the Audit and Risk Committee. Corrective action is taken to address control deficiencies as and when they are identified. Nothing has come to the attention of the board to indicate that any material breakdown in the effective functioning of controls, procedures and systems has occurred during the year under review.
Representatives of the internal audit team are invited to attend Audit and Risk Committee meetings and, where areas of new risk are identified, eg initiation of capital projects or new systems of internal control, separate independent investigations take place on an ad hoc basis in addition to the programmed reviews referred to above.
ETHICS
Ethical behaviour is enforced by management, which emanates from the Excom. Due to the degree of executive involvement in day-to-day management processes, ethical issues are managed on an ongoing basis, and the establishment of a documented policy on ethics would be unnecessary. The group has various channels to facilitate effective whistle-blowing procedures and is of such a size that any material violation of the ethical behaviour demonstrated by any member of staff is dealt with appropriately and timeously.
