Reviews and reports

Corporate governance and risk management report

The Assore board (the board) is of the opinion that strong corporate governance and risk management not only enhance sustainability of an organisation, but that they 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 as set out in the King III Report, and 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 appropriate safeguarding of the group’s assets is achieved.
• 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 compliance therewith is mandatory for financial periods commencing on or after that date.

Management reviews the business practice across the group on an ongoing basis and has determined that they are substantially compliant with all the material requirements of King III. Where it is not practical for the group to adopt these requirements, relevant comment is provided and reference is made in this report to the alternative procedures which the board has adopted in each instance Management reviews the business practice across the group on an ongoing basis and has determined that they are substantially compliant with all the material requirements of King III. Where it is not practical for the group to adopt these requirements, relevant comment is provided and reference is made in this report to the alternative procedures which the board has adopted in each instance.

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 with a preponderance of non-executive directors, comprising nine directors, three of whom are executive and six non-executive.

Of the six non-executive directors, Mr Bobby Carpenter has been appointed to the board in a non-executive capacity, following his retirement in February 2011 after 47 years of service with the group. The other four non-executive directors are independent and hold directorships in other listed and unlisted companies registered in South Africa. After nearly 17 years in aggregate of serving on the board, Dr Johannes van der Horst has indicated his intention to resign as an independent non-executive director with effect 31 December 2011.

The board evaluates annually the independence of the independent non-executive directors, who are appointed in terms of three-year contracts. In addition to this process, the executive directors review the degree of independence of the independent non-executive directors at each renewal date of these contracts. In addition, the Chief Executive Officer (CEO)  conducts regular discussions with the non-executive directors regarding their continuing independence. As recommended in terms of King III, non-executive directors are not permitted to serve for periods longer than nine years in the aggregate and non-executive directors do not receive any benefits from the company other than their fees for services as directors.

Remuneration
The approach to the remuneration of executive directors is described here of this report, while 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 an employee 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 was 23 cents (2010: 21 cents), amounting to 0,84% (2010: 1,7%) of earnings  per share. Remuneration of directors depends on the size and complexity of operations and level of professional input required by the business environment concerned and has due regard to 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.

Fees for non-executive directors are reviewed on a regular basis, and are adjusted where necessary taking into account amounts paid to non-executive directors of companies with similar complexity profiles in the South African mining sector, and the degree of skill, time and experience required to discharge their duties. The payment of fees to non-executive directors is not dependent on attendance at meetings.

The board acknowledges the requirements of King III for shareholders to pass a non-binding advisory vote on the company’s remuneration policy annually. Directors’ fees are approved by means of special resolution as required by section 66(8) of the Companies Act 2008, while shareholders are invited  to pass a non-binding advisory vote on the group’s remuneration policy. Details of these procedures and relevant information are set out in the notice to members (refer here).

Election and succession
In accordance with the company’s Memorandum of Incorporation, 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. Due to the chairman’s involvement in the controlling shareholder, appointments to the board are made with full board approval, and therefore a formal policy appointing board members and Nomination Committee is unnecessary. Instead, appointments and continued eligibility to the board are approved by the executive directors, after oversight by the executive directors and consultation with the board as a whole. This process is deemed most appropriate to the group’s circumstances as described above and to the industry in which it operates, and therefore it is not group policy to ensure that a third of the non-executive directors rotate annually as required by King III.

Appointments to the board in an executive directorship capacity are based on the nominees holding the appropriate professional qualifications and having had substantial exposure to business as a whole, and in particular in the mining industry, in senior managerial roles and/or related professional practice, which includes the necessary exposure to applicable laws, rules, codes and standards. In the event that a director does not possess the necessary knowledge, the group provides the necessary formal and on-the-job training as required. Incoming non-executive directors are fully apprised of the group’s activities and relevant issues. Assore believes that these requirements and processes obviate the necessity for a formalised orientation and mentorship programme for its directors.

Each executive director is understudied by appropriately qualified  and experienced alternate directors or senior staff, ensuring sufficient depth in areas that are critical to the continuation of the group’s business activities. Therefore, taking the managerial structure and the current make-up of the board into account, a detailed succession plan is not warranted. The Chief Executive Officer assumes ultimate responsibility for all executive issues, and ensures that issues raised within the group’s various committees and sub-committees (certain of which are set out here of this report and throughout) are addressed by the responsible staff, and further, that these are elevated to the appropriate level when it is apparent that more senior management involvement is necessary. Based on the submission by the Audit and Risk Committee, dispensation was granted by the JSE for the roles of CEO and Financia Director to be combined on condition that the appropriateness of the situation is reviewed and confirmed by the Audit and Risk Committee on an annual basis.

Meetings
The board meets at least four times per annum on predetermined dates with meetings convened on an ad hoc basis when considered necessary. The board met four times in the year under review and attendance at these meetings is tabled below

	Possible
	attendance	Attended
Desmond Sacco	4	4
EM Southey	4	4
CJ Cory	4	4
PC Crous	4	4
RJ Carpenter	4	4
BM Hawksworth#	–	–
DJ Ncube	1	–
MC Ramaphosa	4	2
WF Urmson	3	3
Dr JC van der Horst	4	4
# Stood down on 27 August 2010.

Board and committee performance evaluation

Ongoing evaluation of the board and its various committees does not occur on a formal basis at present. However, on the back of the involvement of the controlling shareholder, and 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. As stated under "Remuneration" (refer above), executive directors are not appointed in terms of contracts, and their services may be terminated without notice without the commitment of monetary implications for the group. Documented terms of reference for the board are not required, since the majority of directors on the board are independent, the lead independent director has the dual role of deputy chairman, and chairs the Audit and Risk Committee, and all of the directors have substantial business experience at a senior level. The composition of the board as described above has a preponderance of nonexecutive directors, and ensures regular formal and informal interaction, to ensure appropriate application of authority in the decision-making process. Since a key aspect of the group’s activities includes marketing and distribution, its reputation and relationships with its customers, together with all stakeholders, is assessed in all of the board’s actions, and not in isolation. The chairman has effective control over the majority shareholding in Assore and in order to compensate for the resulting lack of formal appraisal of his performance, further insight into the group’s activities is provided to the chairman at regularly convened Excom meetings, which are attended by the executive directors, and other senior members of management. The skill set required of directors by the group is determined by the executive. Attendance by external advisers at meetings of the board and its various committees is arranged when considered necessary.

Group boards
The subsidiary and joint-venture companies of the group have properly constituted boards, whose directors operate independently in respect of the affairs of these companies. The board of the holding company respects the fiduciary duties of the directors of these companies, and policies and procedures adopted by these companies are considered by the respective boards prior to their adoption, necessary alteration or rejection.

Audit and Risk Committee

		Years of
		service on the
	Qualifications	committee
EM Southey (Chair)	BA, LLB	2
WF Urmson	CA(SA)	9
Dr JC van der Horst	BA, LLD	1

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 all meetings of the committee and, if necessary, have direct access to the chairman of the committee throughout the year. The CEO  and FD, group accountant, and representatives of the Company Secretaries attend all meetings by invitation. Internal and external auditors meet with members of the committee at least once annually without members of management being present in order to discuss and evaluate the quality of their relationship and level of cooperation which they were afforded during their activities undertaken in the year under review. The committee recommended the acceptance of the 2011 annual integrated report to the board on 14 October 2011.

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 all external and internal audit activities;
• make recommendations to the shareholders 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;
• review and approve 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. The committee meets at least three times per annum on predetermined dates, with ad hoc meetings convened where necessary, and holds ongoing informal meetings to keep abreast of business developments. During the year under review, the committee met on three occasions with attendance as detailed below:

	Possible
	attendance	Attended
EM Southey	3	3
WF Urmson	2	2
Dr JC van der Horst	3	3

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 internal  audit function of Assore is outsourced, and the responsible senior executive on the engagement has direct access to the chairman of the committee and meets with external audit independently in order to exchange views on issues pertaining to internal audit, evaluation of internal controls, as well as those that may have a bearing on the external audit process and objectives. Internal audit certify to the board and committee on an annual basis, that the internal controls and financial controls respectively have not revealed any significant breakdown in internal controls or any issues that require their attention. 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 committee does not consider a formal audit review of the interim results necessary, as the interim results of Assmang, which comprise the majority of the group’s results, are reviewed and reported on by the external auditors prior to the publication of the group’s 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.

Company Secretary

The company has appointed a wholly owned subsidiary, African Mining and Trust Company Limited, as Company Secretary. The  board and senior staff who are all appropriately qualified, ensure that the necessary application of company law and other regulatory aspects are applied in the affairs and management of the group.

Remuneration Committee

EM Southey (Chair)
Desmond Sacco
WF Urmson
Dr JC van der Horst

The committee is chaired by the lead independent director, and consists of a majority of independent non-executive directors. Desmond Sacco is appointed as a member of this committee, based on his interest in the company, which the board believes adds to the overall appropriateness of the decisions and policies of the committee. Its terms of reference have been approved by the board, and are reviewed annually by the board. Since salaries and bonuses are reviewed on an annual basis, the committee meets formally at least once a year, in addition to ad hoc meetings that may be necessary from time to time. The Chief Executive Officer  (CEO) attends meetings of the committee by invitation, but is not  entitled to vote. 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
• he necessity to take independent professional advice where necessary.

The remuneration of non-executive directors is determined by the Assore executive, using inter alia, industry benchmarks, and are approved in advance at the Annual General Meeting (AGM).

Remuneration of other employees in the group is determined annually by the executive directors in conjunction with the human resources department and departmental heads, and where necessary, benchmarks remuneration levels with the industry using independent advisers. Due to the sensitivity of remuneration levels, the remuneration of individuals who are not directors are not individually disclosed; however, the total cost of the remuneration of senior employees is disclosed (here). Directors’ remuneration for the current  and previous financial year is disclosed here.

Insider trading and closed periods
The group operates a closed period prior to the publication of its interim and final results. During these periods 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. All employees are required to obtain the written approval of the CEO prior to dealing in the company’s shares at any time during the year.

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 volatility of exchange rates and commodity prices applicable to the resources sector, the remote locations of operations, the physical danger inherent in the day-to-day activities of mining and smelting operations and the volume and complexity of legislative requirements, in particular with regard to environmental management 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 the 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, insurance cover is acquired where significant uncontrollable exposures remain.

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 an independent valuation of fixed 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 described in the “Mineral Resources and Reserves report”, 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 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 systems. Therefore, the group risk management process includes an ongoing review of compliance with relevant legislation and standards in the following areas (refer "Sustainability report"):

• environmental rehabilitation management;
• health and safety management;
• human resource management; and
• quality of products and management systems.

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 the group’s 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 effectively and mitigated wherever possible.

Detail of the risks to which the group is exposed is included here of this report.

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, information security, the design and maintenance of disaster recovery procedures and related staffing and administrative issues, and engages necessary external advice and consultation when required. Documented terms of reference for IT and information security management systems are not considered necessary at this stage, given the degree of involvement by the CEO and senior management on  an ongoing basis in these issues. In addition, the IT systems are subjected to a detailed annual external audit, which is reported on to the CEO for attention and action where necessary. The  group is currently in the process of adopting an enterprise-wide resource planning system (ERP), which will be used as a partial  departure point to develop a charter for IT in the near future. 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, eg the ERP referred to  above, 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 or the board where appropriate. Disaster recovery is catered for by means of daily back-ups of electronic information and media, which are physically housed in a building separate from where the IT hardware is located.

Legal compliance
The board has delegated the responsibility for legal compliance to the Audit and Risk Committee, which appoints suitably qualified consultants to ensure that legal compliance is maintained in the areas in which the group operates. Therefore, the CEO has not appointed an individual person responsible for  the management of compliance. Since the group’s main activity is the marketing and distribution of the products of the joint venture, Assmang, a competition law compliance programme is in place. 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 on an ongoing basis for all operations. In addition, high-level compliance reviews are conducted every second year for Assore’s subsidiary operations and reports submitted to the Audit and Risk Committee.

The size of the group, as well as the experience of the executive directors and senior management, affords it the opportunity to resolve all disputes, whether of a legal or non-legal nature, based on their respective characteristics. External legal counsel is consulted when considered necessary to ensure the appropriateness of the resolution methods adopted.

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, taking into account the risk profile of the group. 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 governance processes 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. Since material issues of compliance are amongst standard items on the agenda of the Excom,  and minutes of these meetings are made available to internal audit, the group does not extend an invitation to the head of internal audit to attend Excom meetings; however, access  to the chairman of the Audit and Risk Committee is available throughout the year. Nothing has come to the attention of the Audit and Risk Committee or 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, IT systems implementation, separate independent investigations take place on an ad hoc basis in addition to the programmed reviews referred to above.

Ethics
Due to the degree of executive involvement in day-to-day management processes and the size of the group, ethical issues are managed on an ongoing basis by senior management who interact with staff at all levels to ensure that high ethical standards commensurate with board expectations are maintained. Therefore, the establishment of a documented code of ethics and conduct would be superfluous. 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. The board believes that management is sufficiently experienced to ensure that the requirements of the group in respect of laws, rules, codes and standards do not expose the group to material risks in this respect. In addition, senior management are closely involved with external legal counsel in unfamiliar and complex areas.