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, which it implements in accordance with the following framework:
- Establishing 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 related to the achievement of the organisation’s objectives on a sustainable basis. The process of quantification takes into account qualitative aspects in addition to their potential 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 which provides the board with reasonable assurance that appropriate safeguarding of the group’s assets is achieved; and
- Implementing 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, which requires all listed companies to comply with the Code of Corporate Practices as set out in the King Report on Corporate Governance (King III). Management reviews business practice across the group on an ongoing basis and ensures wherever possible that the group is 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 to compensate for not applying the requirements of King III. The group’s application of King III has been assessed and rated by the Institute of Directors as AAA – Highest Application, utilising its Governance Assessment Instrument. The detailed governance register is located on the group’s website at www.assore.comBoard of directors
he directors are committed to the principles of corporate discipline, transparency, independence, accountability, responsibility, fairness and social responsibility.
The Assore board has a unitary structure, comprising eight directors, four of whom are executive and four non-executive. As the chairman does not have a casting vote, there is a clear balance of power and authority to ensure that no one director has unfettered powers in its decision-makng processes.
Of the four non-executive directors, three directors are independent and either hold, or have held, directorships in other listed and unlisted companies registered in South Africa, or have had considerable professional experience at a senior level.
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 their contracts, while the Chief Executive Officer (CEO) also conducts regular discussions with the non-executive directors concerned regarding their continuing independence. As recommended in terms of King III, the roles of the chairman and CEO are separate and non-executive directors are not permitted to serve for periods longer than nine years in the aggregate and do not receive any benefits from the company other than their fees for services as directors.
The approach to the remuneration of executive directors is described on page 19 in this report, while details of emoluments paid to directors and directors’ interests in shares of the company are disclosed in the “Directors’ report” (refer pages 84 and 85 respectively. None of the executive directors has signed a service agreement with the company, therefore, no obligation can be placed on the group in the event of premature termination of employment. 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 29 cents (2012: 36 cents), amounting to 0,87% (2012: 0,94%) of earnings per share. Remuneration of directors depends on the size and complexity of operations and level of professional input required within 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 (the Companies Act). Details of these resolutions for the current year and supporting information are set out in the notice to members (the notice), which was sent to shareholders registered at the record date, by separate registered mail, which sets out, inter alia, changes deemed necessary to the company’s Memorandum of Incorporation (MoI), pursuant to the Companies Act and the resultant compliance with the JSE Limited’s Listings Requirements.
Election and succession
In accordance with the company’s revised Memorandum of Incorporation (MoI) (refer “Changes to Memorandum of Incorporation”), all non-executive directors are subject to retirement by rotation and re-election by shareholders at least once every three years, provided that at least one third of their number are re-elected at the Annual General Meeting (AGM) as required by the Listings Requirements of the JSE. In addition, all directors are subject to re-election by shareholders at the first AGM following their initial appointment. A brief curriculum vitae of each director is set out on pages 40 and 41. The appointment to the board and the assessment of continued eligibility on the board are made by the executive directors with the oversight of the non-executive directors and in consultation with the board as a whole. Therefore a formal policy for appointing board members and a Nomination Committee are not considered necessary.
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, including exposure to applicable legislation, rules, codes and standards. In the event that an incoming director does not possess the necessary knowledge, the group provides formal and on-the-job training as required. Incoming non-executive directors are fully apprised of the group’s activities and relevant issues by the executive directors. Assore believes that these requirements and processes obviate the necessity for a formalised orientation and mentorship programme for its directors as required by King III.
Each executive director is understudied by appropriately qualified and experienced senior staff members, ensuring sufficient depth of expertise 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 CEO assumes ultimate responsibility for all executive issues including the information technology (IT) function, and ensures that issues raised within the group’s various committees and sub-committees 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 has been granted by the JSE for the roles of CEO and Financial 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. The most recent review in this regard was undertaken on 11 February 2013.
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:
|BH van Aswegen#||3||2|
Board and committee performance evaluation
Ongoing evaluation of the board and its various committees does not occur on a formal basis. 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 in accordance with their terms of reference. As stated under “Remuneration”, executive directors are not appointed in terms of contracts, and their services may be terminated in accordance with legal requirements without exposing the group to pre-existing financial obligations to the group. Documented terms of reference for the board are not required, since all of the directors have substantial business experience at a senior level. The composition of the board as described above has an equal number of executive and non-executive directors, enables regular formal and informal interaction to ensure appropriate application of authority in the decision-making process and ensures that resolutions cannot be passed without the agreement of at least one of the non-executive directors. Since a key aspect of the group’s activities includes marketing and distribution, its reputation and relationships with its customers, together with all other stakeholders, is assessed in all of the board’s actions and not in isolation. The chairman is appointed by the controlling shareholder 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 Executive Committee meetings, which are attended by the executive directors and other senior members of management. The skills set required of executive directors of other group companies is determined by the Assore executive. Attendance by external advisers at meetings of the board and its various committees is arranged when considered necessary.
The subsidiary and joint-venture companies of the group have boards of directors who 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
The committee meets at least three times per annum on predetermined dates, with meetings convened to consider significant issues when considered necessary. The committee met three times in the year under review and attendance at these meetings is tabled below:
|EM Southey (Chair)||3||3|
The chairman of the committee reports to the board on its activities at each board meeting. Representatives of the internal and external auditors are invited to attend all meetings of the committee and, if necessary, have access in private to the chairman of the committee throughout the year. The CEO, Group Accountant and representatives of the Company Secretary 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 the quality of their relationship and evaluate the level of cooperation which they were afforded during the conduct of their activities in the year under review. The committee recommended the approval of the integrated annual report for 2013 to the board on 14 October 2014.
The terms of reference of the Audit and Risk Committee are documented, have been 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 and which were applied during the year under review, are to:
- provide a forum for the management and representatives of the external and internal audit functions to resolve 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”);
- receive and consider feedback on issues raised at meetings of the Social and Ethics Committee (refer “Social and Ethics Committee”);
- 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 staff (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 amount of professional and business experience pertaining to legislative requirements, financial risks, financial and sustainability reporting and internal controls, applicable to the group.
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”). 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 their respective views on the risk environment to which the group is exposed, as well as issues that may have a bearing on the external audit process and objectives. Internal audit certifies to the board and the 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 the attention of the committee. The committee, having due regard to 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 invited enquiries of the attendees at its meetings, is not aware of any weaknesses in internal controls that have given rise 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 an audit review unnecessary.
The committee has satisfied itself as to the appropriateness, expertise and experience of the CEO, who, with the dispensation of the JSE, assumes the role of financial director.
Social and Ethics Committee
The committee meets at least three times per annum on predetermined dates. The committee was established on 17 October 2012 and met twice in the year under review and attendance at these meetings is tabled below:
|WF Urmson (Chair)||2||2|
|BH van Aswegen||1||1|
The Social and Ethics Committee (SEC) reports to the board and provides feedback on issues raised at its meetings to the board and to the Audit and Risk Committee for consideration. The key aspects of its terms of reference include the monitoring of the group’s activities relating to any relevant legislation, other legal requirements or prevailing codes of best practice with regard to matters relating to:
- social and economic development;
- good corporate citizenship;
- the environment, health and public safety, including the impact of the group’s activities and of its products or services;
- consumer relationships, including the group’s advertising, public relations and compliance with consumer protection laws; and
- labour and employment.
The company has appointed a wholly owned subsidiary, African Mining and Trust Company Limited (AMT), as company secretary. The board and senior staff of that company, who are all appropriately qualified, ensure that all applicable provisions of the Companies Act and other regulatory aspects are applied in the affairs and management of the group. There is a sufficient balance of power on the board of directors of AMT to ensure that the company secretary conducts its business on an arm’s length basis.
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 attends meetings of the committee by invitation but is not entitled to vote. The committee met once in the year under review and attendance was as follows:
|EM Southey (Chair)||1||1|
The Remuneration 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 effective shareholding 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. 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 on remuneration issues where necessary.
The remuneration of non-executive directors is determined by the Assore executive, using, inter alia, industry benchmarks, and changes to their remuneration level require approval by the Annual General Meeting (AGM) prior to the change being implemented.
Remuneration of other employees in the group is reviewed annually and also on an ad hoc basis when appropriate by the executive directors in conjunction with the human resources department and departmental heads, and where necessary, benchmarks remuneration levels within the industry using independent advisers. Due to the sensitivity of remuneration levels, the remuneration of senior employees other than directors is not individually disclosed. However, the total cost of the remuneration of senior employees is shown (on page 113), and directors’ remuneration of the holding company directors for the current and previous financial year is set out on page 84.
Insider trading and closed periods
The group operates a closed period in relation to dealing in Assore shares prior to the publication of its interim and final results. During these periods directors, officers and staff are prohibited from dealing in the shares of the company. 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 directors and staff are required to obtain the written approval of the CEO prior to dealing in the company’s shares at any time during the year. Dealings by the CEO in Assore shares are approved by the lead independent director. Due to the significance of the group’s involvement in Assmang, as well as Assmang’s bearing on the results of Assore’s joint-venture partner, African Rainbow Minerals Limited (ARM), in Assmang, senior staff members are also precluded from dealing in ARM’s shares in these closed periods.
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 any unresolved risk management issues. Risk is an inherent feature of business in general, and in the mining and smelting industries it is characterised specifically by the remoteness of location of the operations, the physical danger inherent in the day-to-day activities and the volume and complexity of legislative requirements, in particular with regard to environmental management with which this industry has to comply. These risks are compounded by the volatility of exchange rates and commodity prices to which the group is exposed on a daily basis.
Management of group risk is therefore critical to the sustainability of the group and 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. Group risk is monitored by risk committees established in the group.
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 on insurable risks 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 on the assessments which are tabled. The assets of the group are included in a comprehensive insurance programme, with an independent valuation of fixed assets occurring every three years.
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. 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 small 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.
Details of the risks to which the group is exposed is included on pages 16 to 18 in this report.
The management of information technology (IT) falls within the remit of the CEO who chairs regular meetings of the IT Steering Committee (IT Steerco), which consists of responsible IT staff, as well as staff responsible for finance and major IT projects. The purpose of the IT Steerco is to address the appropriateness and relevance of the IT infrastructure, monitor and further the progress of major IT projects, 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. Matters of relevance to the business are communicated by the CEO to the Excom or the board Audit and Risk Committee where appropriate. Documented terms of reference for the IT Steerco 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 are reported on to the CEO for attention and action where necessary. The group remains 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. 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.
The board has delegated the responsibility for oversight of legal compliance to the Audit and Risk, and Social and Ethics committees for the fields appropriate to their respective terms of reference, from which management receives any guidance deemed necessary from these committees. Suitably qualified consultants have been appointed to ensure that legal compliance is maintained in the business sectors in which the group operates. Therefore, the CEO has not appointed an individual person responsible for the management of compliance. Due to the importance attached to competition law compliance matters, the group has conducted an audit of its possible exposures to competition issues and has ensured that all senior staff members are familiar with the requirements of the Competition Act. 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.
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 Social and Ethics 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, 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 (refer pages 16 to 18). 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 among 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 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 or IT systems implementation, separate independent investigations take place on an ad hoc basis in addition to the programmed reviews referred to above.
Ethical issues are managed by way of executive involvement in day-to-day management processes of the group and senior management who interact with staff at all levels to ensure that high ethical standards commensurate with board expectations are maintained. Issues that cannot be resolved by line management are addressed by way of oversight by the Social and Ethics Committee (refer page 52). Due to the size of the group, the establishment of a documented code of ethics and conduct is not considered necessary. The group has various channels to facilitate effective whistle-blowing procedures. 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 is closely involved with external legal counsel in unfamiliar and complex areas.
Changes to Memorandum of Incorporation (MoI)
Pursuant to the introduction of the new Companies Act, No 71 of 2008, certain changes were deemed necessary to the company’s MoI, which also necessitated changes to achieve compliance with the JSE’s Listings Requirements. A summary of these changes is included in the Notice to Shareholders, sent to the shareholders by registered mail on 29 October 2013. Click here for the entire MoI.