The Assore board (the board) is of the opinion that strong corporate governance and risk management not only enhance sustainability of the organisation but 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 Report on Corporate Governance (King III), which it implements in accordance with the following framework:
- Establishing a risk and control environment within each of its business entities where management, in conjunction with the necessary support from the Audit and Risk, and Social and Ethics Committees, 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, and Social and Ethics Committees, with assurance regarding the adequacy of internal control within the organisation, ie that the risk and control environment in place is appropriate for the business concerned and that the business is operated in a manner which provides the board with reasonable assurance that the group’s assets are appropriately safeguarded.
- 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 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 (2015: AAA), utilising its Governance Assessment Instrument. The detailed governance register is located on the group’s website, under the “About us” tab.
Board of directors
The directors are committed to the principles of corporate discipline, transparency, independence, accountability, fairness, employment equity and social responsibility.
The Assore board has a unitary structure, comprising eight directors, four of whom are executive and four non-executive. Since the Chairman represents the controlling shareholder, and in order to enhance the balance of power and authority on the board, the Chairman does not have a casting vote. Additionally, the board has appointed a lead independent director, who also occupies the position of Deputy Chairman.
The independent non-executive directors have, between them, considerable experience gained at senior management levels in diverse listed and unlisted companies and professional firms operating in South Africa and abroad.
Independent non-executive directors are appointed in terms of three-year renewable contracts and the board evaluates their independence annually, based on returns submitted by each director. 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.
Election and succession
Appointments to the board in an executive directorship capacity are based on the nominees holding 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 knowledge
of applicable legislation, rules, codes and standards. Incoming non-executive directors are fully appraised on appointment of the group’s activities, and on all issues relevant to the business, 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 recommended by King III.
In accordance with the company’s Memorandum of Incorporation (MoI), 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 offer themselves for re-election at each 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 here. 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.
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 subcommittees are addressed by the responsible staff and, further, that these issues are elevated to the appropriate level when it is apparent that more senior management involvement is necessary. Based on a 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 17 February 2016.
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||4||4|
|*||Resigned 29 February 2016.|
|#||Appointed 1 March 2016.|
|^||Resigned 26 May 2016.|
Board and committee performance evaluation
Ongoing evaluation of the board and its various committees does not occur on a formal basis. However, due to the fact that the Chairman represents the controlling shareholder, and due to the structure of the management of the business, regular interaction occurs between all levels of management to ensure that the various structures in the Assore group operate in accordance with their terms of reference. As stated in the section on remuneration (refer here), 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. Documented terms of reference for the board are not required, since all of the directors have substantial business experience gained at a senior level.
The composition and size of the board as described above enable regular formal and informal interaction between directors to take place to ensure appropriate application of authority in the decisionmaking process. This ensures that resolutions cannot be passed without the agreement of at least one of the independent non-executive directors.
A key aspect of the group’s activities includes marketing and distribution. As a result the reputation of and relationships with its customers and all other stakeholders is assessed in all of the board’s actions, and not in isolation. 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 that operate independently in relation to 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 ad hoc meetings convened to consider significant risk and accounting 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 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 audit work in the year under review. The committee recommended the approval of the integrated annual report for 2016 to the board on 19 October 2016.
The terms of reference of the Audit and Risk Committee are documented, have been approved by the board, and are reviewed periodically 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:
- monitor the risk profile as compiled by internal audit and agreed to with management and make recommendations on the composition and classification of the risk profile for the group (refer “Risk management”);
- integrate the activities of assurance providers so that all risks are identified and appropriate mitigation steps are taken;
- provide a forum for 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 board regarding the appointment of the external auditors;
- review the activities, services and performance of the external auditors, evaluate their independence and review their overall role and the 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 effectiveness of the internal audit function (refer “Internal audit and internal control”) to ensure that the roles of both internal and external audit are clear in order to provide an objective overview of the operational effectiveness of the group’s systems of internal control and reporting;
- receive and consider feedback on issues relevant to the committee raised at meetings of the Social and Ethics Committee (refer “Social and Ethics Committee”);
- obtain reports from management, and make the necessary enquiries from external and internal audit and of management, on any matters which are the subject of 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 discussion with its executives and senior staff (refer “Ethics”).
All the members of the committee, including the Chairman (who will make himself available to take questions at the AGM), are independent non-executive directors, who collectively possess the appropriate 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 Audit and Risk Committee, 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 activities are optimised and integrated with the external audit function (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.
Independent meetings are conducted with external audit in order to exchange views on the risk environment to which the group is exposed, as well as on issues that may have a bearing on the external audit process and internal audit objectives based on fieldwork performed by them. Internal audit provides assurance to the board and the committee on an annual basis that the internal and financial controls have not revealed any significant breakdown in internal controls or corporate governance principles or any issues that require the attention of the committee. The committee, having due regard to materiality and the 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 tabled by internal and external audit at its meetings, and having invited enquiries of the attendees at its meetings, is not aware of any breakdowns of internal controls or corporate governance that resulted in, or could lead 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 generate the majority of the group’s earnings, are reviewed and reported on by its external auditors in terms of ISRE 2410 – Review of Interim Financial Information Performed by its Independent Auditor of the Entity, prior to the publication of the group’s interim results. Dependent on the contribution to the group’s earnings from Dwarsrivier Chrome Mine Proprietary Limited (Dwarsrivier), an audit review may be considered necessary. (Refer note 36 to the consolidated financial statements for details regarding the acquisition of Dwarsrivier subsequent to the end of the financial year.) The committee, after due enquiry of external and internal audit, has satisfied itself as to the appropriateness of the expertise, the adequacy of the finance function and the experience of the senior members of management responsible for the financial function.
Internal audit and internal control
The board, through its Audit and Risk Committee, is responsible 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 here). These controls are designed to manage the risk of failure of internal controls and provide reasonable assurance that there are adequate systems of internal control and appropriate corporate governance procedures in place. As with all management systems, the assurance which is provided is not absolute and the risk of failure cannot be eliminated entirely. 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. Material issues of compliance are among standard items on the agenda of the Audit and Risk Committee, 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 Executive Committee 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 internal controls or corporate governance procedures has occurred during the year under review.
Representatives of the internal audit firms are invited to attend Audit and Risk Committee meetings and, where areas of new risk are identified, such as 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.
The board has delegated the assessment and management of the group’s risk profile, which is compiled by the internal audit function, to the Audit and Risk Committee, which advises the board of any unresolved risk management issues. Risk is an inherent feature of conducting business, and in the mining and smelting industries it is exacerbated by the remoteness of location of the operations, the physical danger inherent in the day-to-day activities of these operations and compliance with legislative requirements, particularly with regard to environmental management with which this industry has to comply. These risks are compounded by the volatility of exchange rates and international commodity prices to which the group is exposed on a daily basis and which are largely beyond the group’s control.
Management of group risk is critical to the sustainability of the group and is achieved through the identification and control by various risk management committees of all risks, 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 specialist external consultants.
For larger business entities in the group, 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 taken out on insurable risks where considered appropriate. 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 “Group sustainability performance”):
- Environmental rehabilitation management.
- Health and safety management.
- Human resource management.
- Quality of products and management systems.
Details of the principal risks to which the group is exposed are included here 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). The IT Steerco 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 the IT Steerco seeks external advice when required. Matters of relevance to the business are communicated by the CEO to the Audit and Risk Committee or the board, where appropriate. Documented terms of reference for the IT Steerco are not considered necessary, 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, the results of which are reported on to the Audit and Risk Committee for attention and action where necessary. Disaster recovery (DR) 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 group has also replicated its hardware environment in a separately housed DR area.
Social and Ethics Committee
In accordance with its documented terms of reference approved by the board, the committee is required to meet at least twice per annum on predetermined dates. The committee met twice during the year and attendance at these meetings is tabled below:
|WF Urmson (Chair)||2||2|
|BH van Aswegen||2||2|
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 where relevant. The key aspects of its terms of reference include the monitoring of the group’s activities relating to any relevant legislation affecting the group’s activities, or prevailing codes of best practice with regard to matters relevant to:
- its corporate strategy and any changes that may be necessary from time to time;
- the social and economic development of communities located in the areas surrounding its operations;
- the maintenance of good corporate citizenship credentials;
- environmental, health and public safety issues at all its operations, including the impact of the group’s activities and of its products or services on the environment;
- consumer relationships, including the group’s advertising, public relations and compliance with all legislation relating to the group’s activities; and
- labour and employment, including working conditions and employee development.
The board has delegated the responsibility for oversight of legal compliance to the Social and Ethics Committee, from which management receives any guidance deemed necessary for the fields appropriate to its terms of reference. Suitably qualified consultants have been appointed to ensure that legal compliance is maintained in the business sectors in which the group operates. Accordingly, the CEO has not appointed an individual person responsible for the management of compliance. Due to the importance attached to compliance with competition law requirements, the group operates a competition law compliance programme and has ensured that all senior staff members are familiar with the requirements of the Competition Act. The Audit and Risk Committee ensures that matters containing significant levels of risk 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, a high-level compliance review is conducted every second year for Assore’s subsidiary operations and reports are submitted to the SEC. Following the recent acquisition of Dwarsrivier, the extent of SHE legal compliance audits conducted at this operation is currently being reviewed (refer “Audit and Risk Committee”).
The size of the group, as well as the experience of the executive directors and senior management, afford management the opportunity to resolve disputes in these areas. External legal counsel is consulted when considered necessary to ensure the appropriateness of the methods adopted to resolve issues.
Ethical issues are managed by way of executive involvement in day-to-day management processes of the group, and by 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 SEC (refer here). The group is in the process of adopting a code of ethics, which, once approved by the SEC, will be applied across the group. Various channels to facilitate effective whistleblowing procedures are in place at certain of the larger operations in the group to afford employees and other parties the opportunity to bring unethical practices to the attention of senior management on an anonymous basis. 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 consults with external legal counsel in unfamiliar and complex areas.
Insider trading and closed periods
The group declares a closed period applicable to all members of staff 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 where a public announcement is imminent and includes information considered to be price sensitive.
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. Any dealings by the CEO in Assore shares require the approval of 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), senior staff members are also precluded from dealing in ARM’s shares in these closed periods.
The company has appointed a wholly owned subsidiary, African Mining and Trust Company Limited (AMT), as Company Secretary (refer here). The board and senior staff of that company, who are all appropriately qualified, ensure that all applicable provisions of the Companies Act are applied in the affairs and management of the group. The board of directors of AMT includes an adequate number of persons with professional qualifications to ensure that an appropriate level of independence is maintained and that its affairs are conducted on an arm’s length basis.