Corporate Governance

Overview
Zanaga Iron Ore Company Limited (the “Company“) is committed to maintaining high standards of corporate governance throughout its operations and to ensuring that all of its practices are conducted transparently and efficiently. The Company believes that scrutinising all aspects of its business and reflecting, analysing and improving its procedures will result in the continued success of the Company and improve shareholder value.

For many years, the Directors have recognised the importance of sound corporate governance and of the guidelines set out in the UK Corporate Governance Code. In the past, the Company has applied the Code so far as was considered appropriate having regard to the size and nature of the Company and its business and role.

In light of the updated AIM Rules for Companies and the introduction of the revised 2018 Corporate Governance Code (the “Code”), the Company has taken steps to further formalise its compliance with the Code which is applicable for the Company’s accounting periods commencing on or after 1 January 2019. As part of this process, the Company continues to adhere to the following objectives:

  • it is led by an effective and entrepreneurial Board which is collectively responsible for the long-term success of the Company;
  • the role of the Board is to promote the long-term sustainable success of the Company;
  • the Board has the appropriate balance of skills, experience, independence, and knowledge of the Company to enable it to discharge its duties and responsibilities effectively;
  • the Board establishes a formal and transparent arrangement for considering how it applies the corporate reporting, risk management, and internal control principles and for maintaining an appropriate relationship with the Company’s auditors; and
  • there is a dialogue with shareholders based on the mutual understanding of objectives.

The Board 
The Board is responsible for the proper management of the Company by formulating, reviewing and approving the Company’s strategy, budgets, and corporate actions. In order to achieve its objectives, and to the extent practicable, the Board subscribes to policies reflecting the main principles of the Code and the supporting provisions, but modified to a limited degree (as indicated below).

Pages 4 to 12 of the latest annual report of the Company, sets out details of the Company’s business model and the Board’s strategy for delivering the objectives of the Company (which subject matter will be dealt with under Code Principle B for the Company’s accounting periods commencing on or after 1 January 2019).

Pages 17 to 22 and 23 to 26 of the latest annual report of the Company, sets out details of the Board’s assessment of the principal risks facing the Company and of the prospects of the Company together with a report on the effectiveness of the Company’s risk management and internal control systems (which subject matters will be dealt with under Code Principles C, N and O for the Company’s accounting periods commencing on or after 1 January 2019).

Pages 32 to 35 of the latest annual report of the Company, includes a statement of how the Board operates, with details of which types of decisions are taken by the Board and which are delegated to management.

The Board is comprised of only non-Executive Directors, being:

  • a Non-Executive Chairman, who is responsible for leadership of the Board and ensuring its overall effectiveness in directing the Company. (Code Principle F)   The Chairman has primary responsibility for the delivery of the Company’s corporate governance model. The Chairman has a clear separation from the day-to-day business of the Company which allows him to make independent decisions; and
  • Two Non-Executive directors.

The Board has a breadth of experience relevant to the Company, and the Directors believe that any changes to the Board’s composition can be managed without undue disruption. The Board believes that the mix of skills, experience, ages and length of service are appropriate to the requirements of the Company. (Code Principle K)

The biographical profiles of the Directors, which demonstrate their skills and experience, can be found here. The biographical details of the Chairman sets out details of his other significant commitments.

The Board consider that, of the current Non-Executive Directors, each of Mr Clinton Dines and Mr Johnny Velloza can be viewed as an Independent Non-Executive Director (notwithstanding the criteria set out in Code Provisions 10 and 11). The Directors believe that independence is not a state of mind that can be measured objectively; given the character, judgement and decision making process of Mr Clinton Dines and Mr Johnny Velloza respectively, each can be considered independent, notwithstanding share options awarded to Mr Dines in 2014 under the Company’s long-term share incentive scheme and the cross holdings of directorships of Mr Velloza.

The Company reviews the independence of the Directors annually and all new appointments will be made after consideration of the independence of the Company’s Directors. Induction processes are followed upon the appointment of a new Director.

The Chairman conducts a performance evaluation of the Non-Executive Directors on an informal basis, which is considered appropriate to the small size of the Company and the limited range of its activities (Code Principle L and Code Provisions 21 and 22). The Non-Executive Directors should be responsible for performance evaluation of the chairman (Code Provision 12).

Copies of the service contracts of Directors (all of which are terminable by less than one year’s notice) are available for inspection by shareholders during normal business hours, at the Company’s registered office (Code Provision 39).

Election of Directors 
As per the Company’s Articles of Association, one third of Directors are subject to retirement at each AGM by rotation. A retiring Director shall be eligible for re-election. In addition, any Director who would not otherwise be required to retire shall retire by rotation at the third AGM after his last appointment or reappointment. This approach is considered suitable for the Company, given its size and role in relation to the Zanaga Project.

Attendance at Board meetings 
The Company holds regular Board meetings during the year, at which the Directors review the exploration and development progress of the Project and all other important issues to ensure control is maintained over the Company’s affairs. Page 33 of the latest annual report of the Company, sets out details of the number of meetings of the board held during that financial year and of the attendance by Directors (which subject matter will be dealt with under Code Provision 14 for the Company’s accounting periods commencing on or after 1 January 2019).

In addition, between these formal meetings there is regular contact with the Company’s consultants, management and the Nominated Adviser and Broker. The Directors are kept fully informed of investment, financial and other matters that are relevant to the business of the Company and that should be brought to the attention of the Directors. The Directors also have access to the Company Secretary and, where necessary in the furtherance of their duties, to independent professional advice at the expense of the Company (Code Provision 16).

The Board considers agenda items laid out in the notice and agenda, which are formally circulated to the Board in advance of a meeting as part of the Board papers. The Directors may request any agenda items to be added that they consider appropriate for Board discussion. Additionally, each Director is required to inform the Board of any potential or actual conflicts of interest prior to Board discussion.

The quorum for a Board meeting is two but attendance by all Directors at each meeting is strongly encouraged. Whilst Directors try to arrange their schedules accordingly, non-attendance is unavoidable in certain circumstances.

Apart from the regular Board meetings, additional meetings are arranged when necessary to review strategy, planning, operational, financial performance, risk, capital expenditure, human resource and environmental management.

The Board’s role

The Board is responsible for internal control within the Company and for reviewing its effectiveness. Given the current size and nature of the Company, all key decisions are made by the Board (Code Principle G) and the responsibilities of the Board have been set out in the latest Annual Report (which subject matter will be dealt with under Code Provision 14 for the Company’s accounting period commencing on or after 1 January 2019).

In view of the non-executive composition of the Board and the cost-saving and streamlining initiatives which have been put in place so as to preserve the financial resources of the Company, a number of the provisions of the Code have not been complied with. These include the provisions relating to the division of responsibilities between the Chairman and chief executive, the categorisation of the separate roles of the Board, the establishment of audit, remuneration, nomination and risk committees as well as provisions relating to executive compensation (Code Provisions 14 and 17).

In addition, the Board keeps under review its size, structure and composition (including as to the combination of skills) and the scale and structure of the Directors’ fees (taking into account the interests of shareholders and the performance of the Company). (Code Principle K)

The Board also regularly conducts a robust assessment of the principal risks facing the Company, including those that would affect its business model, future performance, solvency or liquidity. Such risks form part of the general risks which are set out on pages 17 to 22 of the Company’s most recent annual report. Management of the principal risks is undertaken in consultations between the Board and the executive management. The active role that the executive management has taken in assisting Jumelles to appraise the viability of the potential EPP (Early Production Project) is a key element in managing the principal risks (which subject matter will be dealt with under Code Principle 28 for the Company’s accounting periods commencing on or after 1 January 2019).

Company Secretary

Additionally, the Company has appointed a professional company secretary in Guernsey, whom the Directors are free to consult. The company secretary provides advice and guidance to the extent required by the Board on the legal and regulatory environment (which subject matter will be dealt with under Code Provision 16 for the Company’s accounting periods commencing on or after 1 January 2019). With the assistance of the Company Secretary, appropriate insurance cover in respect of the risk of legal action against Directors is arranged annually.

 

Annual report and Accounts and half-yearly financial statement

Pages 40 to 45 of the latest annual report of the Company, sets out details of the basis of preparation of the accounts (including their preparation on a going concern basis) and the responsibilities of the Directors and auditors in preparing the annual report (which subject matter will be dealt with under Code Provisions 30 and 31 for the Company’s accounting periods which commence on or after 1 January 2019). In addition, the Notes to the latest half-yearly financial statement sets out details of the basis of preparation of such statement, including their preparation on a going concern basis (which subject matter will be dealt with under Code Provision 30 for the Company’s accounting periods which commence on or after 1 January 2019).

 

Board streamlining and Board Committees
In view of the constraints on the Company due to the difficult and challenging developments in the iron ore global market, the Board operates on a streamlined basis.  This has resulted in the Board consisting of only three Directors.  As part of such streamlined approach the audit committee, the remuneration committee and the Health, Safety, Social and Environment Committee have been discontinued and the duties and responsibilities which were delegated to them have reverted to the Board. As previously, responsibility for nominations to the Board continues to be reserved to the Board; consequently no nominations committee has been put in place (Code Provisions 17 and 23). The Board is also responsible for monitoring the activities of the executive management team.

Audit Matters
As part of its overall responsibilities, the Board determines and examines any matters relating to the financial affairs of the Group including the terms of engagement of the Group’s auditors and, in consultation with the auditors, the scope of the audit. In addition it considers the financial performance, position and prospects of the Company and ensure they are properly monitored and reported on. (Code Principles M and O)

Given the current size and nature of the Company, staff may raise concerns surrounding possible improprieties in matters of financial reports, in confidence with the Chairman, and the Directors do not feel it appropriate at this stage to put in place a detailed procedure by which staff may, in confidence, raise concerns surrounding possible improprieties in matters of financial reporting. The Directors will continue to keep this under review should staff numbers increase significantly

Remuneration Matters
As part of its overall responsibilities, the Board establishes the remuneration policy, reviews the performance of the executive management team, sets their remuneration, and considers and determines the Company’s bonus and option schemes and payments or grants thereunder. (Code Principles P, Q and R and Code Provision 34)

The key objectives of such process are to:

  • Ensure that members of the executive management team of the Company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company;
  • Review the ongoing appropriateness and relevance of the remuneration policy; and
  • Approve the design of, and determine targets for, any performance related pay schemes and/or share incentive plans introduced or operated by the Company and approve the total annual payments and/or awards made under such schemes or plans.

The main responsibilities of the Board in relation to remuneration matters are to:

  • Determine the framework or broad policy for the remuneration of the Chairman of the Board, the Executive Directors, the Company Secretary and such other members of the executive management as it is appropriate for it to consider. As part of this policy: (a) the remuneration of Non-Executive Directors shall be a matter for the Chairman of the Board and (if any) the executive members of the Board; and (b) no Director or manager shall be involved in any decisions as to their own remuneration;
  • Review the ongoing appropriateness and relevance of the remuneration policy;
  • Approve the design of, and determine targets for, any performance related pay schemes introduced or operated by the Company and approve the total annual payments made under such schemes; and
  • Approve the design and introduction of all share incentive plans, taking account of the authorisations relating to the issue of new shares which are approved by shareholders at the Company’s annual general meeting. For any such plans, determine from time to time the introduction of such plans and whether awards will be made under such plans, and if so, the overall amount of such awards, the individual awards to Executive Directors and other members of the management team and the performance targets to be used.

Health, Safety, Social and Environment Committee
The HSSE Committee has been permanently discontinued.

Directors’ shareholdings and dealings
The Directors will comply with Rule 21 of the AIM Rules for Companies relating to Directors’ dealings and will take all reasonable steps to ensure compliance by the Company’s applicable employees and staff.

Share Dealing Code

The Company has adopted a share dealing code to ensure Directors and certain other persons do not abuse, and do not place themselves under suspicion of abusing inside information of which they are in possession and to comply with its obligations under the Market Abuse Regulation (“MAR“) which applies to the Company by virtue of its shares being traded on AIM. Furthermore, the Company’s share dealing code is compliant with the AIM Rules for Companies published by the London Stock Exchange (as amended from time to time).

Under the share dealing code, there are provisions regulating the following:

  • all persons discharging managerial responsibilities and certain other persons must obtain clearance by the Company before they are allowed to trade in Company securities; and
  • all persons discharging managerial responsibilities and persons closely associated to them must notify both the Company and the Financial Conduct Authority of all trades in Company securities that they make.

Internal control and risk management 
The Directors have overall responsibility for establishing and maintaining the Company’s system of internal control and risk management systems. Internal control systems are designed to meet the particular needs of the Company and the risks to which it is exposed, and, by their very nature, provide reasonable, but not absolute, assurance against material misstatement or loss (Code Principle C).

The key procedures which have been established to provide effective internal controls are as follows:

  • Elysium Fund Management Limited is responsible for the provision of company secretarial and administration duties.
  • The Board reviews financial information produced by the internal executive financial management on a regular basis.
  • The Board monitors the performance of the Company’s service providers and their obligations under their agreements with the Company.

The Company does not have an internal audit department. Due to the size and nature of the Company it is not felt that there is at this stage a need for the Company to have an internal audit facility (Code Provision C.3.6).

The Directors are revising the procedure for monitoring and carrying out the formal annual review of the internal control systems (Code Provision C.2.3).

In addition there is kept under review potential conflicts of interest. (Code Provision 7)

Relationships with shareholders and stakeholders
The Code encourages dialogue with institutional and other shareholders based on the mutual understanding of objectives. The Directors are always available to enter into dialogue with shareholders. The Company has appointed an “Investor relations” manager who has had long term experience of involvement with the Company’s affairs and its relationship with shareholders. All ordinary shareholders have the opportunity to attend and vote at the AGM during which the members of the Board, the Nominated Advisor and Brokers are available to discuss issues affecting the Company. The Board stays abreast of shareholders’ views via regular updates from its “investor relations” manager, the Nominated Advisor and its Brokers as to meetings that may have held with shareholders. (Code Principle D and Code Provision 3 and E.1.2).

The Board also has regard to the views of other key stakeholders. In particular and in view of the small size of the Company, there is maintained an informal dialogue between the Board and management. (Code Provisions 5 and 6)

Where the Company departs from the Code and its reasons for doing so

  • For the reasons stated above, the Company departs from the Code provision which deals with the division of powers between the Non-Executive Chairman and a CEO. In addition, the Company departs from the Code by only having Non-Executive Directors (Code Principle G and Code Provisions 9 and 13).
  • In view of the small size of the Company and the limited number of directors, the establishment of a nomination committee and the formal appointment of a senior independent director are regarded as unnecessary. Where new directors are appointed, the Chairman conducts an informal consultation process with the other directors. Consequently, Code Principles J and Code Provisions 12, 17 and 23 are departed from.
  • In view of the small size of the Company and the limited number of directors, there is no fixed requirement for the Chairman to stand down after a period of years or for all directors to seek annual re-election, thereby departing from Code Provisions 18 and 19.
  • As explained above, the Board has decided not to appoint an audit committee or a remuneration committee, thereby departing from the following Code Provisions: 24 to 26 inclusive, 32 and 33.
  • In view of the small size of the Company, a streamlined approach for the Board’s role in relation to the remuneration of Directors and staff and the establishment and implementation of share incentive schemes has been adopted. Consequently there is a degree of departure from Code Provisions 36 and 37.
  • As mentioned and for the reasons stated above, no internal audit function has been set up, thereby departing from Code Provisions 24 and 25.

Further details of the Company’s corporate governance regime can be found in the Corporate Governance section at pages 33 to 36 of the latest annual report of the Company, which regime was applicable prior to 1 January 2019.

By way of clarification, the Code is not applicable to the corporate governance regime of the Company which was in place during the Company’s accounting period which ended on 31 December 2018.

Date on which this information was last reviewed: 22 August 2019.