Corporate Governance

“In essence, good corporate governance is about having the right people (in the right roles), working together, and doing the right things to deliver value for shareholders as a whole over the medium to long term.”  QCA Corporate Governance Code (2018)

As a Board committed to good practice in corporate governance the Company is guided by the 10 principles set out in the Quoted Companies Alliance’s Corporate Governance Code (2018).  Continuous assessment and an emphasis on continuing improvement are the foundation of the Company’s approach to corporate governance.  All employees are encouraged to contribute ideas to improve operations whether in safety or efficiency.

The Board has established a number of committees which report to the Board to assist with the implementation of its polices, risk management and improve effectiveness.

 

Independence

Relationship Agreement with Labro Investments Limited

Chaarat’s Chairman, Martin Andersson, is the largest shareholder of Chaarat as he is indirectly beneficially interested in the majority of the shares in Labro Investments Limited (Labro) which as at 30 April 2018 holds 35.51% of the Company’s issued share capital.

A relationship agreement has been put in place between the Company and Labro which provides, inter alia, that for so long as Labro beneficially owns or is interested in 20% or more of the issued share capital of the Company, Labro shall have the right to nominate one director to the Board, and not take any action which will circumvent the proper application of the AIM Rules or enter into any transactions with the Company or the Group on any other than on normal commercial terms.

There is a provision in the Company’s Articles of Association which states that the Board has the right to require any holder of more than 20% of the Company’s Shares to make a mandatory offer to all the Company’s shareholders to acquire their Shares if they acquire an additional interest in any Shares. The Board has previously exercised its discretion to waive the requirement for a mandatory offer when Labro acquired Shares in excess of a 20% holding.

A number of associates of the Chairman (being Martin Wiwen-Nilsson, Willem De Geer and Sarastro Group Limited) became shareholders in the Company in September 2016.  Martin Wiwen-Nilsson is also a director of the Company.  The Chairman, taking a conservative view and based on legal advice, deemed it appropriate that those parties should be considered as forming a concert party with Labro and that, subject to the waiver described above, further additional share purchases by them will have to be approved by the Directors who are independent of the concert party (being Linda Naylor, Artem Volynets, Richard Rae, Dorian Nicol and Gordon Wylie) who decide whether to exercise their discretion to waive the requirement to make a mandatory offer to all shareholders.

The Board believes this is best practice for corporate governance purposes in order to protect minority holders of the Company’s shares so that there is no perception that shares are being accumulated with the objective of acquiring the Company at a potentially depressed valuation.

 

Non-executive directors

Richard Rae is the senior non-executive Director and is considered independent by the rest of the Board.

In November 2017 two independent non-executive directors were appointed to the Board, Gordon Wylie and Dorian Nicol.  Given the Company’s stage of development, certain NEDs are heavily involved in technical and financing matters related to the achievement of the Company’s strategy.  Dorian Nicol was appointed Chairman of the Technical Committee and has a role which includes planning and supervision of the drilling programme and technical evaluation of possible acquisition targets.  The Chairman and Martin Wiwen- Nilsson lead the financing strategy. The particular skills and expertise provided by these non-executive directors are critical to support the CEO and to drive the achievement of the Company’s strategy.

The Board is mindful that these increased responsibilities mean that there are only two independent non-executive directors on the Board which is the minimum set out in the QCA Code.  The Chairman has stated his intention to recruit more independent non-executive directors to redress the balance and add value and diversity to the Board.

 

Board and Committees

The directors and senior management meet quarterly to review progress, to approve strategy and budgets, major capital expenditure and the financial statements and certain other matters which are reserved for decision by the Board.  Monthly Board calls also take place to provide an update between the quarterly meetings.  The quarterly meetings were attended by all directors during 2017.

The directors and senior management have access to the advice and services of the Company Secretary, who is responsible for ensuring that all Board procedures are followed.  Any Director may take independent professional advice at the Company’s expense in the furtherance of their duties.

2017 saw a number of changes to the Board. Accordingly, the Chairman did not consider it appropriate to undertake a Board evaluation process until the composition of the Board had stabilised.  He intends to instigate an internal Board evaluation process in 2018 and review the need for an external evaluation based on the results.

 

Remuneration committee

The remuneration committee comprises Richard Rae as Chairman and Martin Wiwen-Nilsson.  The committee meets as required during each financial year.  It is responsible for reviewing the performance of the executive Directors and senior management and for setting the scale and structure of their remuneration, having due regard to the interests of shareholders as a whole and the performance of the Group.  The remuneration committee also administers the company’s share option arrangements.  The remuneration of the non-executive Directors is reviewed by the whole Board.

 

Audit committee

The audit committee comprises Richard Rae as Chairman and Gordon Wylie.  The committee meets formally on at least two occasions each financial year.  It reviews the Company’s interim and annual financial statements before submission to the Board for approval, as well as regular reports from management and the external auditors on audit, accounting and internal control matters which are also reviewed by the Board and senior management.  Where appropriate, the audit committee monitors the progress of action taken in relation to such matters.  The audit committee also recommends the appointment of, and reviews the fees of, the external auditors as well as their independence and any non-audit services provided.  In 2017 and 2016 the only non-audit service was the review of the interim statement.

 

Technical committee

The technical committee comprises Dorian Nicol as Chairman and Gordon Wylie.  The committee reviews and provides input to all technical reports and provides guidance to senior management.

 

Nominations committee

The nominations committee is comprised of the whole Board of Directors.  The Chairman reviews all proposed changes to the Board with regard to the balance of skills necessary to achieve Chaarat’s strategic objectives.

 

Health, Safety, Environment and Community committee

The health, safety, environment and community committee is responsible for the overall health, safety and environmental performance of the Company and its operations and its relationship with the local community in the Kyrgyz Republic.  The Committee is comprised of the entire Board of Directors.  The membership of this committee will be reviewed in 2018 given the appointment of non-executives with directly relevant skills in these areas.

 

Risk management

The Board has recognised the need to formalise its review of the risk management framework and how it is embedded in the organisation.  Previously, the whole Board had considered the key risks of the Company relating (for example) to security of the licences, local relations and safety.  The use of the skills of experienced non-executives has been invaluable in this regard.  However, in 2018 the Chairmen of the Audit and Technical Committees will consider how best to divide the relevant risks between their two committees, given the increased complexity of the environment in which the Company is now operating, so that a full review is undertaken and effectiveness is ensured.

 

Relations with shareholders

The Board recognises the importance of maintaining a dialogue with all its shareholders and carefully considering the feedback and taking appropriate action.  Dialogue can take the form of individual meetings or presentations to retail investors.  The Chairman, Chief Executive Officer and relevant non-executive directors meet with shareholders, analysts and other institutions regularly throughout the year to keep them updated.  The AGM and website encourage engagement with the Board and all correspondence and queries are dealt with promptly by the Company Secretary.

During 2017 Chaarat engaged Blytheweigh to increase the effectiveness of communication with all stakeholders.  Separate public relations advice has been taken in relation to M&A activities in 2018.