Description of the Board
Chaarat Gold Holdings Limited (the “Company” or “Chaarat”) has four executive directors and four non-executive directors. All major decisions relating to the Company and its subsidiaries (the “Group”) are made by the board of directors of the Company (the “Board”) as a whole. Operations of the Group are conducted by the subsidiaries of the Company (principally Chaarat Zaav CJSC, “CZ”) under the direction of the directors of each of the subsidiary companies.
The Board aims to meet at least quarterly and as required from time to time to consider specific issues required for decision by the Board. The Board is responsible for setting the Company strategy, ensuring corporate governance is of an appropriate standard, approves the short and long-term business plans and appoints the Chief Executive Officer. The Board reviews key business risks regularly, including the financial and non-financial risks facing the Group in the operation of its business.
The individual directors of the Board have a wealth of experience from diverse professional and personal backgrounds. The Chairman is responsible for leading the Board, including ensuring that an appropriate level of diversity is maintained to promote distinct perspectives on Group and Company matters, and for implementing a robust governance framework. The Chief Executive Officer is responsible for leading the Company in its strategic pursuits and for ensuring that the Company’s business model is implemented effectively and in line with the Company’s values.
The Group operates a share dealing code for directors on the basis set out in the AIM Rules for Companies (the “AIM Rules”), and will review its share dealing code from time to time to ensure it remains as effective as possible.
Approach to Corporate Governance
As a Company whose shares are admitted to trading on the AIM Market of the London Stock Exchange plc, the Company is not required to comply with the UK Corporate Governance Code (the ‘Code’) issued by the Financial Reporting Council.
However, the Group aims to comply with best practice in the industry and as such elects to follow the main principles of the Quoted Companies Alliance’s Corporate Governance Code 2018 (the “QCA Corporate Governance Code”).
The QCA Corporate Governance Code identifies ten principles that focus on the pursuit of medium to long-term value for shareholders without stifling the entrepreneurial spirit in which the company was created. The sections below set out the ways in which the Group applies the ten principles of the QCA Corporate Governance Code in support of the Group’s medium to long-term success.
|1. Establish a strategy and business model which promote long-term value for shareholders|
|The Board seeks to maximise value for all our shareholders whilst ensuring continuity and consistency through sustainable and responsible exploration and mining.
The Group’s strategy is to become a leading mid-tier gold producer focused in Central Asia and the Former Soviet Union through a mixture of organic growth and selective acquisitions.
The CIS region has a highly fragmented gold industry comprising both world class assets and smaller, profitable producers. Due to perceived risk, most of the assets in this region trade at a significant discount compared to equivalent assets in other emerging market locations. This presents an opportunity for industry consolidation, which Chaarat intends to lead
Ultimately, a diversified portfolio of producing and developing mines will generate the cashflow to fund ongoing organic growth and deliver a strong equity return to investors. By maintaining a focus on active engagement with host communities, the benefits of this strategy will flow to all stakeholders, helping to manage ongoing risks.
The Group intends to unlock the long term potential of its primary asset, the Chaarat Gold Project in the Kyrgyz Republic (the “Chaarat Project”). The Chaarat Project comprises two distinct mineralised zones: the Tulkubash ore body (“Tulkubash”) and the neighbouring Kyzyltash sulphide ore body (“Kyzyltash”). The mining licence granted to CZ in respect of the Chaarat Project is valid until 25 June 2032 (the “Mining Licence”).
The first stage of development of the Chaarat Project is the development of Tulkubash as a heap leach project. Tulkubash forms part of the prolific Tien Shan Gold Belt and located in the Kyrgyz Republic, and has the capacity to generate US$40-60 million of free cash flow per annum through approximately 100,000 ounces of gold production per annum.
The Group expects that organic growth will follow from Kyzyltash, which is capable of producing 200,000-300,000 ounces of gold per annum, and the ongoing exploration of Chaarat’s licence area in the Kyrgyz Republic, which comprises an emerging gold district. The Group’s intention is that this will be supplemented by selective mergers and acquisitions.
Future M&A will be judged on its ability to deliver accretive value to Chaarat shareholders in both the short term and through longer term exploration potential to extend and enhance production profiles.
|2. Seek to understand and meet shareholder needs and expectations|
|The Board is aware of the needs and expectations of shareholders. The Company engages with its shareholders through its Annual General Meeting (the “AGM”).
The board supports the use of the AGM to communicate with both institutional and private investors. All shareholders in attendance are given the opportunity to ask questions and raise issues; this can be done formally during the meeting or informally with the directors afterwards.
At the AGM, separate resolutions are proposed on each substantially separate issue. For each resolution, proxy appointment forms are issued alongside the release of the Annual Report for that year, which provide voting shareholders with the option to vote in advance of the AGM if they are unable to attend in person. All valid proxy votes received for the AGM are properly recorded and counted by Link Market Services (Guernsey) Limited, our registrars.
As soon as practicable after the AGM has finished, the results of the meeting are released via RNS and a copy of the announcement is posted on the Company News page at www. https://www.chaarat.com/investors/rns/. At last year’s AGM, all resolutions were duly passed.
The Executive Chairman, Martin Andersson can be contacted by shareholders on matters of governance, as can the Company’s nominated adviser, Numis Securities Limited (“Numis”). Contact details are provided within every Company announcement.
The Board is mindful of the need to protect the interests of minority shareholders. Certain Board members are also significant, long-term investors in the Company, and their interests are closely aligned with those of other shareholders.
One of the Company’s Significant Shareholders (as defined in the AIM Rules) is Labro Investments Limited (“Labro”). The Executive Chairman of the Company, Martin Andersson, is indirectly beneficially interested in the majority of the shares in Labro. As at 28 September 2018, Labro holds:
· 131,878,037 ordinary shares in the capital of the Company (“Ordinary Shares”) representing approximately 33.33% of the Company’s share capital;
· US$1,000,000 of secured 2021 convertible notes with a conversion price of £0.37 / share (the “2021 Notes”); and
· 21,367,521 warrants to subscribe for Ordinary Shares (“Labro Warrants”).
Labro is a member of a concert party (as referred to and defined in the Company’s announcement on 27 October 2017) (the “Concert Party”).
Martin Wiwen-Nilsson, a non-executive director of the Company is also a member of the Concert Party. As at 28 September 2018, Martin Wiwen-Nilsson holds:
· 9,998,237 Ordinary Shares representing 2.53% of the Company’s share capital;
· US$425,000 of 2021 Notes; and
· 200,000 options to subscribe for Ordinary Shares (“MWN Options”).
If all Labro Warrants and MWN Options were exercised and all 2021 Notes issued to Labro and Martin Wiwen-Nilsson were converted (but no other warrants or options to subscribe for Ordinary Shares were exercised, no other 2021 Notes were converted and no other Ordinary Shares were issued), the Concert Party would hold 192,405,615 Ordinary Shares representing 45.67% of the resulting enlarged share capital.
As the Company is incorporated in the British Virgin Islands, it is not subject to the UK City Code on Takeovers and Mergers. The Articles of Association of the Company (the “Articles”) contain a regulation which provides that where any person (i) acquires interests in shares which (taken together with interests in shares held or acquired by persons acting in concert with him) carry 20% or more of the voting rights of the Company; or (ii) holds (together with persons acting in concert with him) interests in shares representing not less than 20% but not more than 50% of the voting rights and such person (or any person acting in concert with him) acquires an interest in additional shares which increases his percentage of voting rights, the Board shall be entitled, but not obliged, to require that person to extend a mandatory offer to all of the Company’s shareholders to acquire their Ordinary Shares.
To date, the Board has exercised its discretion under the Articles so as not to require a mandatory offer to be made in connection with the issue of securities (including any conversion of such securities) to Labro, Martin Andersson, Martin Wiwen-Nilsson or any other member of the Concert Party, or as a result of any redemption or purchase by the Company of its own voting shares at any time in the future, but not in respect of any other purchase of Ordinary Shares or any interest therein by any member of the Concert Party or any other person acting in concert with them.
The Company entered into a relationship agreement (the “Relationship Agreement”) with Labro on 27 September 2016. The principal terms of the Relationship Agreement are as follows:
· Labro has agreed that it shall (and, to the extent that it is able, shall procure that its associates/any nominee shall) permit the Company to carry on its business independently of Labro and its associates, including so that: (a) a majority of the revenue generated by the Company’s business is not attributable to business conducted directly or indirectly with Labro or its associates; (b) Labro and its associates are not able to influence the operations of the Company outside of its legal governance structure; and (c) save with the requisite approval of the Company’s shareholders in accordance with the AIM Rules and/or applicable company law, Labro and its associates do not hold or acquire a material shareholding in one or more significant subsidiaries of the Company. For these purposes “Associates” shall have the meaning given to that term in the Listing Rules.
· Labro has undertaken to the Company that it shall not (and, to the extent that it is able, shall procure that none of its associates/nominees shall) exercise any rights which any of them have from time to time as shareholders of the Company to: (a) enter into any transactions and/or relationships between any member of the Company’s group and Labro or its associates, other than at arm’s length and on normal commercial terms and in accordance with the related party transaction rules set out in the AIM Rules and/or applicable provisions of applicable company law; and (b) propose any resolution or take any action which is intended to circumvent the proper application of the AIM Rules.
· For so long as the Relationship Agreement remains in force, Labro shall not (and, to the extent that it is able, shall procure that none of its associates/nominees shall) take any action (or omit to take any action) that may: (a) prejudice the suitability of the Ordinary Shares for admission to trading on AIM; or (b) have the effect of preventing the Company from complying with its obligations under the AIM Rules or applicable company law.
· For so long as Labro (together with its associates) beneficially owns or is interested in 20% or more of the issued share capital of the Company carrying voting rights, Labro shall have the right to nominate one director to the Board, and to remove any such nominated director and appoint a replacement director in his/her place.
· The Relationship Agreement will automatically terminate and cease to have effect on the earlier of: (a) Labro and any of its associates in aggregate ceasing to beneficially own or be interested in at least 20% of the issued share capital of the Company carrying voting rights; or (b) the Ordinary Shares ceasing to be admitted to trading on AIM.
· The Company and Labro have agreed that nothing in the Relationship Agreement shall prevent: (a) Labro or any of its associates from exercising any of their voting rights as they, in their discretion, see fit except where to do so would result in a breach of the Relationship Agreement; or (b) Labro or any of its associates from acquiring or disposing of securities of the Company (save to the extent otherwise required by law or regulation and subject always to the Articles, including (without limitation) regulation 19 thereof); or (c) the payment of any fees and/or expenses to any nominee director in respect of his or her services as a director in accordance with his/her appointment agreement as such.
|3. Take into account wider stakeholder needs and social responsibilities, and their implications for long-term success|
|The Group is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder groups. These include the Group’s shareholders, employees, suppliers, customers, regulators, industry bodies and creditors. Their feedback is gathered via meetings and conversations.
The Group’s operations and working methodologies take account of the need to balance the needs of all of these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Group for the benefit of its members as a whole. The Group endeavours to take account of feedback received from stakeholders, making amendments to working arrangements and operational plans where appropriate and where such amendments are consistent with the Group’s longer term strategy.
The Group takes due account of any impact that its activities may have on the environment and seeks to minimise this impact wherever possible. Through the various procedures, policies and systems it operates, the Group ensures full compliance with health and safety and environmental legislation relevant to its activities.
As an example, the Group’s behavioural change safety programs are geared toward returning employees to their families unharmed every day. Industry best environmental practices such as the design of the Tulkubash leach facility are bringing new standards and technology to the region.
The Group also works with local communities to ensure that its legacy is positive. Chaarat has provided training and support, for example, to multiple business start-ups in the Chatkal region of the Kyrgyz Republic where it is building the Tulkubash mine. The company employed 139 members of local communities in the Republic and sponsored medical and students in rural communities.
|4. Embed effective risk management, considering both opportunities and threats throughout the organisation|
|The non-executive directors are expected to satisfy themselves on the integrity of financial information and that financial controls and risk management systems are robust and defensible.
The Company’s directors oversee a number of committees and are laid out as per the below.
· The Audit committee.
The audit committee is a sub-committee of the Board and is established to increase shareholder confidence and the credibility and objectivity of published financial information, to assist the Board in meeting their financial reporting responsibilities, to strengthen the independent position of the Company’s external auditors by providing channels of communication between them and non-executive directors and to review the performance of the auditors (the “Audit Committee Objectives”).
The audit committee is appointed by the Board and shall comprise at least two independent non-executive directors of the Company (so far as possible) one of whom shall have recent and relevant financial experience. As at 28 September 2018, the audit committee comprises Richard Rae as chairman and Gordon Wylie, both of whom are non-executive directors and independent, and Richard Rae brings to the committee his knowledge and experience as a chartered accountant. Members of the Audit Committee shall serve for periods of up to three years which may be extended for two further three year periods provided the director remains independent. Meetings of the Audit Committee shall be held as required but not less than twice a year, at which a quorum is two members. Each member shall have one vote which may be cast only if the member attends the meeting. Members with a direct or indirect personal interest in the matters considered at the meeting shall not be permitted to vote. Save where he or she has a personal interest, the chair of the Audit Committee will have the casting vote.
In order to achieve the Audit Committee Objectives, the Audit Committee shall follow certain duties and terms of reference, which include: (A) monitoring the integrity of and reviewing the financial statements of the Company; (B) reviewing the Company’s interim and annual financial statements before submission to the Board for approval; (C) reviewing and challenging where necessary accounting policies, unusual transactions, disclosure in the Company’s financial reports and material information in financial statements; (D) where requested by the Board, reviewing the annual report and accounts; (E) reviewing internal controls and risk management systems; (F) reviewing arrangements for employees to raise concerns about possible wrongdoing; (G) considering and making recommendations to the Board regarding an internal audit function; (H) considering and making recommendations to the Board regarding the Company’s external auditor; (I) regularly meeting with the external auditor; (J) reviewing and approving the annual audit plan; (K) reviewing the finding of the audit; (L) reviewing any representation letter(s); (M) reviewing the management letter and management’s response to the auditor’s findings and recommendations; (N) developing and implementing a policy of the supply of non-audit services by the external auditor; (O) reporting formally to the Board on its proceedings; (P) making whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed; (Q) compiling a report to shareholders on its activities to be included in the Company’s annual report; and (R) considering such other matters as may be requested by the Board.
· The Remuneration committee.
The Remuneration Committee is a sub-committee of the Board and is established to achieve the Board’s aim to ensure that Company’s directors and senior executives are fairly rewarded for their individual contributions to the Company’s overall performance by determining their pay and prerequisites. The Board seeks to demonstrate to all shareholders that the remuneration of the senior executive members of the Company is set out by a committee of the Board who will give due regard to the interests of the shareholders and to the financial and commercial health of the Company (the “Remuneration Committee Objectives”).
The remuneration committee is appointed by the Board and shall comprise at least 2 independent non-executive directors of the Company (so far as possible). As at 28 September 2018, the remuneration committee comprises Richard Rae as chairman and Martin Wiwen-Nilsson, both of whom are non-executive directors and independent. Members of the Remuneration Committee shall serve for periods of up to three years which may be extended for two further three year periods provided the director remains independent. Meetings of the Remuneration Committee shall be held as required but not less than twice a year, at which a quorum is two members. Each member shall have one vote which may be cast only if the member attends the meeting. Members with a direct or indirect personal interest in the matters considered at the meeting shall not be permitted to vote. Save where he or she has a personal interest, the chair of the Remuneration Committee will have the casting vote.
In order to achieve the Remuneration Committee Objectives, the Remuneration Committee shall follow certain duties and terms of reference, which include: (A) agreeing the framework for the remuneration of the Company’s executive management; (B) ongoing review of the remuneration policy and the Company’s arrangements for its employees to raise concerns about possible wrongdoing; (C) approving all service contracts; (D) determining the policy for pension arrangements; (E) establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Remuneration Committee and to obtain reliable information about remuneration in other companies; and (F) making a report each year to the shareholders on behalf of the Board addressing, inter alia: directors’ remuneration, the Company’s general policy on executive remuneration, details of all elements of the directors’ remuneration package, information on share options, information on grants under executive share options, pension entitlements, information on annual bonuses, any service contracts which provide for, or imply notice periods in excess of one year and shareholdings and other relevant business interests and activities of the directors, which should continue to be disclosed as required in the the BVI Business Companies Act, 2004 (as amended from time to time) and the AIM Rules.
· The Nominations Committee.
The Nominations Committee is comprised of the entire Board of directors. The chairman of the Board reviews all proposed changes to the directors with regard to the balance of skills necessary to achieve the Company’s strategic objectives.
· Technical Committee
The Technical Committee reviews and provides input to all technical reports and provides guidance to senior management. The Technical Committee is comprised of Dorian Nicol as Chairman and Gordon Wylie.
· HSE and Community Committee
The health, safety, environment and community committee (the “HSE 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 HSE and Community Committee is comprised of the entire Board.
A comprehensive budgeting process is completed once a year and is reviewed and approved by the Board. The Group’s results, compared with the budget, are reported to the Board on a quarterly basis.
The Group maintains appropriate insurance cover in respect of actions taken against the directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis.
The senior management team meet at least weekly to consider new risks and opportunities presented to the Group, making recommendations to the Board and/or Audit Committee as appropriate.
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-executive directors has been invaluable in this regard. The Chairmen of the Audit Committee and Technical Committee are currently considering how best to divide the relevant risks between their two committees, given the increased complexity of the environment in which the Group is now operating, so that a full review is undertaken and effectiveness is ensured.
|5. Maintain the board as a well-functioning, balanced team led by the chair|
|The Board and the committees regularly receive information regarding the operations of the Group.
The Board comprises four executive directors and four non-executive directors. Three of the non-executive directors – – Martin Wiwen-Nilsson, Richard Rae, Gordon Wylie and Robert Edwards – are independent, which the Board believes to be an appropriate composition to maintain effective corporate governance.
Each director is expected to commit such time as is necessary to perform his duties as an officer of the Company and is expected to attend all Board meetings.
The directors have agreed to devote the following amount of time to the Group:
In some cases, directors’ current appointment arrangements are not fully documented in writing. Where this is the case, the Company is in the process of putting in place written agreements.
Pursuant to the Articles, at every AGM, one-third of the director (other than alternate directors and any managing director/chief executive officer) for the time being, or, if their number is not a multiple of 3, then such number as is appropriate to ensure that no director other than alternate directors and any managing director/chief executive officer holds office for more than 3 years, shall retire from office. The directors to retire at an AGM are those who have been longest in office since their last election, but, as between persons who became directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by drawing lots. A retiring director is eligible for re-election.
A biography of each of the directors is included on the Company’s website at https://www.chaarat.com/about/directors/
The table below shows the attendance of the directors at Board meetings during the year to 31 December 2017. Each Board and committee meeting must meet quorum requirements.
An update will be provided in respect of 2018 Board and Committee meeting attendance in the 2018 Annual Report.
|6. Ensure that between them, the directors have the necessary up-to-date experience, skills and capabilities|
|The Board of directors has relevant experience across the areas of mining, accounting and banking/finance.
The Board and the committees regularly receive information regarding the operations of the Group.
All directors retire by rotation at regular intervals in accordance with the Articles, as summarised in paragraph 5 above.
The Board regularly reviews the composition of the Board to ensure that it has the necessary breadth and depth of skills to support the ongoing development of the Group.
The Board ensures that the Group is compliant with relevant legislation and regulatory requirements, and seeks advice where appropriate from its legal advisers as regards its legal responsibilities.
The Company’s chief financial officer, Chris Eger, also acts as company secretary. This role is likely to be devolved in the near future to a newly-appointed legal director. The Company is currently at the later stages of recruiting for this position. The company secretary is responsible for ensuring the Company discharges its legal and statutory duties, and for ensuring that decisions of the Board are implemented.
Numis advises the Company with regards to its duties and obligations as a company whose Ordinary Shares are admitted to trading on AIM.
|7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement|
|Evaluation of the performance of the Board has historically been implemented in an informal manner. From 2018 however, the Board will formally review and consider the performance of each director at or around the time of publication of the Company’s annual report. The Board may utilise the results of the evaluation process when considering the adequacy of the composition of the Board and for succession planning.
The remuneration will be determined in accordance with the Articles. When determining executive director remuneration policy and practices, the Remuneration Committee takes account of the following (inter alia):
|8. Promote a corporate culture that is based on ethical values and behaviours|
|The Board believes that the promotion a corporate culture based on sound ethical values and behaviours is essential to maximise shareholder value.
The Company’s culture is consistent with its objectives, strategy and business model and is consistent with the Company’s objectives, strategy and business model.
To achieve this culture, the Board has established the HSE and Community Committee, referred to in paragraph 4 above, and the Group has adopted various health and safety policies. In addition, CZ has in place an anti-bribery and anti-corruption policy. The Company intends to put in place a Group-wide anti-bribery and anti-corruption policy to supplement CZ’s existing anti-bribery and anti-corruption policy.
|9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board|
|The Board has overall responsibility for promoting the success of the Group. The executive directors have day-to-day responsibility for the operational management of the Group’s activities. The non-executive directors are responsible for bringing independent and objective judgment to Board decisions.
There is a clear separation of the roles of Chief Executive Officer and Executive Chairman. The Executive Chairman is responsible for overseeing the running of the Board, ensuring that no individual or group dominates the Board’s decision-making and ensuring the non-executive directors are properly briefed on matters. The Executive Chairman has overall responsibility for corporate governance matters in the Group. The Chief Executive Officer has the responsibility for implementing the strategy of the Board and managing the day-to-day business activities of the Group.
Details of the Company’s corporate governance arrangements, including the committees established by the Board, are provided on this page. The Articles do not contain any matters for which unanimous approval of the directors is required (although any matter approved by written resolution of the Board requires the signature of all members of the Board). The Board considers the Group’s governance framework is appropriate and in line with its plans for growth.
|10. Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other stakeholders|
|The Board attaches great importance to providing shareholders and other stakeholders with clear and transparent information on the Company’s activities, strategy and financial position. The Group’s website is regularly updated.
As part of the Company’s AGM process, it releases the results of shareholder votes in a transparent fashion to all of the Company’s stakeholders.
In the event that a significant proportion of votes (i.e. 20% and above) have been cast against a resolution at any general meeting of the Company or AGM, the Company will include an explanation as to the actions it intends to take to understand the reasons behind that vote result, and, where appropriate, any different action it has taken, or will take, as a result.
The Group’s financial reports, and notices of General Meetings of the Company, can be found here: https://www.chaarat.com/investors/reports/
The Group’s Annual Report contains information about the Board as well as a Remuneration Report and statement of directors’ financial interests in the Group.
The Company intends to publish an Audit committee report within its next Annual Report.
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.