Corporate Governance

Chairman’s Introduction

We see high standards in corporate governance as the key to directing the business to ongoing success. This ethos is fundamental to the Company’s aim of building and sustaining value for shareholders over the long term.

Given the size and nature of Central Asia Metals Plc (“the Company”) or “CAML” the Board has adopted and applies the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies (the “QCA Code”) and has incorporated a set of robust principles based on its guidelines into our corporate governance procedures. The Directors believe this reinforces the strong corporate governance systems and processes that are vital in building a successful business, maximising long-term value for our shareholders and other stakeholders, and maintaining the high standards that we set for ourselves.

In structuring its governance framework, CAML takes guidance from the principles of the QCA Code. The Board is supported by four Committees, specifically the Audit, Remuneration, Nomination and Sustainability Committees. These standing Committees focus on the four areas of the Group’s operation which the Board views as having key importance to the Group’s shareholders and other stakeholders.

Our governance arrangements are summarised below:

1. A strong independent representation on the Board with five independent Non-Executive Directors.
2. An Audit Committee consisting of three independent Non-Executive Directors and led by David Swan as its Chairman.
3. A Remuneration Committee led by Robert Cathery comprising solely independent Non-Executive Directors.
4. A Nomination Committee with myself, Nick Clarke, as its Chairman and five Non-Executive Directors as members.

Although not a QCA Code requirement, we also have a Sustainability Committee (previously named Corporate Social Responsibility Committee), chaired by our newest Board member, Dr Gillian Davidson. This Committee comprises Executive and Non-Executive Directors and closely involves members of the senior management team. The Sustainability Committee enables us to maintain our strong focus on our people, their health and safety, environmental matters and the communities in which we operate.

The QCA Code consists of ten principles that promote medium to long-term value for shareholders building on the enterprising spirit in which CAML was created and continues to operate today. The ways in which CAML has applied the QCA Code are detailed below and annual updates on our compliance with the QCA Code will be provided.

Nick Clarke
Chairman

Deliver Growth

Principle 1. Establish a strategy and business model which promote long-term value for shareholders

The Board works as a cohesive team paying keen attention to the Company’s purpose and strategy of long-term growth for shareholders.

The Company generates value for its shareholders through the mining and extraction of saleable metal products at its two sites, Kounrad, the copper operation based in Kazakhstan and at Sasa, the zinc, lead and silver mine based in North Macedonia. The Company also seeks to generate value through the identification of accretive business development opportunities.

In 2017, the Company’s acquisition of the Sasa zinc and lead mine in North Macedonia saw the Group move into the future as a diversified and low-cost producer of three base metals, essential for modern living. During 2018, the Company focused on the effective and successful integration of the Sasa operation into the business and during the course of that year, demonstrated value accretion in terms of earnings per share as a result of the Sasa acquisition.

In 2019, the Company focused on maximising value from Sasa and Kounrad and believes that this has been achieved to date. Operations will continue to be optimised going forward with a focus on maintaining low cash costs of operation and undertaking the required capital programmes to ensure safe and sustainable operations for the long term. Kounrad 2019 copper production exceeded guidance and Sasa 2019 production was delivered at the top end of the guidance range for zinc and lead. In addition, the Company has delivered another year of strong profits and cash flow, and also deleveraged its balance sheet.

Our aim is to strike the right balance for our shareholders in terms of capital allocation. Reducing debt and continuing to pay the sector leading dividends, for which the Company has become known, is a priority, yet we remain mindful of the challenges of our scale and liquidity so keep a watchful eye on potential growth opportunities. The Company has delivered shareholder returns of $176 million since 2012.

At Kounrad, there are approximately 155,000 tonnes of recoverable copper, which should ensure a life of operation to 2034. Sasa has probable reserves and inferred resources to support an 18-year life of mine.

A summary of the Company’s strategic objectives can be found on page 11 of the 2019 Annual Report.

Principle 2. Seek to understand and meet shareholder needs and expectations

The Board is cognisant of the expectations of all elements of the Company’s shareholder base. We have embedded into our culture as a Group that maintaining a continual, open and active dialogue with our shareholders and other stakeholders plays an essential part in understanding their views and ensuring the long-term success of the Company.
Whilst most contact with the Company’s institutional investors is with the Executive Directors and the Director of Corporate Relations, valuable feedback from shareholders is also communicated to, and discussed with, the other Board members. The Board as a whole recognises that the views of our investors should be considered as an important part of the Board’s deliberations and decision-making processes as the Board has a duty to safeguard the interests of all stakeholders. The other Directors are also available to meet with investors where requested and all shareholders also have the opportunity to attend and ask questions at the Company’s Annual General Meeting. The Board welcomes the opportunity to understand the motivations behind voting decisions, as well as the ongoing feedback from our shareholders and other stakeholders, as this plays an important part in ensuring our long-term success.

Material information in relation to the Company is made publicly available via the London Stock Exchange’s Regulatory News Service (RNS). Presentations on our full year and interim results are given to analysts and investors shortly after publication.

Where appropriate, we engage with our key shareholders on specific governance matters. Details of this, and our other stakeholder engagement activities during 2019, are set out in the table on page 57 of the 2019 Annual Report.

Principle 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success

The Board seeks to build good relationships with stakeholders including workforce, local communities, investors, supply chain and customers, NGOs and governments and continuously aims to understand their needs, interests and expectations recognising this plays an essential part in ensuring the long-term success of the Company.

The Board receives reports of views expressed by shareholders and the Directors meet with shareholders and stakeholders, including workforce representatives, community leaders and government officials where appropriate. Feedback is welcomed, considered and where appropriate acted upon. Board members are also available to answer shareholder questions at the Annual General Meeting and at other times whenever required.

During 2019, the Chairman and the Chairman of the Remuneration Committee engaged with shareholders on governance matters through a governance roadshow. Further details of this, and other stakeholder engagement activities during 2019 are set out on p57 of the 2019 Annual Report.

The Company takes sustainability very seriously, and in 2012, established a Corporate Social Responsibility ‘CSR’) Committee to specifically focus on this area in recognition of the importance of these activities deemed by the Company to be fundamental in the operation of a sustainable and ethical business. To reflect the ever-increasing focus on sustainability matters throughout the Group, the CSR Committee was re-named the Sustainability Committee in late 2019. Following an ESG roadshow and shareholder feedback, a separate Sustainability Report was also produced for the 2019 financial year to enhance reporting and disclosure in this area of critical importance, available here: Sustainability Report.

This Sustainability Committee comprises Executive and Non-Executive Directors: Dr Gillian Davidson (Chair), Roger Davey and Nigel Robinson from the UK and Nurlan Zhakupov from Kazakhstan. This ensures a full breadth of perspectives are brought to the Committee’s important and varied activities.

Given the importance that the Board places in this area, the Sustainability Committee meets on a regular basis throughout the year, usually on the same day as Board meetings. The Sustainability Committee supports the Board in ensuring that its strong sustainability foundations are integrated into the Company’s strategy. It considers and regularly reports to the Board in relation to ethical matters, such as, health and safety, environmental matters and local community projects where CAML places a strong focus on health and education in partnership with local organisations.

The Committee also receives presentations from members of operational management as appropriate and the Sustainability Committee liaises closely with the Sustainability Director to ensure that the Board is updated on matters from every meeting.

As a Company, our priority is to continue to focus on the ongoing partnership with the community and on our efforts to minimise the impact to the environment in which we operate. We believe that the health and safety of our employees and contractors, protecting the environment, and supporting local communities are critically important matters which are embedded into our business model. These areas will continue to receive the appropriate attention from the Sustainability Committee and from the Group as a whole.

A more detailed summary of sustainability matters in the Group is given on pages 30 to 33 and page 48 of the 2019 Annual Report and as mentioned above, in our separate Sustainability Report.

Principle 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Board has ultimate responsibility for risk management and, with the assistance of the Audit Committee, identifies and monitors risk.
In addition, Group staff also have a role to play in the implementation of policies and procedures aligned to mitigate and manage risk. The Risk Committee consists of senior staff and is responsible for the development of risk management policies and procedures, the identification, analysis, mitigation and review of the risks to the business. The criteria against which a risk is assessed has been established by the Group, so that a standardised assessment can be obtained. Risks are assessed against the likelihood of the risk event occurring and the impact and severity of the risk event. Using this assessment, risks are then categorised into a priority level, so that the appropriate actions can be taken. The Risk Committee reports into the Audit Committee. It is the Audit Committee’s responsibility to review those risks which are high in both consequence and likelihood of occurrence. The Audit Committee will consider the Risk Committee’s management of these risks and report its conclusions to the Board of Directors.

Audit Committee representatives work closely with Risk Committee members to monitor progress towards an efficient and effective management of the risks which are relevant to the Group’s business. Where applicable, the Audit Committee will ensure the annual audit plan appropriately tests the compliance of risk mitigation procedures.

Further details on how the Board identifies risk and considers its risk tolerance and risk appetite can be found on pages 42-46 of the 2019 Annual Report under ‘Identifying and Managing Risks’.

In conjunction with Risk Management, the Audit Committee also monitors and reviews the effectiveness of the Group’s internal control systems. Key elements within the internal control structure are summarised as follows:

• The Board and management – the executive members of the Board are responsible for overseeing the day-to-day management of the Company.
• Budgeting – there is an annual budgeting process whereby budgets for each upcoming financial year are reviewed by the Audit Committee and recommended to the full Board.
• Long-term forecasts and underlying assumptions – the Audit Committee ensures these are properly reported to, and reviewed by, the Board on a regular basis.
• Management reporting – the financial performance of the Group is monitored against budget on a monthly basis and reported to the Board at each main Board meeting.
• Operating controls – such controls are in accordance with Group policies and include management authorisation processes.
• Monitoring – the effectiveness of the system of internal control is monitored regularly through internal reviews and external audits by both auditors and other consultants as required.

Maintain a Dynamic Management Framework

Principle 5. Maintain the board as a well-functioning, balanced team led by the chair

The Board of Directors, led by the Chairman, Nick Clarke, defines the purpose of the Company, and makes key decisions about strategy, financial planning, review of financial performance, setting the cultural tone for the Group, its Directors and its operations. The Board considers this role as critical to leading the Group to maximise success in its business, and to the Company in delivering value to shareholders and other stakeholders. The Board also recognises that it has a collective responsibility and legal obligation to promote the interests of the Company, including being collectively responsible for defining corporate governance arrangements.

The Chairman leads on governance matters actively seeking input from the Deputy Chairman where appropriate.

We have a diverse Board, constituted as follows:

• Non-Executive Chairman, Nick Clarke
• Two Executive Directors: Nigel Robinson and Gavin Ferrar.
• Six Non-Executive Directors.
• Five are considered fully independent: Nigel Hurst-Brown, Robert Cathery, Gillian Davidson, David Swan, and Roger Davey.
• Nurlan Zhakupov, based in Kazakhstan, has received share awards from the Company and is therefore not considered fully independent.
• Our Board offers a wealth of expertise and wide range of experience in the mining industry, in financial and operational aspects of businesses, in public markets and in operating across different geographies around the world.

During the year, the Board considered the independence of each Director, including assessment of their character, judgement and business and any other relationships which could materially interfere with the exercise of their judgement or their ability to effectively discharge their duties. In line with the QCA Code, the independence of each of the Non-Executive Directors who serve on the Board was also reviewed. As part of this assessment, length of tenure was also considered. The Board considers that length of tenure alone is not necessarily a compromise to independence and is satisfied that the independence of none of the Non-Executive Directors has been compromised by this. As such, after taking account of all of these factors, the Board continues to consider Nigel Hurst-Brown, Robert Cathery, Roger Davey and David Swan to be independent Directors. Dr Gillian Davidson, who was appointed at the end of 2019, is also considered to be fully independent.

The Board believes the addition of Dr Gillian Davidson as a new Independent Non-Executive Director along with our existing independent Board members, our other Non-Executive Director, Nurlan Zhakupov, and our Executive Directors provides an excellent balance of views, skills, personal qualities and depth of experience within the Board.

All Directors devote ample time in order to discharge their duties both at and outside of Board meetings. Board and committee meetings normally take place over the course of a whole day in London. A special two-day meeting was held in July 2019 to give additional focus to strategic matters in the Group and was attended by operational management from both Sasa and Kounrad. In addition, Non-Executive as well as Executive Directors visit the Group’s operations when opportunities to do so arise. Details of Directors’ attendance at each of the scheduled meetings of the Board and its Committees for the 2019 financial year can be found in the Board Report on page 55 of the 2019 Annual Report.

The Board is well briefed in advance of meetings and receives high-quality, comprehensive reports to ensure matters can be given thorough consideration. There is an appropriate balance of influence within the Board which, as a result, is not dominated by one person or group of individuals. The Independent Non-Executive Directors constructively challenge the Executive Directors and the resulting Board debates are always robust and sometimes lively. The open and direct forum for discussion ensures the deliberations during meetings lead to decisions reached by the Board collectively in alignment with the core values of the Company.

In line with the QCA Code and as already mentioned, the Board is supported by Committees, specifically, Audit, Sustainability, Nomination and Remuneration Committees covering four of the areas of the Group’s operation which the Board views as having key importance to the Group’s stakeholders. Each of these Committees has their own terms of reference which provide the necessary authorities for them to operate as they consider appropriate. Each of these Committees reports to the Board and provides great value to its effectiveness.

Principle 6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities

The Board is comprised of a diverse group of experienced Directors, both from the UK and abroad, each with a wealth of expertise and a depth of knowledge. Many have worked across a variety of jurisdictions and have extensive business and financial experience in the sector in which the Group operates. This ensures that each member of the Board is able to fully contribute to the effectiveness of the Board as a whole and in doing so, has collective responsibility for, and participation in, its decision making. We believe this leads to better performance, sustainable growth and value in the business for its shareholders and other stakeholders in the long term.

The Board has an appropriate balance of skills and draws on each Director’s unique skillset and wide range of experience in the mining industry, financial and operational aspects of businesses, public markets and of different geographies around the world. For further information on the key strengths, composition and diversity of the Board, see pages 54, 55 and 60 respectively of the 2019 Annual Report.

Biographical details of the Directors on the Board can be found here: About – Directors and on pages 52-53 of the 2019 Annual Report.

On appointment to the Board, a new Director receives a comprehensive induction to familiarise themselves with the Company and its business. All Directors have unrestricted access to, and receive briefings from, management which enables them to keep abreast of latest developments.

All Directors on the Board also have access to the Company Secretary who acts as secretary of the Board and its Committees, reporting directly to the respective Chairs in ensuring appropriate governance procedures are followed.

All Directors are also able to seek advice from the Company’s external advisors if they wish. The roles of the Auditors and Remuneration advisors are explained in more detail in the Audit and Remuneration Committee Reports on pages 58-59 and pages 62-69 respectively of the 2019 Annual Report.

Principle 7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement

In line with the QCA code, and following on from our first internal effectiveness review carried out in 2018, the Nomination Committee, led by Nick Clarke as Chairman, completed a further internal evaluation of the effectiveness of the Board as a unit, its Committees and of the individual Directors. In doing so, we have also taken into account the outcomes of last year’s review. The areas of focus arising from the 2018 evaluation and actions taken in response to these are shown in the table below:

The 2019 evaluation of the Board’s effectiveness was again facilitated by the Company Secretary and followed a similar format to that of the previous year, commencing with the completion of a confidential questionnaire by each Director. The assessment of the Chairman’s performance was led by the Deputy Chairman, Nigel Hurst-Brown and responses on this section were discussed with the other Non-Executive Directors. In line with the QCA Code, the Board’s review of performance was based on clear and relevant objectives, seeking continuous improvement.

The questionnaire was structured to encourage thorough feedback which was then reported, on an unattributable basis, to the Board who reviewed, discussed and drew conclusions and actions from this. The questionnaire covered the following areas:

• Strategy
• Shareholders
• Stakeholders
• Risk Management
• Board Dynamics
• Succession Planning
• Individual Directors
• The Chairman
• Audit Committee
• Remuneration Committee
• Sustainability Committee
• Nomination Committee
• The Chairman
• Any other matters Directors wished to raise

As a result of the assessment, areas identified for focus over the coming year included:

• Continued development of clear long-term strategy;
• Continued enhancement of activities in relation to stakeholders;
• Ongoing development of risk management; and
• Succession planning for the Board over the coming years.

The periodical refreshment of the Board is considered regularly and on an ongoing basis by the Nomination Committee. Consideration is also given to contingency planning for unexpected changes in addition to those being planned for the longer term. The Board evaluates and keeps under review its composition and balance of skills and experience, in particular with regard to the emerging trends and key areas of focus in the sector in which the Group operates. The Nomination Committee will make recommendations to the Board regarding the appointment and re-election of Directors and the membership of the Board’s Committees. The Board continues to be pro-active in the process of succession planning as this is considered a vital part of the Board’s role in the ongoing plans for growth and innovation for the Group.

Principle 8. Promote a corporate culture that is based on ethical values and behaviours

Commitment to good corporate governance in the boardroom is just one part of setting and maintaining an appropriate culture that aligns with our strategic goals and values. The Board and its Committees set the tone for and promote a healthy culture of openness, honesty, engagement and respect throughout the Group and with all of its stakeholders. The Board welcomes an open dialogue with all stakeholders, be they investors, employees, governmental authorities or local communities. Decisions made by the Board collectively, supported by management, are taken in the context of this shared sense of purpose that comes with the continuous focus on culture throughout the Group’s operations. We highlight the importance of communication and the flow of information throughout the Group to ensure consistency in our procedures. We also maintain strong internal policies including those relating to anti-bribery, modern slavery, human rights, share-dealing, trade sanctions and whistleblowing which are implemented by our teams. These policies are available here: Company Policies. The Board promotes the corporate culture of the Group with the support of the Sustainability Committee.

Principle 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board

As well as the Chairman and two Executive Directors, there are five independent Non-Executive Directors and one Non-Independent Non-Executive Director on the Board. In line with the QCA Code, the Board is supported by an Audit Committee, Nomination Committee and Remuneration Committee. Although not a QCA Code requirement, the Company’s governance structure also includes a Sustainability Committee. Further details on the roles of each of these Committees are set out in the Governance Report commencing on page 48 of the 2019 Annual Report.

The Board takes corporate governance very seriously and is committed to ensuring that its procedures are robust, kept up to date and appropriate for a company of its size. The Board reviews its procedures periodically to ensure that they evolve as the business grows. The Board’s Committees assist the Board in ensuring the relevant level of focus on their specific areas of responsibility and each have their own terms of reference which provide the necessary authorities for them to operate as they consider appropriate. The terms of reference for each of the Committees are available here: Committees.

Build Trust

Principle 10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

As explained under Principles 2 and 8 above, we have embedded into our culture as a Group that maintaining a continual, open and active dialogue with all of our shareholders and other stakeholders plays an essential part in the Company’s communications, reporting and governance structures. See pages 56-57 of the 2019 Annual Report for details on our shareholder engagement and activities in this area during the year. All shareholders also have the opportunity to attend and ask questions at the Company’s Annual General Meeting. In addition, our Director of Corporate Relations assists in shareholder interaction at the AGM and at other times.

Other stakeholder matters are overseen by a specific Sustainability Committee as described in the principles mentioned above. Further details of the activities of the Sustainability Committee and of the other Board Committees can be found in the Governance Report commencing on page 48 of the 2019 Annual Report.

Historical annual reports and notices of general meetings can be found here: Reports and Presentations.

Updated 14 August 2020