Corporate Governance for South African Mining Companies (a practitioner's view)

Corporate Governance
for
South African Mining Companies
(a practitioner's view)
James AH Campbell
Managing Director, Botswana Diamonds plc

2
Compliance & Reporting in the Minerals Industry
15th September 2023, University of the Witwatersrand (MINN7052A)
◆ Corporate governance
◆ The King IV Code
◆ Governance & directors' duties
◆ Corporate governance & ethics
◆ Integrated reporting
◆ The role of social media in public reporting
◆ Socially responsible investment and ESG investment
◆ Corporate governance rules and custodianship
◆ Corporate governance indices
◆ Juniors and corporate governance
◆ The Social License to Operate
◆ What if there were no (or limited) governance?
◆ Concluding remarks
Corporate Governance for South African Mining Companies
Compliance and Reporting in the Minerals Industry

What is Corporate Governance?
3

4
What is Corporate Governance?

5
Corporate Governance is …
◆ The structure of rules, practices, and processes used to direct and manage a company.
◆ The system by which an organisation is controlled and operates, and the mechanisms by which it,
and its people, are held to account.
◆ The combination of rules, processes or laws by which businesses are operated, regulated or
controlled.
◆ The processes through which corporations' objectives are set and pursued in the context of the
social, regulatory and market environment.
◆ The collection of mechanisms, processes and relations used by various parties to control and
operate a corporation.
◆ A set of relationships between a company’s management, its board, its shareholders and other
stakeholders.
◆ The structure through which the objectives of the company are set, and the means of attaining
those objectives and monitoring performance are determined.
◆ The framework of rules, relationships, systems and processes within and by which authority is
exercised and controlled in corporations.
◆ The process of controlling management and balancing interests of all stakeholders in order to
ensure responsible behaviour and achieve maximum efficiency and profitability

◆ A voluntary corporate governance code.
◆ Much simpler and shorter than King III.
◆ Report is easier to read and understand,
applicable to more types of organisations.
◆ Shift away from tick-box approach.
◆ Roles of the governing body clearly defined.
6
King IV (2017): summary
Sources: grantthornton.com; iodsa.co.za

◆ King IV is structured as a set of high-level governance principles, with practical
recommendations providing guidance on how to implement them.
◆ It is a framework to be adapted to each organisation’s circumstances.
◆ In King IV, good governance is defined as ethical and effective leadership that
achieves the governance outcomes of ethical leadership, good performance, effective
control and legitimacy.
◆ King IV covers:
– Composition and independence requirements for the board of directors.
– Committees that companies must have in place
– Composition and independence requirements for the committees.
– Rotation of board members.
– Company's remuneration policy.
– Group governance frameworks.
– Sector-specific recommendations that apply to Non-Profit Companies (‘NPCs’), pension
funds and State-Owned Enterprises (‘SOEs’).
◆ King IV asks companies to apply and explain, as opposed to apply or explain in King
III. Application is assumed; companies must explain how actions taken are helping
them achieve their strategic goals.
7
King IV: scope
Sources: deloitte.com; iodsa.co.za; thomsonreuters.com

◆ In South Africa, directors’ duties include the fiduciary duty to act in good faith and
for a proper purpose in the best interests of the company and to act with due care,
skill and diligence.
◆ Directors are expected to take a diligent and intelligent interest in the information
available to them, to understand that information, and apply an enquiring mind to the
responsibilities placed upon them.
◆ Business Judgment Rule: directors can defend their decisions if they are able to
demonstrate that they satisfied the obligations of acting in the best interests of the
company and with the required care of skill, in that they
– Took reasonably diligent steps to be informed about the matter and access the correct
information
– Had a rational basis to believe that their decision was in the best interests of the company at
the time
– Had no personal financial interest in the matter.
◆ All directors, be they non-executive or independent non-executive, are required to
always act in the best interest of the company, and this can only be achieved if
directors set aside their personal interest.
8
Governance & the Duties of Directors
Sources: deloitte.com; iodsa.co.za

Typical ‘conflicts’:
◆ Pressure to meet unrealistic
objectives and deadlines.
◆ Increase in acute competition.
◆ Economic greed.
◆ Pressure to earn profits.
◆ Lack of management support.
◆ Poor leadership.
9
Corporate Governance & Ethics
Sources: Saaidakh, Kaplan Financial Knowledge Bank
There are several reasons why businesses should act ethically . ... Corporate
Governance represents the moral framework, the ethical framework and the
value framework under which an enterprise takes decisions. In the long run
ethical behavior has a positive impact on the company's performance

Is Compliance Enough?
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◆ Integrated Reporting (IR) involves reporting both financial and non-financial, and
environmental, social and governance information in a single document.
◆ “A concise communication about how the organisation’s strategy, governance,
performance and prospects […] lead to the creation of value […]” (IIRC)
◆ Companies are expected to report meaningfully on board leadership and governance
and explain how these contribute to long-term success.
Integrated Reporting
Sources: corpgov.law.harvard.edu/; deloitte.com; financialmutuals.org; slideshare.net

12
The Role of Social Media in Public Reporting
◆ Social media platforms are used by one in
three people in the world, and more than
two-thirds of all internet users.
◆ Audiences today expect concise, relevant
and visually engaging information.
◆ Social media allow companies to share
information quickly and widely.
◆ Social media offer direct engagement with
specific communities.
◆ Companies are able to select the social
media platforms that are most relevant to
their target audience.
◆ Their story must be consistent across all
channels.

13
The Role of Social Media in Public Reporting
Live updates; visual data; thought leadership; social responsibility…authenticity!

What do Investors look for?
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◆ Socially Responsible Investment (‘SRI’) began as a way of rejecting
investments in products that conflicted with personal belief systems or
social, moral, or ethical values
◆ A prime example were the sanctions imposed against Apartheid South Africa
in the 1960s, eventually leading to institutional and legislative change
Sustainable Investment
Socially Responsible Investment
◆ The concept of SRI evolved into the “Triple Bottom Line” in the 1990s
and gained further momentum following the launch in 2005 of the UN
Principles for Responsible Investment (‘PRI’)
◆ SRI has evolved into an investing strategy that proactively makes
investments in companies that are creating a positive impact
“The aims of this group (De Beers) have been - and will remain - to earn profits, but
to earn them in such a way as to make a real and permanent contribution to the well-
being of the people and to the development of Southern Africa”
Ernest Oppenheimer (c.1920)

16
◆ Since the early 1900s socially responsible investors have typically avoided investing in
tobacco, alcohol, gambling and weaponry.
◆ SRI began in the 1960’s US as a way of rejecting investments in products that conflicted
with personal belief systems or social, moral, or ethical values.
◆ Socially responsible investors began contributing to civil rights, women’s rights and anti-war
movements, effectively voting with their investment.
◆ The protest divestment from apartheid South Africa in the 1970-80s
(a prime example of negative screening) ultimately led to institutional
and legislative change.
Socially Responsible Investment
Sources: corporatefinanceinstitute.com; investopedia.com; medium.com
“ A good head and good heart are always a formidable combination. But when you
add to that a literate tongue or pen, then you have something very special.”
Nelson Mandela

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ESG Investment - 1
Environmental, Social and Governance (‘ESG’) Investment soaring
◆ Prioritisation of ESG factors means that returns are no longer the
singular goal of investment.
◆ However, ethically motivated investments should not sacrifice
profits: ‘good’ companies can perform well.
◆ ESG criteria believed to reduce investment risks.
◆ Most ESG investors are relatively new (< 10 years).
◆ Investments in ESG products rose by 140% in 2020.
◆ Strong growth anticipated in 2021 and beyond.
Sources: investopedia.com; medium.com; moodys.com
?

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ESG Investment - 2
ESG is new standard for investment by Millennials
◆ Millennials like to take moral
ownership of whom they
invest with and how.
◆ Easy access to a variety of
investment information is a
luxury that was not readily
available to older generations.
◆ Generation X investors also
want to invest in ways that
align with their values.
◆ Millennials account for 23% of
the global population.
◆ By 2025 Millennials will
represent 75% of the global
workforce.
Sources: investopedia.com; janushenderson.com; moodys.com; nasdaq.com

19
ESG & Market Performance
Sustainability drives market value
Would you…
◆ …invest in a company with an inexperienced board?
◆ …consider investing in a mining company that is not serious about rehabilitating?
◆ …invest in an exploration company that neglects its relationships with local communities?

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New Trend: Impact Investment
Impact investing is characterised by a direct connection between values-based
priorities and the use of investors' capital. These funds not only report on
financial performance, but they also try to generate and quantify a positive
societal impact.
Typical areas:
◆ Healthcare
◆ Education
◆ Agriculture
◆ Energy
Sources: kliplonger.com, bnpparibas.com, ivestopedia.com
“Impact investing is part of a growing trend of socially responsible practices that seek to reduce some
of the negative consequences of traditional business activities. By supporting companies and
industries in worthwhile causes, impact investing can produce social or environmental benefits while
also earning a profit”.

Corporate Governance
&
Stock Exchanges
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Corporate Governance Rules
Modified after Ching & Tardelli, 2015
Governance Rules NYSE London TSX NM (Brazil)
Board Membership
Criteria
Based on Merit
Chairman - CEO
Separation
Mandatory Mandatory
Board Size Sufficient At least 5
Mix of Inside and
Outside Directors
Majority
outsiders
Chairman should be
independent
Min 20%
outsiders
Term Limits 1 year 2 years
Number of Committees 3 Audit
Nominating
Remuneration
Committee Structure Audit: min 3 Audit: 3
Remuneration: 3
Independence of
Committees
Entirely
outsiders
Audit: Entirely independent
Remuneration: Entirely
independent
Nominating: Majority
independent
Formal Evaluation of
CEO
CompCom
review and
approve
RemCom recommendations Disclosed
Executive
Compensation
CompCom
recommendatio
ns
RemCom recommendations Disclosed

23
Corporate Governance Custodianship
In South Africa
◆ The Institute of Directors (‘IoDSA’) is
the custodian of CG codes.
◆ The Companies and Intellectual
Property Commission (‘CIPC’) is
responsible for company law CG
requirements, such as the functioning
and composition of the audit
committee.
◆ The Financial Sector Conduct Authority
(‘FSCA’) is the financial institutions
regulator
◆ The Johannesburg Stock Exchange
(‘JSE’) enforces stock exchange listing
requirements.
Source: OECD

24
Corporate Governance Indices (‘CGIs’)
Sources: World Bank, IFC
◆ Common weaknesses in governance frameworks are among the
reasons behind the creation of CGIs and ESGIs. These include lack of
shareholder protection, poor corporate disclosure, weak requirements
for independent directors.
◆ There is general acceptance that governance indices can be a useful
tool for raising both standards in companies and awareness among
investors.
◆ Clear and transparent inclusion criteria allow investors to understand
what the index delivers.
◆ Indices can supplement the regulatory framework around governance
by providing companies with an incentive to adopt better practices.
◆ Companies have the opportunity to differentiate themselves in the
market, as well as the possibility of tapping into a pool of money
committed to good governance and sustainability.

25
CGIs in Selected Stock Exchanges
Sources: World Bank, IFC
◆ Stock exchanges use
different approaches to
build indices incorporating
corporate governance.
There are however
common criteria, chiefly
separation of power and
independence of directors.
◆ Benchmark criteria and
rating methodology are
generally set by the stock
exchange, while the
evaluation is often
outsourced (to avoid
conflicts of interest).

26
The JSE Socially Responsible Index
Compliance and Reporting in the Minerals Industry Sources: IFC, JSE, World Bank
◆ The JSE introduced the annual Socially
Responsible Investment Index (‘SRI’) in 2004
◆ The JSE SRI was the first index of its kind in
an emerging market.
◆ The SRI created awareness of corporate
citizenship and gave exposure to
sustainability issues within firms
◆ In 2015 the JSE terminated the SRI index and
launched two new SRI indices:
– The FTSE/JSE Responsible Investment
Index ( J113): market-cap weighted
index calculated on an end of day basis -
benchmark
– The FTSE/JSE Responsible Investment
Top 30 Index (J110): equally weighted
index calculated on a real time basis -
tradable

27
The FTSE/JSE Responsible Investment Index
Compliance and Reporting in the Minerals Industry Source: jse.co.za
◆ In 2015 the JSE partnered with global index provider FTSE Russel and adopted global
ESG measures.
◆ On average, 125 ESG rating indicators (out of 300) are applied per company.

28
Juniors & Corporate Governance
Source: africanmining.co.za; mining.com
◆ The social license to operate remains one of the main risks facing mining
companies.
◆ Juniors may not have the resources to spend on compliance that the majors
have, however it is critical that they effectively implement processes that
promote good governance.
◆ A good governance framework enable junior miners to demonstrate their
long-term sustainability and attract investors.
◆ This is particularly relevant to South African junior miners who, unlike their
Australian and Canadian counterparts, aspire to become larger mining
companies.
◆ Too often there is a gap between stated objectives and what actually
happens on the ground.
◆ Without demonstrated sustainability performance and active relationships
with local stakeholders, the social license to operate is rapidly eroded.

29
Social License to Operate
Source: socialsurveys.co.za
Social Licence to Operate is a term usually used to refer to the level
of acceptance or approval by local communities and stakeholders of
mining companies and their operations
Multi-faceted
◆ Safety management
◆ Health (wellness)
◆ Managing environmental impact
◆ Job creation
◆ Training and development
◆ Women in Mining (‘WIM’)
◆ Corporate Social Investment (‘CSI’)
◆ Local economic development
◆ Black Economic Empowerment (‘BEE’)

30
Corporate Governance & Reporting for
AIM quoted Companies
The QCA Code for small/mid-size companies London AIM and regulatory framework
Deliver growth
• Strategy and business model promoting long-
term value
• Meeting shareholder needs and expectations
and social responsibilities
• Effective risk management.
Maintain a dynamic management framework
• A well-functioning, performing board
• Experienced and capable directors
• Corporate culture based on ethical values and
behaviours
• Fit-for-purpose governance structures and
processes
Build trust
• Communicate how the company is governed
and is performing
• Ongoing dialogue with shareholders and
stakeholders.
• AIM Rules framework
• Assessing companies, boards, and
shareholder suitability
• Ongoing obligations to maintain market
integrity
• Nominated Adviser (‘NOMAD’) guidance
through the governance mosaic
• Minerals companies guidance underpins
compliance with international mining codes
• Boards must adopt and report against a
recognised governance code i.e. QCA
• Reflected in AIM disclosure framework:
• Historic - AIM Rule 26 website
• Current - continuous disclosure
• Future - inside information and
market expectations
• Regime supported by Market Abuse
Regulations
Sources: aimlisting.co.uk, lexisnexis.com, theqca.com, Beaumont Cornish

What if there was no (or limited)
Governance?
31

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Sources: investopedia.com; thoughtco.com; insch.world; mining.com
Bre-X: too good to be true!
◆ Bre-X Minerals, a Canadian mining
company founded in 1989, was on the
verge of bankruptcy in 1993.
◆ Two years after acquiring mining rights in
Busang, Borneo, Bre-X had become a Wall
Street favourite, reaching a $4BN market
cap.
◆ Gold majors began fighting over the
project.
◆ A due diligence by Freeport McMoRan
exposed the fraud in 1997.
◆ Bre-X’s project manager had been ‘salting’
core samples with gold from other sources
(including shavings from his wedding ring).
◆ The Bre-X scandal cast a dark cloud over
the gold mining industry, prompting
reforms to Canadian mining regulations.

33
Source: v-comply.com
Enron: corporate culture of greed & fraud

34
Worldcom: reckless growth strategy

35
Source: famousaccountingscandals.blogspot.in
Lehman Bros: dysfunctional board

36
Sources: Paul Miller, LinkedIn
Jagersfontein - 1
◆ Mine opened in 1870.
◆ Operated by De Beers from 1940-71.
◆ Mine de-proclaimed in 1973.
◆ Mine sold to a consortium made-up of
SuperKolong, Sonop and Reinet in 2010
to process the dumps.
◆ Sold in April 2022 to Stargems for €20M.
◆ Slimes dam failure of 11 September 2022
occurred under Stargems ownership BUT
the dam was chiefly built by the previous
operators.
◆ 2009 judgement stated that the MPRDA
did not apply to historic dumps so OHSA
and NEMA applied and not MHSA.

37
Sources: Dr Luis Torres-Cruz, LinkedIn; Richard Spoor, Twitter
Jagersfontein - 2
Discussion or possible
‘failure’ points
◆ Should the MHSA have
been applied post the
2009 ruling?
◆ Monitoring by the
relevant authorities?
◆ Alleged negative
SRK report?
◆ Possible corruption?
◆ Public reporting by
Reinet?
◆ Due diligence by
Stargems?
◆ Technical design and/or
operation?
Massive difference between public & private reporting!

38
Source: dailymaverick.com
Need we say anything?

39
◆ Corporate profits are no longer the sole measure of a company’s success.
◆ Companies are expected to report regularly and meaningfully on ESG factors.
◆ Today’s investors favour companies that consider stakeholder returns and have a
positive impact.
◆ Increased scrutiny of sustainability and governance information by discerning
audiences is forcing companies to “walk the talk”.
◆ Many smaller companies have a real commitment to their people, local
communities and the environment but they often fail to clearly communicate this.
◆ Informed, discerning investors are able to differentiate between authentic
companies and “broadcasters”.
◆ Integrated Reporting of transparent and quality information leads to greater value
creation.
◆ Contraventions of voluntary codes of governance such as King carry social and
market related sanctions and may trigger legal consequences.
◆ A “social license to operate” is key to unlocking sustainable and broad-based value
creation in the mining sector.
Concluding remarks

Thank You
&
Questions / Discussion
40

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◆ James Campbell is Managing Director of Botswana Diamonds plc (a diamond
development company active in Botswana, South Africa and Zimbabwe and listed on
London AIM and the Botswana Stock Exchange). He has spent over thirty-five years in
the diamond industry in a variety of leadership roles both in major and junior
companies.
◆ Previous roles include Non-Executive Director of Shefa Gems (where he is still Technical
Advisor); Chief Executive Officer and President of Rockwell Diamonds Inc; Non-Executive
Director of Stellar Diamonds plc; Vice President - New Business for Lucara Diamond
Corp, Managing Director of African Diamonds plc; Executive Deputy Chairman of West
African Diamonds plc and Director of Swala Resources plc and Bugeco sa.
◆ James also worked at De Beers for over twenty years; his roles included General
Manager for Advanced Exploration and Resource Delivery and the Executive Chairman
Nicky Oppenheimer’s first Personal Assistant.
◆ James holds degrees in Mining and Exploration Geology from the Royal School of Mines
(Imperial College, London University) and an MBA with distinction (and top student
prize) from Durham University. He is a Fellow of the Geological Society of South Africa,
Institute of Mining, Metallurgy and Materials, South African Institute of Mining and
Metallurgy and Institute of Directors of South Africa. He is also a Chartered Engineer
(UK), Chartered Scientist (UK) and a Professional Natural Scientist (RSA).
◆ James is also chairman and founding director of Common Purpose South Africa NPC (a
not-for-profit organization that develops leaders who cross boundaries and is
synonymous with the terms ‘cultural intelligence’ and ‘leadership beyond authority’).
CPSA celebrated its twentieth anniversary in 2020. He was also a director, trustee and
chairman of the Joburg Ballet for almost fifteen years.
About the author
https://twitter.com/JAHC1
https://www.linkedin.com/in/jamesahcampbell/
https://www.slideshare.net/JamesAHCampbell1
https://www.youtube.com/JamesCampbell_JAHC

42
162 Clontarf Road
Clontarf
Dublin 3
Ph: +27 83 457 3724
Web: www.botswanadiamonds.co.uk
Twitter: @BotswanaDiamond
Email: james@botswanadiamonds.co.uk

Corporate Governance for South African Mining Companies (a practitioner's view)

Corporate Governance for South African Mining Companies (a practitioner's view)

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