for the year ended 31 December 2006
This section of the annual report provides a description of how the company has applied the principles set out in Section 1 of the 2003 Combined Code. Except as noted below, the company has complied with the provisions set out in Section 1 of the Code throughout the year ended 31 December 2006.
Every company should be headed by an effective board, which is collectively responsible for the success of the company.
The board is committed to guiding the strategic and entrepreneurial development of the group and supports the principle of collective responsibility for the success of the company. The board has reserved, for its sole discretion, the finalisation and adoption of the group's strategic plan, major fiscal policies including treasury and hedging policies, approval of the budget, approval of all mining development and any merger and acquisition.
During the year, the board introduced a formal evaluation system to measure its own performance as well as those of its committees. During the year the board met six times. Attendance at the meetings is shown below. Where it is deemed appropriate, the chairman meets with the non-executive directors without the presence of the executive directors. No formal meetings, however, were deemed necessary during the year ended 31 December 2006.
Appropriate insurance cover for directors and officers has been obtained by the company in respect of legal action against the directors.
|of meetings||of board|
|DM Bristow||Chief executive officer||6||6|
|RA Williams||Group finance director||6||6|
|BH Asher||Senior independent director||5||6|
|J-A Cramer*||Independent non-executive||6||6|
|NP Cole**||Independent non-executive||2||2|
|RI Israel||Independent non-executive||5||6|
|AL Paverd||Independent non-executive||5||6|
|K Voltaire**||Independent non-executive||2||2|
* Mr Cramer retired from the board with effect from 27
** Dr Voltaire and Mr Cole were appointed to the board on 3 May 2006.
There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company's business. No one individual should have unfettered powers of decision.
The non-executive chairman, Mr Philippe Liétard, is responsible for the leadership of the board and to ensure effective communication exists between the executive and non-executive directors.
The CEO, Dr Mark Bristow, has been delegated executive responsibility for the group. A formal job description is in existence and this is reviewed annually by the board and the CEO.
The board should include a balance of executive and nonexecutive directors (and in particular independent non-executive directors) such that no individual or small group of individuals can dominate the board's decision taking.
Currently the board comprises eight members, two executive and six non-executive directors. During the year, the board size was increased by one from the previous year with the appointment of two new non-executive directors and the retirement of Mr J-A Cramer, a senior member of the board. The board believes that mining is a long-gestation business and as such justifies a longer period of service for non-executive directors than many industries. Therefore reasonable periods of service are required for the stability of the board but new appointments are needed from time to time to add a fresh perspective. Since listing in 1997, the company has had three chairmen and in total seen the retirement or resignation of five directors.
The board monitors compliance with the independence criteria included in the United Kingdom Financial Services Authority's 2003 Combined Code ("Code") and, save in certain instances set out below for (a) periods of service and (b) award of options and "restricted" shares, all non-executive directors meet the criteria. For the reasons set out below the board believes that the non-executive directors are independent.
(a) Currently, Dr Paverd and Messrs Asher and Israel have all served as directors for more than nine years. The board has considered their objectivity and contributions and believes that these are still independent in character and judgement.
(b) Messrs Asher and Israel continue to hold options in terms of the company's share options scheme. These were awarded in 1998 and the board does not believe that this interferes with their independence. With the exception of the two directors appointed in 2006, each of the non-executive directors owned shares in the company during the year. The non-executive directors also received an award of "restricted" shares in addition to their directors' fees. The board believes that this aligns their interests with those of other shareholders without compromising independence.
Meetings of the board's committees were held regularly. Where appropriate, the chairman and the executive directors are invited to be in attendance.
The company's senior independent director is Mr BH Asher.
Shareholders are referred to the remuneration report for details of directors' shareholdings.
There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.
During 2006, the board reviewed its previous policy of retaining responsibility for appointments of new directors. A governance and nomination committee was established in October 2006. A charter for the effective organisation of the new committee was approved and is published on the company's website. The board approved the appointment of Mr Liétard as chairman and Messrs Cole and Asher as members. The new committee met once in 2006.
During the year two new directors were appointed to the board. Ahead of the appointment of Mr Cole and Dr Voltaire, and prior to the appointment of the new committee, the board set out specific objectives which any new candidate should satisfy ahead of formal consideration and appointment. The board decided that the positions would not be advertised. After carefully considering and interviewing a number of prospective candidates, it was felt that both Mr Cole and Dr Voltaire met these objectives. They were invited to the May board meeting, at which time the entire board had an opportunity to meet and interact with the candidates before formally considering and approving their appointment.
During the latter part of the year, the governance and nomination committee was requested to consider recruiting a replacement for Mr Cramer. Mr Cramer's input as a Swiss banker had provided a distinctly pan European contribution during his nine year tenure and, given the overall shareholder profile of the company, this factor would be considered key in selecting a new non-executive director. In accordance with the provisions of the company's Memorandum of Association, the two new non-executive directors will be subject to re-election at the May 2007 annual general meeting.
In addition to the appointment of directors, the appointment and removal of the company secretary remains a matter for consideration by the board as a whole.
The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.
The board operates in a field which is technically complex and directors are provided with information which enables them to fulfil their duties effectively. Visits to the mines, branch offices and technical presentations provided by management are used to further their knowledge in various areas of specialisation. It is the duty of the company secretary to ensure an effective flow of information between the board, its committees and the management of the company. The new directors were provided with a detailed induction into the group's activities, with specific site visits to assist in the process.
The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.
In a departure from previous practice, the board decided in May 2006 to adopt a formal evaluation procedure, which was formulated taking cognisance of other board systems and in consultation with the group human resources executive. The new procedure through a structured self assessment system allows each director to rate the performance of the board and its committees and focuses on a number of key areas. The individual assessments are then scored and the results tabled at a board meeting for discussion. At the October 2006 meeting, the board undertook its first evaluation. The board concluded that the exercise was beneficial and agreed to address two of the issues which arose:
- A board succession plan needed to be adopted. The board acknowledged that it should consider introducing a limit on the length of service of non-executive directors. However, given that a majority of the nonexecutive directors were appointed at the time of the initial IPO, in 1997, it was acknowledged that if all such directors were to resign simultaneously this could be detrimental to the company's strategic direction. The chairman and the CEO were requested to prepare a succession plan for consideration.
- The board agreed that the governance and nomination committee be requested to consider and identify a replacement for Mr J-A Cramer, who retired at the end of the October meeting. The committee was requested to seek a candidate who could match Mr Cramer's pan European business experience.
A formal session of the non-executive directors assessed the chairman's performance and based on his high level of performance the members unanimously recommended his re-election to the board.
All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the board.
In accordance with the provisions of the Companies (Jersey) Law 1991 and the Articles of Association, directors are required to submit themselves to re-election. Any newly appointed director is subject to election by shareholders after his/her appointment. Thereafter, by rotation, the entire board is subject to re-election every three years.
The Articles of Association specify neither an age limit for directors nor any restriction about the period of service. As previously noted, a board succession plan will be formulated during the 2007 financial year.
Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors' remuneration should be structured so as to link rewards to corporate and individual performance.
This is dealt with in the report of the remuneration committee.
There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.
This is dealt with in the report of the remuneration committee.
The board should present a balanced and understandable assessment of the company's position and prospects.
The Companies (Jersey) Law, 1991 and the Code require, and the board acknowledges, that it is responsible for presenting a balanced and understandable assessment of the company's and the group's position and prospects. This extends to the preparation and publication of the annual report and any other release of information, price sensitive or otherwise.
The financial statements set out in this report have been prepared by management under the direction of the board in accordance with International Financial Reporting Standards and are based on accounting policies that the board considers appropriate, supported by reasonable and prudent judgements and estimates.
The directors are of the opinion that the financial statements fairly present the financial position of the company and group as at 31 December 2006, and the consolidated results of operations and cash flows of the group for the year then ended. The directors have continued to adopt the going concern basis in preparing the financial statements because the directors are satisfied that the group and company have adequate financial resources available to ensure their continued operational existence for the foreseeable future.
The group has operated in accordance with a code of ethics since its United Kingdom listing in July 1997. The code includes specific reference to the company's financial managers and the chief executive officer. A copy of the code is available on the company's website at www.randgoldresources.com.
The company also believes that the following risk factors should be carefully considered as they could, either individually or in a combination, have a material adverse effect on its business:
- The profitability of its operations, and the cash flows generated by its operations, are affected by changes in the market price for gold which in the past has fluctuated widely.
- The company may incur losses or loose opportunities for gains as a result of its use of derivative instruments to protect it against low gold prices.
- Because it depends on Morila, and its interest in Morila Limited, for a substantial portion of its revenues and cash flow, its business may be harmed if the Government of Mali fails to repay fuel duties and TVA owing to Morila.
- Under its joint venture agreement with AngloGold Ashanti Limited, the company jointly manages Morila Limited, and any disputes with AngloGold Ashanti over the management of Morila Limited could adversely affect its business.
- The company's mining operations may yield less gold under actual production conditions than indicated by its gold reserve figures, which are estimates based on a number of assumptions, including mining and recovery factors, production costs and the price of gold.
- The company may be required to seek funding from third parties or enter into joint development arrangements to finance the development of its properties and the timely exploration of its mineral rights, which funding or development arrangements may not be available on acceptable terms, or at all.
- The company conducts mining, development and exploration activities in countries with developing economies and are subject to the risks of political and economic instability associated with these countries.
- If the company is unable to attract and retain key personnel its business may be harmed.
- The company's insurance coverage may prove inadequate to satisfy future claims against it.
- It may be difficult to affect service of process and enforce legal judgments against the company or its affiliates.
Full details relating to these risk factors as well as those relating to the industry can be found in the annual report on form 20-F for the year ended 31 December 2005, a copy of which is contained on the company's website at www.randgoldresources.com.
The board should maintain a sound system of internal control to safeguard shareholders' investment and the company's assets.
The group maintains a business control framework that documents the key business risks, together with the related operational, financial and compliance controls. The business control framework is regularly reviewed and updated by management, who report quarterly to the board on any issues which might affect the risks and controls. The board acknowledges that it has responsibility for the ongoing review and update of the business control framework and believes that, through the procedures noted above and below, it has complied with the requirements of the Code to review the effectiveness of the group's internal controls at least annually. Further, the board confirms that this process accords with the 2005 Turnbull Guidance and that no significant failings or weaknesses have been identified from the review. Significant focus has been given to Section 404 of the Sarbanes Oxley Act which came into effect at the end of the year ended 31 December 2006 and in this regard the services of KPMG were employed to assist management in ensuring that the appropriate systems and procedures are in place.
The company's auditors also act as auditors for Loulo and Morila and the findings from the audits are communicated to the audit committee. AngloGold Ashanti's internal audit department conducts regular audits of the Morila mine and copies of these reports are submitted to the company's audit committee for consideration. Management of the company has since the start up of the Loulo mine undertaken regular assessments to ensure that the appropriate procedures are in place from the outset. Given its size, the group does not have a separate internal audit department. However, executive management undertake regular audits of various parts of the Morila and the Loulo mines and details of their reports are submitted to the audit committee and board for comment. Financial and technical audits of the company's branch offices and major assets are regularly conducted by group management. The board notes that no cost effective system will preclude all errors and irregularities and so the group's system of internal controls provides reasonable, but not absolute assurance, against material misstatement or loss.
The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company's auditors.
The company's audit committee has been set up to review the company's financial reports, internal control principles and risk management systems, review significant financial reporting judgements and for dealing with the appointment of the auditors and monitoring their relationship with the company and its management.
For part of the year, the audit committee comprised four members (until the retirement of Mr Cramer in October), all of whom were non-executive directors. For reasons described earlier, the board considers that the members of the audit committee are all independent:
BH Asher (Chairman)
|15 Jul 97|
|J-A Cramer||15 Jul 97||27 Oct 06|
|AL Paverd||1 May 00|
|K Voltaire||1 Aug 06|
Two of the members (including Mr Cramer, who retired during the year) have considerable years of experience in the financial services sector, one has extensive experience in the mining industry and the other has a PhD in finance. The board believes that this level of experience is sufficient to meet the standards prescribed by the Code, even though none of the members has "recent and relevant financial experience". If issues arose which were deemed outside the areas of expertise of the members, independent professional advice would be sought.
During the year the committee met six times and attendance was as follows:
|Members||Number of meetings attended|
BH Asher (Chairman)
* Mr Cramer retired on 27 October 2006.
** Dr Voltaire joined the committee on 1 August 2006.
In terms of the directors' remuneration policy, Mr Asher receives a fee as the senior independent director and no additional payment for services to the audit committee. Fees paid to Dr Paverd and Mr Cramer for service to the audit committee for the year were US$35 000 and to Dr Voltaire US$17 500. The committee makes recommendations to the board in relation to the appointment, re-appointment and removal of the external auditors as well as the remuneration and terms of engagement of the external auditors. The actual appointment of the external auditors is subject to the approval of shareholders at the annual general meeting.
During the year, the external auditors were paid US$0.4 million for their services including Sarbanes Oxley Audit work. PricewaterhouseCoopers provided the following non-audit services in the year within the audit committee's pre-approved guidelines:
- Company secretarial services in Tanzania for Randgold Resources Tanzania (T) Ltd.
- Tax advice for Seven Bridges Trading 14 (Pty) Ltd. In both cases, the amounts were less than US$6 000.
The committee reviews and monitors the external auditor's independence and the objectivity and effectiveness of the audit process. This is undertaken within the framework of a detailed audit charter. A copy of the audit charter is available on the company's website at www.randgoldresources.com.
The committee reviews the company's published results, the effectiveness of its system of internal control, legal and regulatory compliance including the Sarbanes Oxley Act, and the cost effectiveness of the services provided by the external auditors.
The audit committee has implemented a policy regarding the provision, and pre-approval thereof, of non-audit services by the external auditors and this mandate is reviewed annually. The committee meets regularly and this includes quarterly meetings which are used to consider and approve the company's quarterly results. The external auditors are regularly invited to attend meetings to report on their activities. The committee also meets with the external auditors, independent of the executive directors or management, where this is deemed necessary.
The Sarbanes Oxley Act requires companies to establish "whistle-blower" systems. The geographical spread of the group's activities, particularly in remote West African locations, makes the system complex. The first point of contact is the company's legal counsel who, upon receipt of such an issue being raised, would employ independent consultants and then pass the findings onto the senior independent director to pursue any alleged irregularity. Quarterly reports are submitted to the audit committee concerning any instances where complaints are submitted.
The audit committee has continued to oversee the group's preparation for compliance with the requirements of Section 404 of the Sarbanes Oxley Act, which applies to the 31 December 2006 year end.
There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.
The board acknowledges responsibility for maintaining effective communication with all shareholders. The CEO, corporate communications manager and the company's investor relations consultants prepare a quarterly report for the board detailing the activities and presentations given to shareholders. In addition, since September 2004 the company has employed international market intelligence experts to provide a global shareholder identification service which has greatly enhanced the focus of the company's communication message.
Whilst in general corporate communication with shareholders is conducted by the CEO, Mr Liétard, at least quarterly, participates in an open forum with shareholders and stakeholders. In addition, Mr Liétard leads a group of senior executives to the African Mining Indaba, one of the premier global mining conferences attended by a substantial number of global players in the mining and related industries, and in February 2007 Dr Paverd and Dr Voltaire were also in attendance.
Besides attendance at various industry conferences, a minimum of two road shows during the year are undertaken to enable company representatives to interact directly with shareholders and interested parties. The board continues to use the internet for publication of announcements and to file these on its website to assist with communication with shareholders. In addition, the board encourages shareholders to access the annual report from the website rather than having it sent by post in printed form.
The board should use the AGM to communicate with investors and to encourage their participation.
The board believes that the annual general meeting is an appropriate forum for contact with shareholders and encourages their attendance and participation. In order to reflect the sentiment of shareholders at the annual general meeting, it is an unwritten policy that all resolutions should be considered by way of a ballot poll and the number of proxies received disclosed to members in attendance. At each annual general meeting all committee chairmen as well as other non-executive directors are present to address any queries raised by shareholders.
Institutional shareholders should enter into dialogue with companies based upon the mutual understanding of objectives.
It has been the policy of the company that, twice a year, lengthy roadshows are conducted by the CEO and group finance director where meetings are held with most of the company's major institutional shareholders to brief them on the activities of the company. In addition, after the publication of each set of quarterly results, the CEO follows up with meetings with many of the institutional shareholders. These roadshows are over and above the company's attendance at several key international gold mining conferences around the world. In the last year conferences attended included those held in New York, San Francisco, New Orleans, Denver, London, Zurich, Hong Kong and Cape Town.
Institutional shareholders have a responsibility to make considered use of their votes.
The company is pleased to see the increasing trend of institutional shareholders now exercising their rights to vote at general meetings. In the past two years the percentage of shareholders present and voting has increased dramatically.