Governance review

. . . moving towards an integrated regulatory and
compliance process, supported by enabling technology

Disclosure on management approach Exxaro is systematically developing a dedicated, transformed board, equipped with the necessary skills and knowledge to make timely and effective decisions to ensure the group’s sustainability. The board provides strategic direction through in-depth knowledge of Exxaro’s markets and operations, and viable board processes. To ensure the base of knowledge, Exxaro pays market-related directors’ fees, and annually allocates sufficient funds for director induction and training. Continuing development is both direct through leading service providers and via the national skills levy. In 2010, this amounted to R168 000. Regular meetings with the Exxaro management team are supplemented with communiqués to board members on topical matters to facilitate strategic thinking, planning and compliance. Quarterly information packs on broad business developments and legal issues are distributed. The chairman of the board meets weekly with executive management. Site visits are arranged as required and board members regularly attend group functions, including the CEO Safety Summits. Leadership Understanding the importance of diligent succession planning to the sustainability of the group, Exxaro has launched a unique leadership programme for all line managers. The programme is aimed at creating a signature-style single leadership philosophy. Exxaro is one of the first organisations to move away from a commercial leadership approach to a customised programme linked to our brand and values. To date 619 line managers have attended this programme at a cost to the group of R345 000.

In terms of its charter, it is the responsibility of the board to govern the legal compliance management processes of the group. The board is assisted by the audit, risk and compliance committee which, inter alia, assesses legal and compliance risks that may have an impact on the annual consolidated financial statements. Safety, health and environmental risks are monitored by the safety and sustainable development committee.

A compliance policy was adopted by the board in 2008 and sets out the integrated compliance processes in Exxaro. The policy is based on the standards of the Compliance Institute of South Africa. In this policy, compliance risk is defined as the risk to earnings, capital and reputation arising from violations or non-compliance with laws, regulations, supervisory requirements, prescribed practices or ethical standards.

We manage our compliance risks through: Awareness training for employees and other affected stakeholders on high compliance risks identified from time to time Monitoring and reporting on the level of compliance with regulatory requirements Providing advice and formal legal opinions on current and envisaged actions and business processes.

Calendar 2010 proved an important year for Exxaro from a compliance perspective, with the adoption and proposed
adoption of a number of key regulatory changes in the corporate and mining spheres, including:

• The adoption of the new mining charter in September 2010
• The King Report on Corporate Governance for South Africa and the King Code of Governance Principles (King III),
  which became effective on 1 March 2010
• Approval of the new Companies Act 71 of 2008 by parliament, but still not effected
• Proposed Competition Act amendments
• Consumer Protection Act 68 of 2008, with commencement deferred to April 2011
• Amendments to the National Credit Act 34 of 2005
• Stricter enforcement of the body of legislation relating to weighbridges, particularly the Trade Metrology Act 77 of 1973.

These changes formed the foundation of Exxaro’s key compliance objectives, with progress set out below.

Key objectives for 2010	Progress
Implementation of the new mining charter	A corporate forum has been established to monitor and evaluate progress on social and labour plans as well as the mining charter each quarter. A similar forum will be established at each business unit. The first progress reports were submitted to the Department of Mineral Resources at the end of March 2011.
Conducting an independent King III readiness assessment to ascertain compliance gaps	A favourable report was received by our independent external corporate governance advisers. A summary of the findings is discussed here.
Implementing e-learning training and awareness on business implications of the Competition Act	The Competition Act was identified as a high compliance risk due to the potential impact and probability of non-compliance. A Competition Act awareness programme was launched to address risks associated with non-compliance. At 31 December 2010, 558 of the targeted 667 employees in the group had completed the relevant e-learning training. A process is in place to ensure all participants complete the training.
Continual monitoring of the status of converting mining rights and considering associated risks	The board and management receive a quarterly report on the status of all mining and prospecting rights, which sets out the risk attached to the rights in terms of conflicting and competing applications and mitigating actions discussed.
Monitoring compliance to social and labour plans	The investment in socio-economic development for 2010 was 2,5% of net profit after tax. Of 13 social and labour plans, 11 have been granted.
Conducting compliance audits on the status of integrated water-use licences in terms of the National Water Act	To date 10 integrated water use licence applications have been approved with seven still outstanding.
Raising awareness of the business implications of the new Companies Act	Presentations on the status and major business implications were made to the board, management and business units as well as major subsidiary companies.
Training related to contract law and basic contractual management	Training was provided to the following business units: Medupi project team Matla Arnot Namakwa Sands North Block Complex New Clydesdale Leeuwpan Inyanda. Training will be extended to the remaining business units in 2011.
Environmental laws awareness training	Awareness training was provided at: Grootegeluk Arnot North Block Complex Corporate centre. Awareness training will be ongoing in 2011.
Health, safety and labour awareness training	Training was conducted at: KZN Sands Zincor Grootegeluk Inyanda Matla. Legal liability training on health and safety will be rolled out in 2011. This will focus on line managers, mining/plant discipline at shopfloor or coal-face level, legal appointees, appointment letters and statutory lines of reporting.