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AUDIT AND RISK COMMITTEE TERMS OF REFERENCE

  1. The Committee

1.1      Constitution

1.1.1   The audit and risk committee (“the committee”) is constituted as a committee of Zimplats Holdings Limited (“Zimplats”) (i) in respect of good corporate governance practices, (ii) in line with the requirements of the Australian Stock Exchange (ASX) Corporate Governance Principles and Recommendations, Third Edition (the ASX Corporate Governance Principles and Recommendations), (iii) in line with the requirements of the King IV Report on Corporate Governance for South Africa (King IV) and (iv) in respect of all other duties assigned to it by the Board.

1.1.2   The duties and responsibilities of the members of the committee as set out in this document are in addition to those duties and responsibilities that they have as members of the Board. The deliberations of the committee do not reduce the individual and collective responsibilities of Board members in regard to their fiduciary duties and responsibilities, and they must continue to exercise due care and judgment in accordance with their legal obligations as directors.

1.1.3  These terms of reference are subject to the provisions of the company’s memorandum  and  articles  of  incorporation and  any  other  applicable  law  or regulatory provision.

1.2      Function

1.2.1      The overall function of the committee is to assist the directors in discharging their responsibilities relating to the safeguarding of assets, the operation of adequate and effective systems and control processes, the preparation of fairly presented financial statements in compliance with all applicable legal and regulatory requirements and accounting standards, and the oversight of the external and internal audit appointments and functions.

1.2.2    The committee is an advisory committee and not an executive committee. As such it must not perform any management functions or assume any management responsibilities and shall have an objective and independent role.

1.2.3      The committee undertakes to perform its duties on behalf of all the subsidiaries of the company, unless the subsidiary has its own audit and risk committee.

1.3      Membership

1.3.1     The committee must comprise at least three members to be elected by the Board.

1.3.2      Members of the committee must be non-executive directors and meet all applicable independence requirements and be suitably skilled.

1.3.3      The majority of members shall possess the necessary financial expertise and experience to serve the committee. At least one member shall preferably have the relevant operational experience.

1.3.4     The Board shall appoint a chairman to the committee who is an independent non-executive director. The chairman of the Board is not eligible to serve as a member of the committee.

1.3.5     The members of the committee should collectively have sufficient qualifications and experience to fulfil their duties, including an understanding of the following:

–    Integrated reporting which includes financial reporting;

–    Internal financial controls;

–    External audit process;

–    Internal audit process;

  • Tax law;

–    Corporate law;

–    Risk management;

–    Information technology governance;

–    The governance processes with the company.

1.3.6     The Board shall have the powers at any time to:

1.3.6.1 fill  vacancies  on  the  committee  within  40  business  days  after  the vacancy arises;

1.3.6.2 remove any member from the committee;

1.3.6.3 appoint additional members.

1.4      Reporting

1.4.1     The chairman of the committee shall report to the Board on its proceedings after each meeting on all significant matters within its duties and responsibilities as set out in these terms of reference.

1.4.2     The committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

1.4.3     The chairman (or, in his/her absence, an alternate member) of the committee shall attend the Annual General Meeting to answer questions, through the chairman of the Board, on the committee’s activities and its responsibilities.

1.4.4     The committee’s report to shareholders on its activities is to be included in the company’s integrated report.

1.5      Authority of the committee and resources available

1.5.1     The committee has decision making responsibilities in terms of its statutory duties with respect to the appointment, fees and terms of engagement of the auditor.

1.5.2     The committee, in carrying out its tasks under these terms of reference:

1.5.2.1 has unrestricted access to all information, including records, property and personnel of the Zimplats group, and must be provided with adequate resources in order to fulfil its responsibilities;

1.5.2.2  is authorised to investigate any activity within its terms of reference;

1.5.2.3 may require other employees of the company to attend meetings or parts of meetings;

1.5.2.4 may  consult  with  and  seek  any  information  it  requires  from  any employee, and all employees shall be required to co-operate with any request made by the committee in the course of its duties;

1.5.2.5  may  invite  external  professional  advisers  to  attend  any  meeting  if  it considers this necessary or appropriate;

1.5.2.6   may delegate its authority and duties to sub-committees or individual members of the committee as it deems appropriate, provided it is not precluded by legal or regulatory requirements from doing so.

1.5.3     In addition, the committee is allowed to consult with specialists or consultants to assist it with the performance of its functions, subject to a Board approved process being followed. Such specialists or consultants are not members of the committee and are not entitled to vote on any matters. The company must pay all expenses reasonably incurred during such consultations.

1.6     Meetings and procedures

1.6.1      Agenda and Minutes

1.6.1.1    Meetings and proceedings of the committee shall be governed by the Zimplats articles of incorporation

1.6.1.2     The Board or any member thereof, including members of the committee, the external auditors, and the chief audit executive, may call further meetings, as required and with the support of a committee member.

1.6.1.3     Reasonable notice of meetings and the business to be conducted, together with all relevant supporting documentation, shall be given to the members of the committee and all invitees.

1.6.1.4     Any Board member, committee member or invitee may raise issues or make proposals for consideration at the committee meetings, provided the matters raised are supported by a committee member.

1.6.1.5    The chairperson shall review the agenda of the business to be conducted before distribution.

1.6.1.6    The company secretary shall take minutes of meetings, which shall be reviewed and approved by the members of the committee.

1.6.1.7   The minutes of all committee meetings shall record the proceedings, decisions taken and the reasons therefore and the recommendations to be made to the Board.

1.6.1.8    The agenda for each Board meeting shall provide an opportunity for the chairperson of the committee to report on any matters of importance as well as on the committee’s findings and recommended actions.

1.6.1.9    The committee shall establish an annual plan each year to ensure that all relevant matters are covered by the agendas of the meetings scheduled for the year.

1.6.1.10  The annual plan must ensure proper coverage of the matters laid out in the audit and risk committee terms of reference; the more critical matters will need to be attended to each year while other matters may be dealt with on a rotational basis. The number, timing and the length of meetings and the agendas are to be determined in accordance with the annual plan.

1.6.1.11   Committee members must be fully prepared for committee meetings, to provide appropriate and constructive input on matters discussed.

1.6.1.12   The minutes must be completed as soon as possible after the meeting and circulated to the chairman and members of the committee for review thereof:

–    Proceedings and resolutions of all meetings of the committee;

–    The names of those present and attendance;

–    Any conflicts of interest.

1.6.2  Frequency

1.6.2.1     The committee must hold sufficient scheduled meetings to discharge all its duties as set out in these terms of reference. The committee will normally meet at least four times a year and such meetings shall be aligned with Board meeting requirements and timing.

1.6.2.2     Reasonable notice of meetings confirming the venue, time and date, together with an agenda of items to be discussed, shall be forwarded timeously to each member of the committee, and any other person required to attend the meeting.

1.6.2.3    The committee must meet with internal auditors and external auditors at least once a year without management being present.

1.6.2.4     Meetings in addition to those scheduled may, with approval of the chairman, be held at the request of the external auditor, the chief executive officer, chief financial officer, internal auditor or other members of senior management or at the instance of the Board.

1.6.3  Attendance

1.6.3.1    Committee members shall attend all scheduled meetings of the committee, including meetings called on an ad hoc-basis for special matters, unless prior apology, with reasons, has been submitted to the chairman or company secretary.

1.6.3.2    If the nominated chairman of the committee is absent from a meeting, the members present must elect one of the members present to act as chairman.

1.6.3.3     The chief executive officer, chief financial officer, internal auditor, representatives from the external auditors, other assurance providers, professional advisors and Board members may be in attendance at committee meetings, but by invitation only and they may not vote.

1.6.3.4    Any member of the Zimplats Board has the right to attend and be heard at committee meetings.

1.6.3.5     The members of the Board, the chief executive officer, chief financial officer, risk executive, the external auditors and the internal auditor shall have unrestricted access to the chairperson or any other member of the committee in relation to any matter falling within the remit of the committee.

1.6.4  Quorum

1.6.4.1    The quorum for decisions of the committee shall comprise any two members of the committee.

1.6.4.2    The committee members and attendees will, where possible, work by consensus.

1.6.4.3    Only committee members shall be entitled to vote.

1.7          Remuneration

1.7.1    Having regard to the functions performed by the members of the committee in

2          Duties

addition to their functions as directors and in relation to the activities of the committee and pursuant to the specific power conferred upon the Board by the articles of incorporation of the company, members of the committee shall be paid such special remuneration in respect of their appointment as shall be determined by the Board.

1.7.2     The chairman of the committee shall, in addition to his/her remuneration as a member, receive a further sum as determined by the Board.

1.7.3     Such special remuneration in terms hereof shall be in addition to the annual fees payable to directors.

2.1       Statutory duties

The committee must:

2.1.1        nominate for appointment an independent registered auditor who in the opinion of the committee is independent of the company;

2.1.2       determine the fees to be paid and the terms of engagement of the auditor;

2.1.3       ensure that the appointment of the auditor complies with the Companies Act and other relevant legislation;

2.1.4       determine the nature and extent of any non-audit services which the auditor may provide to the company, or that the auditor must not provide to the company, or a related company;

2.1.5      develop  a  policy  to  govern  any  non-audit  services rendered  by  the  external  auditor/s  in  order  to  ensure  that  any  non-audit services will not impair the independence of the external auditor/s;

2.1.6       as a minimum, provide the following in the integrated report:

2.1.6.1     a description of how the committee carried out its functions;

2.1.6.2     state whether the committee is satisfied that the auditor was independent of the company;

2.1.6.3   comment in any way the committee considers appropriate on the financial statements, the accounting practices and the internal financial control of the company;

2.1.6.4     a summary of the role of the committee;

2.1.6.5    a statement on whether or not the committee has adopted formal terms of reference that have been approved by the Board and whether the committee has satisfied its responsibility for the year in compliance with the terms of reference;

2.1.6.6      the names and qualifications of all members of the committee;

2.1.6.7     the number of committee meetings held during the period under review and members attendance at these meetings;

2.1.6.8     a statement on whether or not the committee considered and recommended the internal audit terms of reference for approval by the Board;

2.1.6.9     a description of the working relationship with the internal auditor;

2.1.6.10   information   about   any   other   responsibilities   assigned   to   the committee by the Board;

2.1.6.11  a statement on whether the committee complied with its legal, regulatory or other responsibilities; and

2.1.6.12 a statement on whether or not the audit and risk committee recommended the integrated report to the Board for approval.

2.1.7  receive and deal appropriately with any concerns or complaints, whether from within or outside the company or on its own initiative, relating to:

2.1.7.1    the accounting practices and internal audit of the company;

2.1.7.2    the content or auditing of the company’s financial statements;

2.1.7.3    the internal financial controls of the company; or

2.1.7.4     any related matter.

2.1.8    make submissions to the Board on any matter concerning the company’s accounting policies, financial control, records and reporting;

2.1.9    perform any other functions determined by the Board, including the development and implementation of a policy and plan for a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes within the company; and

2.1.10   in addition, as a listed entity, consider, on an annual basis, and satisfy itself of the appropriateness of the expertise and experience of the chief financial officer and the company must confirm this by reporting to shareholders in its annual report that the audit and risk committee has executed this responsibility.

2.2       Delegated duties

2.2.1    External assurance

The audit and risk committee shall:

2.2.1.1 meet with the auditor at the commencement of the audit to review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement;

2.2.1.2 be satisfied that the audit plan makes provision for effectively addressing the critical risk areas in the business;

2.2.1.3 meet with the auditor at least  a month (or such other time period as is required and directed by the committee in consultation with the auditor) before the Board meets to approve the financial statements in order to consider matters which appear  to  the  auditor  or  the  audit  and  risk  committee  to  be  of importance and relevant to the proposed financial statements and to the affairs of the company generally;

2.2.1.4 review the findings of the audit with the auditor, this shall include but not be limited to the following:

–   a discussion of any major issues which arose during the audit;

–   any accounting and audit judgments; and

–   levels of errors identified during the audit;

2.2.1.5    provide an open avenue of communication between the external auditor, internal audit and the Board;

2.2.1.7    consider the appropriateness and quality of all critical accounting policies and practices including any accounting treatments, significant unusual transactions or accounting judgments that could be contentious;

2.2.1.7    review any representation letters requested by the auditor before they are signed by management;

2.2.1.8     review the management letter and management’s response to the auditor’s findings and recommendations;

2.2.1.9    review the overall audit role, minimise duplication, discuss implications of new auditing standards and ensure that the external audit fee will sustain a proper audit and provide value for money;

2.2.1.10   ensure that there is a process for the audit and risk committee to be informed of any irregularities identified and reported by the external auditor;

2.2.1.11   ensure that the lead engagement partner within the appointed firm is rotated every five years in accordance with current requirements; and

2.2.1.12  review the quality and effectiveness of the external audit process, and evaluate the performance of the auditor;

2.2.1.13   Oversee that there is assurance over externally reported tax matters.

2.2.2 Financial statements

The committee will review the annual financial statements, the interim, preliminary or provisional result announcements, the accompanying reports to shareholders and any other announcements regarding the company’s results or other financial information to be made public, prior to submission and approval by the Board.

This will be focused particularly on:

2.2.2.1    the impact of significant or new financial systems;

2.2.2.2    tax and litigation matters;

2.2.2.3    the appropriateness of accounting policies adopted and any changes in accounting policies and compliance practices;

2.2.2.4    significant financial estimates based on judgment which are included in the financial statements;

2.2.2.5     the impact and disclosure of significant, complex and/or unusual transactions, especially where the accounting treatment is open to different interpretations;

2.2.2.6    the appropriateness of major adjustments processed at year-end;

2.2.2.7   the basis on which the company and the Zimplats group had been determined a going concern;

2.2.2.8     compliance with International Financial Reporting Standards (IFRS) and ASX Listing requirements;

2.2.2.9    compliance with applicable legal requirements;

2.2.2.10   whether the annual financial statements present a balanced and understandable assessment of the company’s position, performance and prospects;

2.2.2.11  the  clarity of  disclosure  in  the  company’s  financial  reports  and  the context in which statements are made;

2.2.2.12   reviewing the directors’ report to be included in the annual financial statements, including the statement on effectiveness of the systems of internal control;

2.2.2.13   compliance with the financial conditions of loan covenants;

2.2.2.14   reviewing special documents such as prospectuses as and when prepared; and

2.2.2.15   earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies.

2.2.3      Integrated reporting

The committee shall oversee integrated reporting. In particular the committee shall:

2.2.3.1    have regard to all factors and risks that may impact on the integrity of the integrated report, including factors that may impact fair presentation of the significant judgments and reporting decisions made, monitoring or enforcement actions by a regulatory body, any evidence that brings into question previously published information, forward-looking statements or information;

2.2.3.4     review the annual financial statements, interim reports, preliminary or provisional result announcements, summarised integrated information, any other intended release of price sensitive information and prospectuses, trading statements and similar documents;

2.2.3.4     comment in the annual financial statements on the financial statements, the accounting practices and the effectiveness of the internal financial controls;

2.2.3.5    review the disclosure of sustainability issues in the integrated report to ensure that it is reliable and does not conflict with the financial information;

2.2.3.6    recommend  to  the  Board  whether  or  not  to  engage  an  external assurance provider on material sustainability issues;

2.2.3.7     recommend the integrated report for approval by the Board;

2.2.3.8    consider the frequency for issuing company results;

2.2.3.9    consider   whether   the   external   auditor   should   perform   assurance procedures on the company results;

2.2.3.10   review the content of the summarised financial information for whether it provides a balanced view; and

2.2.3.11   engage the external auditors to provide assurance on the summarised financial information;

2.2.3.12   review the disclosure of tax compliance with regard to approved tax policy, tax approach, tax risk and opportunity management and tax contribution.

2.2.4    Combined assurance

The committee shall ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities, and in particular the committee shall:

2.2.4.1    ensure that the combined assurance received is appropriate to address all the significant risks facing the company; and

2.2.4.2    monitor the relationship between the external assurance providers of the company.

2.2.5   Risk oversight

The key role with respect to risk is to assist the Board to ensure that the company has implemented an effective policy and plan for risk management that will enhance the company’s ability to achieve its strategic objectives. Furthermore, to assist the Board to ensure the disclosure regarding risk is comprehensive, timely and relevant.

The committee is an integral component of the risk management process and specifically the committee shall:

2.2.5.1    oversee financial reporting risks;

2.2.5.2    oversee internal financial controls;

2.2.5.3    oversee fraud risks as it relates to financial reporting;

2.2.5.4    oversee information technology risks as it relates to financial reporting;

2.2.5.5    oversee the development and annual review of a policy and plan for risk management to recommend for approval to the board;

2.2.5.6    monitor implementation of the policy and plan for risk management taking place by means of risk management systems and processes;

2.2.5.7    make recommendations to the board concerning levels of tolerance and appetite and monitoring that risks are managed within the levels of tolerance and appetite as approved by the board.

2.2.6   Internal audit

The committee is responsible for overseeing internal audit and, in particular, the committee shall:

2.2.6.1    be responsible for the appointment, performance assessment and/or dismissal of the internal auditors;

2.2.6.2    approve the internal audit plan;

2.2.6.3    oversee the staffing and objectives of the function;

2.2.6.4    ensure that the internal audit function is subject to an independent quality review, as and when the committee determines it appropriate;

2.2.6.5    review and approve the internal audit terms of reference;

2.2.6.6     consider and review, with management and the internal auditors, significant findings during the year and management’s responses thereto in relation to reliable reporting, corporate governance and adequate and effective internal control;

2.2.6.7    ensure that the internal audit function has the necessary resources and access to information to enable it to fulfill its programme and to perform its duties in accordance with the appropriate professional standards for internal auditors;

2.2.6.8    ensure that the internal audit objectives and goals, staffing, budgets and plans provide adequate support for the goals and objectives of the audit and risk committee, as well as for the fulfilment of the internal audit charter;

2.2.6.9  review the co-operation and co-ordination between the internal and external audit functions and coordinating the formal internal audit work plan with external auditors to avoid unnecessary duplication of work;

2.2.6.10  review significant differences of opinion between management and the internal audit function;

2.2.6.11  monitor the maintenance of proper and adequate accounting records;

2.2.6.12  monitor  the  overall  operational  and  financial  reporting  environment;

2.2.6.13  monitor and evaluate the performance of the internal audit function in terms of agreed goals and objectives;

2.2.6.14  consider and review any difficulties encountered in the course of the audits, including any restrictions on the scope of internal audit’s work or access to required information;

2.2.6.15  consider any changes required in the planned scope of the internal audit coverage.

2.2.7      Compliance with laws and regulations

The committee is responsible for overseeing the compliance management function.

The committee shall:

2.2.7.1     approve the compliance policy;    

2.2.7.2     review and oversee the effectiveness of the system for monitoring compliance with laws and regulations within the business and the results of management’s investigation and follow-up of any instances of non-compliance;

2.2.7.3     annually approve the compliance assurance plan;

2.2.7.4     receive and consider amendments to material legislation, codes and regulatory requirements;

2.2.7.5   review the findings of any examinations by regulatory agencies, and any auditor observations;

2.2.7.3     obtain regular updates from the executives responsible for compliance matters, including tax compliance, litigation, disputes and claims;

2.2.7.4     obtain reports from management, the internal auditor and the external auditor regarding compliance with all applicable legal and regulatory requirements.

2.2.8      Finance function

The committee shall review the expertise, resources and experience of the company’s finance function, and disclose the results in the integrated report.

2.2.9      Ethics and governance

The committee shall assist with the establishment of a clearly defined and documented code of ethics, giving due cognisance to the various statutory, common law and other requirements that cover the ethical behaviour of the directors and employees of Zimplats.

The committee will be responsible for:

2.2.9.1    reviewing any statements on ethical standards or requirements for Zimplats and assisting in developing the standards and requirements;

2.2.9.2    ensuring that adequate systems exist to monitor and report on adherence to and offences against, including steps to prevent their recurrence:

–    these terms of reference;

–    Zimplats code of ethics;

–    the articles of incorporation;

–    the relevant laws and the regulations that govern Zimplats’ operations and business conduct; and

–    Zimplats’ social, safety, health and environmental policies and practices;

2.2.9.3     making recommendations on any potential conflict of interest or questionable situation of a material nature;

2.2.9.4     reviewing any significant cases of employee conflicts of interest, misconduct or fraud, or any other unethical activity by Zimplats’ employees or, where Zimplats’ is affected, other relevant stakeholders;

2.2.9.5     ensuring that appropriate procedures exist to monitor directors’ declarations on the nature and extent of their interest in contracts and on the extent of their interests and dealings in Zimplats’ shares; and

2.2.9.6    reviewing and confirming the approach adopted by Zimplats in relation to irregularities, agreeing the policy on:

–     the auditors obligation to report such matters;

–     how the requirement affects the Zimplats group, and

–     action that the Zimplats audit and risk committee and Board should consider and take.

The code of ethics will be reviewed and recommended to the Board for approval.

3          General

3.1       With respect to reporting and recommendations, the committee is required to report its activities to the full Board of Directors on a regular basis and to make such recommendations with respect to the above and other matters as the audit and risk committee may deem necessary or appropriate.

3.2       The committee shall establish a process whereby the effectiveness of the committee and its members is evaluated on an ongoing basis and the performance evaluation shall compare the performance of the audit and risk committee with the requirements of these terms of reference.

3.3        The performance evaluation shall also recommend to the Board any improvements to the audit and risk committee’s terms of reference deemed necessary or desirable by the audit and risk committee. The performance evaluation by the audit and risk committee shall be conducted in such manner as the audit and risk committee deems appropriate. The report to the Board may take the form of an oral report by the chairperson of the audit and risk committee or any other member of the audit and risk committee designated by the audit and risk committee to make such report.

3.4        The  ongoing  training  and  education  needs  of  the  committee  members  shall  be established on an annual basis and shall be provided at Zimplats’ expense, as well as any ad hoc needs and requirements that may arise from time to time, to ensure:

3.4.1    the committee is financially literate and up-to-date with current developments in accounting, auditing, corporate governance, risk management, ethics, taxation and other related financial issues;

3.4.2    the committee remains abreast of developments in the industry and economy within which Zimplats operates; and

3.4.3    at least one member of the committee is fully proficient in understanding the implications of current and planned accounting and auditing standards.

3.5       The committee shall make recommendations concerning the levels of risk appetite and tolerance (including risk-bearing capacity) regarding the risks within the ambit of the committee.

3.6       The committee shall monitor management’s implementation of appropriate risk responses.

3.7       The committee shall, with regard to information and communication technology (ICT):

3.7.1 oversee ICT and information governance, which includes but is not limited to the approval and implementation of policies;

3.7.2  ensure that ICT is aligned with the performance and sustainability objectives of the company;

3.7.3  monitor and evaluate significant ICT investments and expenditure;

3.7.4  ensure that ICT forms an integral element of the company’s risk management;

3.7.5  ensure that ICT assets and company information are effectively managed to achieve strategic objectives.

The committee will consider any other relevant matters referred to it by the Board.