To the extent applicable, and to the extent able (given the current size and structure of the Company and the Board), the Company has adopted the Quoted Companies Alliance Corporate Governance Code. Details of how the Company complies with the Code, and the reasons for any non-compliance, are set out in the tables below, and referenced to the principles contained in the Code.
Prior to the formal adoption of the Code, the Company has, for several years, operated in compliance with recommendations of the QCA, in so far as the size of both the Company and its Board permitted. For that reason, no significant changes in governance-related matters have been needed. No key governance matters have arisen since the publication of the last Annual Report.
In light of the Company’s size and nature, and the geographical spread of operations, the Board considers that the current Board is a cost effective and practical method of directing and managing the Company. As the Company’s activities develop in size, nature and scope, the size of the Board and the implementation of additional corporate governance policies and structures will be reviewed.
The principles set out in the Code which require disclosure on the website and the required disclosure are set out in the first table below.
Principle 2: Seek to understand and meet shareholder needs and expectations
As the large majority of the Company’s shares are held in CREST, with the beneficial owner not disclosed, the Company seeks to communicate with shareholders primarily by indirect methods. Announcements through RNS are as full as possible. Social media are used as a means of communication, and the Company has adopted a strict policy relating to the use of social media.
The CEO, Andrew Prelea conducts webcasts with Q and A sessions, attends and presents at investor forums wherever possible as well as holding discussions with mining analysts, shareholders and investment managers.
It is apparent from such interaction that shareholders have a number of concerns, including:
How do the directors propose to expand operations without dilution to existing shareholdings?
The Directors are well aware of the dissatisfaction of shareholders with past fundings, in particular where highly dilutive warrants attached to share issues have depressed the share price. This will be avoided in future. The deal with Mercuria shows that the Board has found new ways to raise finance other than by the issue of new shares. The Board has also adopted a strategy of financing new projects, which might otherwise exceed the capacity of the Company to finance them, by accepting a minority interest in those projects in return for an exclusion from a funding requirement. There is likely to be a requirement for limited amounts of new equity to enable the Company to achieve its core objectives, but this will be used sparingly, and the Board remains focussed on increasing the share price, which more than doubled in the year ended 31 July 2018.
When will the Romanian operations become profitable?
Quarterly reports have indicated an improvement at Manaila, but the key to profitability lies in reducing trucking costs by processing the ore onsite. This should be effective by January 2020 and in the meantime trucking to the existing processing plant is being upgraded to improve reliability and reduce costs. The commencement of mining at Baita Plai, where the ore body is approximately twice as rich as at Manaila, is expected to have a huge effect on profitability.
Our presence in Romania has also opened doors with the Romanian authorities which we hope will enable us to participate in much bigger projects at minimal cost to Vast.
How does operating in Zimbabwe benefit Vast if we cannot remit profits?
Cash generated by the Pickstone Peerless mine have up to now been required to upgrade the plant to move from processing oxide to processing sulphide ore, and to commence development of the newly acquired Eureka mine, so that remitting profits has not been an issue up to now. Vast is keen on pursuing new projects in Zimbabwe, but the Company’s model is to restrict expenditure to seed capital and accept a minority stake in the resulting project although the new diamond opportunity may prove an exception. But other mining companies, Caledonia and Metallon Corporation for example, have made arrangements enabling them to remit profits.
Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success
The Company operates in two countries which are far apart both geographically and in recent history, Romania and Zimbabwe. It follows that the strategy for identifying the interests of stakeholders and the Company itself differ substantially between the two regimes.
The mining sector in Romania suffered a sharp decline at the end of the communist era. Old technology and mining methods meant that production costs tended to exceed the value of the end product, forcing most mines to close, despite having, in many cases, valuable ore bodies. The strategy of Vast is to re-evaluate such closed mines with a view to bringing them back into production. This has already been achieved with Manaila, and is under way at Baita Plai. In each case the initiative received strong support from the Government and the local authorities. As historic mining areas, there is an existing local workforce which has a history of mining and welcomes new employment opportunities. Other than main Board directors, the whole of the management and workforce has been recruited locally, and subcontractors are also local firms.
Future expansion in Romania is likely to include very substantial projects which will require large scale finance. In such cases the strategy of the Board is to bring in external equity and debt finance, possibly from an industry major, so that the Company will retain a minority interest and management without the requirement to contribute substantial funds.
Zimbabwe is emerging from a long period of economic decline, and the Board also sees opportunities for rapid expansion in that country. The main stakeholders identified are the State itself, and the local communities in mining areas. In particular, while unemployment is high and new employment is welcomed, the directors are also sensitive to the needs of local artisanal miners. While previous indigenisation rules no longer apply to gold mining, the Directors understand the need to involve indigenous Zimbabweans at all levels, including equity.
For the Pickstone Peerless mine, day to day management is dealt with by competent local management overseen by our local parties and by ourselves. For the expansion projects currently being dealt with, including the Eureka mine, the Company has so far chosen to limit its financial exposure by accepting a minority equity stake, which the directors believe is a low risk way to increase value for shareholders.
The Directors believe that the Company’s in principle joint venture on the Heritage Concession in the Marange Diamond Fields with a company owned by a local Community Trust can be made to be an exemplar for giving benefit back to the local community.
Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
Current membership of the Board is as follows:
|Brian Moritz||Non-executive chairman||06-Oct-16|
|Roy Tucker||Finance director||05-Apr-05|
|Craig Harvey||Technical director||01-Mar-18|
All the non-executive directors are considered to be independent.
The table illustrates the success of the Board in refreshing its membership.
In view of the size of the Board and the short time for which the majority of its members have been in place the Directors do not believe that it is practical to undertake an external or a wide ranging evaluation of the performance of Board members. On the basis of an informal evaluation the Board considers recent performance of the executives to have been successful in achieving the Company’s objectives.
The primary tasks of the CEO, Andrew Prelea, have been to obtain the Baita Plai licence, to arrange financing through offtake agreements, equity investors, and to seek and evaluate new projects. The first is nearing completion, the second has been achieved, and the third, while not expected to be complete in the short term, is making satisfactory progress with the Blueberry project in Romania and the Marange Diamond Fields Heritage Concession in Zimbabwe.
The primary task of the Technical director, Craig Harvey, has been to improve performance at the Manaila mine in Romania, however this can only truly be achieved with the arrival of the new equipment in the current pit and the eventual construction of the new plant at Carlibaba. The improving trend revealed by quarterly reports show that this is being achieved to the best of the ability of the capacity of current equipment, but it is a lengthy process. His secondary task has been to oversee the expansion of the Pickstone Peerless mine on behalf of Vast, and results show this to have been successfully accomplished. Craig Harvey will also be responsible for assisting in bringing the Eureka and Giant mines into production in the medium term.
Roy Tucker’s main task is to oversee the Company’s administrative function and in particular its financial affairs. This is an area where it is more difficult to evaluate performance, but his knowledge of all aspects of the company’s affairs remains invaluable.
Succession planning remains high on the agenda for the Board, but given the new appointments detailed above, it is not first among the matters which preoccupy the Board.
Principle 8: Promote a corporate culture that is based on ethical values and behaviours
The Board strives to promote a corporate culture based on sound ethical values and behaviours.
The Board is aware that it operates in jurisdictions where ethical standards may differ from those in the UK, and which may, rightly or wrongly, have a reputation for corrupt practices. To that end the Company has adopted a strict anti-corruption and whistle blowing policy, but the Directors are not aware of any event in either jurisdiction which might be considered to breach this policy. The Company has also adopted a code for Directors’ and employees’ dealings in securities which is appropriate for a company whose securities are traded on AIM and is in accordance with the requirements of the Market Abuse Regulation which came into effect in 2016.
The Board is also aware that the tone and culture it sets will greatly impact all aspects of the Company and the way that employees behave, as well as the achievement of corporate objectives. A large part of the Company’s activities is centred upon an open dialogue with shareholders, employees, clients and other stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve its corporate objectives.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
The corporate governance structures which the Company is able to operate are limited by the size of the Board, which is itself dictated by the current size and geographical spread of the Company’s operations, with directors resident in the UK, Romania and Southern Africa. With this limitation, the Board is dedicated to upholding the highest possible standards of governance and probity.
The chairman, Brian Moritz:
- leads the Board and is primarily responsible for the effective working of the Board;
- in consultation with the Board ensures good corporate governance and sets clear expectations with regards to Company culture, values and behaviour;
- sets the Board’s agenda and ensures that all Directors are encouraged to participate fully in the activities and decision-making process of the Board.
The CEO, Andrew Prelea:
- is primarily responsible for developing Vast’s strategy in consultation with the Board, for its implementation and for the operational management of the business;
- is primarily responsible for new projects and expansion;
- is responsible for attracting finance and equity for the company
- runs the Company on a day-to-day basis;
- implements the decisions of the Board;
- monitors, reviews and manages key risks;
- is the Company’s primary spokesperson, communicating with external audiences, such as investors, analysts and the media.
The technical director, Craig Harvey:
- is responsible for operational improvements and efficiency at the Manila mine in Romania;
- is responsible for expansion and exploration of projects at the mine level;
- is responsible for the re-opening of the Baita Plai mine;
- assists and advises on the operation and expansion of the Zimbabwe operations and projects;
- provides technical input on new projects.
The finance director, Roy Tucker:
- is responsible for the administration of all aspects of the Group;
- oversees the accounting function of all group companies;
- runs the UK head office as the only UK based executive director;
- deals with all matters relating to the independent audit;
- is the main point of contact with the Company’s lawyers and Nomad, and the London Stock Exchange.
The remuneration committee is chaired by Nick Hatch and comprises Eric Diack and Nick Hatch. It meets on an ad hoc basis when required.
The audit committee is chaired by Eric Diack and comprises Nick Hatch and Eric Diack. It normally meets twice per annum to consider the interim and final results. In the latter case the auditors are present and the meeting considers and takes action on any matters raised by the auditors arising from their audit.
The chairman, Brian Moritz, attends the meetings of these committees when requested to do so.
Matters reserved for the Board include:
- Vision and strategy
- Production and trading results
- Financial statements and reporting
- Financing strategy, including debt and other external financing sources
- Budgets, acquisitions and expansion projects, divestments and capital expenditure and business plans
- Corporate governance and compliance
- Risk management and internal controls
- Appointments and succession plans
- Directors’ remuneration
Principle 10: Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
Shareholders are encouraged to participate at the AGM, and do so, ensuring that there is a high level of accountability and identification with the Group’s strategy and goals. Historically there has tended to be a separation of shareholders into groupings with interests in expansion in Romania and Zimbabwe respectively. This has mitigated against unanimity, and has manifested itself in particular in voting on the issue of new shares and the disapplication of pre-emption rights.
All directors were present at the AGM held on 20 October 2017, other than Eric Diack, who was present by telephone, being based in South Africa, and Brian Basham, who was not standing for re-election and therefore ceased to be a director at the end of the meeting. Resolution 3, relating to the re-election of Brian Basham had been withdrawn, and resolutions 7 to 10, relating to the issue of new shares, were not put to the meeting for technical reasons. The other resolutions were passed with no material proxy votes against.
A General Meeting was held on 10 November 2017 to approve resolutions to allow Directors to issue new shares and to disapply pre-emption rights, similar to the resolutions not put to the vote at the AGM. The relevant resolutions were passed and in each case proxy votes against the resolution amounted to less than 1%.
Subsequent General Meetings were held on 14 February, to approve a US$ 9.5 million conditional pre-payment finance term sheet with Mercuria related to an off-take offer from Mercuria, and on 25 June to renew the authority of the directors to issue new shares and to disapply pre-emption rights. The relevant resolutions were passed and in each case proxy votes against the resolution amounted to less than 1%.
Annual reports and notices of general meetings are included separately in the appropriate section of this website.
Under the QCA Code certain matters are required to be disclosed in the Company’s Annual Report. Pending the publication of an Annual Report fully complying with the Code, the matters requiring Annual Report disclosure are set out below. This disclosure assumes the relevant Annual Report to be published on 28 September 2018, and discloses the position at that date.
Principle 1: Establish a strategy and business model which promote long term value for shareholders
The Company’s strategy is to identify mineral deposits which can be developed into mines, and to operate those mines to create value and income for shareholders. The geographical areas of operation are Romania and Zimbabwe.
In Romania the Group owns and operates the Manaila polymetallic mine which produces concentrates for copper, zinc and gold by open pit mining. Production is being increased by mining adjacent resources, and profitability is being improved by upgrading mobile plant, and by moving fixed plant closer to the mine.
The Group expects to obtain the rights to the Baita Plai underground mine in the short term and will plan to commence production in 2019
The Group is also examining other projects in Romania where it plans to obtain external equity finance for development and retain a minority interest.
Following the change in regime in Zimbabwe the Group intends to add value for shareholders by identifying mining projects to be financed by external equity while retaining a minority interest for the Group. The interest in the Eureka mine is an example of this strategy. The group owns an effective 25% interest in the profitable Pickstone Peerless gold mine.
The Group has historic interests in an area of the Marange diamond fields, and has now concluded a joint venture agreement with Red Mercury (Pvt) Ltd for exclusive access to a separate, substantial diamond concession area in the Marange Diamond Fields
Principle 3: Embed effective risk management, considering both opportunities and threats, throughout the organisation
The risks facing the Company are detailed in the Strategic Report. The board seeks to mitigate such risks so far as it is able to do, but certain important risks cannot be controlled by the board. The CEO is primarily responsible to the Board for risk management.
In particular, the products the Company mines and is seeking to identify are traded globally at prices reflecting supply and demand rather than the cost of production. In Romania, the Company seeks to protect its cash flow by means of a long term offtake agreement, but it does not hedge future production.
While the company will only invest in exploration projects where there is a legal right to convert an initial exploration licence to a mining licence, in practice it may be difficult to obtain such conversion for political reasons. There is no legal way that the company can protect itself against this possibility.
The Company’s seeks to eliminate risk in substantial new projects by its strategy of financing such projects through third party equity involvement.
Principle 4: Maintain the board as well-functioning, balanced team led by the chair
The board is well balanced both in its skill sets and the domicile of its members. Of the executive directors, Andrew Prelea is resident in Romania, Roy Tucker in the UK, and Craig Harvey in Southern Africa. Two of the non-executive directors are resident in the UK and one in Southern Africa.
All of the current non-executive directors are considered to be independent. None of them has been a director for a sufficient length of time to prejudice such independence.
Non executive directors are committed to devote 30 days per annum to the Company. Executive directors devote substantially the whole of their time to the Company.
Where possible directors are physically present at board meetings, but, due to the wide divergence of locations, directors may be present by telephone.
During the year ended 31 March 2018 there were 6 full board meetings. Directors holding office throughout the year, Brian Moritz, Roy Tucker and Eric Diack, attended all meetings in person or by telephone.
Andrew Prelea and Craig Harvey were appointed on 1 March 2018, and no board meetings were held after their appointment. Nick Hatch was appointed after 31 March 2018.
Roy Pitchford resigned with effect from 31 December 2017. He attended all board meetings held while he was a director.
Principle 6: Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities.
CVs of the directors are disclosed elsewhere in the website.
Each of the directors maintains up to date skills by a combination of technical journals and courses.
The Company needs a range of skills to be covered by the Board. Among the executive directors, Andrew Prelea is experienced in general management, including identifying and negotiating new business opportunities. Roy Tucker is a Chartered Accountant with many years experience in financial management. Craig Harvey is a qualified geologist experienced in constructing and operating mines.
Among the non-executives Brian Moritz is a Chartered Accountant. In addition to his financial skills he has been registered as a Nominated Adviser. Eric Diack is also a Chartered Accountant with experience in operational as well as financial management. Nick Hatch is a qualified geologist with experience in evaluating mining companies and natural resource projects.
Importantly, directors without geological qualifications have long experience with junior companies in the natural resources sector.
Principle 7: Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
The board has successfully achieved major objectives by:
- Expanding and upgrading the Manaila polymetallic mine in Romania and reducing previous losses.
- Negotiating the rights for the Baita Plai underground polymetallic mine in Romania and planning to bring it into production.
- Obtaining other mineral rights in Romania, in particular the Blueberry project.
- Expanding the Pickstone Peerless gold mine in Zimbabwe and developing the sulphide deposit.
- Securing the rights to the Eureka gold mine in Zimbabwe and retaining a minority interest after financing.
- Negotiating new rights in the Marange diamond fields.
Given the size of the Company, the whole Board is involved in the identification and appointment of new Directors. The importance of refreshing membership of the Board is recognised, and has been implemented. In 2018 Andrew Prelea was appointed to replace Roy Pitchford as CEO, and Nick Hatch replaced Brian Basham as a non-executive Director. The directors believe that the board operates efficiently and cost effectively for the benefit of all stakeholders. Nevertheless, it is envisaged that the board will be strengthened in due course when new projects are operated by the Company.