Corporate Governance Policies

 

Ethical standards

Chatham Rock Phosphate Limited (the “Company”) expects its directors and employees to act legally, ethically and with integrity in a manner consistent with the Company’s policies, guiding principles and values. The Company has put measures in place to assist with achieving this expectation. These measures are detailed here.

 

Role of the board

The Board of Directors of the Company is elected by the shareholders to supervise the management of the Company. The Board establishes the Company's objectives, overall policy framework within which the business of the Company is conducted and confirms strategies for achieving these objectives, monitors management's performance and ensures that procedures are in place to provide effective internal financial control. The Board is responsible for guiding the corporate strategy and direction of the Company and has overall responsibility for decision-making.  The Board delegates responsibility for implementing the Board’s strategy and for managing the operations of the Company to the Managing Director.

 

 

Board composition and performance

The Board currently comprises of five directors including the Chair and the Managing Director. The Board meets monthly  on a scheduled basis, and more frequently communicates by phone and email  to prioritise and respond to issues as they arise. Board meetings are frequently held by conference call to reduce travel costs. The Chair of the Board is Robert Goodden. The Chair’s role includes managing the Board; ensuring the Board is well informed and effective; acting as the link between the Board and Chris Castle, the Managing Director; and ensuring effective communication with shareholders.  The Company does not at present have a formal director-training programme.

 

Board committees

The Board has an Audit sub-committee comprising Linda Sanders and Jill Hatchwell.The Board has delegated certain of its responsibilities to this Committee.  The decisions of this Committee are reported back to the Board in order to allow the other members of the Board to question committee members.  Given the nature of business of the Company and the internal financial controls that the Company has in place, it is not considered necessary to have an internal auditor in addition to an Audit Committee. The Company has determined that it is not appropriate, nor in the best interests of its security holders to establish a Nomination Committee at this time. The Company considers it appropriate to deal with potential nominations at the full Board level and then leave the ultimate decision on Board composition to shareholders through any Board appointee being subject to re-election at the Company’s next annual meeting.

 

Reporting and disclosure

Management accounts are prepared prior to each Board meeting and reviewed by the Board throughout the year to monitor performance against budget targets and objectives. The Board must ensure the Company makes all disclosures required at law in its Annual Report.

 

Director remuneration

A collective fee pool is fixed by ordinary shareholder resolution from time to time.  However directors are not paid fees but receive compensation on the basis of professional services provided. The Company does not have a remuneration policy however the remuneration of all directors is disclosed each year in the Company’s Annual Report. Subject to shareholder approval and the relevant NZX Listing Rule requirements, the directors may be remunerated other than in cash by way of an issue of equity securities.

 

Meetings of Directors

The board meets every six weeks, with most meetings held by conference call to reduce travel costs. The board has two sub-committees (audit and remuneration) that meet whenever required.


Operations

Chris Castle manages Chatham Rock Phosphate (CRP) through an agreement with Aorere Resources Ltd (AOR). The Agreement has been in place since 2004 and informally renewed on an annual basis since 2006 and there has been no alteration to the Agreement’s terms since just prior to CRP listing on the NZAX market in 2006 which altered the manner of fees payable to the Company for its services.
Under this Agreement, CRP has contracted Aorere ResourcesLtd (WPL) to act as an investment consultant and provide certain other services.  AOR’s duties and responsibilities include:
•    Provision of investment advisory services including identification and acquisition of an appropriate business or mineral exploration projects
•    Assisting CRP to raise equity funds and list its shares on a recognised stock exchange
•    Ensuring that CRP receives appropriate legal, accounting and taxation advisory support.
•    Provision of administrative and company secretarial services to CRP
•    Provision of research facilities and a database (which shall at all times remain the property of AOR) to assist the board of CRP to make investment decisions.
If specialist advice is required in relation to any of CRP’s activities, AOR shall engage such professional assistance considered necessary at CRP’s cost.
For these services CRP pays fees to AOR based on independent advice provided to the CRP board.

 

Risk management

The Board reviews management practices in relation to identification and management of significant business risk areas and regulatory compliance. The Board regularly reports the risks associated with its investments on its website.  The Company obtains directors' and officers' liability insurance to cover directors acting on behalf of the Company.

 

Shareholder relations

The Company aims to ensure that shareholders are informed of all major developments affecting the Company affairs. Information is communicated to shareholders in the Annual Report, Interim Report, and regular NZX announcements. The Company maintains an email address register on which any shareholder or stakeholder may request to be included. All NZX announcements (other than those of an administrative nature) are sent to all recipients on the email register. The Company also maintains its website to provide comprehensive information about its operations, activities and investments.

 

Stakeholder interests

The Company does not currently have any employees or material creditors. The Board will remain cognisant of stakeholder interests as they develop and consider policies to deal with different stakeholders accordingly. The Company will maintain public information as described in these policies to give stakeholders access to relevant information.

 

Principal Business Risks

Prospective investors are cautioned that an investment in Chatham Rock Phosphate is speculative and may involve a high degree of risk. An investment in this company is designed for people who can bear the loss of their entire investment. The principal risks are:

  • The Company has one major investment focus; developing an undersea rock phosphate prospect (“the Project”).  Thus it does not offer a range of investment options to spread investment risks.
  • This Project is at an embryonic stage of development and may not be successful.
  • Even if the Project is initially successful there is a risk that it could subsequently fail, for example if fertiliser prices subsequently fall making the Project uneconomic or unforeseen issues with extracting at the prospect arise.
  • The Company will at times be exposed to currency risks, including the international traded price of fertiliser commodities. For example, if the New Zealand dollar increases significantly in value these offshore prices will fall in value in New Zealand dollar terms which will have an adverse effect on both the financial position and in time the reported operating results of the Company.
  • The Company is investing venture capital in the early stages of the Project that will need very large sums of money to become commercially successful. Even if the early results are successful, if sourcing the subsequent capital required for the next stages of these projects is not achieved then the Company could lose its entire investment.
  • There is a risk that whilst the underlying performance of the Company and its investments may be quite successful, this may not be reflected in the share price of the Company, meaning that the returns experienced by an individual shareholder may differ from the underlying performance of the Company.
  • The Company has no employees and is reliant on its key personnel, being its directors and advisers, to develop the Project.
  • An active trading market may not develop for listed securities of the Company.

However, shareholders should note that risk would be minimised to the extent that it can be by the following strategies:

  • The Company’s investment in the Project is financed solely from equity sources (the Company has no borrowings and no present intention to obtain borrowings);
  • The Project has been extensively researched;
  • There will be frequent monitoring of commodity prices and market conditions generally;
  • Expert technical assistance has been engaged by the Company to advise it on various risks associated with the Project.

The above list is a general guide only and is not exhaustive.

 

Key Performance Drivers

The Company's goal is to develop the Project to the point where it generates profit and dividends/royalties, or alternatively can be profitably exited, either by trade sale or a takeover of the Company. If this strategy is successful, the value of the Company will increase and this should translate into an improved financial outcome measured both in terms of profit and increases in the net asset value of the Company. For this strategy to be successful, the key performance drivers of the company are:

  • To have the financial resources and expertise to add value to the Project
  • To attract significant further capital to advance the Project - this will require industry expertise, marketing skills and strong negotiating abilities
  • To secure key partners to extract the resource at the Project, process the resource and buy the resource.

 

Returns to Investors

The Company is presently small with limited resources and no profitable trading operations. This is expected to remain the situation for the next few years. Any incoming cash flows for the next few years will be ploughed back into developing the Project. Accordingly it is not proposed to pay dividends for the foreseeable future.

Assuming a scenario where the Company is successful, the returns to investors should logically be reflected in increasing share values reflecting the improved financial position of the Company. Any improvement in financial position will be determined by the underlying performance of the Project and accordingly the activities and risks of the Company that are discussed above demonstrate the key factors that will determine returns through increased share values. However, even in these circumstances, if investors don't consider the Company to be an attractive investment, or if market conditions are generally depressed, there can be no certainty that the value of the Company's shares will reflect any increased underlying value of the Project.

The nature of returns intended by the Company are accordingly through capital growth meaning returns on an investment in the Company will most likely only be received through a longer term holding of securities of the Company.