Corporate governance

The board of directors of Exxaro Resources Limited is fully committed to the principles of good corporate governance as elaborated in King IV. The directors regard these as fundamental to achieving King IV governance outcomes, including the business success and sustainability of the company, through the ethical and effective leadership of the board. Transparency, accountability and integrity – the pillars of responsible corporate citizenship – permeate everything we do and ultimately deliver value to our shareholders and our broader stakeholder groups, including the communities in which we operate.

Our corporate governance framework is depicted below:

King IV

An organisation "... can no longer be seen as existing in its own narrow universe (or 'society') of internal stakeholders and the resources needed to create value - it also operates in, and forms part of, general society. In this view, the licensor of an organisation is not just those individuals and entities within its narrowly defined value chain, but society as a whole." Mervyn E King SC, chair of the King Committee.

Since publication of King IV in November 2016, Exxaro has made significant progress in communicating King IV to our people as part of our excellence in action journey. Continued training at strategic, tactical and operational level ensures that every director and employee understands the importance of good corporate governance and that all need to play a part in ensuring Exxaro acts as a responsible corporate citizen.

Code of ethics

Ethics involves applying moral standards – standards of good, right and fair conduct – which are supported by values, to shape the decisions and actions of individuals in the company in the pursuit of our business objectives. In line with the company's vision to outperform the mining and mineral sector in creating value for all stakeholders through exceptional people and superior processes, the conduct of our businesses and employees is characterised by fundamental values:

Empowered to grow and contribute
Developing and deploying our knowledge and ingenuity to achieve our vision. We focus on people, create freedom to innovate and collaborate, respect individuality, have fun
and rise to challenges.

Teamwork
We succeed together through a climate of respect and equality.

Honest responsibility
We take ownership, provide visible
leadership and encourage collaboration, commitment and creativity for the benefit of all.

Committed to excellence
We speak the truth and accept
accountability for our actions.

These values have been developed for the benefit of Exxaro and its employees to guide the moral way of acceptable and responsible behaviour without which business life cannot be sustained.

Our values provide general guidelines on how we interact with each other and our stakeholders, reflecting what is important to us and how we conduct ourselves. Recognising that our public reputation is one of our most important assets, we are committed to achieving the highest ethical standards in all our business operations.

We recognise our obligations to all our stakeholders, particularly shareholders, clients, employees, business partners, competitors, the authorities, the environment and the wider community. Maintaining the trust and confidence of all our stakeholders is the responsibility of every employee.

In all our actions, the values and associated behaviours must be used to guide and direct the way we conduct ourselves. This code is supported by company policies and procedures for specific issues, processes and situations.

The directors of the company have approved and endorsed a revised code from 1 September 2018 and are committed to comply with both the letter and spirit of this code. It contains the ethical standards to which we commit ourselves, both as an organisation and in terms of individual conduct by members of Exxaro.

The code should be read in conjunction with all the company's policies and procedures, specifically:

• Whistle-blowing
• Fraud prevention
• Conflicts of interest
• Gifts and benefits from suppliers
• Recruitment and selection
• Anti-bribery and corruption
• Fraud response
• Fraud investigation process.

Conflicts of interest

The board has also adopted a new conflict-of-interests policy late in 2018, which reinforced that ethical and responsible leadership and effective governance practices require that all employees act in the best interest of their employer and requires employees to make fair and objective decisions. It is therefore not permissible for employees or their related parties to engage in conduct, whether by acting or failing to act, that would amount to a conflict or the potential of a conflict of interest with the company.

The policy also regulates processes and procedures in line with the Companies Act 71 of 2008 (Companies Act), setting out duties and obligations that a director and prescribed officer owes to the company, including the disclosure of personal financial interests. However, the policy should not be applied in a manner that is contrary to or replaces such duties and obligations.

The responsibility for avoiding conflicts of interest does not end with individual employees, prescribed officers or directors, but extends to their close family and friends or other beneficiaries who may have interests that conflict with those of the group.

Enterprise risk management

Our enterprise risk management (ERM) framework has reached a high level of maturity. This framework integrates risk management across Exxaro to support our vision, mission and values and increases the likelihood of achieving our business objectives as well as the objectives set out in King IV.

The risk management function, through the combined assurance model, coordinates with internal audit to obtain evidence on the effectiveness of treatment/control activities in achieving the desired/planned risk treatment. Through the combined assurance model, assurance providers such as internal audit, sustainability KPI audits and external assurance providers, self-assessments and accreditation reviews, we monitor the effectiveness of significant risk treatments and compliance with regulatory requirements,
non–binding rules, codes and standards that the company has adopted, as well as policies and procedures.

Compliance

Exxaro subscribes to a compliance philosophy that supports the organisation being an ethical and responsible corporate citizen, one that creates sustainable value for all stakeholders by striving for operational efficiency, growth and regulatory compliance within a framework of responsible corporate citizenship.

As such, a number of compliance audits are conducted by external assurance providers annually at our mining operations to provide the board with comfort on the effectiveness of compliance management throughout the group, and integrate this with the ERM and combined assurance reporting.

Delegation to management

The Exxaro delegation-of-approval framework and policy is reviewed annually to provide direction and delegate power to management. The board is satisfied that the framework contributes to role clarity and the effective exercise of authority and responsibilities.

Corporate governance services

In terms of King IV, the board is the focal point and custodian of corporate governance in the organisation. Therefore, in addition to corporate governance information being presented and made available to the board throughout the year, biannual governance sessions are scheduled to obtain professional and independent guidance on corporate governance and legal duties in an ever–changing environment.

During these sessions in 2018, we specifically focused on:

• Failure in corporate governance leading to corporate scandals and/or collapse
• Duties of directors – conflicts of interest
• Anti-bribery and fraud awareness training and compliance
• Evolving the Exxaro culture.

Apply and explain

In line with King IV's move to 'apply and explain' as a way of supporting a claim that good governance is practised, for each King principle we summarise our actions as well as associated policies and processes to support Exxaro's claim of good corporate governance.

KING IV compliance

	Governance outcomes				Number				Principles				Applicable policies and processes				Status evaluation
	Ethical culture				1.1				The governing body should set the tone and lead ethically and effectively				Board charter (reviewed in 2019) Social and ethics committee terms of reference (reviewed in 2019) Appointing directors after assessing skills and competence as well as thorough background check
					1.2				The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture				Approving and overseeing new code of ethics Social and ethics committee overseeing anti-bribery and corruption programme implementation, including employees and service providers Approving and overseeing group-wide conflicts-of-interest policy
					1.3				The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen				Sustainability KPIs rank equally to financial KPIs to track the achievement of strategic objectives KPIs are monitored quarterly by the board and its respective committees Sustainability KPIs include environmental, social, compliance and human capital elements
	Performance and value creation				2.1				The governing body should lead the value–creation process by appreciating that strategy, risk and opportunity, performance and sustainable development are inseparable elements				Strategy is reviewed and approved annually by the board Sustainability KPIs are reviewed and approved annually by the board Strategic deep-dive is conducted every two years Strategic risks are assessed annually KPIs are linked to all material issues per capital and risk thresholds are attached to every KPI Performance against each KPI is tracked quarterly Enterprise risk management (ERM) framework and risk appetite approved by the board Impact of external and internal events are monitored for their effect on the strategic risk profile
					2.2				The governing body should ensure that reports and other disclosures enable stakeholders to make an informed assessment of the performance of the organisation and its ability to create value in a sustainable manner				The integrated report is based on an integrated reporting process throughout the year The integrated report sets out strategic objectives, the business model, material issues that impact the business, and risks that prevent Exxaro from achieving its objectives Material issues are assessed annually and financial materiality is reviewed by the audit committee The integrity of the integrated report is reviewed by the audit committee The integrated report and annual financial statements are approved by the board annually
	Adequate and effective control				3.1				The governing body should serve as the focal point and custodian of corporate governance in the organisation				Corporate governance remains the accountability of the board as a whole King IV gap analysis conducted internally in 2017 King IV internal audit conducted in 2018, with no material findings Corporate governance is entrenched throughout the organisation in all levels of decision making Board charter reviewed in 2017 and again in 2019 Board governance sessions conducted twice a year, and mandatory for directors and executive management Subsidiary directors receive formal training annually
					3.2				The governing body should ensure in its composition a balance of the skills, experience, diversity, independence and knowledge needed to discharge its role and responsibilities				The nomination committee ensures the composition of the board has the appropriate level of skills, experience, diversity and independence Nomination committee terms of reference reviewed in 2017 and again in 2019 An approved skills and experience matrix facilitates the appointment of directors Race and gender targets are approved by the board A formal appointment letter is given to the director on appointment A declaration of outside interest is made on appointment and reviewed annually. Declarations are also made before any meetings begin A lead independent director is appointed by the board There is a formal division between the duties of the CEO and the chair as per the board charter The board charter was reviewed in 2017 and again in 2018
					3.3				The governing body should consider creating additional governing structures to assist with the balancing of power and the effective discharge of responsibilities, but without abdicating accountability				The board has delegated certain powers to the audit committee; social and ethics committee; sustainability, risk and compliance committee; remuneration and nomination committee; and investment committee All board committees have formally approved terms of reference, that were reviewed in 2017 and 2019 The composition of board committees is assessed annually The composition of committees complies with the Companies Act, Exxaro's memorandum of incorporation (MoI), King IV and the terms of reference of each committee
					3.4				The governing body should ensure that the appointment of and delegation to competent executive management contributes to an effective arrangement by which authority and responsibilities are exercised				There is a clear division of power between the CEO and the chair as per the approved board charter The performance of the executive committee is monitored by the board There are formal terms of reference for the executive committee A delegation of authority is approved by the board and reviewed at least annually The company secretary is appointed by the board The performance of the company secretary is assessed annually
					3.5				The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness				A formal assessment is conducted by the chair This is augmented by questionnaires annually
					4.1				The governing body should govern risk and opportunity in a way that supports the organisation in defining its core purpose and to set and achieve strategic objectives				The ERM framework is approved by the board and periodically reviewed Strategy, risk, risk appetite and performance are linked via the strategic performance dashboard Independent assurance on the risk management process is conducted annually
					4.2				The governing body should govern technology and information in a way that supports the organisation in defining its core purpose and to set and achieve strategic objectives				IT governance is formally delegated by the audit committee to the IM (information management) steering committee This committee has formal terms of reference and its scope includes reviewing IT strategy in support of the overall business, reviewing IT risks. IT audit findings and IT compliance The IM steering committee reports quarterly to the audit committee
					4.3				The governing body should govern compliance with laws and ensure consideration of adherence to non-binding rules, codes and standards				The compliance policy is formally approved by the board The compliance process is fully integrated with the risk process Compliance awareness on high legal risks is conducted annually The compliance process is independently assured annually
					4.4				The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the creation of value in a sustainable, manner				The remuneration strategy and policy are determined by the remuneration committee The remuneration policy is voted on at the AGM Formal engagement takes place with shareholders The remuneration policy is independently assessed
					4.5				The governing body should ensure that assurance results in an effective control environment and integrity of reports for better decision making				The internal audit charter and plan is approved by the audit committee The external audit plan is approved annually by the audit committee Internal and external audit reports are risk-based The combined assurance forum, with formally approved terms of reference, coordinates all assurance activities All findings are monitored by the audit committee Internal audit performance is part of the KPIs of every executive team member A chief audit executive is appointed internally, is independent from management and chairs the combined assurance forum
	Trust, good reputation and legitimacy				5.1				As part of its decision making in the best interests of the organisation, the governing body should ensure that a stakeholder-inclusive approach is adopted, which takes into account and balances their legitimate and reasonable needs, interests and expectations				A formal stakeholder policy is approved by the board Stakeholder relations are monitored by the social and ethics committee Stakeholder affairs are holistically managed by an executive who is adequately resourced All operations have an approved stakeholder engagement plan All directors attend the AGM

Significant skills and experience (10+ years, in-depth, main focus area, weekly use of skills, line accountability)