Terrafame’s Corporate Governance principles

The administration and decision-making of Terrafame Ltd (“Terrafame” or “company”) are guided by the Articles of Association, the Limited Liability Companies Act and other legislation in force, as well as the Government Resolution on State Ownership Policy of 13 May 2016. In 2018, as an unlisted company, Terrafame complied, as applicable, with the Corporate Governance Code for listed companies approved by the Finnish Securities Market Association (2015). The Code is available at https://cgfinland.fi/en/.

The deviations from the Corporate Governance Code are related to the General Meeting (recommendations 1−4), self-evaluation of the operations of the Board of Directors (13), Rules of Procedure of the Board’s committees (14), as well as the specification of executives’ duties (21). In addition, the company deviates partially from the Corporate Governance Code’s reporting requirements.

The deviations from the Governance Code recommendations are because the company’s securities have not been publicly traded.

This Corporate Governance Statement of 2018 is issued separately from the financial statements. The General Meeting of Shareholders, the Board of Directors and the CEO are responsible for Terrafame’s administration and operations. A shareholder agreement on the use of proprietary rights and decision-making in the company, the terms of which correspond to predominant market practice, has been concluded between the company's shareholders.

General Meeting

At the General Meeting, the shareholders confirm the company’s financial statements and decide on the distribution of profits, the election of Board members and the auditor, as well as their remuneration. The General Meeting also elects the Chairman of the Board and a possible Vice Chairman.

Board of Directors

Duties and responsibility

In accordance with the Limited Liability Companies Act, Terrafame’s Board of Directors is responsible for the company’s governance and the appropriate organisation of its operations. The Board of Directors must also ensure that the company’s accounting and financial management are appropriately supervised. The Board of Directors promotes the interests of the company and its shareholders. One of the Board’s main duties is to make significant decisions relating to the company’s operating principles, strategy, investments, organisation and finance.

According to the Articles of Association, the Board of Terrafame shall have between three and seven members. The members are elected at the Annual General Meeting for a term ending at the close of the next Annual General Meeting.

Preparation of the composition of the Board

The major shareholders of the company submit their proposals for the composition of the Board in accordance with the shareholder agreement. Thus, Finnish Minerals Group has the right to nominate candidates for up to five Board positions and the Galena funds have the right to nominate candidates for up to two Board positions.

Key content of the Board’s Rules of Procedure

The Board of Directors has confirmed Rules of Procedure for itself, the key content of which is described below, and which define the duties of the Board, its Chairman and the committees. The Rules of Procedure include the following issues: composition of the Board of Directors, election of Board members, responsibilities of the members and the Chairman, meetings and decision-making of the Board, disqualification of members, committees, self-assessment of operations, as well as remuneration of the members.

The Board’s responsibilities include:

  • approving the annual operating plan, business plan and budget
  • approving financial reports, financial statements and the annual report
  • approving the organisational structure and remuneration system • appointing and dismissing the Chief Executive Officer
  • appointing the Management Team
  • deciding on the terms and conditions of employment and remuneration of the Chief Executive Officer and key personnel
  • appointing committee members and confirming the committees’ Rules of Procedure
  • directing and supervising the executive management
  • supervising the company’s operations with respect to compliance with laws and regulations
  • approving long-term objectives and strategies
  • approving the company’s values, principles and practices concerning the control and risk management system
  • convening the General Meeting

The Board of Directors has a quorum when more than half of its members participate in a meeting, either present or via telephone or video conference. In current matters, the Board may also make unanimous written decisions by email. The Board seeks to achieve consensus in its decision-making on all occasions. If this cannot be sensibly achieved, the decisions of the Board shall be made in accordance with the provisions of the Limited Liability Companies Act. According to the Act, the decisions of the Board require a simple majority. In the event of a tie, the Chairman shall cast the deciding vote. With regards to disqualification of Board members, the provisions of the Limited Liability Companies Act shall be observed.

The Board of Directors convenes approximately ten times per year in accordance with an agreed schedule. If necessary, the Board will hold additional meetings.

Board Steering Group and Committees

To support and monitor the progress of the battery chemicals plant project, Terrafame’s Board of Directors decided in autumn 2017 to set up a Steering Group, which comprised the Board members Lauri Ratia (Chairman), Tuomo Mäkelä and Emmanuel Henry. The purpose of the Steering Group is to monitor the progress of the project at regular monthly intervals, or more frequently as needed, and to support and guide the preparation of the project on key issues. Separate Rules of Procedure have not been confirmed for the Steering Group, and no independent decision-making or representation powers have been assigned to it in the company. The Steering Group reports regularly to the Board.

Terrafame’s Board had no functioning committees in the 2018 financial period. The Board of Directors, at its discretion, may establish an Audit Committee and a joint Organisational Structure and Remuneration Committee, and elect chairmen for these committees. The Board did not set up such committees in 2018, and the Board was responsible for the duties of these committees.

Operational management

Chief Executive Officer

The CEO is responsible for the day-to-day management of the company in accordance with the guidelines and regulations given by the Board of Directors (general authority). The CEO is responsible for ensuring the legal compliance of accounting practices and the reliable organisation of asset management.

The CEO of Terrafame is responsible for the operational management of the business in accordance with the strategic plans, budgets, action plans, guidelines and regulations approved by the Board. The CEO presents operational issues to the Board and is responsible for the implementation of decisions made by the Board.

Management Team

Terrafame’s Management Team manages the attainment of the company’s operational and financial objectives. The Management Team reports to Terrafame’s CEO and convenes on a regular basis every other week.

Committees

The shareholder agreement concerning the company provides for establishing three committees:

  • The tasks of the Commercial Committee include the evaluation, monitoring and planning of commercially relevant issues of the company, as well as the acquisition of information related to them.
  • The tasks of the Technical Committee include the evaluation, monitoring and planning of topical issues related to the company's production, operations of the mine and metals production plant and development projects, as well as the acquisition of information related to them.
  • The tasks of the Finance Committee include the evaluation and monitoring of the company’s finance position and the planning and preparation of initiatives to improve the position, as well as the acquisition of information related to them.

The members of the Committees are appointed in accordance with the shareholder agreement. The Committees operate in accordance with separate Rules of Procedure confirmed by the Board. No independent decision-making or representation powers have been assigned to the Committees.

Control systems

The Board of Directors is responsible for the arrangement of internal control, risk management and internal auditing. Terrafame’s Board has confirmed the company’s principles concerning internal control and risk management.

Internal control

The aim of Terrafame’s internal control is to ensure that the company’s operations are efficient and results will be achieved, business risks are adequately and appropriately managed and the information produced is reliable. The internal control system is also used to monitor compliance with the company’s policies and guidelines.

Risk management

Terrafame assesses risks and opportunities as part of business planning and decision-making processes. In order to limit unnecessary and excessive risk-taking, risks related to the company’s operating environment, operational activities, environment, and financial position are assessed regularly when planning and managing business operations. The Board of Directors regularly reviews the risk information collected by the operational management.

Main features of the internal control and risk management systems related to the financial reporting process

Terrafame seeks to ensure that the company’s financial reporting complies with the requirements in force in such a way that the company’s financial statements provide a true and fair view of the company’s activities and financial position. The system for monitoring compliance with the requirements is based on management’s very exact and transparent reporting process, on the company’s values and on its corporate culture, emphasising honest and transparent activities.

Auditing

The task of the statutory external audit is to verify that the financial statements and report of the Board of Directors provide accurate and adequate information on the company’s result and financial position. In addition, auditing includes an audit of the company’s accounting and administration.

The auditor has issued a statutory auditor’s report to the shareholders of Terrafame in connection with the company’s financial statements and has reported on his findings to the company’s Board of Directors.

According to the Articles of Association, the auditor of Terrafame shall be an audit firm authorised by the Finnish Patent and Registration Office. The auditor’s term of office expires at the close of the next Annual General Meeting following the auditor’s election.

Related party governance

Terrafame's parent company, Finnish Minerals Group, has confirmed the Group’s policy for organising related party governance and dealing with related party transactions at the company. According to the policy, the company's financial administration maintains a register of the company’s related parties including organisations and natural persons. According to the related party policy, the Board's exclusive competence includes all significant transactions involving the company’s related parties, who may be a natural person or an organisation. Decisions on transactions with related parties comply with the provisions of the Finnish Limited Liability Companies Act (624/2006). The company reports on related party transactions in the Report of the Board of Directors.

Governance in 2018

General Meeting

In 2018, the Annual General Meeting was held on 10 April. Additionally, two Extraordinary General Meetings were held in 2018.

Board of Directors

As of 14 August 2015, Terrafame’s Board of Directors comprises Lauri Ratia (Chairman), Esa Lager and Tuomo Mäkelä. In February 2017, Matti Hietanen (Vice Chairman), Jesus Fernandez and Emmanuel Henry were appointed to the Board. Riitta Mynttinen was appointed as the Board’s seventh member in July 2018.

Terrafame’s Board has assessed the independency of its members. Of the members, Ratia, Lager, Mäkelä and Mynttinen all are independent of the company and its shareholders. Hietanen is the CEO of the parent company, Finnish Minerals Group. Fernandez and Henry are employed by the Trafigura Group, which incorporates Terrafame’s minority shareholders, the Galena funds.

Finnish Minerals Group held 77.0% of Terrafame Ltd’s shares at the end of the 2018 financial period. Minority shareholders were Trafigura Ventures V B. V., Galena Private Equity Resources Investment 2 L.P. and Galena Private Equity Resources Investment 3 L.P. funds, with a holding totalling 22.7%, as well as Sampo plc, with a 0.3% holding. The Board members or the entities over which they exercise control held no shares or share-based rights in Terrafame.

In 2018, the Board of Terrafame convened 12 times, including one telephone conference. Additionally, the Board has made written decisions on current matters by email. The participation activity of each Board member is disclosed in the Remuneration report. In 2018, the Board’s work continued to focus on the controlled ramp-up of the mine according to plan, building on the premise of ensuring occupational and environmental safety and the company’s core values of safety, efficiency and commitment.

The activities of Terrafame’s Board were led by Lauri Ratia, the Chairman of the Board. In addition to the duties of the Chairman of the Board, Ratia also represented the company during the 2018 financial period in negotiations and the ownership and financing arrangements entered into. In addition, Lauri Ratia has observed closely, for example, the preparation of the battery chemicals plant project.

Steering Group

The meetings of Terrafame Ltd’s Steering Group were combined with the meetings of Terrafame’s Board of Directors. The Steering Group comprised Terrafame Ltd’s Board members and Finnish Minerals Group’s Chairman of the Board, Janne Känkänen. In 2018, the Steering Group's activities in practice meant that Janne Känkänen had speech and attendance rights at Terrafame’s Board meetings. Känkänen attended two Terrafame Board meetings in 2018.

Management Team

In 2018, Terrafame’s Management Team comprised Joni Lukkaroinen (Chief Executive Officer), Harri Natunen (Chief Technology Officer, until June 2018), Reijo Uusitalo (Chief Mining Officer), Janne Palosaari (Chief Commercial Officer), Veli-Matti Hilla (Chief Sustainability Officer), Matti Rautiainen (Chief Maintenance Officer), Ville Sirviö (Chief Financial Officer), Petri Parjanen (Chief HR Officer), Katri Kauppila (Chief Communications Officer, until September 2018) and Antti Arpalahti (Chief Production Officer).

The Management Team members or the entities over which they exercise control held no shares or share-based rights in Terrafame at the end of the 2018 financial period.

Committees

The Commercial Committee comprised Joni Lukkaroinen (Chairman), Janne Palosaari, Jawad Benkhadra and Gonzalo De Olazaval, and it convened three times during 2018.

The Technical Committee comprised: Harri Natunen (Chair), Antti Arpilahti and Jean Joubet, and it convened three times during 2018.

The composition of the Finance Committee was not established, and it did not convene during 2018.

Auditing

Terrafame's auditor is the Authorised Public Accountant KPMG, with Antti Kääriäinen, APA, as principal auditor.

The auditor’s fee and possible expenses are reimbursed according to an invoice approved by the company. In 2018, the fees paid to the auditor were EUR 82,221 (2017: EUR 79,702). Additionally, the fees paid in 2018 for services not related to the audit were EUR 49,723 (2017: EUR 15,499).

x