JOHANNESBURG (miningweekly.com) – JSE- and LSE-listed Glencore has nominated three directors, including its CFO Steve Kalmin, to serve on the board of subsidiary company, TSX-listed Katanga Mining.
The three directors will work with Katanga’s independent directors to implement the required remediation measures to strengthen Katanga’s corporate governance, compliance and control processes.
This follows the completion of Katanga’s internal review of certain past accounting practices, which have revealed material weaknesses in the company’s internal controls over financial reporting.
Led by independent directors Robert Wardell, Terry Robinson and Hugh Stoyell, the review highlighted the incorrect recording of the total tonnage of finished copper cathode production, which resulted in an overstatement of finished product inventories.
The review also showed the incorrect recording of valuation of the copper concentrate included in work in progress inventories, the valuation of ore in stockpile inventories and the amounts of property, plant and equipment during 2016, 2015 and prior periods.
Some of the weaknesses Katanga described include the control environment, which is the responsibility of senior management.
“The company has concluded that it did not adequately establish and enforce a strong culture of compliance and controls, which includes the adherence to policies, procedures and controls necessary to present financial statements in accordance with the International Financial Reporting Standards (IFRS),” it said in an update to shareholders on Monday.
Further, the company did not maintain effective controls to prevent or detect the override of Katanga’s control processes.
Another weakness relating to Katanga’s monitoring system that had emerged was that some accounting adjustments were not identified earlier owing to inadequate monitoring controls.
These monitoring controls included inadequate controls and procedures to properly quantify and verify the value of in-process concentrate inventories, the quarter-end and year-end sales cut-off procedures, an insufficient involvement of internal audit in the testing of the accuracy of external financial reporting and inadequate procedures to ensure the effective implementation of internal audit recommendations on high-risk areas.
“Each of these material weaknesses created a reasonable possibility that a material misstatement of the company's yearly financial statements or interim financial reports would not be prevented or detected on a timely basis,” Katanga said.
However, advisers have recommended various remediation measures to strengthen the company’s corporate governance, compliance and control processes, which the board will now take into consideration.
Katanga aims to enhance its internal control monitoring function, increase organisational awareness and understanding of the importance of internal controls to significantly decrease the risk of errors in the company's financial statements, and reinforce related accounting policies through the enhanced formalisation of documentation requirements and additional training and procedures.
“Notwithstanding the material weaknesses, based on the work performed during the review by independent directors, management, external auditors, outside legal counsel and outside accounting advisers, management and the board of directors have concluded that the restated consolidated financial statements are fairly stated in all material respects in accordance with IFRS.
The review resulted in the restatement of certain historical financial statements and related management's discussion and analysis, as well as changes to the board and management.
“Katanga is restating the audited restated consolidated financial statements for the years ended December 31, 2016, and December 31, 2015, and the audited restated consolidated statement of financial position as at January 1, 2015, together with the related notes and audit report; and the related management's discussion and analysis for the years ended December 31, 2016, and December 31, 2015.”
Following this, Katanga posted its delayed second and third quarter financial results.
In the second quarter, the company reported total sales of $11.7-million during the three months to June.
The loss before interest taxes, depreciation and amortisation was $73.69-million and the net loss attributable to shareholders $126.55-million for the quarter under review.
The third quarter experienced a loss before interest, taxes, depreciation and amortisation of $69.09-million during the three months to September 30, 2017, with the net loss attributable to shareholders narrowing to $115.3-million. Sales for the period were $5.8-million.
Meanwhile, Katanga reported a shake-up of its board and management, with directors Liam Gallagher, Aristotelis Mistakidis and Tim Henderson stepping down from the board, to be replaced, effective immediately, by Mike Ciricillo, Kalmin and Tony Moser.
Further, Katanga CFO Jacques Lubbe resigned, effective immediately, and was succeeded by Grant Sboros, effective November 20.
Meanwhile, an investigation by the Ontario Securities Commission’s (OSC’s) enforcement staff continues.
The OSC enforcement staff are investigating whether Katanga’s previously filed yearly and interim financial statements and management's discussion and analysis contain statements that are misleading in a material respect.
“The OSC enforcement staff are also investigating the adequacy of Katanga's corporate governance practices and compliance with those practices and the related conduct of certain directors and officers of Katanga,” the company reported.
Katanga's risk disclosure in connection with applicable requirements under certain international bribery, government payment and anticorruption laws is also being reviewed.