PAINCHEK LTD — Governance Information 2012

Apr 26, 2012

MERAH RESOURCES LTD ACN 146 035 127 T +61 892004436 Level 2 F +61 8 92004437 79 Hay Street E admin@merahresources.com.au SUBIACO, WESTERN AUSTRALIA, 6008 W merahresources.com.au

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CORPORATE GOVERNANCE STATEMENT

Merah Resources Limited (“Merah”) is committed to implementing the highest standards of corporate governance. In determining what those high standards should involve, Merah has turned to the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations . Merah is pleased to advise that its practices are largely consistent with those ASX guidelines. As consistency with the guidelines is a gradual process, where Merah does not currently have certain policies or committees recommended by the ASX Corporate Governance Council (the Council) in place, we have identified such policies or committees. Where Merah’s corporate governance practices do not correlate with the practices recommended by the Council, Merah is working towards compliance however it does not consider that all the practices are appropriate for Merah due to the size and scale of Company operations.

To illustrate where Merah has addressed each of the Council’s recommendations, a checklist is set out at the end of this report. The table does not provide the full text of each recommendation but rather the topic covered. Details of all of the recommendations can be found on the ASX Corporate Governance Council’s website at - http://www.asx.net.au/governance/corporate governance.htm

1. Board of Directors 1.1 Role of the Board

The Board’s role is to govern Merah rather than to manage it. In governing Merah, the Directors must act in the best interests of Merah as a whole. It is the role of senior management to manage Merah in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of management in carrying out these delegated duties.

In carrying out its governance role, the main task of the Board is to drive the performance of Merah. The Board must also ensure that Merah complies with all of its contractual, statutory and any other legal obligations, including the requirements of any regulatory body. The Board has the final responsibility for the successful operations of Merah.

To assist the Board carry out its functions, it has developed a Code of Conduct to guide the Directors, the Chief Financial Officer or its equivalent and other key executives in the performance of their roles.

1.2 Composition of the Board

To add value to Merah, the Board has been formed so that it has effective composition, size and commitment to adequately discharge its responsibilities and duties given its current size and scale of operations. Directors are appointed based on the specific skills required by Merah and on their decision-making and judgment skills.

Merah recognises the importance of Non-Executive Directors and the external perspective and advice that Non-Executive Directors can offer. The following criteria for independence have been adopted by Merah:

An Independent Director is a Non-Executive Director and:

• is not a substantial shareholder of Merah or an officer of, or otherwise associated directly with, a substantial shareholder of Merah;

• within the last three years has not been employed in an executive capacity by Merah, or been a Director after ceasing to hold any such employment;

• within the last three years has not been a principal of a material professional adviser or a material consultant to Merah. Or an employee materially associated with the service provided;

• is not a material supplier or customer of Merah, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;

• has no material contractual relationship with Merah other than as a Director of Merah; has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of Merah; and

• is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of Merah.

The Board does not have a majority of independent Directors. Currently the Board is comprised of one (1) independent Director, Mr Ian Prentice and three (3) non-independent Directors, Mr David Deloub, who is the Managing Director, The Chairman Mr Richard Homsany, who also provides legal services to the Company and Ms Suzie Foreman, who also provides accounting, corporate and company secretarial services to the Company through Athena Corporate Pty Ltd.

The Board considers that the composition of the Board is adequate for the Company’s current size and scale of operations, and includes an appropriate mix of skills and expertise relevant to the Company’s business.

While the Company does not presently comply with Recommendations 2.1 and 2.2, the Company may consider appointing further independent Directors in the future. The Company believes that given the current size and scope of its operations, non-compliance by the Company with Recommendations 2.1 and 2.2 will not be detrimental to the Company.

1.3 Responsibilities of the Board

In general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, management and operations of Merah. It is required to do all things that may be necessary to be done in order to carry out the objectives of Merah.

Without intending to limit this general role of the Board, the principal functions and responsibilities of the Board include the following.

• Leadership of the Organisation: overseeing Merah and establishing codes that reflect the values of Merah and guide the conduct of the Board.

• Strategy Formulation: to set and review the overall strategy and goals for Merah and ensuring that there are policies in place to govern the operation of Merah.

• Overseeing Planning Activities: the development of Merah’s strategic plan.

• Shareholder Liaison: ensuring effective communications with shareholders through an appropriate communications policy and promoting participation at general meetings of Merah.

• Monitoring, Compliance and Risk Management: the development of Merah’s risk management, compliance, control and accountability systems and monitoring and directing the financial and operational performance of Merah.

• Company Finances: approving expenses and approving and monitoring acquisitions, divestitures and financial and other reporting.

• Human Resources: appointing, and, where appropriate, removing the Managing Director (MD) and Chief Financial Officer (CFO) as well as reviewing the performance of the MD and monitoring the performance of senior management in their implementation of Merah’s strategy.

• Ensuring the Health, Safety and Well-Being of Employees: in conjunction with the senior management team, developing, overseeing and reviewing the effectiveness of Merah’s occupational health and safety systems to ensure the well-being of all employees.

• Delegation of Authority: delegating appropriate powers to the MD to ensure the effective day-to-day management of Merah and establishing and determining the powers and functions of the Committees of the Board.

Full details of the Board’s role and responsibilities are contained in the Board Charter, a copy of which is available for inspection at Merah’s registered office.

1.4 Board Policies

1.4.1 Conflicts of Interest

Directors must:

• disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist between the interests of the Director and the interests of any other parties in carrying out the activities of Merah; and

• if requested by the Board, within seven days or such further period as may be permitted, take such necessary and reasonable steps to remove any conflict of interest.

If a Director cannot or is unwilling to remove a conflict of interest then the Director must, as per the Corporations Act , absent himself or herself from the room when discussion and/or voting occurs on matters about which the conflict relates.

1.4.2 Commitments

Each member of the Board is committed to spending sufficient time to enable them to carry out their duties as a Director of Merah.

1.4.3 Confidentiality

In accordance with legal requirements and agreed ethical standards, Directors and key executives of Merah have agreed to keep confidential, information received in the course of the exercise of their duties and will not disclose non-public information except where disclosure is authorised or legally mandated.

1.4.4 Continuous Disclosure

The Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the ASX. In accordance with the ASX Listing Rules Merah immediately notifies the ASX of information:

• concerning Merah that a reasonable person would expect to have a material effect on the price or value of Merah’s securities; and

• that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of Merah’s securities.

1.4.5 Education and Induction

It is the policy of Merah, that new Directors undergo an induction process in which they are given a full briefing on Merah. Where possible this includes meetings with key executives, tours of the premises, an induction package and presentations. Information conveyed to new Directors include:

• details of the roles and responsibilities of a Director;

• formal policies on Director appointment as well as conduct and contribution expectations;

• access to a copy of the Board Charter;

• guidelines on how the Board processes function;

• details of past, recent and likely future developments relating to the Board;

• background information on and contact information for key people in the organisation;

• an analysis of Merah;

• a synopsis of the current strategic direction of Merah; and

• a copy of the Constitution of Merah.

In order to achieve continuing improvement in Board performance, all Directors are encouraged to undergo continual professional development. Specifically, Directors are provided with the resources and training to address skills gaps where they are identified.

1.4.6 Independent Professional Advice

The Board collectively and each Director has the right to seek independent professional advice at Merah’s expense, up to specified limits, to assist them to carry out their responsibilities.

1.4.7 Related Party Transactions

Related party transactions include any financial transaction between a Director and Merah. Unless there is an exemption under the Corporations Act from the requirement to obtain shareholder approval for the related party transaction, the Board cannot approve the transaction.

1.4.8 Shareholder Communication

Merah respects the rights of its shareholders and to facilitate the effective exercise of those rights Merah is committed to:

• communicating effectively with shareholders through releases to the market via ASX, information mailed to shareholders, information posted on Merah’s website and the general meetings of Merah;

• giving shareholders ready access to balanced and understandable information about Merah and corporate proposals;

• making it easy for shareholders to participate in general meetings of Merah; and

• requesting the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

Merah also makes available a telephone number and email address for shareholders to make enquiries of Merah.

1.4.9 Trading in Company Shares

The share trading policy sets out Merah’s policy regarding the trading in Company securities, which includes shares, options, warrants, debentures and any other security on issue from time to time. This policy is separate from and additional to the legal constraints imposed by the common law, the Corporations Act and ASX Listing Rules.

This policy applies to all Directors and employees of Merah and their associates (including spouses, children, family trusts and family companies) as well as contractors, consultants, advisers and auditors of Merah (“designated officers”).

1.4.10 Performance Review/Evaluation

It is the policy of the Board to conduct evaluation of its performance and that of its senior executives. The evaluation process was introduced via the Board Charter that has been implemented since the incorporation of Merah. The objective of this evaluation will be to provide best practice corporate governance to Merah.

1.4.11 Attestations by MD and CFO

It is the Board’s policy, that the MD and the CFO or its equivalent to make the attestations recommended by the ASX Corporate Governance Council as to Merah’s financial condition prior to the Board signing the Annual Report. However, due to its current size and scale of operations, Merah does not have a designated CFO, this role is performed by the Company Secretary.

The Board will also require the MD and CFO or its equivalent to attest to the implementation and compliance to Merah’s internal control and risk management strategies and to ensure that these policies are being managed effectively.

2. Board Committees

2.1 Audit Committee

Due to the size and scale of operations of Merah the full Board undertakes the role of the Audit Committee. Below is a summary of the role and responsibilities of an Audit Committee.

2.1.1 Role

The Audit Committee is responsible for reviewing the integrity of Merah’s financial reporting and overseeing the independence of the external auditors.

As the whole Board only consists of four (4) members, Merah does not have an audit committee because it would not be a more efficient mechanism than the full Board for focusing Merah on specific issues and an audit committee cannot be justified based on a cost-benefit analysis. However, in accordance with the ASX Listing Rules, Merah is moving towards establishing an audit committee consisting primarily of Independent Directors.

In the absence of an audit committee, the Board sets aside time to deal with issues and responsibilities usually delegated to the audit committee to ensure the integrity of the financial statements of Merah and the independence of the external auditor.

2.1.2 Responsibilities

The Audit Committee, or currently the full Board of Merah, reviews the audited annual and half-yearly financial statements and any reports which accompany published financial statements and recommends their approval to the members.

The Audit Committee, or currently the full Board of Merah, each year reviews the appointment of the external auditor, their independence, the audit fee, and any questions of resignation or dismissal.

The Audit Committee, or currently the full Board of Merah, is also responsible for establishing policies on risk oversight and management.

2.1.3 Risk Management Policies

The Board’s Charter clearly establishes that it is responsible for ensuring there is a sound system for overseeing and managing risk. As the whole Board only consists of four (4) members, Merah does not have a Risk Management Committee because it would not be a more efficient mechanism than the full Board for focusing Merah on specific issues.

2.2 Remuneration Committee

2.2.1 Role

The role of a Remuneration Committee is to assist the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees.

As the whole Board only consists of four (4) members, Merah does not have a remuneration committee because it would not be a more efficient mechanism than the full Board for focusing Merah on specific issues.

2.2.2 Responsibilities

The responsibilities of a Remuneration Committee, or currently the full Board, include setting policies for senior officers’ remuneration, setting the terms and conditions of employment for the Managing Director, reviewing and making recommendations to the Board on Merah’s incentive schemes and superannuation arrangements, reviewing the remuneration of both Executive and Non-Executive Directors and making recommendations on any proposed changes and undertaking reviews of the MD’s performance, including, setting with the MD goals and reviewing progress in achieving those goals.

2.2.3 Remuneration Policy

Directors’ Remuneration for the majority of directors was approved at a Board meeting held in September 2010. Directors’ remuneration is also reviewed on an annual basis.

2.2.3.1 Senior Executive Remuneration Policy

Merah is committed to remunerating its senior executives in a manner that is marketcompetitive and consistent with best practice as well as supporting the interests of shareholders. Consequently, under the Senior Executive Remuneration Policy the remuneration of senior executive may be comprised of the following:

• fixed salary that is determined from a review of the market and reflects core performance requirements and expectations;

• a performance bonus designed to reward actual achievement by the individual of performance objectives and for materially improved Company performance;

• participation in any share/option scheme with thresholds approved by shareholders;

• statutory superannuation.

By remunerating senior executives through performance and long-term incentive plans in addition to their fixed remuneration Merah aims to align the interests of senior executives with those of shareholders and increase Company performance.

The value of shares and options were they to be granted to senior executives would be calculated using the Black and Scholes method.

The objective behind using this remuneration structure is to drive improved Company performance and thereby increase shareholder value as well as aligning the interests of executives and shareholders.

The Board may use its discretion with respect to the payment of bonuses, stock options and other incentive payments.

2.2.3.2 Non-Executive Director Remuneration Policy

Non-Executive Directors are to be paid their fees out of the maximum aggregate amount approved by shareholders for the remuneration of Non-Executive Directors. Non-Executive Directors do not receive performance based bonuses, however they do participate in equity schemes of Merah.

Non-Executive Directors are entitled to but not necessarily paid statutory superannuation.

2.2.4.2 Current Director Remuneration

Full details regarding the remuneration of Directors, are included in the Company’s Annual Reports.

2.3 Nomination Committee

2.3.1 Role

The role of a Nomination Committee is to help achieve a structured Board that adds value to Merah by ensuring an appropriate mix of skills are present in Directors on the Board at all times.

As the whole Board only consists of four (4) members, Merah does not have a nomination committee because it would not be a more efficient mechanism than the full Board for focusing Merah on specific issues.

2.3.2 Responsibilities

The responsibilities of a Nomination Committee would include devising criteria for Board membership, regularly reviewing the need for various skills and experience on the Board and identifying specific individuals for nomination as Directors for review by the Board. The Nomination Committee would also oversee management succession plans including the MD and his/her direct reports and evaluate the Board’s performance and make recommendations for the appointment and removal of Directors. Currently the Board as a whole performs this role.

2.3.3 Criteria for selection of Directors

Directors are appointed based on the specific governance skills required by Merah. Given the size of Merah and the business that it operates, Merah aims at all times to have at least two Directors with experience appropriate to Merah’s target market. In addition, Directors should have the relevant blend of personal experience in accounting and financial management and Director-level business experience.

3. Company Code of Conduct

The Board has adopted a Code of Conduct which applies to all directors and officers of Merah. It sets out Merah’s commitment to successfully conducting the business in accordance with all applicable laws and regulations while demonstrating and promoting the highest ethical standards.

4. Diversity Policy

The board is primarily responsible for setting achievable objectives on gender diversity and monitoring the progress of Merah towards them on an annual basis. Due to the size and scale of operations of Merah, the board has determined that a long term gender diversity objective is more appropriate.

Merah will include in its Annual Report details of the gender diversity objectives set by its board and its progress in achieving them.

Merah’s Annual Report will also include number of women who hold positions at the board level, senior management and in the whole of the organisation.

The checklist below summarises Merah’s compliance with the Recommendations.

Principles	Recommendations	Compliance	Reference
			and
		Yes/No	Explanation
Pr 1	Lay solid foundations for management and oversight
Rec 1.1	Companies should establish the functions reserved to the	Yes	1.1
	board and those delegated to senior executives and
	disclose the functions.
Rec 1.2	Companies should disclose the process for evaluation	Yes	1.4.5 and
	the performance of senior executives.		1.4.10
Rec 1.3	Companies should provide the information indicated in	Yes	1.1

the Guide to reporting to Principle 1.

Pr	2	Structure the board to add value
Rec	2.1	A majority of the board should be independent directors.	No	1.2
Rec	2.2	The Chairman should be an independent director.	No	1.2
Rec	2.3	The roles of chairman and chief executive officer should	Yes	1.2
		not be exercised by the same individual.
Rec	2.4	The board should establish a nomination committee	No	2.3.1
Rec	2.5	Companies should disclose the process of evaluating the	Yes	1.4.10
		performance of the board, its committees and individual
		directors.
Rec	2.6	Companies should provide the information indicated in	Yes	1.2, 1.4.10 and
		the Guide to reporting to Principle 2		2.3.1
Pr	3	Promote ethical and responsible decision making
Rec	3.1	Companies should establish a code of conduct and	Yes	3
		disclose the code or a summary of the code as to:
		- the practices necessary to maintain confidence in
		Merah’s integrity
		- the practices necessary to take account of their
		legal obligations and reasonable expectations of
		their stakeholders; and
		- the responsibility and accountability of individuals for
		reporting and investigating reports of unethical
		practices.
Rec	3.2	Companies should establish a policy concerning diversity	Yes	4
		and disclose the policy or a summary of that policy. The
		policy should include requirements for the board to
		establish measureable objectives for achieving gender
		diversity and for the board to assess annually both the
		objectives and progress in achieving them.
Rec	3.3	Companies should disclose in each annual report the	Yes	4.1
		measurable objectives for achieving gender diversity set
		by the board in accordance with the diversity policy and
		progress towards achieving them.
Rec	3.4	Companies should disclose in each annual report the	Yes	4.1
		proportion of women employees in the whole
		organisation, women in senior executive positions and
		women on the board.
Rec	3.5	Companies should provide the information indicated in	Yes	3 and 4
		the Guide to reporting on Principle 3.

Pr	4	Safeguard integrity in financial reporting
Rec	4.1	The board should establish an audit committee.	No	2.1
Rec	4.2	The audit committee should be structured so that it:	No	2.1
		- consists only of non-executive directors;
		- consists of a majority of independent directors;
		- is chaired by an independent chair, who is not the chair
		of the board; and
		- has at least three members.
Rec	4.3	The audit committee should have a formal charter.	Yes	2.1
Rec	4.4	Companies should provide the information indicated in	Yes	2.1
		the Guide to reporting on Principle 4.
Pr	5	Make timely and balanced disclosure
Rec	5.1	Companies should establish written policies designed to	Yes	1.4.4
		ensure compliance with ASX Listing Rule disclosure
		requirements and to ensure accountability at a senior
		level for that compliance and disclose those policies or a
		summary of those policies.
Rec	5.2	Companies should provide the information indicated in	Yes	1.4.4
		the Guide to reporting on Principle 5.
Pr	6	Respect the rights of shareholders
Rec	6.1	Companies should design a communications policy for	Yes	1.4.8
		promoting effective communication with shareholders
		and encouraging their participation at general meetings
		and disclose their policy or a summary of that policy.
Rec	6.2	Company should provide the information indicated in	Yes	1.4.8
		the Guide to reporting on Principle 6.
Pr	7	Recognise and manage risk
Rec	7.1	Companies should establish policies for the oversight and	Yes	2.1.3
		management of material business risks and disclose a
		summary of those policies.
Rec	7.2	The board should require management to design and	Yes	2.1.3
		implement the risk management and internal control
		system to manage Merah’s material business risks and
		report to it on whether those risks are being managed
		effectively. The board should disclose that management
		has reported to it as to the effectiveness of Merah’s
		management of its material business risks.

Rec	7.3	The board should disclose whether it has received	Yes	1.4.11
		assurance from the chief executive officer (or
		equivalent) and the chief financial officer (or equivalent)
		that the declaration provided in accordance with
		section 295A of the Corporations Act is founded on a
		sound system of risk management and internal control
		and that the system is operating effectively in all material
		respects in relation to financial reporting risks.
Rec	7.4	Companies should provide the information indicated in	Yes	1.4.11 and
		the Guide to reporting on Principle 7.		2.1.3
Pr	8	Remuneration fairly and responsibly
Rec	8.1	The board should establish a remuneration committee.	No	2.2.1
Rec	8.2	The remuneration committee should be structured so	No	2.2.3.1 and
		that it:		2.2.3.2
		- consists of a majority of independent directors
		- is chaired by an independent director
		- has at least three members
Rec	8.2	Companies should clearly distinguish the structure of non-	Yes	2.2.3.1 and
		executive directors’ remuneration from that of executive		2.2.3.2
		directors and senior executives.
Rec	8.3	Companies should provide the information indicated in	Yes	2.2 and 2.2.3
		the Guide to reporting on Principle 8.