Alexkor's briefing on community concerns raised during Committee's oversight visit

NCOP Economic and Business Development

30 August 2010
Chairperson: Mr F Adams (Western Cape, ANC)
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Meeting Summary

A delegation from Alexkor gave a further report on and responses to issues raised during the Committee’s earlier oversight visit to the Northern Cape, by the communities surrounding Alexkor. The four divisions of the Alexkor operations were described, with the number of employees in each. The revenue percentage split of diamonds in the North and South areas, and the percentage splits between contractors and Alexkor, were also outlined, and it was noted that the North value of stones was higher than in the South, but that incentives were developed for those working in the South. Royalties were payable to South African Revenue Services. Statistics were given for health and safety issues. The annual results were presented, highlighting an increase in net operating profit and profit before tax, together with the reasons for the differences. The delegation then outlined the details of the Richtersveld Land Claims Settlement. All land, except Alexander Bay, had been transferred, although there had been a delay in transfer of the Alexkor mining rights. A Pooling and Sharing Joint Venture company had been formed. Alexkor was liable for historic environmental rehabilitation. The upgrade of the township was described, and was noted as progressing well, but some additions were needed to the tender in respect of water and solid waste. A committee was established to ensure that community members benefited fairly from the project, and that a fair supply of different categories of labour would be used.

The delegation then commented on issues previously raised by the Committee, in respect of medical aid and medical facilities, evictions, the provision of free housing, a moratorium agreed for rates and taxes, and the terms of the contracts with the contractors. The Department of Public Enterprises explained that the moratorium on rates and taxes had compromised the revenue stream of the municipality, and thus affected the services provided.

Members asked why there was no representation from the Richtersveld Community, and asked that such representation must be included in future, and the Committee decided that a joint meeting with Alexkor and the community must be called. Members asked for details of the shareholding, board members, term of the board and overheads, and also enquired as to the processes followed when granting mining rights or appointing a contractor, and enquired why contractors were used, and what was required of Alexkor and contractors. Members were disappointed that the delegation could not answer questions about the recent court cases and called for explanations in writing. Members asked about the likely lifespan of the gem sources, called for comment on continuing areas of dissent among the community, asked whether Alexkor could take the credit for the improvements in health and safety issues. Questions were asked about the financial figures, the shareholding of the Richtersveld Property Holding Company, the funding of the upgrades and the environmental liability, and the establishment of the Labour Selection Committee, with several Members querying this and commenting that it may well be unfairly represented, and could be doomed to failure. Members asked about the job recruitment, how tenders were dealt with, whether geotechnical investigations were done, and for clarity on the eviction figures, staff housing grants and moratorium time discrepancies, and the reasons for the hospital standing vacant. Members commented that the farms transferred did not appear to be financially viable. Members also called for a copy of the new Social and Labour Plan, questioned why there were so few Northern Cape representatives on the Board, and why the offices were in Johannesburg. Other questions, to which Alexkor must respond to in writing, included how much wealth was leaving the area, when the Joint Venture was to be operational, whether arterial water investigations had been done, and the reasons for the environmental liability figures having risen. Details of the rental and rental arrears were requested, as well as clarity on the royalties, since some appeared to be paid to Richtersveld. Members also asked for the reasons for the delay in transfer of mining rights, why the apprentice facility was standing idle, whether studies had been conducted on the impact of mining on climate change, and why the Land Claims Court had excluded State and religious-owned properties.


Meeting report

Alexkor responses to community concerns raised by the communities during an Oversight Visit to the Northern Cape
A delegation from Alexkor had been asked to give feedback to the Committee about various issues that were raised by the communities during the Committee’s oversight visit to the Northern Cape. The presentation had been structured to cover a short overview of operations, the 2010 Annual Results, the Richtersveld Land Claim Settlement, upgrade of the town, and further feedback on issues previously raised.

Mr Wiaan Basson, Acting Mine Manager, Alexkor, explained that the Alexkor operations were split into four divisions, covering marine operations, land operations, Alexkor and security. The land operation ran from Alexander Bay to Port Nolloth, and there were currently two contractors on the Marine Terraces and two contractors on the River Terraces. This operation produced approximately 30% of the carats, and employed approximately 100 staff members.

The marine operation operated in shallow water, and there were currently 27 contractors. This operation produced approximately 70% of the carats, and employed approximately 400 staff members.

The Alexkor operation had two processing plants. The operation was responsible for all administration, management, marketing and selling of diamonds. It employed approximately 110 permanent employees.

Protea Coin Security was contracted to take up the security operation. This firm employed approximately 81 employees, who were all managed by the Alexkor Security Manager.

Mr Basson outlined the revenue percentage split of diamonds, and the percentage split between the contractors and Alexkor for the North and South areas. The major difference noted in the percentage split was accredited to the fact that the value of stones was higher in the North than in the South. Mr Basson further explained that the contractor’s percentage was higher for the South, in order that Alexkor could provide an incentive for the contractors to work in this area. He further noted that royalties, which were payable to South African Revenue Services (SARS), were based on a sliding scale and profitability of the company.

Mr Mike Mpanza, Engineering Manager, Alexkor, dealt with the large improvements in the health and safety statistics. He noted that the company celebrated 1 000 Fatality Free Production Shifts. He admitted that the targets were still not where they should be, but the company was working towards keeping the accident numbers down by keeping staff informed. The improvements were noted in comparison to the previous financial year. No incidents were reported for Occupational Health, three claims were noted for Cumulative Occupational Health incidents, and there were no outstanding claims. Mr Mpanza drew the attention of the Committee to a case that was closed in 2001, after the Compensation Fund had declared that no compensation could be paid. The client had then requested the compensation report. The medical report was currently being looked at.

Mr Basson discussed the entity’s Annual Results. He highlighted the increase in net operating profit and profit before tax. He noted that the reasons for improvement in the results was due to a 28% increase in production, cost cutting, increase in revenue and a R45 million reversal in the medical liability of the company.

Mr Reginald Muzariri, Board Chairperson, Alexkor, discussed the Richtersveld Land Claim Settlement. He noted that the transfer of land was envisaged to occur by June. All land, with the exception of Alexander Bay, had been transferred. The transfer of Alexkor’s mining rights had been delayed. Alexkor was awaiting resolutions by the community for cession of mining rights. Alexkor hoped that the process would be completed by the end of October at the latest. In the interim, a Pooling and Sharing Joint Venture (PSJV) had been formed. This was a joint venture between Alexkor and the Community.

He indicated that Alexkor had an ongoing rehabilitation programme to address historical environmental disturbances. The environmental liability was currently standing at R256 million and was revised as part of the conversion process. This obligation still needed to be fulfilled.

He further indicated that the upgrade of the township was progressing well. He confirmed that the Phase 1 tender should be completed before the Phase 2 tender could kick in. The Phase 2 tender document was approved in July, and the appointment of a tenderer would be done by December.

Mr Mpanza added that the completion of the tender was awaiting some additions. After the tender had been reviewed, the tender committee suggested additional elements that needed to be added, relating to the water supply. He confirmed that a new solid waste side would be opened. The electricity would be upgraded to 11 volts and the houses would be rewired. Each household would then receive a certificate of compliance. He emphasised the start and completion dates for each contract.

Mr Mpanza explained that a committee was established to ensure that community members benefited fairly from the project, and that a fair supply of unskilled, semi-skilled and skilled labour from the community was used. Both males and females were targeted. The recruitment and selection was completed by 7 April. In most cases the actual total of workers was higher than the targeted total, because more operators were required for the machines.

He moved to describe the progress of the upgrade of the township. Four items were ahead of schedule, but progress at pump stations 1 and 2 was delayed. He said that more focus was given to the Solid Waste Facility but that it would be redirected back to the pump stations in order to catch up on the progress there.

Mr Muzariri provided feedback on issues previously raised by the Committee. He noted that all employees of Alexkor were on medical aid. Alexkor also employed a permanent Occupational Health doctor and there was also a private doctor, subsidised by the company, in Alexander Bay. He also said that Alexkor offered a free bus service to employees who wished to go to the hospital in Springbok.

He further noted that no evictions had taken place at Alexkor, but that all Alexkor employees were given free housing, water and electricity. The major concern that Alexkor was facing was the number of people who fell into arrears with their payments.

He explained that all contractors were offered a standard contract, but that the contracts were amended as appropriate to cover the key areas of concern for each contractor, in order to meet the particular needs of these contractors.

Once the upgrade of the township was concluded, the municipal services would be taken over by the Richtersveld Property Holding Company.

A representative from the Department of Public Enterprises added additional comments. He explained the rationale around the pooling and sharing venture. He said that the Constitutional Court had ruled that the community was entitled to the mining rights on the land. The entity who took over the mining rights needed to have both the financial and technical skills to manage the land. The Joint Venture was put in place in order to create a model that would give effect to the Constitutional Court ruling. He further explained that in terms of the Land Restitution Act, a moratorium on paying rates and taxes was granted. The problem was that there was no revenue stream to the municipality and therefore the municipality could not provide services.

Discussion
Mr K Sinclair (COPE, Northern Cape) remarked that he felt that these matters had been long and drawn out. He was also concerned about the fact that there was no representation from the Richtersveld Community and felt that it may have been an oversight on the Committee’s side. He asked that, in future this must be taken into account.

The Chairperson also queried why members of the community did not form part of the delegation.

Mr Muzariri agreed that the lack of representation from the community was a problem, and said that the community should be represented in any follow-up meetings.

Mr Sinclair asked that the delegation should recap the details of the shareholding, board and their term and other technical issues.

Mr Muzariri confirmed that the running costs of the Alexander Township were also part of the overheads. The total remuneration of the Directors was about R100 million. He further confirmed that R3.9 million was allocated to non-executive and executive members of the Board. He said that he would provide a breakdown of the overheads to the committee, as he did not have this to hand at the moment.

Mr Sinclair queried what processes were followed in appointing a contractor or giving a contractor the right to mine.

Mr Lees (DA, KwaZulu-Natal) queried why the pooling and sharing venture was between Alexkor and the community, and not between the contractors and the community.

Mr Lees felt that the way that the contracts were written needed serious reconsideration, as they seemed to favour the contractors.

Mr Lees asked the delegation why there seemed to be a mixing of higher grade and lower grade stones. He was of the opinion that the way that Alexkor was splitting the diamonds seemed to be a closed instead of open and transparent process.

Ms E van Lingen (DA, Eastern Cape) noted that there had been reports that the contractors were bringing in subcontractors instead of using the local labour force. These companies included Roodeheuwel Sands and Bongani Minerals. She asked whether Alexkor was aware of this, and, if so, asked for an explanation.


Mr Muzariri explained that contractors signed contracts that were valid for three to five years, and were renewable. He stressed that the pooling and sharing contract could not be longer than a year. He assured the Committee that Alexkor had engaged with members of the community and the Board in this regard.

Mr Muzariri then outlined the tender process followed by Alexkor. Firstly, public advertisements would be placed in specific local newspapers as well as public newspapers. Tender documents, which highlighted specific areas, terms and conditions, were then sent out. The specific areas in the documents would cover shareholding, local content, gender composition, employment processes, financial and technical ability.

Ms Khetiwe McClain, Chief Executive Officer, Alexkor, emphasised that all contractors underwent a rigorous selection process by the Tender Committee.

Mr Basson further explained that the he had consulted with the Roodeheuwel Sands and Bongani Minerals, but that Alexkor had no further dealings with them.

Mr Lees commented that up till the late 1990s, Alexkor comprised up to 1 000 staff, and undertook the mining activities itself. He asked why this had changed.

Mr Muzariri explained that Alexkor wanted to lower costs for the company. Alexkor had thus brought in contractors who were able to do the same work more effectively. There was a restructuring process in place at Alexkor from about 1994.

Ms McClain explained that in 2008, Alexkor went through a restructuring process. The company was downsized, a completely new management structure was put in place, and new employees were appointed. This was in anticipation of the PSJV.

Mr Sinclair asked what the expected lifespan of the source of gems was, and how long it would be financial and economically viable.

Mr Basson responded by saying that this was not an easy question to answer. He said that the expected production life should be split into marine and land environments. In the marine environment, there was no technique available for shallow water, but the deeper water had been explored. He could not give a definite answer, but estimated that the carats had approximately a 10-year production life cycle. In the land environment, he said that Alexkor had not yet established the life cycle, but expected a 15 to 20 year life cycle for the mine.

Mr Sinclair asked what the specific prescripts were on how the mining house conducted itself.

Mr Basson explained that all issues between Alexkor and contractors were dealt with and covered by Alexkor. It had followed an open and transparent process. Alexkor invited contractors and the community to view all processes. Contractors were also invited to view all relevant documents.

Mr Lees asked why contractors had to go to court to get information.

Mr Basson said that he was astonished by this, as it was never a problem for the contractors to view the documents. He believed that there was a complete misunderstanding on the part of the contractor.

Ms van Lingen commented that the Court had ruled that the contractors may have access. She said that Alexkor then appealed the case to get the decision reversed, and the contractors then appealed to a higher court.

Mr Muzariri said that he was not aware of the documents, and that he would revert back to the Committee.

The Chairperson felt that Alexkor’s representatives should be aware of the Court case.

Ms McClain said that she would provide the specific information needed.

Mr Sinclair noted that the media reported significant dissatisfaction amongst the residents, and wanted the delegation to explain why these issues were continuing.

Mr Muzariri confirmed that Alexkor was aware of the dissatisfaction. He said that the frustrations of the community were shared by Alexkor. He said that applications needed to be approved by the Department of Mineral Resources, and that this Department had received a deluge of applications. The Department of Mineral Resources had now put measures in place to fast-track the process, in order to meet the needs of the communities, but there were some delays.

Mr Lees wanted to know whether credit for the good Health and Safety numbers should not be given to the contractors instead of to Alexkor.

Mr Muzariri confirmed that Alexkor had developed the processes for the contractors,  and submitted that the credit should be given to Alexkor’s team.

Ms McClain confirmed that Alexkor still had the ultimate responsibility and accountability for the Health and Safety of all employees.

Mr Lees asked the delegation to explain the slide on profit and loss more clearly, as it did not make sense to him.

Mr Muzariri explained that the profit and loss slides did not reflect an amount of R8 or 9 million. This would probably paint a clearer picture of how the profit percentage was reached.

Mr Lees asked the delegation to explain who the shareholders of the Richtersveld Property Holding Company were.

Mr Anthony Kamungoma, Acting Deputy Director-General: CIPM, Department of Public Enterprises, explained that the court order was based on the deed of settlement, which  stated that the Richtersveld community was entitled to all the land. The land therefore belonged to the community. Alexkor was guided by that ruling.

Mr Lees asked who was funding the large upgrades, if Alexkor’s financial statement showed such huge losses.

Mr Muzariri confirmed that the cost for both phases was currently at R109 million. R45 million was used for Phase 1 and was provided by the National Treasury. The balance would go towards Phase 2. He confirmed that the land mining rights fell to the Richtersveld community and that the marine mining rights fell to Alexkor. There was a R32 million Rehabilitation obligation, which fell on the State. Alexkor was making a yearly contribution to the rehabilitation.

Mr Lees queried whether it was Alexkor or the community who carried the R256 million liability.

Mr Kamungoma confirmed that according to the court ruling, Alexkor was responsible for all the environmental disturbances up the point of transfer of land mining rights. He also confirmed that Alexkor was responsible for any historic disturbances.

Mr Lees asked the delegation to explain how the Labour Selection Committee was  established.

Ms McClain confirmed that the composition of the Committee comprised representation from the municipality, community and Alexkor.

Mr Mpanza further confirmed that two members were from the community, two members were from the municipality and one member was from Alexkor. The Chairperson was a member of the Community Property Association (CPA).

Mr D Gamede (ANC, KwaZulu-Natal) felt that this composition was unfair, as the community was only represented by two members.

Mr Muzariri felt that the municipality represented the community as well, but said that Alexkor would review the composition of the committee.

Ms van Lingen suggested that the current committee and CPA might be illegal.

Mr Muzariri said that there were certain aspects that he could not answer. He explained that in 1998, the CPA had started a land claim. The first time this land claim went to court, it was struck off the roll, because it was found that the CPA was illegally constituted. He said that Alexkor was aware of the various groupings within the community, and that this was an area of concern. He knew that the CPA would be holding an election during the following two weeks and he hoped that some of the issues would be addressed.

Mr Lees felt that the Committee was set up to fail.

Ms van Lingen asked whether only people from Alexander Bay would be included for jobs to be done in Alexander Bay or whether it would be open to members of all the towns in Richtersveld.

Mr Muzariri confirmed that it would be open to members of all the towns in Richtersveld and that transport costs would not be added as an additional cost.

Mr Lees asked the delegation to explain how tenders were dealt with.

Mr Muzariri explained that tenders were advertised locally and in the Northern Cape Province. The tenders were based on key criteria for each job. At the end of the process, there were three tenderers chosen. Two were based in Cape Town and one was based in Bloemfontein. The tender committee further investigated the capacity and ability of each tenderer. One of the Cape Town-based companies was selected by secret ballot.

Mr Lees asked whether a geotechnical survey was done.

Mr Mpanza confirmed that a geotechnical investigation was done for six areas.

Mr Lees asked whether “no evictions at Alexkor” meant that there were no evictions at Alexander Bay, or at that there were no evictions done at the instance of Alexkor.

Mr Muzariri confirmed that the eviction figures referred to the whole township.

Ms van Lingen asked why the hospital in Alexander Bay, which was donated by the Japanese, was standing empty and not being used.

Mr Muzariri confirmed that Alexkor had built the hospital but that it was handed over to the Northern Cape Provincial Government in 2007, and was therefore no longer the responsibility of Alexkor.

Mr Lees said that it seemed that the residential properties were going to some company instead of the community members, and that this did not open up any opportunities for the community. He asked the delegation to confirm whether this was the case.

Mr Muzariri confirmed that the land was granted to the Richtersveld Community and that the transfer process was happening. He also confirmed that this was no longer the responsibility of Alexkor.

Mr Lees asked whether Alexkor would be paying only for staff housing or whether the company would be paying for all properties.

Mr Muzariri confirmed that the housing was free for all Alexkor’s staff and that the contractors paid a nominal fee for housing.

Mr Lees noted that the lease was only for ten years, but said that he knew that there was a 15 year moratorium on payment of rates. He asked what would happen during the additional five years.

Ms van Lingen asked whether the land restitution and moratorium on rates revolved around the ten year lease.

Mr Muzariri asked whether he could conduct some further investigation into this matter and revert back to the Committee with a response.

Ms van Lingen asked the delegation to explain the tax implications of the Alexkor Irish Investment.

Mr Muzariri said that he was not aware of any Irish Investment.

Ms van Lingen queried whether properties that were transferred were financially viable and whether there were financial statements available for those.

Mr Basson said that there was one oyster farm and one mariculture farm at Port Nolloth. Both these mariculture farms were transferred to the Richtersveld community in January 2008, and the transfer was legally completed in April 2008. He confirmed that Port Nolloth was never owned by Alexkor.

Ms van Lingen asked whether Alexkor had financial statements available for these operations.

Mr Muzariri said that Alexkor had financial statements up to 2008, and that the operations were operating at a loss of R1,6 million.

Mr Basson confirmed that the farms had never been profitable.

Mr Lees asked why Alexkor had allowed a non-profitable entity to be handed over to the community. The entity was surely then doomed to fail.

Mr Gamede asked the delegation to explain who the Accounting Officer of the company was, whether the Board or the CEO ran Alexkor, to whom the Board reported, and to whom the Chief Executive Officer reported.

Mr Muzariri explained that Alexkor’s main shareholder was the Government of South Africa. The Board could comprise a minimum of six members and a maximum of ten members. At the moment the Board consisted of six members, five of whom were at a non-executive level and one who was at an executive level. There was a vacancy for a Chief Financial Officer. The Board’s term of office was three years, but this was reviewed on an annual basis. The remuneration for the Board was set by the Department of Public Enterprises.

Ms van Lingen asked when the new Social and Labour Plan was implemented and what was different about it.

Ms McClain confirmed that a new Social and Labour Plan was implemented. The Plan was revised after consultation. The main changes were made to infrastructure development, Integrated Development Projects , and Tannery Projects. She confirmed that she would forward the amended Social and Labour Plan to the Committee.

Mr J Gunda (ID, Northern Cape) asked where the Head Office of Alexkor was situated.

Mr Muzariri explained that the registered Head office of Alexkor was in Alexander Bay Township, and the satellite office, which housed the Chief Executive Officer, executive and non-executive Board Members, was based in Johannesburg.

Mr B Mnguni (ANC, Free State) asked which community Alexkor was representing if all Board Members were resident in Johannesburg.

Mr Muzariri explained that Department of Public Enterprises had appointed the Board.

Mr Kamungoma further explained that one member was from the Northern Cape. The Department of Enterprises looked at the skills that were needed when it appointed the Board.

The Chairperson asked whether the Board or the Minister of Public Enterprises decided on the location.

Mr Kamungoma explained that the Board submitted a proposal to the Minister of Public Enterprises and the Minister decided on the location.

Mr Sinclair remarked that it seemed as if there were no skilled people in the Northern Cape but only in Johannesburg and felt that the Government erred in this regard.

The Chairperson noted that there were other outstanding questions, but there was not sufficient time to answer them. The responses by Alexkor should therefore be submitted in writing to the Committee.

The Chairperson said that it would be necessary for the Committee to conduct an oversight visit, and that a joint meeting between Alexkor, the community members and the Committee should be arranged.

The following questions remained to be answered by Alexkor in writing:

Mr Lees raised a question about how much wealth left the area through people who were not part of the community.

Ms van Lingen asked the delegation to explain when the PSJV was supposed to be established, as she felt that there would be financial implications if it were not established at the right time.

Ms van Lingen asked the delegation whether there was an arterial water investigation done.

Ms van Lingen asked that Alexkor could provide a hard copy document, showing the figures of the rental and rental arrears.

Ms van Lingen noted that when the Committee had conducted an oversight visit in March, the rehabilitation liability was R240 million, but now it seemed to have risen to R256 million. She asked the delegation to provide further clarity on this matter.

Ms van Lingen believed that the royalties paid by small mining companies were being paid to Richtersveld, and not to SARS. She asked the delegation to provide further clarity on this matter.

Ms van Lingen wanted to know what was causing the delay in transferring the mining rights to the community.

Ms van Lingen also queried why so few women were being used.

Mr Lees queried whether there were any studies conducted on the impact of climate change on mining.

Mr Lees noted that there was an apprentice facility that was standing idle and asked the delegation whether it could not be used as a place for skills transfer to members of the local community.

Mr Lees asked the delegation to explain why the Land Claims Court excluded properties owned by the State and religious institutions.

Mr Lees queried whether the R256 million would cover all the rehabilitation costs.

Other business
Members agreed that the consideration of the Committee Report on China would be postponed.

The meeting was adjourned.

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