South African Diamond and Precious Metals Regulator & State Diamond Trader Annual Reports 2010/11

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Mineral Resources and Energy

29 February 2012
Chairperson: Mr F Gona (ANC)
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Meeting Summary

The South African Diamond and Precious Metals Regulator received an unqualified audit opinion for 2010/11. An outstanding audit matter from the 2009/10 financial year as irregular expenditure of R2 674 647 incurred because proper tender process was not followed. Condonation for the irregular expenditure was approved by the Board of the South African Diamond and Precious Metals Regulator and the relevant contract cancelled. Emphasis of matters included restatement of corresponding figures and material losses: as a result of a write-off of irrecoverable debtors, material losses had been reported. By way of remedial action, some of the contracts negotiated by the old South African Diamond Board had been terminated. Irregular expenditure in 2010/11 amounted to R3.291 million.

In the 2010/11 financial year, an increase of the revenue by 1.75 per cent to R49.455 million was reported. R34.270 million were spent on compensation of employees. The total expenditure increased from R42.008 million to R52.737 million. Compensation of employees (23.85 per cent) and operating expenditure (7.32 per cent) contributed to the increase in expenditure. The Regulator incurred a deficit of R3.4 million compared to the surplus of R5.7million for 2009/10.

Members of the Committee asked about of trade debtors, irregular expenditure, the increased amount of compensation of employees, diamonds confiscated by the police and the South African Diamond and Precious Metals Regulator’s role in the beneficiation strategy. A question about the role of donations led to a heated discussion.

Members expressed their impression of luxurious way of spending money by the South African Diamond and Precious Metals Regulator.

The State Diamond Trader was able to purchase nine per cent of both the volume and value of local production of diamonds in terms of the law. The number of purchases improved by 146 per cent to 67. The State Diamond Trader’s clients also increased from 34 in the previous financial year to 60 in 2010/11. The State Diamond Trader made purchases amounting to R774 million compared with R318 million in 2009/10. The State Diamond Trader implemented its Human Resources Plan by employing four Diamond Valuator trainees and provided training to them. Another four trainees were employed in the 2011/12 financial year.

Over the period of three years, the State Diamond Trader had improved revenue from R117 million to R810 million. Profits grew from a loss of R5.2 million to profit after tax of R23.6 million over this period.

Members enquired about the relationship between the State Diamond Trader and South African Diamond and Precious Metals Regulator, about the large jump in profit, about the procedure of buying diamonds and taking them in procession. Members further asked about the number of buyers from each sector. Members were concerned about what would the consequences be when the contracts with De Beers and the Department of Mineral Resources expired and how the State Diamond Trader intended to deal with the financial implications of that.

Meeting report

South African Diamond and Precious Metals Regulator 2010/11 Annual Report presentation
Outstanding audit matter from the 2009/10 financial year

Mr Levy Rapoo, Chief Executive Officer, South African Diamond and Precious Metals Regulator (SADPMR or the Regulator), reported an outstanding audit matter from the 2009/10 financial year (slide 5). Irregular expenditure to the total amount of R2 674 647 had incurred as proper tender process was not followed. Hence, the Auditor-General (AG) had recommended that the supply chain policy must be followed as documented and the minutes of the decision and reason to deviate from the supply chain management (SCM) policy by the Board must be kept as evidence. Furthermore, the AG recommended the cancellation of that contract and disciplinary measures against the responsible personnel. The condonation for the Irregular expenditure was approved by the SADPMR Board and the relevant contract was terminated. SADPMR terminated the contract in question.


Audit opinion for 2010/11

An unqualified audit opinion for the financial year 2010/11 had been issued. The reported matters included:

·       Restatement of corresponding figures (slide 8): An error in the financial statements of SADPMR had been discovered on 31 March 2011. Thus, the Regulator revisited the financial statements and restated the corresponding figures for 31 March 2010.

·       Material losses (slide 9): As a result of a write-off of irrecoverable debtors, material losses in the amount of R619,554 had been reported. An accumulation of debt dated back to the old SA Diamond Board. This was due to the automatic billing through the system applicable at that time. This amounted to the incorrect billing of 272 licensees. Although the Regulator embarked on a verification process of tracing the debtors, most of them could not be traced. Hence, acting upon the advice of the AG, the Regulator suggested to the Board to write off the amount as irrecoverable. Nevertheless, measures had been in place to recover written off amount should debtors resurface on the Regulator for any other transactions.

·       Procurement and contract management (slide 10): There was no sufficient audit evidence that goods and services with transaction value between R10 000 and R500 000 had been procured by inviting at least three written price quotation from prospective suppliers as per the requirements of Treasury Regulation (TR) 16A6.1 and National Treasury Practice note 8 of 2007/08. The goods and services had been obtained from suppliers contracted by the old SAD Board. The contracts were then inherited from the old Board. Previously the contracts had been audited but no findings had been raised by the auditors. The SADPMR reviewed the contracts and cancelled some of them. However, some contracts of sensitive nature which could have a negative impact were extended until a proper SCM process was followed to award new contracts.

·       Procurement and contract management (continued) (slide 11): Goods and services with transaction value of over R500 000 had not been procured by means of a competitive bidding process as per the requirements of TR 16A6.1, TR 16A6.4 and National Treasury Practice note 8 of 2007/08. This referred to a request for proposal to render travel arrangements which had not included the total cost but service and administration fees. The service had been sourced without completing Standard Bidding Documents (SBD 4 & 8). Hence, the Regulator initiated a three quoted process and appointed the service provider with less administration fees. Nevertheless, the AG determined this as irregular expenditure. However, on consultation with the National Treasury it was resolved that this did not amount to an irregular expenditure but rather to non-compliance with the completion of SBD forms. Therefore, National Treasury sent a letter to AG to clarify the matter.

·       During 2010/11, the SCM had been introduced and all procurement of goods above R30.000 had been obtained through competitive bidding (slide 12). This involved the introduction of a Bid Evaluation and Adjudication Committee which recommended awarding of bids to the Accounting Officer and Accounting Authority.

·       Expenditure Management (slide 13): The Accounting Authority had not taken effective and appropriate steps to prevent irregular expenditure as per the requirements of TR 16A6.1, TR 16A6.4 and National Treasury Practice note 8 of 2007/08. The irregular expenditure amounted to R3.291 million. In order to enforce the current legal requirements, the Regulator took following actions: Six contracts with the value of R728 956 had been terminated; five contracts had been extended and the deviation had been approved by the Accounting Officer valued at R876 831. In addition, one contract was in consultation to be reclassified on the basis of a letter from the National Treasury stating that irregular expenditure should be valued at R1 686 060.

Annual Financial Statements

Mr Sibusiso Mandlazi, Acting Chief Financial Officer, SADPMR, noted:

·       During the 2010/11 financial year, the revenue increased by 1.75 per cent to R49.455 million compared to R48.589 million of the previous year (slide 14).

·       The in house generated revenue decreased by 3.98 per cent from R9.176 million in 2009/10 to R8.811 million in 2010/11. The primary reasons for the decrease included levy income, licence, penalty and service fees (5.67 per cent); received interest (12.34 per cent); received discount (29 per cent). However, despite this decrease, an increase was realised on the sale of books, recoveries and other income.

·        The overall expenditure increased by 18.45 per cent from 2009/10 and was R52.737 million in 2010/11 compared to R42.008 million in 2009/10  (slide 15). The increase was attributed to compensation of employees (23.85 per cent) and operating expenditure (7.32 per cent). The employees head count increased as well due to committed expansion, review of the organizational structure and cost of living adjustment.

·       The accumulated surplus movement yielded a decrease by 4.63 per cent to R70,591 compared to R74,019 in 2009/10 (slide 16). The transfer payment had been capped at R40,001 for the last three years. The approved budget and final allocation has variance per year of 10.72 per cent for 2008/09, 19.04 per cent for 2009/10 and 26 per cent for 2010/11. The approved budget in 2010/11 was R55.533 million as opposed to R48.557 million in 2009/10 and with R44.802 million  in 2008/09. The grant received in 2010/11 was R40.643 million, whereas it was 39.312 and R40 million in the two previous financial years respectively.

·       Trend on utilisation of funds (slide 17): In 2010/11, R34.270 million were spent on compensation of employees, whereas in 2009/10 R26.093 and in 2008/09 only R21.370 million had been spent on that. Other operating expenses amounted to R14.657 million which had increased from R13.584 million in the previous year in order to ensure delivery of predetermined objectives enshrined on the annual performance plan. The increase showed the effect of some irregular expenditure on the operating expenses. The Regulator incurred a deficit of R3.4 million compared to the surplus of R5.7 million for the 2009/10 financial year.

Mr Rapoo concluded that challenges included: access to funding for emerging businesses was still a problem; availability of rough diamonds for beneficiation; and  access to markets for polished diamonds by small beneficiators (slide 18).


Ms F Bikani (ANC) asked the CFO to explain the notes to the annual financial statements published on pages 74 and 75 of the Annual Report. As reason for her enquiry she stated that she had the impression that some of the ways of expenditures of money seemed luxurious to her. With regard to the information on those pages, she further asked about the sale of books (number 4 on page 74), in particular how much was spent to buy them. She asked why nothing was noted under number 5 “bank account”. Under number 6 on page 74, there was no cash noted for 2010, but R383.729 for 2011. Ms Bikani also asked about the interest received by SADPMR. Lastly, she urged the Regulator to elaborate more on the issue of trade debtors.


Mr Mandlazi explained that SADPMR’s revenue was made of levy income, licence, penalty and service fees; sales of diamond books and registers; discount received; recoveries; other income; transfer from other Government Departments and interest received – investment (page 68 of the Annual Report). The received interest was explained in note 12 on page 78 of the Annual report. As far as books were concerned, according to the existing law, every licencee was obliged to have a registrar and to submit it on a monthly basis. Hence, the heading should rather read “books and registrars” to avoid misleading.

The Chairperson gave an example that in the case of loans, so called ”loan books” were sold. This was the terminology used to describe that a particular transaction had taken place. 

Mr H Schmidt (DA) was puzzled why the National Practice Note 8 was mentioned on slide 10 of the presentation and made applicable retrospectively. He found it very difficult to believe that the note could apply back in time. He also had the impression of excessive expenditure made by SADPMR. He based his argument on request for proposal to render travel arrangements mentioned in slide 11. He was concerned with regard to slide 13 that different ways of reporting figures reflecting millions of rand had been used which was very difficult to read: 'The figure of R3 291 million was mentioned without a comma, whereas the figure of R1,686,060 included two commas'. Furthermore, Mr Schmidt wanted to know why did the compensation of employees increased to 23.85 per cent (slide 15).

Mr Rapoo explained that the Regulator started in 2007 and inherited contracts from the old Board. These contracts could not be just cancelled, there was a special procedure for that. The Practice Note was issued in 2007 but was not applicable then. The travel costs were supposed to be spent but when they had to be secured, no money was foreseen at all for travelling. Hence, the travel cost Mr Schmidt referred to were not irregular expenditure.

Mr Mandlazi promised to change the inconsistent way of presenting numbers. With regard to irregular expenditure, he added that it was explained in note 29 on page 90 of the Annual Report.

Mr M Sonto (ANC) also asked about the trade debtors, how was it possible that the Regulator could not trace them. Next, he stated that the whole presentation was littered with remedial actions taken by the Regulator in response to the reported matters of financial performance. But what cost was attributed to these measures and where did the Regulator draw money from to conduct them. In order to understand the 23.5 per cent increase of expenditure for compensation of employees more information about gender, disability, level of proficiency of the employees should be disclosed. On slide 17 the compensation of employees was noted to amount to R34.270 million for the financial year 2010/11. Hence, Mr Sonto asked what made this compensation necessary.

Mr Rapoo emphasized that the Regulator was committed to collect the money from the debtors and would not let the matter rest. He referred to pages 50-52 of the Annual Report where detailed information on the workforce profile, employment equity, recruitment, promotions and termination was disclosed. As far as the cost of the remedial measures taken by the Regulator was concerned, he cited slide 13. For example, six contracts had been terminated, which incurred R728 956. 

Mr E Lucas’ (IFP) greatest concern was with regard to the grant received. Four years ago, in 2008/09 it was R40 million, and today the amount had not changed. He also asked about the increase of money spent on compensation – either the staff had doubled or the employees started receiving less money as a salary.

Mr Rapoo answered that the Board had decided to extend the service provided by the Regulator and charge for it. In addition, there had been complaints about insufficient staff capacity. Hence, it had been decided to increase the staff, but the process had not been completed yet. Moreover, every year salaries increased due to adjustment to living expenses.

Mr J Lorimer (DA) requested information about the unauthorised expenditure and asked why R55.000 was spent on a funeral. He wanted the Regulator to explain the role of donations.

As far as donations were concerned, Mr Rapoo noted that the Board should come up with regulations as to how donations should be made. Donations were legal. The actual cost of the funeral had exceeded by far the donated money.

Mr Llewellyn Delport, Board Member, added that the donation was made to assist the bereaved family during their bereavement.

In a follow up question, Mr Lorimer doubted whether donating money for a funeral was a proper use of public money.

Mr Delport replied that it was a question of legal interpretation of what exactly was “permissible” under current law. Donations were legally permissible. However, the amount of the donation was in the domain of the entity itself. The CEO of the entity had died and the Board had decided to make that donation.

Mr Lorimer wanted to know how could such a way of spending people’s money be justified.

Mr Delport said that the money for the donation had been reclassified as fruitless expenditure.

Mr Lorimer insisted on learning who had reclassified it.

Mr Rapoo replied that the SADPMR was not aware of that and asked himself what was permissible under current law as well.

Mr Lorimer said that if he had died, he would not have expected a donation for his funeral. In his view, to send a delegation was reasonable to expect. He asked the Regulator to admit that it was a fruitless expenditure.

Mr Mandlazi cited the definition of “unauthorised expenditure” from Section 34 of the Public Finance Management Act (No. 1 of 1999) as referring to any expenditure outside the vote. Only the Department had a vote. The previous Board had classified it as unauthorised expenditure; the current auditor had re-classified it as fruitless. 

Ms Bikani asked what happened to diamonds being confiscated by the police as described on page 43 of the Annual Report.

Mr Rapoo answered that whoever had been in procession of them, did not have a licence for them. This amounted to a criminal act. The Regulator would verify whether the confiscated objects were diamonds or not. What accrued from the value of those diamonds would go to the police. However, the Regulator intended to change this practice. They would only continue verifying the diamonds. In case of having to sell them, they would start charging fees. This was still been elaborated by the Board.

Mr C Gololo (ANC) said that the beneficiation strategy had been approved by Cabinet last year. In his view, the Regulator was central for this kind of work. Thus, he asked when the beneficiation strategy would start to work and how much money the SADPMR would need for it.

Mr Rapoo replied that the strategy approved by Cabinet was the responsibility of the Department of Mineral Resources (DMR or the Department). However, SADPMR would be instrumental in it. The Regulator had been called by the Department to participate in the beneficiation strategy. At the moment there was a process of implementation, but no figures were known yet.

Mr Schmidt said that there were a number of entities including the Council for Mineral Technology (Mintek) and the Council for Geoscience. These entities did not have a vote, so they would not have unauthorised expenditures.

In Ms Bikani’s opinion a legislation review was needed. She said that other entities such as Mintek and Council of Geosceince had obviously been treated differently by the Department of Mineral Resources than SADPMR had been. She repeated her impression of the luxurious life of the Regulator.

The Chairperson added that Parliament voted for DMR. Thus, the Regulator received funds by Parliament via DMR. Therefore, it was incorrect to claim that there was no direct vote from Parliament. He also observed that the grant allocation to the SADPMR amounting to R14 million was static. 

Mr Rapoo replied that this was the AG’s interpretation.

The Chair applauded the Regulator for having an unqualified audit. He found that the SADPMR’s finances were taking good shape and congratulated the Regulator for expanding its operations in a manner which satisfied the services. Indeed, South Africa was going to enter into an accelerated beneficiation exercise and the Regulator would play a central role in it which would include the support of small businesses.

He suggested that the Members accept the report and said to the Regulator that it would be invited to the Committee before the end of the year to engage with issues of the diamond industry.

Ms Bikani moved for the adoption of the report, and the motion was seconded by Ms L Mjobo (ANC).

State Diamond Trader Annual Report 2010/11 Presentation

Ms Futhi Zikalala, CEO, State Diamond Trader ((SDT or the Trader)) started with the strategic goals of the State Diamond Trader (SDT or the Trader). The goals included to ensure continued sustainability of SDT, to be an efficient and professionally managed organization, to promote and uphold efficient governance and to strive for a constant and suitable supply and access to rough diamonds (slide 4).


On slide 5 (SDT performance 2008/11), a comparison between the value in United States (US) dollars ($) inspected by the Trader from 2008/09 until 2010/11 was drawn, the SDT purchases and sales and the SDT stock in South African Rand ZAR). The number of conducted inspections in the financial year 2010/11 was 125 as opposed to 90 in the previous year and merely 46 in 2008/09. 67 purchases had resulted out of the 125 inspections. After the purchases, the diamonds had been sold to 60 clients compared to only 34 clients from the previous year. The money obtained from the sales was R810 405 548.

Over the period of three years, SDT had improved revenue from R117 million to R810 million. Hence, the profits grew from a loss of R5.2 million to profit after tax of R23.6 million over this period (slide 6).

Since the SDT was not a funded entity, it had to build reserves to fund its operations in order to ensure its sustainability. For this reason, De Beers and DMR staff and assets were used which contributed to keeping the expenses kept at minimum (slide 7). However, these arrangements were soon coming to an end, so that the SDT would have to bear the cost.

However, capital expenditure had to be incurred to replace old failing information technology (IT) structure and move to new offices to allow for effective business after 31 March 2011. Retained income grew to 28 million, so that SDT managed to pay off its loan from the Industrial Development Corporation (IDC) (slide 8).

The audit report reflected how well the organisation had been run (slide 9). The SDT was pleased with the results stated in the report and confident that this would help the organisation deal with the challenges around funding. The Trader was determined not only to fulfil its mandate, but also to exceed people’s expectations.

A graph of SDT’s inspections for 2010/11 was provided on slide 10. The biggest supplier was De Beers. SDT’s purchases were displayed on slide 12.

The preferred rough diamonds for beneficiation were presented on slide 12. Bearing in mind all the production bought by SDT, once SDT had purchased 10 per cent, only six percent would be used for beneficiation.

In the 2008/09 financial year diamonds were sold to 68 clients, in 2009/10 to 34 clients and in 2010/11 to 60 clients (slide 13). 

Of this, the value of sales to large and medium (L/M) sized beneficiators employing more than ten people was R560.230 073, the value of sales to mandate clients referring to generally historically disadvantaged South Africans employing less than five people and supplied by SDT in terms of giving equitable access to rough diamonds was R6.441 275; the value of sales to other beneficiators employing less than ten people (called “niche”) was R56.261 791 and the value of sales to other clients supplied under the Interim Sales Strategy only was R187.472 409 (slide 14). The mandate clients bought the least diamonds and with fewer carats, since they represented smaller businesses. However, SDT made sure to always have stock for these clients.

Another look of the sales was shown on slide 15. The L/M clients bought diamonds for less than US $200 per carat. The mandate clients bought for US $1 200 per carat, the niche clients for less than US $400 and the others for more than US $400 per carat.

The Trader had proved that it had merit. Without recourse to public funding, the State Diamond Trader had to find innovative methods to ensure sustainability (slide 17). SDT wanted to be an efficient and professionally managed organisation while also developing capacity and skills. It wanted to establish itself as a player in the diamond industry (slide 18). 

SDT had a whole range of promoting policies and procedures (slide 19): All trading practices were controlled by relevant internal policies and procedures that have been externally audited; SDT’s annual performance had been audited by the AG and a positive report had been issued.

SDT had managed to inspect over 90 per cent of the diamonds produced in South Africa and had purchased nine per cent by value and volume (slide 20). SDT was trying to buy as much as it could to ensure the continuous trading with its clients. There was in accordance with a legal provision stipulating that stability of supply had to be addressed.

SDT trained four young South Africans through sending them for theory training on diamond sorting and valuing for six months and employing them as trainees for practical training within the SDT under the supervision of an experienced diamond technical team (slide 21). It was decided to employ another four young people in the next financial year 2011/12 and this was done accordingly.

In addition, four young people were in the employ of the SDT and all in training in various sections of the SDT (slide 22).

SDT believed that it provided support to its clients. It gave eight Small Micro and Medium (SMME) clients the opportunity to exhibit at the annual Jewellex Africa exhibition in July 2010 by fully sponsoring the exhibition stand (slide 23). The same was done again in July 2011 for SDT’s clients. Hence, those clients were given the platform to network and build relationships with downstream markets for their polished diamonds (slide 24). Hence, this showed the support by SDT of the growth of its clients. This was a way of promoting beneficiation of South Africa’s rough diamonds.


Mr Sonto asked whether, with regard to the profit made, the CFO was still acting. Furthermore he wanted to know how related were SDT and SADPMR.


The Chair said that the two organisations were almost twins.


Ms Bikani asked how their functions differed. In addition, she enquired about the roles and functions of board and staff members.

Ms Zikalala answered that the relation to SADPMR was obvious; the Regulator was regulating, and the Trader was trading. However, in some way SDT was also regulating because it would not sell to someone who did not have a licence. As opposed to the Regulator, SDT was only selling locally, whereas SADPMR could sell to anyone who had licences. Before SDT could buy anything, the Government Regulator would verify the values placed by the producers and on the basis of that verification, SDT would decide whether to buy the products or not.

Ms Linda Makatini, Chairperson / Board member, SDT, said that the Board had decided to finalize the position of CFO. Hence, the position had been advertised on the market. An individual had been already identified by the Board members and would start working on 1 March 2012. The previous CFO had to resign.

Mr Schmidt pointed out that the average age of the stock was one day (slide 5). Hence, he asked about the procedure of buying diamonds and taking them in procession. As stated on slide 5, SDT had purchase of R78 million, Mr Schmidt asked what was this purchase referring to. In addition, he wanted to know how many buyers were from the L/M sector and how many from the mandate, the niche and others. Moreover, he asked when were the arrangements mentioned in slide 7 coming to an end. He asked what was the large jump in profit attributed to since, in his view, it could not have been due to good management only. What was meant by the sentence on slide 20 that “the question of suitability had been addressed in research undertaken and impacts on a wider debate on beneficiation”, did this imply that SDT was reversing the ten per cent which were mandated by law?

Ms Zikalala explained SDT’s stock holding policy. Stock could be held up to 14 days. Within these 14 days, the stock had to be sold. After receiving the stock, evaluations would be undertaken and the information on the stock would be entered into the SDT’s system. On average, this process would take two out of the 14 days. Then, the sales team would take over to approve the sales procedure. Before the pre-sales allocation requisition process would start, the sales team would check whether the clients were compliant, particularly whether they had tax clearance certificates which expired annually. After that, the clients would be called to come and view and they would be given 36 hours to decide whether they want to buy the diamonds or not. Finally, the sales team would make a report which would be signed by the CEO.

Ms Zikalala said that the contract with De Beers Consolidated Mines (DBCM) for using staff and assets would come to an end on 31 October 2012. This was why trainings had taken place. However, this process was still going on.

Ms Zikalala agreed that the jump in profit was not attributable to good management only. It was due to the way the business was set up to operate, the implemented policies, the fact that SDT tried to make sure that when a target had been set by the Board, it would perform as good as possible to achieve it. For example, SDT would not buy diamonds the market was not hungry for and then end up with stock it could not sell. It was Government business, SDT was not a profit-driven institution, its goal was to promote local beneficiation. However, some profit was needed, so that the institution could continue to exist. 

The profit generated by SDT was driven by the market as well. In July-December 2011, a softening of the marked had been observed. The share of the US marked continued to decline and was now less than 40 per cent of the total market. In India, there was a longer winter break because there was not much work in the diamond industry. Hence, when no one was buying, SDT was stagnating as well as it did from July to December 2011. The only people buying at that time were the small clients and the niche. Hence, the profit of SDT was a question of how one implemented policies and procedures and how the market performed. 

In her opinion, the diamond industry had neither shrunk nor grown since 2008, it was just the industry going along. The industry depended on where the people who were part of the industry were coming from. The people running businesses in the mandate sector were coming from big companies after they had resigned or had been retrenched and they had started their own businesses. However, they did not have the required expertise.

The sentence cited from slide 20 meant that SDT had analysed what people wanted on the marked and submitted supply statements and information to the Department so that it could determine what could be changed in the law. The Department was still working on that.

Ms Zikalala agreed that the presentation included a segmentation of SDT’s clients only. They had information on the numbers of buyers. About seven clients were from the L/M group, the mandates group was the biggest and the niche was the second largest group. However, Ms Zikalala did not have information on those entities on her but could always provide it later to Mr Schmidt. SDT also kept information on entities who had decided not to buy from the Trader, on their reasons for it and on all other statements made by them. In addition, the Board held client information sessions on a quarterly basis inviting those entities to present their comments directly to the Board.

Mr Lorimer wanted to hear SDT’s view on its financial implications of the arrangements mentioned in slide 7 coming to an end. In addition, he asked how much more beneficiation was now taking place in South Africa as compared with the year 2006.

Ms Zikalala said that SDT had looked at the impact of the arrangements coming to an end. SDT employed younger people to replace the staff from DMR and De Beers. They were employed with fixed term contracts only. In addition, SDT had some money that was invested, but it was not much.

Ms N Ngele (ANC) (former Member of this Committee) appreciated the training of young people and queried to whom it referred – boys or girls, what the criteria for selecting them were and from where they were recruited.

Ms Zikalala answered that the first group of trainees consisted of three girls and one young man, whereas in the second there were two girls and two boys. The SDT had advertised the positions in the public media, the second time even in smaller newspapers which were accessible to young people. 

Ms Ngele was concerned that children from rural areas missed the opportunities and suggested that SDT should use other means such as radio to advertise the training positions. Ms Zikalala promised to report this suggestion to the Board.

Mr Gololo congratulated the Trader for posting profit and asked whether it had ever purchased rough diamonds blacklisted by the Kimberley process. Apart from the six companies (Alexkor, Namakwa, De Beers, Petra Diamonds, Rockwell Diamonds, Trans Hex) from which SDT had purchased, were there any other diamond companies in South Africa?

Ms Zikalala said that there were other smaller purchasers in South Africa and SDT was working on coming together with them.

SDT had never bought blacklisted diamonds. So far, it had only bought diamonds from producers and not ones that had been imported. 

Mr Schmidt observed that the Regulator had said that there was a problem with the access to diamonds, whereas the Trader had said that there was only demand for six per cent of the diamonds.

Ms Makatini explained that the law allowed the State Diamond Trader to buy only ten per cent of the diamonds. SDT bought on average nine per cent of the total percentage available in South Africa. The majority of it went to larger clients. Thus, the number of six per cent should not be misunderstood as everything SDT had acquired. It referred to the percentage of certain type of diamonds that the mandate group as priority clientèle of SDT had bought. SDT was struggling to make this particular group of its clientèle buy other types of diamonds. What the Regulator had said, that there was always more demand for diamonds, was true. Ms Makatini agreed that there was a problem with access to diamonds. The SDT was only accessing nine per cent. The rest went to the market, to tenders. In those tenders, the highest bidder always won. Therefore, the South African market was not able to compete with anyone else coming to tender. There was a possibility that SDT would come to the Committee in two years and request to buy more than ten per cent. 

Ms Bikani commented on what was the likelihood or possibility of consolidating the two entities. In the light of difficulties that they were facing, this could lead to an improved service and empowerment. They would have their own budget. There seemed to be no great difference between the two. In addition, DMR was also a regulator. She urged the Committee to consider this case scenario and the legislation relevant for such eventual consolidation.

Mr Sonto commented that the law required that the Regulator must assist the SDT. In a way, the Trader regulated as well. A consolidation would be a challenge. The role of SDT was to promote beneficiation. A consolidation would mean that the Regulator would have to do that as well.

The Regulator was asked which other entities it was regulating.

A member of SADPMR answered that the Regulator was not regulating entities, but the whole industry. The Regulator did not buy, it facilitated. It had to be impartial. If the SDT was part of the Regulator, it would be regulating itself.

Mr Gona said that beyond diamonds there were other precious metals in the industry as well. The Regulator was not regulating one particular commodity only.

The Chair thanked the Trader for the presentation. The questions asked had been sufficiently answered. He stated that SDT had a clean audit and had performed very well. The Chairperson was very impressed how SDT had been able to turn the situation around from making losses to making good profit. SDT was shying away from taking credit, but should be applauded. In addition, the Committee would be very happy to visit SDT.

The Chair also said that the Committee intended to create a platform to discuss the whole diamond industry and to find common ways of assisting the industry to come forward. SDT would be invited again to the Committee.

Mr Gona asked for a Member to move for the adoption of the report. Ms Bikani moved for the adoption of the report. Ms Mjobo seconded. 

The meeting was adjourned.



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