Alexkor Annual Report 2011/12

Meeting report

Briefing by Alexkor on 2011/12 Annual Report
Mr Berno Lategan, Alexkor Acting Chief Executive Officer (CEO), took the Portfolio Committee through the annual financial statements. The Alexkor annual report was not presented, but served as a background to the discussions of the day. The annual report indicated in an overview that Alexkor was a schedule 2 public enterprise, with the government as the sole shareholder. The Richtersveld community had instituted a land claim against the company, and the Constitutional Court had ruled in 2003 that the community was entitled to restitution. A Deed of Settlement, which became a court order, had been signed in 2007. The consequence was, inter alia, that Alexkor had to transfer land mining rights to the Richtersveld Mining Company (RMC), and land to the Communal Property Association (CPA).  Alexkor could retain only marine mining rights. Alexkor and the RMC were partners in a Pooling and Sharing Joint Venture (PSJV). They held a 51% and 49% interest respectively.  Mining would continue in the PSJV. There was an exploration plan to explore new mining opportunities outside the Alexander Bay region.

Mr Lategan indicated that it was the first year Alexkor had incorporated only 51% of the profit, without the 49% that went to RMC, therefore the financial statements reflected material losses. Alexkor had to acquire other means of generating income. The objective was to expand diamond operations. The company would be instrumental in improving the economy and increasing employment in the area.  Alexkor was committed to township upgrading. There had been a drop in sea days worked and carats produced.

Mr Lategan indicated further training and development initiatives had been undertaken by the company, which included community portable training.  An amount of R3.4m had been expended on social interventions. He reported on predetermined objectives. A statement from the Audit and Risk Committee was included.  Alexkor had received an unqualified audit, but an emphasis of matter stated there was doubt whether the company could continue in the long term without the commencement of sustainable mining activities. Revenue was down R113.4m, due to the loss of 49% of operating profits.

Discussion
The Chairperson asked about academic learnerships.  He asked how many there were, and about plans for expansion. He remarked that the Marikana incident would force Alexkor to take a new look at their situation.

Mr A Mokoena (ANC) remarked that Alexkor was a state-owned company. It had to be accepted that political factors had impacted on Alexkor, but a way forward had to be found. The Portfolio Committee did not know how Alexkor had to be positioned.  Trusts had sprung up, there were silos. Some had money and some not. There had to be a re-alignment to upgrade the mines. A relationship of trust with the Pooling and Sharing Joint Venture (PSJV) had to develop. Trusts had to be reined in, legally or through the judiciary.

Mr Rafique Bagus, Alexkor Chairman, replied that Alexkor had no jurisdiction over trusts, as they resided with the community.  Alexkor was also represented on the PSJV Board, and they had insisted through that channel that trusts had to be in full compliance with the Public Finance Management Act (PFMA). They were separate entities, but it was easier to get the PSJV to comply with the PFMA, than to get the trusts to do so.

Ms C September (ANC) asked what law enabled Alexkor to be represented on the PSJV board.

Mr Bagus replied that it was written into the deed of settlement.

Mr M Sonto (ANC) remarked that there had been welcome developments, but there was still a lack of clarity about the relative independence of Alexkor and the PSJV.  The PSJV was managed independently, but there was interdependence when it came to operations. The Department of Public Enterprises (DPE) could help.  Alexkor was a DPE entity. The question was why the PSJV had to be a stand-alone entity.

Mr Sonto remarked that community portable learning courses were not entirely situated within Alexkor.  Some were possibly in the PSJV.  The question was who would absorb people once they had been trained, and what Alexkor and the PSJV were doing to get them absorbed.

Mr J Duckitt, Alexkor HR manager, responded that all academic learners and current employees were being groomed for the future. There was a succession plan. Portable training would be taken to the community. The traffic department would assist in making people with bursaries employable. Trainees would be absorbed in Postmasburg and Katu. When the exploration process started, there would be a pool of skilled people. Unemployment was rife in the Richtersveld.

Mr Sonto asked what bearing the litigation statement would have on Alexkor or the PSJV.

Mr Bagus replied that Alexkor had a high probability of success.

Ms G Borman (ANC) pointed to a lack of progress.  A letter received from Alexkor in February 2010 had pointed to the same situation as the current one. There was stagnation. The question was whether it would all fade into nothing.  She was impressed with the core values of honesty, integrity, professionalism and accountability, as stated by Alexkor.

Ms Borman asked about internal control, in relation to past shocks with entities. Page 54 of the annual report stated that internal controls provided reasonable but not absolute assurance of the reliability of financial statements. She asked if internal controls were sufficient to pick up problems, and how they could be improved towards that end.

Ms Borman noted that the employment equity figures showed that few females were employed.

Mr Duckitt responded that there were few females in mining positions, but Alexkor had appointed a rehabilitation controller and company secretary.  Women would be trained to drive earthmoving equipment. The CFO at the mine was a woman.  Alexkor tried to recruit from the community.

Ms Borman asked about the huge drop in the remuneration of the CEO, from R2,4 million in 2010/11.

Mr Bagus replied that the CEO had worked for only 6 months.

Ms Borman said that the drop in sea days and carats was drastic. She asked if things were going to continue in that manner. There had to be a definite plan.

Mr Bagus replied that the drop in sea days was a global phenomenon. When the Orange River came down, visibility became poor. Land mining had stopped after the court case.  Alexkor had then gone into sea mining. There had to be an exploration of land mining concessions, for a return to land mining.

Ms September asked if the role of the Treasury was supportive to future survival or not. The DPE had a role to play in telling South Africa that Alexkor was an entity that was believed in, and that it had potential.  It had to be stated why it was important to have a turnaround. The court outcome after 2003 had created a black hole into which Alexkor had collapsed. The question was what government really wanted. The Committee did not want to tell Alexkor to phase itself out, but results were not forthcoming. The annual report was showing a downward trend. She asked about a rescue plan.

Ms September remarked that a law had been created for Alexkor, as an entity. That entity was not the same entity anymore. She asked when Parliament would receive new legislative proposals. Those could be presented to Public Enterprises or Minerals and Energy. Money was being given for a law that did not exist. There was currently a new dispensation that did not fit with the law anymore. She asked what grounds Alexkor had to operate on.

Mr M Nhanha (COPE) said that he was worried about Alexkor’s profit margins.  There had been a Committee visit to Venezuela the previous year. His observation had been that nationalization worked there. The industry was not in the hands of private sector capital.  Alexkor should have been a model of industry taken out of private sector capital. It did not have to be true that public hands mismanaged industry. The potential of Alexkor was known, but profit margins did not do justice to that.  Alexkor could do better.  It had been reported that syndicates were stealing diamonds in the area.  He asked if there were plans to combat that.  He asked what there would be to look forward to in the next annual report.

Mr Bagus replied that there had been a period of stagnation with regard to security.  Better security services were being created. There was a new system of watching. There were 80 kilometres of coastline to be covered.

Mr Mokoena remarked that it was dangerous to accept 10% to 15% theft as a norm.

Mr Sonto asked that it be accepted that Alexkor was doing its best about theft. There was an 80 kilometre free stealing zone.  Inter-ministerial interventions were needed. The DPE and the Department of Minerals could get together and get specialized units on board.

The Chairperson asked about the upgrading of hostels.

Mr Duckitt responded that it was incorrect that Alexkor still had hostels. Hostels now stood vacant, and people had moved into single quarters. There had been downscaling and retrenchment in 2008.  Alexkor’s permanent workers had been transferred to houses in Alexander Bay and Port Nolloth. Those still living in the single quarters were living there by choice. It was mosrly people from outside. They received three meals a day. The single quarters would be revamped by February or March 2013.

Mr Mokoena returned to the matter of trusts. He asked how many there were, and how much money was stashed in trusts.

Mr Sonto remarked that a trust like the Alexkor Development Foundation Trust (ADFT) was reluctant to explain its position. ADFT seemed to be untouchable.

Mr Bagus responded that ADFT had not been included in the deed of settlement.  Communal Property Associations (CPAs) represented the Richtersveld community. The PSJV distributed the 49% they received in terms of the deed of settlement.

Mr Mokoena asked that the pun be excused, but it was a minefield.

Mr Bagus replied that Alexkor did not fund the trusts.

Mr Kgathatso Tlhakudi, DPE Deputy Director General, added that there had been a directive from the Ministry to look at the role of trusts, so that duplication could be avoided. The matter was with the Master of the High Court, and a response was awaited.

Mr Lategan added that trusts dated from the 90s, when Alexkor was making a profit. There had been an Alexkor Development Foundation. Losses had been incurred in the late 90s and trusts were no longer financed by Alexkor.

Mr Sonto remarked that the community did not know what was going on with regard to trusts. Northern Cape trusts were subject to the Master of the Court. Trusts would claim that they performed social interventions, but they did not.

Ms September proposed that the Committee get its own legal advice on Alexkor, trusts and entities, in terms of the PFMA and the Revenue Act.

The Chairperson remarked that the law had established Alexkor, but a court order was saying something else. The law and the court order were in contradiction.

Mr Thlakudi responded that legal advice had been sought regarding the current form of Alexkor in relation to the Act. The PSJV did not impact on the Alexkor Act. A corporate structure for PSJV could be formed. PSJV could become a subsidiary of Alexkor.

Mr Mokoena advised that the Portfolio Committee should conduct a forensic investigation of the plethora of trusts. He believed that PSJV could not become a subsidiary of Alexkor, as Alexkor was state owned.

Mr Bagus replied that there was currently no senior management for the PSJV. The PSJV used contractors, who would go into mining.  Only 10% of the land was currently being mined. There was a directive from the Minister to use PSJV as an operational asset.  A CEO for PSJV had to be appointed.

Mr Tlhakudi added that the survival of the region was linked to the PSJV. There was a well-equipped team in place who could achieve a turnaround. The DPE had a right in Alexkor, and through the Board, in PSJV.

Mr Lategan added that Medium Term Expenditure Framework (MTEF) funding was required to clear up liabilities.

The Chairperson commended the R500 000 set aside for education.  Alexander Bay had to be made attractive. The broader community had to be empowered.  He asked how the region could be reached.

Mr Lategan replied that it could be reached via the N7 by road. The road was in good condition and the distance was 850 kilometres from Cape Town. Alternatives were to fly to Upington, or to Windhoek and from there to Oranjemund, and proceed by road. The Portfolio Committee was welcome to visit the area again.

The Chairperson adjourned the meeting.