Council for Geoscience , Mintek, State Diamond Trader; South African Diamond & Precious Metals Regulator on their 2014/15 Annual reports

Meeting report

The Chairperson asked the presenters of the Annual Reports to restrict themselves to whether the budget had been spent wisely, the cost drivers of the department’s expenditure, challenges facing the departments, particularly vacancy rate, and the corrective plans by the departments to deal with these challenges.

CGS Council for Geoscience (CGS) on its 2014/15 Annual Report
Mr Simon Sikhosana, CGS Acting CEO, focused on Council’s operations, finances and challenges they were facing. He stated that they used the balance score card system for evaluating their performance. In terms of their score card, it was evident that they had set themselves high targets which they had failed to reach, for example, the collaboration with their external regional and Africa counterparts target, number of environment related project reports target, and the revenue target they set for themselves. Their total external revenue target to total cost was also not reached due to the depressed economic conditions around the world. However, they had areas where they exceeded their targets, inter alia, their publication of articles in the press, number of rural development project reports that they completed, the number of geoscience maps, map explanations and related manuscripts published in-house, and their tender success rate.

He noted that they had received an unqualified audit for the past 12 years. In 2014/15, In 2014/15, R1.3 million was deemed irregular expenditure as CGS appointed the financial system support service provider through a deviation mechanism without having conducted market testing. He concluded by reporting on the staff turnover rate, which was only 2% due to resignations. Going forward, they had a target of obtaining 50% of their staff as scientists, of which 60% were expected to be Masters and PhD degree holders.

Ms Mosidi Makgae, CGS Chief Operating Officer, presented on operational activities by highlighting some of the national projects that the Council was embarking on such as the rehabilitation programs of asbestos mines—which had to be rehabilitated after the government banned the mining and usage of asbestos materials in mines.

in 2012, the Council was tasked with the challenge of verifying and capturing about six thousand mines into their database. Already, 90% of the sites had been visited in a three-year period. It was pertinent to note that the Council had identified an area in Limpopo which had the potential for mining of lead, zinc and silver.

She pointed out that the Council had safety net measures which were instrumental in the assessment of the 2014 Orkney earthquake magnitude. The Council had conducted National Geotechnical Report Reviews that would assess that houses were no longer built in certain geographical areas. The Council was in the process of coming up with their own geoscience dictionary. Most importantly, it was embarking on commercial projects activities to augment the funding that it receives from government.

Mr Leonard Matsepe, CGS Chief Financial Officer, presented on the financial performance of CGS. The biggest cost driver in CGS was staff personnel. About R185 million of their budget was spent on personnel. The major challenges in CGS was the government funding which was not long term funding but based only on a three-year period, thus, the Council was faced with the challenge of employing long term personnel on the basis of funding only for a short term period that did not even cover personnel and overheads costs.

He emphasised that the gap in government funding to personnel costs resulted in a shortfall of R26.7 million. This, led to a lack of critical skills attraction and retention and lack of continuity of technical expertise. Overall, this challenge led to serious inadequacies in fulfilling the CGS government mandate.

Ms Mosedi Makgae, CGS Chief Operating Officer, presented on CGS human resources. The staff profile ratio was Africans 60%, white 28%, 2% Indian, 4% coloured and 6% foreign nationals.

She reported on the CGS mapping school which was meant for helping young graduates in obtaining critical skills in preparation for the practical work environment.

Mr Sikhosana presented on the challenges of the Council, noting that it was troubled with lack of critical skills which were aggravated by the fact that the immediate project funding was only for three years, thus limiting the Council’s ability in attracting critical skills and ensuring the continuity of technical expertise thus making it hard for the Council to fulfill its government mandate.

MINTEK on its 2014/15 Annual Report
Mr Abiel Mngomezulu, MINTEK President and CEO, presented the Annual Report to the Committee. He apologised for the absence of their Board Chairperson in the meeting.

He stated that previously, the Committee had an ongoing concern that MINTEK had fewer women in its workforce. Acting on that concern, they had conducted a Women in MINTEK Indaba which resulted in an Action Plan for improving women representation in MINTEK. They have included mentoring, coaching, recruitment and training of women as one of the strategy pillars in MINTEK for 2015/16. They had set themselves a 45% women representation target in MINTKEK from the actual 38.1%.

On the Auditor General’s audit opinion, MINTEK received a clean audit with no findings.

Mr Peter Craven, General Manager, Business Development of MINTEK presented on the business development activities. MINTEK directly supported the national priorities, including, but not limited to a long and healthy life for all South Africans, decent employment through inclusive economic growth, skilled and capable workforce to support an inclusive growth path, and a vibrant, equitable, sustainable rural communities contributing towards food security for all.

MINTEK’s research and development strategy was aligned to the National Development Plan: improved extraction efficiency in extending ore resources, improved energy and water efficiency and beneficiation to downstream, value-added products.

He said that the world had hoped that there would be an upturn in global metal demand in the year 2015, however, the prices and industry project activity continued to fall during 2014/15, which reduced the demand for MINTEK’s commercial services. During that period, there was increased state funding which was made available to MINTEK to use MINTEK capacity in performing valuable research and development.

He concluded by reporting that MINTEK achieved completing four projects (Mahlatjane and Dithabogong in Limpopo, Klip River in KwaZulu Natal and Lusikisiki Quarry Wall in the Eastern Cape). Two additional tenders had been awarded in Buisvlei North in Northern Cape and Ga-Madiba in Limpopo. MINTEK had also completed the rehabilitation design for Osizweni coal and clay pit in KwaZulu Natal, which was submitted to the Department of Mineral Resources (DMR) in April 2015.

Mr Sakhi Simelane, Chief Financial Officer of MINTEK, presented on the financial aspects of MINTEK. The total revenue for 2015 was R503 million with a surplus of R17.6 million for the same year. He stated that for the first time, their revenue breakdown constituted a balance of 50:50 of state grant against commercial revenue, with about R300 million in surplus. However, there was a decrease in commercial revenue as a result of depressed economic conditions.

In terms of audit findings, these were as a result of internal control deficiencies caused by a copy of a BEE certificate having been accepted instead of the original; disclosure of incorrect amounts in related party notes; as well as issues with IT security management.

Ms Gugulethu Nyanda, MINTEK General Manager: Corporate Services, said critical aspects in Corporate Services included human capital development which saw MINTEK spend 2.2% of its payroll, about R6.2 million, on training and development. They had developed the Artisan Learnership Programme which resulted in nine employees being qualified as artisans. There is also a Graduate Development Program which provided graduates with on-the-job training, helping them to appreciate the practical aspects of the job and improve their capacity. In terms of bursaries, they had issued 23 undergraduate bursaries and 16 postgraduate bursaries with a 100% absorption rate for those that completed the degrees.

Mr Makhapa Makhafa, MINTEK General Manager: Research and Development, noted that MINTEK had collaborated with various European Union institutions including, but not limited to, EWIT (aimed at developing an e-waste implementation toolkit supporting the recycling and the secondary raw material recovery strategies in metropolitan areas in Africa); and the BioMore project collaboration towards alternative mining methods.

In terms of community development, 116 new jobs had been created, 5 new SMMEs created, 14 feasibility study reports conducted, 141 learners trained in jewellery, gemstones, glass beads / slumping, pottery and small scale mining.

Mr Craven presented on the technological aspects of MINTEK. They were using technology in sorting coal through sensor based sorting in upgrading low grade coal to Eskom specifications. MINTEK had constructed a water treatment plant which produced potable quality water. He concluded by reporting that in terms of environmental issues, they have had various complaints from the neighbours with regard to noise levels at MINTEK and they had conducted surveys to curb the problems

State Diamond Trader (SDT) on its 2014/15 Annual Report
Ms Dolly Mokgatle, SDT Board Chairperson, reported that overall they were a financially stable organisation. They dealt with rough diamonds which were facing challenges in pricing as compared to polished diamonds in the market.

Ms Futhi Zikalala Mvelase, SDT CEO, said that they managed to receive a clean audit with no findings despite the challenges of trading which had clouded their market. The Auditor General did draw attention to the non-achievement of planned targets. They were unable to achieve budgeted sales targets; there were delays in negotiations with stakeholders for a cutting and polishing hub; and they were unable to increase their financial reserves due to lower demand and lower diamond prices.

She stated that their industry was affected by slow consumer demand in 2014/15 and there is minimal hope for an upturn. Despite this producers continued to demand high prices for rough diamonds. The SDT was  continuously challenged in trading as a result of the down turn in the market (run on mine model) and unfair market value declared.

SDT purchased rough diamonds from 9 producers in South Africa in 2014/15. SDT sold diamonds to 50 clients with the total value of sales to the mandate client segment (historically disadvantaged South Africans) rising from R35.9 million to R41.3 million (15% increase).

SDT was developing and establishing an incubation facility which would create a platform for SMMEs in beneficiating diamonds in a controlled and structured environment. They were in preparation for hosting the South African Inaugural Diamond Indaba which was to happen on the 27 October 2015.

Ms Nomonde Thamaga, SDT Chief Financial Officer, presented on the financial performance of SDT. In 2014/15, SDT had increased the value of inspections in terms of the U$ Dollar; however, she stated that the value of the U$ dollar decreased per carats.

In terms of purchases, SDT purchased 297 million diamonds versus the 527 million diamonds in the previous year, with the number of total purchases being 69 versus the 68 of the previous year. SDT recorded sales to the value of R394 million versus R555 million of the previous year, generating a gross margin of R13.1 million versus R16.4 million of the previous year. The gross margin of 3% is in line with the budget and the same as the previous year.

SDT had a budget in terms of sales of R534 million which they failed to achieve by 26%.

South African Diamond and Precious Metals (SADPMR) on its 2014/15 Annual Report
Mr Levy Rapoo, SADPMR  CEO, apologised for the absence of their Board Chairperson. He said he would focus on the critical aspects of the presentation as the content was in the Annual Report itself.

SADMPR received an unqualified audit with findings. There was an error in the corresponding figures in the financial statements. However, the financial statements were revised accordingly and internal controls were put in place to prevent the recurrence of similar errors.

SADPMR achievements on pre-determined objectives included ensuring equitable access to resources for local beneficiation through prioritising 176 diamond beneficiators who visited the DEEC, facilitation of polished tender for the small diamond beneficiators by DEEC and the placing of a bid by 3522 clients who visited the DEEC for diamond parcels against the set target of 1400 anticipated clients.

There were 63 beneficiation licenses issued against the target of 50, assistance was provided to seven prospective entrepreneurs in the diamond and precious metals industries. SADPMR also managed the facilitation of five skills development initiatives in these industries.

On the establishment of ‘the Bourse’, the SADPMR board had approved the document which recommended the establishment of ‘the Bourse’ and the proposed framework of a ‘State Bourse’ .The Gauteng Growth Development Agency (GGDA) was building a Gauteng Industrial Development Zone (GIDZ) near OR Tambo Airport. A consequence of this was that SADPMR was requested to collaborate with the GGDA in establishing a jewellery manufacturing precinct within the GIDZ.

SADPMR was formulating a Women strategy which would be in line with the DMR Woman in Mining strategy. The strategy would address challenges for women both inside and outside the industry.

Ms Karabo Sibanyoni, SADPMR Company Secretary and Legal Advisor, presented on the human resources component and reported that in total, SADMPR had a total of 115 employees, 47 male and 68 females. The race component was 4 coloureds, 4 Indians, 2 whites and 105 blacks. SADMPR was pleased to announce that they had employed a disabled secretary as per the recommendations of the Committee.

Mr Sibusiso Mandlozi, SADMPR Acting Chief Financial Officer, reported that the actual expenditure for 2014/15 was R92.6 million; cost drivers being the compensation of employees at R59.8 million. The employee head count had increased as a result of the review of the organizational structure and there had been a cost of living adjustment.

Mr Rapoo commented on the challenges faced the Regulator: SADPMR experienced a decline in the diamond and precious metals industry due to the economic global downturn, low access to funding for emerging businesses, domination of financially strong buyers in accessing rough diamonds and limitation of access for polished diamonds by small beneficiators.

Discussion
CGS 2014/15 Annual Report
Mr I Pikinini (ANC) said that they had visited CGS and found out that there was aging equipment in the laboratories. It was important that the equipment in question should be maintained and improved so to improve its efficiency. The rehabilitation of mines should be an ongoing in-house project within DMR where it can be in a position of creating jobs and alleviating poverty. Issues of shale gas should be updated frequently as this was a matter of national interest.

Ms V Nyambi (ANC) said that in the human resource presentation component, there was no mention about employing people with disability, she wanted clarity on why that was the position.

The Chairperson said that he was aware that Mr Simon Sikhosana was the Acting CEO of CGS. He asked  what happened to the previous CEO. CGS must be aware that a reasonable expectation was created that where one has been in an acting position for over six months, that one would be confirmed in that position. He was aware that the Public Protector had conducted an investigation on a case reported by a whistle blower in CGS. He asked why there was no mention of such a case to the Committee.

He noted that Dr Mosidi Makgae was now the Chief Operating Officer (COO) of CGS. He asked what happened to the previous COO. He questioned the need for a COO position in CGS, more especially, the CGS management structure was not clear on whether the COO was in the same rank as the Chief Financial Officer (CFO). He wanted to know the number of CGS board members. He was aware that CGS faces a challenge about long term funding and wanted to know how this challenge can be solved. On the Geoscience Amendment Act of 2010, he asked for CGS recommendations on any matters related to it. The CGS presentation prima facie depicted that they were running towards over-expenditure, especially seeing that the bulk of the budget was spent on compensation of employees. CGS was intervening with internships but they were supposed to be focusing on gender parity. They were offering more bursaries to males than females whilst there was a shortage of women in the Council. He asked why this was the case. He asked for the correct classification of CGS as a government entity.

Mr Humphrey Mathe, CGS Board Member, replied to the question on the resignation of the CEO. He said that in March 2015, CGS went through a trying period where both the CEO and the COO resigned despite CGS hosting the International Geology Congress in 2016. The Board Chairperson sought assistance from DMR which seconded Mr Simon Sikhosana to the position of CEO in CGS. Mr Sikhosana would be in the acting position until the International Geology Congress was over, thereafter he would return to DMR. For the position of COO, CGS looked at succession from within CGS which saw Dr Mosidi Mokgae being appointed to the position. On the need for the position of COO, he replied that it was an imperative position in the structure which could not be done away with.

On the Public Protector’s investigation in CGS, he stated that the CGS procurement department had serious irregularities which forced management to put the procurement manager under a disciplinary process which resulted in the procurement manager being dismissed. The dismissed manager later went to the newspapers alleging that CGS had gross irregularities. That was when the Public Protector was engaged and she found no adverse findings in CGS as had been alleged. It is also pertinent to mention that the tenure of the Board had been extended for a further one year.

Mr Sikhosana, CGS Acting CEO, noted that there were 10 board members.

Mr Sikhosana spoke about the aging equipment in CGS. They were able to secure funding to the tune of R180 million to deal with maintenance of the old equipment. On the question of classification, CGS is a schedule 3A entity. With regard to the shortfall that was reported in 2014/15, the challenges lie with the funding model as the baseline funding remained constant subject to inflationary adjustments. It does not even cover employee salaries. As such they depended on other temporary funding to make up the deficit shortfall. This remained a challenge. On the over-spending on expenditure, they had requested National Treasury to fund some of the activities they were engaged on. He stated that the shortfall was a temporary shortfall as it relates to the re-engineering of CGS. On why they spend much of their budget on compensating employees, he stated that the engine of any science research institution was its people. Hence, the major share of expenditure is on human capital as they are the engine drivers of the Council.

Mr Mathe said that their employment equity statistics did not show disability but the correct percentage was that they had achieved 1.2% of the target of 2% disabled people.

Mr Sikhosana replied that on the question if additional staff is required at CGS, additional staff would be determined based on the kinds of projects that they undertake.

Dr Mokgae, CGS COO, replied that funding for the rehabilitation of mines was not enough and as such they were unable to engage more people on the rehabilitation project. On shale gas, she stated that there was funding to the tune of about R16 million but what they were targeting were the baselines, assessments of water ground, and to that extent, they were focusing on the Northern Cape as an area which had been identified as a potential area for shale gas. On the question of gender parity, geology was a male dominated field and as such, most applicants for the bursaries were males.

Mr Fhatuwani Ramagwede, GCS General Manager: Corporate Services, noted that the Geoscience Amendment Act of 2010 had extended the mandate of the Council for Geoscience and as such, they were supposed to be a repository of information.

MINTEK 2014/15 Annual Report
Mr I Pikinini (ANC) recalled that MINTEK was used to getting clean audits but over the previous few years, they had made careless mistakes which cost them a clean audit. He warned them about careless mistakes in future. Nonetheless, he congratulated MINTEK on this year’s clean audit. MINTEK must look at including a comparison of beneficiation in South Africa as compared to other countries so that it can gauge itself.

SDT 2014/14 Annual Report
The Chairperson sought clarity on the status of Diamond Indaba as compared to Operation Phakisa in Mining. He felt that it would be more efficient if they conducted Operation Phakisa in Mining before Diamond Indaba so that they could input on the Operation Phakisa process so as to align Diamond Indaba activities with what was concluded in Operation Phakisa in Mining. He asked whether there was any need for SDT to consider amendments to their legislation as their presentation depicted constraints which relied on a conducive legislative environment. Is there a constraint in the legislation which influenced commodity prices?

Ms Futhi Zikalala, CEO of SDT, stated that the Operation Phakisa in Mining preparations only started in 2015 with dates changing frequently whilst the Diamond Indaba preparations had begun in 2014. The way that the events had unfolded would exclude some people from participating in the Diamond Indaba but she insisted that the dates could not be changed.

In terms of legislative amendments, it was more of a Minister’s prerogative than their entity's. However they were preparing the amendments as an organisation, whilst awaiting the Minister’s go ahead.

In terms of the effect of legislation on commodity prices, diamonds are not a commodity. Diamonds had their own challenges, but in terms of whether there was a challenge in the pricing of diamonds, there was no clear cut answer as it depends on whether there is a willing buyer. However, there could be potential crisis in pricing which was permeated by need for a fair valuation of diamonds.

She stated that there was a level of resistance from white people as SDT made proposals for transformative changes in the industry inclusive of the rest of South Africans. In terms of whether there was a conducive environment, the environment was not conducive enough for SDT to operate efficiently.

Ms Dolly Mokgatle, SDT Chairperson, stated that the current term of the SDT Board had been postponed by the Minister indefinitely. The term of the Board had come to an end last month but the fact that the Diamond Indaba was on the way and the fact that the process of appointing a new Board was cumbersome, the Minister had decided to extend the period of the Board indefinitely until such time that the new board would be appointed.

SADPMR 2014/15 Annual Report
Mr I Pikinini (ANC) sought clarity on the advantages of having a state ‘bourse’. As a matter of emphasis, there was a need to guard the internal control processes to ensure that they performed accordingly.

The Chairperson said that in one of the newspapers, there was a whistle blower case in the SDPMR who had been victimised for having exposed maladministration in the SDPMR. He wanted to know the outcome of the case and its merits. He stated that there was a limitation on SDPMR budget projections, that every year, they always had deficit which is not reflected anywhere in the presentation. He asked whether they should expect another deficit in the next financial year. He was aware that the SDPMR CEO was leaving the institution, but there was no mention of the recruitment process to fill the vacancy. In terms of human resources at SDPMR, there was an exclusion of the disabled person in their employment statistics. He asked whether there were untrainable people in SDPMR as the presentation showed so many unskilled people.

Mr Rapoo, SDPMR CEO, explained that unskilled employees were trainable as most of them were matriculants without formal tertiary qualification. On disability, it did not belong to the 2014/15 report as the disabled person was employed after March 2015, but it was mentioned because the Committee had raised the concern that there were no disabled person in SDPMR.

He said that the process of recruiting the next CEO had already started. On the question of the ‘whistle-blower’ case, he stated that it was not really ‘whistleblowing’ but what transpired was that there was a newspaper that reported leakage of information from the organisation. The case was investigated and the person who was involved in the leakage of information was expelled from the organisation.

He agreed that they should guard their internal control processes to ensure their efficiency. On the advantages of a ‘bourse’, it was meant to enhance trade, increase job creation, address the problems of jewellery manufacturing, the environment is made conducive for training, it had a lot of stakeholders for distribution of all minerals - not just diamonds and gold.

Mr Sibusiso Mandlazi, SADPMR acting Chief Financial Officer, replied to the question of budget deficit in the organisation. He said that the budgeting process was empowered by section 53(3) of the Public Finance Management Act, and as such, they did not deal directly with a cash deficit, so the deficit that has been reported was not a cash deficit but an accounting deficit.

The Chairperson made some general comments. He stated that, in general, when one submits one's resignation, there should be a process of recruitment which starts immediately. There was no consistency in the way that government entities appointed their board members. He had a general concern about board members who exceeded their term office; in particular, he felt that there was no rationale or basis for why the term of the STD board chairperson was extended. It was not reason enough for the Minister to have extended the term of the SDT Board on the basis that there was a Diamond Indaba underway as the board was not an operational arm of the organisation. Extending a board’s term on the basis of an upcoming conference was setting a wrong precedent for other boards that they could extend their term by planning for events and conferences at the time when they should vacate their positions.

The Chairperson said that in CGS, it was inconsistent for the Council to appoint the Chief Operating Officer from their internal staff as CEO. It had to recruit someone from outside the Council to fill that position. He urged for consistency in appointment of management positions that are in compliance with the law and follow due processes.

The meeting was adjourned.

[Apologies: Mr J Lorimer (DA), Mr J Malema (EFF), Mr J Esterhuizen (DA), Mr S Jafta (AIC), Mr J Esterhuizen (IFP), Mr M Matlala (ANC) and Ms Mafolo (ANC) were noted by the Committee.