Four entities of the Department of Mineral Resources - Council for Geoscience, Mintek, State Diamond Trader and South African Diamond and Precious Metals Regulator presented their 2015/16 Annual Reports to the Committee.
The Council for Geoscience’s presentation covered mineral exploration and the discovered targets and it showed that the shale gas project would serve as a baseline study for future shale gas research and that only 50% of the approximately 6 000 mining sites would require rehabilitation. The Mine Water Management Project focused on the development of a mine water database, solution-orientated mine water management, mine residue pollution solutions and the assessment of potential water and other environment-related constraints on mineral development. CGS was also developing a seismic micronisation for Johannesburg, which was a process used to identify seismic hazards at different locations within an area and was essential in identifying potential seismic “hotspots”.
Total income for the Council, amounted to R412.5 million, which included a government grant of R332.3 million in 2015/16. In addition to the grant, income was augmented by sales and contracts and a sundry income of approximately R28.5 million, exceeding the budgeted R3 million. The bulk of the Council’s expenditure went toward personnel costs (R186 million) against a budgeted R196 million. Other expenditure included bursaries (R1.4 million), commercial project costs (R28.4 million), overheads and operating costs (R142 million) and this amounted to total expenditure of R358 million with a reported surplus of R54 million.
CGS continuously obtained an unqualified audit opinion and an amount of R217 000 was disclosed as irregular expenditure (R119 000 for the system support service provider who was appointed without testing the market and R98 000 for goods procured without a suppliers declaration of local content).
The Committee wanted to know what CGS did exactly to stimulate investment in the mineral sector. The focus was also on the decreased grant allocation and members wanted details on what the ideal allocation should be. Further questions focused on the composition of the board, shale gas exploration, the status of the laboratories, communication strategies and what the Medium Term Expenditure Framework (MTEF) allocation should be to fulfil statutory obligations.
Mintek’s core business was research and development of efficient mineral processing, and value added products and services. It also included the promotion of mineral based commodities. Employment equity showed 39% of the staff complement is women and Mintek spent 2% (R5.5 million) of its payroll on training and development interventions. The Artisan Learnership Programme saw 15 young people enrolled and the Graduate Development Programme provided on-the-job training for 13 newly appointed graduates. The part-time bursary programme was for Mintek employees and Mr Mr Mngomezule explained that he obtained his Master’s degree through this programme that saw 74 employees enrolled in post-graduate studies for 2015/16. Bursaries for full-time students (31) are significantly lower than part-time bursaries, but all those students are guaranteed positions at Mintek. In terms of rehabilitating derelict and ownerless mines, nine sites were rehabilitated and four sites were underway, to be completed during 2016.
To address the need for alternative energy resources, a collaboration agreement was reached for fuel cell catalyst product development and the completed product was ready for commercialisation. Ferrous metallurgy was also a major initiative to reduce energy use in the foundry industry.
Mintek had a total income of R526 million for 2015/16 and (56% of that income was the government grant allocation, 36% was commercial revenue and 8% was other revenue). Highest expenditures were personnel costs (R299 million) and operational costs (185 million). Mintek achieved a clean audit opinion.
The Committee enquired about the plans for the treatment of dumps and mine rehabilitation. Much of the focus of the discussion was on Mintek’s bursary programmes. Mr N Mandela strongly questioned why Mintek’s part-time bursary programme was only for existing employees in light of the current student funding crisis in the country. He further asked how it was viable that the President and CEO of MIntek, Mr Abel Mngomezule, who earned a salary of R2.8 million per annum obtained his Master’s degree through bursary funding and he asked the Department to evaluate why people with mainstream employment and decent salaries should be benefiting from study funding. He also wanted the Committee to take this matter under consideration.
The State Diamond Trader reported that in terms of the global market, the diamond market remained subdued and depressed for most part of 2015 with a continued slide in polished diamond prices. There was a slight improvement in the diamond markets in the beginning of 2016 and despite a prolonged slump in diamond markets globally throughout 2015, a turnover of R455 million was achieved in a difficult market. Purchases and sales were down by 18% and 20% respectively.
Revenue for the year was R460 million which reflected an increase of 17% compared to the previous year (R394 million). The increase was due to market improvement particularly during the last quarter. As a result an average gross margin percentage of 3% was achieved, despite there being a loss of just over R3 million. Overall, the financial health of the State Diamond Trader was sound. An unqualified audit opinion was achieved, both on financial and predetermined objectives. A material finding was identified on Supply Chain Management that resulted in irregular expenditure of R75 137. This was as a result of the Preferential Procurement Regulations regarding stipulation of criteria to be used for assessing functionality not being stated in the request for quotation (RFQ).
The South African Diamond and Precious Metals Regulator received a clean audit opinion and submitted a budget of R88.7 million to National Treasury via DMR. The final allocation was R50.5 million which left the Regulator with a shortfall of R38.2 million. The budget and the classification of funds were adjusted in accordance with the final allocation. Actual revenue was R93 million (including transfer payment of R 50.5 million). In-house generated revenue increase to R42.5 million compared to the budget of R 38.2 million.
Actual expenditure for the year under review was R86.8 million. Expenditure trends showed the biggest expenditure was compensation of employees (R64.6 million). The transfer payment remained a challenge when compared to the annual budget. The final result showed remarkable improvement from a deficit of R5.5 million (2014/2015) to a surplus of R6.2 million for 2015/16.
There had been a significant decline in the beneficiation of diamonds in the industry. SADPMR, through the technical committee of the board had embarked on an investigation into the challenges the industry was facing. Funding of historically disadvantaged South Africans HDSA’s, especially with the current economic downturn, remained a problem.
Committee members referred to client segment sales and the fact that there were only three clients listed under growth and transformation in terms of client segment sales and it only made up 9% of the total value of sales. Similarly, equitable access had 20 clients and it only made up 1% of the sales. Adv Schmidt questioned the purpose of the organisation was and said the numbers were a shocking indictment on the State Diamond Trader.
Members again questioned the board composition in terms of conflict of interests. There were also questions on the accessibility of the projects to women and young people, communication strategies and strategies in terms of growth patterns.
The Chairperson welcomed everyone to the meeting and said the focus now shifted to the entities of the Department on Mineral Resources. He urged Members to be precise in their discussion and to mainly deal with the issues before the Committee today.
Council for Geoscience (CGS) on its 2015/16 Annual Report
Mr Simon Sikhosana, Acting Chief Executive Officer (CEO), CGS, apologised on behalf of the chairperson who could not attend the meeting. He gave an overview of the mandate of the Council which is the systematic and onshore and offshore geoscientific mapping of the country. The mandate also included basic geosciences research into the nature and origin of rocks, the collection and curation of all geosciences data, rendering of geosciences knowledge services, managing a number of geosciences facilities and rendering commercial geosciences services and products to national and international clients.
Mr Sikhosana highlighted the five national priority projects which are the:
- Promotion of mineral exploration and investment
-Mine rehabilitation – derelict and ownerless mines
-Mine water management
-Micronisation of Johannesburg
Dr Mosidi Makgae, Chief Operations Officer (COO), CGS, gave an overview of the discovered targets, especially in the Northern Cape as it related to the promotion of mineral exploration and investment. She also explained that the CGS shale gas project would serve as a baseline study for future shale gas research work and played a vital role in the review of the Petroleum Exploration and Exploitation Regulation. In the assessment of derelict and ownerless mines, she explained that only 50% of the approximately 6 000 sites would require rehabilitation.
Dr Makgae said the Mine Water Management Project focused on the development of a mine water database, solution-orientated would mine water management, mine residue pollution solutions and the assessment of potential water and other environment-related constraints on mineral development. She further explained that CGS was developing a seismic micronisation for Johannesburg, which was a process used to identify seismic hazards at different locations within an area and was essential in identifying potential seismic “hotspots”.
She gave an overview of the Council’s international projects, but also touched on the non-achievements for 2015/16. These were employment equity with regards to women employed by CGS and the proportion of scientists to total staff in the organisation. The number of projects with external collaborators and strategic science partnerships were also highlighted as missing their targets for 2015/16.
Mr Leonard Matsepe, Chief Financial Officer (CFO), CGS, said the total income for the Council, amounted to R412.5 million, which included a government grant of R332.3 million in 2015/16. In addition of the grant, the income was augmented by sales and contracts and a sundry income of approximately R28.5 million, exceeding the budgeted R3 million.
The bulk of the Council’s expenditure was toward personnel costs (R186 million) against a budgeted R196 million. CGS initially budgeted the extra R10 million for performance bonuses, but did not pay those bonuses, because the performances did not warrant it. Other expenditure included bursaries (R1.4 million), commercial project costs (R28.4 million), overheads and operating costs (R142 million) and this amounted to total expenditure of R358 million with a reported surplus of R54 million. The surplus was not money in hand at the start of the financial year and it was explained as an “accounting surplus”.
CGS continuously obtained an unqualified audit opinion and an amount of R217 000 was disclosed as irregular expenditure (R119 000 for the system support service provider who was appointed without testing the market and R98 000 for goods procured without a suppliers declaration of local content). In terms of the financial outlook, CGS produced a steady balance sheet and was in good financial standing in the short term. An increase in the baseline allocation was required for long-term planning.
Mr Sikhosana provided an overview of the organisation’s demographic profile in terms of gender (56% male and 44% female), race (75% black and 25% white), bursaries and the internship programme.
The Chairperson commended the presentation and gave over to the Members.
Adv A Schmidt (DA) said the government grant dropped from R466 million to R332 million and asked if it was part of tightening the financial belt. He wanted to know, in terms of the grant analysis, if the allocations to the projects are the total amount spent by the Department of Mineral Resources (DMR). He asked if the Water Ingress Project was the Florida project referred to three years ago and asked what exactly CGS did to stimulate investment in the mineral sector.
Dr Makgae replied that investment in the mineral sector was a project of national importance and CGS was aggressively working on it so that by the end of the project, discoveries could be significant. CGS was in Mpumalanga looking at rare earths and some gold deposits. The Council also focused on KwaZulu-Natal where there was potential for gold deposits. Concentration in the North-West was on alluvial diamonds. In the Northern Cape, CGS was looking into resources such as thorium and uranium to assist with the government’s Nuclear Build Programme where the aim was to quantify and map those resources. There are no precious metals in the Eastern Cape, but CGS was looking into aggregate materials in terms of future infrastructural development. The water project had changed shape since three years ago and it is solution-orientated mine water management and looks at treatment technologies. In terms of mine residue pollution solutions, mine dumps would not be necessarily rehabilitated, but could be cleaned. As work was done in terms of mapping, CGS needed to be quite proactive and flag to the Department that if there was potential for gold, would there be water shortages and environmental sensitivities. It was integrated approach towards mineral stimulation.
Mr I Pikinini (ANC) commended the presentation and referred to shale gas exploration. He asked how far CGS was on the environment and public participation processes. He said during the oversight visits it became clear that the laboratories had some limitations and he asked if the system would be improved, because the IT systems need to be sped up. He expressed his appreciation for the learnership programme that grew from 7 learners in 2010 to 71 in 2015/16.
Mr Simon Sikhosana replied that there was a laboratory recapitalisation programme in place and equipment was being purchased. An extra laboratory was being built for GeoTech for infrastructural purposes. In terms of IT, an investment will be made in Enterprise Resource Planning (ERP) in less than a year so that information to the public can be distributed via the internet. Shale gas exploration mainly addressed the issue of alternative energy sources. Shale gas would be a future game changer in addressing the energy problems.
Dr Makgae replied that CGS was talking about the research phase of shale gas. It was the responsibility of government, through DMR and CGS to ensure that there were informed regulations to be able to determine an environmental baseline before exploration. Shale gas was a high level project and public participation and community processes would be driven by the Minister. No work would be done before consulting with the communities.
Mr M Matlala (ANC) also applauded the internship programme, but asked whether there was a realisable and achievable programme to ensure that these interns, after the completion of the programme, are not going to be head-hunted for ‘greener’ pastures. He mentioned that no presentations made mention of the National Development Plan (NDP) and how implementation related to the NDP. He asked how the organisation’s communication strategy was structured. There are billboards in the country being used by a “smiling” Mmusi Maimane and those billboards should be used for the benefit of the people of South Africa who did not know of CGS and its benefits.
Mr Sikhosana replied that most of the students in the internship programme got absorbed by CGS. While most companies were retrenching employees, CGS was employing, but once the economy picks up, that could become a problem, because CGS did not remunerate at the most competitive level. For the past five years the organisation had been able to retain most interns, because of the interesting nature of the programme and the projects. The promotion of investment addressed the NDP where companies could be enabled to invest in the mineral industry. People already said the country was over-explored and there was nothing to find, but CGS was looking at it differently – there was a lot to find. This will revitalise investment in the mining industry which was an aspect of the NDP. The organisation did not use billboards, but there were signs that showed where the Council was, albeit not as big as billboards. The Council was mainly known by the community for earthquakes, i.e. as the organisation that usually responds and gives explanations whenever an earthquake was reported. Due to financial constraints the Council had not been able to invest a lot into publicity, but would be looking into that especially with the surplus reported for this financial year.
The Chairperson said he was sure Honourable Maimane had a right to smile.
Mr J Lorimer (DA) said Mr Maimane not only had the right, but he also had plenty of reason to smile. He asked what the DMR‘s position was on the prospects for funding for CGS to meet all its statutory obligations. He asked what the Medium Term Expenditure Framework (MTEF) allocation should be to fulfil those obligations. Information on mapping should be valuable to prospectors and he wanted know how this information was distributed to people.
Mr Matsepe replied that CGS put forward funding proposals on an annual basis. The Geosciences Act was amended to offer additional services, but there was no money allocated for those services. This particular year a request for funding was put forward, not for new projects, but for existing projects that would be ending in 2017/18. In analysing the government grant, it showed that the bulk of the allocation was project-linked and was not part of the baseline and decreases in the allocation reflected that, because some of the projects would be ending. National Treasury had indicated that they would not be considering new proposals to fund in the next MTEF, but would consider proposals thereafter. For the next year CGS should be fine, but in 2017/18 there would be a big deficit (R15 million) when comparing the government grants baseline with the organisation’s personnel costs. To function optimally, a very comprehensive proposal was compiled that showed that funding of R700 million was required to fully map the country, as well as offshore mapping, where almost nothing had been done. The figures and proposals could be forwarded to the Committee.
Mr Lorimer asked that the proposals be forwarded to the Committee.
Mr Sikhosana replied CGS wrote a report on mapping projects and the information was then sent to DMR and the Department decided how the information was used in terms of rights that should be granted.
The Chairperson referred to the Annual Report and questioned why the CEO was part of the board; usually the CEO was separate from the board as the head of the executive of an organisation. A CEO was employed and a board was appointed. Out of the 10 board members, six are Department officials. He asked if there should not be a common framework adopted when appointing the board. He referred to board remuneration, the level of expertise of board members and whether a department official could truly be as unbiased as board members, because there could be a conflict of interest when people start representing their legislative interests rather than the entity’s interests. He asked whether the Department had a categorisation of its entities that determined how a board was appointed and how board remuneration was calculated. If there was not a focused investment in resource generation, it would be very difficult to motivate for more funding. He asked that in the next report, information on foreign nationals employed by CGS should be more detailed.
Mr David Msiza, Acting Director-General, DMR, said the Department looked, with its Strategic Plan, at all government imperatives. In terms of the governance issues and the composition of the boards, it was currently based on legislation and the legislation was clear how the make-up should be for all DMR entities. There was a process government initiated to look at state-owned entities (SOEs) and how to improve on governance matters, including remuneration. Currently remuneration was driven by National Treasury directives. The main objective when government was represented in SOEs was to ensure that there was alignment to government’s strategic direction. Entities should find ways to generate revenue, but if research councils such as CGS are properly funded, it should help in revenue generating prospects on many levels and the Department fully supported funding proposals put forward by the entities.
Mintek on its 2015/16 Annual Integrated Report
Mr Abel Mngomezule, President and CEO, Mintek, explained that the 2015/16 Annual Integrated Report was so termed, because it included information not previously covered in Chapter 5 of the Annual Report. The core business of the organisation was research and development of efficient mineral processing, and value added products and services. It also included the promotion of mineral based commodities. To do this, Mintek should uphold good governance practices, build world class research and development excellence and enhance the organisation’s visibility and credibility. Mintek achieved a clean audit opinion and the organisation had a strong focus on environmental awareness.
Employment equity showed 39% of the staff complement is women and Mintek spent 2% (R5.5 million) of its payroll on training and development interventions. The Artisan Learnership Programme saw 15 young people enrolled and the Graduate Development Programme provided on-the-job training for 13 newly appointed graduates. The part-time bursary programme was for Mintek employees and Mr Mr Mngomezule explained that he obtained his Master’s degree through this programme that saw 74 employees enrolled in post-graduate studies for 2015/16. Bursaries for full-time students (31) are significantly lower than part-time bursaries, but all those students are guaranteed positions at Mintek. In terms of rehabilitating derelict and ownerless mines, nine sites were rehabilitated and four sites were underway, to be completed during 2016.
Dr Makhapa Makhafola, General Manager: Research and Development, Mintek, focused on research and development. To address the need for alternative energy resources, a collaboration agreement was reached for fuel cell catalyst product development and the completed product was ready for commercialisation. Ferrous metallurgy was a major initiative to reduce energy use in the foundry industry. He further provided an overview of the achievements in the research and development section which included rapid test kits development, water treatment, and commercialisation of bioleaching technology and urban mining.
Mr Alan McKenzie, General Manager: Technology, Mintek, gave an overview of the technologies. Work continued on the Savmin Acid Mine Drainage (AMD) Water Treatment and the aim had been to significantly reduce the processing and capital costs. Significant progress had been made and the programme was continuing with technology partner Veolia. He elaborated on coal sorting, the treatment of dumps, technology commercialisation, training programmes and safety.
Mr Sakhi Simelane, General Manager: Finance, Mintek, said Mintek had a total income of R526 million for 2015/16 and (56% of that income was the government grant allocation, 36% was commercial revenue and 8% was other revenue). Highest expenditures were personnel costs (R299 million) and operational costs (185 million). The organisation had an improved asset base, but recorded reduced trade receivables (R11 million) due to fewer commercial projects. The increase in state grant (R63 million) was due to MTEF project execution.
Mr Lorimer asked what nickel sulphide was used for and if there were any plans to use Savmin in anything other than a test and what the costs for water treatments were. He referred to the treatment of dumps and he asked if there were any roll-out plans and if so, where and how.
Mr Peter Craven, General Manager: Business Development, Mintek, replied that nickel sulphide was an intermediate product that got sold to refineries that converted it into nickel metal. Nickel metal went into corrosion resistant alloys, primarily stainless steel. In terms of Savmin, Mintek was working really hard and the plant was situated on the western basin of the Sibanye mine. There was a western, central and eastern underground AMD contaminated basin and it was sitting on top of one of those basins treating water drawn those basins. Mintek was working with a local company called Veolia that was locally based, but was also part of a multinational that is actually the biggest water treatment company in the world. Mintek was trying to get this technology to a commercial scale as quickly as possible. It was difficult to determine how long it would take and cost of water treatments depended on the extent of contamination and reverse osmosis was the technology most commonly used. It was also very much dependent on the cost of electricity, but generally the cost of contaminated water was about R20 per kilolitre. The focus was on lowering operational costs and getting the cost down to R10 or R15 per kilolitre. There were a number of dumps across the Witwatersrand expanding into the East Rand and large groups of those dumps had been treated ever since the 1970s where one plant could treat a number of dumps. The dumps that are left are the lower grade dumps and are more scattered, surrounded by urban areas and housing developments, which are economically very difficult to address. It will be done, but it would take a lot more time. Good databases needed to be created on those dumps demonstrating the range of technologies available for treatment.
Mr M Mandela (ANC) referred to mine rehabilitation and asked why Osizweni was put on hold and when it was due to be completed. He also wanted to know how much funding was allocated to the Mineral Education Trust Fund and how many beneficiaries were supported. He asked how much in total was being spent on the bursary project at Mintek. Employees are the beneficiaries of bursaries and they earned a salary every month. The President and CEO of Mintek was a beneficiary of the bursaries and he earned a cheque every month. He wanted to know what the President of Mintek earned that made him eligible to benefit from study funding. There was an ongoing crisis where students were fighting on the streets for their #FeesMustFall campaign and it might be reckless that people that earned a salary was being funded at university.
Mr Craven replied that Mintek completed the designs and the cost estimates for Osizweni and delivered it to the DMR. Currently the issue of illegal miners needed to be resolved and it was probably on average 400 illegal miners mining coal and clay from that pit. The nearby school was being damaged and it became a danger to the pupils. A new school was in the process of being built and the children will be relocated. Once these issues are sorted the rehabilitation could commence. The Mineral Education Trust Fund originated when six mining houses, through the Chamber of Mines, provided certain support to universities to supplement salaries of university lecturers. There was a realisation when that process was unbundling that the universities would suffer to the detriment of South African industries that would not get the number of graduates it they should be getting. This money was subsequently put into the Mineral Education Trust Fund. These companies contributed significant amounts and Mintek contributed something like R40 000 – it was more a token gesture of support. It also gave Mintek a seat on the board to get better insights into the universities’ engineering departments.
Mr Mngomezule replied that in the past, before 1994 there were very few black educated persons in institutions. Post 1994 more black people became part of the institutions, but most had only junior degrees. As a result these institutions were viewed in international forums as having ‘less educated people’, because it was difficult for parents of black students to support them all the way though up to PhD level without working. In order to both retain employees and ensure further education, Mintek had to help with their education. Mintek compared itself with companies such as Anglo-American which paid salaries almost double comparatively. Using bursaries for full-time employees as a retention strategy had worked to a certain extent. Mintek lost about 10% of its employees on an annual basis, but an institution like the Medical Research Council was losing almost 14% of its employees. About three years ago it was reported to this Committee that an analysis at Mintek showed that most employees stayed on average only three years at Mintek and that average had since increased to 5 years, because of the different types of retention strategies utilised by the organisation. In 2010, the bursary allocation was R7.9 million and currently the allocation was R12.9 million. The value increased and the focus was on higher postgraduate degrees and the company avoided giving bursaries to people it would not be able to employ eventually. As an example, there were low level low paying jobs at Mintek and the organisation decided to advertise for two painters with a minimum qualification of either a diploma or a degree. One of the two people who got the jobs worked at Mintek for two days and he found another job almost immediately. This was because he was able to come and do a job rather than sit at home. The organisation had continued with the programme and currently two of Mintek’s best employees came from that programme. It showed there were quite a number of people with degrees who were unemployed and it was a waste of human resources to give a bursary to someone who would end up unemployed.
Mr Matlala referred to the gender representation of Mintek and the fact that there were no women represented in the delegation and he also added that the bursaries allocated were very low.
The Chairperson referred to the Annual Report and said it showed only one woman in a senior manager position and there was no apology put to the Committee for her absence. He asked where the 39% of women were employed in the hierarchy of the organisation.
Mr Mngomezule replied that an invitation was received by the organisation to come and present and the invitation did not specify. Historically the general managers always came, but because there was no specification, he did not think to apologise on behalf of those not able to be here. Ms Gugulethu Nyanda was on study leave and could not be here today. Women employed by Mintek at senior level made up 30% of employees on that level.
The Chairperson said it seemed that the bursaries were focused on developing people already in mainstream employment without much focus on what the organisation could do to impact the high levels of illiteracy. It would be difficult if everyone took the position to only give bursaries to people they would eventually employ without focusing on the social responsibility to capacitate employability. It was a narrow understanding that if one woman submitted an apology the rest of the delegation became all male and there was no explanation given on future plans for targeted recruitment. He referred to the Annual Report and asked why Ms D Bopape resigned 16 July 2015 and then on the following page it stated the same person as reinstated on 1 December 2014. He wanted to know if it was a mistake with the dates, whether there was an initial resignation that was not recorded and if that was the case, it meant this person resigned twice within two years. He asked that the circumstances around this issue be clarified.
Mr Abel Mngomezule replied that Ms Bobape was dismissed from Mintek earlier and was reinstated due to a court order. She resigned a year after being reinstated.
Mr Mandela asked if Mintek’s contribution of R40 000 covered a student. He said Mr Mngomezule did not answer his question on how much he earned, because he said earlier that Mintek employers earned “peanuts’ and perhaps there would be a better understanding on why he benefited from bursary funding. He asked if Ms Gugulethu Nyanda who was on study leave for her Master’s degree was also a beneficiary of a bursary.
Mr Craven replied that the R40 000 contribution was in subvention of university lecturers’ salaries for those lecturers in mineral processes and mining engineering departments pro rata to how many students graduated from certain universities. It was a distribution between universities so the R40 000 was not ring fenced – it went into a pool and the pool was used to subvent the salaries of the lecturers.
Mr Mngomezule clarified that there were low level, low paying jobs at Mintek and that in general Mintek employees earned less than industry level. The salaries of staff are recorded on page 103 of the Annual Report. The annual salary for Mr Abel Mngomezule was R2.8 million, Mr McKenzie and Mr Craven earned R1.7 million and Ms G Nyanda earned R1.6 million and she was part of the bursary scheme.
Mr Mandela said there was an education funding crisis currently and there were people living without the basic amenities and yet people who could afford to pay for themselves became beneficiaries of bursaries. This was not “peanuts’ and it was a significant amount for a person to earn. He asked Mr Msiza to start an evaluation how people could be benefiting from bursary programmes while earning cheques of those amounts. The Committee and government need to ensure that the rightfully deserving citizens are able to reach resources and are assisted and empowered. This did not sit right and he asked the Committee to take this under consideration.
The Chairperson said it was a matter for debate, because just recently the Committee questioned CGS’ low retention rate. It should be looked at from all angles, including from the public interest angle. These are cross-cutting issues, because some officials, not even CEOs earn far more than the President himself. He asked that the entities that still needed to present, consider those overlapping issues that were raised.
State Diamond Trader on its 2015/16 Annual Report
Ms Futhi Mvelase, CEO, State Diamond Trader, gave an outline of the strategic objectives and the strategic outcomes which are:
-A sustainable growing and transformed diamond beneficiation industry
-Diamond industry enterprise development
-Large scale historically disadvantaged South African (HDSA)-owned sustainable diamond beneficiation enterprises established
-Be an efficient, innovative and development orientated organisation
In terms of the global market, the diamond market remained subdued and depressed for most part of 2015 with a continued slide in polished diamond prices. Despite the reduction in demand and resultant negative sentiment, diamond producers continued to demand high prices for rough diamonds and the local beneficiation industry was under immense pressure. There was a slight improvement in the diamond markets in the beginning of 2016 and despite a prolonged slump in diamond markets globally throughout 2015, a turnover of R455 million was achieved in a difficult market. Purchases and sales were down by 18% and 20% respectively.
Some performance highlights included hosting the inaugural South African Diamond Indaba in October 2015 together with DMR and the launch of the South African Young Diamond Beneficiators Guild at the Diamond Indaba. The trading summary showed that the State Diamond Trader bought R450 million worth of diamonds and sold to 47 clients to the value of R460 million.
Ms Mvelase gave a detailed overview of the inspections, purchases, sales, client segment sales and HDSA client performance. She also highlighted some of the challenges which included the lacklustre growth of local diamond beneficiation industry, the volatile Rand/Dollar exchange rate and the reduced local production of diamonds over time. To mitigate, the State Diamond Trader utilised its sales strategy to sell goods that are deemed unsuitable for local beneficiation by beneficiators. The organisation also, as much as possible, utilised its own revenues for smaller purchases.
Mpumie Danisa, CFO, State Diamond Trader, said revenue for the year was R460 million which reflected an increase of 17% compared to the previous year (R394 million). The increase was due to market improvement particularly during the last quarter. As a result an average gross margin percentage of 3% was achieved, despite there being a loss of just over R3 million. Overall, the financial health of the State Diamond Trader was sound. An unqualified audit opinion was achieved, both on financial and predetermined objectives. A material finding was identified on Supply Chain Management that resulted in irregular expenditure of R75 137. This was as a result of the Preferential Procurement Regulations regarding stipulation of criteria to be used for assessing functionality not being stated in the request for quotation (RFQ).
South African Diamond and Precious Metals Regulator (SADPMR) on its 2015/16 Annual Report
Mr Cecil Khosa, Acting CEO, SADPMR, elaborated on the organisation’s performance against predetermined objectives which were ensuring equitable access to resources for local beneficiation, ensuring compliance with legislative requirements and ensuring competitiveness, sustainable development and job creation in the diamond and precious metals industries. SADPMR received a clean audit opinion and the AG has invited the organisation to the 2015/16 PFMA Clean Audit awards. Employment Equity statistics showed that SADPMR had a total of 125 employees (52 males and 73 females) by the end of March 2016.
Mr Sibusiso Mandlazi, Financial Manager, SADPMR, said SADPMR submitted a budget of R88.7 million to National Treasury via DMR. The final allocation was R50.5 million which left the Regulator with a shortfall of R38.2 million. The budget and the classification of funds were adjusted in accordance with the final allocation. SADPMR obtained National Treasury’s approval to utilise accumulated surplus for capital projects and other contractual obligations. Actual revenue was R93 million (including transfer payment of R 50.5 million). In-house generated revenue increase to R42.5 million compared to the budget of R 38.2 million. The increase in in-house generated revenue was due to the increase in collection of penalties and increase in the sale of services.
Actual expenditure for the year under review was R86.8 million. Expenditure trends showed the biggest expenditure was compensation of employees (R64.6 million). The transfer payment remained a challenge when compared to the annual budget. The final result showed remarkable improvement from a deficit of R5.5 million (2014/2015) to a surplus of R6.2 million for 2015/16.
There had been a significant decline in the beneficiation of diamonds in the industry. SADPMR, through the technical committee of the board had embarked on an investigation into the challenges the industry was facing. Funding of historically disadvantaged South Africans (especially with the current economic downturn) remained a problem. SADPMR planned to intensify its relationship with funding entities/institutions of government to assist. National Treasury had indicated and projected budget cuts to all departments and entities. SADPMR however projected for the eventuality and planned to intensify its cost cutting measures. Access to markets for polished diamonds by small beneficiators was limited. The Regulator was facilitating polished diamond tenders as well as access to markets to promote small beneficiators.
Adv Schmidt said Ms Mvelase was the CEO for the State Diamond Trader, but she sits on the board of the Regulator and he asked if there was no potential conflict of interests. He referred to slide 22 and noted there were only three clients listed under growth and transformation in terms of client segment sales. It only made up 9% of the total value of sales. Equitable access had 20 clients and tt only made up 1% of the sales. If the objective of the State Diamond Trader was to promote equitable access, it was failing miserably. There was no purpose for the State Diamond Trader to exist and after nine years it was still difficult to assess what the purpose of the organisation was. These numbers were a shocking indictment on the State Diamond Trader.
The Chairperson said the former CEO of the Regulator was a board member of the State Diamond Trader.
Ms Mvelase referred to the board composition and replied that the law was passed in this House and the State Diamond Trader was implementing the law. There had not really been any conflict of interest, because there had always been mutual respect in the two board structures. It was perhaps something that required a level of maturity, but there was an understanding of what was required of one as either a CEO or a board member and if you cannot do your job you did not deserve the position. Sitting with junior officials on a board did create some tension because of their level of development, but this was something for the Department to consider. On the purpose of the State Diamond Trader, Ms Mvelase emphasised the role the organisation had to play. One of the outcomes of the organisation was to create large scale black owned, as well as white owned companies in the country, because all the big companies in this sector are foreign companies. There was a duty to assist and there was a specific project around growth and transformation that required quarterly reporting on the process toward potentially large scale South African owned companies. Even De Beers had recognised their potential and they started a project where they selected five members and all five are clients of the State Diamond Trader and three are growth and transformation clients. Foreign companies could simply close their doors and leave the country and leave hundreds unemployed and it was important that the industry was sustained through South African owned companies that were large enough to anchor the industry. The 9% sales was a targeted outcome and there was a second tier of the growth and transformation segment toward the end of this year. Equitable access amounted to 1% of the sales and it was an area that experienced a number of challenges in terms of tax clearance certificates and it led to suspension of sales. It was unkind to question the purpose of the organisation eight years down the line if the effort of the organisation was considered.
Ms H Nyambi (ANC) referred to slide 23 and asked why the graph that reflected a higher income in 2015/16 was reflecting lower than the previous year. She referred to the Annual Report that showed that Z Manase resigned in October 2015, but on the last page, she is reflected as a member.
Ms Mvelase said the graph levels indicated the number of sales and the amounts were just recorded on the graph. The term of the board ended in September last year and Ms Manase had already decided not to come back. When the Minister requested her to stay on she was no longer available.
Mr Mandela referred to a picture of the SA Diamond Indaba panel on slide 11 and he asked who the (only) woman was on the stage. He asked how accessible the Diamond Indaba was to women and young people. He wanted to know what medium was used to reach young people. He also referred to the Young Diamond Beneficiators Guild and asked how many young people were recruited and how successful the Hong Kong National Pavilions were and what measures were in place to assess the impact on participants. He echoed Adv Schmidt’s sentiments and asked what strategies were in place to increase growth and transformation sales from 9% to at least 30% in the next financial year. The Committee wanted to see vision in terms of growth patterns. He wanted to know how the State Diamond Trader monitored and ensured that it was not just a handful of people that played dominant roles in gaining access to the State Diamond Trader’s diamonds.
Ms Mvelase explained that the woman in the picture was the project facilitator, Ms Nosipho Mbanjwa. The State Diamond Trader used quite a number of media platforms to advertise. The organisation approached provinces where the Trader already did some work such as Limpopo and the Northern Cape and asked the MECs for economic development to assist with bringing young people from those provinces. This year specifically there was a lot of media coverage (TV and radio) to broadcast the information. There are quite a lot of young participants from outside the industry that was really quite interesting. The three year Enterprise Development Programme also accommodated eight young people from all over the country. Each time the organisation went on a provincial promotional activity to talk about the diamond industry and the work of the State Diamond Trader, people who are interested to take up opportunities in this space are invited to submit their CVs. The spread between men and women are almost 50/50, but the exact numbers would have to be checked. In terms of the impact, the State Diamond Trader decided to establish a benchmarking tool, because there could not be contributions from the state to represent at these shows, but there was no growth. The tool focuses on repeat clients and new networks and in time there would be full report on the implementation of the tool.
The Chairperson asked what the relevance was of the performance of a board member. In the Annual Report of the State Diamond Trader Ms S Nxumalo had been permanently and perpetually absent. In traditional meeting there usually was a provision that if you did not attend three consecutive meetings without a valid reason you ceased to be member of that structure. This person had never attended a meeting according to the records and he asked what the status of that person was now. He noted that Mr Mosa Mabuza, a DMR Deputy-Director General on the other hand attended all the meetings and he understood the importance of departmental representation, but the strategic position of a person in the Department should also be considered. He referred to Adv Schmidt’s comment about possible conflict of interest and he noted that there was danger when one person had to account to another person in a board structure, but they were both CEOs.
Ms Mvelase said Ms Nxumalo was a state employee that worked for the City of Johannesburg. She attended most of the audit committee meetings where she provided a lot of support and guidance. It did not detract from the fact that she was absent from most of the board meetings. It had been difficult to get board members together because of the year extension and people had other things planned, but they accepted the Minister’s request and it proved difficult to plan certain things. There was a new board in place and its term started on 1 September 2016.
Mr Msiza said the Department strived to address the challenges and it had been reflected in the presentations over the past two days. The DMR family also strived to instil a particular culture when dealing with issues. There was a recent strategic session where engagements were on both the departmental and government mandate. It was important that maturity and respect be elevated, because boards were not only represented by government or the department, there were union and community representatives as well. As mentioned before, government was looking at governance issues through appointments and qualifications and at the appropriate time the outcomes of that work will be dealt with. Mr Mabuza would no longer be part of the board, because of his workload. This two day session helped a lot, because it was the first time that all the ‘family’ members could be present until the end of the presentations, and cross-cutting issues could be identified.
The Chairperson thanked everyone for their contributions. These processes are educational, even to Members of the Committee. It was important to understand the expectations of the nation and sometimes resolution are taken without understanding the long term implications. The Committee appreciated the level of knowledge and urged the Committee and entities to guard against complacency.
The meeting was adjourned.
- Council for Geoscience, Mintek, State Diamond Trader & South African Diamond and Precious Metals Regulator on their 2015/16 Annual Reports 3
- Council for Geoscience, Mintek, State Diamond Trader & South African Diamond and Precious Metals Regulator on their 2015/16 Annual Reports 2
- Council for Geoscience, Mintek, State Diamond Trader & South African Diamond and Precious Metals Regulator on their 2015/16 Annual Reports 1
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