The following state owned entities (SOEs) under the jurisdiction of the Department of Mineral Resources - Mintek, Council for Geoscience (CGS), South African Diamond and Precious Metals Regulator (SADPMR) and the State Diamond Trader (SDT) presented their Annual Performance Plans as aligned to the DMR budget.
The Chairperson reported that, in general, the Committee was satisfied with the performance of these SOEs - there was nothing to be alarmed about.
Mintek provided a detailed overview of its core business - the promotion of mineral based economies, the research and development of mineral processing technologies and value added products and services. It operates in a sector where highly skilled people are prized and staff development is a key strategic objective. It was an organisation not for profit, but for development, and prides itself as partner on innovation. Financially it was a was stable organisation, with a well resourced asset base. However, the financial outlook for 2018 would be challenging, due to the downturn in the economy and less income is expected from commercial streams.
The poor business environment impacting negatively on its key customers in the mining industry, thus impacting negatively on Mintek’s business development programmes - necessitating it to concentrate on improving efficiencies on existing projects like water treatment and derelict and ownerless (D&O) mine rehabilitation. With regards to R&D, energy and water will continue to be the main focus with hydrogen fuel cells and treatment of waste water being key research areas. Mintek’s technology advances being developed with its partnerships, in the mining sector, will be concentrated on titanium ore recovery, acid and mine water drainage recovery, environmental clean-ups and improving underground mining efficiencies.
Most of the questions on the Mintek presentation focused on the use of its technologies in mining and other industries, its R&D programme, the rehabilitation of D&O mines, learnerships and staff development and training to African countries.
The CGS briefing highlighted key aspects of its main mandate which is geological mapping. A new mapping programme requires about R20bn additional revenue over 20 years and funding needs to be secured urgently for this critical programme. This would include re-mapping the entire surface of the country on a 1:50 000 scale including geology, geophysical data, seismic information, geo-hazard, geochemical data and other related data. High resolution nearshore and offshore mapping will be also be prioritised. CGS would be drilling a 3,5km test deep bore hole near Beaufort West to assess the shale gas potential of the Karoo basin and the associated water and environmental impacts. The borehole will be drilled to provide government (DMR) with science-based information to enable it to make a proper assessment of the Karoo shale gas potential. CGS prides itself as being an employer of choice, especially for earth sciences graduates and continues to develop young and early-career scientists through its bursary programmes. The organisation was recently re-organised to improve efficiency and effectiveness. The operating budget, mainly funded by the state is about R392bn. It also highlighted that the D&O mines programme was an important CGS initiative that focuses on shaft closures in the interest of safety, and the struggle against vandalism resulting from illegal mining activities.
Key questions from Members for CGS were about diversity within its senior management structure; the new possibly top-heavy organisational structure; the Karoo shale gas project and potential outcomes; the D&O mine programme and its impact on job creation; staff development and the prospects of jobs at CGS after graduation for their bursary recipients.
SADPMR was set up post 2007 to streamline and allow for a more effective diamonds and precious metals industry and it acts as a “one-stop shop” to regulate licensing, permits to process, manufacture and export precious metals and importantly, contribute meaningfully to the radical economic transformation of the country and ensure that all South Africans benefit from our mineral wealth. A key outflow of this was to promote the entry of historically disadvantaged South Africans (HDSAs) into the industry and drive strong local beneficiation programmes. SADPMR informed the Committee that an important internal mechanism to fast-track the entry of HDSA’s into the industry and drive transformation, was the establishment of a Transformation Team to monitor and ensure compliance with ownership, human resource development, procurement and employment equity.
Members asked the South African Diamond and Precious Metal Regulator (SADPMR) why its report focused only on the diamond sector and nothing was mentioned about the precious metals sector; clarity on the relocation of its offices to the IDZ at OR Tambo Airport and if the industry had been consulted about this, about Project State Boss, about the baseline for 2017/18 and its targets, the reason for the decline in the manufacturing of diamonds and precious metals and if beneficiation licences refer to both diamond and precious metals beneficiation
The State Diamond Trader (SDT) briefed the Committee on its strategy, key activities, outcomes, and budget for 2017/18. The strategic objectives are aimed at a sustainable growing and transformed diamond beneficiation industry. The report noted key activities for 2017/18 which include the developing of youth enterprises; increasing the supply of rough diamonds to diamond beneficiates; pilot one industry growth project in collaboration with the Young Diamond Beneficiators’ Guild; supporting new entrants into the industry through a hub that will ensure their access to relevant equipment; holding the SA Diamond Indaba Series; and developing a strategy to attract and up skill youth from host mining communities.
Members noted that beneficiation in the diamond industry is currently sitting at 10% of diamonds beneficiated and asked SDT about its plan to grow this to 25% in five years’ time. They also asked what Vision 2026 entails.
Opening Remarks by Chairperson
The Chairperson remarked that based on the information documents received from these four state entities, there was nothing alarming and the Committee, in general, was satisfied with the performance of these entities and that were no adverse issues that needed to be discussed.
Remarks by Mintek
Mr Abiel Mngomezulu, Mintek President and CEO, was accompanied by his senior management staff from Finance, Human Capital, Corporate Services, Technology and Research and Development. He explained Mintek’s core business was the promotion of mineral based economies, specifically the research and development of mineral processing technologies and value added products and services. These activities were aligned to government priorities as identified in the National Development Plan (NDP) and the Mining Phakisa. Mintek operates in a sector where highly skilled people are needed and it usually takes about seven years for young entrants to Mintek to attain this experience and hence, skills development and mentoring were a key priority. He empathised the importance of Mintek’s Artisan Learnership Programme involving 13 young women as a crucial enabler to improve the skills of women to work and open opportunities for them at Mintek.
Ms Gugu Nyanda, Mintek General Manager: Corporate Services, gave more detail on Mintek’s Human Capital Programme. She highlighted staff employment equity targets, staff development, bursaries, key metrics and priorities. The main EE targets for 2017/18 were 76% African, 3% coloured, 3% Indian, 8% white female and 9% white male. In addition, 77% of senior management must be from designated groups. Staff Development focused on external and internal programmes. External programmes for mineral and metallurgical skilling are done via partnerships with institutions like Mining Qualifications Authority (MQA), Department of Science and Technology (DST) and the National Research Foundation (NRF). Internal programmes are executed via Mintek’s Graduate Development Programme and allocation of staff bursaries. Key metrics are to keep staff turnover rate below 10% and to keep vacancies at around 5%. Three key priorities were identified to develop staff: increase female representation in the organisation, contain employee costs and train and develop staff.
Mr David Powell, Mintek GM: Business Development, spoke on the impact of the current business environment on Mintek operations and some of its development activities. The mining industry (a key Mintek customer and stakeholder) was still operating in a difficult economic environment. This meant that there was less work for Mintek from mining companies. The expectation is that from mid year 2017 conditions may improve. Mintek’s response to this is to continue supporting operational improvements and efficiencies at mines rather than drive technologies at new projects. It will focus on the strategic areas of energy and water efficiency, environmental impact and waste and tailings treatment. Derelict and ownerless (D&O) mine rehabilitation forms part of this programme.
Mr Sakhiseni Simelane, CFO: Mintek, explained the financials for the 2017/18 period. Key aspects he spoke about were income - about R550m (mainly from the state and a small portion from contracts), expenditure (biggest is staff costs), major capital programmes and the financial outlook for 2018. The major capital expenditure for 2018 will be around R46m (mainly laboratory and equipment upgrades, R18m and R20m for gas pipeline reticulation). The financial outlook for 2018 would be challenging, due to the downturn in the economy and less income is expected from commercial streams. Mintek’s asset base would remain the same. In conclusion, he said that Mintek was financially stable and well resourced.
Mr Makhapa Makhafola, Mintek GM: Research and Development, discussed Mintek’s R&D initiatives. The main focus was on energy and water - the use of waste water as a resource (nanotechnology) and Hydrogen Fuel cells (HySA) as fuel for the future. A key issue was the treatment of mine water, acid mine drainage (AMD) for gold and coal industries - a pilot plant will be operated in 2017 at Anglo Coal’s Landau Colliery. There is also collaborative research with the EU on poly-metallic ores (gold, silver and copper recovery), BioMore an alternative mining concept (to recover minerals from deep deposits in-situ) and a feasibility study that will look into an electronic waste treatment plant (recovery of minerals from electronic waste). Other R&D initiatives were on instrumentation and process control (e.g. handheld cyanide measurement instrument). He indicated that Mintek was particularly proud of its investigation on Mine Cooling Optimisation that applies cutting edge technology to keep the underground temperature cool - this should improve mining efficiency and provide savings and benefits for underground mines. He outlined community based projects that would be launched in 2017/18 - this will entail small scale technologies that would create four new businesses and employment for about 40 people and training for about 100 people (ABS plastic pelletising facility at Mintek).
Next it was the turn of Mr Allan McKenzie, Mintek GM: Technology, who provided input on the technology programmes flowing from Mining Phakisa outcomes - that is, Mintek would manage technical intervention and innovation to improve the value chain, from ore production to downstream fabrication. He cited the following programmes:
- Bushveld Titaniferous Magnenite - the Bushveld complex has the world’s largest titanium repository but lacks a competitive process to recover minerals. This programme would develop a technology to recover titanium, iron and vanadium from the ore body
- Sensor Sorting - this demonstration plant has operated at Vlakfontein Mine and has proved very successful, attracting significant interest from other players. It will now be moved to another mine where it will be operated on a commercial basis
- SAVMIN AMD water treatment - this technology has shown that it is able to produce potable water. Focus has been to reduce costs and optimise equipment. The next step is to implement this technology commercially.
- Underground mineral processing reduces the material taken out to surface to reduce costs and energy.
He then brief the Committee on the status of the commercialisation of technologies developed by Mintek. The SACREF rare earth refinery concept was on hold until market conditions improve, the CONROAST PMG smelting technology, to be used by Jubilee Platinum was on hold until capital can be raised, the Low Grade ferrochrome process is on track with its partner Siyanda Resources, the Sensor Plant is now operational at Anglo Platinum and Pilanesberg Platinum. The gold tailings treatment plant and dump reprocessing technologies are being commercialised. He advised that Mintek also provides training international programmes - notably to Namibia and other African countries on behalf of the International Atomic Energy Agency (IAEA).
In conclusion, Mr Abiel Mngomezulu, CEO and President, concluded that Mintek wants to remain an employer of choice; he wants people to be keen to work for Mintek. He said that Mintek especially wants to entice the YUMMIES - young ones, to make them enthusiastic to work at Mintek
Remarks by Council for Geoscience (CGS)
Firstly, Mr Humphrey Mathe, CGS board chairperson, highlighted key issues that the management team would elaborate on: CGS had received its 15th consecutive unqualified audit; that “we” must do everything to ensure that we do not miss the next mining boom; mapping programme to optimise geoscience information - R20bn extra funding required over 20 years; shale gas potential in the Karoo; high resolution mapping offshore. He acknowledged the work of previous Chairperson, Prof Ngoepe, to stabilise the institution. He then touched on some of the lowlights the board experienced in the previous financial year. One board member was found to be a state employee, was forced to resign and was replaced. There was also a disciplinary enquiry against the former COO. This was followed by CCMA and labour court decisions in favour of Mintek and the employee was eventually dismissed. There was also a minor issue raised by the Public Protector about not paying a SMME company on time - the issue has since being resolved.
Mr Mosa Mabuza, Acting CEO: CGS, provided the briefing. He explained recent staff changes. CGS has a complement of 349 staff, 42 interns and 43 contractors. The new organogram that resulted from a reorganisation to improve efficiency with the major change being the splitting of the COO responsibilities and discontinuing that position. The core mandate of CGS was Geological Mapping - this consisted of two important aspects, the systematic mapping of on and offshore areas, plus the collection and curation of all geoscience data. This formed part of the 10 year mapping programme envisaged by the CGS on a 1:50 000 scale that should contain multi-disciplinary aspects. He emphasised that although there are full coverage of the country at 1:1 000 000 and 1:250 000 scales, less than 5% of South Africa has been mapped at 1:50 000 scale, hence the focus of the new 10 year mapping programme on this. This will include geological mapping, geo-technical mapping for geo-hazards (such as sink holes, seismic activity), geophysical and geochemical mapping programmes. This programme is aligned to issues identified in the NDP (mining and minerals, energy security, hydro-geology, geo-hazard)
Mr Mabuza spoke about the Nearshore and Offshore Mapping Programme, to boost the Blue Economy, for example, mineral resource characterisation (suchas marine diamondiferous gravels), petroleum production platforms, submarine telecoms cables, port and harbour infrastructure, archaeological and historical heritage sites, ocean governance (international sea bed authority for extended continental shelf claims), bathymetric charts (hi-resolution multi-beam for navigation and structural geology interpretation) and sea floor mapping
Another important activity was the CGS plans for the Karoo basin to assess its shale gas potential and its impact assessment on deep and shallow water resources. In addition seismicity and geo-environmental impacts relating to natural gas emissions will be evaluated. The expected borehole depth will be about 3,5km.
Other key CGS operations include the Mine Water Management programme and the management of D&O mines (maintenance of a GIS database of D&O sites and the continuation of closing unsafe D&O mine openings). The latter is quite problematic as some closed shafts often collapse due to soil creep or subsidence (natural phenomena) and vandalism (illegal mining).
Mr Mabuza touched on the CGS Balanced Scorecard and its KPI measures for its programmes and projects. Examples of indicators were: Total number of projects completed (rural development, regional and African, innovation); Client satisfaction surveys; Number of strategic science partnerships; Number of projects with external collaborators.
The final part of the CGS briefing was on human resources, finances and corporate social responsibility.
CGS strives to be an employer of choice and staff turnover is targeted at less than 10% - turnover was low (less than 3%). CGS continues to develop young and early-career scientists through its bursary programme and collaborates with the MQA and the NRF to facilitate this. Another key fact is that 60% of staff have either a MSc or PhD. Total staff complement is 349, of which 76% is from designated groups (African, Coloured and Indian).
A key strategy is to achieve financial stability through multiple income streams (government grants, projects, commercial partners) and to ensure compliance with policies and regulatory reporting (clean audits). Most of CGS income (2017/18 budget is R392bn) is from government grants and a small portion (about 6%) from commercial sources. Personnel costs are about 66% of the total expenditure. The funding of the additional R20bn over 20 years to execute the mapping programme will be a crucial strategy going forward.
In terms of its Corporate Responsibility objectives, there are four programmes:
- education or career exposure events held at high schools and tertiary institutions
- donation of geophysical equipment to the Central Africa Republic
- water borehole being drilled at Elizabeth Conradie School for learners with special needs, in Kimberley
- provision of experiential training for University of Fort Hare students at the Karoo Deep Drilling Project, Beaufort West.
Mr J Lorimer (DA) wanted more information on the following projects:
- what technology was used for the water treatment at Anglo Coal
- what is poly-metallic ore
- why was the sensor sorting plant moved from Vlakfontein
- what was the progress on the Robinson Lake project.
Ms M Mafolo (ANC) asked in which provinces the D&O mines are currently being rehabilitated and what about the D&O mines in other provinces.
Mr M Matlala (ANC) asked four questions:
- which African countries were being assisted with training programmes
- is the treated water safe for humans to drink
- how many of the 13 woman in the Artisan Learnership programme were black and from which provinces
- which racial groups were being referred to in the report as disadvantaged.
Mr Allan McKenzie, GM: Technology, replied that the technology used for the water treatment at Anglo Coal was SAVMIN. The sensor sorting plant was offered to African Exploration at Vlakfontein, after the demonstration, but they declined. The treatment of the contaminated water in Robinson Lake was in its early stages. It was being treated at the SAVMIN plant about 1,5km away. 80% of uranium and other minerals can be removed. Removal of the other 20% is possible, but costly and at this stage perhaps not feasible.
Mr Makhapa Makhafola, GM: Research and Development, advised that poly-metallic ore is a special ore body containing gold, silver and copper deposits occurring together
Mr Abiel Mngomezulu, CEO, replied that the D&O mines were mainly old asbestos mines. There was also a quarry in the Eastern Cape being rehabilitated and a mine in KZN. He said that the 13 woman undergoing the artisan learnerships were all 100% black African woman. Disadvantaged groups were classified as per the legislation.
Mr Allan McKenzie said that the African countries being assisted were the Central African Republic, Nigeria and Tanzania. On the safety of the treated water for humans to drink, he said that the water being treated was mainly AMD (acid mine drainage) and not suitable for human consumption, but safe for irrigation and other household uses such as washing and cleaning.
The Chairperson raised a concern about the lack of diversity (females, Coloured and Indian) in top and senior management. He also asked where the foreign nationals were. These were serious issues according to him. He also commented on the benefit of partnerships to boost income
Mr Z Mandela (ANC) asked when the shale gas potential would be realised in terms of jobs and employment. He asked how environmental concerns would be dealt with. He referred to the D&O mine shaft closures and illegal mining and the work CGS was doing to keep those shafts closed. He asked if there was any intergovernmental or interdepartmental cooperation to ensure that we win the war on illegal mining.
Mr I Pikinini (ANC) asked why D&O mines could not be revived and made productive rather than close them. He was keen to see jobs created. He commented on the public participation process on shale gas and said he was not happy with the consultation process and would like the process to be broader and include all communities.
Ms H Nyambi (ANC) wanted clarification on three issues:
- the three to four year funding programme for the Bushveld Titaniferous Magnetite resource
- whether the 45 students funded by CGS bursaries would be offered jobs
- if CGS was assisting unskilled staff to become skilled.
Mr Lorimer asked the following questions:
- the nature of the charges against the former COO
- if follow-up boreholes would be drilled in Beaufort West after the completion of the first one
- would commercial drilling commence whilst CGS is drilling this test borehole in Beaufort West
- how will CGS distribute the data and information received from this test borehole
- how CGS intends meeting its mandate if there are budget shortfalls.
Mr Abiel Mngomezulu, Mintek CEO, replied that the three to four year programme life for the Bushveld Titaniferous project is usually the time estimated to fully evaluate the commerciality of the project. However sometimes this period has to be extended such as the ConRoast PGM smelting technology which took 14 years to commercialise. He commented on the difficulty state owned entities have in attracting and keeping skilled staff, especially at managerial level. The best option Mintek found, was to develop management staff themselves, it targets junior management as entry point for their internal senior management development programme to grow their own talent.
Ms Malefshane Kola, Acting Executive: Corporate Services, replied that the main charges against the former COO of which she was found guilty were gross dereliction of duty, unethical conduct and sowing division amongst staff and management. On the possibility of the 45 bursary students being offered employment on graduation, she said that would certainly be the case, especially for the mapping programme. On training unskilled workers, she advised that CGS develops and trains all employees and bursaries are available to staff so they can improve their skills and advance in the company. On the lack of diversity within senior CGS management, she agreed with the Chairperson and said that it was a challenge for CGS and that they were working hard to address this shortcoming
Mr Mabuza, Acting CEO, agreed that there was a lack of diversity in the staff profile but he said that a fundamental issue facing CGS is that they have a rapidly ageing white male staff complement with all the expertise versus young and eager black geologists hungry to acquire knowledge and gain experience.
Mr Mabuza replied that whilst shale gas was touted as a game changer, CGS would provide the DMR with science-based information to enable government to make proper decisions. A full suite of tests would be conducted to evaluate shale gas potential, environmental base case, water and other related concerns so that correct measures can be implemented to mitigate risks. It was too early to comment on jobs, this can only be done once exploration is completed.
On the question on shaft closures, D&O mines and foreigners raised by Mr Mandela (ANC), he commented that whilst the state is addressing the problem with its shaft closure programme, the fundamental question to ask is, “Where are these derelict mine owners, who are they?”
On whether more boreholes would be drilled after Beaufort West, Mr Mabuza responded that the borehole was to get initial baseline information. Currently there are no plans by CGS to drill elsewhere. However depending on results, there may be drilling at other locations.
The Chairperson indicated he was concerned about the new CGS organogram; that it was perhaps a bit too top-heavy with managers and therefore would result in higher costs. He suggested that it may be opportune to address this at a later stage and another meeting may therefore be needed to discuss this. He was also concerned about further actions by the former COO that may impact negatively on CGS plans. He indicated that some financial and balanced scorecard information is not clear enough (perhaps just some technical issues that must be clarified) and may require another meeting to resolve his understanding of that.
Mr Mabuza responded that the splitting of the former COO position was done to drive efficiency and de-risk the organisation - spread some risk rather than let it all reside in one unit. He said that the new structure was not related to the COO problem but that the re-organisation was done in the best interest of the state.
Mr Mabuza also responded to whether commercial boreholes would be drilled whilst the test borehole is being drilled by CGS, saying that none of the licence applicants in the Karoo have been given exploration or prospecting rights yet, so no drilling can commence until this is given. On dissemination of information, he said that CGS’s first mandate is to the state so the borehole test data will first be provided to DMR and then to the public.
The Chairperson asked the DMR Director General, Adv Thabo Mokoena, for some closing comments and he responded that there were three main issues to consider and bear in mind: Public Participation is vital to ensure all stakeholders are consulted, so he agrees with the comments made by Mr Pikinini. The information that the Department of Mineral Resources and its entities have in its possession is critical, so the vetting process of the information and the officials who provide the information is crucial. Finally the entry and exit point for all mining activities in South Africa is the DMR.
Remarks by South African Diamond and Precious Metals Regulator (SADPMR)
Mr Xolile Mbonambi, Acting CEO of SADPMR, briefed the Committee on the operations and activities of the SADPMR. He gave background to the SADPMR pre-2007 when diamonds were administered in terms of the Diamond Act of 1986 and regulated by the South African Diamond Board. Precious metals were administered in terms of Mining Rights Act of 1967 and regulated by three state entities: SA Police, SARS and Reserve Bank.
This all changed in 2007 when a new governance regime was implemented. The South African Diamond and Precious Metals Regulator (SADMPR) was established through section 3 of the Diamond Act of 2005 and governed by the Public Finances Management Act of 1999 as amended (PFMA). The Precious Metals Act of 2005 repealed the Mining Rights Act and the SADPMR was established as a “one-stop shop” to regulate licensing, permits to process, manufacture and export precious metals.
SADPMR is a schedule 3A public entity in terms of the PFMA and is funded by monies appropriated by Parliament. He explained that the SADPMR mandate is to implement and enforce the following regulations:
Diamond Act of 1986
Diamond Export Levy Administration Act of 2007
Diamond Export Levy Act of 2007
Precious Metals Act of 2005
Mining Charter in terms of section 100 of the MPRDA of 2002
SADMPR has a staff complement of 121, of which more than 90% is from designated groups.
Mr Mbonambi then spoke on the 2017/18 SADPMR Performance Plan, which was informed by the NDP, Government’s 9 Point Plan, the State of the Nation Address and the Budget Vote Speech of the Department of Mineral Resources. In this regard, key strategic objectives of SADPMR are:
NDP - to improve competitiveness, sustainable growth, job creation and transform the industry
Government 9 Point Plan - advance beneficiation, unlock potential of SMMEs, Operation Phakisa
DMR - compliance with legislative requirements.
SONA 2017 - economic transformation of the diamond and precious metals sector
Some of the important SADPMR strategies to achieve these objectives are:
- assisting new entrepreneurs, issue licences, facilitate skills development and oversee beneficiation programmes
- transforming the industry by promoting active HDSA participation in diamonds and precious metals. A key aspect of SADPMR is transformation and Mr Mbonambi that a Transformation Team is now in place to monitor and ensure compliance on four key transformation issues in the industry: ownership; human resource capacity; procurement; employment equity.
Mr Sibusiso Mandlazi, Acting CFO: SADPMR, gave a summary of the 2017/18 budget and other financial information, highlighting the following: total revenue is estimated to be about R102bn of which about 55% is state funded and the rest from commercial streams. He indicated that although there are fairly large surplus carry-overs (around R3bn annually), SADPMR has no leverage to use it in terms of Treasury regulations. As with the other state owned entities, staffing costs constitute the biggest proportion of the budget at around 75%.
Mr Mbonambi concluded the SADPMR briefing by highlighting three issues:
- The current global economic conditions was affecting the local industry negatively.
- Local beneficiation, to address the decline in diamond and precious metal manufacturing, was being actively pursued with the DMR and other entities
- A key component of the SADPMR was to contribute meaningfully to the radical economic transformation, to ensure that all South Africans benefit from our mineral wealth.
Discussion with South African Diamond and Precious Metal Regulator
Mr H Schmidt (DA) noted that in its presentation the SADPMR focussed only on the diamond sector but there was nothing said about precious metals. He asked in what activities it was engaged in the precious metal sector since nothing was mentioned about this sector. The presenter only referred to diamond beneficiation and said nothing about precious metal beneficiation. The document mentions beneficiation licences, are they referring to diamond beneficiation licences only or precious metal beneficiation licences as well?
Mr Schmidt asked how the strategic objectives relate to the targets and the baseline for 2017/18. What is the reason for the decline in the manufacturing of diamonds, and what does the Committee need to understand about precious metal trading?
Mr J Lorimer (DA) asked if it is correct that the SADPMR is moving its Johannesburg office to the IDZ in OR Tambo Airport. Have they taken a decision on this or they are still considering this? If that is the case has SADPMR consulted the industry, if so with whom, and if not, why not? Will the industry benefit from this relocation?
Mr I Pikinini (ANC) said SADPMR talked at the last meeting about a major project known as Boss which is a game changer, how far is that project?
Mr Cecil Khosa, SADPMR General Manager: Regulatory Compliance, replied that the beneficiation figures seen in the report include both diamond and precious metals beneficiation. There is a whole host of licences, but normally one will have a principal licence, which is supported by subsidiary credits or approval of rights issued. What they do is they will set the targets for a year based on the baseline of what they achieved the previous year. Due to the decline in the industry they had a big challenge when they were setting the targets. The reality is that their targets are supposed to be lower but they had to amplify the issue of beneficiation which is their key thrust. When they were making these plans, they had to finally settle to see if there was a minimum they could go on even though it was very difficult achieve. They had to set it above the baseline in terms of what is required by National Treasury.
Mr Khosa said for beneficiation the most important licences are the refining licence, the diamond beneficiation licence and the jewellers’ permits. These are very important licences because those are where jobs are created. If one looks at the total number of licences they issue and break that down, one will find that a large number are for diamond licences. However, in terms of creating jobs, the diamond beneficiation licence is very minimal compared to jewellers’ permits and refining licences as these create more jobs through the value chain. So that is why they have looked at the importance of those so in their strategy, those licences receive priority.
Mr Khosa replied about the decline in the manufacturing diamonds and precious metals, saying that in the previous financial year they had a reduction from 24 to 21 tons of gold. This decline was caused by the decline in the mining sector. Whatever happens on the left affects the right, and that is the situation. However, they always ensure that as much as they put an emphasis on diamonds there is also interest for precious metals.
There is also one challenge with precious metals due to the intrusion of scrap metal, which is administered by the South African Police Service (SAPS). Therefore, they try in their system to do analysis and understand if there are any scrap metals contaminating the actual figures from the production of the mines.
Ms Linda Nkhumishe, SADPMR General Manager: Corporate Services, replied about the relocation of offices to OR Tambo IDZ, saying their organization is a tenant in the current building they are located in. All the tenants are relocating as they were informed two years ago that the owner intends selling the building and it will transformed into a residential property. Therefore, they started the process of looking for alternative accommodation two years ago. At that point they were approached by the Gauteng Economic Development Department informing them that it was developing an IDZ at OR Tambo Airport. They wanted them to be part of the economic zone because they saw SADPMR as a key player in that area. At that particular time the industry was considering moving to Rosebank. SADPMR then considered moving to the IDZ where all these economic activities will be under one roof with different clients being accommodated there. And at that time the idea of this major project known as the State Boss was born and that presented them with the opportunity to supply their services to all those operating in that same area. The benefits of operating in the IDZ relates to taxes, to imports and exports and also security comes in to play where now they do not have to transport goods from town to the airport. Therefore, all these economic activities will happen in one area. Together with the Department of Trade and Industry, they have developed a document of incentives and those who are going to operate in that IDZ stand to benefit from that. They have started a process of consultation and that process will look at both local and international types of clients to ensure no one is denied an opportunity of doing business in the IDZ. The consultations are going on to ensure the process covers everyone within the industry.
Ms Nkhumishe replied about Boss, saying that they are at a stage where they need to do consultations to actually ensure that when they have established themselves on the other side and the business case is done, they are sure of what the other factors are that they need to take into consideration. From the different stakeholders’ point of view, they are all affected by this particular move, and that is where they are now. Therefore, from this financial year there will be with consultations.
Mr Xolile Mbonambi, SADPMR CEO, said the Regulator has agreed to extend the services of its client premises for those that will be relocated to Rosebank, Parktown as well as Bedfordview to ensure their clients still get the services they have received at Jewellery City.
State Diamond Trader (SDT) presentation
Ms Futhi Zikalala Mvelase, SDT Chief Executive Officer, said the SDT strategic objectives are to:
- Promote the growth of the local diamond beneficiation industry
- Implement the outcomes of the South Africa Diamond Indaba (SADI) 2016
- Contribute towards youth skills development including youth from diamond mining areas
- Ensure development and alignment of internal resources.
The strategic objectives are aimed at the following outcomes:
- A sustainable growing and transformed diamond beneficiation industry
- Diamond industry enterprise development, and be an efficient, innovative and development orientated organization (continuous learning environment).
SDT key activities for 2017/18 they include:
• Develop Youth Enterprises in diamond beneficiation – The SDT commenced with its three year Enterprise Development Programme for the youth in 2015. This is set to continue in the current financial year with the first group expected to finish the three years period. Plans are in place to assess the first group’s readiness to start their own businesses, which is scheduled for 2018.
• Increase supply of rough diamonds to diamond beneficiates – The SDT has planned to increase its supply of rough diamonds to historically disadvantaged South African (HDSA) beneficiates by 25% over the next-five year period. The increase for 2017/18 is pegged at 5%.
• Industry Pilot Project – SDT will agree and pilot one industry growth project in collaboration with the Young Diamond Beneficiators Guild. An MOU with the Guild is expected to be finalised by 30 June 2017.
• Equipment Incubation Hub – Plans are in place to support new entrants into the industry through a hub that will ensure their access to relevant equipment. During 2017/18, SDT plans to finalize the business plan for the hub and secure funding. Participants in the Enterprise Development Programme (EDP) will also be supported through the hub.
• SA Diamond Indaba Series – SDT intends to continue engaging with the industry through the SADI series launched in 2015. In the current financial year, two seminars are planned as a follow up to SADI 2016. The main event will be held in October 2017, where the Diamond Industry Vision 2026 will be concretized.
• Alignment of Internal Resources – This key activity is concerned with the alignment of SDT’s internal resources by reviewing its sales strategy; training of SDT staff; review of the funding strategy; and strengthening SDT’s balance sheet.
• Develop a strategy to attract and up skill youth from host mining communities – SDT will be engaged in youth development targeting youth from diamond mining host communities. A strategy for this purpose will be developed during 2017/18 and executed going forth. Mining companies in host communities will be engaged for partnerships and collaboration.
Ms Mvelase spoke about human resources: SDT has 18 members of staff. At senior management there are 3 females and one male; at junior management level there are three males and three females. Currently, three diamond valuator and sorter trainees are youth with disabilities.
The SDT APP is aligned to the Nine Point Plan as it relates to: “Advancing beneficiation or adding value to the mineral wealth”
Ms Mpumie Danisa, SDT Chief Financial Officer: said the SDT 2017/18 budget amounted to R650 million. The cost of goods sold was R625 million, with a gross profit of R25 million.
Ms Mvelase concluded that the State Diamond Trader plans to continue partnering with public and private sector stakeholders for the benefit of youth and the growth of the local diamond beneficiation industry. It also plans to continue to develop further its own human capacity for future benefit.
Mr Z Mandela (ANC) asked SDT for clarity on beneficiation in the diamond industry, which is currently sitting at 10% of diamonds beneficiated and in 2017/18 it will be increased by 5%, and then in 5 years time it will have increased by 25%. What is the SDT plan to grow this beneficiation by 25%, how is that possible? He asked what Vision 2026 entails; does it score 100% beneficiation that government is looking at for the country?
Ms Mvelase, SDT CEO, replied that she is hoping Mr Mandela is talking about the 10% which they are supposed to buy from mining companies in terms of the 2007 proclamation that provides for buying up to 10% from mining companies. The Committee will remember that the 10% is on a run-of-mine basis. When they buy on a run-of-mine basis, the value they want to extract particularly to HDSA companies is minimised. As they unpack that, they will sometimes get only about 16% for the local industry to cut and polish. And the rest is small diamonds which are not of good quality for cut and polish. They only extract that value within whatever they have of the 10% and add particularly for the HDSA companies as they cannot sell them just anything without damaging their business. Once they look at that they sat beside that they still want to focus on historically disadvantaged South Africans and say to them they have to grow because SDT will make it possible to push them towards growing. And in pushing them, they have got some segments known as Growth and Transformation. The small mining companies must report to SDT on a quarterly basis on the purchases they have made, on cutting and polishing as well as on profits in terms of their sales. These reports come on a quarterly basis and they report to the board and the Minister on that information. These may look like small numbers but from 2015 they have grown to R50 million from these HDSA businesses, which are purely 100% black companies.
Ms Mvelase said, in distinguishing the 10% from the 5%, that once they have bought the full 10% target, they have managed to buy 6%. And that 5% is going to be the 5% of that 6% they bought for the year. SDT was pushing for this for the HDSA companies as they wanted the HDSA companies to grow from that increased supply.
Ms Mvelase said the five-year period started as of 1 April 2017 and the aim is to go towards 25% by March 2022. If it happens that they exceed the 5% increased baseline in any year; that will be a bonus because they wanted a growth of 25% over five years. It is not going to equate 15%, but it is going to be 5% of their baseline which they will be reporting on as they closed the year in March 2017.
Ms Mvelase said they are working on Vision 2026 and they will be at the Diamond Indaba 2017 to explain more on Vision 2026, having agreed with government and industry on this. They will work towards achieving the pillars they need to achieve at that point in time. This is also informed by the Diamond Strategy they are working on as well as the outcomes from engagements with the industry and government.
The Chairperson thanked the presenters from SDT and SADPMR and said the Committee is looking forward to their next engagement. He then adjourned the meeting.
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