Council for Geoscience; Mintek; SDT & SADPMR 2018/19 Annual Reports

Meeting report

State Diamond Trader: 2018-2019

The SDT received an unqualified audit outcome with findings emphasising performance information, financial statements, expenditure management, procurement and contract management.

It continued to prioritise youth skills development within the jewellery fabrication industry as a powerful tool that ensured innovation-driven growth, inclusive development and sustainable livelihoods. The entity partnered with the Mining Qualifications Authority (MQA) on the Tari Student programme as a vital cog for skills development in the country. The programme, also involving the Department of Higher Education and Training (DHET) sent jewellery designers and watchmakers to Italy for training in their respective fields. The strategic focus of the two year training programme’s is to expose South African designers to world-class designs and impart valuable skills. The SDT was committed to playing an important catalytic role towards the success of the programme through an agreement to facilitate and implement it. The 24 students had been drawn from the nine provinces of South Africa and comprised nine females and 15 males. The SDT arranged an Exit Training Programme by placing students with Master Jewellery Goldsmiths and Watchmakers in order to complete their Trade Test and be developed into fully-fledged entrepreneurs for a period of six months. To date, three of the students have completed their TRADE Readiness Test.

Through the Enterprise Development Programme (EDP), SDT ensured that there was a constant stream of new young black diamond entrepreneurs entering the sector. By the end of December 2017, the programme had seven groups with 27 trainees that originated from all nine provinces.

Discussion

Mr D Mthenjane (EFF) welcomed the presentation and) noted that it was very informative. He broached the subject of irregular expenditure at the SDT and recalled that during the presentation it was said that the SDT would be moving to the development zone near O.R.Tambo airport. He wanted to ascertain when this would happen as it appeared that leasing issues caused financial challenges for the SDT.

Mr Mthenjane added that during a previous occasion the SDT also spoke of creating a state-owned company that would be able to cut diamonds and he wanted to ascertain when this would happen, especially since the SDT highlighted the strong competition from India in this sector. He was emphatic that South Africa should take control of its natural resources in order to create job opportunities and economic growth that benefitted South Africans. He took issue with the SDT’s relationship with De Beers and asked why SDT performance depended on De Beers. He added that South Africa should nationalise all mines as this would spell the end of the SDT’s problems.

Mr V Zingula (ATM) welcomed the report and referred to the SDT’s admission that its Board was not representative and stressed that something had to be done to rectify this matter. He further touched on the R1 883 171 irregular expenditure incurred by the SDT for the extension of the lease agreement and pointed towards the organisational culture within the SDT as well as the lack of consequence management. He wanted to ascertain why only seven out of nine provinces were listed as participation in the EDP and how the STD planned to deal with those elements that hampered transformation in the diamond cutting and selling industry.

Mr K Mileham (DA) recalled that South Africa already had a listed schedule 2 public entity wholly owned by the government in the form of Alexkor whose core business was the mining of diamonds on land, along rivers, on beaches and in the sea along the north-west coast of South Africa. He asked for an explanation on the SDT’s relationship with Alexkor and why the Alexkor chose to sell its diamonds to a Gupta-linked company.

SDT mentioned in its performance review that it had a target to submit a business plan to the Department of Mineral Resources (DMR) but had never done so

Mr Mileham took issue with the STD blaming De Beers for a decline in sales and indicated that according to him, there was no casual link between pricing and revenue as claimed.

The report on the Tari programme showed that seven out of the 20 students that comprised the programme had left and that this meant that the programme’s criteria was inadequate and in need of serious review.

Slide 39 dealt with key challenges experienced by the STD. Due to a volatile market, the SDT had to increase margins in order to sustain its operations. It said that certain producers always had the upper hand. He wanted to ascertain from the SDT why felt they should have an unfair advantage over their competitors.

He added that he also took note of the EDP and wanted to ascertain what the status of these trainees were, as they started in 2015 and it was already nearly 2020.

Ms V Malinga (ANC) posed a question that concerned the constitution of the SDT Board since its mandate had already expired. In addition, she wanted to ascertain how many Board members remained. She also wanted to check what the DMR’s interventions had been to assist diamond cutting businesses who could not access funding from commercial banks. She took issue with the fact that the SDT failed to implement a records management system and questioned what type of entity could function in such an environment.

Mr M Mahlaule (ANC) highlighted the irregular expenditure at the SDT and called on the entity to tighten its internal controls. According to Mr Mahlaule, the strategic objectives highlighted in the presentation did not make sense, especially those related to securing funding from other organs of State, for the acquisition of more rough diamonds for primary allocation. He pointed towards the target of four proposals, yet the SDT only submitted one proposal.

He expressed his happiness that the SDT reported an increase in sales value from R163 million in 2017/2018 to R210 million in 2018/2019, with a 29% increase in sales to historically disadvantaged South Africans (HDSA). He commented that the SDT should be unapologetic about transformation in the diamond sector and called for expanded opportunities for black South Africans. He requested guidance from the SDT on how transformation could be achieved, even if the fair market value of diamonds were not supportive of the transformation agenda.

The Chairperson noted that when Parliament invited entities to deliver their annual reports, Parliamentarians were well within their rights to ask questions, however, it was unwise to continuously make references to what other members had said. It was important that committee meetings should not degenerate and that members had every right to air their grievances in a closed session. He reiterated that it was Parliament’s prerogative to legislate on nationalisation, just as it was Parliament’s role to legislate the establishment of any state owned enterprise into existence.

Mr Shadrack Motloung (SDT Board member) welcomed the questions posed and saw them as legitimate and constructive. Some of the questions fell within SDT’s purview whereas others did not. He stressed that even though the SDT was delivering on its mandate, it still could not establish its own diamond cutting company, due to capacity issues.

Mr Motloung informed the PC that 10 board members had confirmed their intention to remain until the end of November 2019, whereas two indicated their intention to not be re-appointed.

Mr Mandla Mnguni (SDT CEO) added that as the CEO, he took note of the comments and guidance provided by the PC and that the SDT would review and improve on its efficacy.

He stressed that De Beers was the largest stakeholder/role-player in the South African diamond industry and thus it was inevitable that the SDT would do business with De Beers. He further stated that the SDT mandate was centred on its sustainability as a commercial entity.

The SDT’s efforts to promote local beneficiation of South African diamonds were geared towards increased participation and employment in beneficiation, which included raising the amount of suitable rough diamonds offered annually. This ensured that clients had security of supply and with only 15 percent of South Africa’s mine production being considered economically viable for local beneficiation; the SDT had been exploring ways of making it more economic to beneficiate and increase the percentage of local mine production beneficiated locally.

The SDT continued to prioritise its HDSA clients, especially youth and women, when allocating diamonds. This could increase the amount of rough diamonds sold to black clients, to accelerate growth and ensure that it is sustainable.

It is envisaged that by 2023, at least 30% by mass of the rough diamonds sold by the SDT, would be to black clients. In addition, the entity would like to ensure that there was a constant stream of new black diamond entrepreneurs that entered the sector through its Enterprise Development Programme.

Stimulating local beneficiation of rough diamonds for non-jewellery applications could possibly attract untapped markets for the diamond beneficiation sector that might result in a demand for goods previously not desired by clients.

The SDT was collaborating with the Gauteng Industrial Development Zone (GIDZ) and the Small Enterprise Development Agency (SEDA) Platinum Incubator to set up an equipment hub to help new entrants.

Alexkor is an entity within the Department of Public Enterprises (DPE) that is a diamond producer. The SDT also bought diamonds from Alexkor. (By law all diamond producers have to offer part of their output for purchase by the SDT).

SDT had been in discussions with the Government Communication and Information Systems (GCIS) on the need to rebrand and find a new logo for the SDT as it had been using South Africa’s coat of arms from the start. He informed that the SDT board approved the decision to design a new logo.

He referred to the challenge that the SDT experienced with record keeping and informed that the entity was in contact with the National Archives to provide assistance in the drafting of a recordkeeping draft policy, as this was a specialised field.

Fraud and corruption issues faced by the SDT were also being addressed as two senior officials had been suspended with five others being subjected to disciplinary hearings.

The entity approached the National Youth Development Agency (NYDA), the Development Bank of South Africa (DBSA) as well as the Public Investment Corporation (PIC) amongst others for additional funding.

Ms Nobuhle Sibeko (SDT Company Secretary) stated that the SDT wanted to relocate to the Gauteng Growth & Development Agency’s (GGDA) OR Tambo Special Economic Zone (SEZ) by August 2020.

Skills in the industry are being enhanced through various skills development initiatives, including the OR Tambo SEZ’s own skills programme designed to enhance jewellery, diamond and platinum group metal beneficiation.

Mr Molefe Lephoto (SDT Acting CFO) responded to the questions regarding the organisational culture of the SDT and noted that it was a slim entity and when new management took the reins it identified internal control challenges. In this regard, management implemented controls in order to obtain a clean audit.

He touched on the irregular expenditure and noted that the current lease agreement of the SDT came to an end and had to be renewed without putting the contract out to tender. This resulted in the AGSA issuing adverse findings against the SDT.

Mr Conrad van der Ross (Operations Manager, SDT) addressed the questions related to the Tari project and said that the SDT strove to attract a diverse and representative pool of candidates from all nine South African provinces. SDT also engaged with numerous organisations and he agreed that more outreach visits to provinces needed to be undertaken.

It was stated that some participants in the EDP programme resigned either because the technical aspects of the programme was not for them or they decided to set up their own businesses. One of the trainees was released from the programme as she now operated her own diamond cutting and polishing factory. She is now a client of the State Diamond Trader and is qualified to buy rough diamond from the entity. Other participants have been sent to Thailand. All participants were black South Africans.

He stated that the fair market value system would always be contentious, especially since the SDT was the only diamond dealer selling directly to the client. Diamonds are also sold through a tender process and this affected the overall value of diamonds that in turn also affected the ability of HDSA’s to access capital to purchase diamonds on the open market. He cited the Indian model as an example where banks lent money to diamond traders on “invoice”, a very unique system that assisted Indian diamond dealers to compete internationally.

The Chairperson concluded that the PC was concerned that the SDT’s Company Secretary also doubled as the Legal Officer as this was a serious issue of conflict of interest.

SA Diamond and Precious Metals Regulator (SADPMR)

The SADPMR had received an unqualified audit with findings - various matters being highlighted by the AGSA. These matters included material losses of R3 220 226 incurred as a result of impairment of irrecoverable trade debtors and non-compliance with the Preferential Procurement Policy Framework Act (PPPFA) due to the Regulator not following an open bid process for a contract over R500 000. In addition, expenditure of R42 000 had been incurred on the contract which was disclosed as irregular expenditure in the Annual Financial Statements.

In 2018/19 the SADPMR reported a surplus of R 10.8 million compared to R5.6 million of the 2017/18 financial year and reduced repeated audit findings from five to one.

The creditors-payment period had also improved significantly and the debt collection period also improved from 51 days to 42 days.

The Regulator had issued a total of 822 diamond and precious metals licences, permits and certificates in the 2018/19 financial year. Of these, 622 had been diamond licences and 200 were precious metals licences, compared to 592 overall diamond and precious metals licences issued in the previous year.

Transformation of the industry remained the focus of the Regulator, with an increase from 81 to 97 verification inspections, from the previous financial year in line with the conditions of the Mining Charter. This is attributable to the added capacity within the Transformation Unit, which enabled the unit to conduct more inspections within the diamond and precious metals industry.

Discussion

Mr Mthenjane wanted to ascertain how many of the licenses granted, were to sell and mine diamonds, respectively.

He wanted to know what happened to the idea that was mooted by the Regulator to open a diamond stock exchange [bourse] and what was being done to address fronting in the diamond and precious metals sector.

Mr S Kula (ANC) welcomed the presentation and commended the Regulator for achieving a surplus of R10,8 million. He cited the irregular expenditure of R500 000 incurred as a result of non-compliance with the PPPFA). He asked who was responsible for this transgression and what the entity was planning on doing about it. He appreciated the number of females in the entity however; he questioned the lack of disabled people employed by the Regulator.

He highlighted that the actual expenditure for the year under review was R103.0 million compared to a budget of R109.9 million, with compensation of employees amounting to R 78.0 million. He questioned the exorbitant wage bill. He asked how the Regulator aimed to continue assisting entrepreneurs and funding to historically disadvantaged individuals within the diamond and precious metals sector.

Ms C Phillips (DA) welcomed the presentation and commended the entity on its well achieved targets. She wanted an explanation on the 60 day turnaround time for license applications. She further questioned the rationale behind the high number of board meetings conducted, as this resulted in high remuneration fees for board members.

The Chairperson made mention of the fact that the SDT announced that it would be moving to the O.R.Tambo Economic Zone, yet the Regulator stated there were no funds for such a move on its own part. He cautioned the Regulator from making rash decisions on lease agreements and recommended that the entity contacted Public Works or Transport to assist them with their relocation.

In reply, Mr Sipho Manese (SADPMR CEO) said that the Regulator undertook to present a comprehensive close-out report on why it would no longer be pursuing the idea to establish a State Bourse. Management completed a report on this matter and the board approved the report for onwards transmission and approval by the Minister of Mineral Resources. The report will then be duly forwarded to the PC for information. Management and the board agreed that there were structural impediments to a state owned bourse and that it would be a costly enterprise.

The Regulator had consulted the local jewellery manufacturing and beneficiation industry to understand the challenges they are facing with the decline in jewellery manufacturing and diamond beneficiation. The main concern raised by industry was the red-tape in the processing of licenses. The Regulator embarked on a project to prioritise and streamline the application processes. The processing time had been reduced significantly, in order to encourage new entrants and investors to enter the local beneficiation industry.

On funding and entrepreneurship within the diamond sector, the funding of early stage exploration and resource development activities were not that forthcoming. The entrance of new cutting centers in Asia, such as Vietnam, Thailand, India and Laos have further eroded the ability of South African workers to compete on cost. Also, the technological development in South Africa had been slow compared to established manufacturing regions like India and China.

Ms Phillips' question about the high number of board meetings was answered by Mr Manese who stated that it was important for the board to meet as they conducted selection processes to appoint a new CEO and CFO.

Mr Khosa said that to attract investment and increase the ease of doing business, the Regulator was looking at reducing the red-tape for registration as a producer and authorised representative. The Regulator was thus looking to strengthen relations with Diamond Trading Houses at which small-scale miners sell most of their production. It also encouraged all producers to use the Diamond Exchange and Export Centre (DEEC) to market their production through the Diamond Tender process.

He added that with the world’s biggest platinum deposits, South Africa was duty-bound to pursue cutting-edge research towards mineral beneficiation, especially in light of increased substitution of platinum and the move towards electric vehicles. As a result, the Regulator in partnership with Mintek had been designated by Government to host the Centre of Competence in Hydrogen Catalysis (HySA), with a specific focus on beneficiating platinum through its use in hydrogen powered fuel cells.

Ms Clarinda Simpson (Chief Financial Officer) said that the SADPMR’s approved budget for 2018/19 was R115.8 million, which was also submitted to National Treasury.

Presentation by the Council for Geoscience: 2018-2019 Annual Report

The CGS received a clean audit from the AGSA and informed the Committee that the continued enhancement of internal control measures constituted a critical part of maintaining the well-functioning of the CGS.

The CGS, through the mine water management programme, had developed a portal which assisted in the identification of potential areas of mining and biodiversity co-existence. The Council also concluded an extensive study on environmental impacts of marine and coastal mining, which marked the beginning of a scientific based approach to emphasize the mutually reinforcing nature of the two, especially within the context of Operation Phakisa and the blue economy.

The development of a low-cost but strong geopolymers from mine residues and coal fly ash as alternative liner materials for mine dumps had also been finalised and piloted. This research is scheduled for large scale implementation in the current financial year in order to secure remediation of polluted mine water.

As the national custodian of all geoscience data in South Africa, CGS has embarked on the development of an updated and digitally interactive geological map of South Africa. This map takes advantage of fundamental geological data that has been collected over a period spanning more than a century and is presented on a scale of 1:1 000 000 scalable to a resolution of 1:250 000. Several previous inconsistencies were noted and have been resolved using advanced technological intervention and/or targeted field work.

Discussion

The Chairperson congratulated the Council on receiving a clean audit from the AGSA and for being honest about the challenges it faced under difficult circumstances.

Mr Mthenjane echoed the sentiments by the Chair regarding the good governance at the Council and that this was a reminder that black people could successfully manage companies. He stated that it was imperative for the Council to identify and skill young talent, especially from rural areas.

Mr Zungula commended the Council’s resolve and dedication to good governance and highlighted comments made on the lack of investment and being overtaken by African peers. He wanted to ascertain how the PC could assist the Council with its investment drives. He also touched on the Council’s submission on commercial agreements and noted that the Council could expand its financial position if it concluded commercial agreements.

Ms Phillips also congratulated the Council on its achievements and for pairing young inexperienced geologists and other young professionals with experienced geologists and other professionals. She added that she did not see any budgetary allocations for the rehabilitation of mines and wanted to ascertain whether the Council had approached mining companies for assistance. In 2017, a report was published in the South African Journal of Science on shale gas exploration and asked if this report had been shared with the energy unit within the Department of Mineral Resources and Energy (DMRE).

Mr M Wolmarans (ANC) shared the sentiments of the other members regarding the sterling performance of the Council and said that the PC could assist the CGS to access additional funding in the form of conditional grants.

Mr Musa Mabuza (CEO CGS) said that the Council appreciated the support of the PC and that the well wishes would sustain the organisation. He touched on the history of the CGS and said that CGS was the legal successor of the Geological Survey of South Africa, which was formed in 1912 by the amalgamation of three former surveys, the oldest of which - the Geological Commission of the Cape of Good Hope, was founded in 1895. The Geoscience Act, Act No. 100 of 1993 established the CGS in its present form and since then the CGS evolved into modern institution that boasted excellent facilities and expertise that ranked among the best in Africa. This was the reason why South African geological expertise was well sought after on the continent. Two years ago no institution or entity had been given additional funding by National Treasury (NT), yet there was an understanding within the Treasury that the Council was doing important work, hence additional funding was made available. However, the Council could have done more if it received adequate funding.

Mr Humphrey Mathe (Chairperson of the CGS Board) said that a legal opinion on the State’s liability on abandoned mines and mine openings had been sought, with a preliminary indication that the direct State liability exposure was limited to abandoned mines that are located on State land. The liability for abandoned mines that are located on privately owned land remains the responsibility of the owners of the land and accordingly the State must institute appropriate regulatory instruments to ensure that the environmental effects of such mines are appropriately dealt with. This will be concluded in the current financial year in consultation with the Department of Environment, Forestry and Fisheries as well as other interested and affected stakeholders. The DMRE was now enforcing strict measures for the closing of mines as they do not want more derelict and ownerless mines. It also does not issue any closure certificates, unless the full rehabilitation requirements were met.

The Karoo Deep Drilling project was a five year geo-environmental base line programme designed to better understand the potential impact of geo-resource exploration activities (minerals, gas, deep groundwater, and geothermal) on the Karoo geo-environment. Particular focus was given to the looming shale gas exploration and Beaufort West was selected because it lay within the shale gas ‘sweet spot’’. Scientists were normally conservative in their estimates, thus reports on shale gas would err on the side of caution.

Mr Mathe added that South Africa’s geological expertise should not be undermined as the country was seen as a leader in this field, a fact highlighted by South Africa’s commitment to the Comprehensive Nuclear-Test-Ban Treaty (CTBT) and the role played in Vienna at the United Nations (UN).

Mintek: Annual Integrated Report for 2018-2019

Mintek was designated by government to host the Centre of Competence in Hydrogen Catalysis (HySA), specifically focusing on beneficiating platinum through its use in hydrogen powered fuel cells. Mintek’s area of specialisation is the development of Platinum Group Metal (PGM)-based catalysts for fuel cell membrane electrode assemblies and technologies that feature in the early parts of the fuel cell value chain such as catalysts, the electrodes, and fuel cell stacks for low temperature PGM fuel cells. Mintek was already scaling up production of HySA fuel cell catalyst products on the path towards commercialisation. Recently, an additional two HySA catalysts have been scaled to a commercially relevant 1 kg per batch and the materials validated to be on par with the lab-scale counterparts.

The catalysts are being sold, through the HySA Catalysis spin-off company HyPlat, to local and international customers in the form of the catalysts alone or incorporated into membrane electrode assembles (MEA) – mostly at this stage for testing to establish their viability as alternative catalysts and MEAs to incumbent suppliers.

Working with other key players in the hydrogen fuel cell programme in South Africa, Mintek is confident that the next few years will lead to bigger achievements that improve the economic viability of the technology.

As part of their Local Economic Development (LED) Mining & Enterprise Development Programme, the Bojanala Platinum District Municipality in North West Province funded Mintek to train nine active small scale miners in a two-week introductory course on small scale mining. The training was successfully completed in June 2018. This training intervention has improved the knowledge of these miners and will assist them to run their existing mining co-operative more safely and efficiently.

Further to this, Mintek had been granted funding from the MQA to conduct small scale mining training for 90 people in Mpumalanga Province. The training will focus on surface mining (including health, safety and environment) and will include communities from Bushbuckridge, Boekenhouthoek and White River.

As part of Mintek’s on-going Small, Medium and Micro-Enterprise (SMME) support and incubation programme, six SMME’s were assisted in the last year. These businesses focussed on Pottery Manufacturing, Clay Processing and Glass Beads and resulted in the creation of job opportunities for 54 previously unemployed individuals. Mintek provided these businesses with technical assistance, access to raw material for manufacturing and also helped to address the challenge with regards to design of products, branding and also market access.

Mintek had trained over 50 learners in jewellery design and manufacturing in the last year. The learnership includes learners at levels 2, 3 and 4. The learners that benefited are from all corners of the country. Mintek introduced new technologies, Computer Aided Design (CAD) and 3-D Printing, which gave learners an opportunity to use the computer facilities at Mintek and the 3-D printer for improving product design and manufacturing.

Discussion

Mr Mileham noted that he saw that Mintek struggled to sell its technology and wanted to ascertain what the reasons for this might be.

Ms Malinga thanked Mintek for its presentation and commended Dr Motuku’s passion for his job.

Mr Mthenjane also welcomed the report and thanked Dr Motuku for the accurate annual report. He cited Mintek as another good example of good governance and that the EFF would like to see more black people employed in metallurgical and mineral innovation.

Dr Molefi Motuku (CEO Mintek) replied that Mintek had done an analysis of the reasons why it was difficult to sell its technology and concluded that these technological advances had been developed in isolation and not in tandem with the mineral and metallurgical industries. Mintek owned 143 patents however, these were not economically viable. Mintek was now committed to addressing specific industry needs in partnership with private entities, as many of these entities were already making use of Mintek’s testing facilities.

The Chairperson lauded Mintek’s performance and urged the entity to continue with the sterling work.

The meeting was adjourned.