Alexkor update on the community’s leadership stability and the profitability of the entity’s business activities; with Deputy Minister

Meeting report

The Chairperson said the Committee had met with Alexkor a few months ago and received a very positive report at that point, but they felt that it was necessary to meet again to get an update.

Deputy Minister's opening remarks

Mr Obed Bapela, Deputy Minister of Public Enterprises, indicated that the board of Alexkor was in the meeting, and that they would engage with the Committee on the report and answer all the questions, together with the management.

He said the matter of the land claims was a success story for every African to get back their land. Unfortunately the initial communal property association (CPA) that had been established had its own challenges, leading to its disbandment, and they had been under administration by the Department of Agriculture, Land Reform and Rural Development (DALRRD) for some time. The CPA had since been reconstituted and they were now beginning to reassemble themselves and focus on really ensuring that the land that had been successfully claimed could also benefit them as communities.

The complexity of the situation was that Alexkor was operating on the land, and the claimants had successfully said that they should be beneficiaries in the shareholding of the state mining of the company. A pool-sharing joint venture (PSJV) had been established to ensure that the community participated and benefited from the activities. The land was shared 51% by Alexkor and 49% by the Richtersveld Mining Company (RMC). He hoped that going forward, if there were such cases in the country where there was a successful land claim and a state entity was involved, they could take the example of Alexkor and how they were managing a very difficult situation.

From the ministry’s perspective, the board and the management had really tried, having gone through a very difficult environment as a company, which had also involved the state capture that had unfortunately affected other public enterprises. However, they were now recovering from that crisis. There was some positivity, as profits were now being realised, but there were still some teething issues with the structure, which were going to be resolved along the way.

Alexkor status report

Dr Patricia Hanekom, Chairperson of the Alexkor Board, said that at the time the current board was appointed, the CPA was dysfunctional and was represented by three court-appointed non-executive directors, who were not from the community. The PSJV board -- the joint venture board to which the Deputy Minister had referred -- was not operating with good governance practices in place. Since the last time Alexkor appeared before the Committee, the CPA had been properly reconstituted and had been operating since February of 2023. They had approached the courts and the Committee to request that the CPA-designated representatives for the RMC, which had not been set up properly in terms of the requirements of the Companies and Intellectual Property Commission (CIPC), replace the court-appointed directors.

This eventually did happen in terms of a court ruling on 2 June, and there was a one-year period that the Court had granted to allow the CPA to complete its processes of properly setting up the RMC so that they could appoint their directors, rather than having directors being appointed by the Court. The current status was that they had a reconstituted CPA, and they had designated directors of the RMC pending conclusion of processes to properly establish the RMC.

Due to the dysfunctionality of the CPA and RMC until this year, the CPA had not really materially benefited in direct ways from having their land restored to them since acquiring the land and the mining rights. Their key focus was really to rebuild trust and ensure that the joint venture, which was responsible for both the land and marine mining, resulted in benefits for the CPA. The deed of settlement adopted a unanimous resolution that required the PSJV, which was an unincorporated entity, to act as if it was incorporated. It had been incorporated after it was established. This had implications for the company in terms of its commitments with the South African Revenue Service (SARS) and paying contributions to the Unemployment Insurance Fund (UIF). These were discussions they would be able to have with the CPA, taking into account what their decisions might be concerning exercising their rights as the owners of the land and the owners of the land right. They would have a discussion on that after the presentation, and in the meantime, they would continue to function as the PSJV. Their obligation, in governance terms, was to take all of their decisions in the best interest of the PSJV itself and in terms of the benefits that flowed to the CPA.

Prof Trevor Fowler, Interim Chief Executive Officer (CEO), Alexkor, said that in 2007, the land and the land mining rights were awarded to the Richtersveld Community (RVC), while Alexkor retained the marine mining rights. A deed of settlement (DoS) and a unanimous resolution were agreed with RVC, and made an order of the Court. The terms of the agreement stipulated that the mining of the land and the marine mining rights would be pooled in a joint venture of Alexkor and the RVC-owned mining company, the Richtersveld Mining Company (RMC). The pooling and sharing joint venture (PSJV) was created in 2011, and thereafter became the entity responsible for engagement with the Sida ! hub Communal Property Association. The land mining concession and the land were handed over to the RMC in 2011. The PSJV performed all marine and land mining until such time that it was dissolved. The board held a workshop in July this year on the current tender process for new mining contractors. Alexkor, the RMC and the PSJV continued to have good relations with the CPA, and supported the CPA in convening its general membership meetings and consultations with its members in the four towns.

He said that the Sida !hub CPA had written a letter on 27 September to the Chair of the PSJV and Alexkor, advising that its executive committee had decided to exercise the call option in terms of Clause 18 of the unanimous resolution (UR), read with Clause 8.3 of the deed of settlement. The Alexkor Board had noted that the letter from the CPA was a notification of intent, and did not have an effect unless it was served by the RMC, the PSJV's partner. The handover of the management of the properties had been triggered by the handover of the town of Alexander Bay to the Richtersveld Local Municipality (RLM).

The discussions of the handover continued with the RLM, which needed to call a public meeting to inform the community of the implications of the transfer of electricity to the municipality to complete the electricity handover.

Prof Fowler said that the Department of Water Affairs and Sanitation (DWS) had informed the RLM, as the water service authority, that they should appoint Alexkor as the water service provider because it held the extraction licence from the Orange River. The remaining services, such as roads, could be handed over to the municipality soon. Completing the process would release the R45 million held in trust to the community through the CPA.

On the finance side, he said that the diamonds were still mined by the current contractors and were sold through the Diamond Exchange Export Centre. The PSJV had seen a significant improvement in diamond sales, contributing to the positive financial position. The State Diamond Trader buys 10% of the PSJV diamonds. Given the current diamond prices, it was anticipated that the PSJV would still post a profit for the 2024 financial year. The annual financial statements for the 2022/23 year were still being audited.

On the planned compensation to the RMC, he said that based on the deed of settlement, no payments were anticipated pending full and final settlement of the initial cost contribution, which was now sitting at R114 million. The completion of the process would release the R45 million held in trust to the community through the CPA.

He concluded that despite the improved performance of the PSJV, there was a significant backlog to be addressed, including the fact that there were inadequate funds to address several of the required capital projects which required urgent attention.

Dr Hanekom explained that the call option entailed the right of the CPA to exercise its option via the RMC to purchase the 51% share of Alexkor in the land mining rights, and there were a whole lot of requirements that needed to be met to exercise that option. As the CEO had said, they had had communication from the executive committee formally indicating that the CPA had decided that they wished to exercise that particular option, which would happen as and when the RMC was properly constituted and in compliance with what was set out in the unanimous resolution. This was also why she had indicated that the CPA's decisions would have implications regarding how they wished to exercise that right. In the meantime, their obligation was to carry out their responsibilities and make decisions in the best interests of the PSJ.

See attached for full presentation

Discussion

Ms L Bebee (ANC, KwaZulu-Natal) indicated that she would be assisting with chairing as the Chairperson was having network issues.

Ms C Visser (DA, North West) said the entity had not produced annual reports for the 2020/21,2021/22 and 2022/23 financial years. She asked how far they were in ensuring that their financial responsibilities were being met. When was the entity going to fulfil its historical environmental rehabilitation responsibilities?

Ms Bebee asked whether the entity had managed to achieve the outstanding obligations of clauses six, seven and eight of the agreement within the timeline that had been set. She asked them to elaborate on the three projects identified for the economic diversification strategy. Were they viable projects, and what was their current status? She asked that the Committee be updated on the entity’s relationship with the Richtersveld community and its community structure, in particular, the CPA. She asked what the activities of the Richtersveld handover task team were, and whether it was able to meet its set deadlines. Noting that the entity had not invested in exploration, the necessary capital equipment and also the technology that had the potential to turn company prospects and company operations around, she asked whether there were any plans in place to rectify that issue. She asked how the tender had been awarded to Ayana, and whether the mistake had been rectified. What was the cause of the high turnover that had occurred in the 2021/22 financial year? How safe and secure was the process of using small boat-based divers to extract diamonds from the sea for everyone involved?

Alexkor's responses

Prof Fowler replied that the process of rehabilitation was currently being looked at by the Directorate of Priority Crime Investigation (DPCI) concerning the award of a tender in 2017. They had been providing the information and documentation that was required. Some of the asbestos roofs were still in place. Among the challenges had been that the finances in 2021/22 year were not really adequate to address the kind of capital requirements needed to fix the roofs. The cost of mining had been slightly greater than the revenue received, and even though there was a profit recorded, it was a book profit. There was also a loan that had been impaired, and once it was no longer impaired, it was put into the income column, which had boosted the income column and which they have since corrected.

On the mining trenches, he said that the current mining approach was that rehabilitation should be done concurrently with the mining. The new tender would certainly ensure that that happened. Some areas included some historic tailings dumps, which would then be addressed through that tender. In addition, the board approved that the company should start rehabilitating the old mine dumps. The rehabilitation plan they have indicated a period of seven years. They expected that the life of the mine would be around ten years, but they were starting to do that so that by the end of the period, they would have refurbished many of the items.

Among the outstanding obligations that needed to be completed was the handover to the Richtersveld municipality, and since the last meeting, there has been a change in the municipal manager. The mining company had appointed a new manager who was still familiarising himself with the process. They anticipated that they would have the public meeting so that they could start to conclude the handover process. It was not completely in their hands, as it related to the municipality being able to undertake some of their obligations.

The diversification projects were issues that had been raised in the study done by the Department of Public Enterprise (DPE), and when that was concluded, he was confident that they would present that to the Committee.

He was not fully familiar with the progress of the community structures, but he could allude to some of them. The present challenge was that the community structures, which involved ten companies, must be put in place to ensure that they were able to get the appointment to the board of directors throughout the mining company. Besides the fact that the company had been dormant, the appointment process was also lengthy. The self-development company had not yet been constituted, but from a CPA point of view, they had made appointments, but it was not yet functioning as a company. It was a rather complex arrangement. This explained why it was taking the Richtersveld community, or the CEO of the CPA, to get things going because of the complex and interrelated nature of all of the CPA companies.

The handover task team had met and had made progress on the water issues. The DWS had indicated that they did not expect the Richtersveld municipality to try to take that responsibility over. Alexkor would continue to be the water service provider, and the municipality would continue to be the water service authority. The appointment of Alexkor as the water service provider by the municipality had not yet taken place, although, in practice, they were supplying the water. Significant infrastructure needed to be put in place, which was beyond the capacity of Alexkor or the PSJV, as an 80-kilometre pipeline needed to be refurbished. The municipality had put out a tender, along with the DWS, to refurbish the pipeline that had not yet been awarded, to ensure that work commenced. The work that Alexkor was doing was upgrading certain sections of the pipeline, and the municipality had taken on some work to really address points at which the pipeline was aerated. They had ensured that it had been repaired so that it functioned optimally so that it did not affect the supply of water.

Regarding the high staff turnover, Prof Fowler said that the previous CEO resigned in January  2022, and soon after the board was appointed, the financial manager, the finance director, and the supply chain manager also resigned. They had since advertised for the procurement position and were in the process of filing for that post. Appointments would be made. At the time, there was no CFO, so they had appointed Ms Lebo Malakalaka as acting CFO. They had made progress in addressing the issue but they had a long way to go to get all of the appointments made, including the appointment of the CEO and the CFO. They had advertised for the two positions, but there had been a delay because they wanted to ensure that the new members of the PSJV board were appointed. This had happened, and they were aware of the situation. There had been a difference of opinion on how the process should be carried out. However, to ensure that the board met its fiduciary duties, they proceeded with the appointments to ensure they fulfilled that obligation.

He said that a lot of the marine mining was done using two different types of mining. There were not that many deep-sea miners or vessels around. There was a company called Trans X marine, which had a deep-sea mining vessel. They had responded to the tender, which was likely to be awarded soon, as there were few competitors in that area. The small miners had a decompression chamber in case there was a situation where the divers stayed out too long and got what was known as "the bens." They were also fairly strict in observing what the divers do. Depending on the depth, they restrict the amount of time the divers could go out into the water.

Dr Hanekom said that the issue of economic diversification was raised in both the Select and Portfolio Committees, but that was an issue that belonged more fully with the DPE. Their mandate as Alexkor was to ensure that through their 51% share in the PSJV, they were responsible for land and marine mining in the joint venture. The Department was doing very important work, which they hoped would usher in a different economic future for the West Coast. Diamond mining had been taking place along the West Coast for approximately 100 years, and mines did have an end of life, so diversification was really important for the future economy of the West Coast. The view of the board and management was that it was critically important for economic diversification to materialise to have stability in the mining operations. They would ensure that Alexkor took the best possible decisions in the interest of the PSJV, because it would be an absolute tragedy if instability in mining resulted in rampant zama zama (illegal mining) activity, and all the negative consequences that went along with that. This could jeopardise those big economic projects that were planned, so to link that to the current operations and the rehabilitation requirements, the recapitalisation and future investments and exploration, there would have to be a fine balancing act in making decisions about what would make the best financial sense, given that they were not looking at another 100 years of mining.

Regarding the outstanding obligations, she confirmed that their last meeting had ended with an indication that these obligations should be concluded before the end of negotiations. Much of those were out of their control, and the Department had also been really diligent about ensuring that they systematically concluded all of those obligations. She indicated that 95% of those obligations had been met, but some matters were not within their control, such as handing over the town to the municipality, which was a two-way agreement. Handing over the town meant handing over the financial obligations that went along with accepting the handover. The work was very much on track, but it was about the state of readiness for all aspects of the handover and the financial implications for local government which was challenging. It meant that some outstanding items remained that would indeed be concluded, and there was work in progress on them.

The third thing she wanted to raise was the high turnover of the staff. She said that when the CEO left in January, he had been recruited to join African Exploration Minerals, and all the staff that resigned after him had all been recruited to join him. Only one of them had any significant tenure in Alexkor, which begged the question of whether someone leaving one state entity and going to another should be subject to some form of restraint to prevent one entity from weakening another.

Responding on the annual reports, she said there had been a spike in profitability in 2021 because of the impairment of the initial cash contribution loan, where there had been no legal basis for implementation. The audit for 2020/21 was completed only in May 2022, and they reported on that. The 2021/22 was going to be completed by the same auditors, and they had requested the Auditor-General of South Africa (AGSA) to opt in for 2023/24. There had been a reportable irregularity, and the Independent Regulatory Board for Auditors (IRBA) had reported on this, which resulted in the AGSA taking the view that there was risk for the audit for 2021/22 and the recently completed the audit.

The annual general meeting (AGM) was held recently in September, and they were busy now with the 2022/23 audit which would be completed before the end of the calendar year, but not in sufficient time to hold the AGM within the calendar year. By the commencement of the 2024/25 financial year, the entire backlog in dealing with the reporting responsibility of the group would no longer apply. The AGSA would be able to commence the audits on time, and Alexkor would be able to meet their reporting obligations on time. In their audit report for 2021/22, the AGSA had included a clause expressing their concern about the need for both temporary and permanent internal capacity.

The model for the PSJV had changed from one where the PSJV mined itself to one where the PSJV employed contractors to mine. There had been a big retrenchment exercise in 2022, and they had really struggled. The board had repeatedly thanked Prof Fowler and the management team for keeping the mining operations in progress, and for now turning a profit under extremely difficult circumstances, because the company had been in a very bad state of decline at the time the board was appointed in 2022. There was still immense work to do, but one could say that it was a recovering state-owned enterprise (SOE) at the current stage.  

Prof Fowler added that from a risk point of view, the entity provided the required legal training for the operators of the land, the divers, and the supervisors, as well as the lifting equipment. The new tender looked at how they could increase security on the boats by having cameras on them. They had security personnel on the large boats owned by Trans X marine, as well as camera footage to ensure that they were following the appropriate processes to secure the safety of everyone involved.

The Chairperson thanked the board and management of Alexkor and the Deputy Minister for attending the meeting.

The minutes were not adopted, as the Committee did not quorate for their adoption.

The meeting was adjourned.