Alexkor Annual Report 2006: briefing

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
25 October 2006
ALEXKOR ANNUAL REPORT 2006: BRIEFING

Chairperson: Mr Y Carrim (ANC)

Documents handed out:
Alexkor Annual Report
Alexkor presentation
Segment report as per Annual Report 2005/06

SUMMARY
Alexkor briefed members of the committee on their annual report. Alexkor's presentation focused on their financial statement, where it was stated that the company experienced a net operating loss of R38.1 million. The presentation also focused on the many challenges faced by the company, the main one being the settlement of the land claim of the Richtersveld community.

The discussion focused on a number of issues regarding Alexkor's financial performance, its non-core assets and the land claims settlement. Members of the committee however were pleased with the social contributions that were made by Alexkor and commended the board for their dedication. However despite the challenges, members felt that the company could perform a lot better than they currently were.

MINUTES

Alexkor Presentation
Alexkor was represented by Mr N Moloi (Chairman: Alexkor Board), Mr M Van Der Walt (Chief Financial Officer (CFO)) and Mr M Mdaka (Chief Executive Officer (CEO)). Mr Van Der Walt stated that total revenue had increased by 4%, however Alexkor experienced a net operating loss of R38.1 million. Mr Mdaka stated that Alexkor faced many challenges during the financial year. However one of the biggest challenges faced was the impact of the land claims case that was instituted by the Richtersveld community. Mr Mdaka said that the case impaired Alexkor's ability to mine economical areas, and re-invest in appropriate infrastructure. Other challenges included a continuous decline of sea-days, aging mining equipment, and the recruitment and retention of qualified and skilled human resources. Alexkor however plans on improving its financial performance through productivity improvements. Alexkor also plans to restructure its balance sheet and exit from its non-core activities.

Discussion

Mr C Wang (ANC) questioned the basis on which Alexkor estimates revenue and who determines when the contractors can go out to sea, when it comes to the number of sea days. Mr Wang requested Alexkor to provide clarity on the meaning of DME and FFPS.

Mr Mdaka replied that in terms of revenue estimates, Alexkor does not use break even points as a basis, however the performance of the mines and minerals determine the next step taken by Alexkor. With regards to the issue of sea days, there are eight people in charge of marine management. Planning is made well in advance, because some of the divers do not live on site. DME stands for Department of Minerals and Energy; FFPS on the other hand stands for Fatality Free Production Shifts.

The Chair stated that he was not in a position to judge whether the information provided regarding the number of sea days was correct. However if the information provided is correct, surely there is technology that could help Alexkor overcome the many obstacles with regards to number of sea days?

Mr Mdaka argued that the IT systems used by Alexkor are over 10 years old. It has budgeted to replace the old systems.

Mr P Hendrikse (ANC) asked for elaboration of the challenges faced in developing the succession plan. With regards to the land claims issue, is it possible for Alexkor to give clarity on the contingency planning that has been done, and whether or not the R3.9 million legal costs included costs to the Richtersveld community? He questioned whether the non-operation of some of the mines contributed to the R38.1 million loss. In terms of the non-core assets, such as the hospitals, Alexkor should explain whether or not they receive any funding from government. Alexkor should also provide clarity on whether the social contribution grants are over and above the operating costs. In terms of the HIV/AIDS prevalence survey, is it possible for Alexkor to provide details on whether they plan on undertaking another one soon?

Mr Mdaka stated that succession planning remains a challenge to Alexkor. In order to recruit the necessary human resources, Alexkor has to have something special to offer. However at this point in time, Alexkor is not very attractive in terms of job opportunities. He argued that in terms of contingency planning, planning has been done and there is a three-year plan on the way. Mr Mdaka further stated that the R3.9 million was Alexkor's costs and that the costs of the community were covered by the state. The non-operation of mines did reflect on the financial statement, as it made up 10% of Alexkor's budgeted revenue. He also stated that Alexkor does not receive any funding from government to fund its hospitals. There was a plan to undertake another HIV/AIDS prevalence survey this year; however due to the financial situation, Alexkor decided against it.

Ms D Carolus (ANC researcher) requested an indication of the income and the balance sheet without Alexkor's non-core activities.

Mr Mdaka stated that the information of Alexkor's balance sheet without the non-core activities would be available at a later stage.

Mr J Stephens (DA) questioned the amount of revenue per ton moved by Alexkor, and also asked for clarity on who benefits from the hospital and who bears the medical costs. Finally clarity should also be given on the issue of Ruslin as the explanation given in the presentation was very confusing.

Mr Mdaka stated that the hospital caters for both the greater community and Alexkor employees. The state pays Alexkor R160 for every third patient they treated. Alexkor has also been advised not to receive income from treating people.

Mr Moloi pointed out to Mr Stephens that the figures of the revenue per ton were provided in the Alexkor presentation. He said that it can be found on the slide showing Alexkor's turnaround plans, which represents
3 years worth of tons moved. He stated with regards to the Ruslin issue, that Ruslin was a company contracted by Alexkor to re-mine old dumps and rehabilitate them. However they had problems with the amount of revenue recovered and wanted to transfer the costs back to Alexkor. Alexkor refused and Ruslin lodged a claim. Alexkor however lodged a counter claim, which makes Ruslin the respondent as reported in the presentation.

Mr C Gololo (ANC) commended Alexkor on their social initiatives and asked whether the decline of the number of sea days is a result of global warming. He suggested that Alexkor should purchase the ship used to go out to
sea rather than spending vast amounts of money renting it. He asked whether or not the HIV/AIDS figure of 2.8% is from a survey conducted among Alexkor employees. Finally could Alexkor provide clarity on what is
being done with regards to the financial support of the hospital, and whether or not they plan on moving to other parts of South Africa.

Mr Moloi argued that the number of sea days is affecting everyone on the west coast not just Alexkor. It could be attributed to global warming, however the issue is still uncertain at this stage.

Mr Mdaka stated that the HIV/AIDS prevalence figure is from the whole community not just Alexkor employees.
With regards to financial support of the hospitals, Alexkor has decided to withdraw support due to financial reasons. The provincial government has been called in to take over the management of the hospital. Alexkor will provide the facilities, however the costs of medical supplies will have to be taken up by the state.
The vessel is a huge investment, as there needs to be a vast number of reserves to justify the investment.

Mr Hendrickse congratulated the board on their attendance record. He stated that other boards should follow Alexkor's example.

Ms Carolus asked if there was any progress on Alexkor becoming a base supplier for the State Diamond Trader. Also, is it possible for Alexkor to state whether or not there was any feedback regarding the financial statement that were submitted to the Department of Public Enterprises?

Mr Mdaka replied that the Department of Minerals and Energy was very supportive of Alexkor, and Alexkor was 100% committed to growing the diamond trade.

The Chair stated that now that the land claims issue has been settled, Alexkor’s performance should improve. It was good to see that most of the issues raised by the Committee last year was covered in the annual report; however it should have been reflected more in the presentation. He then asked the Department on Public Enterprises to elaborate on the progress made by Alexkor.

Mr J Theledi (Deputy Director General: Department of Public Enterprises) stated that there were a number of issues that were faced by Alexkor. In terms of the land claims case, the department hopes that the settlement made is the final settlement, and that there would be no further issues arising from the case. With the settlement there were costs involved, and the department is bearing the legal costs of the Richtersveld community. An audit was undertaken by independent auditors which was meant to strengthen Alexkor's finances. The report concluded that there were issues around Alexkor's fixed asset register, and they had to be addressed immediately. In terms of exiting from the non-core assets, the department will soon be holding meetings with the Department of Health to see what can be done about the hospital.

The meeting was adjourned.