Alexkor Annual Report 2006/7: briefing

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
31 October 2007
ALEXKOR ANNUAL REPORT 2006/7: BRIEFING

Chairperson: Ms F Chohan (ANC)

Documents handed out:
Alexkor Power Point Presentation
Alexkor Annual Report [available shortly at www.alexkor.co.za]

Audio recording of meeting [Part 1][Part 2]

SUMMARY
Members met with representatives from Alexkor in order to discuss their Annual Report. The Alexkor presentation provided an overview of its financial performance, and the initiatives that had been taken to improve performance. The presentation also focused on the positive developments related to the settlement of the land claim, and an update on the litigation matters.

Members raised queries on recapitalisation, the future status of Alexkor, and land mining operations. Members sought clarity on the joint venture, and asked Alexkor to comment on whether the venture would make use of Alexkor’s existing contractors. The Chairperson asked whether the organisations had any timelines in which the future role of Alexkor in the joint venture would be finalised, and also asked for an outline on the risks involved in operating a company such as this. Members also sought clarity on members who would be receiving the post retirement medical aid benefits, and what the future held for the 85% of workforce that was to be retrenched.

MINUTES
Alexkor Annual Report presentation

Mr Mzamani Mdaka, Chief Executive Officer, Alexkor, gave an overview of Alexkor’s financial performance, and the initiatives that had been taken to improve performance. The presentation also focused on the positive developments related to the settlement of the land claim, and an update of the litigation matters.

Mr Mdaka stated that diamond production had increased during the financial year, but that total revenue had declined. Some of the successful initiatives included the increase in the capacity of contractors, which allowed boat units to operate on non sea days.  Some of the major operational challenges included the continuous decline in the number of sea days, and the continued subsidisation of non-core business activities. Alexkor had identified exploration plans and marine concessions and capita expenditure requirements, which would have sustained operations. However none of the issues identified could have been achieved due to lack of funding. 

Discussion

The Chairperson stated that recapitalisation had been a constant issue. She asked Alexkor to provide a sense of how much it would need in order for it to continue and whether government funding was sufficient.

Mr Mdaka responded that an amount of R200 million had been allocated to the recapitalisation of  Alexkor. Initially Alexkor had planned a three year recapitalisation programme, which would have cost R350 million. The activities entailed the maintenance and upgrading of current operations. The amount that was provided by government was only sufficient for the first five months. 

Mr Anthony Kamungoma, Director responsible for Alexkor, Department of Public Enterprises, added that the joint board would work on funding requirements for the next couple of years. The funding would take into account the mining operations. In the medium term all mining operations would not be carried out by Alexkor, but done as a joint mining venture.

The Chairperson stated that it sounded like Alexkor was defunct

Mr Kamungoma replied that Alexkor was not defunct but would be participating in the joint venture

Mr C Wang (ANC) asked for comment on the joint venture

Mr Kamungoma responded that the joint venture would be run by Alexkor, the Richtersveld community, and a mining company.

The Chairperson asked for clarity on what would happen to the contractors who were mining for Alexkor.

Mr Kamungoma replied that the joint venture may or may not utilise their services.

Mr C Gololo (ANC) asked for clarity on what. percentage government was going to have in the joint venture

The Chairperson responded that government’s stake would be 51% through Alexkor.

Mr E Kholwane (ANC) stated that by now there should be more accurate forecasting on the joint venture, and asked for clarity on whether the joint venture would actually commence at the beginning of the next financial year.

Mr Kamungoma replied that the resolution for the formation of the joint venture had been concluded. This provided the basis on how the joint venture was going to work. Alexkor was in the process of expediting the joint board, and was hoping to have a business plan by the end of the financial year.

Mr P Hendrikse (ANC) asked for clarity on how much was the settlement claim.

Mr Kamungoma replied that R180 million had been a cash settlement for the diamonds extracted, and that R200 million was set aside for the joint venture

Mr Hendrikse asked for clarity on the group of people who were unhappy with settlement.

Mr Kamungoma replied that a group of nine individuals were unhappy with the deal of settlement. They had approached the Court in order to make the deed of settlement an Order of Court. 

The Chairperson asked for further clarity on what would happen to the mining operations once the joint board had been established. 

Mr Kamungoma replied that there was a unanimous resolution, which provided for an interim phase of developments. Members of the joint board would work with members of the Alexkor Board during the interim period.

The Chairperson stated that there would be two boards, a joint board and an Alexkor board. She asked for clarity on whether Alexkor’s board and management would still continue to operate under Alexkor.

Mr Kamungoma replied that Alexkor would act as if it was a holding company, and would remain as a separate entity that was maintaining its interests in the joint venture.

The Chairperson asked for clarity on what were Alexkor’s interests.

Mr Kamungoma replied that Alexkor would try to find a model that would establish Alexkor’s role in the joint venture.

The Chairperson asked whether Alexkor had any time lines.

Mr Kamungoma replied that there would be one before the end of the financial year.

The Chairperson stated that once the plan had been completed and approved, it should be brought to the Committee.

Mr Kholwane stated that he noticed that Alexkor was not providing clear answers and suggested that time lines must be provided to committee on a regular basis. 

Ms N Kondlo (ANC) asked for clarity on what the case for Alexkor was, since 20% of Alexkor’s income came from costly land mining operations. Clarity should also be provided on the optical sorting technology.

Mr Mdaka replied that given the amount currently invested, there was no case for land mining in the short term. Alexkor was trying its best to minimize costs; however what was being done was not good enough. There was, however, a case for land mining in the future, and hopefully the joint venture would reap the benefits of the mining operations. With regard to the optical sorting technology, new technology was being used, in which one of the initiatives was aimed at improving performance.

Mr Hendrikse stated that part of the problem lay in the lack of commitment from government. He asked the board to comment on whether the State had made up its mind on the future of Alexkor.

Mr Nchaka Moloi, Former Board CEO, Alexkor, replied that the government’s plan for Alexkor had been very clear for some time, and that was to exit Alexkor.  However just when government was about to sell off the company, the Richtersveld community took government to court. After the settlement had been finalized, government retained a stake in joint venture, and it was to help the community to maintain a sustainable base moving forward.

Mr Gololo stated that an urgent decision had to be made on the future of Alexkor. Clarity should be provided on the average price of non-specified stones.

Mr Mdaka replied that specified stones were those of 6.8 carats and above. One would expect those stones to receive a better price. If any stone was below that weight it would be classified as unspecified, and Alexkor was receiving a good price for unspecified diamonds.

Mr Kholwane stated that equipment was a challenge when it came to land mining. Clarity should be provided on whether the community would bring in new equipment as part of the joint venture.

Mr Wang stated that last year it was mentioned that Alexkor planned on purchasing new boats. He asked what happened to the boats. It had also been established that contractors mined a lot more in volume and produced a greater profit. Alexkor should state what the problem was and how they planned on rectifying the matter.

Mr Mdaka replied that the funds in question were the R80 million that was granted by the state. The funds were not used to buy boats, and the presentation did provide a breakdown of the expenditure. With regard to the contractor performance, it should be noted that the contractors would perform better only because they had better equipment.

The Chairperson asked for an outline of the risks involved in operating a company such as Alexkor.

Mr Mdaka replied that some of the risks included people, and sometimes employees, who had been found guilty of illegally possessing diamonds. There was a need for robust systems that would limit the risks, since it was very difficult to monitor what happened under water.

The Chairperson asked for comment on why none of the funds provided by government were used for recapitalisation.

Mr Kamungoma replied that the whole issue of recapitalisation could not commence as it was unclear how the settlement of the land claims would impact on the operations.

The Chairperson stated that clearly there was some certainty and that Alexkor was not planning for a viable entity going forward.

Mr Moloi stated that the settlement was a negotiated settlement. It should be noted that there was an implementing committee, which was going to work with the Department in order to determine the future role of the company.

The Chairperson stated that she was glad there was a strategic session and would like to see the company moving forward.

Mr Gololo asked for clarity on whether Alexkor was listed as a schedule 2 or 3b entity.

Mr Kamungoma replied that Alexkor was listed as a schedule 2 entity

Ms Kondlo sought clarity on the diamond boats that had not been sold

Mr Mdaka replied that no one was willing to buy the diamond boats; it was a situation of willing seller but no buyer. Alexkor on other hand had managed to transfer some of its assets, which included a hostel. The hostel transfer was a full transfer and all that was needed was to maintain the building pending its transfer at a later stage.

The Chairperson asked for comment on the shallow water diving, and whether it was affected by the weather and the number of sea days.

Mr Moloi replied that shallow water diving involved an individual taking a pipe and sucking up gravel from the bottom of the sea. The issue of sea days could not be resolved because was it was climatic.

Ms Kondlo sought clarity on the 21 members who would be receiving the post-retirement medical aid benefits. Clarity should also be provided on what the future held, if 85% of the workforce was retrenched.  It was stated that Alexkor was open to risks of illegal diamond trading, and she asked for further comment on what the risks were, and whether the outsourced security company was helping. Alexkor should also comment on the black economic empowerment issues.

Mr Mdaka replied that in terms of the medical aid, it would have cost more money to recover the funds from the employees, and that Alexkor needed to come up with plans to sustain the operations. The retrenchments were planned retrenchments and since Alexkor was going to be run by the joint board, it might decide whether it would want to retain Alexkor employees.  Alexkor had also engaged with the unions and had managed to achieve a lot.  The illegal diamond trading happened internationally and Alexkor obtained its information from undercover agents. South Africa was governed by the South African Diamond Board,  and Alexkor was doing its best to comply. With regard to outside security firms it should be noted that these provided the best service.  With regard to black economic empowerment issues, some of the contracts had gone to retrenched Alexkor employees who had started their own businesses. 

The Chairperson asked for comment on the safety record and measures that had been put in place.

Mr Mdaka explained that Alexkor had seen a lot of accidents since there was an increase in the maintenance work.

The meeting was adjourned