Alexkor progress report & its 2013/14 Annual Report; Medupi Power Station oversight visit: Committee Report

Meeting report

The Alexkor board chairperson, Mr Rafique Bagus, explained that Alexkor came into being as a result of a land claim by the people of the Richtersveld. The result of that claim was the establishment of a mining company whereby the state, through Alexkor, operates the mine together with the community of the Richtersveld. The shareholding was split between the state which owned 51% of the shares, and the community which owned 49% of shares.

When the new Board of Directors took office in September 2012, Alexkor was in serious distress and the PSJV had been in a loss making position for more than 10 years. Corporate governance at Alexkor SOC Limited and at the Richtersveld Pooling Sharing Joint Venture (PSJV) was very poor. No proper minutes of board and committee meetings were kept, budgeting was poor, there was no proper record of mine dump allocations, documentation and/or agreements with the contractors were not in order including in particular documentation relating to PFMA compliance such as tax clearance certificates for contractors.  Alexkor’s relationship with the community, between the period of the filing of the land  claim and 2012, when the new Board was appointed, deteriorated significantly due to job losses. It blamed on Alexkor for the decline
As a result, proper structures were put in place by the board after an evaluation.

A dashboard of 2013/14 results and achievements noted:
▪ Diamond revenue amounted to R277.0m (2013: R184.1m).
▪ The PSJV produced 46 681 carats (2013: 35 358 carats).
▪ Sea-days decreased to 20 (2013: 22 sea-days;  2003: 79 sea-days) for the year.
▪ A net profit of R23.7m (2013: R4.7m) was achieved for the year.
▪ Cash reserves were stable during the year.
▪ Alexkor head office in 2013 had two permanent employees, the CEO and personal  assistant
▪ All other duties were outsourced to contractors.
▪ Alexkor employees at the mine are managed by PSJV management.
▪ Total staff complement between Alexkor and the PSJV went from 88 employees in 2012 to 873 employees in 2013 to 1193 employees in 2014.

The Chief Executive Officer, Mr Percy Khoza, reported that the operation was on target.

Ms Zarina Kellerman, Alexkor Company Secretary and Legal Officer, said that the top management had been appointed. The net profit in the year under review was R23.7 million. The hotline for whistle-blowers is active. There are two litigation matters which were instituted in 2004 and 2006 respectively. The first matter is being considered for dismissal as it has been dormant for nine years. The second matter was laid down for hearing in March this year, but by agreement of both parties it was decided to postpone it to next year.

Ms Buhle Makwetla, Alexkor General Manager: Human Resources, provided a human resources report..

Ms Tsundzukani Mhlanga, Acting CFO, said that the company had received an unqualified report but the auditors raised issues with three matters. One of these is that management did not adequately review the draft financial statements for completeness and accuracy.

Mr Bagus said that the life of the mine was estimated to be another 10 to 15 years. Most of the contracts were awarded to members of the community. A process was started to develop other economic opportunities beyond the life of the mine.

To date this was the largest successful land claim against the state with significant external pressure to succeed. Failure will have a major impact on the community. In the 10 years since the settlement the community regressed rather than progressed. A successful turnaround strategy is needed. It is now looking at coal mining as an option. The Coal Security of Supply Task Team study, commissioned by DPE, predicted a crisis in coal supply to Eskom by 2018. This would create multiple opportunities for Alexkor to reduce Eskom’s coal supply risk.

Discussion
Ms D Rantho (ANC) asked, in connection with falling production, if there would be no production on the ground, sea or water in 20 years’ time.

Mr Bagus said it is a depleting resource and currently there are only five or six million carats left to be mined. It is anticipated that in about 15 years the resource will be depleted and the mine will cease to exist. Tourism and marine culture are other activities being considered for alternative income. China and France are the biggest markets for oysters. If properly exploited, it will provide jobs for around 1 000 people.

Ms Rantho asked which subjects are being focussed on and what criteria is being used in the awarding of bursaries.

Mr Khoza said students are chosen from the Northern Cape and their full course is covered by the bursary. The aim was not to contract yet another consultant but to invest in and grow young people who will have employment at the end of their studies.

Ms Rantho asked if the company’s contribution by means of employing Mathematics and Science teachers is full- time or part-time employment.

Mr Bagus said that it is on a full-time basis for both primary and high schools.

Ms Rantho asked how sustainable is the work given to black-owned contractors and how many people have been employed in this way.

As far as diesel procurement is concerned, Mr Bagus said that a company rather than an individual was contracted.

Mr N Singh (IFP) asked what the Department of Public Enterprises (DPE) had planned for the medium and long term with regards to the life of the mine. He was concerned that there was no record-keeping, for example, the minutes of meetings. He asked what had been done about this.

Mr E Marais (DA) said that the CEO received a full salary yet the register for attendance was not in place.

Mr Kgathatso Tlhakudi, DPE Deputy Director General: Manufacturing Enterprises, said that there are consequences for poor record-keeping. In this case, the previous CEO was relieved of her duties, and although she had challenged the action, she had not succeeded.

Mr Bagus said that this was a big concern and that it happened at the mine, not at Alexkor.

Mr Singh asked what happened to the company contracted to provide the hotline.

Mr Bagus said that there were problems with the company which provided the hotline. It was active but not working as effectively as it should. The average percentage for diamond mine theft is about 20%. There is a big security problem. The company was able to stop a few robbery attempts. A new service provider has recently come on board and it will be monitored to see what they can produce.

Mr Singh asked what impact the litigation would have on the balance sheet.

Ms Kellerman said the claims amounted to approximately R24 million excluding interest and costs.

Mr Marais asked what the profit would realise in five to 10 years’ time.

Mr Bagus said that contracts were awarded based on merit and performance instead of giving it to generations of families.

Mr Marais said that to qualify as a sea day, 50% of the fleet would have to go out, and he felt that there should be better management of marine fleet contracts to increase sea days.

Mr Marais asked for an update on the rehabilitation of the area near the coast.

Dr Z Luyenge (ANC) asked if the company was receiving any rewards from the municipality.

Mr Bagus said that the company did not receive any rewards.

Dr Luyenge asked what mechanisms there are to retain staff.

Mr Bagus said that it was difficult to attract suitable people because of the location of Alexander Bay. It is 830 kilometres from Cape Town and six kilometres from the Namibian border. It was a struggle to find a mining engineer.

Mr Bagus commented on the Acting CFO issue, saying that as a company it strives to improve its corporate governance. The company is satisfied that there are suitably qualified people in the management positions.

Dr Luyenge asked what the relationship is between the board and the management.

Mr R Tseli (ANC) asked what the status is with the overall job creation in relation to government targets.

Mr Bagus said that the number of jobs had been increased from 88 to 400, and there were other moves afoot to create another 1 000 jobs.

Mr Tseli said he would like to know the outcomes of the collaboration with Eskom.

Mr Bagus said that it is a crisis and progress has been slow. The leadership from the Minister and Department of Public Enterprises had been refreshing. The aim was to target the creation of jobs, and it is estimated that up to 10 000 jobs could be created.

Mr Tseli asked why the 2005 Nabera mining claim has not been resolved. What are the issues?

Ms Kellerman replied that the Nabera claim had been dormant for nine years since 2005. It was decided to wait to see if it would remain dormant, and if so, it could be dismissed should it be dormant for 12 years.

Mr Tseli asked if there was a mechanism for engagement with employees who are not unionised.

With regard to non-unionised employees, Mr Bagus said that those employees were beneficiaries of the land claim which means they are shareholders, and management had a very good relationship with them.

Ms Rantho asked if there were any plans to prospect elsewhere since the diamond mine is a depleting resource.

Mr Bagus said it was not a matter for Alexkor to be dealing with, rather it is a matter for the shareholders. In the light of the depletion, it is therefore important to develop businesses outside of the diamond mining industry.

Ms Rantho wanted to know whether Alexkor had a relationship with the Department of Basic Education with regard to the mathematics and science teachers employed at the schools. She asked whether the department was aware of the fact that those teachers receive their salaries from Alexkor.

Mr Bagus said it was unclear whether the department knew about it. The company identified the need and saw very good reason and therefore filled the gap.

Ms Rantho asked about the sea days, as far as injuries are concerned. She wanted to know whether there were any.

Mr Bagus replied that there were no fatalities. He said that mining in the sea was very different from mining on land, as conditions could change suddenly. The safety record is very good. The contractors are independent but the company has very strict standards. It will continue to strive for a good safety record.

The Chairperson said that in the next meeting the Committee would request shareholders to present on the future operations of Alexkor. She wanted to know how it would be incorporated into a state owned mining operation. She thanked everyone and appreciated the fruitful meeting.

Committee Report on Eskom Medupi Power Station oversight visit
The Committee Secretary presented the draft Committee Report.

The Committee Report was adopted and moved by Ms Rantho and seconded by Dr Luyenge.

Mr Marais put in a request that a one day oversight visit to Saldanha Bay should take place.

Mr Singh commented that on the visit to Durban there needs to be a presentation on the new port.

Minutes
The minutes of 29 October and 8 November 2014 were adopted>

The meeting adjourned.