References to statements by the state on community involvement in restructuring and privatisation

Press Clippings on Alexkor restructuring and privatisation relating to the shareholders compact

An Accelerated Agenda Towards the Restructuring of State Owned Enterprises Policy Framework Ministry of Public Enterprises Republic of South Africa August 2000

Petra Diamonds website (statement by Mike Long dated 7 June 2001)

Petra Diamonds (full statement by Mike Long dated 7 June 2001)

1. constituting documents

• "The objects of the corporation shall be to undertake …. mining, agriculture, commerce, industrial settlement, town development as well as any other form of economic and socio economic development… in the state alluvial diggings and ….. in the vicinity thereof …. including the area known as the Richtersveld [Reserve]…" (see section 3 of the Alexander Bay Development Corporation Act of 1989).
• The appointment of the Board of Directors of the corporation included criteria with regard to development experience and "conversance with and experience of the inhabitants of the area" (see section 5 of the Alexander Bay Development Corporation Act of 1989).
• The incorporation of the corporation as a company did not have any effect on the rights and obligations of the corporation (see section 3 of the Alexkor Limited Act of 1992).
• Alexkor Limited was incorporated on 2 November 1992 and it retained the objects of the corporation, ie. "Alluviale Delwerye, mynbou, landbou, aandui, nywerheidsvestiging, dorpsontwikkeling, ekonomiese en sosiale ontwikkeling". (see constituting documents of Alexkor Limited)

2. "The Minister may, where the concurrence of the Minister of Finance sell to any person or otherwise dispose of shares of which the state is the holder: provided that:

• Such selling or disposal of the shares may only take place after an offer for sale thereof, by means of prospectus, immediately before the listing of the company on the Johannesburg Stock Exchange;

• The shares be sold at a market related price;

• A share incentive scheme be established whereby shares can be allocated to employees of the company in accordance with the rules of the Johannesburg Stock Exchange;

• A requirement that no person shall hold directly or indirectly, more than 20% of the issued share capital of the company, be incorporated in the Memorandum and Articles of Association of the company; and

• A requirement that the total share holding of foreign shareholders shall not exceed 20% of the issued share capital of the company, be incorporated in the Memorandum and Articles of Association of the Company" (see section 4 of the Alexkor Limited Act of 1992).

3. The Alexkor Development Foundation was established by Alexkor to fulfill certain of its community development objects. The reasons for the establishment of the trust are apparent from the preamble to its trust deed which states "Aangesien Alexkor op 2 November 1992 as regsopvolger van die Alexander Baai Ontwikkelings Korporasie tot stand gekom het met hoofdoelstelling om betrokke te wees in Alluviale delwerye, mynbou, landbou, handle, nywerheidsvestiging, dorpsontwikkeling, en ekonomiese en sosiale ontwikkeling en aangesien die Alexander Baai Ontwikkelings Korporasie en sy regsopvolger Alexkor, sedert 1 Mei 1989 buitengewone en suksesvolle bydrae tot economies en sosiale projekte in Namakwaland gemaak het….. en aangesien Alexkor se aandeelhouer goedkering verleun het dat Alexkor in samewerking met die gemeenskappe van Namakwaland ‘n ontwikkelingstigting op die been mag bring, welke stigting jaarliks uit ‘n gedeelte van die nabelaste winste van Alexkor befonds mag word …."

In constituting the trust Alexkor bound itself in Clause 16 of the Trust Deed to pay the trust 30% of its after tax profits" (see Alexkor Foundation Trust Deed).

4. National framework agreement on the restructuring of state assets:

"4. objective of restructuring, RDP six pack programme includes restructuring of state assets and enterprises; developing an internal monitoring capacity for the programmes. 4.2 Meeting basic needs: restructuring should be geared to meet the basic needs of all South Africans with a focus on the poor and disadvantaged communities. 4.6 It is also essential that there are improvements in the corporate governance within the public sector to allow for effective asset management, investment policies, accountability and transparency.

5 Guiding principles for restructuring. 5.3 Organised labour in general and employees of the relevant public enterprises should participate in policy formulation processes…. The ultimate aim of restructuring is to improve the quality of life of all South Africans. Therefore, the underlying approach is that restructuring should not occur at the expense of the workers in state enterprises …. Where restructuring potentially has negative consequences for workers, a social plan must be negotiated with relevant unions at the enterprise level. 5.5 Historically disadvantaged groups : the capacity of the historically disadvantaged communities to participate and benefit fully in the restructuring programme should be ascertained and enhanced. 5.6 Participation transparency : all key stakeholders should be full participants in the policy formulation process, boards of Directors and other appropriate decision making structures at an agreed level. The policy formulation process should be transparent in all respects. 5.8 Industry Sector and enterprise focus: the restructuring mechanism and process will be guided by circumstances prevailing in each industry sector as well as those in each of the individual state enterprises. The process will involve the assessment of socio economic imperatives, a sectoral approach; and an enterprise by enterprise case study focus. 5.11 Ownership: ownership is not a determining factor for efficient operations".

National framework agreement dated 7 February 1996.

5. "Alexkor Limited – government announces management contract : factors such as a competent business plan, ability to inject exploration funding and willingness to return Alexkor to profitability were amongst the criteria" (see statement issued by Ministry for Public Enterprises 26 February 1999).

6. "R120m land facility for state owned Alexkor Mine secured : We have received confirmation from Nabera’s financiers that they have raised R120m loan facility in fulfillment of the condition precedent in the management agreement" Statement by the Department of Public Enterprises 7 October 1999.

7. "Parties reach agreement on Alexkor loan: agreement has been reached on the loan agreement following a meeting of the Department of Public Enterprises, Finance, Minerals and Energy Affairs, representatives of Alexkor Board and the Nabera Consortium…… It was agreed that the principal signatories should be the Alexkor Board and BOE".

8. Statement issued by Ministry of Public Enterprises 8 November 1999. " Provision would be made for community equity participation" (see presentation of Mr Nchaka Moloi, in his capacity as representative of the Department of Minerals and Energy to the Portfolio Committee on 9 September 1998.

9. " Conflict diamonds :….. The South African government will introduce a comprehensive approach to the fight that causes of conflict in Africa. Our stance is that we will intensify the focus on other drivers of conflict, ie. oil, political instability, corruption and poverty, etc without diminishing our particular focus on the diamond industry. One of the key outcomes we will be pursuing with greatest vigour at the Ministerial conference in Pretoria, will be to get industry to unequivocally commit to what they will do about socio economic development and rehabilitation of communities living in and around the mineral resource." Media briefing by the Minister of Minerals and energy 19 September 2000.

10. "The offer of equity in Alexkor Limited in exchange for funding for exploration by the successful bidder will only arise once the government had taken a decision to privatise Alexkor Limited….. Such a decision has not yet been taken, nor is it eminent …. The South African Government no longer requires Nabera Mining (Pty) Ltd to secure funding for its exploration programme as stipulated in the "Request for proposal for Management Cotract; consequently the government is also not obliged to offer equity in Alexkor in exchange for such funding. The parties are in the process of finalising an addendum to the Management Contract to reflect this position. According to the draft document Nabera Mining (Pty) Ltd will have no claim to a share in equity Alexkor". (see statement of Mr Denzel Matjila, Director: Legal and Enterprises Support Services, Department of Public Enterprises, 15 February 2000.

11. "I point out that the Alexkor Limited Act no. 116 of 1992 expressly provides that, in the event of disposal of shares, no more than 20% of the issued shared capital of Alexkor Limited may be held by any persons. Even if the Nabera Mining (Pty) Ltd were to be awarded a share in the equity of Alexkor Limited, this would consequently not prejudice the communities. I admit however that it has all along been the intention to consult with the community throughout the restructuring process, and such consultation indeed still takes place from time to time. ….. I have already stated that there are still ongoing discussions with community representatives in respect of the restructuring process of Alexkor". (see statement by Mr Nchaka Moloi in his capacity as acting chairperson of Alexkor Limited Board dated 11 February 2000).

12. "Whereas Alexkor is a loss making company…. and it is desirable that it should be …. turned around to profitability … Whereas it is stated government policy that following the two year period of this agreement, it will evaluate the performance of Alexkor or Alexkor’s mining operations and depending on such performance proceed with the further restructuring of Alexkor …..

Clause 22.2 The entitlement of this option shall be conditional upon ….. that the government has decided to privatize or restructure Alexkor or ABM as the case may be.

"Alexkor could be the making of Petra Diamonds.

The secret lies in the members of the consortium which gambled on the political card. Petra and the Pouroulis family company Salene have 29,5% interests and they were supported by Mmakau Mining with 20% UAH, 10% Gariep Khoi, 6% and DEC 5%. Mmakau is owned by Bridget Radebe and represents black female empowerment; UAH represent 17 unions; DEC is the Disability Employment Concerns Trust and Gariep Khoi involves the local community. It would be hard to put together a stronger political team and a commitment by Nabera to increase production instead of cutting, it was just what the politicians charged with privatizing the state owned diamond mining operations wanted to hear" (see minesite.com April 15 1999).

"Petra wins bid for Alexkor:

The ball is now firmly in Petra’s court and will help to take the current focus away from its Angolan exploration operation. (see minesite.com March 4 1999).

"Another new deadline for Nabera:

… The Mail and Guardian has established that Sigcau’s department did not clear the management contract with the finance department – despite the fact it included the governments guarantee to Nabera. This was the root of the problem – the mention of the guarantee to Nabera has made it reasonable to BOE to request the guarantee be extended to inself. If the guarantee is extended to BOE, Nabera will get to run Alexkor without investing any of its own money – without proving its financial credibility. Gounden said the Department in future would seek to avoid giving any contract to a company that did not have to prove its "financial capability" upfront. Nabera’s loan agreement now has to be finalized by November 7. (see Mail and Guardian October 21 1999).

"Twist in state diamond mind saga:

It emerged this week that Nabera the consortium that has the management contract, is poised to tie up with new diamond corporation, a South African company with links to De Beers…. Nabera … approached New Diamond this month to discuss a partnership after Nabera’s empowerment partner Mmakau Mining, pulled out of the Nabera Consortium. Mmakau is chaired by Bridget Radebe, wife of the Minister of Public Enterprises, Geoff Radebe. New Diamond will exercise considerable more control in Nabera than its empowerment predecessor, becoming the elite member of the consortium. …. New Diamond said it will ultimately get 51% of the Nabera Consortium, whose lead member has until now been Petra Mining, a London based company with several interests in Southern Africa. …. Nabera missed several deadlines, exposing Geoff Radebe to the charge that he was being lenient with his wife’s company. Earlier this month the government abandoned the idea of Nabera raising the money, after refusing to meet the demand by Nabera’s bank that the government underwrite the loan. Instead, the government, via Alexkor, raised the money itself from Nabera’s bank …. (see Mail and Guardian November 29 1999).

"Petra taken over by Black Power Gems Group

Petra Diamonds, the company denied a listing on the London Stock Exchange because of its involvement in the war torn Congo, is to be reborn as a South African black empowerment company. Petra shares has been suspended since it failed to pull off a reverse take over with Oryx, an Omani backed diamond explorer with interests in an area of the Congo occupied by Zimbabwian troups. The deal came at a time when the foreign office was tackling the issue of diamond mining being used to fund long running and bloody African civil wars. Petra’s advisor, Grant Thornton, despite having worked on the deal for months and signing off the offer documents suddenly threatened to resign at the last minute if the deal went ahead. Petra will now be taken over by the New Diamond Corporation, a privately owned black empowerment company that has been involved in joint ventures with De Beers. Headed by Tiego Moseneke, a prominent black lawyer, it is a member of the Nabera Consortium of which Petra is also a member, mining at Alexkor in South Africa. The deal will bring diamond properties on the Vaal and Orange Rivers in South Africa and Namibia. Under the agreement, NDC will be issued with the majority stake in Petra" (see Sunday Telegraph 24 December 2000).

"New Diamond in Control of Nabera:

New Diamond Corporation, the black controlled and managed mining company has bought a further 29,5% stake in Nabera Mining for an undisclosed amount, giving it management control of the organization. The New Diamond Corporation’s additional 29,5% stake was purchased from Salene Mining, controlled by the Pouroulis family, which will now exit Alexkor. The acquisition increases the holding of the New Diamond Corporation in Nabera from 20% to 49,5%. (see Business Day 9 February 2001).

"The rebirth of Petra Diamonds may only be weeks away.

…The deal is now history, but Petra shares have been suspended ever since, and this despite the fact that it is doing very well at Alexkor. At Alexkor, which is the second biggest mine in South Africa in terms of volume, and is in full position to acquire the mine when it is eventually privatized. When Petra took over the contract in May 1999, Alexkor was making a monthly loss of R6m a month. It is now making a profit of R2m plus a month and it would be a whole lot higher than this if political demands for contribution to roads, schools and hospitals in the area did not have to be met… but without doubt something is gestating in Angola where Lev Leviev is hammering more nails in the coffin of De Beers ambitions in their country. Petra still has access there including the huge Alto Quilo Kimberlite Project and it should be no surprise if the partnership is agreed for its development (see 23 March 2001 minesite.com).

"Bill to ease sale of Alexkor:

Nkuhlu said Nabera’s will soon be evaluated by an independent institution. Although Alexkor has been operating profitably on a day to day basis for a considerable time and should seem "wipe out ….?", profit is not the only aspect being looked at. There are also social and community factors involved, he said. The official view point is that there has not yet been any meaning for improvement in Alexkor situation, but this is not the reason for Nabera’s contract being terminated. Nabera is a potential shareholder in Alexkor and can therefore not be involved in the management of the company in future" (see News 24 2 May 2001).

Alexkor is being groomed for an equity partner:

In the next few weeks the cabinet would decide how many shares to sell, public enterprises’ chief director Andile Nkuhlu told Parliament’s public enterprises committee. This section will be repealed by the Amendment Bill which has been approved by the Cabinet. Should the shares be disposed of, 10% will be set aside for a community trust. (see Business Day, 3 May 2001).

"Leviev may be involved in Petra Consortium to bid for Alexkor:

Petra diamonds is expected to relist on AIM next week and announce that it has raised an amount of £2m. The company was suspended last year when poised to do a deal with Oryx Natural Resources which had a diamond concession in the Mbuji Mayi region of the Democratic Republic of Congo. …. In its revitalized form Alexkor should be able to make US$10m profit a year on revenue of US$45m, so there will be a que to buy the 50% stake expected to be offered for sale by the South African Government before the end of this year. The price could be anything between $30m to $80m which is a bit heavy for Petra, but its proposed consortium includes all the right ingredients in terms of black empowerment, employee representation and local bodies. Heavy money is also necessary and no names have been mentioned, but it seems likely that the ubiquitous Lev Leviev will be in there somewhere. The successful acquisition of Alexkor will establish his group in South Africa, right on the doorstep of De Beers" (see Minesite.com 1 June 2001)

Petra Diamonds Website: "workforce reduced from 1300 to 550, many redeployed as self employed off shore producers….. as a reward for undertaking this mandate, the Nabera Consortium gets 1/3 of total value added. This negotiations is yet to take place, but if the added value is seen to be R300m, then Nabera would get R100m. Petra’s stake is 29,5% in the consortium and Salene (Loucas Pouroulis’ company) another 29,5%, the remainder of the consortium being unions, a black empowerment Group and local people. The Salene and Petra stakes combine to nearly 20% of the total equity of Alexkor or 59% of the Nabera consortium. Petra is in pole position to get a majority stake and management control of Alexkor, but much negotiation with the government has yet to take place. …. Funded by the Minerva Group of Diamond Dealers….. Petra gains the confidence of the Minerva Group by demonstrating its competence to run an operation at Alexkor. Given this high profile demonstration of competence, Petra is likely to attract more offers of this nature, since the diamond dealers are now looking for a direct supply of rough uncut…. The new market being proposed by De Beers in which LVMH De Beers will be in direct competition for retail sales. For the time being thius blue sky potential will take second place to the development of operating mines and the Alexkor bid. If peace broke out in Angola this would be the primary target. (Full text of presentation made by Mike Long at Minesite forum, June 7 2001 – referred to on the Petra Diamonds Ltd website).

"Alexkor could be the making of Petra Diamonds.

The secret lies in the members of the consortium which gambled on the political card. Petra and the Pouroulis family company Salene have 29,5% interests and they were supported by Mmakau Mining with 20% UAH, 10% Gariep Khoi, 6% and DEC 5%. Mmakau is owned by Bridget Radebe and represents black female empowerment; UAH represent 17 unions; DEC is the Disability Employment Concerns Trust and Gariep Khoi involves the local community. It would be hard to put together a stronger political team and a commitment by Nabera to increase production instead of cutting, it was just what the politicians charged with privatizing the state owned diamond mining operations wanted to hear" (see minesite.com April 15 1999).

"Petra wins bid for Alexkor:

The ball is now firmly in Petra’s court and will help to take the current focus away from its Angolan exploration operation. (see minesite.com March 4 1999).

"Another new deadline for Nabera:

… The Mail and Guardian has established that Sigcau’s department did not clear the management contract with the finance department – despite the fact it included the governments guarantee to Nabera. This was the root of the problem – the mention of the guarantee to Nabera has made it reasonable to BOE to request the guarantee be extended to inself. If the guarantee is extended to BOE, Nabera will get to run Alexkor without investing any of its own money – without proving its financial credibility. Gounden said the Department in future would seek to avoid giving any contract to a company that did not have to prove its "financial capability" upfront. Nabera’s loan agreement now has to be finalized by November 7. (see Mail and Guardian October 21 1999).

"Twist in state diamond mind saga:

It emerged this week that Nabera the consortium that has the management contract, is poised to tie up with new diamond corporation, a South African company with links to De Beers…. Nabera … approached New Diamond this month to discuss a partnership after Nabera’s empowerment partner Mmakau Mining, pulled out of the Nabera Consortium. Mmakau is chaired by Bridget Radebe, wife of the Minister of Public Enterprises, Geoff Radebe. New Diamond will exercise considerable more control in Nabera than its empowerment predecessor, becoming the elite member of the consortium. …. New Diamond said it will ultimately get 51% of the Nabera Consortium, whose lead member has until now been Petra Mining, a London based company with several interests in Southern Africa. …. Nabera missed several deadlines, exposing Geoff Radebe to the charge that he was being lenient with his wife’s company. Earlier this month the government abandoned the idea of Nabera raising the money, after refusing to meet the demand by Nabera’s bank that the government underwrite the loan. Instead, the government, via Alexkor, raised the money itself from Nabera’s bank …. (see Mail and Guardian November 29 1999).

"Petra taken over by Black Power Gems Group

Petra Diamonds, the company denied a listing on the London Stock Exchange because of its involvement in the war torn Congo, is to be reborn as a South African black empowerment company. Petra shares has been suspended since it failed to pull off a reverse take over with Oryx, an Omani backed diamond explorer with interests in an area of the Congo occupied by Zimbabwian troups. The deal came at a time when the foreign office was tackling the issue of diamond mining being used to fund long running and bloody African civil wars. Petra’s advisor, Grant Thornton, despite having worked on the deal for months and signing off the offer documents suddenly threatened to resign at the last minute if the deal went ahead. Petra will now be taken over by the New Diamond Corporation, a privately owned black empowerment company that has been involved in joint ventures with De Beers. Headed by Tiego Moseneke, a prominent black lawyer, it is a member of the Nabera Consortium of which Petra is also a member, mining at Alexkor in South Africa. The deal will bring diamond properties on the Vaal and Orange Rivers in South Africa and Namibia. Under the agreement, NDC will be issued with the majority stake in Petra" (see Sunday Telegraph 24 December 2000).

"New Diamond in Control of Nabera:

New Diamond Corporation, the black controlled and managed mining company has bought a further 29,5% stake in Nabera Mining for an undisclosed amount, giving it management control of the organization. The New Diamond Corporation’s additional 29,5% stake was purchased from Salene Mining, controlled by the Pouroulis family, which will now exit Alexkor. The acquisition increases the holding of the New Diamond Corporation in Nabera from 20% to 49,5%. (see Business Day 9 February 2001).

"The rebirth of Petra Diamonds may only be weeks away.

…The deal is now history, but Petra shares have been suspended ever since, and this despite the fact that it is doing very well at Alexkor. At Alexkor, which is the second biggest mine in South Africa in terms of volume, and is in full position to acquire the mine when it is eventually privatized. When Petra took over the contract in May 1999, Alexkor was making a monthly loss of R6m a month. It is now making a profit of R2m plus a month and it would be a whole lot higher than this if political demands for contribution to roads, schools and hospitals in the area did not have to be met… but without doubt something is gestating in Angola where Lev Leviev is hammering more nails in the coffin of De Beers ambitions in their country. Petra still has access there including the huge Alto Quilo Kimberlite Project and it should be no surprise if the partnership is agreed for its development (see 23 March 2001 minesite.com).

"Bill to ease sale of Alexkor:

Nkuhlu said Nabera’s will soon be evaluated by an independent institution. Although Alexkor has been operating profitably on a day to day basis for a considerable time and should seem "wipe out ….?", profit is not the only aspect being looked at. There are also social and community factors involved, he said. The official view point is that there has not yet been any meaning for improvement in Alexkor situation, but this is not the reason for Nabera’s contract being terminated. Nabera is a potential shareholder in Alexkor and can therefore not be involved in the management of the company in future" (see News 24 2 May 2001).

Alexkor is being groomed for an equity partner:

In the next few weeks the cabinet would decide how many shares to sell, public enterprises’ chief director Andile Nkuhlu told Parliament’s public enterprises committee. This section will be repealed by the Amendment Bill which has been approved by the Cabinet. Should the shares be disposed of, 10% will be set aside for a community trust. (see Business Day, 3 May 2001).

"Leviev may be involved in Petra Consortium to bid for Alexkor:

Petra diamonds is expected to relist on AIM next week and announce that it has raised an amount of £2m. The company was suspended last year when poised to do a deal with Oryx Natural Resources which had a diamond concession in the Mbuji Mayi region of the Democratic Republic of Congo. …. In its revitalized form Alexkor should be able to make US$10m profit a year on revenue of US$45m, so there will be a que to buy the 50% stake expected to be offered for sale by the South African Government before the end of this year. The price could be anything between $30m to $80m which is a bit heavy for Petra, but its proposed consortium includes all the right ingredients in terms of black empowerment, employee representation and local bodies. Heavy money is also necessary and no names have been mentioned, but it seems likely that the ubiquitous Lev Leviev will be in there somewhere. The successful acquisition of Alexkor will establish his group in South Africa, right on the doorstep of De Beers" (see Minesite.com 1 June 2001)

Petra Diamonds Website: "workforce reduced from 1300 to 550, many redeployed as self employed off shore producers….. as a reward for undertaking this mandate, the Nabera Consortium gets 1/3 of total value added. This negotiations is yet to take place, but if the added value is seen to be R300m, then Nabera would get R100m. Petra’s stake is 29,5% in the consortium and Salene (Loucas Pouroulis’ company) another 29,5%, the remainder of the consortium being unions, a black empowerment Group and local people. The Salene and Petra stakes combine to nearly 20% of the total equity of Alexkor or 59% of the Nabera consortium. Petra is in pole position to get a majority stake and management control of Alexkor, but much negotiation with the government has yet to take place. …. Funded by the Minerva Group of Diamond Dealers….. Petra gains the confidence of the Minerva Group by demonstrating its competence to run an operation at Alexkor. Given this high profile demonstration of competence, Petra is likely to attract more offers of this nature, since the diamond dealers are now looking for a direct supply of rough uncut…. The new market being proposed by De Beers in which LVMH De Beers will be in direct competition for retail sales. For the time being thius blue sky potential will take second place to the development of operating mines and the Alexkor bid. If peace broke out in Angola this would be the primary target. (Full text of presentation made by Mike Long at Minesite forum, June 7 2001 – referred to on the Petra Diamonds Ltd website).

Managing stakeholder involvement

Increased stakeholder involvement will be arranged through the Labour Relations Act, through the social plan framework negotiated at the 1998 Job Summit, and through the National Framework Agreement to address high-level political engagement. Government is committed to the National Framework Agreement as a vehicle for discussions with labour on strategic issues relating to the restructuring of SOEs. The National Framework Agreement will emphasise the sectoral level, facilitating the alignment of specific enterprise restructuring initiatives with the broader sectoral policy. These proposals will benefit the relationship between Government and affected stakeholders, such as employees and consumers.

Beyond the immediate concerns of the relationship with labour, the Department recognises that it needs to improve its communication processes with other stakeholder groupings around restructuring. The Department is looking into developing an alternative form of communication such as a web site on restructuring. The Department has already committed itself to making the information generated from its audit of SOEs available through this means, and it will be exploring ways of providing up-to-date information on the status of various restructuring initiatives by such means. It may also publish a quarterly bulletin on restructuring initiatives.

It has also been proposed that restructuring proposals more fully account for the micro- and macroeconomic and social impacts than is currently the case. Future proposals should include the following information:

An explanation of why the restructuring is necessary in terms of an analysis of the enterprise performance related to local and international trends in the industry or sector.

An assessment of new capacity requirements for regulation, management, employment and, if relevant, community and/or other private partners, with appropriate plans for providing training or other empowerment mechanisms

An explanation of how the proposal may assist in meeting national objectives, including, as relevant, those related to economic performance, service delivery, employment, investment and income distribution, etc. (see Table 1 in Chapter 2)

An analysis of the net impact on affected communities, regions and the national economy in terms of employment, prices, income distribution and economic growth

An analysis of the direct and indirect implications for national and provincial budgets

Mapping the restructuring process

In order to gain a better idea of the restructuring process, the Department set out to map the main processes involved in restructuring. (The high-level process maps are included in the Appendix.) There are four main processes involved in restructuring:

Strategic analysis

Enterprise restructuring planning

Transacting

Post-restructuring management

Each of these processes has been further defined to cover the main activities of the Department of Public Enterprises, although links to the work of other departments, Cabinet, stakeholders and the SOEs are indicated on the maps.

Strategic analysis involves developing a list of restructuring priorities from an analysis of the SOE information collected in the SOE database maintained by the monitoring unit. This list is also defined through reference to an SOE operating environment report (comprising macroeconomic, sectoral and legislative and regulatory reviews). Once the set of restructuring priorities has been defined, the Department of Public Enterprises requests a restructuring plan from the SOE concerned. This plan is assessed against the SOE operating environment report and updated by the SOE where necessary. Stakeholder engagement takes place around the restructuring plan and once an acceptable plan has been developed, Cabinet approval is sought.

The Department of Public Enterprises receives the high-level restructuring plan after Cabinet approval and appoints advisers who prepare a detailed enterprise restructuring plan. This process will largely involve due diligence research and the identification of appropriate restructuring mechanisms. There will also be stakeholder involvement around the detailed restructuring plan, which is then approved by Cabinet.

After receiving Cabinet approval for the detailed restructuring plan, a detailed work plan is formulated. The Department of Public Enterprises then moves into the transaction management phase where it largely project manages the process. Cabinet approval is sought for the portfolio of potential bidders, the portfolio of potential buyers and, finally, the selected purchasers, after which the deal is concluded and proceeds collected.

Finally, the SOE portfolio is managed. This includes developing shareholder compacts and performance agreements, monitoring SOE performance in terms of the compacts and the PFMA, and evaluating the impact of restructuring. The Department of Public Enterprises takes responsibility for maintaining the database of SOE information and the share, guarantee and indemnity portfolios for Government. Stakeholder engagement is again sought in assessing SOE performance. The Department periodically reports on SOE performance to Cabinet and other relevant government structures.

Conclusion: improving the restructuring process

There is general agreement that the restructuring process that has developed since 1995 could be substantially improved. Suggestions include the following:

Arrangements to improve stakeholder involvement could take advantage of the LRA and Social Plan and the NFA to address high-level political engagement.

Government should seek new methods for communicating with other stakeholders, including quarterly bulletins and a web site.

The new two-stream structure that distinguishes between day-to-day decisions and those that require a strategic or policy input would expedite decision-making.

Periodic strategic workshops and the circulation of short sectoral strategy documents would improve the overall strategic understanding of restructuring priorities in Government and between Government and the SOEs.

The Department of Public Enterprises would lead the restructuring of SOEs and co-ordinate the activities of policy departments and Finance through a number of sector-specific programme officers.

The roles and responsibilities of Government and the boards and management of SOEs in the restructuring process should be identified and then clarified by the proposed shareholder compact and a revised protocol on corporate governance.

The new maps of the restructuring process (see the Appendix) should assist all stakeholders in understanding how restructuring will proceed.

Alexkor: A turnaround strategy is being effected with a strategic management partner.

1. Successful two-year mamagement contract at Alexor by Nabera consortium led by Petyra has gained credibility for Petra management team, demonstrating its ability to run extensive mining venture.
2. Indusrtry confidence in Petra is shown by offer of finance from Minerva groiup of diamond dealers to fund acquisition of Vaal River and Orange River alluvials.
3. These two operations together with the Syferontein kimberlite should generate earnings of 12p - 15p per share in the year ending June 2003 - two years out.
4. Excitement in the future of Petra will be generated in the event of a successful bid for the longer term management and ownership of Alexkor and the potential for exploration success.

The two year mandate to reform Alexkor prior to privatization has now been completed. The Nabera consortium led by Petra has reformed this government owned diamond producer. Two years ago it was making losses every month, at least 30% of the stones were being stolen and reserves were almost exhausted. Today it has R60m in the bank and is making between £¼ m and £½m each month. this has been achieved by -

1. Reduction of theft to a miore normal +/- 10% 3 or 4 big stones 20-50 carats are being recovered each month.
2. Renegotiate the selling contract. This together with big stones and offshore production of higher value stones ghas resulted in 20% piece increace per carat. Note also the strong diamond market in 1999 and 2000.
3. Workforce reduced from 1300 to 550, many redeployed as self-employed offshore producers.
4. Exploration work has now proved up reserves onshore for the next three years.
5. Offshore productionj now 50,000 carats per year - previously nil. Total production now 150,000 carats per year - average value $300.
6. Intermediate zone deeper water now being tested with one boat at a cost of $8,800 per day, payable providing minimum production of 1200 carats per month is achieved. Cartat value $400 so first 22 carats daily pay for the boat. Deepwter zone also has some preliminary work being done with encouraging results.

As a reward for undertaking this mandate the Nabera consortium get one third of total value added. This negotiation has yet to take place but if the added value is assumed to be R300m then Nabera would get R100m. Petra's stake is 29½% in the consortium and Salene (Loucas Pouroulis' company) another 29½% , the remainer of the consortium being unions, a black empowerment group and local people. The Selene and Petra stakes combine to nearly 20% of the total equity of Alexkor or 59% of the Nabera consortium. Petra is in pole position to get a majority stake and management control of Alexkor, but much negotiation with the government has yet to take place.

1. The Syferfontain Kimberlite. 100% owned - bought as part of a package from Goldfields - area 3.4 acres - estimated reserves 3.8m tons - work done suggests up to 20 carats per 100 tons - full feasibility to take six months, cost £600,000 - completion early next year. Earnings potential for Petra about 3p per share, assuming production of 5000 cts/month, value $80/ct.
2. The Vaal River and Orange River alluvials. Cost of these two £3½ -£4 million. Funded by the Minerva group of diamond dealers. Vaal River is already in production at 6,000 carats per year which will be increased to 12,000 carats at the end of the first year. Average carat value $600 - resource 10m tons gravel or nmore. Orange River will also run at 12,000 carats per year starting later this yearand building to full production by the end of next year. The resource is 20m tons of gravel - value per carat $600 -$800. these two operations are capable of generating earnings of 10p -12p per share and both have minimum life of 10 years.

The emphasis on gaining earnings should result in Petra earning between 12p and 15p for year-end June 2003, two years out. Remember to the extent that Petra is able to obtain an interest in Alexkor, that operation will generate a profit ten times the size of any of the three projects described above.

Most of the quality gem diamons of the world are produced in sub-Saharan Africa. Petra has leases in Namibia, Botswana, Angola and South Africa.

Namibia. Petra operates through 35% owned Namibia Minig House. No work has yet been carried out but the leases are said to be favorably placed at the Southern margin of the Congo - Angolan Craton.

Botswana. Petra has a joint venture with a local company and all four lease blocks are on the Craton.

South Africa. There are ten properties on which very little work has been completed.

Angola. Work was suspended owing to political instability. There are indications of a large number of Kimberlite pipes on the leases and diamonds are recovered from streams nearby, but until force majeur is lifted no work can take place.

For the time being thius blue sky potential will take second place to the development of operating mines and the Alexkor bid. If peace broke out in Angola this would be the primary target.

Petra Diamonds (full statement by Mike Long dated 7 June 2001)

1. Successful two-year mamagement contract at Alexor by Nabera consortium led by Petyra has gained credibility for Petra management team, demonstrating its ability to run extensive mining venture.
2. Indusrtry confidence in Petra is shown by offer of finance from Minerva groiup of diamond dealers to fund acquisition of Vaal River and Orange River alluvials.
3. These two operations together with the Syferontein kimberlite should generate earnings of 12p - 15p per share in the year ending June 2003 - two years out.
4. Excitement in the future of Petra will be generated in the event of a successful bid for the longer term management and ownership of Alexkor and the potential for exploration success.

The two year mandate to reform Alexkor prior to privatization has now been completed. The Nabera consortium led by Petra has reformed this government owned diamond producer. Two years ago it was making losses every month, at least 30% of the stones were being stolen and reserves were almost exhausted. Today it has R60m in the bank and is making between £¼ m and £½m each month. this has been achieved by -

1. Reduction of theft to a miore normal +/- 10% 3 or 4 big stones 20-50 carats are being recovered each month.
2. Renegotiate the selling contract. This together with big stones and offshore production of higher value stones ghas resulted in 20% piece increace per carat. Note also the strong diamond market in 1999 and 2000.
3. Workforce reduced from 1300 to 550, many redeployed as self-employed offshore producers.
4. Exploration work has now proved up reserves onshore for the next three years.
5. Offshore productionj now 50,000 carats per year - previously nil. Total production now 150,000 carats per year - average value $300.
6. Intermediate zone deeper water now being tested with one boat at a cost of $8,800 per day, payable providing minimum production of 1200 carats per month is achieved. Cartat value $400 so first 22 carats daily pay for the boat. Deepwter zone also has some preliminary work being done with encouraging results.

As a reward for undertaking this mandate the Nabera consortium get one third of total value added. This negotiation has yet to take place but if the added value is assumed to be R300m then Nabera would get R100m. Petra's stake is 29½% in the consortium and Salene (Loucas Pouroulis' company) another 29½% , the remainer of the consortium being unions, a black empowerment group and local people. The Selene and Petra stakes combine to nearly 20% of the total equity of Alexkor or 59% of the Nabera consortium. Petra is in pole position to get a majority stake and management control of Alexkor, but much negotiation with the government has yet to take place.

1. The Syferfontain Kimberlite. 100% owned - bought as part of a package from Goldfields - area 3.4 acres - estimated reserves 3.8m tons - work done suggests up to 20 carats per 100 tons - full feasibility to take six months, cost £600,000 - completion early next year. Earnings potential for Petra about 3p per share, assuming production of 5000 cts/month, value $80/ct.
2. The Vaal River and Orange River alluvials. Cost of these two £3½ -£4 million. Funded by the Minerva group of diamond dealers. Vaal River is already in productionat 6,000 carats per yearwhich will be increased to 12,000 carats at the end of the first year. Average carat value $600 - resource 10m tons gravel or nmore. Orange River will also run at 12,000 carats per year starting later this yearand building to full production by the end of next year. The resource is 20m tons of gravel - value per carat $600 -$800. these two operations are capable of generating earnings of 10p -12p per share and both have minimum life of 10 years.

The emphasis on gaining earnings should result in Petra earning between 12p and 15p for year-end June 2003, two years out. Remember to the extent that Petra is able to obtain an interest in Alexkor, that operation will generate a profit ten times the size of any of the three projects described above.

Most of the quality gem diamons of the world are produced in sub-Saharan Africa. Petra has leases in Namibia, Botswana, Angola and South Africa.

Namibia. Petra operates through 35% owned Namibia Minig House. No work has yet been carried out but the leases are said to be favorably placed at the Southern margin of the Congo - Angolan Craton.

Botswana. Petra has a joint venture with a local company and all four lease blocks are on the Craton.

South Africa. There are ten properties on which very little work has been completed.

Angola. Work was suspended owing to political instability. There are indications of a large number of Kimberlite pipes on the leases and diamonds are recovered from streams nearby, but until force majeur is lifted no work can take place.

For the time being thius blue sky potential will take second place to the development of operating mines and the Alexkor bid. If peace broke out in Angola this would be the primary target.