Section 4 of the Alexkor Limited Act No 116 of 1992 states that if the Minister of Public Enterprises desires to dispose of any shareholding in Alexkor s/he has to consult with the Minister of Finance, to meet the following conditions:
Disposal of shares can only be done through a listing process
The shares need to be sold at market related prices
A share incentive scheme needs to be established whereby shares can be allocated to the employees of the company in accordance with the rules of the Johannesburg Stock Exchange
No person shall hold more than 20% of the issued share capital of the company
According to Government, it has become necessary to amend Section 4 of the Act due to Alexkor's peculiar circumstances and problems with it running at a financial loss. Under these circumstances, it was necessary that the restrictions be removed and Government be given the flexibility to restructure the Alexkor mine as it deems necessary. According to Government, the company is not yet ready for listing on the stock exchange.
2. Main Provision
Section 4 of the principal Act is amended so as to allow the Minister of Public Enterprises, in concurrence with the Minister of Finance to sell or otherwise dispose of shares in the company to any person. If there is any conditions regarding shareholding that need to be observed, such conditions must be determined by the Minister subject to approval by Cabinet.
3. Impact of Amendment
The Bill gives the Department of Public Enterprises discretionary powers with regard to the sale, restructuring or disposal of Alexkor Limited. The administrative discretion needs to operate within an agreed framework and be accountable to political oversight. Flexibility is clearly required in the restructuring process. Flexibility must be differentiated from individual discretion. Administrative flexibility needs to operate in the public interest with built in checks and balances.
The "Richtersveld Vereniging vir Gemeenskaps Eiendom" and the Congress of South African Trade Unions (COSATU) are concerned about the negative impact that the Bill would have on the local community. The sale would have a direct effect on the livelihood of the community in the region as household incomes are derived from the Alexkor mining industry. The local community expressed its disappointment at the lack of consultation in the process and the coordination between the local community, Alexkor and the Department of Public Enterprises.
COSATU argued that the problems of profitability could be solved without privatization. COSATU proposed a turnaround strategy based on the profit potential.
The United Diamond Association of South Africa claimed that South Africa produces a large quantity of diamonds but polishes a small fraction of this amount. According to the diamond association, the privatization of Alexkor could have a negative impact on the diamond polishing industry.
4. Current Financial Viability of Alexkor
The focus of lowering operational costs and productivity improvements has yielded some encouraging results. The mine has lowered the net loss for the 2000 year to R37 million from R 70 million in the previous year. The focus of the company was to return to financial profitability. This aim was not realised in the 2000 financial year.
The company is optimistic that an improved financial situation will be achieved given the improved diamond prices arising from the renegotiation of the Central Selling Organisation marketing contracts, favorable exchange rate and the outsourcing of the Shallow Marine Mining operations.
The central challenge for Alexkor remains attracting high-risk exploration capital to ensure that ore reserves are replenished as mining progresses.
5. Future Mining Prospects
The Amendment Bill promotes the divestiture of state interests in the company and the introduction of a private sector player. The splitting of Alexkor into two focused business entities, one concentrating on mining and the other on agriculture, tourism and marine culture will focus the company on creating opportunities and attracting investment.
Alexkor operates on over 120 kilometers of coastline containing known diamondiferous alluvial and marine gravel. For the past 75 years Alexkor concentrated on land in the northern section of the mine. The area therefore presents investors with opportunities in the unexploited known diamondiferous alluvial gravels large areas of untouched shallow to deep marine diamondiferous deposits and the whole of the southern part of the mine. Alexkor has a reputation for producing high quality gemstones.
6. Mandate of Nabera Management Team
The previous Minister of Public Enterprises, Stella Sigcau, selected Nabera as the successful bidder for Alexkor Limited management contract.
Nabera is required to manage the mining operations for two years. The contract requires Nabera to assume full operational responsibility of the mining operations. Factors such as a competent business plan, ability to inject exploration funding and willingness to return Alexkor to profitability are amongst the criteria used by Government in awarding them the contract.
7. Sources
Alexkor Amendment Bill [B29-2001]. Minister of Public Enterprises. Government Printers