Alexkor: another SOE circling the drain
19 January 2020
South Africa’s state-owned diamond mining enterprise Alexkor boasts an accumulated loss standing at R173.6 million (2018: R13.9 million). Alexkor is a joint venture between Alexkor and the Richtersveld community and the facts underpinning its losses are as follows:
The company’s employee costs of R68.6 million exceed the gross profit of R57 million despite having retrenched 150 employees in June 2019;
The environmental rehabilitation liability is R203.9 million;
R168 million in the rehabilitation trust earmarked for that purpose;
The total emoluments and remuneration for executive and non-executive directors is R9 471 330 per annum; and,
Despite carat sales having increased from 41 941 units to 70 061 in the year to end-March 2019, diamond sales only amounted to R209.9 million (2018: R208.7 million) - cost of sales was R152.9 million (2018: R126.8 million).
Alexkor currently does not even have enough money to cover the retrenchment packages of the 150 people who were let go at the diamond mine.
During the tenure of Minister Alec Erwin in 2006, Alexkor reported an operating loss of R38.2 million. During the same period, it produced 43 000 carats, the lowest production in its (then) recent history.
Currently, despite carat sales having increased from 41 941 units to 70 061 in the year to end-March 2019, diamond sales only amounted to R209.9 million. Cost of sales was R152.9 million. Seemingly, the more things change, the more they stay the same.
The independent auditor, Ngubane & Co, has issued a disclaimer of opinion and was unable to obtain sufficient appropriate audit evidence regarding Alexkor's concerning financial status. They have also noted that Alexkor sought approval from Minister of Public Enterprises, Pravin Gordhan, to file for business rescue and noted that there were instances of the company trading recklessly.
As it stands, the company’s head office is in Sandton. Its business is in Richtersveld on the West Coast. Why it requires an office, costing some R3 million a year, located 1 388 km from the mine is mindboggling – it’s internal and external auditors are also located in Sandton. And, as stated above R9.5m goes to directors annually in fees and emoluments.
Undeterred, the company is now looking for “new business ventures”, and will approach the Department of Public Enterprises and National Treasury to reclassify Alexkor “from a PFMA [Public Finance Management Act] perspective” to permit borrowing.
The Minister of Public Enterprises, to his credit, has placed a moratorium on all acquisitions and disposals, declined the request for authorisation to establish “Alexcoal” in Mpumalanga, and placed on hold the feasibility study on diamond beneficiation.
Is this part of the suite of reasons why he is being targeted by some in his own party?
This is yet another example of a failed State-Owned Enterprise burdening the fiscus with demands for expansion, without any prospect of return. The 2019 annual report is still not available on the Alexkor website and notes that the independent auditor was unable to obtain sufficient appropriate audit evidence regarding the going concern status.
The DA demands full disclosure of all relevant information and a halt to this profligacy. If ever there was a reason that mines should never be nationalized, Alexkor is it.
Issued by Ghaleb Cachalia, DA Shadow Minister of Public Enterprises, 19 January 2020
