Media Address by Mr. Malusi Gigaba MP, Minister of Public Enterprises, on the occasion of the Annual General Meeting (AGM) of the Board of Directors of ALEXKOR in Tshwane

7 Sep 2012

The socio-economic impact of the mining sector in South Africa is in the spotlight because the growth of the South African economy over the years has been on the back of the extractive industry. South Africa has amongst the best multi-national mining companies that were developed through this sector. With all that success there's been minimal investment in the standard of living for the majority of South Africans and this will continue to haunt us until we see substantial community re-investments as envisaged, amongst others, in the Mining Charter. 

The question we should be asking ourselves today is how we ensure the application of social and economic justice principles in wealth distribution model of this sector. The current unrest in the platinum and gold mining industry could have far reaching implications particularly the diamond sector as well. At the core of the issues, is that the natural resources of the country are not optimally exploited and developed to the benefit of the South African people. 

This scrutiny is set to continue on mining operations and their impact to the communities in which they operate. Should we delay in this regard and the unrests are prolonged and become widespread, the first casualty could be the investment appetite in the mining sector and most thus jobs. However, Government is equal to the task and will ensure that the sector is stabilised and we re-gain the confidence and respect of foreign and domestic investors alike in the mining industry and in particular to the country as key investment destination. 

The challenge that the Government, the mining sector and the unions alike face is to ensure that we close the space for those who seek opportunistically and through populism to exploit industrial disputes in the mines for political ends. Despite these domestic challenges, the global economy has also placed tremendous pressure on the mining industry. However the fundamentals for the diamond industry remain strong with demand growing slightly and lack of new discoveries is limiting the supply. The competition for economically exploitable resources, green or brown fields, is likely to be intense as result.

I share the view that South Africa can and has the capacity to become an important player in the value chain for the diamonds mined in Southern Africa and to be a mining technology provider to the region. I wish therefore to encourage the Board to explore the role that ALEXKOR can play in beneficiation value chain in pursuance of national strategic objectives. As the Shareholder Representative, the recent challenges have necessitated that we look at the capacity of the Board to execute the new mandate taking cognisance of the latest developments in the mining industry in general and in particular the diamonds sector in which ALEXKOR is a key player. 

I have assessed the needs of the company and the capacity of the Board to be able to execute its fiduciary duties over the State-Owned Company. Our annual review of the Board has necessitated that we rotate the Board and include new skills' sets and expertise to give impetus to the new strategic direction that the Shareholder wants ALEXKOR to take. 

In this regard, I have appointed, Mr Rafique Bagus as Chairperson of the new Board who will be assisted by Ms Gillian Nonhlanhla Jiyane, Dr Yvonne Nono Mohutsioa-Mathabathe, Ms Zukiswa Ntlangula, and Mr Mohammed Bhabha. I have given the new Board the responsibility to fill the vacancies of CEO and CFO forthwith, by no later than the next 3 months. 

The Shareholder has retained Dr Roger Paul to provide for institutional memory and to allow for continuity. During the past financial year, ALEXKOR has managed, to a large extent, to fulfil the developmental objectives of Government by ploughing back to the community in which its operations are based. This is at the core of how the mining industry can contribute positively to the developmental agenda of the State, by ensuring that the benefits of the mining operations are accrued to the communities in which they operate. The Ritchersveld PSJV can provide the country with a best practise on how the mining industry can become good corporate citizens by investing in human settlement for long-term economic and social stability. 

The PSJV, which commenced on 7 April 2011, is now the custodian of all operational activities, diamond revenue and related expenses present in Alexander Bay. The PSJV is now operated and managed independently from ALEXKOR, with its own Board, management and accounting records. Communities have been integrated in the business model of the joint venture. Three of the four phases of the upgrade of Alexander Bay town have been completed to date. 

The final completion of the township upgrade is expected in December 2012. Turning to the financial results of ALEXKOR: The company had budgeted for a loss in excess of R20 million for the 2011/12 financial year, which included its corporate structure, town maintenance, rehabilitation and other related costs. As a result of effective cost cutting measures implemented, the company only incurred an actual loss of R16.4 million for the year. Material items that contributed to the loss included the following: 

• As a 51% shareholder in the PSJV, a loss as a result of the de - recognition of assets to the value of R7.8 million (R3.9 million for consolidation purposes).
• ALEXKOR forfeited 49% of its profits due to the establishment of the PSJV that resulted in a loss in profits of R7.1 million.
• Bad debt due to the Alexander Bay residents' non-payment of rent and electricity bills amounted to R2.2 million, and
• In fairness, until the completion of its obligations in terms of the Deed of Settlement, this company operates as a Municipality.

We anticipate that the ALEXKOR RMC JV will continue to incur losses for at least the next three years as we enter into a phase of exploration. No meaningful exploration has been conducted at the Alexander Bay operations since pre- 2003 due to the land claim instituted by the Richtersveld community, which also led to land mining operations being significantly curtailed whilst the matter was being resolved. However, ALEXKOR is in a position to meet its operating costs during the normal course of business. 

In the previous financial year, the state allocated R350 million to ALEXKOR to settle all outstanding liabilities of the company and thus providing the company an opportunity to clean up its balance sheet. I am confident that the new Board will be able to secure significant operating assets in the next 24 months. The company has been exploring the option of acquiring new mining assets outside of Alexander Bay. The Board is expected to ensure that proper due diligence and care is exercised in this process. I am convinced that funding from the open market for viable and sustainable diamond mining assets and operations will be available. 

Let me take this opportunity to thank the outgoing Board for their stewardship of the Company during a difficult transitional period and to wish the new Board and its chairperson well and that department stands ready to assist them in any way possible to execute your duties. 

I thank you.

Issued by the Department of Public Enterprises, September 7 2012

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