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Mr V Bansi

Appointed Acting Chief Executive Officer

1 March 2016

“Alexkor’s core purpose is to support the South African Government’s national developmental agenda by optimising our natural resources for economic development.”

Message from the Acting Chief Executive Officer

 

A year on since my appointment as Acting CEO  of Alexkor, I am pleased to report that Alexkor is now on the path to financial recovery and future sustainability. This has been a transformative year, where improvements, albeit small, have taken hold and I believe that this bodes well for the overall good of the Company and the communities we  serve.

 

A significant increase in carat production at Alexander Bay has been the driving force behind this recovery. Furthermore, the cost saving measures introduced in the last financial year have enabled us to realise a better sense of fiscal responsibility and maturity at Head Office. The office restructuring, office relocation and other austerity measures  have enabled the requisite discipline when it comes to Company spend.

 

Alexkor’s core purpose is to support the South African Government’s national developmental agenda by optimising our natural resources for economic development. While we are pleased with increased carat production we recognise that no matter what we are able to achieve at Alexander Bay, we always need to be cognisant of the fact that what we have is a finite resource and, as such, all our decisions need to be driven around creating a lasting legacy for the people of this oft forgotten corner of South Africa.

 

We were honoured this year to welcome to the mine the Select Committee from the National Council on Provinces where it was our privilege to show them firsthand the work being undertaken to enable sustainable employment and the efforts to improve the lives of the Richtersveld community. Overall the delegation expressed their positive  views  and commended Alexkor on the positive impact  the Company was making on the community in  which we operate. Going forward I would like to now entrench the “golden thread” in our common missive, Sharing in Prosperity.

 

SAFETY IS OUR FIRST PRIORITY

Creating an enabling and safe working environment for all our employees remains Alexkor’s highest priority. At the mine safety systems and standards are constantly monitored,  tested  and  upgraded  to ensure that the mine is fully compliant with the Department of Mineral Resource’s (DMR) Safety Policy. While we are thankful that there zero fatalities this year, we were disappointed by the two disabling incidents that occurred. Over  the  past few years we have taken many steps to build a safer business and we will maintain our relentless focus on ensuring a safe workplace for all.

 

OUR OPERATING ENVIRONMENT

In 2016 the diamond industry experienced a rebound following a mild decline in consumer demand the previous year. Globally there was a 20% growth in rough diamond sales in the first half of 2016 as a result of re-stocking by mid-stream players following their inventory sell-off in late 2016. However, strong   rough-diamond sales in 2016 may again lead to swollen midstream inventories if retail demand does not strengthen proportionately. Declining sales at major jewelry retailers in the first half of 2016 indicated a possible demand slowdown in the U.S. and China. The final growth trajectory for 2016 and the strength of midstream and rough-diamond sales   in the beginning of 2017 will be determined by the performance of the diamond jewelry retail segment during the year-end holiday season.

 

Saying this, our industry   is   changing   and   the emergence of a new generation  of  consumers “the millennials” represents a compelling opportunity for the diamond industry. In 2015 there were approximately 900 million millennials in China, India  and  the  U.S.  with a combined  gross  income  of approximately $8 trillion. These consumers have different shopping behaviours to previous generations; industry players will therefore need to refocus their marketing efforts to capture and sustain their demand over the longer term.

 

A PLEASING OPERATIONAL AND FINANCIAL PERFORMANCE

Carat   production   at   Alexander   Bay   increased significantly this year. Over 160 000 gemstone quality    diamonds    were    recovered compared to 45 492 carats produced the previous year.  Of these, the PSJV recovered 50 258 carats and the International Mining and Dredging South Africa (IMDSA) mined 112 047 carats. As a result, annual turnover rose to in excess of R758 million PSJV turnover compared to R387 million in the previous year.

 

DELIVERING ON OUR STRATEGY

Ensuring the sustainability of Alexkor and the PSJV is of utmost importance to all our stakeholders.    In November 2016, we refined and  prioritised our strategic objectives to focus on the following priorities; increasing land carat production by sweating current assets; progressed and finalised the mid-waters mining project; monitored and co-managed the deep-water mining;  finalised the coal beneficiation study and explored the diamond beneficiation opportunity. This corporate – operations strategy has been fully embraced by the business and is already showing positive results.

 

In order to increase land carat production, we embarked on an exploration programme to improve the level of resource confidence from an inferred to an indicated/measured category. For the next financial year, we have budgeted to complete an airborne geophysical survey which will complement and guide the land-based exploration initiatives. Further, we remain focused on the optimisation of our mining processes and have systems in place to ensure that our marine contractors are better managed and these efforts have already yielded a significant increase in carat production.

 

The mid-water concessions have the potential to be lucrative targets based on current shallow-water mining results where stones of exceptional quality and value continue to be mined. The mid-water tender evaluation and adjudication was completed and four companies were identified as having the technical and financial capacity to mine the mid-waters. Mining is expected to commence in the coming year.

 

Our deep-sea production efforts, undertaken  by our  strategic  partner,  the  IMDSA,  utilising  the Ya Toivo mining vessel, produced a mix of  results this year. Carat production was comprised by technical problems and difficult seafloor conditions. Further, smaller than planned stone sizes were recovered which negatively impacted revenue. The situation was further exacerbated by a fire on the Ya Toivo in April 2017. However, we are confident that the backlog in production can be made up as other marine operators are contracted to fill the gap left by Ya Toivo.

 

As part of our mineral diversification strategy, pursuit of the coal business case received approval from the Minister in May 2016. Our intention is to invest in an existing coal washing plant situated in the Witbank – Middelburg coal-mining hub.  Coal beneficiation has long been an opportunity for Alexkor where it is envisaged to leverage a State-Owned Company relationship, in this case Alexkor – Eskom, to enter into a coal supply agreement. The due diligence and follow up business case was duly completed in February 2017 and the results are encouraging and robust.

 

Diamond beneficiation is another key strategy that we believe lends credibility to the future sustainability of Alexkor. As a primary producer of gem quality diamonds, Alexkor is in a favourable position to enter and become a serious player in this space. This year we were part of a delegation that visited India to learn more about diamond beneficiation (India is responsible for beneficiating 95% of global diamond production). We are now exploring opportunities to bring these skills home.

 

During the year we continued with our efforts to improve business efficiencies and ensure good governance. To achieve this we further developed our risk register, updated current policies and took part in training sessions.  Our efforts to ensure good corporate governance are detailed within our corporate governance report on page 70.

 

DEVELOPING POSITIVE STAKEHOLDER RELATIONSHIPS

Fostering sound and positive engagement with all our stakeholders is important to Alexkor. We are proud to provide  employment  to  approximately  2 500 people directly and indirectly in the region. Through our Corporate Social Investment (CSI) initiatives we play a vital role in the wellbeing of  the people of the various communities in which we operate, and focus our efforts on the social upliftment and development of these communities. In 2017, Alexkor and the PSJV invested almost R4.3 million (2016: R3.8 million) in various CSI projects. Please refer to corporate social responsibility section on page 65 for more information.

 

THE YEAR AHEAD

Looking to the immediate future, I have confidence that our mid-waters mining presents a significant opportunity for Alexkor and we look forward to commencing during Q2/Q3 of 2018. We will also continue to sweat our terrestrial diamond assets and conclude the implementation of the coal beneficiation strategy. We also look forward to welcoming a delegation of diamond beneficiators from India as we continue to explore this exciting opportunity. The finalisation of the key elements of the DoS, such as the township handover and payout of the R45 million to the community beneficiaries remains of utmost importance.

 

APPRECIATION

In closing, I wish to extend my thanks to the Minister of Public Enterprises, the Honourable Ms Lynne Brown (MP) for her support and guidance. I also wish to thank the Alexkor Board who have supported my task as Acting Chief Executive to put Alexkor on the path of profitability.

 

Alexkor’s continued success is a direct result of a strong operational team and our positive reciprocal relationship with them. To this end, I extend my profound thanks to Mervyn Carstens, Chief Executive Officer of the PSJV and his dedicated team. Lastly, and certainly not least, I extend my thanks to my hard-working team at the corporate office for their dedication and service; their unwavering support helps us to continue our mission to build a robust, profitable and sustainable business.

 

Mr Vimal Bansi

Acting Chief Executive Officer

31 August 2017

 

 

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