Mr L Pitsoe
Appointed Chief Executive Officer
1 December 2017
“I am pleased to report that Alexkor is now on the path to financial recovery and future sustainability”
This has been a challenging year, where executive management roles were filled late in the financial year. A promising path has been decided on and we are all hopeful that our challenges will be easier to navigate with the current team and the Board.
A significant decrease in carat production in operations has been a matter of concern at Board level. Furthermore, the cost-saving measures introduced in the previous financial year have enabled us to realise a better sense of fiscal responsibility and maturity.
Alexkor’s core purpose is to support the national development goals by optimising our natural resources for economic development. We recognise that no matter what we are able to achieve at Alexander Bay, we always need to be cognisant that our resources are finite and, as such, all our decisions need to create a lasting legacy for the Richtersveld community.
SAFETY IS OUR FIRST PRIORITY
To all employees at site much appreciation for upholding the safety culture of Alexkor. Creating an enabling and safe working environment for all our employees is a symbol of our commitment to sustainability. At the mine, safety systems and standards are constantly monitored, tested and upgraded to ensure that the mine is fully compliant with the Mine Health and Safety Act (MHSA).
We were saddened by the fatal incident that occurred in March 2018 and we extend our sincere condolences to the family of the deceased. We continue to engage and manage our stakeholder relationships with DMR and the unions. Over the past few years, we have implemented many initiatives to build a safer business environment and we will maintain our relentless efforts to focus on ensuring a safe workplace for all our employees.
OUR OPERATING ENVIRONMENT
One of the key trends in the diamond market has been miners offloading excess and lower-quality inventory accumulated post-demonetisation in India a year ago.
Leading diamond producer Alrosa has received approval from its board to move ahead with the acquisition of Russian polishing firm Kristall. If a deal is reached, Alrosa would become the top competitor to the world’s number one diamond producer, De Beers. The move, which brings together Russia’s largest diamond producer with the country’s biggest cutter and polisher, could ease some of the tension experienced by the industry following Moscow’s removal of a 6.5 percent export duty on rough diamonds in 2016.
OPERATIONAL AND FINANCIAL PERFORMANCE
Diamonds sales revenue was R386 million for the financial year ending 31 March 2018 representing a decrease from the previous year (R758 million) mainly due to the operational inactivity of the deep-sea mining contractor, which accounted for R357 million of last year’s revenue.
Our marine concessions remain the largest contributor of carat production and revenue. Attributable income to the PSJV was R162.6 million whilst R246.5 million was paid to contractors.
DELIVERING ON OUR STRATEGY
Ensuring the sustainability of Alexkor and our operations is of utmost importance to all our stakeholders. In November 2017, we refined and prioritised our strategic objectives to focus on the following priorities: increasing land carat production by sweating current assets; progressing and finalising the mid-waters mining project; monitoring and co-managing the deep-water mining; finalising the coal toll processing and exploring the diamond beneficiation opportunity.
This corporate strategy has been fully embraced by the business and there is enthusiasm for the implementation.
In order to increase land carat production, we embarked on a land exploration programme to improve the level of resource confidence from an inferred to an indicated and measured category. 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. 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, however, the number of suppliers reduced due to less sea days. Alexkor is endeavouring to procure and employ additional contractors to improve production.
The fire incident on the Ya Toivo in April 2017 led to no production from the deep-sea sections (C). 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 to start by the second quarter of the next financial year.
As part of our mineral diversification strategy, pursuit of the coal business case received approval from the Shareholder in May 2016. Our intention is to invest in an existing coal washing plant situated in the Witbank – Middelburg coal-mining hub. The Coal toll processing has long been an opportunity for Alexkor where it is envisaged to leverage a relationship with Eskom, to enter into a coal supply agreement. The due diligence and follow-up business case were duly completed in February 2017. However, DPE has subsequently placed a moratorium on acquisitions and disposals for SOCs.
Diamond beneficiation activities dropped from 87% (2011) to 32% (2017) in RSA. This area is viewed as an opportunity to make a positive impact in our communities. The sustainability of Alexkor is dependent on the execution of this project. This is also in line with Alexkor’s mandate to improve diamond beneficiation locally and increasing participation in the diamond industry, both locally and internationally. Alexkor is in a favourable position to enter and become a serious player in this space in conjunction with other state-owned entities.
During the year we continued with our efforts to improve business efficiencies and ensure good corporate governance. To this end, we further developed our risk register, updated current policies and took part in training sessions with our Board members, and at our operation. Our efforts to ensure good corporate governance is detailed and adhered to.
DEVELOPING POSITIVE STAKEHOLDER RELATIONSHIPS
The National Development Plan (NDP) promotes economic transformation as one of the key dimensions of social-economic development. More than 90% of management positions are filled by HDSA and our B-BBEE procurement exceeds 60%, which clearly demonstrates our commitment to transformation. Our direct employment number has increased from 106 in 2014 to over 400 for the year under review with the direct salary bill increasing from R18 million to R87 million per annum over the same period. All new appointments originate from the Richtersveld and more than 60% of mining contracts were awarded to historically disadvantaged individuals. Our Corporate Social Investment (CSI) spend exceeded R5.6 million for the financial year ended 31 March 2018. We remain motivated to continuously improve the lives of the Richtersveld communities through the provision of employment and our Corporate Social Investment initiatives, despite tough financial times.
Fostering sound and positive engagement with all our stakeholders is important to Alexkor. We are proud that our operations provide support to approximately 2 500 people directly and indirectly in the region. Through our CSI initiatives we play a vital role in the wellbeing of the various communities in which we operate. Please refer to the corporate social responsibility section on page 44 for more information.
THE YEAR AHEAD
Looking to the immediate future, I am confident that our mid-waters mining operations will yield positive results in the 2018/2019 financial year and that deep sea sections will be operational.
We also look forward to a positive working relationship with the Northern Cape Economic Development Department, the Kimberley International Diamond and Jewellery Academy (KIDJA) and the cutting and polishing companies of previously disadvantaged people, and to develop local talent for the future beneficiation programmes. We will also continue to sweat our terrestrial diamond assets.
The finalisation of the key elements of the DoS, such as the township handover will remain of utmost importance to all stakeholders.
In conclusion, I wish to extend my sincere thanks to the Minister and the team from the Department of Public Enterprises (DPE), the Premier of the Northern Cape and Provincial Government officials, The Department of Minerals and Resources (DMR) and The State Diamond Trader (SDT) for their continued support and guidance.
I also wish to thank the Alexkor Board who have supported my role on guiding the Company’s path to sustainability.
Alexkor’s continued success is a direct result of a strong operational team. I would like to extend my profound thanks to both the corporate and operations teams. It takes dedication from all of us to build a robust, profitable and sustainable business.
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