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Presentation to: Portfolio Committee on Public Enterprises 31 October 2007. Content. Opening Remarks and Introduction Background on Alexkor Latest Health and Safety Statistics Summary of 2007 Financial Year Results Overview of Corporate Plan and its Implications on Alexkor
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Presentation to: Portfolio Committee on Public Enterprises 31 October 2007
Content • Opening Remarks and Introduction • Background on Alexkor • Latest Health and Safety Statistics • Summary of 2007 Financial Year Results • Overview of Corporate Plan and its Implications on Alexkor • Initiatives Taken to Improve Performance and Challenges • Operational Conclusion and Options Considered • Positive Developments Related to Settlement of Land Claim • Social Contribution and Employment Statistics • Update on Litigation Matters
Opening Remarks and Introduction • Introduction • Report back on issues in previous briefing: • Alexkor required to present a clear and longer term strategic plan in 2007 briefing • Alexkor expected to show steady improvements in its performance since the last briefing • Additional information related to tonnages, costs and income per mining area to be provided with future briefings • Report on progress made with implementation of the company’s strategic objectives
Company Background • Alexkor is an incorporated company that owns mining rights on land and sea and extracts rough diamonds for sale on the open-market. • Various ancillary services/operations evolved over the years in support of the local economy, local community and surrounding regions. These include agricultural and maricultural activities, airport, town maintenance and provision of potable water. • In lieu of Alexkor’s long-term strategy, the above ancillary services/operations have been identified as non-core activities as part of an appropriate exit strategy.
Vision To transform Alexkor into a competitive and sustainable mining company that will contribute positively towards the needs of all stakeholders. Mission To maximise profits from the sustainable exploitation of the resource, thereby ensuring satisfactory returns to its shareholder and make a contribution towards the socio-economic upliftment of the region. This will be achieved in accordance with all statutory and regulatory requirements.
Health and Safety Statistics • Regretfully, a diver died in an underwater incident that occurred on 27 September 2007 • Achieved 1000 DME FFPS in May 2007, the second in three years; • Improvement in the Northern Cape open-cast mine competition from position 13 (last) to position 7 since previous FY; • Significant decrease in number of LTI and RI YTD
Summary of 2006/07 Financial Results • Diamond production decreased by 21.9% from 43,207 carats to 33,765 carats. • Total revenue down 13.6% to R133.7m from R154.8m in 2006. • Diamond production income decreased by 15.3% from R129.1m during 2005/06 to R109.3m during 2006/07. • The operating loss decreased to R27.3m (2006: R209.7m). • Impairment of assets by R235.7m in anticipation for lower compensation value for assets earmarked for transfer to the community • Major non-cash adjustments made: • Increase in Environmental rehabilitation liability by R19.9m (2006: R160.0m) • Decrease in Post-retirement medical liability of R30.6m (2006: increase R15.7m) • ABT operating loss increased to R6.5m (2006: R4.1m) • Non-core activities loss increased to R11.9m (2006: R6.9m)
Revenue Mix 2006/2007 R133.7 2005/2006 R154.8
Overview of 2008 Corporate Plan • 2008 Corporate Plan based on continuation of current activities (excluding Health Care Services); • Budgeted Operating Loss – R70.9m; • Budgeted Net Loss before Tax – R92.5m (Including provisions); • Forecasting a R40.0m unfunded shortfall in working capital for the next twelve months.
Breakdown of Closing Cash as @ 22/10/2007 Government Funds set aside for: • Township establishment: R 18.6m • Implementation of Deed of Settlement R 20.8m • Boegoeberg Rehabilitation R 2.4m Alexkor Funds in trust R 7.8m Working Capital R 5.1m Total R54.7m
Impact of Forecast Operational Losses on Alexkor • Would have been factually insolvent by end of August 2007 - unable to pay salaries and creditors going forward; • Reckless trading by Board of Directors; • Long-term provisions such as post-retirement medical aid (R73.7m) and rehabilitation (R213.4m) become payable immediately; HOWEVER • Alexkor submitted a request for shareholder support for R44.7m, comprising R34.7m to cover operating losses and R10m for working capital funding, in order to sustain the operations until 31 March 2008; • Shareholder facilitated financial support to sustain operations until 31 March 2008; • PSJV to develop long-term business plan in the interim
Strategic Objectives Defined in December 2005: 1.Establishing a mineral reserve base followed by a LOM plan and reliable business plan 2. Increasing production through full utilisation of existing plants, equipment and labour 3. Reducing units costs and cut-off grade to R26/ton and 1.5ct/100 cubics respectively 4. Assisting in capacity building & amalgamation of marine contractors • Developing a proper succession planning and fill in key management positions (i.e. Mine Manager, Metallurgical Mgr, Environmental Mgr) 6. Improving the level of diamond marketing to realise more value from the product • Establishing accurate and reliable IT and Financial Control Systems • Ring-fencing and transfer of Non-Core Assets – eliminating cross subsidisation 9. Introducing Remote Mining Techniques to reduce over-reliance on diving operations
Initiatives by Alexkor to Improve Primary Source of Income • Implemented three shift operations for own mining during 2006; • Initiated diamond sales in open market during April 2006; • Introduced remote mining vessel during July 2006 • Initiated restructuring of marine contractors to optimise performance during March 2006; • Identified an exploration plan for land and marine concessions; • Identified capital expenditure requirements to sustain current operations as well as expand production capacity. Not achievable due to lack of funding
Some Success from the Initiatives are: • Three shifts resulted in 55% increase in diamond production for own mining in 2007 compared to 2006 results, and commensurate increase of 152% in revenue • Reduction in unit cost from R 68 in 2006 to R 54 in 2007 • Open market prices: Diamond income only declined by 15%, despite a 23% and 42% decline in carat production and special stone carats respectively • Reduction in number of contractors from 73 in 2006 to 50 in 2007 • Transfer of the Hospital to NC Health Dept. resulted in savings of R1.5m YTD However, • No success from remote mining technique as the technology failed to meet expectations • Subsidisation of ABT, town and airport from mining income continued in 2007
Main Operational Challenges • Mining an inferred resource with no exploration impacting on grade; • No production at Muisvlak due to claim; • Mining operations using old equipment; • Continuous decline in sea-days • Continued subsidisation of non-core business activities; • Fixed cost structure with regards to salaries and town maintenance; • Recruitment and retention of qualified and skilled human resource
Equipment Life and Capital Expenditure 2 2 2 4 6 9 *Includes only running (active) equipment
Sea-DayForecast(Example) – 22 to 28 October 2007 A Sea-day is determined by:
Operational Conclusion • For now, initiatives under the control of Alexkor have been exhausted; • Upside potential that can be realised from current initiatives is limited; • Only intervention to sustain the operations is through recapitalisation of the business; • Recapitalisation linked to land claims case; • Alexkor forecasts to continue making losses without recapitalisation
Alternative Options Considered • Board acknowledged that the financial status of the company was not sustainable; • Developed a restructuring plan during March 2007 to deal with loss-making activities: • Discontinuing Alexander Bay Trading; • Placing land mining on care and maintenance; • Retrenchment programme involving approximately 85% of workforce @ a cost of R16m. • Budgeted operating loss during 2007/08 reduced from R 70.9m to R18.5m. • Submitted Section 54 application to obtain Shareholder approval on 13 March 2007; • Application not approved due to negative impact on land claim negotiations.
Positive Developments • The Court ratified the Deed of Settlement on 08 October 2007 • The Deed of Settlement signed by the Government, Alexkor and the Richtersveld Community (RVC) is being implemented; • A Pooling and Sharing Joint Venture (PSJV) is currently being established to develop a long-term business plan for the mining operations; • The transfer of the agricultural division (Alexander Bay Trading – ABT) to the RVC is in process; • The process for the recapitalisation of Alexkor is expected to start as soon as the Deed of Settlement has been made an Order of Court
Salient Features of Settlement Agreement • Transfer of land and buildings to appropriate community entity – with compensation • Township establishment and transfer of Alexander Bay town to municipality • Alexkor retains right to occupy residential property • Transfer of Land Mining Rights to RVC • Establishment of PSJV and subsequent recapitalisation of mining operations • Alexkor’s rehabilitation liability to be guaranteed by the State • ABT to be transferred to RVC
Social Contribution Education • ABET training provided for employees and community members up to level 4 in English, Mathematics and Numeracy • School buildings for Primary and Secondary School sponsored by Alexkor Municipal Services • Provision of Municipal Services to Alexander Bay • Provision of Portable water to Alexander Bay and Port Nolloth • Provision of subsidized accommodation to residents of Alexander Bay • Process for the establishment of Alexander Bay as municipality in progress HIV/AIDS Prevalence Survey conducted in April 2003 – Infection rate of 2.8% attributable to the introduction of a Health Care Plan which includes: • Voluntary testing and awareness programmes; • Continuous training of Peer Educators with more emphasis on psychological development of Peer Educators • Facilitating the introduction of Anti-Retroviral Drugs
Training & Development • Learnerships programme on technical trades in line with JIPSA in progress • Artisan-Assistant Development Programme in progress – to date 2 factotums and Artisan-Assistants qualified as artisans • Continuous Multi-Skilling of Earth Moving Operators continuing • Commercial Diver training in conjunction with UCT presented in Alexander Bay with intake from the community
Female Empowerment Initiatives • Allocated 6 bursaries in mining related disciplines – 3 female • Appointed 12 apprentices of which 2 are female – one female successfully qualified as artisan • Trained 5 females as heavy earthmoving and Infield Screening operators • 33% Female representation in Senior Management positions • The Witvoorkop women empowerment project, which commenced operating in October 2006, has resulted in a payout of R 624k to date to the groups • Female shareholding in shallow water contractors of 18%
Employee Statistics * Staff transferred to ABM with introduction of 3 Shifts ** Change excludes hospital employees The loss of critical skills is a major concern X
Latest Employment Demographics It is Evident that the Attraction and Retention of Skilled Personnel is Crucial X
Preferential Procurement Annual preferential procurement for the 2006/07 financial year amounted to 68% of total spending
