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MINTEK

Annual Report 2004/5 Presentation to Select Committee on Economic & Foreign Affairs Dr Paul Jourdan, CEO Iemrahn Hassan, Fin. Consultant 6 September 2006. MINTEK. Introduction Technical Highlights 2004/5 Financial summary 2005/6 Audit Report for 2004/05 Corrective Action Progress to date

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MINTEK

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  1. Annual Report 2004/5Presentation toSelect Committee on Economic & Foreign AffairsDr Paul Jourdan, CEOIemrahn Hassan, Fin. Consultant6 September 2006 MINTEK

  2. Introduction Technical Highlights 2004/5 Financial summary 2005/6 Audit Report for 2004/05 Corrective Action Progress to date Strategic Intervention Business Plan 2006/7 Non-financial Audits & Assessments Priorities 2006/7 Conclusion: Challenges Contents

  3. Established in 1934 to realise sterilised mineral resources Permanent staff level of 524 (300 professionals) plus ~200 outsourced Highly regarded in mineral processing and beneficiation expertise worldwide Development of sustainable mineral beneficiation R&D Introduction

  4. Our Vision To be global leader in mineral and metallurgical R&D Our Mission To serve South Africa by promoting technology, industrial growth & development and human development Introduction: Mission, Vision & Compact • Our Shareholder Compact • to add value to South Africa’s mineral resources, through innovation & development of new beneficiation technologies & products; • to expand the country’s mineral technology industries; • to develop mineral-based industries in SADC and throughout Africa; • to support growth of SMMEs in the minerals sector; • to transform Mintek’s business practices and staff profile.

  5. Introduction: Mintek Structure

  6. Introduction: Financial trends Total income and income per employee 1993 - 2005 (2005 Rand adjusted using PPI, SARB) 300 600 250 500 200 400 Income per employee R ‘000 Income, R Million 150 300 Total Income (1.5X) 100 200 Income/Employee (2.4X) 50 100 0 0 2001 1993 1995 1997 1999 2003 2005

  7. Technical Highlights 2004/5 • Gold: • Project AuTEK - gold-based catalysts reach product development stage, biomedical programme broadened (anti-cancer, -malaria & -HIV). • Cyanide monitoring on gold plants in Africa. THRIP project on environmental aspects of cyanide usage • Growing recognition lobal centre of excellence on cyanide speciation, control and management • Platinum Group Metals (PGMs): • Two industry-supported collaborative R&D projects on PGM super-alloys • THRIP project to investigate PGM smelting (Conroast) • Innovation Fund projects - platinum super-alloy coatings and jewellery applications • Testwork to support feasibility studies for several new Platinum mining projects. • Recovery of PGMs from revert tailings

  8. Technical Highlights 2004/5 • Ferrous • Smelting tests for Shevchenko ferronickel project (Kazakhstan) • Industrial-scale trials of low-nickel stainless steel (Innovation Fund project) • Negotiations to introduce ‘smart’ rockbolt in mining industry • Non-Ferrous • Co-ordinator of bioleaching work package for the EU’s FP6 BioMinE Project (supported by DST) • Heap bioleach technology to be piloted in Iran • Two major BioPAD-funded projects • Thermal magnesium process development completed. Commercial project to be assessed • R&D support for copper-cobalt projects in Zambia and the DRC • Industrial Minerals • Renewed interest in uranium - metallurgical investigations for two projects in SA and one in Namibia • Evaluation of manganese ore samples from Gabon (CVRD) • Sample characterisation on kimberlite ore

  9. Technical Highlights 2004/5 • Mineral Policy & Sustainable Development • MESU - mapping out the options for strategic development of SADC and continental mineral resources (AMP) • Policy support for the DME around beneficiation initiatives and small-scale mining • Spatial Development Initiatives (with RSDIP and Nepad) • Mineral sector strategy for Northern Cape Province • Resource-Based Tech Strategy: completed overview of capital goods, technologies, products and services supporting the mineral-based industries • Artisanal & Small-Scale Mining (ASSM) • SSM Division provides R&D, skills and access to finance • Management of Technical Reference Group on behalf of the MQA • More than 700 small-scale miners trained - programmes supported by the MQA and Department of Labour • Community-based training in glass bead-making, ceramics and alluvial diamond mining

  10. Total revenue up by 13% to R287 million Permanent staff level up to 524 (300 professionals) Fulfilling mandate: Mineral R&D to add value, Development of technology industries, SMMEs, SADC/Nepad, Transformation Surplus at R5 million Qualified audit opinion (assets & revenue recognition) Highlights 2005/6

  11. Financial Summary 2005/06

  12. Income Commercial revenue increased R17,2m Other operating income increased by R12,5m Bursary income R3,9m Bad debts recovered R4,1m Revaluation of investment property R3,9m Decline in income from Associates R5,2m as a result of disposal and reduced income Commentary on 2005/6 Results

  13. Expenditure Overall increase of R34,9 m Staff costs R12,2m, due to increase in personnel and higher bursars costs Operating costs and overheads Repairs & maintenance R3,9 m General overheads R8,1 m Offset by savings in various expense elements Post-retirement medical liabilities increased by R9,3m Fees for services R6,6 m increase of outside support (consulting services) Commentary on 2005/6 Results

  14. 2004/05 Audit disclaimer! Auditor General’s Report presented January 2006 (delay due to SAP crash); Audit General identified following: Non compliance to SA Generally Accepted Accounting Practice (GAAP); Inadequate disclosure in financial statements as required by GAAP Weakness in Internal Controls Inadequate business processes Qualified 2004/5 Audit Report!

  15. Underlying issues in Annual Financial Statements Mintek did not fully implement compliance to GAAP Basis of preparation unchanged from previous years (>10 years of unqualified audits) Inappropriate deployment of accounting resources following SAP crash (Feb 2005) SAP crash severely impacted on preparation of accounting records Decentralisation into SBU’s, although operationally effective, not adequately provisioned with administrative support, Turnover in financial personnel and lack of trained personnel Qualified Audit Report 2004/5

  16. Objective - no adverse audit opinions Position administration to address shortcomings Improve control environment Deployment of appropriate personnel Finance Manager, Internal Auditor, Purchasing Officer, SBU Controller, Financial Controller Training and development of personnel Receive clean audit report by 2007 Corrective Action 2004/05

  17. Interventions Short term Obtained support from independent service providers (D&T & 3P) Addressed issues raised in audit findings Augmented system shortcomings with manual interventions (old SAP GAAP incompliant) Improved communication with audit team Repositioned control and administration processes However, due to late AG Report (due to SAP crash) in January 2006, only had 3 months! Corrective Action post 2004/05 audit (Jan 2006)

  18. Interventions Long term Replace existing ERP system and outsource implementation and support (BPS, Swicon); Restructure Finance Division with effective SBU controls (new SBU controller & upgrading of SBU Admin Officers) Recruitment of appropriate personnel Provide training for existing personnel Address control environment and SOPs Crystalise and reduce post-retirement liability Corrective Action

  19. Annual Report 2005/06 Qualification on compliance of fixed assets to GAAP (impairment & revaluation) Unearned revenue not fully compliant with requirements of accounting standards Qualification of 2004/05 All Audit Report items addressed and results restated in 2005/6 Qualifications reduced from 17 to 2, despite only 3 months for rectification Corrective action implemented across organisation Progress till 2005/6 Audit

  20. Progress to Date (Sept 2006) Interventions • New ERP system implemented with effect from 1 April 2006 • Significantly improved the control environment • Initiated disciplined reporting systems • Implemented revised accounting policies and operating processes (SOPs) • Substantially completed reorganisation • Appointment of new Financial, Purchasing and SBU managers • Acquiring additional personnel (Financial Accountant) • Deployed new Internal Auditor (outsourced previously)

  21. Business Plan 2006/07 * Assumes continued commodity boom, 4% inflation & liquidation of post-ret. liability

  22. Science Vote Allocation 2006/07

  23. Non-Financial Assessments International Peer Review (SETI) 2004 (5-yearly) • Mintek brand held in high regard nationally and internationally • High degree of technical competency, high quality R&D • World-class plant facilities supported by a strong research capability. Need to ensure the development of new world-class researchers • Mintek’s Small Scale Mining Division extremely innovative, particularly in training of unskilled people • Mintek is implementing internationally-accepted standard practices with respect to quality control, environment, safety and health • Science Vote allocation process is rigorous, inclusive, and transparent

  24. Non-Financial Assessments DST Nation-wide SETI Review 2006 • Recommended replication of Mintek’s client interaction system across Science Councils (CDFR). • Noted Mintek’s HRD achievements, speed and levels of transformation, particularly gender balance achievements • “Mintek was reported to be an excellent point of contact with university-based Centres of Excellence and shows that it is an affordable way to achieve cutting edge research” • Mintek has a major programme in place to support and expand Small Scale Mining initiatives • Mintek was noted to be well aligned with strategies of DME and DST. • Actively promotes S&T to school learners and participates in numerous multi-stakeholder bodies

  25. Non-Financial Audits Quality, Environment & Safety • Integrated Mintek quality, environmental and safety systems. Independently audited annually (SGS) • ISO9001:2000 (quality) 2002 - 2006 • ISO14001:2004 (environment) 2003 - 2006 • OHSAS 18001:1999 (safety) 2004 - 2006 • Lost-time Injury Frequency Rate (LTIFR) of 1.7 • NNR accredited site (IAEA compliant) • CDFR (Client Dissatisfaction Frequency Rate) <10%

  26. Priorities 2006/7 • Optimise balance between commercial and R&D activities. • Re-emphasise quality research as a core competency. • Grow Mintek’s contribution to wealth creation, poverty alleviation, and human capacity building. • Retain the Mintek Brand nationally & internationally with respect to research and products. • Strengthen control and compliance systems & capacity

  27. Retention & acquisition of experienced scientists & engineers, particularly Black professionals (impact of Asian Boom) Securing grant funding for medium to long term R&D to underpin the sector’s future competitiveness (DME, DST, other) Strengthening of compliance and control systems within Mintek’s new decentralised SBU structure Grow mineral sector contribution to ASGISA and sustainable growth & development across Africa Conclusion: Challenges

  28. MINTEK Thank you Ke a leboga Enkosi Ngiyabonga Dankie

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