Alexkor – the wannabe diamond miner

Alexkor, the state-owned diamond miner, is struggling under the weight of managerial incompetence, non-profitable concessions, the plight of the Richtersveld Community, an accumulated loss of R78.7 million, and is carrying out its operations through middle men who may very well be scraping off the glitter.

To compound any speculation as to whether Alexkor has been captured, the rumours of the alleged link to the Guptas and a suitcase of diamonds being smuggled out the country will not go away. The chairperson of Alexkor, Hantse Matseke (aka Hantsi Bhetilda Mayeza), is said to be a long-time ally of Ace Magashule. She is also the chairperson of the Free State Development Corporation). Her husband, Peter “Kop” Matseke, is a business associate of Gupta lieutenant Salim Essa.

Diamonds are easily hidden, transportable, and can gain value in the eyes of a smitten buyer looking for a good deal. They are hence prized by arms dealers, money launderers and crooks. Alexkor is an ideal entity to be manipulated by those who are canny and wily.

The external auditors, SizweNtsalubaGobodo, qualified the 2017 financial statements as follows:

  • Procurement processes as required by Public Finance Management Act were not followed.
  • Contracts were not awarded to bidders in line with the Preferential Procurement Policy Framework Act.
  • The “accounting authority”, in other words the directors, did not investigate the irregular, fruitless and wasteful expenditure incurred in prior years. In 2017 this amounted to R17.9 million.
  • The 2017 financial statements were not properly prepared, and the external auditors had to correct these and obtain supporting documents. In my view, this taints the auditors, and they cannot claim to be an independent third party.
  • The accounting authority (the directors) “did not exercise effective oversight responsibility over certain policies and procedures relating to supply chain management, performance management, revenue, compliance, and related internal controls”.
  • Management did not implement proper record keeping, nor did they prepare regular performance reports.

Alexkor is facing many other problems which should be investigated:

  • In 2008 the Richtersveld Community (RVC) successfully laid claim to the land under the Restitution of Land Rights Act. The land mining rights will be transferred to the community, while Alexkor is to retain its marine mining rights. The Pooling and Sharing joint venture (PSJV) was only signed on April 7 2011. Forty-nine percent is owned by the Richtersveld Community and 51% by Alexkor. The problems in regard to the implementation of the Alexkor Deed of Settlement Agreement have not been resolved, and the Select Committee on Communications and Public Enterprises are considering placing the Richtersveld land restitution claim under administration. (Richtersveld Community & Alexkor Deed of Settlement implementation: progress report by Public Enterprises February 21 2018).
  • In looking for new business ventures, Alexkor stated in its “Material issues and risk” report that it will acquire an equity stake in a coal beneficiation plant (approved by Lynne Browne), as well as build relationships with state-owned entities like Eskom, Transnet and mining companies.
  • Alexkor does not appear to be in possession of a geological model to inform decision-making, nor does it appear to have an idea of the life of the current diamond reserves.
  • The Richtersveld Community is dependent on mining. As the destroyer of the environment, it is incumbent on Alexkor to think beyond mining as a source of income for the community, for example, the establishment of fish farming. The rehabilitation of the environment includes removing asbestos contaminated material from Alexander Bay and properly storing hazardous waste.
  • In mining diamonds from the seabed, which is 80% of the business, Alexkor enters into contracts with marine miners and divers. The deep sea mining contract with International Mining and Dredging South Africa (IMDSA) provides for an  85:15 diamond haul split in favour of IMDSA. Giving up 85% of the diamond take is extraordinary.
  • Alexkor appointed Scarlet Sky Investments as its diamond cutters, polishers, and marketers. Beach and land diamonds achieved an average of $548.27 (2016: $602.02) per carat. However, IMDSA diamonds only achieved an average price of $248.03.
  • Alexkor’s action plan for addressing insufficient operational cash is to seek approval for releasing rehabilitation funds.
  • Alexkor incurred a R2.9 million penalty in cancelling the lease of its premises in Rosebank. This reportable irregularity was condoned by Lynne Browne. Its new head office in Woodmead costs nearly R3 million a year. Why does Alexkor require an office which is 1 388 kilometres from the mine?
  • There is a R129.2 million shortfall in the rehabilitation fund, and the board of directors placed this money in short-term investments. The board has requested a state guarantee to fund the shortfall. This is in contravention of the Minerals and Petroleum Resources Development Act 2002, and this reportable irregularity was reported to the Independent Regulatory Board for Auditors.
  • Alexkor’s assessed tax loss of R202 million and unutilised capital expenditure of R105.5 million puts it at risk of corporate predators, though this is somewhat negated by the environmental rehabilitation liability of R260 million.
  • Putting in place a proper systems of internal control, procurement, tender processes and financial management are paramount.

The 2018 financial statements are to be submitted for auditing on the May 31. There is much to be audited.