Presentation of the Annual Financial Statement for the year ended 31 March 2012

Presentation of the Annual Presentation of the Annual

Financial Statement for the year Financial Statement for the year ended 31 March 2012 ended 31 March 2012

Overview

• Welcoming• Annual reports and disclosures• Financial statements

Chairman’s report

• Key Objectives– Secondment of Alexkor’s employees to the Alexkor RMC JV– Separation of costs and reporting between Alexkor and the

Alexkor RMC PSJV– Commence exploration processes for the land mining and deep

water concessions

• Financial Performance– Total combined revenue for Alexkor and the Alexkor RMC JV in

line with previous year– Alexkor RMC JV expected to return losses for the next 3 years

whilst in a phase of exploration. Exploration will restore profitability in due course

Chairman’s report (continued)

• Going Concern– Alexkor submitted a MTEF application, an amount of R350 million

has been approved by the National Treasury

– Accordingly Alexkor has sufficient cash resources to March 2013

– Significant funding required thereafter

• Reporting and Corporate Governance– Continuously implementing measures to improve compliance with

PFMA ,Treasury Regulations as well as King 3

– Monitoring performance on an ongoing basis

• Future Outlook– Pursuing and developing new ventures

CEO’s report – the year under review

• PSJV became custodian of all operational activities, diamond revenue and related expenses present in Alexander Bay.

• Alexkor remained with its corporate structure and obligation towards the environmental liability, the post-retirement medical aid liability and the obligations set out in the Deed of Settlement

• First year in which Alexkor only incorporated 51% of profits of its historical operations in the Alexander Bay area (RMC has 49% interest), therefore Alexkor’s financial statements reflect material losses.

CEO’s report – the year under review (continued)

• Alexkor made sound progress with the upgrade of the Alexander Bay town, more than R57 million in expenses were incurred during the year

• Three of four phases completed and final completion of the township upgrade expected in December 2012.

• Achieved 2000 fatality-free production shifts (FFPS) in July 2011 (Focused and committed to health and safety of the employees and

contractors within its operations.)

CEO’s report - Land Rehabilitation

• 129 kilometers of netting was installed on the south side of Boegoeberg during the year under review, as compared to 75 kilometers in the previous year.

• Confident that our ever-improving efforts are having a positive impact in addressing the historical liability.

CEO’s report - Implementation of the PSJV

• The PSJV is now operating and being managed independently from Alexkor.

• The split of the accounting records was done successfully and therefore many of challenges encountered during entire implementation process have been satisfactorily resolved in line with the requirements of the Deed of Settlement.

CEO’s report – Financial losses

• Annual financial statements consisted of Alexkor’s own operations and 51% of the PSJV operations.

• All operational activities were transferred to the PSJV, therefore Alexkor had no other income generating streams but remained with its overhead costs which worsened Alexkor’s profit position

• Budgeted loss R20 million – actual loss R16.4 million. Material items contributing to loss:

• Pooling of mining assets into the PSJV – loss of R7.8 million (R3.9 million for consolidation purposes)

• Forfeiting 49% of the profit to PSJV - resultant loss R7.9 million

• Bad debts from Alexander Bay residents amounting to R2.2 million

CEO’S report - New business development• Only viable option to ensure profitability and sustainability into the

future is to acquire other means of generating income.

• Alexkor’s 51% investment in the PSJV will be relatively passive in the next three to five years due to the exploration activities planned on the land mining concessions.

• Alexkor has in the past year been assessing new opportunities with its efforts predominantly focused on the Northern Cape and North West provinces.

• Objectives are to expand diamond operations

CEO’S report - New business development

• Benefits from new business opportunities:– creation of more job opportunities – social upliftment in the surrounding regions – training of employees and improving their skills – increased revenues and profits – distribution of dividends to the shareholder

• Alexkor’s in final stages of negotiations with some of identified opportunities and is expected to submit its section 54 application to the Minister in near future.

• These opportunities are greenfield operations and promise to provide attractive returns in future.

CEO’s report – Financial position and 2013 prospectus

• Net asset value R20.4million (2011: R16.9 million)

• R350 million was allocated through Alexkor’s MTEF application for

the settlement of statutory obligations in terms of VAT, CGT and a rental lease as a result of Deed of Settlement requirements

• The balance is to settle historical rehabilitation and post-retirement medical aid (PRMA) liabilities

• Allocation will significantly improve Alexkor’s financial position and clean out all legacy issues i.t.o liabilities inherited from historical operations to ensure solvency going forward

CEO’s report – Financial position and 2013 prospectus (continued)

• With all the liabilities settled and outstanding obligations addressed in terms of the DoS, Alexkor can focus on new opportunities.

• At the same time it can positively contribute to the region and the shareholder’s objectives in terms of improving the economy and increasing employment in surrounding communities.

CEO’s report - Township upgrade• Upgrade consists of four phases, an amount of R115 million was

received from government as part of this initiative in accordance with municipal standards.

• Phase 1 (civil engineering services) was completed on 15 December 2011.

• Phase 2 (electrical engineering services) was subsequently completed in July 2012 (95 %complete on 31 March 2012).

• Phase 3 (mechanical and electrical pumping equipment) was completed in February 2012

• Phase 4 (waste water treatment works) experienced problems with the waste license which was not signed by Environmental Affairs in Pretoria. Completion is expected during December 2012.

Review of PSJV’s operations

• Net profit R14.6 million (Budget - R1.7 million)

• Average exchange rate R7.29/$1 – budget R7.20/$1

• Revenue R168.7 million – budget R172.8 million, reason for the lower than budgeted revenue figures related to lower $/carat diamond prices along with the decline in sea-days during the year

• Achieved an operating profit of R9.5million in its first year of operations

Overview on operations (Alexkor and PSJV)

Carats produced since the year 2000

Overview on operations (Alexkor and PSJV)

Sea days since the year 2003

Human resources and social development• The selection committee prioritises the selection of historically

disadvantaged South African (HDSA) candidates, ensuring compliance with the company targets in terms of the requirements of the empowerment charter for the South African mining industry.

• The headcount as at 31 March 2012 was 104 permanent employees, 60 fixed-term contractor employees and a total of 611 outsourced contractors involved in diamond production.

• Salaries paid to employees for the period under review amounted to R20.6 million. Payments to outsourced contractors amounted to R104.4 million

Human resources and social development (continued)

• As at 31 March 2012 union representations stood at:

• The relationship with these unions during the period under review was generally positive.

NUM 62,5%

UASA 23,1%

Non-affiliates 14,4%


• In April 2011 the company started wage negotiations with NUM and UASA. An agreement was reached on the following:

– An annual total cost to company (TCTC) wage increase of 7.5%.

– A bonus of 4.5% based on the gross operating profit of R11.3m achieved during the previous financial year shared equally among all employees of the company.

– The unions pledged, in terms of the agreement, a commitment to increase production by 10% year-on-year


• The table below depicts further training and development initiatives

undertaken by the company:

Academic learnerships

COURSE RACE GENDER INSTITUTION

BSc Geology C F (bursar) University of Western Cape

BSc Environmental Management C M (community member) University of Western Cape

Candidate Engineer C M (employee) In preparation for GCC (DMR)

BCom Honors C F (employee) Unisa

Human Resources Management C F (employee) FET College Namaqualand

Office Management C F (employee) FET College Namaqualand

Human resources and social development (continued)• Community portable training:

• Community portable training(continued)

COURSE RACE GENDER INSTITUTION

Fitting & Turning (Apprentice) C M (employee) Kathu FET/Technical Training Centre

Electrician (Apprentice) C M (employee) Kathu FET/Technical Training Centre

Auto Electrician (Section 28) C M (employee) Northlink FET Cape Town

Electrician (Section 28) C M (employee) FET College NamaqualandElectrician (Section 28) C M (community member) FET College Namaqualand

RACE GENDER

COURSE AM CM AF CF TOTAL INSTITUTION

6M management training0 7 0 6 13

Alexkor Training Centre

HIV/Aids Awareness Peer Educators Training 15 110 7 23 155


Alcohol & Drug Abuse Awareness Training 1 9 0 20 30


Training Centre Traffic Training (Licensing) 0 106 0 49 155



• The following table presents the company’s EE profile as at 31 March 2012:

NUBER OF INCUMBENTS

MALE FEMALE % OF DESIGNATED

GROUPOCCUPATIONAL LEVEL AM CM WM AF IF CF WF

Senior management 2 1 1 0 100%

Professionally skilled 4 2 1 1 75%

Skilled 40 19 15 5 1 63%

Semi - skilled 52 2 43 5 1 1 90%

Unskilled 6 1 5 100%

TOTAL 104 4 70 21 1 0 6 2 80%


• An amount of R 3.4 million was expended on social interventions

• Social and labour plans have been submitted in which certain objectives were set and specific commitments made:

– Resurfacing and grading of dirt roads (could not commence due to the lack of funding.)

– Alcohol, drug and HIV/Aids support services (Consultations are currently taking place)

– Establishment of emergency services in partnership with the Richtersveld Municipality (will be attended to during the 2013 financial year due to lack of financial resources)

– Exploiting natural resources in the area by establishing a tannery and leather business: (Due to the closure of Beauvallon ostrich and Dunvlei dairy farms this project had to be aborted.)

Human resources and social development (continued

– Develop fuel stations where such outlets are considerable distances away: (This project is not feasible)

– Promote agriculture and agro-processing through support for community co-operatives: (Lack of funding prohibited Alexkor RMC JV from commencing this project)

– The upgrade of Alexander Bay Town

– Hostel Revamp (As at 31 March 2012 more than R700 000 has been expended on the purchase of material to upgrade the single quarters hostel facility into family units)

– Consultants will be engaged to assist with the preparation of a revised social and labour plan for submission to the Department of Mineral Resources (DMR)

Corporate Governance

• The board comprised of five non-executive directors and the acting chief executive officer.

• The board has established the following sub-committees:

- Audit and Risk Committee (Chairman: Ms S Ngoma)

- Tender Committee (Chairman: Mr C Towell

- Remuneration Committee (Chairman: Dr V Makin)

- Rehabilitation Committee (Chairman: Dr R Paul)

- PSJV Board (Acting Chairman: R Muzariri)

Corporate Governance (continued)

• The remuneration paid to directors and senior management was as follows:

Name CapacityFee for services as

members Basic SalaryTotal 2011/2012 Total 2010/2011 Executive management *

K McClain Chief Executive Officer ^ - 1 117 976 1 117 976 2 439 983 M Mpanza Mine Engineer - - - 862 000 Non-executive R Muzariri Chairman 907 490 - 907 490 665 580 Dr R Paul Non-executive director 369 522 - 369 522 285 548 Dr V Makin Non-executive director 234 894 - 234 894 209 491 S Ngoma Non-executive director 240 007 - 240 007 227 970 C Towell Non-executive director 309 442 - 309 442 258 548 Total 2 061 355 1 117 976 3 179 331 4 949 119

Reporting on predetermined Objectives

• The following objectives, targets and achievements were reported on in the 2012 financial year:

Objectives Target Actual

Identify new mining projects November 2011 Achieved

Apply for funding for new mining projects

November 2011 Achieved

Explore alternative funding solutions for new mining projects

Before 31 March 2011 Achieved

Reporting on predetermined Objectives (continued)


Generate cash flow from operating activities (PSJV)

R2 million inflow of cash R4 million inflow of cash

Generate cash flow from operating activities (Alexkor)

R32.7 million outflow of cash R1.2 million outflow of cash

Revenue generated from diamond sales (PSJV)

R172.8 million R168.7 million

Net profit before taxation (PSJV) R1.7 million R14.6 million

Net loss before taxation (Alexkor) R22.4 million R16.4 million

Manage capital expenditure within the approved budget (PSJV)


Manage capital expenditure within the approved budget (Alexkor)




Expansion of mining operations

Maintain current levels of production of diamonds on marine and land concessions

Total carats 35 625 carats 36 547 carats

Land carats 9 400 carats 8 680 carats

Witvoorkop 2 025 carats 0 carats

Marine carats 19 400 carats 20 143 carats

Beach carats 4 800 carats 7 724 carats

Optimising the exploitation of mining areas by increasing the contractors

Shallow water mining 50 contractors 50 contractors

Land mining 6 contractors 4 contractors

Beach mining 3 contractors 4 contractors

Middle water mining 2 contractor 2 contractor

Deep water exploration 1 contractor 1 contractor



Safety – to minimise accidents

•LTIFR (Injury rate)

•Reportable accidents

•Minor incidents

•Fatal accidents

>1

0

0.70

0

0.32

1

0.45

0

Compliance with the environmental rehabilitation program (EMP)


Contributions towards the Rehab Trust


Reporting on predetermined Objectives


Contribute to socio-economic upliftment


Provide HIV/AIDS support services R200 000 R25 764

Establish emergency support, tannery and leather project, fuel outlet

R1 050 000 Nothing due to proposed changes in the Social and Labour Plan

Manage and maintain functions of the non-core activities (Town maintenance, Fuel station and the Guesthouses)

R1 240 000 loss R1 360 000 loss

Transfer of the above non-core operations to the CPA

31 March 2012 Not achieved

Registration of the land mining right Before June 2012 Achieved

Statement from the Audit and Risk Committee

• The Committee performed its functions in accordance with section 94 (7) of the Companies Act No 71 of 2008 and the provisions of the Public Finance Management Act.

• The Committee has adopted appropriate formal terms of reference as its Charter and has regulated its affairs in compliance with this Charter.

• Comprised of three independent non-executive directors who had the required knowledge and experience as set out in section 94(5) of the Companies Act and regulation 42 of the Companies Regulation, 2011.

Statement from the Audit and Risk Committee (continued)

• In the opinion of the Committee, the internal controls of the company are considered appropriate to meet the business objectives of the company, ensure the company’s assets are safeguarded and ensure that transactions undertaken are in the company’s accounting records.

• The committee has evaluated the annual financial statements for the year ended 31 March 2012 and considers that they comply, in all material respects with the requirements of the PFMA as amended, the Companies Act, and International Financial Reporting Standards

Statement from the Audit and Risk Committee (continued)

• The Committee acknowledges that Alexkor has made significant progress in addressing the control weaknesses identified previously and looks forward to the future control environment, which will provide a sound basis for Alexkor to meet its obligations to its stakeholders.

• The Audit and Risk Committee therefore recommended the adoption of the annual financial statements by the Board of Directors.

Auditor’s report

• PricewaterhouseCoopers (PwC) presented an unqualified audit opinion for the 2011 financial year.

• An emphasis of matter was reported with regards to Alexkor’s going concern principle as there is significant doubt on whether the company can continue in the longer term without the commencement of sustainable mining activities.

• Non-compliance issues were also raised with regards to the PFMA and performance information

Directors’ report

• Background– Farming operations transferred in 2008– PSJV established 7 April 2011

• Board of Directors– 5 non-executive– CEO (contract expired 22 September 2012). CFO has since been acting in this

capacity– Board awaiting appointment of 3 additional directors before proceeding to

appoint permanent CEO

Directors’ report (continued)

• Strategic Objectives– Establishment and commencement of Alexkor RMC JV– Commence with exploration in the onshore and offshore mining and prospecting

areas

• New Business Opportunities– Exploration expected to commence in 2013– Actively pursuing opportunities in Northern Cape and North West provinces– Beneficiation study

• Litigation Statement– Ruslyn– Nabera– Compensation Claim


• Environmental Rehabilitation Liability– R258.0 million

• Cash in trust R48.7 million• Unfunded portion R209.9 million

– Unfunded portion guaranteed by DPE

• Going Concern– Cash on hand R69.1m as at 31 March 2012– Post Retirement Medical Aid Liability Balance R46.95 million– Expected outflow in 2012 R47 million

• PFMA, Predetermined Objectives– Covered elsewhere


• Company secretary Ms Mxunyelwa

• Non current assets– Major changes due to pooling of assets into the Alexkor RMC JV

• Board evaluation progress– Conducted independent assessment of its effectiveness– Implemented various remedial interventions and intends conducting another

follow up assessment– Board continues to identify areas requiring ongoing education for itself as part

of board evaluation process and board development

Annual Financial Statements

• The PSJV commenced on 7 April 2011

• Alexkor has a 51% stake in the operations of the PSJV

• Alexkor remained with the following costs:– Head office (Corporate costs)– Township management (housing and town maintenance)– Rehabilitation (historical disturbances up to 6 April 2011)

• Alexkor reported on its 51% share in the PSJV by proportionately consolidating the relevant items line by line

• Alexkor therefore kept most of its costs and was only able to account for 51% of the profits in the PSJV, which inevitably resulted in a loss as it had no alternative income streams to cover the costs involved in Alexkor’s operations outside the PSJV.

Annual Financial Statements

Statement of financial position on 31 March 2012:•Cash held in the Rehab Trust R48.1m (2011: R36.9m)•Non-current assets held for sale (R162.4m) will be transferred when the Township Upgrade is complete•NET ASSET VALUE is R20.4m (2011: R16.8m)•Rehabilitation liability is R258.0m (2011: R256.6m)•PRMAL is R46.9m (2011: R58.4m)

Statement of financial performance

• Revenue down R113.4m (2011: R195.9m) – Loss of 49% of the operating profit.

• If revenue was not divided between entities it would have been R196.1m (2011: R195.9m)

• Gross loss R9.8m (2011: R24.9 profit)

• Loss for the year R16.4m (2011: R84.2 profit), therefore movement of R100.6m. Main reasons for the movement were:

– Movement in gross profit was R34.7m (better diamond price and production last year, Alexkor forfeited 49% of the profits this year due to the formation of the PSJV

– Other income in the previous year included a prepaid income item of R41.3m

– Movement in rehab and PRMAL accumulated to R21.1m

Statement of changes in equity

• R20 million was recognised in equity (other comprehensive income)

• This amount was transferred from the initial cost contribution (R200m) to assist the PSJV in its working capital requirements.

• Total comprehensive income for the year R3.5m (2011: R84.2m)

Statement of cash flows

Cash position on 31 March 2012:•Operational cash R69.1m•Cash in Legal Trust R10.5m•Government funds R261.5m•Cash in Rehab Trust R48.1m•TOTAL OF R389.3m

Notes to the financial statementsPSJV’s results for March 2012:

Notes to the financial statements

Trade and other receivables6. Trade and other receivables

515 215 3 599 010 Loan to the Richtersveld Agricultural Holding Company * 2 100 443 2 100 443

(2 100 443) (2 100 443) Total other receivables * 3 490 774 3 683 432 Less: Provision for impairment of receivables (1 741 792) ( 936 445) Total prepayments † 222 872 145 232

2 487 070 6 491 229

Trade receivables *

Less: Provision for impairment of receivables

Movement in the provision for impairment of trade receivables

Balance at the beginning of the year 3 036 888 3 360 453 Impairment losses (reversed)/ recognised 805 347 ( 323 565) Amounts written off as uncollectable - - Balance at the end of the year 3 842 236 3 036 888

* Financial assets † Non-financial assets


Government Funded Obligations


Township upgrade at 31 March 2012•The project consists of 4 phases:

– Phase 1: The water network was completed in December 2011

– Phase 2: The electrical reticulation project was 95% completed on March, and completed in June 2012

– Phase 3: The mechanical and electrical pumping phase was completed in February 2012

– Phase 4: The waste water treatment works experienced problems with the waste license. Phase is expected to be completed in October 2012

It is estimated that the Township will be transferred to the Northern Cape Government in November 2012.


Litigation matters disclosed:•Nabera Mining•Ruslyn Mining and Plant Hire•CCMA case of previous CEO

No financial provisions were made for these matters during the financial year.


Directors’ remuneration


Events after reporting period•A contractor was appointed to commence with the initial exploration phase in the PSJV. Alexkor received R200m to contribute to the exploration and part of these funds will be utilised towards the project during the year

•An amount of R16.6m was allocated to the Employer Surplus Account with regards to the Alexkor Pension Fund.

•An amount of R350 million was allocated to Alexkor via its MTEF allocation. No funds have been received to date

Thank You

Presentation of the Annual Financial Statement for the year ended 31 March 2012

Documents

Transcript of Presentation of the Annual Financial Statement for the year ended 31 March 2012