Alexkor, another broken SOE

Forensic report exposes maladministration on a gargantuan scale.
Rough diamonds are valued on the 4Cs: crystalline shape, carat, colour and clarity. But the Alexkor diamond 'valuer' only weighed the stone and estimated a price per carat. Image: Shutterstock

May 27 saw Alexkor administrator Lloyd McPatie brief parliament’s portfolio committee on the outcome of the forensic investigation carried out by Gobodo Forensic and Investigative Accounting.

Alexkor owns the marine diamond mining rights from Alexander Bay to Port Nolloth in the Richtersveld. Alexkor and the Richtersveld Mining Company (RMC), a community mining company that owns the land diamond mining rights, established a Pooling and Sharing Joint Venture (PSJV) in April 2011. This was effected after a successful restitution claim by the Richtersveld community.

The PSJV enters into contracts for marine mining contracts on behalf of Alexkor, and land mining contracts on behalf of RMC. The agreement stipulates that Alexkor will have a 51% interest in the PSJV and RMC 49%.

The forensic report, dated October 14, 2019, covers the 2014 to 2019 years, and looks into Alexkor’s relationship with Alexkor PSJV and its marine mining contractors.

The appointment of a diamond marketing and sales company

The tender for a diamond marketing and sales company, published in 2014, resulted in seven bids.

The company that was ultimately awarded the tender, Scarlett Sky Investments 60 (SSI), was a shelf company. A shelf company has no staff, no memorandum of incorporation, no assets, no finances, obviously no track record, and will be represented by a straw director, that is, a person who has no involvement in the company.

When the stand-in director resigned on November 20, 2014, Daniel Nathan and Kubenthren Moodley were appointed directors of SSI the same day.

When briefing the tender committee on November 14, 2014, Nathan, the representative of SSI, was not yet a registered director.

The evaluation of the seven bid proposals was outsourced to Gamiro Advisory Services (former Steinhoff chair Heather Sonn is a major shareholder). SSI was one of the three shortlisted candidates.

The forensic report states that the evaluation process was irregular and constitutes an unfair, unequitable and uncompetitive practice, and that “it is apparent that the bid evaluation process was manipulated to favour SSI”.

This begs the question – how does a shelf company without a diamond licence get shortlisted to market, value, sell and beneficiate diamonds?

In 2016 there was a second procurement process in the appointment of a diamond marketing and sales agent, and SSI was awarded the tender for a further five years.

A review of after-sales reports from SSI shows the buyers of the rough diamonds as follows:

  • State Diamond Trader – 10% purchased
  • Daniel Nathan Trading cc – 5% purchased
  • Scarlett Sky Investments – 85% sold on auction

SSI merely markets and sells the rough diamonds through auction sales for the PSJV. “Thus, the names of the buyers and the prices should be disclosed.”

However, Nathan alleges that the names are classified and refused to divulge them to Gobodo. The PSJV then divulged the names of the buyers but not the prices and quantities sold.

Gobodo obtained the Zimnisky Global Rough Diamond Price Index and the Bloomberg Price Index, and compared these with the SSI prices. There were serious discrepancies in the prices (the details are itemised in the report). 

Procurement process for the appointment of marine contractors

The contracts of the four shallow water marine miners, which authorised beach mining and shallow water marine mining, issued in or about 2014, expired in 2018. Hence, a new procurement process commenced in 2017.

The relationship between the four and the PSJV had become fraught for various reasons, including the alleged undervaluation of diamonds mined.

The PSJV, instead of dealing with the issue, cut the four out of the procurement process.

“The decision to exclude the contractors was mainly a board decision based on the strained relations and disaccord that existed between the PSJV board/executive management and the four contractors.”

Gavin Craythorne, one of the four, says he was “victimised for conducting a survey under the Equitable Access Campaign, a body aimed [at addressing] the concerns of the marine mining community”.

“The results of the survey indicated the marine contractors’ dissatisfaction with the way the PSJV operated,” he says.

The four highlighted the following concerns, which were communicated to the PSJV board and executive management:

  • Lack of information and access to information regarding mining activities;
  • The plant and processing of their dumps and diamonds;
  • Reclamation of the tailings dam;
  • Coffer dam operation;
  • Segment reporting;
  • Department of Public Enterprises; and
  • The appointment of SSI (now known as Alexander Bay Diamond Company).

Gobodo is of the opinion that the complaints sound reasonable and should have been dealt with through the proper processes.

Diamond valuation, pricing and purchases

Rough diamonds are valued on the 4Cs: crystalline shape, carat, colour and clarity. A very large stone with no inclusions, of a unique colour, say blue, will have an even greater value. There are some 11 standard colours, and even more different grades. The shape is not straightforward either; it can be classified as stone, shape, cleavage, macle or flat. There are over 20 000 prices.

Not that Alexkor concerned itself with such trivialities.

The Alexkor diamond ‘valuer’ only weighed the stone, and estimated a price per carat. A question for the Department of Public Enterprises (DPE): who gave the valuer a bogus list of average prices per carat, ignoring the 4Cs?

PSJV coffer dam operations

A coffer dam is a watertight enclosure that has been pumped dry to permit mining below the waterline. Coffer dams are a blight on the landscape and result in the disturbance of ecosystems, loss of biological diversity, pollution and degradation of the environment.

Alexkor/PSJV had illegally commenced the building of the coffer dams with boulder material in contravention of the National Environmental Management Act  and Environmental Impact Assessment Regulations in 2012/2013.

The coffer dams will have to be rehabilitated.

Governance and management issues

Gobodo found various irregularities, including related to the SSI contract, the contracts for service providers, no proper compliance with the marine contracts, and the Sandton head office.

Annual reports

The annual financial reports of Alexkor over the last few years have highlighted serious issues in governance.

Read:

Why did the DPE take so long to act?

Financial crunch

Alexkor is running out of money, with possible retrenchments adding to the already steep rehabilitation liability.

The loss to Alexkor in incorrectly priced diamond sales should be evaluated and claimed back from those responsible.

The marine mining saga will be dealt with in a separate article.

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The ANC are not very good at very much but are very competent in one arena. That is their unfailing ability to pillage, plunder and drive state owned enterprises into the ground. If these guys own an Spaza shop all the stock would vanish out the side door, the managerial staff would be elsewhere on massive salaries and the creditors (assuming they supplied stock) would never be paid. Of course, the cash box would be emptied on an ongoing basis without any form of accountability whatsoever.

Honestly, what makes them think they can run a diamond mine that is not a voracious ongoing wealth consuming singularity?

Diamond mining of tertiary-age marine terraces requires a lot of skill. The diamonds are small generally 0.2 carat in weight, and erratically distributed in the gravels which tend to rest on the bedrock in channels, placers and in ancient potholes. The resource evaluation and mining plan requires a huge level of competence to ensure the operation is profitable. One wonders what the issue is? is is competence or has the ore body simply reached its expiry date like the ones further south of it (Koiingnaas, Kleinzee, Bellsbank). Needless to say that decision needs to be undertaken by a competent honest mining practitioner from the private sector.

Your spaza shop analogy is spot on. To end it off you have to add the point that the reason advanced for the failure would be the fault of white monopoly capital and the colonialism which has hounded the economy (the two latest trending ailments of the SA economy). Not to worry, the leftist socialists and communists running the country will soon be “disciplining capital and the private sector” and furthering the utopian transformation. Good for a chuckle these delusional Dunning-Kruger victims.

Well, this must come as a huge surprise to South Africans. No one saw this coming, right ?

By way of a change could we perhaps get a Moneyweb article on an SOE that is not bankrupt/underwater/corrupt/in debt ? Surely there must be one ? Just one?

Turns out cadre deployment is a triple edged sword and RET has bankrupted this “democracy”. And now I see NDZ says we can expect 50 million without jobs post virus.

Honestly, the story of South Africa’s SOEs makes one want to vomit. Have the people who run these things no shame? Prasa is a mess. SAA is a mess. Eskom is a mess. Denel is a mess. SABC is a mess. The Post Office is a mess. And there are literally hundreds more – all a mess. And now the government in its infinite wisdom want ‘a more assertive State sector’ – as per the Sunday Times. The ANC now wants to establish a state bank and a state-owned pharmaceutical company as well?? Pray, just where will the money come from with our economy at an all-time low and minimal taxes coming in? When will our leaders, educated in old-style Communist dogma (that has historically proven to be a failure) WAKE UP?? It is time we had a Missippi-style revolt against this abominable corruption and wholesale theft.

Barbara – again…. great article! Well done. Heather not so clean after all.

Did you seriously ever believe she was Dr Dre? – you’ve never had the privilege of dealing with her family then

Not so clean – quite the understatement. This is rotten, corrupt and unethical – she is directly linked – shocking and disappointing!

I had the same reaction and then found the Gobodo report. You should probably read it for yourself – not sure what agenda Barbara is pushing but she has certainly not captured the findings very accurately.

Please Barbara– Just please find us one state run or semi state owned operation that functions like a first world department or utility and write the story.

On second thoughts do not even attempt the impossible.

There are no non-broken SOEs. The of the seemed to fare well, ACSA, is now also broken.

It’s not just ANCincompetence, but mismanagement that breaks them. And now Govt wants their pensions to fund the attempt to make SA grow again.

Acsa is not badly run like other DOEs – Google reasons behind current shortfall and review your statement…

It just does not stop. No matter what government department or SOE is involved the looting and corruption continues. Alexkor, Denel cannot pay salaries. Wait until the provincial workers and local authorities are in the same position. Then you will see mayhem.
And nothing happens. No one is ever held accountable, Molefe and Singh are still freely walking around.
I had high hopes for Ramaphosa but that confidence is quickly eroding.
And now we must look forward to NHI?

Quite hilarious how rapid economic transformation is applied by African goverments.

There is only one type of SOE, the broken SOE.

Please only write articles when SOE’s are not corrupt. Will save journalists so much time and us as readers!

cANCer can’t manage anything!

End of comments.

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