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The country’s state-owned diamond company is on life support

Alexkor’s 2019 financials paint a bleak picture.

South Africa’s state-owned diamond mining enterprise Alexkor is desperately in need of cash to pay expenses, but does the struggling entity deserve more funding?

Its marine-based concessions stretch from Alexander Bay to Port Nolloth, while its land-based concessions span the equivalent of 865km2. It mines the latter through its Pooling and Sharing Joint Venture (PSJV) with the Richtersveld community.

Despite carat sales having increased from 41 941 units to 70 061 in the year to end-March 2019, diamond sales only amounted to R209.9 million (2018: R208.7 million). Cost of sales was R152.9 million (2018: R126.8 million).

The reasons given for this poor performance: an oversupply of diamonds in the market, as well as the quality and size of the diamonds produced.

Land and shallow water diamonds achieved an average of $456.77 per carat (2018: $718.86), while diamonds from its deep water mining concession achieved an average price of $305.64 (2018: $187.56). It is to be noted that International Mining and Dredging South Africa has the sole contract for deep sea mining.

Other operating expenses of R237.6 million included an impairment of the loan to the PSJV of R92.8 million (notes 9 and 18 of the financial statements).

The resulting accumulated loss is R173.6 million (2018: R13.9 million).

The overall loss, after investment income and finance costs of R24 million (2018: R48.1 million), comes to R149.6 million (2018: profit of R34.2 million).

Employee costs of R68.6 million (2018: R66.2 million) exceed the gross profit of R57 million (2018: R81.9 million); 150 employees were retrenched in June 2019.

Intangible assets include exploration and evaluation expenditure to the tune of R94.7 million (2018: R81.7 million). No details are provided as to where this exploration was carried out, and whether any of the exploration related to coal (or any other venture that has nothing to do with diamonds). And does ‘evaluation’ include the cost of feasibility studies carried out by ‘consultants’ at an exorbitant cost?

The environmental rehabilitation liability is R203.9 million, with only R168 million in the rehabilitation trust kitty.

The directors are of the view that the company’s assets fairly valued exceed the liabilities fairly valued by R205.7 million at March 31 2019.

Independent auditor’s report

The independent auditor, Ngubane & Co, has issued a disclaimer of opinion and was unable to obtain sufficient appropriate audit evidence regarding the going concern status:

  • The company has a history of losses, with rental and interest income being the only positive operating revenue.

  • The company’s sole source of revenue arises out of its 51% share in the PSJV with the Richtersveld community, and it is exposed to the financial challenges facing this entity.

The external auditor further noted that Alexkor sought approval from the minister to file for business rescue. No date was given. Even though the external auditor affirms that Alexkor is solvent, it noted that there were instances of the company trading recklessly as it is not liquid.

Management

Alexkor maintains a head office in Sandton and carries on business in the Richtersveld on the West Coast. Why does it require an office, costing some R3 million a year, located 1 388km from the mine?

The internal and external auditors are also located in Sandton. Either travelling costs are prohibitive, or no one visits the mining operations.

It is to be noted that the 2019 annual report is still not available on the Alexkor website, and I was not able to find any contact details to request comment.

Directors’ emoluments and executive management remuneration (R)

  2019 2018
Executive Directors 6 032 212 5 434 001

Non-executive directors

3 439 118 3 228 312
  9 471 330 8 662 313

Should a small struggling state-owned company not be run by one managing director, based in the Richtersveld? This could possibly save a few million a year …

Stopping the bleed

The Minister of Public Enterprises has:

  • Placed a moratorium on all acquisitions and disposals;

  • Declined the request for authorisation to establish “Alexcoal” in Mpumalanga; and

  • Placed on hold the feasibility study on diamond beneficiation.

Read: The state diamond miner with a penchant for coal

There is a danger that if the current minister is replaced, the floodgates will open.

Undeterred, Alexkor is still looking for “new business ventures”, and will approach the Department of Public Enterprises and National Treasury to reclassify Alexkor “from a PFMA [Public Finance Management Act] perspective” to permit borrowing.

This is a cue to take a deep breath and grab a coffee …

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Another SOE in financial woe and again excuses for failing.

It was only a matter of time for this to happen given the management structure of to many incompetent socialist cadre deployment of the ANC. They will make the same mistakes time and again. In need now is some business/supplier to liquidate them.

Not to worry. The taxpayer will bail them out.

Even with Diamonds in hand they need tax payer money.
How more messed up can you get?

“The reasons given for this poor performance: an oversupply of diamonds in the market, as well as the quality and size of the diamonds produced”.

The REAL reason? The folks who are running it – like all other state-owned companies. Go figure.

The country’s owned everything is on life support!! Figured it out ?? All these on the job trainees SAD

The problem is already clear and is evident in the article headline, “state-owned diamond company”

With the Zama Zama’s ready to take over.

More cadres playing “winkel-winkel”.
Any real private business would have woken up when the first loss occurred, years ago.
This would have seriously focused the owners’ mind to change the business model, or retrench, restructure, sell, whatever.
The owners’ bankers would have been fully involved and kept a beady eye on whatever is done by the directors.
Then once it reaches the state it is in today, the business would have been broken up and sold, or liquidated.
BUT, in the lala-land of cadres and bureaucrats playing with taxpayer money, none of the above applies. We pat ourselves on the back and actually think we are capable of expanding the model and taking on even more risk and opportunities. Sheer hubris and insanity.

ANC cadre employment combined with no work ethic = Failure.

Ok, let’s look at municipalities… Other HUGE example of incompetence!

Close all SOE’s and government institutions ASAP!

Hold on. You mean these guys cant sell diamonds (a girls best friend) for a profit. How hard can this be?

The holier than thou, Pravin Gordhan is a true communist at heart and will not allow anything to be privatised either partly or wholly. He is still of the archaic view that government can run companies successfully.

Nothing State Owned in SA works.

Thirty years ago a geologist familiar with West Coast diamond mining determined that the expected Life-of-Mine for Alexkor’s land operations was about ten years. It is also significant that De Beers has since terminated operations at its more profitable (at the time) Kleinzee operations to the south of the Alexkor lease area.

What on earth is going on? It’s so obvious that all SOE’s are run by uneducated lazy out if their depth individuals. And they earn millions. It’s sick to the core

Imagine a listed company asking for bailouts from Government. The CEO will be booted before he can even say “ oh dear how did that happen”

This is getting too much. Incompetent thicker than 3 coats of paint people running SOE’s and OUR HARD EARNED TAX MONEY IS USED FOR BAILOUTS

AND THEY THINK THE NHI WILL BE ANY DIFFERENT!

NOW YOU KNOW WHY THEY KEEP LOOKING FOR NEW WAYS TO TAX US.

This Government is truly incompetent

Tax revolt … all need to pay into a escrow account until they make the changes needed.
All they do is tax more.

Exactly, it is without doubt the best option and maybe the only hope for the country. Ordinary tax-payers, the most abused people in this country who are treated with contempt by the Government, need to come together and put the tax boycott in place otherwise the tax-payer abuse and funding of Government failures will continue. OUTA or some entity like that should be approached to facilitate. We need to rally together and present a show of force, like union members do, and possibly bring the country to a standstill once or twice to get the message across.

It all boils down to theft….no other excuse. Pls show me one government controlled entity that is doing well. Just one pls.

I hope the powers that be read your analyses! Coffee didn’t do it! I reached for wine. I’m doing that a lot these days! It’s easier to view the Mad Hatter’s tea parties through a haze.

One has to wonder why this state wants to run a diamond mine on the tax payers wicket. When clearly they cant,just like all the other SOE diasters. Please look up the Dunning Kruger Effect and wonder if it applies.

it’s not called the midas touch anymore – it’s called the ANC touch and it doesn’t turn stuff into gold, it turns it into a big hole into which money goes and is never seen again. I’ve just read an article with a headline – Ramaphosa vows no more poorly-qualified people in key state posts – even if they’re politically connected – if this is true, most of his cabinet should be fired.

I had the “privilege” to see this catastrophe play out….from the stripping of the once productive farms and the grunting and culling of the hungry dairy animals, and ultimately the transformation of the management and the workforce. In all fairness the resources have been depleted and there would be no business case for this entity. The sooner it closes, the sooner another leakage from the tax coffers can be plugged

And the EFF still wants the government to own everything…

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