Portfolio Committee on Public Enterprises

1
Portfolio Committee on Public Enterprises Briefin
g 2006 Annual Report 25 October 2006
2
Opening Remarks by Chairperson
3
Opening Remarks

• Introduction
• Report back on issues raised in previous
  briefing
• Clear company strategy required to deal with the
  loss making situation
• Possible scenarios post land claim case
• Phased approach for handing over the non-core
  assets to relevant authorities
• Plan to deal with the disposal of perishable
  products
• Progress on women empowerment
• AGM date and tabling of annual report to
  parliament
• Overview of 2006 report

4
Report by the CEO
5
Content

• Company Background
• Pre-Amble to Results
• Health and Safety Statistics
• Overview of 2005/06
• Social Responsibility and Investment
• Update on 2006/07 Progress
• Update on Litigation Matters
• Strategic Outlook 2008 and Beyond

6
Company Overview
7
Introduction

• Vision
• To transform Alexkor into a competitive and
  sustainable mining company that will contribute
  positively towards the needs of all stakeholders.
• Mission
• To maximise profits from the sustainable
  exploitation of the resource, thereby ensuring
  satisfactory returns to our shareholder and make
  a contribution towards the socioeconomic
  upliftment of the region. This will be achieved
  in accordance with all statutory and regulatory
  requirements.

8
Organisational Structure
9
Pre-Amble to 2005/06 Results
10
Operational Challenges

• Mining an inferred resource
• Inadequate exploration
• Ageing mining equipment
• Continuous decline in sea-days
• Continued subsidisation of non-core business
  activities
• Fixed cost structure with regards to salary, town
  maintenance and hospital related expenditure
• Recruitment and retention of qualified and
  skilled human resource

11
Implementation of Key Strategic Objectives

• 1. Establishing a mineral reserve base followed
  by a LOM plan and reliable business plan
• 2. Increasing production through full utilisation
  of existing plants, equipment and labour
• 3. Reducing units costs and cut-off grade to
  R26/ton and 1.5ct/100 cubics respectively
• 4. Assisting in capacity building amalgamation
  of marine contractors
• Developing a proper succession planning and fill
  in key management positions
• (i.e. Mine Manager, Metallurgical Mgr,
  Environmental Mgr)
• 6. Improving the level of diamond marketing to
  realise more value from the product
• Establishing accurate and reliable IT and
  Financial Control Systems
• Ring-fencing and transfer of Non-Core Assets
  eliminating cross subsidisation
• 9. Introducing Remote Mining Techniques to reduce
  over-reliance on diving operations

Good progress on objectives 2,3,4,6,9
12
Uncertainty Relating to Land Claim Case

• Impact of land claims case on Alexkor
• Impaired medium to long-term planning on land
  mining
• Inability to re-invest in appropriate
  infrastructure
• Inability to mine potentially economical mining
  areas
• Inability to discontinue loss-making
  divisions/business units
• Inability to restructure balance sheet.

13
Safety and Health
14
Safety and Health Statistics

• The Northern Cape open-cast mine RI rate average
  is 2.05
• Fatal accidents - Diver lost his life during
  diving operations
• - Oyster Farm
  manager lost her life in a vehicle accident
• DME FFPS currently at 559 - 6 months to go for
  1000FFPS
• Focus on continuous initiatives to improve safety
  awareness, equipment and working conditions
  evidenced by downward trend in rates

15
Overview of 2005/06 Results
16
Summary 2005/06 Results

• Diamond production decreased from 49 577 carats
  (9 months production) to 43 207 carats (12
  months production)
• Total revenue up 4 to R159.4m from R152.4m in
  2005 (9 month period).
• Diamond production income decreased from R143.9
  million during 2004/05 to R129.1 million during
  2005/06.
• Net Operating loss increased to R38.1m (2005
  R1.5m profit).
• Adoption of International Financial Reporting
  Standards as from 31 March 2005.
• Revaluation of assets resulted in R409.3m
  increase in asset base in FY 2005.
• Two major-non cash adjustments made
• Restating of Rehabilitation liability by R160.0m
  (2005 R0.6m)
• Increase in Post-retirement medical liability by
  R11.4m (2005 R10m)
• ABT operating loss decreased to R4.1m loss (2005
  R5.5m loss)
• Non-core activities increased loss to R6.9m
  (2005 R6.4m loss)

17
Consolidated Financial Performance
18
Consolidated Financial Position as at 31 March
2006
19
Revenue Mix (R159.4m)
20
Land Marine Mining Carat Mix (43 207ct)
21
Land Marine Mining Revenue Mix (R129.1m)
22
Marine Mining Impacted by
23
Sea-Day Forecast (Example)
The four-corners of a sea-day
24
Alexander Bay Trading
Other Agricultural is comprised of maize and
lucern farms and related produce
25
Other Non-Core
26
Human Resources and Social Responsibility
Investment
27
Employee Statistics
28

Employee Statistics
X
29
Employment Equity
As at 30 September 2006
30
Job Creation - 2006
Additional 15 Bedrock Sweepers to be appointed
at end of October 2006
31
Social Contribution
32
Health Care Services

• Provision of Health Care Services to Alexander
  Bay, the employees of Alexkor and its
  independent contractors, the communities of
  Beauvallon, Sanddrift, Kuboes and the
  Richtersveld National Park

Patient Statistics 2005/06
33
Health Care Services

• Health care services reporting consistent annual
  losses
• Provincial Department in process of providing
  medical doctor
• Request made that medical supplies be provided by
  Provincial Department
• Currently negotiating transfer of health care
  services and facilities to Provincial Government
• Target date for transfer 1 April 2007

34
Social Contribution (Continued)

• Education
• ABET training provided for employees and
  community members up to level 4 in English,
  Mathematics and Numeracy
• School buildings for Primary and Secondary School
  sponsored by Alexkor
• Municipal Services
• Provision of Municipal Services to Alexander Bay
• Provision of Portable water to Alexander Bay and
  Port Nolloth
• Provision of subsidized accommodation to
  residents of Alexander Bay
• Process for the establishment of Alexander Bay as
  municipality commenced during 2005
• Social Services
• Employed a Social Worker to service Alexander Bay
  and Richtersveld Communities
• HIV/AIDS
• Prevalence Survey conducted in April 2003
  Infection rate of 2.8 attributable to the
  introduction of a Health Care Plan which
  includes
• Voluntary testing and awareness programmes
• Continuous training of Peer Educators with more
  emphasis on psychological development of Peer
  Educators
• Facilitating the introduction of Anti-Retroviral
  Drugs

35
Training Development

• Retraining and Redeployment of non-production
  staff to production teams
• Split in terms of production vs non-production
  changed from 40 production to 60 production
• Artisan-Assistant Development Programme was
  initiated in line with JIPSA, 11 employees sent
  to Namaqualand Technical Training Institute
• Continuous Multi-Skilling of Earth Moving
  Operators and retraining of processing staff at
  Plants
• Accredited diving course to commence during
  October 2006 in Alexander Bay

36
Female Empowerment Initiatives

• Allocated 8 bursaries in mining related
  disciplines 5 female
• Appointed 12 apprentices of which 2 are female
• Trained 5 females as heavy earthmoving- and
  Infield Screening operators
• Appointed females on bedrock sweeping operations
  on a temporary basis
• 29 Female representation in Senior Management
  positions
• 2 Females employed as trainee diamonds evaluators
• Women's empowerment group commenced with
  Witvoorkop mining in collaboration with a
  contractor company
• Female shareholding in shallow water contractors
  of 17.5

37

• Preferential Procurement

Annual preferential procurement for the 2005/06
financial year amounted to 55 of total spending
38
Overview of 2006/07
39
Summary 2006/07 Corporate Plan

• Implemented three shift operations to fully
  utilise the current plant capacity, aimed at
  reducing unit costs and increased production
• Optimal use of current human resource capacity
  shift from non-production to production units
• Recapitalisation request submitted to DPE
  earmarked for
• Working capital R41.6m
• Maintain operations R40.4m
• Exploration program R109.6m
• Improve marine mining R38.5m
• Introduction of remote mining techniques with one
  unit already in production
• Sale of diamonds on open-market basis through
  Diamond Bourse commenced in April 2006, with good
  results

40
Year-to-Date Results Carat Production
41
Year-to-Date Results Ring Fenced
42
Turnaround Plans on Land Show Positive Trends
43
Year-to-Date Results
44
Short-Term Outlook
45
Cash Flow Forecast

• Secured temporary overdraft facility
• R30m bridging finance up to 31 March 2007 through
  Adjustment Estimates
• Full recapitalisation expected during 1st quarter
  of 2007/08 financial year

46
Update on Litigation Matters
47
Litigation Status Update
48
Litigation Status Update (Continue)
49
Strategic Outlook 2008 Beyond
50
Strategic Outlook 2008 and Beyond

• Short-term focus is on improving financial
  performance through productivity improvements and
  continuous reduction of both operating costs and
  break-even grade cut-off
• Implementation of additional remote mining
  techniques
• Exit from non-core activities (ABT, Hospital and
  Town)
• Restructuring of Alexkors balance sheet
• Acquisition of mineral rights in other parts of
  the country in order to move Alexkor beyond a
  single mine company
• Recapitalisation of land and marine operations
  (post land claims case)

51
Thank You