Alexkor looks to coal to lessen diamond risk

Bulelani Magwanishe (Deputy Minister of Public Enterprises Speech)
South Africa has a long history of mining, which has formed the bedrock of our economy since the 1880s. The industry has played, and continues to play a central role in the country’s economic, political, and social environment.
The industry contributes about 20% to the GDP, over 15% to non-agricultural jobs, accounts for 12% of the total investment and over 30% of exports. Now, South Africa’s mining industry has come under sharp scrutiny over the last financial year alone.
The 2012 tragic events at Marikana and widespread labour disputes have significantly impacted the mining industry.
The Bain & Company Global Diamond Report 2013 paints a mixed picture for the industry1.
Even though the retail market for diamond products is showing signs of recovery, production is yet to return to pre-crisis levels. Total rough-diamond output increased by 4% in 2012 to 128 million carats, which is still below the pre-crisis peak of 176 million carats in 2006.
Only eleven (11) new mines are expected to come online from 2012 through 2023 and these are not large enough to offset the projected shortfall in the supply of rough diamonds.
The South African diamond industry, on the other hand, is in a structural decline, Annual diamond production has decreased since 2005, when it peaked at just over 15 million carats. There is an indication that the 2012 production figures will be about 7 million carats.
The diamond value chain is also taking strain.
The diamond manufacturing sector, which forms a key part of the government’s beneficiation plan, has shrunk in size. In just three years, it has gone from 3 000 polishers to about 300.
This leaves the industry effectively with two choices, that is, adapt or die. These are the precise choices facing Alexkor.
Alexkor and PSJV Performance
Alexkor achieved 93% of its contracted key performance targets, this despite the Board being in office for only seven month.
The Board has stabled the best governance and management structures, and is in the process of building the prerequisite human capabilities for driving business results. Mr. Percy Khoza, who assumed office in April 2013 as CEO of Alexkor, has extensive experience in mining. Management at the PSJV has been stabilized as well.
In this regard, I have taken note that the Board has taken decisive steps to unlock value of the PSJV through investment in exploration activities and other efficiency improving initiatives. The focus on land mining is going to be intensified.
The PSJV has procured a modular exploration plant worth R50 million which is going to be commissioned in the 2013/14 financial year. The investment is a positive message to the people of Richtersveld and Namaqualand. Over 200 jobs are expected to be created through this investment.
The Minister has requested the Board to ensure that the people of Ritchersveld are favoured in filling of jobs and business opportunities as a result of this ramping up of investment activities in Alexander Bay. Our view is that the sustainability of the PSJV is interwoven with the welfare of the beneficiaries of the Ritchersveld land claimants.
The Deed of Settlement
This year marks the 6th year anniversary of the 2007 Deed of Settlement, which gave effect to the land claim by the people of Richtersveld. To date, this remains the largest successful land claim in South African history. Both Alexkor and the Government have gone a long way in fulfilling their obligations in terms of the Deed of Settlement.
Government is determined to ensure that the beneficiaries and their progeny benefit from this settlement.
With regard to the Alexkor Development Foundation (ADF) matter, the Minister indicated to Alexkor in 2012 that the Department has sought the intervention of the Master of the High Court (as custodian of the Trusts) to investigate the allegations of financial mismanagement by the trustees of the ADF.
In this regard, the Master has appointed one of the leading auditing firms to lead the investigation. If any wrongdoing is uncovered, the matter will be referred to the relevant law enforcement agencies for further action. PwC will the conducting the investigation.
As part of restoring the dignity of the people of Ritchersveld, Government has taken deliberate initiatives by advocating for integrated development initiatives for the communities of the region.
The visits in February and July 2013 by the Deputy Ministers Public Enterprises,
Minerals Resources and Rural Development and Land Reform highlight Government’s commitment to create sustainable communities.
The Government’s intervention is beginning to deliver positive results, amongst others are:
1.   Cohesion and trust is visible amongst the people of Richtersveld, Alexkor and Government; which bodes well in terms of ensuring that the communities are custodians of the development work undertaken in the region.
Through the effort of the Department of Rural Development and Land Reform, a company to partner the community to revatilise the farms has been appointed. To date 266 hectares barren land has been restored.
We urge Alexkor and the PSJV to ensure that their social plans are aligned with the programme of the municipality. We urge other private players who are active in the area to do the same in order to maximize the impact of our efforts.
Alexkor repositioning
In its current form, Alexkor is not sustainable in the medium to long term. The proceeds from the PSJV are not sufficient to sustain the company. Last year, at a Special General Meeting, The Minister requested the Board to look at the Alexkor Act, to create a new future for the company.
We requested deep and seasoned market analysis that will enable us to understand the competitive position of the company.
I’m pleased to announce today, that the Board has responded with a game changing strategy that has a well-crafted compelling value proposition that puts/positions Alexkor as a world-class mining company with aspirations to respond to the immediate needs of the country.
Our own analysis shows that Eskom will start experiencing coal supply shortages by 2018.
The State has to move fast to avert an energy crisis. Electing to enter coal mining, will fundamentally change the value proposition of Alexkor to the people of South Africa.
Alexkor’s new strategy provides the State with a significant lever in engaging with coal majors, who are mainly multinationals, with a narrow responsibility to the country’s economy.
Alexkor is expected to be a vanguard for transformation in the coal mining sector, as the Government’s call for transformation in the sector has effectively gone unheeded.
Black emerging miners are still battling to gain a footing in the sector. Alexkor will partner emerging black, women, youth-owned miners through offering the necessary technical and business expertise to enable graduation of these miners from emerging to established, realising the objectives of the ESKOM Emerging Miners Strategy, which as a Department we have championed.
The repositioning of Alexkor satisfies another policy imperative. The Minister of Public Enterprises mentioned during his 2013 Budget Vote speech: the push for SOC-to-SOC collaborations.
A year ago an Alexkor-Eskom collaboration at such a strategic level was inconceivable.
Now we are at the threshold of shaping the future of this country; and Alexkor is on the verge of finding its place into South Africa’s future sustainable growth story.
Alexkor is also looking at high grade limestone supply to assist Eskom with its flue gas desulphurisation plants, and transportation cost is a major component of the price of burnt lime and leveraging SOC infrastructure will provide a cost advantage.
The company’s diversification strategy will ensure that it explore mining opportunities on the African continent. Let me hasten to state that the new strategy is not going to be liked by all, in particular, by those in the private sector.
We must expect opposition, challenges and pushback by those who will see the strategy as a threat to their long entrenched positions. We must not be fazed by such; our agenda is bigger than those forces.
Ours is not to reinforce Alexkor’s commercial bottom-line, but to secure the future of this country and to ensure that the sector is finally transformed. I want to urge the Board to ensure that all governance processes to drive this strategy are put in place and are followed through. We will ensure that legally, we are on solid ground by soliciting opinions of relevant authorities.
There will be a plan that executive management will follow in rolling out the strategy.
I wish to commend the Board’s effort in achieving positive results for the year under review despite the many hurdles.
At the forefront of our own intervention will be the strengthening of Alexkor as a strategic mining company to drive the states’ mandate.
I thank you.

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