Alexkor’s administrator Lloyd McPatie has said the diamond mining company is trading recklessly and cannot meet its financial obligations.

Briefing the Portfolio Committee on Public Enterprises and the Select Committee on Public Enterprises and Communication on his observations of issues at the State-owned diamond miner on May 27, he said the Pooling and Sharing Joint Venture (PSJV) between Alexkor and the Richterveld Mining Company, which comprises the Richtersveld community, was also technically insolvent and could not trade itself out of its current financial situation.

The Department of Public Enterprises (DPE) is considering its best options forward for Alexkor and the PSJV.

Alexkor, which owns 51% of the mine and the PSJV the balance, and the mine, in Richtersveld, in the Northern Cape, have been riddled with a multitude of financial and technical mismanagement, as well as legal issues over the last decade.

McPatie said the mine would run out of cash by June, following a loss of R63.5-million in 2019.

He suggested that a new corporatised and adequately recapitalised entity be established to own and manage the mine.

McPatie was appointed in mid-2019 to, besides other responsibilities, review the contract mining and revenue sharing models between the PSVJ and the contractors, and propose solutions accordingly.

The mine uses contract miners and the revenue splits are in favour of the contractors, owing to a lack of geological information on the property and the contractors therefore taking more risk.

McPatie suggested that future contracts’ revenue splits be determined on a scientific basis and be more equitable to both the PSJV and the contract miners.

Additionally, he said the contracts should also be performance based, with a certain amount of tonnages mined required in a year, otherwise it opens up the opportunity for contract miners to flee once they have sold a single diamond of high value.

There are more than 100 contractors currently active at the mine, which makes it difficult to manage and these should be streamlined, said McPatie.

Although McPatie has found that the PSJV’s supply chain management policy was compliant with the Public Finance Management Act, there was irregular use of fuel cards and the acting CFO had been tasked to monitor this expense going forward.

He further recommended that the Johannesburg office of Alexkor be closed and retrenchments of staff be effected; however, the DPE had not done much to progress this matter and migrate some of Alexkor’s financial functions to the department.

The administrator sent a letter to the department early in February to request permission to start a Section 189 process.

The Johannesburg office has about 16 months left of its current lease agreement, which it must either fulfil or pay a R2.3-million penalty for cancellation of the agreement. The DPE has reportedly failed to meet with the managing agent to resolve the issue or approach a court to declare the contract void.

Meanwhile, the staff members of this office are all on fixed term contracts and have since reported the potential retrenchments to the Council for Conciliation, Mediation and Arbitration (CCMA).

The CFO and financial manager of Alexkor resigned in December last year, citing constructive dismissal owing to the lack of decision-making regarding the future of Alexkor and the financial situation that the company is trading in.

Further, McPatie pointed out that diamonds from the mine were marketed and sold by Scarlett Sky Invsetments (SSI) on a monthly basis; however, he said the appointment of SSI was questionable from a governance perspective, since it does not have a diamond trading licence.

SSI was appointed in 2014 for a period of three years and reappointed in 2016 for a further five years.

Alexkor has since applied for a diamond trading licence to trade its own diamonds and cancel the contract with SSI.

Alexkor CEO Lemogang Pitsoe said the South African Diamond and Precious Metals Regulator had granted the trading licence and remaining paperwork would be finalised in June.

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Currently, International Mining and Dredging South Africa (IMDSA) is contracted to mine for diamonds in the deep waters near Alexander Bay, with IMDSA getting 85% of the revenue from these operations.

These mid- and deep-water contracts of the mine are being reviewed. McPatie suggested the yearly shutdown for mining operations rather occur in the winter months over June and July, which posed challenging mining conditions, instead of a shutdown over December, which offered more suitable mining conditions.

IMDSA proposed that it be funded $22-million to undertake an exploration programme that will map the resource of the area on sea and on land and provide priority targets for mining going forward.

However, McPAtie said Alexkor would risk funding the programme with no guarantee of there being a sustainable resource.

McPatie noted that the PSJV only had one geologist, which was inadequate for a mining operation, and that the entity should at least have a metallurgist, a surveyor and a mineral resource manager appointed as well.

The option of liquidation of the PSJV had been proposed to DPE in January, which should have been followed by the department assessing legal opinions on the matter, but successful liquidation of PSJV depends on the Communal Property Association being properly constituted, which McPatie said it was not.

The DPE, also in a presentation to the committees on May 27, said it had hired Gobodo Forensic Services to perform a forensic investigation in light of corruption allegations at the PSJV, with charges having been drawn up by a legal firm and presented to the CEO of the PSJV.

The CEO has since reported his suspension to the CCMA and a disciplinary hearing is due to be scheduled some time soon.

For example, the PSJV has been suspected of mismanaging R200-million in funds given to it in 2014 by government to conduct exploration.

Meanwhile, the town of Alexander Bay is due to be handed over to the Richtersveld municipality on July 1, after the mine has been footing the town’s electricity and water bills since the mine’s establishment, which amounts to about R8-million a year.

Alexkor also pays for the maintenance of properties managed by its Johannesburg head office, which are based in Port Nolloth and Alexander Bay, to the tune of R7.5-million, but only brings in R3-million in rental value, and should therefore be disposed of.

McPatie had helped to draft a focused repayment plan in terms of PSJV’s R126-million of debt, to creditors including SSI, power utility Eskom and medical aids, which has subsequently been paid off.

The PSJV only has R30-million of debt left.

Alexkor depends solely on the proceeds from the PSJV and does not have other revenue-generating activities.

From the DPE’s side, Deputy Minister Phumulo Masualle said the department was considering the best option moving forward.

He acknowledged that the mine may need to be opened up to private sector investment and management, while remaining cognisant of what might further impoverish the nearby community if the mine closes.