Presentation to

Parliamentary Portfolio Committee

on Alexkor Restructuring

17th June 2008

2

Introduction

The purpose of this presentation is to provide the Parliamentary Portfolio Committee with a progress report on the Alexkor restructuring

The presentation will include:

– Background and details of the mine restructuring

– Structure of the financial separation packages offered to employees affected by the restructuring

– Progress with social and labour plan obligations– Progress with stakeholder engagement obligations

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Background to the restructuring

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Deed of settlement

The Deed of Settlement entails, inter alia:– Alexkor's land mining rights will be transferred to the

Richtersveld Mining Company (RMC). – Alexkor will retain its marine mining rights and remaining mining assets– Alexkor and RMC will form a Pooling and Sharing Joint Venture (PSJV)

and put their respective marine mining rights and land mining rights under the control of a Joint Board for purposes of mining both the marine and land diamond resources

– Alexkor will furthermore pledge its land and marine mining rights to the PSJV– Alexkor's movable assets relating to its agricultural and maricultural businesses to be

transferred to the RVC

As a consequence of Deed of Settlement, Alexkor is obliged to:- transfer the mining operations to the PSJV- transfer the agricultural and maricultural assets to the community

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Context of restructuring

The successful land claim by the Richtersveld Community culminated in a complex Deed of Settlement for the restitution to the community.As a consequence of the Deed of Settlement, Alexkor is obliged to – Transfer it’s agricultural & maricultural assets to the Community, and– Transfer the Mining operations to the PSJV.

The transfer of agricultural & maricultural assets to the Community took place at the end of Jan 08The current restructuring focus is on the people affected by the restructuring initiatives– Ensuring that employees are treated with fairness and dignity – Providing an financial package to ease the impact on employees– Providing support initiatives such as training to improve employability and

transition support (assistance with seeking alternative jobs)– Engagement with key stakeholders (internally and externally)– Ensuring legal compliance at every stage of the restructuring

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New Organisational Structure

ALEXKOR

Marine mining

Land mining

Support services

TownshipRehabilitation

Assets and operations to bepledged to the Alexkor/RMC

PSJV

Assets and operations to betransferred to the Richtersveld

Municipality

Alexkor mining rights

RMC mining rights

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Financial consequences of restructuring

Alexkor mining operations are not profitable and funds are limited Alexkor Management wants to act as an exemplary employee in the Mining sector and ensure that:– Restructuring approach is integrated and holistic and that

stakeholder engagement is seen as a critical success factor

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Employee numbers

Division

198

76

ABM ABTTOTAL: 276

ABM (mine): 198 (72%) &

ABT (farm): 78 (28%)

ABT: Sectoral vs Non-Sectoral Employees

39%

61%

Sectoral Non-Sectoral

TOTAL: 78

ABT sectoral: 49 (61%)

ABT non-sectoral: 29 (39%)

Approximately 100 ABM positions have been ring-fenced for Care and Maintenance operations until PSJV takes over

Farm and Mine Workers Farm Workers

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Integrated approach

LAND

CLAIM

TRANSFORMATION

COMMUNITY AND SOCIAL DEVELOPMENT

REDRESS

CONSULTATION

COMMUNICATION

Alexkor

Change and leadership network

Farming Mining

New Co

T&D needs

PSJV

T&D needs

VSP

S&L

Plan

Ex-emp

New Job

T&D needs

SUSTAINABLE ECONOMIC DEVELOPMENT

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Alexkor restructuring

• Employees to transfer to the new business , with same or similar conditions of service

• Employees and unions were notified of the Mine’s intention to restructure and downscale operations to a Care and Maintenance model, until PSJV operative

• Section 189 consultation commenced in 03/07

Farms Mine

Transfer ito section 197 of LRA

•Transfer of agricultural employees to RAHC ito s 197 of the LRA•Retrenchment process activated with s 189 Notice (notice of intention to dismiss for operational reasons, as set in the LRA) for Mine Workers

•Due to downscaling of mine operations till PSJV was operative

Retrenchment ito section 189 of LRA

Original approach

Engagement time-lines: 03/07-01/08

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Financial packages offered

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What was on offer?

Original offer– Farms to transfer in terms of s 197 and – Mine to undergo retrenchment in terms of s 189

Offer changed…Voluntary Separation Package (VSP) offer to Farms onlyMandate changed to include Mine in the VSP– Retrenchment process placed on hold, with principle that retrenchment process would

be resuscitated if there was insufficient interest in the VSP

VSP offer: 2 weeks for every completed year of serviceOrganised labour requested an improved offer of 3 weeks + R10 000 relocation allowanceDPE mandated an integrated and holistic approach to the restructuring and for the financial package re-evaluatedResearch was conducted on similar restructuring initiatives in the Mining industry in the region– Mining Charter and the Social and Labour Plan guidelines used– Aim is to develop a seamless transition plan, post the conversion of the Mining

Rights and the cession of the rights to the PSJV

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Organised labour’s expectations

The uniform VSP offer to all employees instead of the original intention of retrenchment, had the unintended consequence of denying affected employees access to the legitimate benefits of:– UIF – Tax reprieve

A distinction was drawn between – Farm workers, who had the safety of a job, if they did not take up the offer– Mine workers, who did not have job security

Organised Labour requested that the retrenchment process ito of section 189 be resuscitated and completed, to enable Mine employees to claim their legitimate benefits to UIF and the tax reprieve– An amended notice ito of s 189 was served on organised and consultation has

commenced

Aim is to run the s 189 consultation with Voluntary Severance Packages (alternative to retrenchment) for ABM alongside the Voluntary Separation Packages for ABT employees Timelines- End of June 08

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Employee financial package

FINANCIAL PACKAGE FORMULA– Benefits (accrued leave and accumulated bonus contribution) + – VSP (2 weeks for every completed year of service) + – 80% of VSP value as an Ex Gratia payment =– Total payout (minimum threshold of R 20 000)

– TOTAL COST: VSP & benefits + Ex GratiaR16 918 221.33 + R10 928 271.87= R28 073

796.92

Principles governing the package:– The package had to be socially conscious - ensure that the poorest, affected by this

change, are not compromised and provided with an appropriate financial parachute– The value of the payment should have meaning - discrimination had to be meaningful,

logical and consistent– Consideration of the profile of the affected individuals (Age, length of service and skill levels)– Re-employment prospects of the affected employee– Consideration of the VSP’s against other redress mechanisms– Consideration of whether the package was legally defensible

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Adopted restructuring approach

• E/yees have the opportunity to take up early retirement option and receive the VSP or

• Apply for new positions

• All e/yees have been offered the severance package

• Ring-fenced E/yees-continue till PSJV is operative

• Ring fenced E/yees will be offered same package before PSJV operative

Exiting E/yees Mine

New opportunities Maintenance ops

Current approach

•Same Financial Package offered to all employees (Farms and Mine)Farms: Voluntary Separation PackageMine: Voluntary Severance Package, as an alternative to retrenchment

Engagement time-lines: 08/03-08/06 Farms

New Co- RAHC

• E/yees will have a choice to accept the VSP or

• Transfer to the new business

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Phased restructuring approach

The restructuring process is being conducted in two-stagesPhase 1

– Immediate transfer and/or exit of farm employees – Employees affected by the downscaling of the mining operations

• Mine moving to a Care and Maintenance Model pending the PSJV becoming operative

Phase 2:– Exit of employees prior to the PSJV taking over operations

Financial package values have been communicated and offered to all employees

Farm workers:

• 73 have accepted the offer and 3 will transfer to new co

•Anticipate that many of the ex-employees will be re-employed by the new co

Mine Workers:

• Currently 40 employees have accepted the voluntary separation alternative

•The generous package and the differed option have discouraged volunteers

• 83 employees volunteers required to avoid a forced retrenchment process

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Proposals for an Integrated Social Transition Plan

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Legal Compliance requirement

In terms of the Mining Charter requirements, Alexkor is obligated to develop a Social and Labour plan that encompasses the following components: – Development programmes, in consultation with the local

government structures– Processes to manage downscaling or closure of the Mining

operations – Details of how to promote and ensure socio-economic

development in the region– Minimise closure or downscaling impact on

• Individuals, • Region and/or • Local economy

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Context of Restructuring

POLITICAL OBLIGATIONSGovernment, as the employer, must engage with – Provincial political structures– District and regional political structures

Region is economically weak and opportunities are limited– High possibility of eventual poverty & dependency on the state

SOCIAL CHALLENGESNeed to ensure that employees are treated fairly with– Financial packages that will ease the burden– Initiatives that will assist and support employees during the transition– Assistance in seeking alternate employment and/or– Community outreach and development programmes that will drive economic

sustainability

EMPLOYEE IMPACTEmployees have had the threat of restructuring for almost ten yearsEmployees and community are fatigued and feeling dejectedSkill level of existing staff is low and earning potential weak

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Research findings

Regional activities– Mining industry has been downscaling for a number of years in the

region– Social and Labour Plan precedents have been set in the region

• Gathered data on what works and what doesn’t in the region• Engaged with community representatives to assess opportunities that

can be leveraged

Environmental scan– Region has limited economic opportunities– Need for sustained development programmes

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Easing employee impact

Immediate: Employees who are seeking out alternate employment post exit from Alexkor– Supported during the transition process through

• Training & Development programmes▫ Skills programmes and training courses (informed by employee preference)▫ Learnership though a “PROXY”

• Placement assistance▫ Preparation of CV’s and skills to re enter the job market▫ Establishment of an office that will assist employees to seek alternative employment

Medium Term: Employees, in the mining operations, who will remain during the interim phase– These employees will need to be “upskilled” in order to improve their employability

in the new mining venture

Long Term: Employees that need to be “upskilled/reskilled” in order to secure alternate employment and/or become self-sufficient once PSJV in operation

Employees affected by the restructuring fall into the following categories:

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Employee Impact and Legal Compliance

Training plan considers– Employee profile (unskilled, semi-skilled, skilled) – Cost (regional accessibility to training institutions)– Viability (timing) – Leverages local and regional options and opportunities (agricultural and

tourism strategies)– Pre-training screening and assessment - critical for successThe training plan looks at development in terms of:– Employment opportunities– Regional and district development opportunities– Social and economic development opportunitiesThe interventions leverage existing skills programmes and learnerships that are available and affordable – Costing averaged on a per capita basis and based on benchmarked

research estimates

S&L Plan will have different aims and objectives, which are all interlinked

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Proposed training & development interventions

ABTExiting Employees– Offered T&D programmes to

ensure improved employability and self sufficiency

– Post care for at least 2 monthsTransferring employees– T&D to upskill and ensure

sustainability of the farmsManagement – T&D on core management skills– Coaching & Mentorship

• Preferably within regional agricultural sector

– Enable access to regional agricultural initiatives for the growth and sustainability of the business

ABMExiting employees– Offer T&D programmes to ensure

improved employability and self sufficiency

– Post care for at least 6 months

Maintenance & Care Operations– T&D to upskill and improve

employability in JV operations

Facilitate and enable transition of ex-employees into JV

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Legal Compliance: Social and Labour Plan

Ensure that the proposed initiatives address immediate restructuring needs and longer term restructuring requirements, including:– Minerals and Petroleum Resources Development Act requirements– BEE Socio-Economic Empowerment Charter requirements

• “Government will ensure compliance with the provisions of this Charter and will be exemplary in the way in which it deals with state assets’’ (clause 4.10)

Mining operations, until the PSJV takes over mining operations– Conversion to “New Order” Mining Rights – PSJV strategic imperatives will inform:

• Mining Plan• Human Resources Plan• Social and Labour Plan

Proposed initiatives will support and enhance the Interim Mining operations and the business needs of the PSJV

Alexkor’s responsibility is to:

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Social Challenges

Ensure that employees who are transferred to the RAHC are

sufficiently skilled to meet the needs of the new business

Provide training and development programmes

– Directors of the company

– Employees that are transferred to the new company

Provide support to management and HR team for seamless

transition and to ensure fairness during recruitment and

selection process

Initiatives includes “upskill” programmes for ex-employees of the

agricultural business who are seeking alternative employment

Alexkor’s responsibility to RAHC:

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Social and Political Challenges

Region and local economies are weak– Limited employment opportunities in the region area– Provincial opportunities are poor

Community Interventions – Limited social support services/providers in the region

Government and Alexkor’s responsibility is to:Consult the following stakeholders– Government (National, provincial and local government representatives)– Community / Religious leaders– Employee Representatives– DPE and Alexkor

Link and leverage regional and provincial programmes to the benefit of affected employees and the community

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Critical Success factors:

Community consultation and union involvement

Transferring of skills to members of the community, for improved sustainability

Address short-term and medium term social and economic issues

Long term sustainability driven by:– Integration with needs of emerging JV and alignment with personnel

operational needs– Mining license conversion application and integration with S&L Plan – Integration with Richtersveld IDP– Creation of Municipality and local government links and alignment to

development plans• Gathering data on where employees are resettling, as part of ongoing

effort to secure alternative employment

The stakeholder engagement process is critical to overall sustainability

Stakeholder Engagement

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Employee Destination

                                                                                                     

                                                                   

650

5

5

1

10

5

3

Kabus/Sanddrift : 15

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Political Roles and Responsibilities

Alexkor, with the support of DPE, has engaged with the following stakeholders– Provincial Government– Local government– Relevant National government departments -DME

DPE and Alexkor intend to access opportunities– Regional initiatives (e.g housing project, roads, agricultural

initiatives)

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Financial Overview

ACTUAL 2006/2007

ACTUAL 2007/2008

VARIANCE %

CARATS 33,870 25,620 -8,250 -24.36%

RAND / Ct 3,227 5,445 2,218 68.73%

MINING REVENUE R

109,302,291 139,502,046 30,199,775 27.63%

MINING OPERATING LOSS R

-62,914,852 -17,821,808 45,093,044 71.67%

LOSS FROM DISCONTINUED OPERATIONS R

-17,510,680 -14,378,323 3,132,357 17.89%

ALEXKOR NET LOSS R

-19,094,189 -4,784,235 14,309,954 74.94%

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Marine Productivity Constraints

Decline in Sea-Days

79

61

18

23

34

44

0

10

20

30

40

50

60

70

80

90

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

Da

ys

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Marine Productivity Improvements

Previously closed southern section of the mine opened up for contractor pump units based on shore

Contracts encouraged to amalgamate and multiple pump units allowed under a single contract in order to create larger more stable contracts

Contracts with vessel based pump units allowed an additional shore based pump unit to use on days when vessels are unable to operate at sea

Revenue split to the contractor improved in underutilised areas to encourage better utilisation of the resource

A remote mining contract that is not as dependant as diver operations on sea conditions was implemented but proved unsuccessful

Other remote mining opportunities have been identified and are awaiting the implementation of the PSJV

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Questions?