May 27 saw Alexkor administrator Lloyd McPatie brief parliament’s portfolio committee on the outcome of the forensic investigation carried out by Gobodo Forensic and Investigative Accounting.
Alexkor owns the marine diamond mining rights from Alexander Bay to Port Nolloth in the Richtersveld. Alexkor and the Richtersveld Mining Company (RMC), a community mining company that owns the land diamond mining rights, established a Pooling and Sharing Joint Venture (PSJV) in April 2011. This was effected after a successful restitution claim by the Richtersveld community.
The PSJV enters into contracts for marine mining contracts on behalf of Alexkor, and land mining contracts on behalf of RMC. The agreement stipulates that Alexkor will have a 51% interest in the PSJV and RMC 49%.
The forensic report, dated October 14, 2019, covers the 2014 to 2019 years, and looks into Alexkor’s relationship with Alexkor PSJV and its marine mining contractors.
The appointment of a diamond marketing and sales company
The tender for a diamond marketing and sales company, published in 2014, resulted in seven bids.
The company that was ultimately awarded the tender, Scarlett Sky Investments 60 (SSI), was a shelf company. A shelf company has no staff, no memorandum of incorporation, no assets, no finances, obviously no track record, and will be represented by a straw director, that is, a person who has no involvement in the company.
When the stand-in director resigned on November 20, 2014, Daniel Nathan and Kubenthren Moodley were appointed directors of SSI the same day.
When briefing the tender committee on November 14, 2014, Nathan, the representative of SSI, was not yet a registered director.
The evaluation of the seven bid proposals was outsourced to Gamiro Advisory Services (former Steinhoff chair Heather Sonn is a major shareholder). SSI was one of the three shortlisted candidates.
The forensic report states that the evaluation process was irregular and constitutes an unfair, unequitable and uncompetitive practice, and that “it is apparent that the bid evaluation process was manipulated to favour SSI”.
This begs the question – how does a shelf company without a diamond licence get shortlisted to market, value, sell and beneficiate diamonds?
Also read: DA’s Ghaleb Cachalia labels Alexkor ‘another SOE circling the drain’
A review of after-sales reports from SSI shows the buyers of the rough diamonds as follows:
- State Diamond Trader – 10% purchased
- Daniel Nathan Trading cc – 5% purchased
- Scarlett Sky Investments – 85% sold on auction
SSI merely markets and sells the rough diamonds through auction sales for the PSJV.
“Thus, the names of the buyers and the prices should be disclosed.”
However, Nathan alleges that the names are classified and refused to divulge them to Gobodo. The PSJV then divulged the names of the buyers but not the prices and quantities sold.
Gobodo obtained the Zimnisky Global Rough Diamond Price Index and the Bloomberg Price Index, and compared these with the SSI prices. There were serious discrepancies in the prices (the details are itemised in the report).
Procurement process for the appointment of marine contractors
The contracts of the four shallow water marine miners, which authorised beach mining and shallow water marine mining, issued in or about 2014, expired in 2018. Hence, a new procurement process commenced in 2017.
The relationship between the four and the PSJV had become fraught for various reasons, including the alleged undervaluation of diamonds mined.
The PSJV, instead of dealing with the issue, cut the four out of the procurement process.
“The decision to exclude the contractors was mainly a board decision based on the strained relations and disaccord that existed between the PSJV board/executive management and the four contractors.”
Gavin Craythorne, one of the four, says he was “victimised for conducting a survey under the Equitable Access Campaign, a body aimed [at addressing] the concerns of the marine mining community”.
“The results of the survey indicated the marine contractors’ dissatisfaction with the way the PSJV operated,” he says.
The four highlighted the following concerns, which were communicated to the PSJV board and executive management:
- Lack of information and access to information regarding mining activities;
- The plant and processing of their dumps and diamonds;
- Reclamation of the tailings dam;
- Coffer dam operation;
- Segment reporting;
- Department of Public Enterprises; and
- The appointment of SSI (now known as Alexander Bay Diamond Company).
Gobodo is of the opinion that the complaints sound reasonable and should have been dealt with through the proper processes.
Diamond valuation, pricing and purchases
Rough diamonds are valued on the 4Cs: crystalline shape, carat, colour and clarity. A very large stone with no inclusions, of a unique colour, say blue, will have an even greater value. There are some 11 standard colours, and even more different grades. The shape is not straightforward either; it can be classified as stone, shape, cleavage, macle or flat. There are over 20 000 prices.
Not that Alexkor concerned itself with such trivialities.
The Alexkor diamond ‘valuer’ only weighed the stone, and estimated a price per carat. A question for the Department of Public Enterprises (DPE): who gave the valuer a bogus list of average prices per carat, ignoring the 4Cs?
PSJV coffer dam operations
A coffer dam is a watertight enclosure that has been pumped dry to permit mining below the waterline. Coffer dams are a blight on the landscape and result in the disturbance of ecosystems, loss of biological diversity, pollution and degradation of the environment.
Alexkor/PSJV had illegally commenced the building of the coffer dams with boulder material in contravention of the National Environmental Management Act and Environmental Impact Assessment Regulations in 2012/2013.
The coffer dams will have to be rehabilitated.
Governance and management issues
Gobodo found various irregularities, including related to the SSI contract, the contracts for service providers, no proper compliance with the marine contracts, and the Sandton head office.
Annual reports
The annual financial reports of Alexkor over the last few years have highlighted serious issues in governance.
Why did the DPE take so long to act?
Financial crunch
Alexkor is running out of money, with possible retrenchments adding to the already steep rehabilitation liability.
The loss to Alexkor in incorrectly priced diamond sales should be evaluated and claimed back from those responsible.
The marine mining saga will be dealt with in a separate article.
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