Presentation of the Annual Report for the Year Ended 31 March 2014 Presentation of the Annual Report for the Year Ended 31 March 2014 19 NOVEMBER 2014

Presentation of the Annual Report for the Year Presentation of the Annual Report for the Year EndedEnded

31 March 2014 31 March 2014

19 NOVEMBER 2014

Contents

1.Predetermined Objectives (Performance Overview)

2.Corporate Governance

3.PSJV Operations

4.Human Resources and Social Development

5.Control Environment

6.Statement of the Audit & Risk Committee

7.Auditor’s Report

8.Annual Financial Statements

9.Alexkor Strategy

10.Deed of Settlement

11.End State of Mining

12.Expanded Mandate

2

Introduction

Background to the land claim

Split of the Company into the RMC and Alexkor (creating the PSJV)

Once the Board was appointed, the Board evaluated the status of the Company:

Commercial imperatives Socio-economic imperatives

Board heeded the call of the Shareholder

3

Predetermined Objectives (1 of 2)

Alexkor had 17 approved targets during the year and 16 of those were achieved resulting in a success rate of 94%. In 2013, Alexkor achieved 28 of 30 objectives with a success rate of 93%.

The Predetermined Objectives that have been achieved include:-

On Alexkor Sustainability:- Developing a strategy for Alexkor outside of the PSJV Financial Ratios

On Township Establishment:- Establishing the town of Alexander Bay Ensuring that the township is ready for handover to the Municipality Dealing with municipal challenges

4

Predetermined Objectives (2 of 2)

On the Rehabilitation Obligation:- Implementing and executing a 5-year rehabilitation plan

On PSJV Sustainability:- Increased profitability Increased exploration Safety matters catered for

On Socio-Economic factors:- New corporate structure as detailed later Increased BEE as detailed later

The only objective not achieved included the PSJV production target of 70 213 carats with the actual outcome being 46 681 carats and a variance of 23 532 carats.

5 Source: * Refer to the Integrated Report, Report on Predetermined Objectives for the year ended 31 March 2014.

Corporate Governance (1 of 2)

The Independent Non-Executive Directors (INEDs) of the Board of Alexkor SOC Ltd:

Name Appointed

Dr R Paul April 2008

Mr R Bagus September 2012

Dr N Mohutsioa-Mathabathe September 2012

Mr M Bhabha September 2012

Ms Z Ntlangula September 2012

Dr D Mkhwanazi June 2013

Ms S Zilwa June 2013

Mr B Grobbelaar June 2013

6

Corporate Governance (2 of 2)

Alexkor SOC Ltd had four Sub-committees during the year being the:

—Audit and Risk Committee—Social, Ethics & Human Resources Committee—Environmental Rehabilitation Committee—Tender Committee

The PSJV is an unincorporated Joint Venture arrangement between Alexkor SOC Limited and the community of the Richtersveld. Alexkor SOC Limited owns 51% in the PSJV and the community own 49%.

When the new Board of Directors took office in September 2012, corporate governance at Alexkor SOC Limited and at the PSJV was very poor. No proper Minutes of Board and Committee meetings were kept, budgeting was poor, there was no proper record of mine dump allocations, documentation and/or agreements with the contractors were not in order including in particular docmentation relating to PFMA compliance such as tax clearance certificates for contractors.

As a result, proper stuctures were put in place which included the PSJV Technical Committee, Remuneration Committee and Audit and Risk Committee. Alexkor INEDs hold positions on the PSJV Board as well as these Sub-committees.

7

PSJV Operations (1 of 4)

• Diamond revenue amounted to R277.0m (2013: R184.1m).

• The PSJV produced 46 681 carats (2013: 35 358 carats).

• Sea-days decreased to 20 (2013: 22 sea-days) for the year.

• A net profit of R23.7m (2013: R4.7m) was achieved for the year.

• Cash reserves were stable during the year.

• Capital expenditure of just over R54m was incurred.

8

Comparative Annual Diamond Production (2 of 4)

9

Carat production per Sector (3 of 4)

10

Sea-days over the last Decade (4 of 4)

11

Human Resources and Social Development (1 of 6) – Alexkor Staff Complement 2014

HEAD OFFICE Number

Permanent employees at Head 0ffice 13

External contractors and others 16

TOTAL 29

12

Total STAFF: 106

Alexkor employees at head office in 2013 consisted of 2 permanent employees, the CEO and a PA. All other duties were outsourced to contractors.

Alexkor employees at the Mine are managed by PSJV Management.

ALEXANDER BAY - MINE Number

Permanent employees at the Mine 51

Temporary and casual employees at the Mine 26

TOTAL 77

Human Resources and Social Development (2 of 6) - PSJV Staff Complement

13

PSJV EMPLOYEES 2013 2014Permanent Employees

115 230

Temporary and Casual employees 55 36

External Contractors and Others 703 821

TOTAL 873 1087

2013 2014

NUM 60.5% 56%

UASA 23.9% 7%

Non-affiliates 15.6% 37%

Union Membership:

Human Resources and Social Development (3 of 6)

Total Staff Complement between Alexkor and the PSJV went from 88 employees in 2012 to 873 employees in 2013 to 1193 employees in 2014

The Muisvlak Plant saw a total of 140 new employees being recruited from 6 towns as follows:

Sanddrift 23 Kuboes 34 Eksteenfntein 24 Lekkersing 37 Port Nolloth 14 Alexander Bay and surrounding 8

14

Human Resources and Social Development (4 of 6) – EE figures for Alexkor only

Employment Equity March 2014

Occupational Level Number of Incumbents

Male Female % of Designated

GroupAM CM WM AF IF CF WF

Top Management 4 3 1 100%Senior Management 3 1 2 100%Professionally Qualified 2 1 1 50%Skilled 5 1 2 2 100%Semi-Skilled 5 2 1 2 100%Unskilled 45 2 40 3 100%

Total 64 7 44 1 6 1 5 100%

15

Human Resources and Social Development (5 of 6) EE figures include Alexkor and PSJV

Figures include Alexkor and PSJV management



Male Female % of Designated GroupAM IM CM WM AF IF CF WF

Senior Management 6 1 3 1 1 83%

Professionally Qualified 12 7 5 100%Skilled 52 33 10 7 2 81%Semi-Skilled 109 2 80 4 21 2 96%Unskilled 51 1 21 29 100%

Total 230 4 144 15 63 4 93%

16



Male Female % of Designated

GroupAM CM WM AF IF CF WF

Senior Management 7 2 3 1 1 86%Professionally Qualified 5 2 3 100%Skilled 44 22 15 5 2 64%Semi-Skilled 54 2 44 4 1 3 93%Unskilled 5 1 4 100%

Total 115 5 75 20 2 0 11 2 83%

Human resources and social development (3 of 3)Revised Social and Labour Plan Budget Commitments Page 6 of 6

2013/14 2014/15Plan Budget Plan Budget

Commercial diver training 1 40 000 Hyperbaric chamber operators and attendant courses 2 20 000

Diving first-aid and emergency response 20 70 000 20 77 000

Skipper course 1 4 500 1 4 950 Diving equipment technician 20 1 500

Basic rigging and welding 1 20 000 1 22 000 Commercial diver supervisor 10 000 Training

Sub-Total 166 000 103 950 Acommodation 600 000

Bursaries 2 115 000 126 500

Learners 6 514 800 660 660

ABET - Alexkor 8 000 13 200 ABET - Contractors 4 000

Projects 976, 877 1 528 000

Total 2 384 677 2 432 310

Control Environment

Internal controls are designed to provide reasonable but not absolute assurance as to the reliability of the financial statements, safeguarding of assets and to prevent and detect misstatements and losses.

Alexkor’s internal audit function is outsourced and provides an independent appraisal to examine and evaluate the Company’s activities.

Alexkor’s fraud hotline facility has been operational throughout the financial year to enable all stakeholders or any other parties to report fraudulent, corrupt and unethical practices in the work place. However, the fraud hotline facility has not been effective and as a result, steps are being taken to change the service provider and market the hotline within the communities.

Internal audit has identified internal control issues within Alexkor’s environment with regards to its HR and payroll, procurement and IT management processes. Measures are being put in place to address the identified issues.

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Annual Financial Statements (1 of 6)

The Annual Financial Statements (AFS) were approved and signed by the Board on 30 July 2014.

The Audit and Risk Committee’s report was included in the Integrated Report on pages 53 and 54.

The External Auditor’s opinion was unqualified. Issues were however raised with regards to:

− Material adjustments were made to property, plant and equipment due to a revision in the useful lives;

− The reclassification of grant income; and− Management did not adequately review the draft financial statements for

completeness and accuracy before submission for audit.

19


Statement of Financial Position (material movements):

— Property, plant and equipment R72.1m (2013: R31.6m)

— Cash in the rehabilitation trust R115.0m (2013: R109.5m)

— Loan to joint venture R38.1m (2013: R10.0m)

— Cash and cash equivalents R475.1m (2013: R556.7m)

— Trade and other payables R170.6m (2013: R234.9m)

20


Statement of Comprehensive Income:

— Revenue R141.3m (2013: R93.9m)

— Provision for the rehab liability R15.9m (2013: R10.7m)

— Operating profit R20.7m (2013: loss of R38.3m)

— Net finance income R30.4m (2013: R51.0m)

— Total comprehensive income R47.0m (2013: R29.7m)

21


Alexkor’s cash position at 31 March 2014:

Cash Category Balance at 31 March 2014 Balance at 31 March 2013

R R

Operational cash 113.6 million 139.4 million

Recapitalisation funds (MTEF) 211.4 million 201.1 million

Cash held in legal trust 10.7 million 10.8 million

Cash held in GFR 139.4 million 205.1 million

TOTAL 475.1 million 556.6 million

22


Reconciliation of government funded obligations:

All four phases with regards to the Township upgrade have been completed. The balance of the funds are retention funds that will become payable once the retention period expires.

23

Opening Balance at beginning

of the yearTransfers Received

Utilised during the year

Interest earned on investment

of funds

Closing balance

at the end of the year

Township establishment 10 710 376 - (2 769 771) 445 380 8 385 985

Costs related to Deed of Settlement 12 548 027 - (5 230 540) 550 519 7 868 006

PSJV recapitalisation 180 749 667 - (65 730 757) 7 241 091 122 260 000

Total government funded obligations 204 008 071 -

(73 731 068) 8 236 990 138 513 992


Litigation matters at 31 March 2014:

1. Nabera Mining (Pty) Ltd – Nabera instituted legal action against the Compan yin 2004 and the South African Government for alleged amounts in respect of a contract wherein Nabera managed the Company’s mining assets and operations from 1999 to 2001. This matter has been dormant since 2005.

2. Ruslyn Mining and Plant Hire (Pty) Ltd – Ruslyn instituted action in 2006 for damages arising out of a profit sharing agreement entered into on 22 June 2003. The matter was set down for hearing on 10 to 14 March 2014 but by agreement between the parties has been postponed to 2015. Settlement negotiations are ongoing.

3. Compensation for assets transferred to Richtersveld Community claim

No provisions were made for the above cases after consultation with legal representation.

24

When the Board was appointed in September 2012, the mandate given to it was as follows:-

Commercial imperatives:-

•Ensure that the mine is stabilised

•Appoint a CEO and CFO for Alexkor SOC Limited

•Increase production

Socio-economic imperatives:-

•Re-engagement with the community

•Re-establishing relationships with the Communal Property Association (CPA)

•Ensuring that there is direct benefit to the community from Alexkor’s efforts

25

Strategy (1 of 9)

Shareholder Mandate

Strategy (2 of 9)

What we inherited was the following:-

A. On the commercial side

1.Alexkor is currently the core business and the PSJV partnership the only commercial asset

• However this business was in serious distress and the initial engagement identified critical problem areas.

2. Profitability Eroded

• The PSJV was in a loss making position for more than 10 years.

3. Corporate Governance Compromised

• No Minutes of Audit Committee Meetings kept;

• Budgetting needed to be improved; and

• No record kept of mine dump allocations, and no tax clearance certificates for contractors.

26

Strategy (3 of 9)

4. Decline in Production and Employment

• Carat production dropped from 216,000 carats in 1995/6 to only 37,000 carats in 2011; and

• Employment dropped from more than 700 fulltime employees to about 88 in October 2012.

5. Environment Became Hostile

• A significant loss of trust in community structures and a growing feeling that the old scheme was better.

6. Executive vacancies:

• No CEO for over 2 years with a single consultant filling the CEO, COO and CFO roles. The secretary was the only full-time employee.

27

Strategy (4 of 9)

B. On the socio-economic side:

1. Community was extremely divided• There were various factions and there were all manner of accusations against various people within the community including the then existing CPA members.

2. Mistrust• Alexkor’s relationship with the community, between the period of the filing of the land claim and

2012, when the new Board ws appointed, deteriorated significantly due to job losses.

3. Laid blame on Alexkor for the decline

4. Court cases

28

Strategy (5 of 9) Steps taken by the Board to address the challenges:

A. Commercial Imperatives

29

Key activities Deliverables

1. Ensure continued direct board level involvement at the PSJV to guide actions.

• At least one board member is always available at the PSJV to provide guidance.

• One Board meeting in Alexander Bay per annum & the Chairman visits the mine every four to six weeks.

2. Significantly reduce overall quantum cost including telecommunications, health and safety etc

• Change the existing mindsets of all the employees in Alexander Bay.

• Cost savings vs increase in revenue (R1 saved is an R1 to profit).

3. Ensure effective management of marine contracts: Focus on enhancing productive and revenue from marine contracts.

• Review performance of all 52 marine contracts, terminate poor performers and incentivize good performers.

• Introduce middle water contractors to optimize marine concessions and extraction.

• Optimize execution plans to extract value out of Deep Sea Zone with Contractor IMDSA.

4. Indicative Resources • Z-Star was appointed to undertake a proper geological assessment of the land mining areas.

Strategy (6 of 9)

B. Unlocking Value of the PSJV

30


1. Extract value at mine dump:

• Re-treating old glove-box tailings and final recovery tailings, machinery and equipment to commence.

• Machinery prepared started in February 2013. One year project.

• Contributed towards the land mining targets set out in the 2013 Corporate Plan.

2. Development of Muisvlak and Kaap Voltas:

• Rolling up of 20 million tons of indicated resources through the Muisvlak plant.

• Purchase of roaming modular 300tph diamond plant.

• Contributed an additional 40 000 carats per annum as per the 2013 Corporate Plan.

The objective is to embark on an aggressive growth strategy to ramp up operations over the next 5 years from 35,550 carats to over 70,000 carats per annum.

The objective is to embark on an aggressive growth strategy to ramp up operations over the next 5 years from 35,550 carats to over 70,000 carats per annum.

Strategy (7 of 9)

Failure is not an Option

Failure of the PSJV will pose significant and broad political consequences:• To date this was the largest successful land claim against the state with significant external pressure to

succeed.

Failure will have a major impact on the community:• The development of the Richtersveld, Alexander Bay and Port Nolloth communities have been

neglected for many years;• In the 10 years since the settlement the community regressed rather than progressed; • Failure might have minimal impact on the State, but for the Alexander Bay Community and region it

will be severe and will have material socio-economic impact.

The state has an obligation to the wellbeing of the community: • The state as a shareholder has an obligation to enhance the wellbeing of the community. Failure to do

so will create a significant socio-economic burden for the State.• A successful turnaround strategy will create a flourishing economic viable and sustainable community.

31

Unlocking the PSJV value provides a final opportunity to revive the community now in critical distress.

Unlocking the PSJV value provides a final opportunity to revive the community now in critical distress.

Strategy (8 of 9)

Socio-Economic Imperatives

32


1. Direct Engagement • Direct engagement between the Board and the community with the Board making personal visits to each of the towns to understand the needs of the community.

2. DM Task Team • A government Task Team led by Deputy Minister Mr Bulelani Magwanishe, visited all four towns in order to intervene and restore stability to the region.

3. IEC Run Elections • Arrangements for the IEC to assist the community to have an election process in September 2013, which resulted in a legitimate CPA being appointed.

4. Farms made functional • The allocation of R7 million to revitalise the farms for outstanding water and electricity bills.

5. Formal Investigations • Investigations into maladministration and mismanagement of the Agricultural Holding Company and the Alexkor Development Trust.

6. Training for newly elected office bearers • Training for directors and trustees of the CPA entities to ensure that they were equipped to act as directors and trustees in an attempt to comply with the DoS implementation.. Training was given in pertinent areas of PFMA, Companies Act, King III, MPRDA and Mine Health and Safety.

Strategy (9 of 9)

Impact of Turnaround

33

Key areas Deliverables

1. Production • Production increased to 46 000 carats

• Jobs created from 106 to 266

• Profit for the 2013/14 financial year was R23.7 million

2. Trust • Trust with the legitimate leaders of the community was re-established through the process

Implementation of the Deed of Settlement (1 of 2)


1. Township Upgrade • In order to establish the township, Alexkor had to upgrade the existing municipal services to exceed municipal standards.

• This changed the company’s focus to one of a social focus.

• Upgraded services included water, sewerage, electricity, dams, houses and infrastructure.

2. Township Establishment • The Alexander Bay township was established on 22 November 2013 by the transfer of the first property i.e. the SAPS .Although the company is in a position to handover the township, the Municipality is not in a position to assume these responsibilties. As a result, a transitional agreement is being envisaged with the municipality to assist them in these services. The transitional agreement remains unsigned by the municipality.

• In order to finalise the transfer of the remaining properties, deeds of servitude need to be signed by the municipality. These have been negotiated with the Municipality and are in the process of registration.

Implementation of the Deed of Settlement (2 of 2)

35


3. Rehabilitation • The DoS requires that all overdue historic rehabilitation responsibilities remain the responsibility of Alexkor.

• An amount of R200 million has been received from Treasury for this purpose.

• Alexkor already had an amount of R56 million in Trust for rehabilitation.

• Alexkor has awarded a tender for the rehabilitation plan to a company called Myezo Environmental Consulting Services, a 100% black female owned company.

• A team of 40 (forty) general workers are working on historic rehabilitation.

• 4 (four) bursaries were awarded to students from the Western cape and Northern Cape and a further 4 (four) internships for Environmental management and Geology.

End State of Mining

Exiting the Structure

• DoS envisages the state will exit to a strategic partner. The exit must however be in a responsible manner to ensure long term sustainability

• Options whereby the community can receive cash rather then shares.

• The sale must derive maximum value for the State.

• The only real opportunity for meaningful job creation and economic development in that region is for there to be a consolidation of the various mining companies including De Beers, Transhex and Alexkor.

• Alexkor has to ensure the sustainability of the community post-mining due to the anticipated life of mine of 15 to 20 years. It has therefore taken steps to create non-mining opportunities for the community by putting out a tender for a company to partner with the community and create opportunities.

•

36

Expansion of Mandate (1 of 4)

The need to diversify

• Exit from diamonds and the Richtersveld

• Challenge by the Deputy Minister and the Department at the strategy session in December 2012 to broaden its focus within the context of the mandate specified in the Alexkor Act 116 of 1992 as amended by the Alexkor Act 29 of 2001.

• Alexkor Act is broad and covers all mining.

• To provide a counter-cyclical approach of disinvestment by major companies.

37


Why Coal Mining?

The Coal Security of Supply Task Team study, commissioned by DPE, predicted a crisis in coal supply to Eskom by 2018:

• By 2022, the coal shortfall could exceed 30Mtpa, equivalent to 6 - 10 large coal mines and over 20% of Eskom’s total demand;

• This is mainly due to mining companies cherry picking mining licence provisions to concentrate mainly on high grade coal for export and moving away from less profitable steam coal.

This creates multiple opportunities for Alexkor to reduce Eskom’s coal supply risk:• Utilise the current Eskom Infrastructure investment fund to develop a state owned capability

in Alexkor;• Agree a cost plus commercial model with Eskom to supply coal;• Renegotiate lossmaking supply contracts with companies like Glencore-Optimum; • Long and expensive litigation can be avoided by ceding coal supply rights to Alexkor e.g.

Khuthala.

38

Source: Coal Security of Supply Task Team Report (CSSTT 2012), 31 January 2013


Benefits of Alexkor’s entry into coal

• To ensure security of supply to Eskom• To create a stable economic and investment environment• To improve the national credit rating• To ensure transformation of the sector

Perception of conflict of the Mangaung Resolution

• The Mangaung resolution requires that the State Owned Mining Company (SOMCO) should be established and be under the direct supervision of the Department of Mineral Resources. Furthermore, SOMCO should gather all the State’s interests in mining including those in Alexkor, AEMFC and other stakes which Government holds in mining corporations.

• As a result, Alexkor’s entry into coal is actually no conflict to the Mangaung resolution.• This is a policy and political discussion and Alexkor will comply and has no preference as to where it is

located.

The energy crisis is now and the responsibility to resolve it lies with the DPE (with Government through the Integrated Resource Plan)

39

• Collaboration between Eskom and Alexkor including the transfer of certain assets from Eskom to Alexkor in respect of coal.

• A policy document being prepared by Alexkor and DPE for submission to the Economic Transformation Committee by December 2014 to be tabled at the Policy Conference in June 2015.

The implementation set out above will now take effect in January 2015 when the Boards of Eskom and Alexkor have been reconstituted.

40


Steps for Implementation

41

Thank You

Documents

Presentation of the Annual Report for the Year Ended 31 March 2014 Presentation of the Annual Report for the Year Ended 31 March 2014 19 NOVEMBER 2014