Overview of Alexkor - Parliamentary Monitoring Group

T4IB00583_Alexkor_AR06 _page2_Eng_13/10/06_Proof 9Board ofDIRECTORSMartin van ZylBoard MemberJohan van DeventerBoard MemberMzamani MdakaBoard MemberNchakha MoloiChairpersonVuyo MahlatiBoard MemberRian CoetzeeBoard MemberDr Tanya AbrahamseBoard MemberAuditCOMMITTEEReggie MuzaririChairperson – ExternalXoliswa MotswaiExternalJohan van DeventerBoard Member2ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page3_Eng_13/10/06_Proof 9CurrentManagementSTRUCTUREMzamani MdakaChief Executive OfficerDavid BeukesEngineering Managerand Acting Mine ManagerGeoff DaviesMineral Resourcesand Marine ManagerWilna Gilbert-CloeteHuman Resources ManagerMario van der WaltChief Financial OfficerCheryl SinghCompany SecretaryAs at 31 March 2006 Senior Management consisted of thefollowing members:M E MdakaR CloeteW MeyerD BeukesG M DaviesW M Gilbert-CloeteS LaingChief Executive OfficerActing Chief Financial OfficerMine Manager and ABT ManagerEngineering ManagerMineral Resources and Marine ManagerHuman Resources ManagerSecurity ManagerSchalk LaingSecurity ManagerMessrs E Adams and C Matthews resigned from the positions ofChief Financial Officer and Company Secretary respectively at the endof February 2006.Ms C Singh and Mr M van der Walt joined Alexkor on 10 July 2006and 1 August 2006 respectively.ALEXKOR LIMITEDannual report 20063

T4IB00583_Alexkor_AR06 _page5_Eng_13/10/06_Proof 9stage for the development of sustainablecommunities with improved service delivery fromthe State.The company keeps itself fully appraised withmajor international developments in the diamondmarket and uses these developments to informstrategies and business models to enhanceshareholder returns and maximise shareholdervalue. A combination of the rapidly changinginternational diamond industry, the newlegislative developments and the land claims casedemand a responsive and visionary Board ofDirectors to grow the company.The Board is of the opinion that the speedy andefficient realisation of the restructuring and realigmentinitiatives as well as the resolution of theland claims case will create optimal returns for boththe company and the South African public at large.Business PerformanceLast year Alexkor, along with other State-ownedenterprises, begun the process of implementingInternational Financial Reporting Standards.Alexkor’s financial reporting framework wasaccordingly adapted both in terms of content andstyle, in order to comply with these standards.The financial performance of the company ishampered primarily by the land claim and theimpact of unfavourable weather and seaconditions on the shallow water marine miningoperations.The Board of Directors has summed up the resultsof the financial business activities of Alexkor forthe year ended 31 March 2006. The companycontinues to make losses.Below is a comparison of 2005 and 2006, the2005 financial year being a nine-month period:• Revenue increased to R159.4 million fromR152.4 million.• Net operating expenses increased toR197.6 million from R121.3 million.• Loss from operations of R38.2 million from aprofit of R1.5 million.• Profit margin decreased to -0.23% from0.61% in 2005.• Return on capital employed decreased to-47%, from -0.01% in 2005.• Operating cash flow decreased to R6.2 millionfrom R0.6 million in the previous year.• Total debt ratio decreased to 1.74:1 timesfrom 3.99:1 times in 2005.• Current ratio decreased to 4:1 from 4.14:1in 2005.Social InvestmentMining, particularly the diamond industry, is thebackbone of the Namaqualand economy andmakes the largest contribution to labourremuneration in the region.Although not the biggest employer inNamaqualand, Alexkor provides employment toapproximately 1 851 people in the region directlyand indirectly. Personnel expenses amounting toR60.9 million were paid for the financial yearunder review.The mine supports a hospital at Alexander Bayand included in the social welfare contributionswhich Alexkor provides to the region, is a clinicfacility for the Richtersveld pensioners.Schooling is provided in Alexkor’s facilities to allchildren resident at Alexander Bay as well as forchildren living at nearby mining communities.The communities also stand to benefit fromAlexkor’s ancillary business operation (ABT) afterthe takeover by the Richtersveld Community.Alexkor, in its endeavour to create jobs for localcommunities, created an alternative economicactivity for the retrenched employees and localcommunities. The company outsourced its entireshallow water operations to small and mediumsizedbusinesses, with significant economicparticipation by former (retrenched) Alexkoremployees and members of the communities, inline with Alexkor’s social plan.Of the current annual turnover of approximatelyR159.4 million which is generated by Alexkor,approximately R71.2 million is injected into theregional economy to the greatest benefit of theengineering, general supply and constructionbusiness sectors. Around 38% of the annualturnover was paid to the marine contractors.ALEXKOR LIMITEDannual report 20065

T4IB00583_Alexkor_AR06 _page7_Eng_13/10/06_Proof 9The CEO, Mzamani Mdaka, continues fromstrength to strength and has done a sterling job inkeeping Alexkor intact. Mzamani leads a seniormanagement team in the persons of M van derWalt (Chief Financial Officer), C Singh (CompanySecretary), Geoff Davies (Mineral ResourcesManager), David Beukes (Engineering Managerand acting Mine Manager), Wilna Gilbert-Cloete(Human Resources Manager), Schalk Laing(Security Manager) and Clifford Oppel (actingManager for ABT).E Adams, the Chief Financial Officer andC Matthews, the Company Secretary left thecompany’s employ during the year. Wilna Gilbert-Cloete was appointed the Human ResourcesManager, M van der Walt the new CFO andC Singh the new Company Secretary.ALEXKOR LIMITEDannual report 20067

T4IB00583_Alexkor_AR06 _page8_Eng_13/10/06_Proof 9Chief Executive’sREPORTIntroductionThe period under review is considered to havebeen one of the most difficult times for thecompany. Management was faced with achallenge of sustaining current operations asgoing concern with limited resources whilst thecompany continued to operate at a loss. Thesecurrent operations are comprised of the miningactivities on land and sea mining areas, as well asthe non-mining activities such as ABT, the town,the hospital and the airport. The mining activitiesform the core of Alexkor’s business. Over the past10 years, the company’s carat production basefrom land and sea has declined from a high of227 000 carat per annum in 1995 to 43 000in 2006, which is the lowest production levelrecorded in the company’s recent history.A number of constraints have resulted in Alexkoroperating at a loss as is evident in the FY2006performance. This situation has resulted in thedepletion of the company’s cash resources sinceno capital injection was made to address theidentified constraints. Despite the extent of thedeposits, the current mining operations areseverely constrained by the lack of an identifiedreserve base; a poorly maintained and aging earthmovingfleet; a plant infrastructure requiringupgrading; an overdependence on unreliable,contracted, diver-directed mining methods; and alack of capital or access to capital to rectify thesituation.Financial PerformanceAlexkor’s consolidated revenues and costsfrom current operations for the FY2006 wereR159.5 milllion and R197.6 million respectively,resulting in an operating loss of R38.1 million. Inaddition to this, adjustments were made for thepost-retirement medical liability and rehabilitationliability to the amounts of R11.4 million andR160.1 million respectively, in line withrequirements of the IFRS implementation. Theimpact of these adjustments resulted in areported total loss of R205.5 million for FY2006.When excluding the effects of the adjustments(R171.3 million) and costs associated withthe subsidisation of the non-core assets ABT(R4.1 million), the town (R4.1 million) and thehospital (R2.6 million), the mining activities wouldhave made an operating loss of R23.4 million.Challenges and Turnaround PlansThe main factors impacting negatively on turnaroundplans for ABM include the continuedmaintenance and subsidising of non-core assets,uncertainties related to the settlement of the landclaims case and the lack of defined ore reserves.The pending land claims case has hugely affectedthe development and implementation of plansnecessary to turn the company into profitabilitysince no capital investments or long-term miningplans could be implemented on land mining,which is the subject of the claim. The company’sloss-making situation was exacerbated by the lackof defined ore reserves in the current miningareas; the fixed costs associated with personnelexpenses; and maintenance of existing plant andequipment.Alexander Bay Trading (ABT), currently theagricultural and trading division of Alexkor, is inthe process of being corporatised into a separatelegal entity. The future development of a postminingeconomy suggests that creativepartnerships ought to be found to ensure theeffective investment in ABT without burdeningthe mining operations. This would includerunning each business unit as a separate entity.Other business units were identified as non-coreand will be transferred to the relevantgovernment authorities. These include theairport, hospital, pharmacy and Alexander Baytown.In order to turn the mining operations intoprofitability, the objective is to maximiseproduction from land and sea mining areas.The restructuring of land mining operations toa three-shift configuration commenced inAugust 2005 with the initiation of a twoshiftconfiguration on the mining areas.Implementation of the three-shift configurationwas completed in May 2006, and has so farshown improvements in tonnages processed atthe plants. To achieve the short-term plan, anexploration plant that was constructed in thesouth of the mine to support mining in theMuisvlak area has been relocated to the northern8ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page9_Eng_13/10/06_Proof 9part of the mine where current mining is takingplace. Exploration will be conducted ahead of themining activities confirming economically viableblocks for mining. These targeted blocks will beidentified from historical sampling. Managementis reviewing the allocation of mining-related coststo account for land and marine mining activitiesseparately, which will make it easier to monitorthe trends in unit costs and the profitability ofeach business unit.In an attempt to reduce overreliance on diverdirectedmining operations, remote miningmethods are being implemented. The first remotemining unit has commenced production inJuly 2006. Until the remote mining techniqueshave proven their ability to effectively operate onthe Alexkor concessions, the diver-directedoperations will remain the major contributor toAlexkor’s production and this is a concern whenconsidering the continuous downward trend inthe number of sea days.In the longer term, the objective of the miningoperations will be the establishment of a mineralreserve base from which reliable mining andbusiness plans can be developed. Management,after consultation and approval by the Board, hasdeveloped a recapitalisation programme aimed atexpanding operations through new and upgradedinfrastructure and increased equipment levels.The recapitalisation programme’s requirementshave been submitted to the Department of PublicEnterprises (DPE) and emphasis has been placedon the need to conduct exploration on both landand sea concessions in order to convert theinferred resource into probable and provenreserve. The integral part in the development of areliable mine plan is the availability of probable orproven reserves which are deduced from theresults of an exploration programme. Alexkor, inrecent years, has not conducted any meaningfulexploration that would have resulted in theconversion of the mineral resource into aprobable or proven reserve.Safety and HealthAlexkor obtained its first 1 000 fatalityfreeproduction shifts in March 2005. Thisachievement resulted from a dedicated teameffort from management, workers andcontractors as well as meticulous adherence togood safety practices. It is with regret that thecompany reports the loss of two lives in separateaccidents that occurred in the 2006 financial year.One of the two fatalities resulted from a vehicleaccident that occurred in October 2005, and theother involved a diving supervisor who lost his lifeafter an underwater incident whilst conductingdiving operations in January 2006. The reportedLost Time Injury (LTIFR) and Reportable Injury(RIFR) Frequency Rates for the 2006 financialyear are 1.13 and 0.98 respectively. This is animprovement when compared to 2005 LTIFR andRIFR of 1.27 and 1.11 respectively. The safety andhealth of our employees remain a high priorityand management is committed to improving theprevious financial year’s performance in 2007.ALEXKOR LIMITEDannual report 20069

T4IB00583_Alexkor_AR06 _page10_Eng_13/10/06_Proof 9Review of Financial PerformanceREVIEWof FinancialPerformanceand OperationsRevenueAlexkor’s consolidated income for the 2006financial year was R159.4 million (2005:R152.4 million) against a budget of R289.7 million.The shortfall was largely as a result of lowerdiamond production from the mining operations.The company’s revenue stream is broken down intoincome from ABM of R139.0 million, R13.9 millionfrom ABT and R6.5 million from the non-strategicassets.Net Operating Profit/LossTotal costs for the period under review wereR197.6 million compared to R151.8 million in2005 with the latter being for a period of onlynine months. The net operating loss for theperiod under review is R38.1 million (2005:R1.5 million profit). This is further broken downinto a loss attributable to mining operations ofR27.3 million and the balance of R10.8 millionloss related to the non-strategic assets i.e. ABT,town maintenance and the running of thehospital. The company had budgeted for anoperating profit of R24.4 million.Alexkor did not account for any amount to bepaid to SARS on normal income tax as thecompany expects to still make a loss in the currentfinancial year.Non-cash AdjustmentsTwo major adjustments were made on the2006 Annual Financial Statements amounting toR171.3 million, namely:• Restating of the rehabilitation liability in linewith the IFRS requirements by an amount ofR160.0 million (2005: R642 135) based onthe estimate conducted by an independentenvironmental management consultant. Thestudy conducted estimates the current liabilityto be R193.0 million. This adjustment hasresulted in an increase in the rehabilitationprovision from R22.3 million to R178.8 million.• Provision for post-retirement medical benefitsincreased by R11.4 million (2005: R10 million) asper the actuarial valuation on 31 March 2006.Balance SheetThe impact of the non-cash adjustments amountingto R171.3 million on the balance sheet was offsetby the inclusion of revaluation of the property, plantand equipment as required by IFRS. The revaluationof these assets has resulted in a R409.3 millionincrease in accumulated reserves during FY 2005 (asa comparative adjustment).Capital ExpenditureThe decline in the carat production over the yearscan be associated with the lack of meaningfulcapital investment required to expand productioncapacity and revenue growth profile. No majorexpansion plans were implemented in the pastwith the exception of the R25 million spent in2003 to 2004 on the exploration programme andthe purchase of two infield screening plants aswell as two rigid haul trucks. Capital expenditurefor the period under review was R5.8 million, asignificant portion of which was spent on aninfield screening plant, the Heyman SecurityScanner, IT equipment and other operatingequipment. The capital expenditure for ABM inthe past five years is depicted in Figure 1.Figure 1: Historical Capital ExpenditureR (million)201510502001Cash Flow2002 2003 2004 2005 2006CapexCapex % on Income14%12%10%Cash outflow from operations of R6.5 millionwere derived from normal operating activities asper the income statement and adjustments forchanges in working capital and non-cash flowitems.Cash flow from investing activities of R6.1 millionwere mainly as a result of capital purchases ofR5.83 million.During the year none of the operations werefinanced from external sources.8%6%4%2%0%10ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page11_Eng_13/10/06_Proof 9Core OperationsAlexander Bay Mining (ABM )The goal of ABM’s business plan is to “maximiseshareholder value” through revenues gainedfrom the mining and sale of rough diamondssourced from both land and marine operations.The marine operations comprise 75 miningcompanies contracted to deliver diamondiferousgravel to Alexkor’s processing plants where thegravel is processed for the recovery of diamonds.The land mining operations include Alexkor’s ownmining teams, in addition to three contractedmining companies, that extract and deliverdiamondiferous gravel to the processing plants.Income from the sale of diamonds wasR129.1 million (2005: R143.3 million) against abudget of R217 million. The contribution torevenue from marine operations was R101.6 million(2005: R120.9 million), and the contribution fromland operations was R27.5 million (2005:R22.4 million) – see charts below. ABM’s incomefrom diamond sales was 46% below budget ofR217 million. This was as a result of lower caratproduction of 43 207 carats (2005: 49 577 carats)which was 51 046 carats or 54% below thebudgeted carat production. The marine operationscontributed 30 046 carats (2005: 38 454 carats) tothe mine’s production whilst the land operationscontributed 13 161 carats (2005: 11 123 carats).Figure 2: Diamond Revenue and Carat ProductionContributionCt produced (000’s)1201008060402002001 2002 2003 2004 2005 2006ECarat ProducedDiamond Income300250200150100The carat production from marine operations was28 599 carats below target due to adverse seaconditions. Only 34 diving days (2005: 44 days)were available for mining operations as opposedto 55 in the preceding 12 months. The decline inthe number of diving days is a continuation of atrend established over recent years that hasimpacted on the mine’s ability to maintainhistorical marine carat production levels.500R (million)The carat production from the land operations of13 161 carats was 22 447 carats below budget.The bulk of the carat shortfall, 19 084 carats,was due to the planned contractor operationsat Witvoorkop and Muisvlak not becomingoperational. The targeted diamond income fromthese operations was R29.3 million whichaccounts for the net shortfall on the landdiamond revenue of R29.5 million. The revenuefrom Alexkor’s own mining teams wasR6.5 million below target and this was offset byR6.3 million generated by the three land miningcontractors. Alexkor’s revenue shortfall wasattributable to lower productivity levels associatedwith mining an inferred resource.Diamond MarketContinued strength in the diamond marketresulted in improved prices received for the mine’srough diamonds in specific size ranges. The pricereceived for the year’s production was US$474per carat which was 21% above target. The pricereceived was lower than the previous year’s priceof US$522 per carat due to increased productionfrom the south of the mine with an associatedsmaller stone size.Alexkor changed its marketing strategy at theend of the year from selling to a single buyer toselling on the open market through a tenderprocess. Improved prices were realised as a resultof the change in strategy.The establishment of a State Diamond Trader(SDT) in terms of the Diamonds Amendment Bill isawaited with interest. The Bill requires producersto sell a proportion of their diamond productionto the SDT and the diamond parcel from eachproducer will be evaluated by the State DiamondValuator. The full implications and effect of theprovisions of the Bill on the local diamondindustry will only become apparent once the Billhas been implemented. At this stage, it is unclearwhat the ramifications will be on fair diamondevaluation and selection of the diamond parcel tobe purchased by the SDT.Status of Mineral ResourcesA major constraint to the successful operation ofthe mine is the lack of a diamond reserve orbankable diamond resource in accordance withALEXKOR LIMITEDannual report 200611

T4IB00583_Alexkor_AR06 _page12_Eng_13/10/06_Proof 9REVIEWof FinancialPerformanceand Operations(continued)the requirements of the South African Code forthe Reporting of Mineral Resources and MineralReserves (The SAMREC Code). The current landoperations are extracting a diamond resourcedefined at the inferred level only. The marineoperations are based on a diamondiferousdeposit in which diamond occurrences are tooerratic to adequately define an inferred resource.In order to develop a sound operational plan, adefined ore reserve is required and Alexkor hasnot been able to identify any ore reserves fromthe current inferred resource. The currentoperational plan thus has a high level ofuncertainty regarding the achievement of caratand revenue targets.In order to generate a reserve base and to ensurethat the mine operates according to generallyaccepted good practices, a strategic plan basedupon the recapitalisation of the mine has beendeveloped with an aim of embarking on a majorexploration programme on Alexkor’s land and atsea concessions.The exploration programme will focus on drivingthe resource estimates of the different miningareas from that of an inferred status to that of anindicated resource status. This will be followed byTable 1: Diamond Resource at an Inferred Level.a feasibility study conducted to establish theeconomic and mineability of the indicatedresource and converting these to a defined orereserve base, at the required level of confidence.The status of Alexkor’s mineral resource andreserve base is as illustrated by the resourcetriangle shown below for the land-basedresources.Figure 3: Resource to ReserveECONOMICVIABILITYRESERVEINDICATEDINCREASING RESOURCECONFIDENCEINFERREDRESOURCE00.33 0.66 1.0 M caratsAlexander Bay Peacock Bay GifkopHolgat North Port Nolloth CliffsHolgat South Kaap Voltas LangpanPerdevlei Rietfontein MuisvlakInferred resource inventory at a cut-off of 0.1 cphcThe land resource base of ABM is stated inaddition to the SAMREC definitions of theclassification of diamond reserves and resourcesand is as summarised in Table 1 below:Mine Area Resource Grade Content Stone sizeArea m 2 cts/100 m 2 cts cts/stnAlexander Bay 1 200 000 2.79 35 000 0.5Kaap Voltas 6 500 000 11.75 763 000 0.5Peacock Bay 2 300 000 11.62 267 000 0.5Rietfontein 8 300 000 6.24 518 000 0.3Gifkop 9 500 000 7.92 752 000 0.3Holgat North 1 700 000 5.96 101 000 0.3Holgat South 2 700 000 6.96 188 000 0.3Perdevlei 3 900 000 6.43 250 000 0.3Cliffs 8 200 000 6.04 494 000 0.3Langpan 10 300 000 7.49 771 000 0.2Muisvlak 7 600 000 9.21 699 000 0.3Port Nolloth 4 400 000 4.15 182 000 0.3Totals 66 600 000 7.54 5 020 000 0.3Notes:1. This Resource Statement is based on the Mineralisation Inventory as at 31 August 20042. The Resource Statement is quoted at a cut-off grade of 2.1 cphm 3 (which equates to the in situ Breakeven Grade as calculated byAlexkor from direct mining costs as at 31 October 2005)3. Since 31 August 2004 the resource has been depleted by an amount of 15 000 carats4. Figures quoted are for a bottom cut-off screen size of 1.6 mm5. Figures quoted are in situ6. This statement was prepared by P Hollick, an independent consultant and competent person as registered with SACNAS.12ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page13_Eng_13/10/06_Proof 9The SAMREC code states that “an ’inferreddiamond resource’ is that part of a diamondresource for which tonnage, grade and averagediamond value can be estimated with a low levelof confidence. It is inferred from geologicalevidence and assumed but not verified bygeological and/or grade continuity and asufficiently large diamond parcel is not availableto ensure a reasonable representation of thediamond assortment. It is based on informationgathered through appropriate techniques fromlocation such as outcrops, trenches, pits, workingand drillholes that may be limited or of uncertainquality and reliability.”Insufficient confidence exists in the historicalquality and quantity of sampling conducted onABM’s land-inferred resource base to identify aresource at a higher level of confidence such asan indicated diamond resource or measureddiamond resource. In the classification of adiamond reserve, the SAMREC code states that“a ’diamond reserve’ is the economically mineablematerial derived from a measured and/orindicated diamond resource”. The company hasnot declared an indicated resource or measuredresource, thereby precluding the statement of areserve.The planned recapitalisation of the miningoperations will allow for the execution ofAlexkor’s exploration programme which willincrease the level of confidence in the inferredresource to a level that will allow theidentification of an indicated diamond resourcefrom which a diamond reserve may be defined.Safety, Health and EnvironmentParagraph on safety stats for the year andstatement on the two fatalitiesThe mining operations are conducted in anenvironmentally-responsible manner in accordancewith the Environmental Management Programme(EMP) Report authorised in 1995 by theDepartment of Minerals and Energy (DME). To thisend all efforts are made to minimise the impactsthat any mining activities may have on theenvironment, and to manage any disturbancesthat do occur in such a way that theenvironmental liability of the mine is notincreased. In excavating mining sites, a system ofconcurrent rehabilitation is practised wherebyexcavated overburden is immediately used tobackfill historically mined out areas.The historical rehabilitation responsibilities of themine have been identified, updated and capturedin a database. Rehabilitation methodologies forthe identified sites have been compiled and a costestimate for their rehabilitation determined. Therehabilitation methodologies and the updatedrehabilitation liability will be submitted to theDepartment of Minerals and Energy in the comingyear for approval as amendments to the mine’sEMP. The liability has been estimated byenvironmental consultants, Site Plan Consulting,as R193 million.Asset ProtectionThe vision of Alexkor’s security department is tominimise the impact of illegal diamond buyingand related activities at the mine and surroundingareas, as well as the protection of all valuableassets of Alexkor. Security services at Alexkor arecontracted out to Protea Security Services (Pty)Ltd who commenced with operations inAugust 2005 after cancellation of the formerCoin Security contract. The relevant securityrequirements were reviewed to ensure propercompliance to the security needs of the company.Continuous training and development of securitystaff in line with the needs of the company areviewed as crucial in areas such as marine and landmining operations. To this end, training courseswere presented to security staff in line with thesecurity requirements for both land and marineoperations.Protection of the company’s assets in linewith strategic objectives shall remain a priorityfor Alexkor. In order to minimise any potentialdiamond theft, a Heymann full body X-raymachine was installed during the financial yearunder review. This machine performs continuousbody scans on all individuals exiting the miningarea. In addition to this initiative the securitydepartment also introduced security on shoreunits, as well as shallow- and mid-water vessels.Alexkor’s security department continues tonurture constructive relationships and cooperationwith the relevant stakeholders in thepolicing and security environment in itsendeavour to combat the flow of illegal diamondsin the broader Namaqualand region.ALEXKOR LIMITEDannual report 200613

T4IB00583_Alexkor_AR06 _page15_Eng_13/10/06_Proof 9Strategic OutlookManagement’s key focus for 2007 will be todevelop and implement plans aimed at returningthe mine to profitability. This strategy will requirethe generation of a reserve base for the mine, anincrease in production volumes from land, and areduction in ABM’s dependence on unreliablediver-directed mining methods for marine mining.The inferred land-based diamond resource of themine of 5.9 million carats at an average stonesize of 0.34 carats per stone represents anopportunity for the development of a significantdiamond mining operation. To realise such anoperation an exploration programme is plannedwith an objective of defining a reserve base forthe mine from which a bankable business plancan be developed. The equipment levels andplant infrastructure required for the explorationprogramme will be funded through a recapitalisationprogramme to be motivated inthe coming year. The programme will includegeophysical surveys at sea to identify targets forremote mining.• the opening of the south of the mine toshore-based units, thereby allowing boatbasedunits to operate in in-shore areas onthose days when sea conditions prevent boatsfrom operating; and• exploring possibilities of co-operating withother mining companies to take advantage ofsynergies on land and sea mining operations.The achievement of the company’s strategicobjectives, especially regarding increased caratproduction from the land resource base is largelydependent on the extent of capital allocationas stated in the company’s recapitalisationrequirements.Production volumes on land are being increasedby bringing to account unutilised mining andplant capacity. This was achieved through theimplementation of a three-shift production dayfor the mining and plant operations. Theincreased volumes will increase carat productionand reduce unit-mining costs, thereby increasingthe potential for the profitable extraction of theresource.In order to reduce the mine’s exposure to erraticsea conditions, remote, non-diver-directed miningtechniques are being introduced. The first suchunit commenced production in July 2006.Further initiatives to return the mine to profitabilityare:• the creation of an environment which willallow for increased levels of productivityby shallow water contractors. Initiativestaken in this regard include encouraging theamalgamation of contracts into a smallernumber of enlarged, stronger contracts;ALEXKOR LIMITEDannual report 200615

T4IB00583_Alexkor_AR06 _page16_Eng_13/10/06_Proof 9HUMANRESOURCESand SocialDevelopmentHuman ResourcesOver the past few years the Human Resourcesdepartment has reported on trends indevelopments related to good practices beingimplemented at Alexkor. The Human Resourcesdepartment validated and expanded its strategicrole in the business. Since 2003, Alexkor hascommitted itself to develop various structures andmanagement frameworks to provide and supportthe business with human resources practicesand competencies which add value, therebyimproving the company’s economic performanceand contribution towards social needs.Alexkor remains committed to show animprovement in key areas of management focusin the following domains:• complying to laws impacting on labour andemployment practices in the Republic ofSouth Africa;• improving employee skills through continuousdevelopment and training interventions;• succession planning, attraction and retentionof talent;• continuing to advance employment equity byrecruiting suitable candidates from previouslydisadvantaged groups; and• creating HIV/AIDS awareness.The Human Resources department is fullycommitted to upholding and implementing thecompany’s vision, mission and values and thedepartment expresses this commitment activelyin its day-to-day management of humanresources functions. Operational performanceand benchmarking of human resources trends,continue to form an integral part of the HumanResources department’s responsibilities.Figure 4: Socio-economic ContributionContribution to EmploymentThe various business activities at Alexkor andemployment opportunities over the past threeyears for the main mining activities are depicted inthe following table:Table 2: Alexkor’s Business ActivitiesDivision FY 04 FY 05 FY 06Mining 253 264 246Farming 109 106 110Health services 27 27 25Municipal services 33 33 31Temporary (contract) 36 26 39Marine contractors 996 1 117 1 164Other contractors 287 277 236Total 1 741 1 850 1 851As depicted in the table above, the contractorsaccount for high employment opportunities in theGreater Namaqualand District – approximately76% (1 400) of the total FY2006 staff strength isattributed to contractor employees. The majorcontracting companies and suppliers of Alexkorinclude Barloworld, Engen, Protea SecurityServices, Quality Tyres, Royal Foods Services andSunrise Motor Spares. The majority of thesecompanies are black empowered. In addition,Alexkor as a responsible corporate citizen,channels social investments into education andtraining, infrastructural development, welfare,arts and culture.FY2005 (R million)0.7FY2006 (R million)0.9Health ServicesMunicipal ServicesSocial Services5.76.47.26.116ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page17_Eng_13/10/06_Proof 9Socio-economic ContributionsAlexkor also maintains and runs the town ofAlexander Bay, including the supply of water toAlexander Bay and Port Nolloth. It also continuesto provide housing, water and electricity to itsemployees, contractors and other stakeholders atsubsidised rates.Employment Equity (EE)Alexkor regards employment equity as a strategicpriority and monitors progress closely in thisregard. Barriers within policies, procedures andprocesses which impede on the enhancement ofEE and other goals have been eliminated.Table 3: Current Employment Equity statistics of AlexkorMaleFemaleOccupational Number of % of DesignatedLevel Incumbents AM CM WM IF CF WF GroupTop Management 1 1 100Senior Management 5 1 2 1 1 60Professionally Qualified 12 3 2 4 1 2 67Skilled 71 23 37 3 8 48Semi-skilled 215 7 141 20 33 14 91Unskilled 97 10 57 30 100Total 401 21 224 63 1 68 24 84AM = African Male CM = Coloured Male WM = White Male IF = Indian Female CF = Coloured Female WF = White FemaleBlack Economic EmpowermentAlexkor set a target that procurement fromhistorically disadvantaged South Africans (HDSA)must be in excess of 25% over a three-yearperiod starting 1 March 2004. For the year ended31 March 2006, Alexkor procured goods andservices from BEE companies which includemining contractors, companies providing servicessuch as security, catering and maintenance.The spend on black-empowered companiesaccounted to R91.4 million representing 55% oftotal spending.Alexkor continues to strive to serve the communityby awarding new contracts to black-empoweredcompanies. This ensures that contracts reflectcommunity participation and involvement.As a responsible corporate citizen, Alexkorcontinued to focus on female empowerment andcommitted itself to the objectives of capacitybuilding to ensure meaningful female participationin the local and mainstream economy, and thealleviation of poverty amongst marginalised females.In an endeavour to achieve these objectives capacitybuilding amongst females was streamlined byinitiatives such as the allocation of bursaries inmining-related disciplines, the placement of femaleson mentorship programmes, the employment offemales on learnerships in engineering trades andtraining of females as earth-moving operators.Further initiatives to ensure female participationin the local economy include awarding shallowwater and land mining concessions to contractorssubject to a female equity ownership. Femaleshareholding in shallow water and land miningconcessions amounts to approximately 17.5%.Alexkor also allocated 50% of Witvoorkop,one of the mining areas within Alexkor’s landconcessions, to a women’s empowerment groupcomprising women from the Richtersveld area.HIV/AIDSHIV/AIDS has a direct impact on Alexkor, both interms of its workforce as well as the communitieswithin which it operates. A prevalence survey wasconducted in April 2003 which indicated aninfection rate of 2.8%. Activities and formalmanagement around HIV/AIDS awareness wereidentified, implemented and compounded duringthe review period.ALEXKOR LIMITEDannual report 200617

T4IB00583_Alexkor_AR06 _page19_Eng_13/10/06_Proof 9Alexkor continued with its bursary programmeduring the review period. Of the six bursariesallocated, five were granted to historicallydisadvantaged candidates from the Richtersveldand the broader Namaqualand region. In so doing,Alexkor will ensure employing academicallyqualifiedcandidates from the local communities inmining-related disciplines in future. ABET learnersare in various stages of progress ranging from levels2 to 4 in English, Mathematics and Numeracy.A turnaround strategy on the retraining andredeployment of non-production staff toproduction teams was launched andimplemented during the review period. Thisstrategic initiative is in line with the strategicobjectives of Alexkor to ensure optimisation ofproduction on the land mining areas. Aftercompletion of the retraining and redeployment ofselected staff, the split in terms of production vsnon-production staff changed from 40%production to 60% production staff. This initiativecommenced in January 2006 and was completedat the end of March 2006.In an endeavour to optimise production, a threeshiftcontinuous configuration was implementedon land mining and processing departments. Themulti-skilling of earth-moving operators in line withthe three-shift configuration was implemented toensure continuity as well as flexibility. This initiativecommenced in February 2006 and is ongoing,until all earth-moving operators are multi-skilled.Intensive training of plant processing staff was alsoinitiated in support of optimised plant utilisation, inline with the continuous three-shift configurationoperation.Industrial RelationsAlexkor continues to have a constructiverelationship with the National Union ofMineworkers (NUM) and United Association ofSouth Africa (UASA). Owing to the good rapportwith the unions, there were no lost-time hours asa result of industrial action for the review period.The company continues to engage with organisedlabour on various forums where salaries, conditionsof employment, training and development,HIV/AIDS, and safety and productivity are discussedcandidly. At these forums common outcomes tothe benefit of all are sought. Participative structuresare in place to ensure the ongoing involvement ofemployees and organised labour in formulatingAlexkor’s policies and procedures.Rigorous industrial relations policies, proceduresand methodologies have been adopted andimplemented, enabling effective management ofindustrial relations.Substantive negotiations for the FY2006 withNUM and UASA were concluded within themandated percentage increase and addressed thesalary disparities as well as normal salaryadjustments.The major components of the company’s humanresources strategies are in place and we arepositioned to deliver on the challenges facingAlexkor for the FY2007. Through appropriatehuman resources interventions, we contributedto the development of innovative solutionsand improved efficiencies in the company’soperations.In an endeavour to improve staff morale andproductivity, as well as to ensure properremuneration of our human capital, the companyaddressed the historical salary disparities withinjob levels and specific positions. The underlyingcriteria applied to ascertain anomalies within postlevels was based on the number of years ofexperience in the employ of the company, yearsof experience in existing positions, post level andthe level of responsibility to a particular job inrelation to the same or similar job in another area.ALEXKOR LIMITEDannual report 200619

T4IB00583_Alexkor_AR06 _page20_Eng_13/10/06_Proof 9CorporateGOVERNANCEIntroductionAlexkor is committed to developing andimproving its corporate governance processesand frameworks in line with the Companies Act,the Public Finance Management Act (PFMA),the King II Code on Corporate Governanceand international best practices. The company isfocusing on a number of initiatives to ensure strictadherence and compliance with the dynamic andongoing process of corporate governance toachieve fair and ethical trading in a competitivebusiness environment.ShareholdingThe National Government under the auspices ofthe Department of Public Enterprises remainsAlexkor’s sole shareholder.Composition of the Alexkor BoardThe Board comprises seven directors, six of whichare non-executive, the Chief Executive Officerbeing the only executive director.Mzamani Elias Mdaka was appointed as ChiefExecutive Officer on 1 July 2005 after theresignation of Dalikhaya Rain Zihlangu on31 March 2005. The shareholder appointed thenew Chief Executive Officer after consultationwith and approval from the Alexkor Board. TheChief Executive Officer is responsible for theefficient and effective day-to-day managementand operations of Alexkor, in accordance withstrategic decisions of the Board and theshareholder. The Chief Executive Officer remainsaccountable to the Board.Functions and Responsibilitiesof the BoardThe Board is tasked with ensuring that thecompany and the Chief Executive Officer isprovided with clear strategic direction and in thislight the Board has approved Alexkor’s 2007strategic plan.The Board accepts ultimate responsibility for duecompliance with all statutory requirements and itexercises a role in evaluating the performance ofthe Chief Executive Officer and the company. Italso exercises overriding control over the businessof Alexkor.The Board has unlimited access to allinformation, documents, reports and records itmay require in the performance of its duties. TheBoard has access to independent externalprofessional advice, if required, at the company’sexpense. Procedures are in place to record directand indirect interests of directors and allconflicts or potential conflicts of interest aredocumented. The Alexkor Board remains fullyaccountable to the shareholder for the control,performance and operations of the company.Board meetings are held at least once aquarter and thereafter when the Board deemsnecessary.Schedule of Attendance at Board MeetingsDirector 11-May-05 11-Jul-05 26-Sep-05 24-Feb-06 16-Mar-06Mr N Moloi (Chairman) ✓ ✓ ✓ ✓ ✓Mr M Mdaka (CEO) * ✓ ✓ ✓ ✓Mr M van Zyl ✓ ✓ ✓ ✓ ✓Mr J van Deventer ✓ ✓ ✓ ✓ AMr ZR Coetzee ✓ ✓ ✓ ✓ ✓Ms V Mahlati A ✓ ✓ A ✓Dr T Abrahamse A ✓ A A A✓ = Present A = Apologies * = Not yet appointed20ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page21_Eng_13/10/06_Proof 9Directors’ RemunerationThe Remuneration Committee considers theremuneration of the non-executive directors andmakes recommendations to the shareholder.The shareholder then decides on the level ofremuneration for the non-executive directors.The Remuneration Committee evaluates theremuneration of the Chief Executive Officer andsenior management and makes its proposals tothe Board. The shareholder and the Board jointlydetermine the remuneration of the Chief ExecutiveOfficer, whilst the Board in consultation withthe Chief Executive Officer determines theremuneration of senior management. Details ofremuneration structure appear on page 52.Board CommiteesThe Board has delegated some of its responsibilitiesand functions to the following sub-committees:• Audit Committee;• Remuneration Committee,• Rehabilitation Committee;• ABM and ABT Sub-committees; and• Management Committee.The Board is in the process of approving the termsof reference of each of these committees. In theinterim, the Board committees operate on clearlyagreedmandates and reporting procedures.There is transparent and full disclosure from theBoard committees to the Alexkor Board. TheBoard regularly evaluates the performance of thecommittees against their mandated objectives.Audit CommitteeThe Audit Committee comprises the followingmembers:• Mr R Muzariri (Chair of Committee)• Mr J van Deventer (Non-executive Director)• Ms X Motswai (External Member)In compliance with the King II Code, none of thecommittee members are executive directors. TheAudit Committee is responsible for monitoringthe accuracy of the financial reporting system tothe Board and the shareholder and provides acommunicative link between the Board, theexternal and internal auditors.The Audit Committee has adopted draft terms ofreference, which will be placed before the Boardfor approval in this financial year. The AuditCommittee has no management responsibilities.Other responsibilities of the Audit Committeeinclude:– ensuring the proper review and maintenanceof an effective internal control system;– ensuring risk is properly identified, managedand monitored;– ensuring proper function of the internal auditsystem;– considering and reviewing the audit plan fromthe external and internal auditors; and– ensuring that the internal and external auditfunctions remain separate.Risk ManagementThe Audit Committee is also responsible for theactive monitoring and reviewing of Alexkor’s riskmanagement process and other significant risk inthe company.The committee is in the process of developing arisk management programme.Remuneration CommitteeThe Remuneration Committee comprises thefollowing members:• Mr M van Zyl (Chair of Committee)• Mr ZR Coetzee (Non-executive Director)• Ms V Mahlati (Non-executive Director)The functions of the Remuneration Committeeare to:– determine and advise the Board onAlexkor’s executive and senior managementremuneration;– determine fees to be paid to the Board’s nonexecutivedirectors; and– develop and consider criteria necessary tomeasure the performance of the ChiefExecutive Officer and senior management.ALEXKOR LIMITEDannual report 200621

T4IB00583_Alexkor_AR06 _page22_Eng_13/10/06_Proof 9CorporateGOVERNANCE(continued)Rehabilitation CommitteeThe Rehabilitation Committee comprises thefollowing members:• Dr T Abrahamse (Chair of Committee)• Mr ZR Coetzee (Non-executive Director)• Mr ME Mdaka (CEO)The functions of this committee are to review andimplement Alekor’s Environmental RehabilitationPolicy and to administer its Rehabilitation TrustFund.ABM and ABT Sub-committeesThese committees currently comprise thefollowing members:ABT Sub-committee:• Mr N Moloi (Chair of Committee)• Mr ME Mdaka (CEO)• Mr ZR Coetzee (Non-executive Director)• Dr T Abrahamse (Non-executive Director)• Mr M van Zyl (External Member)ABM Sub-committee:• Mr N Moloi (Chair of Committee)• Mr ME Mdaka (CEO)• Mr J van Deventer ( Non-executive Director)• Ms V Mahlati (Non-executive Director)These committees co-ordinate and monitor theeffective use of resources to achieve thecompany’s aims.The Company Secretarial FunctionThe Company Secretary, Ms C Singh, wasappointed on 10 July 2006 after the resignationof the former Secretary, Mr CL Matthews on28 February 2006.The Company Secretary is fully empowered by theBoard and has the necessary access to all therequired resources to fulfil this function. She isalso the central source of information andguidance and is responsible for advising the Boardon matters of business ethics and goodgovernance.Code of EthicsAlexkor subscribes to the highest levels ofprofessionalism and integrity in conducting all itsbusiness dealings with its stakeholders. Alexkorcontinually strives to reinforce a culture in itspeople of openness, honesty and responsibilityin order that the conduct of its directors,management and employees are beyondreproach.The Board and the company are committed to acode of ethical and moral behaviour encompassing:– Fairness and honesty– Transparency to all stakeholders– No tolerance of theft, dishonesty or any formof corrupt activity– No conflict of interest in any decision or actionaffecting the companyAlexkor is in the process of adopting an officialpolicy on ethics for active implementation acrossall levels of the company. The code will bepresented to the Board for approval during thisfinancial year.Corporate CommunicationAlexkor regularly informs its shareholder, throughmonthly reports and ad-hoc dialogue with DPEofficials, and through the Annual GeneralMeeting on the business of the company, in linewith its statutory and regulatory obligations.22ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page23_Eng_13/10/06_Proof 9ALEXKOR LIMITED(REGISTRATION NUMBER 1992/006368/06)The reports and statements set out below comprise the annual financial statements presented to theshareholder:IndexPageApproval and Statement of Responsibility 24Company Secretary’s Certificate 24Report of the Independent Auditors 25Directors’ Report 27Balance Sheet 30Income Statement 31Statement of Changes in Equity 32Cash Flow Statement 33Notes to the Annual Financial Statements 34Annexure A – Disclosure of Remuneration 52Annual FinancialSTATEMENTSfor the year ended31 March 2006ALEXKOR LIMITEDannual report 200623

T4IB00583_Alexkor_AR06 _page24_Eng_13/10/06_Proof 9APPROVAL andSTATEMENTof ResponsibilityThe Board is responsible for the maintenance ofadequate accounting records and the preparationand integrity of the financial statements andrelated information. The external auditors areresponsible for independently auditing andreporting on the fair presentation of the financialstatements in conformity with InternationalStandards of Auditing.The financial statements have been prepared inaccordance with International Financial ReportingStandards and in the manner required by theCompanies’ Act (No. 61 of 1973) and the PublicFinance Management Act (No. 1 of 1999).The financial statements that appear on pages 27to 52 were approved by the Board of Directorsand signed on its behalf by:N D MoloiChairperson5 October 2006M E MdakaChief Executive OfficerCompanySecretary’sCERTIFICATEI hereby certify that, to the best of my knowledgeand belief, Alexkor has lodged with the Registrarof Companies all such returns as are required of itin terms of section 268 G(d) of the CompaniesAct, 1973, as amended, and that all such returnsare true, correct and up to date.C SinghCompany Secretary24ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page25_Eng_13/10/06_Proof 9Independent Auditors’ Report tothe Minister of Public EnterprisesWe have audited the annual financial statementsof Alexkor Limited set out on pages 27 to 52 forthe year ended 31 March 2006. These financialstatements are the responsibility of AlexkorLimited’s accounting authority. Our responsibilityis to express an opinion on these financialstatements based on our audit.ScopeThe audit was conducted in accordance withInternational Standards on Auditing. ThoseStandards require that we plan and perform theaudit to obtain reasonable assurance aboutwhether the financial statements are free ofmaterial misstatement. An audit includesexamining, on a test basis, evidence supportingthe amounts and disclosures in the financialstatements. An audit also includes assessing theaccounting principles used and significantestimates made by management, as well asevaluating the overall financial statementpresentation. The audit was also planned andperformed to obtain reasonable assurance thatour duties in terms of section 28 of the PublicAudit Act, 25 of 2004, have been complied with.We believe that our audit provides a reasonablebasis for our opinion.Audit OpinionIn our opinion, the annual financial statementspresent fairly, in all material respects, the financialposition of Alexkor Limited at 31 March 2006,and the results of its operations and its cash flowsfor the year then ended in accordance withInternational Financial Reporting Standards and inthe manner required by the Public FinanceManagement Act, 1 of 1999, as amended and bythe Companies Act, 61 of 1973 in South Africa.1. Significant uncertainties regardinglitigation1.1 Without qualifying our opinion, wedraw attention to note 16.1 to thefinancial statements. The governmentand the company were unsuccessful indefending a claim by the RichtersveldCommunity for the restitution of theland on which the company’s miningoperations are located. The government,the company and the RichtersveldCommunity are currently in the processof negotiating the amount and nature ofthe settlement. The ultimate outcomeof the matter cannot presently bedetermined, and no provision for anyliability that may result has been made inthe financial statements.1.2 We further draw attention to note 16.2 tothe financial statements. The company isthe defendant in a claim regarding thecompensation, if any, to be paid to anothercompany that was previously contracted torun the operations of Alexkor Limited. Theamount of the compensation claimed bythe said other company is disputed byAlexkor Limited. The ultimate outcome ofthe matter cannot presently be determined,and no provision for any liability that mayresult has been made in the financialstatements.2. Environmental rehabilitation liabilityWithout qualifying our opinion, we drawattention to note 9.1 to the financialstatements. An independent review of theamount of the environmental rehabilitationliability was conducted during the year, resultingin a significant adjustment to the provision forenvironmental rehabilitation liability. Thecompany is also in the process of updatingits Environmental Management ProgrammeReport for submission to the Department ofMinerals and Energy. The necessary financialguarantees will only be provided to theDepartment of Minerals and Energy oncompletion of this process, as required by theMinerals Act and the regulations thereto.3. Going concernWithout qualifying our opinion, we drawattention to note 22 to the financialstatements. A funding programme wasdeveloped in support of the company’sinitiatives to improve production levels andREPORTof theIndependentAuditorsALEXKOR LIMITEDannual report 200625

T4IB00583_Alexkor_AR06 _page26_Eng_13/10/06_Proof 9REPORTof theIndependentAuditor(continued)was submitted to the shareholder as part ofthe Medium-Term Expenditure Frameworkprocess in the form of recapitalisation.However, due to uncertainties relating to theRichtersveld Community land claims case,recapitalisation has not yet been effected.The Board of directors is also activelyengaging all relevant stakeholders to ensurethat sufficient funding is made available forbridging finance purposes. The Board hasa positive outlook on either successfullyobtaining sufficient shareholder capital oranother form of government support.These conditions and the fact that thecompany incurred a loss of R205.5 millionindicate the existence of a materialuncertainty that casts significant doubt onthe company’s ability to continue as a goingconcern.4. Internal control mattersThe company’s fixed assets managementpolicies are not adequate to ensure properrecording, accounting and safeguarding offixed assets. Several instances were identifiedwhere the company’s fixed assets were eithernot accounted for in the accounting records,or not correctly recorded or not available forphysical inspection.Gobodo IncorporatedRegistered AuditorsPer MP MainganyaDirectorGobodo Inc.1st Floor, Block BEmpire Park55 Empire RoadJohannesburg200112 October 200626ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page27_Eng_13/10/06_Proof 9The Board of Directors have pleasure inpresenting their report, which forms part of theaudited financial statements of the company, forthe financial year ended 31 March 2006. Thisreport and the audited financial statementscomply with the requirements of the PublicFinance Management Act No. 1 of 1999. Inpromoting the concepts of corporate governance,the Directors have included additionalinformation about the company’s strategicobjectives.BackgroundAlexkor came into being in 1928 as “StaatsAlluviale Delwerye”. This name remained thesame until 1 May 1989 when the mine becamecommercialised and thus the name changed tothe Alexander Bay Development Corporation(ALEXKOR). The structure remained in place untilNovember 1992 when the corporation became acompany. This structure has since remained thesame. The Government of the Republic of SouthAfrica, through the Department of PublicEnterprises, holds all shares in the company.Nature of BusinessThe main business of the company is theeconomic exploitation of diamonds andassociated support elements. Its ancillary businessincludes diversified agricultural operations andcommercial services to the local and surroundingcommunities.Board of DirectorsThe Board meets at least quarterly and retains fulland effective control over the company’s businessand monitors executive management througha structured approach to reporting andaccountability.All Directors receive regular information about thecompany in order to equip them to activelyparticipate in Board meetings. Members of theBoard also have access to management and theCompany Secretary for any further informationthey require. None of the current Directors haveany interest in the share capital of the company,or any contracts entered into by the company, asdisclosed by the statutory records of the companyand representations made to the company.Additional details of the Board’s sub-committees,Directors’ membership to the sub-committeesand schedule of attendance at Board meetings iscontained in the Corporate Governance sectionof the Annual Report. Disclosure of remunerationin terms of section 55 of the PFMA and TreasuryRegulation 28.1.1 is provided in Annexure A onpage 52.Share CapitalThere has been no change in the authorised andissued shares for the period under review. Detailsof the authorised and issued share capital aredisclosed in note 8 of the financial statements.ShareholderThe Government of the Republic of South Africa,through the Department of Public Enterprises, isthe sole shareholder.Financial ResultsThe annual financial statements on pages 30 to52 reflect the financial performance, positionand cash flow results of the company’s operationsfor the 12 months ended 31 March 2006. Thecomparative financial performance and cash flowresults represents a nine-month period.Total costs for the period under review wereR197.6 million compared to R151.8 million in2005 with the latter being for a period of onlynine months. The net operating loss for theperiod under review is R38.2 million against abudgeted operating profit of R24.4 million (2005:R1.5 million profit). A further breakdown of thebusiness units is provided in note 23 of the annualfinancial statements.Two major non-cash adjustments are included innet loss of R205.5 million (2005: R5.96 million)and related to:• Restating of the rehabilitation liability in linewith the IFRS requirements by an amountof R159.9 million (2005: R22.3 million)based on the estimates conducted by anindependent environmental managementconsultant. The study conducted estimatethe current liability to be R193.0 million.This adjustment has resulted in an increase inthe rehabilitation provision from R22.3 millionto R178.8 million.• Provision for post-retirement medical benefitsincreased by R11.4 million (2005: R10 million)as per the actuarial valuation completed byindependent actuary on 31 March 2006.DividendsNo dividends have been paid, proposed ordeclared during the period under review.Accounting Framework ChangesThe Board of Directors elected to adoptInternational Financial Reporting Standards(“IFRS”) with effect from 1 April 2005. Thefinancial statements have been prepared inaccordance with IFRS (with the date of transitionfor the company being 1 July 2004).Directors’REPORTALEXKOR LIMITEDannual report 200627

T4IB00583_Alexkor_AR06 _page28_Eng_13/10/06_Proof 9Directors’REPORT(continued)In terms of IFRS 1 – First-time Adoption ofInternational Financial Reporting Standards, thecompany has restated its opening reserves at1 July 2004, the balance sheets as at 1 July 2004and 31 March 2005 as well as income statementfor the year ended 31 March 2005. There havebeen no adjustments to the cash flows previouslyreported as a result of the adoption of IFRS.The impact of the conversion to IFRS as well asdetails on the key assumptions used arecontained in notes 19 and 20 of the financialstatements.Internal ControlThe Board is responsible for the company’s systemof internal financial control. These are designed toprovide reasonable, but not absolute, assuranceas to the reliability of the financial statements,and to adequately safeguard, verify and maintainaccountability of assets, and to prevent anddetect misstatements and losses.The internal audit function is outsourced andprovides an independent appraisal functiondesigned to examine and evaluate the company’sactivities. In particular, internal audit is chargedwith examining and evaluating the effectivenessof the company’s operational activities in light ofthe attendant business risks and the system ofinternal operation and financial controls. Anymajor weaknesses detected are brought to theattention of the Audit Committee, the externalauditors and management for their considerationand remedial action.It has come to the attention of the Board that theinternal control environment to ensure properrecording, accounting and safeguarding of fixedassets is not adequate. This internal controldeficiency mainly relates to an inadequate fixedasset register and information managementtechnology which is outdated and not meetinguser specifications. Management is currentlyaddressing the weaknesses identified.Shareholder’s CompactNo shareholder’s compact has been signedbetween the Board and the Executive Authorityfor the period under review. The performanceinformation and other criteria as required bysection 55(2) of the PFMA have therefore notbeen reported.However, at the time of compiling this report theBoard and the Executive Authority werenegotiating a shareholder’s compact for the2006/07 financial year, which will include keyperformance areas and targets.Litigation StatementNaberaThe company is defending a claim by NaberaMining, a company previously engaged by theshareholder to run the operations of thecompany. The amount of the value added byNabera Mining in terms of the managementagreement is disputed by the company. Inconsultation with the company’s legalrepresentatives, no provision has been made inthe financial statements for the above potentialliability.Richtersveld CommunityAs previously reported, the RichtersveldCommunity has successfully instituted a landclaim against Alexkor and the Government of theRepublic of South Africa in respect of the subjectland which is currently owned by Alexkor. On14 October 2003, the Constitutional Court heldthat the Community is entitled to restitution ofthe land. The matter was then referred back tothe Land Claims Court to determine what formrestitution should take. Restitution can take theform of restoration (i.e. the return) of the land, orequitable redress or a combination of both.In order to determine restitution, the Land ClaimsCourt has heard evidence over April/May 2005 aswell as October/November 2005, whereafterthe parties decided to enter into settlementnegotiations. At the time of writing this report,the parties had signed a Memorandum ofUnderstanding, but due to the complexity of thematter and the wide ambit of the various mattersagreed to in principle, various issues still requirenegotiation and agreement. If the parties cannotcome to an agreement on these issues, the mattermay be referred back to the Land Claims Courtfor final determination.Environmental MattersAs stated in the Corporate Governance sectionof the Annual Report, environmental mattersare overseen by an environmental sub-committeeof the Board. The Environmental Committeecontinuously reviews the environmentaloperations and policies of the company andrecommends mitigating strategies and activitiesto limit the impact of mining operations on theenvironment as well as to actively addresshistorical damage.A recent study conducted by an independentenvironmental management consultant estimatesthe current liability to be R193.0 million (2005:R22.3 million). The rehabilitation liability wastherefore restated during the period under reviewin line with IFRS by an amount of R170.7 million(including inflationary adjustment for previous28ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page29_Eng_13/10/06_Proof 9provisions). The carrying amount of the provisionas per note 9 of the financial statements amountsto R178.8 million and includes the funds held inthe Environmental Rehabilitation Trust Fund.The company is in the process of updating itsEnvironmental Management Programme forfuture submission to the Department of Mineralsand Energy for approval. Contributions to theEnvironmental Rehabilitation Trust Fund will beadjusted accordingly and necessary guaranteesprovided.Events after Balance Sheet DateThree-shift Land-mining ConfigurationIn order to optimally utilise the mine’s plantcapacity and improve carat production a threeshiftmining configuration was implementedduring May 2006. In essence, land-miningactivities now operate 24 hours a day (except overweekends) comprising of three shifts of eighthours each. Available human resource capacitywas utilised to configure the three shifts throughappropriate retraining initiatives.As the land-mining equipment is utilised threetimes more than the previous period beforeMay 2006, faster depreciation rates will beapplied during the 2006/07 financial year toaccount for the reduction in life expectancy.As this aspect is treated as a non-adjusting eventafter the balance sheet date in terms of IAS 10 –Events after the Balance Sheet Date, noadjustments have been made to the financialstatements.Marine OperationsAs mentioned in the operational reports, diverdirectedmarine operations and resultant caratproduction for the 2005/06 financial year washampered due to a reduction in available seadays. At the date of compiling this report,available sea days reduced even more afterbalance sheet date due to unfavourable weatherand sea conditions.As this aspect is treated as a non-adjusting eventafter the balance sheet date in terms of IAS 10 –Events after the Balance Sheet Date, noadjustments have been made to the financialstatements.Going ConcernThe Board’s 2006/07 Corporate Plan highlighted anumber of initiatives to improve production levelson land as well as marine-mining activities. Theseinitiatives included, inter alia:• a three-shift land-mining configuration asmentioned above;• replacement of old and ailing land-miningequipment;• an immediate exploration programme toidentify economical mining reserves in orderto develop an appropriate mining plan;• introducing remote-mining techniques forshallow- to mid-water marine operationsthrough contract assignments; and• Initiating a dredger project in support of midtodeep-water marine operations.In addition, a funding programme was developedin support of the initiatives and submitted tothe shareholder as part of the MediumtermExpenditure Framework process in theform of recapitalisation. However, due to theuncertainties relating to the RichtersveldCommunity land claims case, recapitalisation hasnot yet been effected.Although land-mining carat production showedmajor improvements from previous periods due tothe implementation of the three-shift miningconfiguration, these improvements were notsufficient to offset the impact of the reductionin sea days on marine carat production. The2006/07 carat-production targets are thereforenot being met, to such an extent that the year-todateoperating losses diminished the cashreserves to very low levels.The Board is also actively engaging all relevantstakeholders to ensure that sufficient funding bemade available for bridging purposes and has apositive outlook on either successfully obtainingsufficient shareholder capital or another form ofgovernment-supported finance.The financial statements have therefore beenprepared on the going concern basis, since theBoard has every reason to believe that thecompany will have adequate resources in place tocontinue with operations for the foreseeablefuture.Public Finance Management ActExcept for the matters noted above, no othermaterial non-compliance to the Public FinanceManagement Act has been identified and/orreported.N D MoloiChairpersonM E MdakaChief Executive OfficerALEXKOR LIMITEDannual report 200629

T4IB00583_Alexkor_AR06 _page30_Eng_13/10/06_Proof 9BalanceSHEETas at 31 March 2006Assets31 March 31 March2006 2005Notes R RNon-current assets 464 455 451 470 762 166Property plant and equipment 2 459 702 021 465 955 140Intangible assets 3 436 630 181 726Non-current assets held for sale 4 2 500 000 2 500 000Biological assets 5 1 816 800 2 125 300Current assets 62 597 816 103 179 240Inventories 6 23 393 244 38 644 255Trade and other receivables 7 3 624 823 12 985 090Cash and cash equivalents 15.2 35 579 749 51 549 895Total assets 527 053 267 573 941 406Equity and liabilitiesCapital and reserves 224 623 537 430 158 409Share capital 8 50 000 000 50 000 000Distributable reserves 174 623 537 380 158 409Non-current liabilitiesLong-term provisions 9 286 801 280 118 861 002Current liabilities 15 628 450 24 921 995Trade payables and accruals 10 10 694 856 19 680 309Provisions 9 4 933 594 5 241 686Total equity and liabilities 527 053 267 573 941 40630ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page31_Eng_13/10/06_Proof 912 months 9 monthsendedended31 March 31 March2006 2005Notes R RGross revenue 159 445 785 152 412 821Other income – 898 500Operating costs (197 623 781) (151 781 046)IncomeSTATEMENTfor the year ended31 March 2006Operating (loss)/profit 11 (38 177 996) 1 530 275Investment income 12 3 971 683 3 175 243Post-retirement medical liability provision 9.2 (11 438 298) (10 018 000)Environmental liability provision 9.1 (159 877 284) (642 135)Finance costs 13 (12 977) (5 037)Loss before taxation (205 534 872) (5 959 654)Taxation 14 – –Loss after taxation (205 534 872) (5 959 654)ALEXKOR LIMITEDannual report 200631

T4IB00583_Alexkor_AR06 _page32_Eng_13/10/06_Proof 9STATEMENTof Changesin Equityfor the year ended31 March 2006Share Accumulatedcapital reserves TotalR R RBalance at 1 July 2004 50 000 000 (23 204 958) 26 795 042Net loss for the period ended 31 March 2005 – (5 959 654) (5 959 654)Fair value adjustments – 409 323 021 409 323 021Balance at 1 April 2005 50 000 000 380 158 409 430 158 409Net loss for the period ended 31 March 2006 – (205 534 872) (205 534 872)Balance at 31 March 2006 50 000 000 174 623 537 224 623 53732ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page33_Eng_13/10/06_Proof 912 months 9 monthsendedended31 March 31 March2006 2005Notes R RCash flows from operating activities (6 492 925) (624 701)Cash receipts from customers 159 172 195 154 563 537Cash paid to suppliers and employees (169 623 827) (158 358 444)Cash FlowSTATEMENTfor the year ended31 March 2006Cash generated by operating activities 15 (10 451 632) (3 794 907)Interest received 3 971 683 3 175 243Interest paid (12 976) (5 037)Cash flows from investing activities (6 101 917) (16 712 376)Expenditure to expand operating capacityAssets acquired (5 828 323) (17 610 876)Proceeds of disposals of property, plant and equipment 164 500 1 000 000Expense to dispose the assets (438 094) (101 500)Cash flows from financing activitiesContribution to the Rehabilitation Trust Fund (3 375 304) (2 531 997)Decrease in cash and cash equivalents (15 970 146) (19 869 074)Cash and cash equivalents at beginning of the period 15.1 51 549 895 71 418 969Cash and cash equivalent at end of the period 15.2 35 579 749 51 549 895ALEXKOR LIMITEDannual report 200633

T4IB00583_Alexkor_AR06 _page34_Eng_13/10/06_Proof 9NOTESto theAnnual FinancialStatementsfor the year ended31 March 20061. Basis of preparationThe financial statements are prepared inaccordance with International FinancialReporting Standards (IFRS), the South AfricanCompanies’ Act and the Public FinanceManagement Act. The disclosure required byIFRS 1 First-time Adoption of InternationalFinancial Reporting concerning transition fromSA GAAP to IFRS is given in notes 19 and 20.Accordingly the company complies with IFRSissued by the International AccountingStandards Board. The financial statements areprepared under the historical cost conventionas modified by revaluation of property andbiological assets.A summary of the company’s accountingpolicies are set out below, together with anexplanation of where changes have beenmade to previous GAAP policies on theadoption of new accounting standards duringthe year.1.1 Revenue recognitionRevenue is derived from the sale ofdiamonds, farming produce andmariculture products and is measured atthe fair value of consideration receivedor receivable, after deducting discounts(if any) and Value Added Tax. Revenueis recognised when the significantrisks and rewards of ownership aretransferred to the buyer. This is when thetitle has passed to the customer, and thegoods have been delivered to acontractually agreed location.Interest income is accrued on a timeproportion basis, by reference to theprincipal outstanding and at theeffective interest rate applicable.1.2 Property, plant and equipmentProperty, plant and equipment are statedat cost or fair value less accumulateddepreciation and impairment.Depreciation commences when theassets are ready for their intended use.Land is not depreciated as it is deemedto have an indefinite life.Buildings, plant and equipment,furniture and computer equipment aredepreciated down to their residualvalues, on the straight-line basis overtheir estimated useful lives or the life ofthe mine, whichever is shorter.Residential property is not depreciated inline with the company’s policy.1.3 Licences and intangible assetsLicences and other intangibles areinitially measured at purchase cost andare amortised on a straight-line basisover their estimated useful lives.1.4 Impairment of tangible andintangible assetsAt each balance sheet date, thecompany reviews the carrying amount ofits tangible and intangible assets todetermine whether there are anyindications that those assets areimpaired. If any such indication exists,the recoverable amount of the asset isestimated in order to determine theextent of the impairment (if any). Anintangible asset with an indefinite usefullife is tested for impairment annually andwhenever there is an indication that thatasset may be impaired. Recoverableamount is higher of fair value less cost tosell and the value in use. In assessingvalue in use, the estimated future cashflows are discounted to their presentvalue using a pre-tax discount rate thatreflects current market assessments ofthe time value of money and the risksspecific to the asset for which estimatesof future cash flows have not beenadjusted.If the recoverable amount of an assetis estimated to be less than itscarrying amount, the carrying amount isreduced to its recoverable amount. Anyimpairment is recognised immediately asan expense.34ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page35_Eng_13/10/06_Proof 9Where an impairment subsequentlyreverses, the carrying amount of the assetis increased to the revised estimate of itsrecoverable amount, but so that theincreased carrying amount does notexceed the carrying amount that wouldhave been determined had noimpairment been recognised for the assetin prior years. A reversal of an impairmentis recognised as income immediately.1.5 Biological assetsAgricultural assets are measured at fairvalue less estimated costs to sell duringthe period of biological transformation.Fair values are determined based oncurrent market prices for the assets intheir present location and condition.Where market prices are notdeterminable, then assets are measuredat cost less accumulated depreciationand impairment (if any) until fair valuecan be determined.Changes in fair value are recognised in theincome statement as either gains or losses.1.6 Non-current assets held for saleNon-current assets classified as held forsale are measured at the lower ofcarrying amount and fair value less coststo sell.Non-current assets are classified as heldfor sale if their carrying amount willbe recovered primarily through a saletransaction rather than throughcontinued use. This condition is regardedas being met only when it is highlyprobable and the asset is available forimmediate sale in its present condition.Management must be committed tothe sale.Non-current assets are classified as heldfor sale from the date these conditionsare met and are measured at the lowerof carrying amount and fair value lesscosts to sell. Any resulting impairment isreported through the income statement.On classification as held for sale theassets are no longer depreciated.1.7 InventoriesInventories are valued as follows:1.7.1 Diamonds are valued at netrealisable value.1.7.2 Parts and consumable items arevalued at the lower of weightedaverage cost and net realisablevalue.1.7.3 Diamond-bearing ore stock pilesare not given value, which is inline with expected diamondmining practice.1.7.4 Ostriches and agriculturalproduce is valued at fair value.1.7.5 Oysters are valued at the lower ofcost and net realisable value.In all cases, obsolete, redundant andslow-moving stock are identified andwritten down to net realisable value. Netrealisable value is the estimated sellingprice in the ordinary course of business.1.8 Borrowing costsBorrowing costs are recognised as anexpense when incurred.1.9 TaxationThe income tax expense represents thesum of the current tax charge and themovement in deferred tax. Tax payable isbased on taxable profit for the year.Taxable profit differs from net profit asreported in the income statementbecause it excludes items of income andexpense that are taxable or deductible inother years and items that are nottaxable or deductible.Deferred taxation is provided using thebalance sheet liability method on alltemporary differences between thecarrying amounts for financial reportingpurposes and the amounts used fortaxation purposes, except for differencesrelating to goodwill which is notdeductible for taxation purposes and theALEXKOR LIMITEDannual report 200635

T4IB00583_Alexkor_AR06 _page36_Eng_13/10/06_Proof 9NOTESto theAnnual FinancialStatements(continued)for the year ended31 March 20061.9 Taxation (continued)initial recognition of assets or liabilitieswhich affect neither accounting nortaxable profit or loss.Deferred taxation is calculated usingtaxation rates that have been enacted atthe balance sheet date. The effect ondeferred taxation of any changes intaxation rates is recognised in theincome statement in the year in whichthe change occurs, except to the extentthat it relates to items previously chargedor credited directly to equity.1.10 ProvisionsProvisions are recognised when thecompany has a present legal orconstructive obligation as a result of pastevents, it is probable that an outflow ofresources embodying economic benefitswill be required to settle the obligation,and a reliable estimate of the amount ofthe obligation can be made.1.11 Employee benefitsDefined contribution plansContributions to a defined contributionplan in respect of service in a particularperiod are recognised as an expense inthat period.Defined benefit pension fundsAll employees employed before1 July 2003 are members of the definedbenefit fund. The retirement benefitfund is governed by the South AfricanPension Funds Act of 1956 as amended.This situation, however, has changedas all employees appointed after theaforementioned date are compelled tojoin the defined contribution fund. Theactuarial valuation of the pension fund isperformed using the projected unit creditmethod every third year and updates areperformed for each financial year-end.Pension fund assets are measured usingperiod-end market values.Other post-retirement obligationsAlexkor provides post-retirement medicalcare benefits to its retirees. Theentitlement to post-retirement healthcarebenefits is based on the employeesremaining in service up to retirement ageand the completion of a minimumservice period. The expected costs ofthese benefits are accrued over theperiod of employment, using anaccounting methodology similar to thatfor defined benefit pension plans.Valuations of these obligations arecarried out by independent qualifiedactuaries annually.1.12 Cash and cash equivalentsCash and cash equivalents comprise cashon hand, deposits held with the bank,and other short-term highly liquidinvestments.1.13 Trade receivablesTrade receivables are recognised at fairvalue less provision for irrecoverablereceivables. A provision is raised wherethere is reasonable evidence that thecompany will not recover the amountsdue in terms of the original transaction.1.14 Financial instruments1.14.1 Financial assetsThe company’s principal financialassets are trade receivables, cashand cash equivalents. Tradereceivables are stated at theirnominal values as reduced byappropriate allowances forestimated irrecoverable amounts.1.14.2 Financial liabilitiesFinancial liabilities are classifiedaccording to the substance ofthe contractual agreementsentered into. Significant financialliabilities include trade and otherpayables.Finance charges are accountedfor on an accrual basis and are36ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page37_Eng_13/10/06_Proof 9added to the carrying amount ofthe instrument to the extent thatthey are not settled in the periodin which they arise. Trade andother payables are stated atnominal value.1.14.3 OffsettingFinancial assets and financialliabilities are offset if, and only if:– there is a legal right to offset;and– there is an intention to realisethe asset and settle the liabilitysimultaneously.1.15 Environmental liabilitiesProvision is made for environmentalliabilities based on the future costs ofrehabilitating the environment.Annual increases in the provision due toinflationary adjustments and furthercosts as a result of mining activitiesare expensed directly to the incomestatement. Annual contributions aremade to the Alexkor Rehabilitation Trust,a trust created to provide for theestimated cost of rehabilitation duringand at the end of the life of the mine.Income earned on monies paid tothe trust is accounted for as interestincome. The funds in the trust arenetted off against the provision forrehabilitation costs.1.16 Segment reportingThe company conducts business indiamond mining, farming andmariculture, which are the primarysegments. On the secondary segmentbasis, which is the reporting format bygeographic analysis, the Directorsconsider that there is only one materialgeographic segment, namely theRepublic of South Africa, and it istherefore not considered necessary todisclose secondary segments.ALEXKOR LIMITEDannual report 200637

T4IB00583_Alexkor_AR06 _page38_Eng_13/10/06_Proof 92. Property, plant and equipmentNOTESto theAnnual FinancialStatements(continued)for the year ended31 March 20062006 2006 2006 2005 2005 2005Cost/ Accumulated Carrying Cost/ Accumulated Carryingvaluation depreciation value valuation depreciation valueR R R R R ROwned assetsLand and buildings 431 631 693 15 852 581 415 779 112 428 273 155 10 158 945 418 114 210Plant and equipment 71 973 460 35 489 162 36 484 298 70 800 573 34 751 875 36 048 698Motor vehicles 14 680 026 8 679 655 6 000 371 15 200 245 8 313 605 6 886 640Furniture and fittings 1 082 840 877 745 205 096 1 050 060 770 253 279 807Exploration costs – – – 3 045 895 – 3 045 895Computer equipment 2 937 869 1 704 725 1 233 144 2 717 644 1 137 754 1 579 890522 305 888 62 603 868 459 702 021 521 087 572 55 132 432 465 955 140The carrying amounts of property, plant and equipment can be reconciled as follows:Carrying valueCarrying valueat beginning Write(offs)/ at the endof the year Additions backs Disposals Depreciation of the year2006 R R R R R ROwned assetsLand and buildings 418 114 210 312 643 3 045 895 – (5 693 596) 415 779 112Plant and equipment 36 048 698 4 658 357 – (438 094) (3 784 663) 36 484 298Motor vehicles 6 886 642 193 666 – – (1 079 937) 6 000 371Furniture and fittings 279 807 32 780 – – (107 492) 205 095Computer equipment 1 579 890 220 226 – – (566 971) 1 233 145Exploration costs 3 045 895 – (3 045 895) – – –465 955 140 5 417 672 – (438 094) (11 232 658) 459 702 021Carrying valueCarrying valueat beginning Write(offs)/ at the endof the year Additions backs Disposals Depreciation of the year2005 R R R R R ROwned assetsLand and buildings 418 118 766 4 367 735 – – (4 372 291) 418 114 210Plant and equipment 30 209 059 8 679 676 – – (2 840 038) 36 048 698Motor vehicles 7 644 229 29 589 – – (787 177) 6 886 640Furniture and fittings 317 306 40 884 – – (78 383) 279 807Computer equipment 1 868 207 107 767 – – (396 083) 1 579 890Exploration costs 13 530 584 4 179 366 (14 664 055) – – 3 045 895471 688 151 17 405 017 (14 664 055) – (8 473 972) 465 955 14038ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page39_Eng_13/10/06_Proof 93. Intangible assets2006 2006 2006 2005 2005 2005AccumulatedAccumulated Carrying Cost amortisation/ CarryingCost amortisation value valuation impairment valueR R R R R RSea concessions – – – 3 499 333 (3 499 333) –Computer software 880 606 (443 976) 436 630 489 486 (307 761) 181 726880 606 (443 976) 436 630 3 988 829 (3 807 094) 181 7264. Non-current assets held for sale2006 2006 2006 2005 2005 2005Fair value at Fair value Fair value at Fair valuethe beginning at the end the beginning at the endof the year Impairment of the year of the year Impairment of the yearR R R R R RDiamond boats 2 500 000 – 2 500 000 2 500 000 – 2 500 000The diamond boats were declared as held for sale at the end of the 2005 financial year. These boats were to besold through the tender process during the 2006 financial year. This process has not been finalised yet.5. Biological assetsFair value Movements Fair valueat beginning IFRS during Fair value at end ofof the year adjustment the year adjustments the yearR R R R R2006Orchards 537 600 – – – 537 600Dairy herd 1 587 700 – (308 500) 1 279 2002 125 300 – (308 500) – 1 816 8002005Orchards – 463 368 – 74 232 537 600Dairy herd 1 682 300 – (94 600) – 1 587 7001 682 300 463 368 (94 600) 74 232 2 125 300ALEXKOR LIMITEDannual report 200639

T4IB00583_Alexkor_AR06 _page40_Eng_13/10/06_Proof 92006 2005RRNOTESto theAnnual FinancialStatements(continued)for the year ended31 March 20066. InventoriesThe amounts attributable to the different categories of inventoryare as follows:Diamonds 10 734 197 23 909 786Parts and consumable stores 4 899 774 5 266 509Livestock and agricultural produce 7 759 273 9 468 26023 393 244 38 644 2557. Trade and other receivablesNet trade receivables prepayments and other receivables 3 624 823 12 985 090The fair value of trade and other receivables is not materiallydifferent from carrying values presented.8. Share capitalAuthorised50 000 000 ordinary shares of R1 each 50 000 000 50 000 000Issued50 000 000 ordinary shares of R1 each 50 000 000 50 000 0009. ProvisionsCarrying value Payments Carrying valueat the beginning Additional during at the endof the period provisions the period of the yearR R R REnvironmental rehabilitation 22 292 300 159 877 284 (3 375 304) 178 794 280Leave pay provision 5 241 686 (308 092) – 4 933 594Post-retirement medical aid liability 96 568 702 11 438 298 – 108 007 000124 102 688 171 007 490 (3 375 304) 291 734 874The carrying value can be reconciled as follows:2006 2005RRNon-current provisions 286 801 280 118 861 002Current provisions 4 933 594 5 241 686291 734 874 124 102 68840ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page41_Eng_13/10/06_Proof 99. Provisions (continued)9.1 Environmental liabilityThe company has an obligation to incur restoration, rehabilitation and environmental costs as a result ofenvironmental disturbance caused by mining activities. A provision is recognised for the present value of suchcosts. The increase in the current year provision is based on the adjustment of previous estimates, as a resultof the revision of the company’s Environmental Rehabilitation Programme. The increase has been accountedfor as a change in estimates in accordance with IAS 8.9.2 Leave provisionThe leave provision represents the present value of leave days outstanding at year-end for all currentemployees. The amount is calculated using the total cost to the company.9.3 Post-retirement medical aid benefitsA reconciliation of Alexkor’s accrued liability for the year ending 31 March 2006 is set out below.2006 2005RRTotal service liability at 31 March 2005 96 568 702 86 550 702Interest cost (at 10% p.a.) 9 460 000 7 046 000Employer benefit payments (3 929 000) –Projected total service liability at 31 March 2006 102 099 702 93 596 702Actuarial (gain)/loss 18 314 298 2 972 000Total service liability at 31 March 2006 120 414 000 96 568 702Change in accounting policy 1 (12 407 000) –Accrued liability at 31 March 2006 108 007 000 96 568 7021IAS 19 only requires recognition of the liability in respect of past service accrued liability for in-servicemembers.Alexkor has a post-retirement medical liability in respect of in-service members and pensioners who havecommenced employment with the company on or before 1 May 1998 and who have not elected to receivea voluntary severance package from the company. The company will subsidise 100% of the totalcontribution of the medical scheme option to which the member belongs. In-service members belong todifferent benefit options of the Topmed Medical Scheme while all pensioners belong to the TopmedIncentive Comprehensive Option.Actuarial valuation methodValuation methodThe actuarial valuation method used to value the liabilities is the projected unit credit method prescribedby IAS 19. Future benefits valued are projected using specific actuarial assumptions and the liability forin-service members is accrued over their expected working lifetime.In order to undertake the valuation, it is necessary to make a number of assumptions. The most significantassumptions used for the current valuation are outlined overleaf:ALEXKOR LIMITEDannual report 200641

T4IB00583_Alexkor_AR06 _page42_Eng_13/10/06_Proof 9NOTESto theAnnual FinancialStatements(continued)for the year ended31 March 20069. Provisions (continued)9.3 Post-retirement medical aid benefits (continued)31 March 31 MarchValuation date 2006 2005Discount rate 7.5% p.a. 10%Health-care cost inflation 6.5% p.a. 8% p.aExpected retirement age 60 60Membership discontinued at retirement 0% 0%Female spouses’ agesWe assumed that 90% of current in-service members would be married at retirement. We assumed thathusbands would be four years older than their wives.Mortality rateThe assumed rates of mortality are as follows:During employment: SA85-90 (Light) ultimate tablePost-employment: PA(90) ultimate table rated down two years plus 1% improvement p.a. from 2006.To the extent that actual future rates of mortality exceed those assumed, the liability set out in this reportmay be overstated, and vice versa.Number of membersIn-service members 81 (2005: 93)Retirees 185 (2005: 181)10. Trade payables and accruals2006 2005RRTrade payables 8 831 386 15 404 496Accruals 1 863 470 4 275 81310 694 856 19 680 30942ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page43_Eng_13/10/06_Proof 911. Operating loss12 months 9 monthsended 2006 ended 2005RROperating loss/(profit) is stated after:Income(Loss)/profit on disposal of property, plant and equipment (273 594) 898 500ExpenditureDepreciation 11 232 658 8 473 972Amortisation 136 215 73 423External audit fees 434 353 280 000Other audit services 96 030 20 000Staff costs 60 982 143 48 788 087Directors’ emolumentsExecutive directors 830 610 862 557D R Zihlangu (Resigned 31/03/2005) – 862 557M E Mdaka (Acting CEO) 830 610 –Non-executive directors 726 965 372 000N D Moloi 387 965 283 000T Abrahamse 51 000 12 000Z R Coetzee 81 000 14 000V Mahlati 69 000 12 000J van Deventer 75 000 10 000A Hearne – 31 000M van Zyl 63 000 10 00012. Investment income1 557 575 1 234 557Interest income 3 971 683 3 175 24313. Finance costs2006 2005Sundry interest expense 12 977 5 037RRALEXKOR LIMITEDannual report 200643

T4IB00583_Alexkor_AR06 _page44_Eng_13/10/06_Proof 92006 2005RRNOTESto theAnnual FinancialStatements(continued)for the year ended31 March 200614. TaxationSouth African normal tax– Prior year underprovision – –No taxation has been provided in the current year as the company has a tax loss of approximately R97 000 000(2005: R68 659 745). No deferred tax asset has been raised on the assessed loss and other deductible timingdifferences as the company is in a loss-making position and there appears to be no reasonable expectation thatthe deductible tax differences will be utilised in the foreseeable future.14.1 Tax rate reconciliation12 months 9 monthsendedended31 March 2006 31 March 2005RRNet loss before tax (205 534 872) (5 959 654)Taxation thereon of 29% – –Prior year tax losses utilised – –Prior year tax asset utilised – –Tax expense per income statement – –Tax losses and allowances carried forward 97 000 000 68 659 745Unrecognised deferred tax asset on:Tax losses 28 130 000 19 032 626Timing differences 84 949 646 37 107 666Total 113 079 646 56 140 292Major classes of timing differences:Provision for bad debts (2 006 943) (3 030 000)Prepaid expense 812 000 10 457 000Provision for leave pay (4 933 549) (5 241 686)Provision for rehabilitation costs (178 794 280) (33 574 081)Provision for medical aid costs (108 007 000) (96 568 702)(292 929 772) (127 957 469)Unredeemed capital allowances have been treated as part of losses available for future setoff againsttaxable income.44ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page45_Eng_13/10/06_Proof 92006 2005RR15. Notes to the cash flow statement15.1 Cash generated by operating activitiesNet loss before taxation (205 534 872) (5 959 654)Adjustments for:Depreciation 11 232 658 8 473 972Amortisation 136 215 73 423Investment income (3 971 683) (3 175 243)Finance costs 12 977 5 037Movement in post-retirement medical benefits 11 438 298 10 018 000Movement in other provisions 160 335 356 937 259Profit on disposals of property, plant and equipment 273 594 (898 500)Movement in working capitalDecrease in inventories 15 251 012 (11 894 909)Decrease in accounts receivable 9 360 267 2 150 716(Decrease) in accounts payable (8 985 453) (3 525 008)(10 451 632) 3 794 90715.2 Cash and cash equivalentsCash and cash equivalents consist of cash on hand andbalances with bank. Cash and cash equivalents included inthe cash flow statement comprise the following balancesheet amounts:Cash and cash equivalents 35 579 749 51 549 89516. Contingent liabilities16.1 During the previous year, the Richtersveld Community successfully claimed that the land on which thecompany operates be restituted back to it. The claim was against the company and the Government ofSouth Africa. The government, the company and the Richtersveld Community now have to finalisethe restitution process with the Land Claims Court, which will determine the amount and form ofcompensation to the Richtersveld Community.16.2 The company is defending a claim by Nabera Mining, a company previously engaged by the shareholderto run the operations of the company. The amount of the value added by Nabera Mining in terms of themanagement agreement is disputed by the company. No provision has been made in the financialstatements for the above potential liability.ALEXKOR LIMITEDannual report 200645

T4IB00583_Alexkor_AR06 _page46_Eng_13/10/06_Proof 92006 2005RRNOTESto theAnnual FinancialStatements(continued)for the year ended31 March 200617. GuaranteesThe company’s banker has issued guarantees on behalf of thecompany to the following:Eskom 54 900 54 900Department of Minerals and Energy 110 000 110 000164 900 164 90018. Future obligations for lease paymentsOperating lease cost– Office and computer equipment 330 425 253 005Future lease obligations in respect of operating leases– payable within a year 257 741 330 425– payable within two years 188 614 257 741Total 446 355 588 16619. Reconciliation of SA GAAP to IFRSThe significant areas of accounting changes are:IAS 12 – Recognition of deferred tax on fair value adjustmentsDeferred tax is recognised at acquisition as part of the assessment of the fair value of assets and liabilitiesacquired, and is provided on balances previously excluded from the provision under SA GAAP such asrevaluations of tangible fixed assets. The largest temporary difference requiring additional deferred tax ontransition arose between the carrying values of tangible assets and their respective tax base.IAS 16 – Property, plant and equipmentLand and buildings were previously held at actual cost incurred less accumulated depreciation in the balancesheet before adoption. These properties were valued before adoption of IFRS on 1 April 2005. The companytook the exemption provided by IFRS 1 and adjusted the book value to reflect fair value in line with thevaluations performed before 1 April 2005. The net effect of this adjustment increased the fair value of land andbuildings by R412.2 million.The exploration costs incurred were previously capitalised as capital work in progress. The total capitalisedbefore 1 April 2005 amounted to R17.7 million. Included in the capitalised amount was R3 million relating totangible assets. This amount was subsequently reallocated to land and buildings in line with IAS 16requirements. The remaining portion was written off on adoption of IFRS since it did not meet all therequirements of an asset in line with IAS 16. The net effect of this adjustment decreased the book value oftangible assets by R14.6 million. Diamond boats held for sale have been reclassified as such and the resultingdecrease in tangible asset value amounted to R2.5 million.IAS 19 – Defined benefit pension planIAS 19 requires companies to recognise the full deficit or surplus (subject to restrictions) of post-retirementbenefits under the defined benefit scheme on the balance sheet. The company’s actuaries have still not finalised46ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page47_Eng_13/10/06_Proof 9their calculations in respect of the apportionment of the surplus from the plan. The plan assets, liability andactuarial gains as per the valuations have not been recognised in either the balance sheet or the incomestatement respectively.IAS 21 and IAS 36 – Intangible assets and impairment thereofComputer software was previously not recognised separately but as part of computer equipment. The assetswere recorded at cost less accumulated depreciation. These assets were subsequently reallocated to intangibleassets.Sea concessions have not been depreciated since 2001 and as a result a book value of R3.5 million was carriedover to the 2005 financial year. An impairment test was conducted on adoption of IFRS and the resultingimpairment loss was adjusted to retained earnings.IAS 41 – Recognition and fair value of biological assetsOrchards were previously classified as installations and included as part of tangible assets. The assets were heldat historical cost. These assets are now held at fair value in accordance with IAS 41, with fair value adjustmentsreported through the income statement. The dairy herd was previously classified as inventory and held atfair value.The accounting change has resulted in the reclassification of both the orchards and the dairy herd to biologicalassets from both tangible assets and inventory respectively. The resultant fair value of the orchards increased netassets by R74 232 for the year ended 31 March 2005.ALEXKOR LIMITEDannual report 200647

T4IB00583_Alexkor_AR06 _page48_Eng_13/10/06_Proof 920. Adoption of IAS 16, IAS 21, IAS 36 and IAS 41NOTESto theAnnual FinancialStatements(continued)for the year ended31 March 2006The consolidated balance sheet as at 31 March 2005 has been adjusted to apply IAS 16 and IAS 41 prospectivelyfrom 1 April 2005 as set out below:31 March 2005 IFRS 1 April 2005GAAP value adjustments IFRS valueR R RASSETSNon-current assets 59 756 845 411 005 321 470 762 166Property, plant and equipment 56 256 846 412 198 295 468 455 141Intangible assets 3 499 999 (3 318 274) 181 725Biological assets – 2 125 300 2 125 300Current assets 104 861 540 (1 682 300) 103 179 240Inventories 40 326 556 (1 682 300) 38 644 256Trade and other receivables 12 985 090 – 12 985 090Cash and cash equivalents 51 549 894 – 51 549 894TOTAL ASSETS 164 618 385 409 323 021 573 941 406EQUITY AND LIABILITIESCapital and reserves 20 835 388 409 323 021 430 158 409Share capital 50 000 000 – 50 000 000Accumulated earnings/(loss) (29 164 612) 409 323 021 380 158 409Non-current liabilities 118 861 002 – 118 861 002Provisions 118 861 002 – 118 861 002Current liabilities 24 921 995 – 24 921 995Trade and other payables 19 680 309 – 19 680 309Provisions 5 241 686 – 5 241 686TOTAL EQUITY AND LIABILITIES 164 618 385 409 323 021 573 941 40648ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page49_Eng_13/10/06_Proof 920. Adoption of IAS 16, IAS 21, IAS 36 and IAS 41 (continued)The accounting policies are detailed in note 1.The key changes in accounting policy on adoption of IAS 16, IAS 21, IAS 36 and IAS 41 are:• fair value of property, plant and equipment;• recognition and fair value of biological assets; and• impairment and recognition of intangible assets.The following notes explain the material adjustments made at 1 April 2005 to the company’s balance sheet at31 March 2005 to reflect the adoption of IAS 16, IAS 21, IAS 36 and IAS 41:(1) The increase in property, plant and equipment is largely due to a R383.4 million adjustment as a result ofthe revaluation of land and buildings. A further increase of R26.1 million is as a result of restatement ofaccumulated depreciation triggered by a change in estimate based on a review of useful economic livesof tangible assets.A reallocation of diamond boats to non-current assets held for sale and the resulting fair value increasedthe tangible assets by R2.5 million.Exploration costs capitalised were impaired as at 31 March 2006 in line with IAS 36. The impact ontangible assets was a decrease of R14.6 million.(2) Sea concessions were impaired as at 31 March 2005 resulting in a decrease of R3.5 million in intangibleassets.(3) Biological assets were recognised resulting in an increase in fair value amounting to R74 232.21. Related partiesThe company is a state-owned entity and transactions with the following state entities occurred during the year:SAADepartment of Minerals and EnergyEskomThe nature of transactions with these entities has not changed significantly from previous years and alltransactions are on an arm’s length basis.Payments to directors for services rendered have been disclosed in note 11.22. Subsequent eventsA funding programme was developed in support of the 2006/07 Corporate Plan and submitted to theshareholder as part of the Medium-term Expenditure Framework process in the form of recapitalisation.However, due to the uncertainties relating to the Richtersveld Community land claims case, recapitalisation hasnot yet been effected.The Board is also actively engaging all relevant stakeholders to ensure that sufficient funding be made availablefor bridging purposes and has a positive outlook on either successfully obtaining sufficient shareholder capitalor another form of government-supported finance.As the criteria of paragraphs 7 and 8 of IFRS 5 – Non-current Assets Held for Sale and Discontinuing Operationshave not been met before balance sheet date no adjustments or other disclosures in relation to the abovematter have been made to the financial statements.ALEXKOR LIMITEDannual report 200649

T4IB00583_Alexkor_AR06 _page50_Eng_13/10/06_Proof 9NOTESto theAnnual FinancialStatements(continued)for the year ended31 March 200623. Segment reportThe information below is based on requirements of IAS 14(Segment reporting)Revenue12 months 9 monthsended 2006 ended 2005RRAlexander Bay Mining 139 033 000 138 352 000Land mining 27 530 000 20 760 000Marine mining 101 623 000 104 513 000Other 9 880 000 13 079 000Alexander Bay Trading 13 869 000 8 271 000Ostriches 3 046 000 2 041 000Dairy and meat 3 019 000 2 071 000Fruits 80 000 94 000Oysters 675 000 720 000Other agricultural activities 7 049 000 3 345 000Non-core activities 6 543 000 5 790 000Hospital 3 374 000 3 035 000Airport 110 000 91 000Town services 3 059 000 2 664 000Total revenue 159 445 000 152 413 000Profit/(loss) from operationsMining 27 786 000 48 212 000Land mining (6 764 000) (1 740 000)Marine mining 38 807 000 52 224 000Exploration (4 257 000) (2 272 000)Farming (4 073 000) (5 583 000)Ostrich (1 800 000) (1 798 000)Dairy (339 000) (743 000)Oysters (1 894 000) 103 000Fruits (509 000) (950 000)Other agricultural 469 000 (2 195 000)50ALEXKOR LIMITEDannual report 2006

T4IB00583_Alexkor_AR06 _page51_Eng_13/10/06_Proof 912 months 9 monthsended 2006 ended 2005RR23. Segment report (continued)Non-core activities (6 931 000) (6 372 000)Hospital (2 641 000) (3 325 000)Airport (177 000) 30 000Town services (4 113 000) (3 077 000)Other activities 4 731 000 13 280 000Profit from operations before overheads 21 513 000 49 537 000OverheadsAlexander Bay Mining (230 925 578) (58 665 860)Alexander Bay Trading (81 000) (1 000)Loss from operations (209 493 578) (9 129 860)Interest income 3 971 683 3 175 243Interest cost (12 977) (5 037)Loss for the year (205 534 872) (5 959 654)ALEXKOR LIMITEDannual report 200651

T4IB00583_Alexkor_AR06 _page52_Eng_13/10/06_Proof 9Annexure ADisclosure of remuneration in terms of section 55 of the PFMA and Treasury Regulation 28.1.1Fees for services Basic Total TotalName Capacity as members salary Bonus Allowances Contributions Other @ 2005/06 2004/05Board of DirectorsN D Moloi Non-executive Chairperson 372 645 – – – – 15 320 387 965 283 000M E Mdaka Chief Executive Officer – 739 391 44 344 45 000 – 1 875 830 610 –T Abrahamse Non-executive Director 51 000 – – – – – 51 000 12 000Z R Coetzee Non-executive Director 81 000 – – – – – 81 000 14 000V Mahlati Non-executive Director 69 000 – – – – – 69 000 12 000J van Deventer Non-executive Director 75 000 – – – – – 75 000 10 000M van Zyl Non-executive Director 63 000 – – – – – 63 000 10 000A Hearne # Non-executive Director – – – – – – – 31 000D R Zihlangu * Chief Executive Officer – – 24 757 – – 95 229 119 985 862 557# – Resigned on 31 October 2004* – Resigned on 31 March 2006@ – Includes leave capitalisation52ALEXKOR LIMITEDannual report 2006