Alexkor's financial position is not at its best, and the state-owned enterprise needs help to avoid affecting its going concern status, members of Parliament have heard.
The state-owned diamond miner's board briefed the portfolio committee on public enterprises on Wednesday, on its annual report for the year ended March 31, 2018.
Interim board chairperson Tshediso Matona started off the presentation by clarifying the board is serving in an interim capacity, as Public Enterprises Minister Pravin Gordhan called for more time to finalise the board.
On the miner's financial position, Matona said the profit recorded of R34m was mainly an "accounting profit" and not really a "cash profit", as the accounting entry reflects government grants which have been recognised and interest earned.
"It means the company is still in the black. The situation requires attention," he said.
Alexkor managed to get an unqualified audit opinion from the Auditor General of South Africa, something the board is pleased about, Matona said.
He added that all state-owned enterprises are focusing on financial sustainability as a top priority. Alexkor has never required a bailout from government, but Matona said there was work to be done to avoid to financial difficulties in future.
Chief Financial Officer Adila Chowan also highlighted the need for financial assistance. "Alexkor has a financial challenge," she said.
The diamond miner has cash reserves for operations up until March 31, 2019. The company only has a single investment in a Pooling and Sharing Joint Venture (PSJV), and there are no other projects or investments that could generate income.
The PSJV is not yielding the returns that were expected, and other projects, such as a coal project which was canned, and a diamond beneficiation project which has been put on hold, mean that there is no steady flow of income and revenue.
"It puts us in a precarious position," she said.
Despite Alexkor's efforts to comply with Treasury's regulations in terms of the Public Finance Management Act, the above - that there is no "sustainable income" for Alexkor - is the real issue.
The department of public enterprises has been made aware of the financial risk, she said.
If Alexkor does not receive support or assistance, its going concern status will be affected, she explained. This means that the Auditor-General will give the financial statements a qualified audit opinion, Chowan added.
Chowan further highlighted that the earnings before interest and taxation were not achieved due to reduced carat production. "We targeted 52 000 carats and we only produced 41 000."
Another issue with regard to earnings relates to Alexkor's role in developing communities in which it operates, Chowan explained.
This means the diamond miner's responsibilities are not "typical" to that of other diamond companies, Matona added. "It is very difficult to have that responsibility we are allocated to as a company… Neither of the diamond companies in the area have the responsibility of running a township," he said.
Matona said that this should not be a "permanent situation" and at some point the local governments should take responsibility. "But if the company does not do it, things will be bad in the area."
As an SOE Alexkor has recognised the responsibility in contributing to social development to make sure living conditions of the community are not negatively impacted. "But the situation can't continue like it is. Something has got to give," he said.
Irregular expenditure reported for the period came to R10.4m. But Chowan assured that this was not due to financial misconduct and did not result in financial loss. She explained that the irregular expenditure relates to the interpretation of Treasury's rules in terms of procurement.
Alexkor is also in consultation with Treasury to get the cumulative cost of irregular expenditure condoned.
Chowan also explained that Alexkor had a high staff turnover, there had been three CFO's over a short period which has resulted in challenges in the procurement.
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER