State Diamond Trader Annual Report Presentation Ms Linda Makatini Chairperson

STATE DIAMOND TRADER Introduction to the Trader Mission Vision Strategic Objectives Governance Framework Challenges Faced by SDT Client Performance Financial Performance

INTRODUCTION  The SDT was established in terms of section 14 of the Diamonds Amendment Act 29 of 2005 to: - promote equitable access to and local beneficiation of South Africa’s Diamonds. - promote the South African Diamond industry through the necessary research, support and development required by the industry  Section 59B of the Second Amendment Act read with Regulation 3A of its Regulations stipulate the process the SDT has to follow when buying diamonds from producers

Vision  The Vision of the SDT is to deepen and broaden local diamond beneficiation

MISSION  The Mission of the SDT is to ensure equitable, consistent and sustainable access to rough diamonds to local diamond beneficiators.

STRATEGIC OBJECTIVES  To retain and strengthen the relationship between the State Diamond Trader and the Industrial Development Corporation  To focus on the purchasing and selling of rough diamonds to local beneficiators  To address issues of access to rough diamonds by previously disadvantaged individuals.  To ensure full compliance with Corporate Governance, the Public Finance Management Act and Treasury Regulations.  To ensure transfers of skills to newly appointed State Diamond Trader Staff by technical staff from De Beers

REVIEWED STRATEGIC OBJECTIVES 2009  Source State Funding for the operations of SDT  Seek regulatory amendments on the mandate to ensure that SDT trades profitably  Improve profitability of SDT operations to ensure its sustainability  Contribute to sustainable development of local diamond beneficiation sector  Develop and maintain relations with other African diamond producing countries for exchange ideas-and as a long term strategy, to trade with them  Accelerate improvement and maintenance of admin systems, procedures and controls in line with Treasury Regulations and applicable legislation and policies

Governance Framework The governance framework complies with the provisions of the Public Finance Management Act (PFMA) and aligned with King II in:  providing clear strategic direction to the organisation;  ensuring that the appropriate management structures are in place;  promoting a culture of ethical behaviour;  overseeing risk management  entrenching sound corporate governance through an integrated governance structure; and  compliance with all relevant laws, regulations and codes of practice.

Challenges Faced by SDT during 2008/09 The SDT has had to navigate through a number of challenges and these can be broadly categorised as:  Legislative  Funding  Global Financial downturn

1. Legislative  Section 59B provides for a selection of a representative sample – the Run of Mine (ROM) basis of purchasing  SDT being a passive player in the purchasing process while the SADPMR takes over with verification by GDV  Provision for presentation of production and stating of fair market value (FMV) by producers and producers largely failing to comply and no sanctions being applicable for such non- compliance  Provision for SDT to promote local diamond beneficiation while beneficiation strategy/policy being finalised

2. Funding  SDT reliance on IDC loan funding which has proved expensive and resulting in complaints of high prices by clients, repayment on the loan began in October 08  Lack of State Funding to provide much required start-up capital has meant an inability to implement some policies  Funding for small clients not sustainable for their businesses and thereby impacting on their ability to purchase from SDT  Impact on ability to promote local beneficiation

3. Global Financial Downturn  July 2008 to mid 2009 (and to date), global diamond trade drastically reduced as a result  Diamonds, regarded as luxury goods, significantly impacted upon by the downturn  Reduced production by diamond producers coupled with closure of some diamond mines  Polished markets, internationally, not performing well and impacting on rough diamond trade, the SDT’s core business  Signs of some recovery experienced in pockets only toward mid 2009, but not sufficiently to bring about 2007 market activity

Client Performance  The SDT has 105 registered customers, of which 68 made purchases during the year  According to the segmentation of the clients based on size of operation, 4 were large, 12 were medium and 52 were small  While not aiming for profit maximisation, SDT set objective of operating at set margins to ensure sustainability  Small client purchasing went down significantly during the year (2008/9) due to impact of financial downturn  Medium and large clients continued trade with SDT with few exceptions where factories closed

Financial Performance  Revenue for the year of R (2008: R ) reflects an increase of 144% mainly due the entity being in operation for the full year  Gross Margin decline in percentage to 1.5% (2007/8: up to 11%) due to normalisation of operations and start of economic downturn in the diamond industry  Capital expenditure for the year amounted to R (2007/8: R )  Administrative expenses have increased by more than 100% to R (2007/8: R ) due to current period being full 12 months compared to previous year of 7 months  An impairment of inventory of R was recognised and this contributed to SDT’s net loss position of R

Financial Performance  An unfavourable bank balance of R as at 31 March 2009  Income tax for year 2007/8 was outstanding at year end  Board fees for 2008/9 remained unpaid at year end, a matter of concern  Secondment of personnel from DMR and De Beers  SDT concerns with possible technical insolvency by year end  AG concerns regarding SDT’s ability to continue as a going concern

Trading Performance for the period April - September 09  During the 2009 financial period the Board took a decision to trade consciously, but continuing promoting local beneficiation strategy.  The Board introduced trading on a pre-financed basis for a 6 month period.  It is of a concern to the SDT that small clients are not able to buy, due to lack of required funds.  The following records indicates the trading performance for the period to end 2 nd quarter: Revenue: R COGS:R Gross Profit: R

Future outlook for SDT  Unqualified AG audits for two financial years a positive aspect  Improved trading and indications of growth post year end  Review of strategy and implementation of cost-cutting measures  Sourcing of appropriate funding, conclusion of required amendments and approval of beneficiation strategy/policy to improve operational capability of the SDT

Conclusion Thank you