State Diamond Trader Annual Performance Plan & Budget 2015/16

Annual Performance Plan Highlights: Diamond market conditions have been adverse from mid 2014 to date and forecasted as such for 2015 – a negative outlook for SDT and SA diamond industry Plans to promote diamonds and industry in provinces Hosting of Diamond Indaba for engagements with local players with some international notes Employment and training of youth in diamond matters 2

Diamond Market Report 3 Continued slide in polished diamond prices due to; Slowing consumer demand for diamond jewellery A build-up of polished diamond stocks at retail and wholesale level Source: -16%

Market Report 4 Producers continue to demand high prices for rough diamonds Participants at the recently held Hong Kong Show (March 2015) noted that due to discounting, the price of polished diamonds was significantly below that of the rough required to manufacture those stones

Market Report 5 The discrepancy between rough and polished prices continues to erode the margins available to beneficiators – which were already minimal (source – Diamond Industry Report 2011, Bain and Co)

Market Report 2014 year-end sales of diamond jewellery in the United States saw some modest growth This was counter balanced by poor sales in other regions, particularly China Participants at the Hong Kong Show (March 2015) noted that due to discounting, the price of polished diamonds was significantly below that of the rough required to manufacture those stones 6

Market Report Some commentators feel that the industry is returning to the situation that occurred during the end 2008, beginning 2009 However, this was driven by a significant fall in consumer demand brought about by the onset of the global economic recession Although consumer demand is currently lower than expected, it is not at the levels experienced at that time 7

Forecast The current market weakness is due mainly to internal forces within the diamond industry and could result in restructuring - including consolidation and downsizing Due to stocks in the diamond pipeline, particularly polished, some mining companies may consider curtailing production 8

Forecast – Impact on beneficiation It is likely that beneficiation strategies in producing countries will come under severe pressure as cutting and polishing companies will want to focus on low cost manufacturing operations The industry in Botswana has already reported retrenchments of approximately 500 people since the start of the year 9

Impact on South Africa South Africa is not immune from the effects of the current depressed market Large manufacturers (cutters and polishers) are carefully monitoring the costs of their operations and some retrenchments have occurred However, the presence of large numbers of buyers at local tenders indicates that interest in South Africa as supplier of rough diamonds is still strong 10

State Diamond Trader The SDT is continuously challenged in the buying and selling of rough diamonds due to the run of mine supply model and fair market value it has to pay to the producers The major concern is that due to the market conditions, the SDT may not be able to purchase from the country’s largest producer – that will have a significant bearing on its financial performance and its sustainability as a commercial entity 11

State Diamond Trader - Interventions Not withstanding the state of the global diamond markets, the SDT is embarking on a number of initiatives to support the local beneficiation industry and its transformation This includes the facilitation of skills development and increasing access to local and international markets Training for HDSA and new entrants Employment of youth with disabilities into SDT diamond trainee programme 12

APP 2015/16 - Strategic outcomes linked to DMR and National outcomes National OutcomeDMR ProgrammeSDT Strategic Objectives 1. Decent employment through inclusive economic growth 1. Equitable and sustainable benefit from mineral resources 1. A sustainable, growing and transformed diamond beneficiation industry 2. Vibrant, equitable, sustainable rural communities contributing towards food security for all 2. Transformed minerals sector 3. Efficient, effective and development- orientated department 1. A sustainable, growing and transformed diamond beneficiation industry 3. Large Scale SA (HDSA) owned sustainable diamond cutting and polishing companies established 3. A skilled and capable workforce to support an inclusive growth 4. An efficient, effective and development-orientated public service 3. Efficient, effective and development orientated department 4. Be an efficient, innovative and development orientated organisation (Continuous Learning Environment) 13

Strategic Objective 1 Contribute to the growth of the local diamond beneficiation industry 14

Key Activities of Strategic Objective 1 Implementation of the SDT Marketing Strategy aimed at the growth of the industry Host a Diamond Indaba that will discuss issues affecting the industry and key growth determinants Establish partnerships for the expansion of Jewellex SA Facilitate client participation at international and local Exhibitions and Shows 15

State Diamond Trader - Interventions Jewellex SA - SDT HDSA clients participation at the event - enabling them to showcase their businesses and potentially develop new markets Hong Kong Show March 2015 – in partnership with the DTI for SA Pavilion was secured for a second year, 22 in total participated. Hong Kong Show, for the third year – in September 2015, for SDT clients and other industry players to participate again Provincial Promotional visits to promote the industry in all provinces of South Africa 16

Strategic Objective 2 Increase sales of rough diamonds to HDSA beneficiators 17

Key Activities of Strategic Objective 2 Implementation of the Sales Strategy of the SDT (HDSA and growth and transformation focused clients segmentation) Establishment of incubation programmes to create platforms for SMMEs to beneficiate diamonds Facilitation of industry specific business training for HDSA clients by relevant partners Identification of amendments to the Diamond Amendment Act 29 of

Strategic Objective 3 Contribute towards youth skills development 19

Key Activities of Strategic Objective 3 Recruitment of youth with disabilities into 2-3 year diamond valuator trainee programme of SDT Acquisition of accreditation for Learnership Programme that will assist in educating and training the youth about the Diamond Industry and potential participation in SME programmes for new entrants 20

2015/16 Budget summary Key Areas The projected sales for the year are recorded at R574 million against the projected cost of sales of R552 million Consequently the gross margin at 3.8% of cost of sales is projected at R22 million for the year At budgeting stage, it was envisaged that there would be no stock at year end but due to the persistent adverse market conditions, the stock was R20.8 million 21

2015/16 Budget Summary Key Areas The Earnings Before Interest and Tax (EBIT) are projected at R1.6 million, this is after covering the overheads of approximately R20.5 million The entity is projected to generate a profit of R2.9 million after factoring the interest earned from investments and expenses incurred from use of the revolving credit loan facility As a consequence of adverse market conditions, the SDT is looking at a budget revision, prior agreement thereto with the Minister will be sought 22

SDT 2015/16 Budget Sales Cost of Goods Sold ( ) Gross Profit

SDT 2015/16 Budget Overheads ( ) Of which: Salaries Leases Computer and other IT Travel Fees Other

SDT 2015/16 Budget EBIT Interest Income Interest Expense ( ) Profit before Taxation Taxation - Net Profit

The State Diamond Trader