The State Diamond Trader

Annual Report 2012-13

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State Diamond Trader - Vision

A leading catalyst for the transformation of a sustainable diamond beneficiation

industry

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State Diamond Trader - Mission

• Ensure acquisition of and equitable access to rough diamonds with particular focus on HDSAs.

• Support the growth of the industry through relevant interventions

• Establish and maintain a client base of local diamond beneficiators

4

State Diamond Trader – Strategic Goals

• To ensure continued sustainability of the State Diamond Trader

• To be an efficient and professionally managed organization

• To promote and uphold efficient governance • To strive for a constant and suitable supply and access to

rough diamonds

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SDT Performance 2010-13

2012-13 2011-12 2010-11Value inspected US$* 1,177,840,751 1,301,572,083 1,236,182,068 Carats inspected 7,117,642 6,889,931 9,519,617 US$ per carat 165.48 188.91 129.86 No. of producers 9 7 9No. of Inspections 126 125 125

SDT Purchases ZAR 407,998,978 410,405,051 780,560,949 % purchased** 4% 4% 9%No. of purchases 48 72 67

SDT Sales ZAR 411,462,599 433,053,736 810,405,548 COGS ZAR 399,803,045 410,440,046 774,268,144 GM ZAR 11,659,554 22,613,690 36,137,404 GM% 2.83% 5.22% 4.46%Carats 290,449 293,087 859,383 No. of clients sold to 42 58 60

SDT Stock ZAR (31/03) 15,163,853 6,726,132 6,525,971 Ave age of stock (days) 21 16 1

* At producer values** % purchased of goods inspected (by value)

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Rough Diamonds Inspected 2012-13

$16,345,126

$690,738,261

$461,766$209,751

$21,938,720

$9,589,825

$346,020,660

$15,756,249$76,780,394

State Diamond Trader Inspections by Producer 2012-13 (US$)

Alexkor

De Beers

DMI Minerals

Lace Diamonds

Manhattan

Namakwa

Petra Diamonds

Rockwell

Trans Hex

TotalsCarats = 7,117,642Value = US$ 1.2 BN

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State Diamond Trader Inspections

The State Diamond Trader noted a 3% increase in the quantity (carats) presented

However, this was accompanied by a 10% reduction in value

This reflects the current market volatility and falling prices of rough diamonds due to global economic instability and uncertain consumer demand

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Rough Diamonds Purchased 2012-13

Carats ValueAlexkor 3,352 11,061,744 8 10% 8%De Beers 281,880 369,412,097 6 6% 6%Manhattan 173 2,403,937 5 6% 1%Namakwa 1,070 4,065,305 8 8% 5%Petra Diamonds 12,957 15,329,359 12 1% 1%Rockwell 1,126 5,726,536 9 6% 4%

300,559 407,998,978 48 4% 4%

% PurchasedNo. of Purchases

Carats Cost ZARProducer

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Rough Diamond Purchases

Purchase levels, in terms of carats and value were similar to the previous year

This resulted in the State Diamond Trader purchasing only 4% of the value of rough diamonds inspected

– This was due to:

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Rough Diamond Purchases

The global economic climate and demand for diamonds generally The constraints placed on the State Diamond Trader in terms of

purchasing Run of Mine selections The quantity of goods not preferred for beneficiation within South African

Run of Mine productions The sales and pricing methodologies of the producers, placing selections

outside of the State Diamond Trader’s capability to operate commercially The availability of finance to purchase the larger selections

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Sales 2010 - 2013

(60)

(58) (42)

-

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00

800,000.00

900,000.00

1,000,000.00

-

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

900,000,000

2010-11 2011-12 2012-13

Cara

ts

ZAR

State Diamond Trader Sales 2010-2013

Sales (ZAR)

Carats

Figures in brackets refer to number of clients sold to

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Rough Diamond Sales

Although the fourth quarter of 2012-13 saw a significant increase in trading, the fundamental macro-economic and diamond specific issues affecting the industry remain; • Economic crisis in Europe• Uncertain situation in the US• Slowing Asian markets• Indian diamond market liquidity fears and exchange rate issues• Polished prices falling• Volatile rough demand

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Sales by Client Segment 2012-13

L/M = Large and medium sized beneficiators. SDT clients with established factories employing more than 10 people

Mandate = clients from HDSA backgrounds and companies with greater 50% HDSA ownership. Employing less than 5 people, these clients are supplied in terms of giving equitable access to rough diamonds

Niche = other beneficiators, clients from non HDSA backgrounds, employing less than 10 people

379,385,516

6,777,90323,971,268 1,327,912

SDT Sales by Client Segment 2012-13 (ZAR)

L/M

Mandate

Niche

Other

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Rough Diamond Sales

The total number of clients sold fell from 58 in the previous year to 42

The total value of sales to the Mandate client segment fell from R10.6 million to R6.8 million

Sales to companies with greater than 50% HDSA ownership only made up 2% of the annual sales value

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Strategic Goals – performance summary

To ensure continued sustainability of the State Diamond Trader

•The State Diamond Trader continues to prove itself as a viable commercial operation during the most volatile period the industry has seen in living memory.•With no recourse to public funding, the State Diamond Trader has had to find innovative methods to ensure its sustainability•The revenues achieved to date indicate achievement of the target

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Strategic Goals – performance summary

To be an efficient and professionally managed organization

•The State Diamond Trader has spent its formative years creating capacity, developing skills and instigating procedures that enable it to establish itself in the diamond industry;•To this end, 13 young people have been, and are being, trained by the State Diamond Trader to date;•In addition, 3 of them have to date been employed permanently by the State diamond Trader

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Strategic Goals – performance summary

To promote and uphold efficient governance

• All trading practices are controlled by relevant internal policies and procedures that have been both internally and externally audited

• The State Diamond Trader has received Unqualified Audits in five consecutive years since its inception

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Strategic Goals – performance summary

To strive for a constant and suitable supply and access to rough diamonds The State Diamond Trader has ensured that it has fulfilled its mandate by inspecting over 90% of the diamonds produced in the countryIts ability to purchase the 10% envisaged has been affected by global economic uncertainty and the question of the suitability of rough diamonds produced in South Africa for beneficiation

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2013 2012Revenue 411,462,599 433,053,736 COGS 399,803,045 410,440,046 Gross Profit 11,659,554 22,613,690

Other Income 8,180,890 6,330,929 Admin expenses 15,863,442 14,163,013

Profit/ (loss) from operating activities 3,977,002 14,781,606

Finance Income 1,643,698 1,665,628 Finance Expenses 435,025 280,961 Profit before income tax 5,185,675 16,166,273

Income tax expense - 3,252,354

Profit/ (loss) for the period 5,185,675 12,913,919

Total comprehensive income 5,185,675 12,913,919

Statement of comprehensive income

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The Auditor General

The Auditor General confirmed that, in accordance with the PAA and the General Notice 1111 of 2010 issued in Government Gazette 33872 of 15 December 2010, there were no findings against the State Diamond Trader. This relates to:

• Financial performance, position and cash flow management• Performance against predetermined objectives• Strategic planning and performance management • Compliance with laws and regulations• Internal controls

The Auditor General

The Auditor-General has, in January 2014, informed the State Diamond Trader that:

•Due to consistently getting clean audit reports;•Getting a clean audit report in the prior year;•An acknowledgement and reward for its efforts will be made during the year; •The State Diamond Trader will be awarded a trophy.

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The State Diamond Trader